GAIA US Equity☆

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This report contains forward-looking statements within the meaning of the federal securities laws. All statements other than statements of historical fact are forward looking statements that involve risks and uncertainties. When used in this discussion, we intend the words “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “future,” “hope,” “intend” “may,” “might,” “objective,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “strive,” “target,” “will,” “would” 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” and elsewhere in this Form 10-K. Risks and uncertainties that could cause actual results to differ include, without limitation: our ability to attract new members and retain existing members; our ability to compete effectively, including for customer engagement with different modes of entertainment; maintenance and expansion of devise platforms for streaming; fluctuation in customer usage of our service; fluctuations in quarterly operating results; service disruptions; production risks, general economic conditions; future losses; loss of key personnel; price changes; 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; consumer trends; the effect of government regulation and programs; the impact of public health threats; including the coronavirus (COVID-19) pandemic and our response to it; 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 a library of over 10,000 titles, with a growing selection of titles available in Spanish, German and French that caters to a unique, underserved member base. Our digital content is available to our members on most internet-connected devices anytime, anywhere, commercial-free. Through our online Gaia subscription service our members have unlimited access to a library of inspiring films, cutting edge documentaries, interviews, yoga classes, transformation related content, and more – 80% of which is exclusively available to our members for digital streaming on most internet-connected devices.

Gaia’s position in the streaming video landscape is firmly supported by its wide variety of exclusive and unique content, which provides a complementary offering to other entertainment-based streaming video services. Our original content is developed and produced in-house in our production studios near Boulder, Colorado. By offering exclusive and unique content through our streaming service, we believe we will be able to significantly expand our target member base.

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

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

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The full impact that the COVID-19 pandemic will have on our business, operations and financial results will depend on a number of evolving factors that we may not be able to accurately predict. See Item 1A “Risk Factors” in this Form 10-K for additional details.

Commencing during the second half of March 2020 and continuing through July 2020, we saw an increase in demand for our content from both current and potential members. This created a positive trend in existing member retention, costs to acquire new members, and the corresponding revenue and cash flow impacts from these higher volumes. This trend dissipated beginning in August 2020, when we saw the online paid media advertising market start to return to historical norms with a corresponding effect on the cost of our online advertising efforts. With the rollout of privacy changes affecting a large number of mobile consumers during the summer of 2021 we saw an increase in the costs of our online advertising efforts which reduced the number of new members we add each period with our allocated marketing spend. In addition, in the period of March through October 2022, we lost about 40% of the members we added during the COVID-19 lockdowns in 2020 and 2021.

During the last 90 days, we have eliminated approximately $5 million in annualized spending, which includes approximately 36 full time equivalent headcount that were added over the past two years to offset reduced efficiency we experienced as a result of work from home mandates.

We are a Colorado corporation. Our principal and executive office is located at 833 West South Boulder Road, Louisville, CO 80027-2452. Our telephone number at that address is (303) 222-3600.

Results of Operations

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

Years ended December 31,

(in thousands, except per share data) 2022 2021

Gross profit margin 86.7 % 86.8 %

Corporate, general and administration 7,181 6,125

Income (loss) from operations (265 ) 1,985

Interest and other expense, net (268 ) (265 )

Anticipated SEC settlement (2,000 ) —

Income (loss) before income taxes (2,533 ) 1,720

Provision for (benefit from) income taxes 202 (2,011 )

Income (loss) from continuing operations (2,735 ) 3,731

Loss from discontinued operations (360 ) —

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

Years ended December 31,

Expenses:

Selling and operating 78.2 % 76.1 %

Corporate, general and administration 8.8 % 7.7 %

Acquisition costs 0.1 % 0.5 %

Total operating expenses 87.0 % 84.3 %

Income (loss) from operations (0.3 )% 2.5 %

Interest and other expense, net (0.3 )% (0.3 )%

Anticipated SEC settlement (2.4 )% 0.0 %

Income (loss) before income taxes (3.1 )% 2.2 %

Provision for (benefit from) income taxes 0.2 % (2.5 )%

Income (loss) from continuing operations (3.3 )% 4.7 %

Loss from discontinued operations (0.4 )% 0.0 %

Net income (loss) (3.8 )% 4.7 %

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Revenues, net. Revenues increased $2.4 million, or 3.0%, to $82.0 million during 2022, compared to $79.6 million during 2021. The increase was primarily driven by an increase in our average number of members in 2022 compared to 2021.

Cost of revenues. Cost of revenues increased $0.4 million, or 3.8%, to $10.9 million during 2022 from $10.5 million during 2021, with gross margin of 86.7% in the current year compared to 86.8% in 2021. The slight gross margin decline was primarily due to increased content amortization as we continue to invest in our content library.

Selling and operating expenses. Selling and operating expenses increased $3.6 million, or 5.9%, to $64.2 million during 2022 from $60.6 million during 2021 and, as a percentage of revenues, increased to 78.2% during 2022 from 76.1% during 2021. The increase was primarily driven by increased technology operating costs as we focus on expanding our international member base and completing a business continuity initiative during 2022, as well as incremental expenses incurred related to the Yoga International acquisition.

Corporate, general and administration expenses. Corporate, general and administration expenses increased $1.1 million, or 18.0%, to $7.2 million during 2022 from $6.1 million during 2021 and, as a percentage of net revenue, increased to 8.8% during 2022 from 7.7% during 2021. The increase was primarily driven by legal fees and the additional expenses incurred as a result of the Yoga International acquisition.

Interest and other income (expense), net. Interest and other income (expense), net remained relatively flat during 2022 compared to 2021 at $0.3 million for both years. The bulk of interest paid is attributed to the loan on our building and the newly acquired line of credit discussed in Note 9 to the consolidated financial statements in Item 8 of this Form 10-K.

Provision for (benefit from) income taxes. Provision for (benefit from) income taxes reflects a current year provision of $0.2 million compared to the prior year benefit from income taxes due to the partial valuation allowance release related to the recognition of deferred tax liabilities associated with the acquisition of Yoga International.

Quarterly and Seasonal Fluctuations

The following tables set forth our unaudited results of operations for each of the quarters in 2022 and 2021. 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

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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.

Year 2022 Quarters Ended

(in thousands, except per share data) March 31 June 30 September 30 December 31

Loss from discontinued operations (161 ) (132 ) (7 ) (60 )

Earnings (loss) per share

Basic

Discontinued operations $ (0.01 ) $ (0.01 ) $ — $ —

Basic earnings (loss) per share $ — $ — $ (0.11 ) $ (0.04 )

Diluted

Discontinued operations $ (0.01 ) $ (0.01 ) $ — $ —

Diluted earnings (loss) per share $ — $ — $ (0.11 ) $ (0.04 )

Weighted average shares outstanding

Year 2021 Quarters Ended

(in thousands, except per share data) March 31 June 30 September 30 December 31

Diluted earnings (loss) per share $ 0.02 $ 0.03 $ 0.03 $ 0.10

Weighted average shares outstanding

Our member base growth reflects seasonal variations driven primarily by periods when consumers typically spend more time indoors and, as a result, tend to increase their viewing, similar to those of traditional TV and cable networks. The effects of the global pandemic have shifted our historical pattern over the past three years, but we have historically experienced the greatest member growth in the fourth and first quarters (October through February), and slowest during May through August. This has historically driven quarterly variations in our spending on member acquisition efforts and the number of net new subscribers we add each quarter but does not result in a corresponding seasonality in net revenue. As the world emerges from the effects of the pandemic, we expect these seasonal trends to return. As we continue to expand internationally, we also 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.

Critical Accounting Estimates

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

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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 capitalized costs to produce our proprietary media content, rights obtained through license arrangements and digital media content acquired through asset purchases or business combinations.

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.

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 revenues. We pay these accrued royalties on a quarterly basis and therefore have included the related liability in accrued liabilities.

The value of our acquired media library consists of the acquisition date 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.

We amortize our media library in cost of revenues 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.

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. Due to our exclusive content and growing member base, our viewership trends have continued to support both the amortization period and the straight-line basis of amortization with no additional amortization recorded.

Our media library is reviewed for impairment at the film group level when an event or change in circumstances indicates that the carrying amount of the film group may not be recoverable. Recoverability of the film group is measured by a comparison of the carrying amount of the film group to estimated undiscounted future cash flows expected to be generated by the film group. If the carrying amount exceeds the estimated future cash flows, an impairment charge is recognized by the amount by which the carrying value exceeds the fair value. No impairment charges were recorded during 2022 or 2021.

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 or more frequently if indicators of impairment are identified. 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

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amount. 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 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 2022 and 2021, no impairment of goodwill was indicated.

Income Taxes and Deferred Tax Balances

Deferred income tax assets and liabilities are recorded with respect to temporary differences in the accounting treatment of items for financial reporting purposes and for income tax purposes. The tax expense or benefit related to ordinary income or loss must be computed at an annual effective tax rate and the tax expense or benefit related to all other items must be individually computed and recognized as a discrete item when it occurs. Where, based on the weight of available evidence, it is more likely than not that some amount of recorded deferred tax assets will not be realized, a valuation allowance is established for the amount that, in management’s judgment, is sufficient to reduce the deferred tax asset to an amount that is more likely than not to be realized. As we have historically had cumulative losses, we have not released the current valuation allowance. The timing of the release of the valuation allowance will be dependent on cumulative income for a period of 36 months and an expectation that we will not have cumulative losses in the future.

A tax position must meet a minimum probability threshold before a financial statement benefit is recognized. The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.

Share-Based Compensation

We recognize compensation cost for share-based awards based on the estimated fair value of the award on the 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. Since 2019, we have only granted restricted stock units, for which we utilize the intrinsic valuation model to estimate fair value.

Liquidity and Capital Resources

Our capital needs arise from working capital required to fund operations, capital expenditures related to acquisition and development of media content, development and marketing of our digital platforms, acquisitions of new businesses and other investments, replacements, expansions and improvements to our infrastructure, and future growth. These capital requirements depend on numerous factors, including the rate of market acceptance of our offerings, our ability to expand our customer base, the cost of ongoing upgrades to our offerings, our expenditures for marketing, and other factors. Additionally, we will continue to pursue opportunities to expand our media libraries, evaluate possible investments in businesses and technologies, and increase our marketing programs as needed.

On December 28, 2020, Boulder Road and Westside Boulder, LLC entered into a loan agreement with First Interstate Bank, as lender, providing for a mortgage loan in the principal amount of $13.0 million. The loan bears interest at a fixed rate of 3.75% per annum and matures on December 28, 2025. Westside and Boulder Road each received 50% of the proceeds and are each responsible for 50% of the monthly installments. The loan is secured by a deed of trust, assignment of rents, security agreement and fixture filing on our corporate campus and is guaranteed by Gaia.

On August 25, 2022, Gaia entered into a Credit and Security Agreement with KeyBank National Association. The Credit Agreement provides for a revolving credit facility in an aggregate amount of up to $10.0 million with a sublimit of $1.0 million available for issuances of letters of credit. Borrowings under the Credit Agreement are

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available for working capital and general corporate purposes, but not to fund any permitted acquisitions or other investments.

We began to generate positive cash flows from operations in October 2019 and have continued to generate cash flows from operations each subsequent quarter. We expect to continue generating positive cash flows from operations during 2023. We generated approximately $11.5 million in cash flows from operations during 2022, which helped fund the ongoing investment in our content library and the technology platform we use to deliver the content to our members.

We intend to invest approximately 15%-20% of our consolidated revenues each year to support continued investment in our content library and technology platform. This spending is entirely discretionary in nature with no contractual commitments and due to our in-house production capabilities, we can scale our content investment based on the cash flows generated from operations if necessary to ensure we have sufficient liquidity to operate our business into the future. As of December 31, 2022, our cash balance was $11.6 million.

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

While there can be no assurances, we believe our cash on hand, cash expected to be generated from operations, and potential capital raising capabilities should be sufficient to fund our operations on both a short-term and long-term basis. However, our projected cash needs may change as a result of acquisitions, product development, unforeseen operational difficulties or other factors.

Cash Flows

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

Years ended December 31,

Net cash provided by (used in):

Operating activities - continuing operations $ 11,880 $ 20,867

Operating activities - discontinued operations $ (360 ) $ —

Net increase (decrease) in cash $ 1,293 $ (2,336 )

2022 Compared to 2021

Operating activities. Cash flows from operations decreased $9.3 million during 2022 compared to 2021. The decrease was primarily driven by the net loss in 2022 and a $7.5 million decrease due to working capital changes.

Investing activities. Cash flow used in investing activities decreased $4.8 million during 2022 compared to 2021 primarily due to 2021 including cash utilization of $6.5 million to fund the cash consideration portion of the acquisition of Yoga International, offset by a planned increase during 2022 in investment in our content library and technology platform.

Financing activities. Cash flows from financing activities improved $8.2 million during 2022 compared to 2021. In September 2022, we obtained a line of credit with KeyBank, as described in Note 9 to the consolidated financial statements in Item 8 of this Form 10-K, and had borrowed $9.0 million at December 31, 2022.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we are not required to provide the information required by this Item.

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Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm (PCAOB ID: 32) 27

Gaia, Inc. Consolidated Financial Statements:

Consolidated Balance Sheets 29

Consolidated Statements of Operations 30

Consolidated Statements of Changes in Shareholders’ Equity 31

Consolidated Statements of Cash Flows 32

Notes to Consolidated Financial Statements 33

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Gaia, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Gaia, Inc. (“the Company”) as of December 31, 2022 and 2021, and the related statements of operations, changes in shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits 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. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.

Valuation of media library

As discussed in Note 2 to the financial statements, media library represents the lower of unamortized cost or net realizable value of capitalized costs to produce the Company’s proprietary media content, rights obtained through license arrangements and digital media content acquired through asset purchases or business combinations. The Company amortizes its media library in cost of revenues 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 the Company’s service.

The Company’s media library is reviewed for impairment when an event or change in circumstances indicates that the carrying amount of the film group may not be recoverable. Recoverability of the film group is measured by a comparison of the carrying amount of the film group to estimated undiscounted future cash flows expected to be generated by the film group. If the carrying amount of the film group exceeds the estimated future cash flows, an impairment charge is recognized by the amount by which the carrying value exceeds the fair value.

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We identified the assessment of the valuation of media library as a critical audit matter. There was a high degree of subjective auditor judgment in evaluating the recoverability of the capitalized media library amounts.

The primary procedures we performed to audit the critical audit matter included the following:

•

Tested amounts capitalized to media library by obtaining third-party invoices for external costs and performed substantive analytical procedures on capitalized employee expenses. Additionally, we tested that amounts capitalized were in compliance with film production generally accepted accounting principles and tested the existence of media library content by verifying titles are available for viewing.

•

Assessed amortization period by evaluating useful lives of produced media, including evaluating the proper accounting treatment of the media library amortization under ASU 2019-02, which allows for amortization based on usage at the aggregate film group level. We recalculated amortization of the media library film group.

•

Obtained an understanding of management’s impairment analysis process and compared the subscription revenues generated by the media library to the net media library value to determine if there were indicators the carrying amount of the media library may not be recoverable.

/s/ Armanino LLP

Dallas, Texas

March 6, 2023

We have served as the Company’s auditor since 2021.

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GAIA, INC.

Consolidated Balance Sheets

As of December 31,

(in thousands, except share and per share data) 2022 2021

ASSETS

Current assets:

Prepaid expenses and other current assets 2,656 1,986

Media library, software and equipment, net 51,115 50,558

Right-of-use lease asset, net 7,093 7,871

Real estate, investment and other assets, net 30,979 31,394

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable, accrued and other liabilities $ 12,355 $ 14,102

Short-term debt and lease liability 894 860

Equity:

Gaia, Inc. shareholders’ equity:

Total liabilities and shareholders' equity $ 138,303 $ 133,676

See accompanying Notes to Consolidated Financial Statements.

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GAIA, INC.

Consolidated Statements of Operations

Years Ended December 31,

(in thousands, except per share data) 2022 2021

Expenses:

Corporate, general and administration 7,181 6,125

Income (loss) from operations (265 ) 1,985

Interest and other expense, net (268 ) (265 )

Anticipated SEC settlement (2,000 ) —

Income (loss) before income taxes (2,533 ) 1,720

Provision for (benefit from) income taxes 202 (2,011 )

Income (loss) from continuing operations (2,735 ) 3,731

Loss from discontinued operations (360 ) —

Earnings per share:

Basic

Continuing operations $ (0.13 ) $ 0.19

Discontinued operations $ (0.02 ) $ —

Basic Earnings (loss) per share $ (0.15 ) $ 0.19

Diluted

Continuing operations $ (0.13 ) $ 0.19

Discontinued operations $ (0.02 ) $ —

Diluted Earnings (loss) per share $ (0.15 ) $ 0.19

Weighted-average shares outstanding:

See accompanying Notes to Consolidated Financial Statements.

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GAIA, INC.

Consolidated Statements of Changes in Shareholders’ Equity

Share-based compensation 533 — — 533 —

Net income 86 86 — — —

Share-based compensation 337 — — 337 —

Share-based compensation 554 — — 554 —

See accompanying Notes to Consolidated Financial Statements.

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GAIA, INC.

Consolidated Statements of Cash Flows

Years ended December 31,

Operating activities:

Loss from discontinued operations 360 —

Income (loss) from continuing operations (2,735 ) 3,731

Share-based compensation expense 1,821 1,710

Provision for (benefit from) income taxes 202 (2,011 )

Changes in operating assets and liabilities:

Accounts receivable (227 ) (682 )

Prepaid expenses and other assets (670 ) 8

Accounts payable and accrued liabilities (1,726 ) 4,192

Net cash provided by operating activities- continuing operations 11,880 20,867

Net cash used in operating activities- discontinued operations (360 ) —

Net cash provided by operating activities 11,520 20,867

Investing activities:

Net cash used in investing activities (19,104 ) (23,858 )

Financing activities:

Proceeds from borrowings under revolving line of credit 9,000 —

Proceeds from the issuance of common stock 43 815

Repayments of debt (166 ) (160 )

Net cash provided by financing activities 8,877 655

Net increase (decrease) in cash 1,293 (2,336 )

Supplemental cash flow information

Income taxes paid $ 12 $ 129

Value of shares issued for acquisition and business combination $ — $ 9,724

See accompanying Notes to Consolidated Financial Statements.

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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 member base. Our digital content is available to our members on most internet-connected devices anytime, anywhere commercial free. Through our online Gaia subscription service, our members have unlimited access to a vast library of inspiring films, cutting edge documentaries, interviews, yoga classes, transformation related content, and more – exclusively available to our members for digital streaming. A subscription also allows our members 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.

In December 2021, we completed our acquisition of Yoga International, Inc. (“Yoga International”) as discussed further in Note 4. The acquisition of Yoga International has expanded our offerings to include a stand-alone subscription yoga service and expanded our content offering with over 4,000 hours of unique content tailored to yoga consumers interested in the philosophy and lifestyle of yoga.

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.

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 member credit card and debit card transactions as cash.

Accounts Receivable

Accounts receivable consists primarily of amounts due from partners who have the billing relationship with the member and collect subscription fees on our behalf. We evaluate the need for an allowance for doubtful accounts based on historical collection trends, the financial condition of the partners and other factors as appropriate and determined no allowance was needed at December 31, 2022 and 2021.

Property and Equipment

We state property and equipment at cost less accumulated depreciation and amortization. Property and equipment are included in Media library, software and equipment in the accompanying consolidated balance sheets. 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 building improvements over the shorter of the estimated useful lives of the assets or remaining life of the building. 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 capitalized costs to produce our proprietary media content, rights obtained through license arrangements and digital media content acquired through asset purchases or business combinations.

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We amortize our media library in cost of revenues 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 at the film group level for impairment when an event or change in circumstances indicates that the carrying amount may not be recoverable. Recoverability is measured by a comparison of the carrying amount of the film group to estimated undiscounted future cash flows expected to be generated by the film group. If the carrying amount exceeds the estimated future cash flows, an impairment charge is recognized by the amount by which the carrying value exceeds the 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 or more frequently if indicators of impairment are identified. 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 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 an impairment test is unnecessary. If it is determined that an impairment test is necessary, then we compare the estimated fair value of goodwill with its carrying amount. 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 will record an impairment loss for the difference. 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 2022 and 2021, no impairment of goodwill was indicated.

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 2022 and 2021, 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

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

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Discontinued Operations

Yoga International historically had a line of business focused on transactional course sales. This content was rolled into the subscription offering at the end of 2021 and this line of business was discontinued in 2022 as the contractual commitments related to this line of business lapse. There are no other assets or liabilities associated with this revenue stream. As this represents a strategic shift with a major effect on our operations and financial results, we have presented the results of operations related to winding up this line of business as discontinued operations on the accompanying statement of operations.

Business Combinations

Gaia recognizes identifiable assets acquired and liabilities assumed at their acquisition date fair values. Goodwill is measured as the excess of the consideration transferred over the fair value of assets acquired and liabilities assumed on the acquisition date. While we use our best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed, these estimates are inherently uncertain and subject to refinement. The authoritative guidance allows a measurement period of up to one year from the date of acquisition to make adjustments to the preliminary allocation of the purchase price. As a result, during the measurement period we may record adjustments to the fair values of assets acquired and liabilities assumed, with the corresponding offset to goodwill to the extent that it identifies adjustments to the preliminary purchase price allocation. Upon conclusion of the measurement period or final determination of the values of the assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments will be recorded to the consolidated statement of operations.

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 and included in selling and operating expense in the accompanying consolidated statements of operations. During 2022 and 2021, we expensed marketing and advertising costs of $30.5 million and $31.3 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. Since 2019, we have only granted restricted stock units, for which we utilize the intrinsic valuation model to estimate fair value.

Segment Information

Gaia’s Chief Executive Officer is the chief operating decision maker, who reviews Gaia’s financial information presented on a consolidated basis for purposes of allocating resources and evaluating our financial performance. Accordingly, we have determined that we operate in a single reporting segment.

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 $3,000. We made matching contributions to the 401(k) plan of $0.3 million in each of the years ended December 31, 2022 and 2021.

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

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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.

Leases

As discussed in Note 8, we entered into an operating lease in connection with the sale of a portion of our corporate campus. We record the right to use the underlying asset for the operating lease term as an asset and our obligation to make lease payments as a liability. Leases with an initial term of 12 months or less are not recognized on the balance sheet and the expense for these short-term leases are recognized on a straight-line basis over the lease term. Variable lease payments are not included in the lease payments used to measure the lease liability and are expensed as incurred.

Earnings Per Share

Basic earnings per share is computed using the weighted-average number of outstanding shares of common stock during the period. Diluted earnings per share is computed using the weighted-average number of outstanding shares of common stock and, when dilutive, potential shares of common stock outstanding during the period. Potential shares of common stock consist of incremental shares issuable upon the assumed exercise of stock options and vesting of restricted stock units utilizing the treasury stock method.

Investments

Investments in unconsolidated subsidiaries, joint ventures, and other investees in which we have an interest of 20 to 50 percent and can exercise significant influence are accounted for using the equity method. Under this method of accounting, we record our proportionate share of the net earnings or losses of the equity method investee and a corresponding increase or decrease to the investment balance. We evaluate our equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable.

Our investment is carried at fair value, but we have used the practical expedient guidance to record at cost, with adjustments for other-than-temporary declines in fair value as applicable. We evaluate our investment for impairment 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 carrying value basis, we reduce the carrying amount of the investment to its quoted or estimated fair value, as applicable, and establish a new carrying value for the investment. We did not record any impairment charges on our investments during the years 2022 or 2021.

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.

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3. Media Library, Software and Equipment

Media library, software and equipment stated at lower of cost or net realizable value, consists of the following as of December 31:

Website development and other software $ 18,805 $ 17,639

Studio, computer and telephone equipment 1,992 2,060

Media library:

Accumulated depreciation and amortization (34,271 ) (29,598 )

As described in Note 2, amortization is over typically 12-90 months commencing with the month the content is available on our site and is included in cost of revenues on the accompanying consolidated statements of operations. Amortization expense for our media library was $8.3 million and $6.5 million during 2022 and 2021, respectively. Future depreciation and amortization is expected to be:

4. Business Combinations

On December 22, 2021, Gaia, entered into and completed its acquisition of Yoga International pursuant to an Agreement and Plan of Merger (“Merger Agreement”). At closing all of the issued and outstanding shares of Yoga International preferred and common stock were converted into the right to receive an aggregate of $9.1 million in cash plus a total of 1,134,613 shares of Gaia Class A common stock. The initial cash consideration was reduced by $1.5 million to offset Yoga International’s working capital shortfall at closing pursuant to the terms of the Merger Agreement. The determination of the number of shares issued pursuant to the Merger Agreement was based on the ten-day volume weighted average price of Gaia Class A common stock as listed on the Nasdaq Global Market during the ten trading-day period ending on December 16, 2021 (the third trading day before the last business day prior to the date of the Merger Agreement). Half of the shares of Gaia Class A common stock issued were subject to a six-month holdback arrangement and the other half were subject to a holdback until January 1, 2023. Included in the aggregate cash consideration was $1.0 million of deferred cash consideration that was due and payable on March 1, 2022 subject to certain adjustments related to closing liabilities. We paid $0.9 million of this deferred cash consideration in March 2022. These adjustments have been factored into the purchase price summarized below.

The acquisition expanded Gaia’s content library by 4,000 hours of content and also added a stand-alone digital yoga subscription service to Gaia’s offerings. With the acquisition, Gaia now has a subscription offering tailored to the unique needs of consumers focused on the lifestyle and philosophy of yoga.

The acquisition was accounted for as a business combination and the total purchase price of $17.2 million was allocated to the net tangible and intangible assets and liabilities based on their fair values on the acquisition date with the excess recorded as goodwill. The values assigned to the assets acquired and liabilities assumed are based on their fair values. As of December 31, 2022, we have finalized our purchase price allocation, which resulted in

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measurement period adjustments that increased goodwill by $3.1 million, increased other liabilities by $0.9 million and reduced content library by $2.2 million.

The purchase price components are summarized in the following table:

(in thousands) Total

Fair value of Class A common stock transferred $ 9,724

Cash consideration 7,473

Total purchase price, as adjusted $ 17,197

The following table presents the final purchase price allocation, as adjusted, recorded in Gaia’s consolidated balance sheet as of December 31, 2022:

(in thousands) Total

Accounts receivable 21

Prepaid expenses and other current assets 248

Media library, software and equipment 47

Intangible assets 7,063

Accounts payable and other liabilities (1,889 )

Deferred tax liability for acquired intangible assets (2,079 )

Deferred revenue (1,697 )

Total purchase price $ 17,197

Identifiable intangible assets are comprised of the following as of December 31, 2022:

(in thousands) Total Estimated Life (months)

Customer relationships $ 2,000 48

Total intangible assets acquired $ 7,063

Customer relationships consists of the estimated value of future cash flows from current Yoga International members. These relationships are on a month-to-month basis for monthly plans and on an annual basis for annual plans. Content library consists of the fair value of approximately 4,000 hours of original content acquired. Tradenames represent the value of the Yoga International brand.

Goodwill generated from this acquisition primarily represents the value that is expected from the increased scale and synergies as a result of the integration of both businesses. Goodwill is not deductible for tax purposes.

The estimated fair value of the intangible assets acquired was determined by Gaia. We engaged a third‐party expert to assist with the valuation analysis. The Company used a multi period excess earnings method to value customer relationships, a cost approach to value the content library and a relief from royalty method to value tradenames. The net tangible assets were valued at their respective carrying amounts as of the acquisition date, as we believe that these amounts approximate their current fair values.

During the years ended December 31, 2022 and 2021, Gaia incurred costs related to this acquisition of $0.05 million and $0.4 million, respectively, which are included in acquisition costs in the accompanying consolidated statements of operations.

The following unaudited pro forma condensed combined financial information gives effect to the acquisition of Yoga International as if it was consummated on January 1, 2021 (the beginning of the comparable prior reporting period). There were no material pro forma adjustments required. This unaudited data is presented for informational purposes only and is not intended to represent or be indicative of the results of operations that would have been reported had the acquisition occurred on January 1, 2021. It should not be taken as representative of future results of operations of the combined company.

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The following table presents the unaudited pro forma condensed combined financial information:

For the Year Ended December 31,

Net income (loss) 4,569

5. Investment, Real Estate and Other Assets

We sold a 50% undivided interest in a portion of our corporate campus on September 9, 2020 as further discussed in Note 9 to the consolidated financial statements. As of December 31, 2020, we reported the retained interest as investment in real estate and reclassified our real estate to investment, real estate and other assets on our accompanying consolidated balance sheets.

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 at fair value, but have utilized the practical expedient guidance to record at cost. 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.

Investment, real estate and other assets consist of the following as of December 31:

6. Goodwill and Other Intangible Assets

The following table sets forth changes in goodwill:

(in thousands)

Measurement period adjustment 3,073

The following table represents our other intangible assets by major asset class as of the dates indicated, which are included in Investments and Other Assets on the accompanying consolidated balance sheets as of December 31:

Amortizable Intangible Assets

Accumulated amortization (579 ) (12 )

Unamortized Intangible Assets

The customer related intangible assets are amortized on a straight-line basis over 12 months. Amortization expense was $568 thousand and $12 thousand for 2022and 2021, respectively. Future amortization of our amortizable intangible assets as of December 31, 2022 is expected to be as follows:

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(in thousands)

7. Accounts Payable, Accrued and Other Liabilities

Accounts payable, accrued and other liabilities consist of the following as of December 31:

Anticipated SEC settlement 2,000 —

Deferred cash purchase consideration — 866

8. Leases

In connection with the sale of a portion of our corporate campus as further discussed in Note 9 to the consolidated financial statements, we leased the property pursuant to a master lease for a term extending through September 30, 2030, with two five-year extensions. We record the right to use the underlying asset for the operating lease term as an asset and our obligation to make lease payments as a liability, based on the present value of the lease payments over the lease term. On commencement of the lease, we recorded a right-of-use asset and operating lease liability of $8.8 million.

Because the rate implicit in the lease is not readily determinable, we use our incremental borrowing rate to determine the present value of lease payments. Information related to our right-of-use asset and related lease liability were as follows:

December 31, December 31,

(in thousands) Balance Sheet Classification 2022 2021

Right-of-use asset Right-of-use lease asset, net $ 7,093 $ 7,871

Operating lease liability (non-current) Long-term lease liability 6,489 7,234

For the Year Ended December 31,

Cash paid for operating lease liabilities $ 1,001 $ 1,001

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Operating lease expense is recognized on a straight-line basis over the lease term. Future amortization of our lease liability as of December 31, 2022 is expected to be as follows:

(in thousands)

Future lease payments, gross 8,361

Less: Imputed interest (1,127 )

Operating lease liability $ 7,234

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9. Debt

On September 9, 2020, Boulder Road sold a 50% undivided interest in a portion of our corporate campus to Westside Boulder, LLC (“Westside”). Boulder Road retained a 50% undivided interest in the property as well as full ownership of our studio and production facilities. Boulder Road received consideration of $13.2 million in the transaction.

On December 28, 2020, Boulder Road and Westside entered into a loan agreement with First Interstate Bank, as lender, providing for a mortgage loan in the principal amount of $13.0 million. The mortgage bears interest at a fixed rate of 3.75% per annum, matures on December 28, 2025, is secured by a deed of trust on our corporate campus, a portion of which is owned by Boulder Road and Westside as tenants-in-common and the remainder of which is owned by Boulder Road. Westside and Boulder Road each received 50% of the loan proceeds and are each responsible for 50% of the monthly installments. Gaia guaranteed payment of the mortgage. The mortgage is subject to certain financial covenants related to the underlying property.

On August 25, 2022 (the "Closing Date"), Gaia, as borrower, and certain subsidiaries, as guarantors, entered into a Credit and Security Agreement (the "Credit Agreement") with KeyBank National Association ("KeyBank"). The Credit Agreement provides for a revolving credit facility in an aggregate amount of up to $10 million with a sublimit of $1 million available for issuances of letters of credit. Borrowings under the Credit Agreement are available for working capital and general corporate purposes, but not to fund any permitted acquisitions or other investments. On December 31, 2022, $9.0 million was drawn under the Credit Agreement, which is included in Long-term debt, net on the accompanying condensed consolidated balance sheets as of December 31, 2022.

Loans made, or letters of credit issued, under the Credit Agreement mature on August 25, 2025 and are secured (subject to permitted liens and other exceptions) by a first priority lien on all business assets, including intellectual property, of Gaia and the subsidiary guarantors.

Any advance under the Credit Agreement shall bear interest at the Daily Simple SOFR rate (subject to a floor of 0.00%), plus, the SOFR Index Adjustment of 0.10%, plus a margin of 2.00%; provided, that, during the existence of a Benchmark Unavailability Period or a SOFR Unavailability Period, advances shall bear interest at the Base Rate, which is a fluctuating interest rate per annum equal to the highest of (i) the Federal Funds Rate plus 0.50%, (ii) KeyBank’s “prime rate,” (iii) SOFR and (iv) 3.00%, plus, in each instance, a margin of 1.00%.

The aggregate outstanding amount of advances under the Credit Agreement is required to be $0 for at least 30 consecutive days during the period commencing on the 12-month anniversary of the Closing Date and ending on the 24-month anniversary of the Closing Date.

The Credit Agreement contains customary affirmative and negative covenants (each with customary exceptions), including limitations on the Company’s ability to incur liens or debt, make investments, pay dividends, enter into transactions with its affiliates and engage in certain fundamental changes. Additionally, the Credit Agreement requires Gaia to maintain a Fixed Charge Coverage Ratio of not less than 1.20 to 1.00 and to not permit the Leverage Ratio to exceed 1.50 to 1.00 for any computation period.

Maturities on long-term debt, net are as follows:

(in thousands)

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10. 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, 2022 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.

SEC Investigation

In June 2020, Gaia received a request for voluntary production of documents in an investigation by the staff of the Denver Regional Office (the “Staff”) of the U.S. Securities and Exchange Commission (the “SEC”). Since that time, Gaia has responded to the initial voluntary requests and subsequent subpoenas issued by the Staff. In September 2022, Gaia and Gaia's Chief Financial Officer (“CFO”) reached an agreement in principle with the Staff on a framework for a complete resolution of the investigation. The agreement in principle contemplates that Gaia would consent, without admitting or denying any findings, to the entry of an administrative order: (1) finding that Gaia (a) misstated in its April 29, 2019 earnings release and earnings call the number of paying subscribers for the period ending March 31, 2019, a quarter during which Gaia extended a free month of service to certain subscribers in the midst of a transition to a new enterprise-wide data system and (b) failed to comply with SEC whistleblower protection requirements with respect to the termination of one employee and the language used in severance agreements for other employees; and (2) requiring Gaia to pay a total civil monetary penalty of $2.0 million over a one-year period for these violations. At the same time, the CFO would consent, without admitting or denying any findings, to the entry of an administrative order: (1) finding that the CFO caused Gaia's misstatements in the April 29, 2019 earnings release and earnings call that is described above; and (2) requiring the CFO to pay a civil monetary penalty of $0.05 million. The contemplated settlement with Gaia and the CFO involve violations that require only negligence rather than intentional conduct. There can be no assurance that the contemplated settlement will be finalized and approved. Based on Gaia's agreement in principle with the Staff, however, Gaia has accrued a liability in the amount of $2.0 million. This liability is included in Accounts payable, accrued and other liabilities on the accompanying condensed consolidated balance sheets and as a separate line in the consolidated statements of operations.

11. Earnings (Loss) Per Share

Basic earnings (loss) per share is computed using the weighted-average number of outstanding shares of common stock during the period. Diluted earnings per share is computed using the weighted-average number of outstanding shares of common stock and, when dilutive, potential shares of common stock outstanding during the period (“Common stock equivalents”). Common stock equivalents consist of incremental shares issuable upon the assumed exercise of stock options and vesting of restricted stock units utilizing the treasury stock method. The computation of earnings per share is as follows:

For the Year Ended December 31,

(in thousands, except per share data) 2022 2021

Diluted earnings per share:

Shares used in computation:

Weighted-average common stock outstanding 20,716 19,307

Common stock equivalents — 527

Diluted earnings (loss) per share $ (0.15 ) $ 0.19

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Employee stock options with exercise prices greater than the average market price of the common stock were excluded from the diluted calculation as their inclusion would have been anti-dilutive. The following table summarizes the potential shares of common stock excluded from the diluted calculation:

For the Year Ended December 31,

Employee stock options and restricted stock units 336 15

12. Shareholders’ Equity

Our common stock has two classes, Class A and Class B. Each holder of our Class A common stock is entitled to one vote for each share held on all matters submitted to a vote of shareholders. Each holder of our Class B common stock 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 stock and our Class B common stock 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 and CEO, holds 100% of our 5,400,000 outstanding shares of Class B common stock and also owns 475,061 shares of Class A common stock. Consequently, our chairman holds approximately 78% of our voting stock and is able to exert substantial influence over 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 Class A common stock and our Class B common stock 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 Gaia, our Class A common stock and our Class B common stock 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 stock and our Class B common stock have no preemptive, subscription or redemption rights, and there are no redemption or sinking fund provisions applicable to our Class A common stock or our Class B common stock.

Our Class B common stock may not be transferred unless converted into our Class A common stock, other than certain transfers to affiliates, a trust, family members, and charitable organizations. Shares of our Class B common stock are convertible one-for-one into shares of our Class A common stock, at the option of the holder of the Class B common stock.

During 2022 and 2021, we issued shares of our Class A common stock as shown in the table below under our 2019 Long-Term Incentive Plan (the “2019 Plan”) and the 2009 Long-Term Incentive Plan (the “2009 Plan”).

For the Years Ended December 31,

As of December 31, 2022, we had the following Class A common shares reserved for future issuance:

Conversion of Class B common stock 5,400,000

Reserved under the ESPP 243,186

Stock options outstanding under the 2009 Plan 224,196

Restricted stock units outstanding under the 2009 Plan 201,882

Restricted stock units outstanding under the 2019 Plan 631,602

Total shares reserved for future issuance 6,700,866

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13. Share-Based Compensation

The Company’s 2019 Employee Stock Purchase Plan (the “ESPP”) became effective on April 29, 2019. The purpose of the ESPP is to provide eligible employees an opportunity to purchase shares of our Class A common stock over time through regular payroll deductions. The ESPP initially reserved and authorized the issuance of up to a total of 300,000 shares of our Class A common stock to participating employees, subject to certain adjustments. The number of shares of Class A common stock available for issuance under the ESPP will be increased on the first day of each year beginning with 2020 in an amount equal to the number of shares issued under the ESPP in the prior year. No participant may purchase more than 1,000 shares of our Class A common stock during any offering period under the ESPP. In addition, under applicable tax rules, an employee may purchase no more than $25,000 worth of shares of our Class A common stock, valued at the start of the offering period, under the ESPP for each calendar year.

On April 29, 2019, the 2019 Plan became effective. This replaced the 2009 Plan, which lost the authority to grant new options under the 2009 Plan on April 23, 2019. The purpose of the 2019 Plan is to advance the interests of our company and its shareholders by providing incentives to certain employees and other key individuals who perform services for us, including those who contribute significantly to the strategic and long-term performance objectives and growth of our company. No more than 1.8 million shares of our Class A common stock, subject to certain adjustments, may be issued under the 2019 Plan, and the 2019 Plan terminates no later than April 25, 2029.

In 2015, we commenced issuing restricted stock units ("RSUs"). The RSUs entitle the recipient to receive one share of Class A common stock for each RSU upon vesting. The RSUs are issued with cliff vesting in five years for employees and one year for directors, 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 value method for RSUs, which due to the nature of these awards, is typically market price of our common stock on the date of grant. No options were granted during 2022 or 2021. The exercise price of our legacy outstanding options is generally equal to the closing market price of our stock at the date of the 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 one year for board members.

The table below presents a summary of activity under the 2009 Plan and the 2019 Plan, as of December 31, 2022, and changes during the year then ended:

Restricted stock unit grants 198,777 —

Exercised options —

Restricted stock unit vesting (332,889 ) —

Cancelled or forfeited restricted stock units and options (36,046 ) —

The table below presents our valuation data:

(in thousands, except per share amounts) 2022 2021

Valuation Data:

Weighted-average fair value (per share) $ 3.62 $ 9.96

Total stock-based compensation expense $ 1,821 $ 1,710

Total income tax impact on provision $ 1,071 $ 1,299

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The table below presents our outstanding RSUs by vest date:

Vest Date RSUs

During 2022 and 2021, we recognized approximately $1.8 million and $1.7 million, respectively, of share-based compensation expense. Total share-based compensation expense is reported in selling and operating expenses and corporate, general and administration expenses on our condensed consolidated statements of operations. There were no options exercised during 2022. During 2021, 90,000 options were exercised and we received approximately $0.6 million in cash from exercises. We issue new shares upon the exercise of options and vesting of RSUs. The total intrinsic value of options exercised during 2021 was approximately $0.35 million. The total fair value of options vested was $ 0.001 million and $0.01 million during 2022 and 2021, respectively.

As of December 31, 2022, there was $3.9 million of unrecognized cost related to non-vested share-based compensation arrangements granted under the 2009 and 2019 Plans. We expect that cost to be recognized over a weighted-average period of 2.95 years.

14. Income Taxes

Our provision for income taxes is comprised of the following:

For the Years Ended December 31,

Current:

Federal $ — $ —

Total current — 16

Deferred:

Provision for (benefit from) income taxes $ 202 $ (2,011 )

Variations from the federal statutory rate are as follows:

For the Years Ended December 31,

Effect of permanent other differences 79 3

Return to provision adjustments 220 58

State income tax expense (benefit), net of federal benefit tax assets (38 ) 26

Provision for (benefit from) income taxes $ 202 $ (2,011 )

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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) are as follows:

As of December 31,

Deferred tax assets (liabilities):

Depreciation and amortization (3,635 ) (3,319 )

Legal accrual 653 —

Charitable carryforward 3 15

Right of use lease asset (1,596 ) (1,771 )

Total deferred tax liabilities, net of valuation allowance $ (499 ) $ (309 )

The source of income before income taxes are as follows:

Periodically, we perform assessments of the realization of our net deferred tax assets considering all available evidence, both positive and negative. We determined that a valuation allowance against our deferred tax assets of $16.1 million and $15.3 million for 2022 and 2021, respectively, was necessary due to the cumulative loss incurred over a three-year period. We have federal and state net operating loss carryforwards of approximately $76.2 million and $25.4 million, respectively, of which $2.2 million in federal net operating losses expire after 2037. Net operating losses generated in 2018 and beyond do not expire.

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 2015 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.

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15. Segment Information and Geographic Information

As discussed in Note 2, our chief operating decision maker reviews operating results on a consolidated basis and we therefore have one reportable segment.

Geographic Information

We have members in the United States and over 185 foreign countries. The major geographic territories are the U.S., Canada and Australia based on the billing location of the member.

The following represents geographical data for our operations:

For the Years Ended December 31,

Revenue:

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

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, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K were effective in providing reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Gaia have been detected.

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, 2022 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

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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, 2022 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, 2022, our internal control over financial reporting was effective.

Item 9B. Other Information

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

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 April 20, 2023, 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 "Governance" 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 April 20, 2023, 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 April 20, 2023, to be filed with the Commission pursuant to Regulation 14A.

Equity Compensation Plan Information

See Part II, Item 5 for information regarding securities authorized for issuance under our equity compensation plans.

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 April 20, 2023, 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 April 20, 2023, to be filed with the Commission pursuant to Regulation 14A.

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PART IV

Item 15. Exhibit and Financial Statement Schedules

(a) Documents filed as part of this report are as follows:

1.

Consolidated Financial Statements.

See listing of Consolidated Financial Statements included as part of this Form 10-K in Item 8 of Part II.

2.

Exhibits:

The following exhibits are incorporated by reference or are filed or furnished with this report as indicated below:

Exhibit No. Description

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Exhibit No. Description

21.1 List of Gaia, Inc. Subsidiaries (filed herewith).

23.1 Consent of Independent Registered Accounting Firm (filed herewith)

101.INS Inline XBRL Instance Document.

101.SCH Inline XBRL Taxonomy Extension Schema.

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase.

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase.

101.LAB Inline XBRL Taxonomy Extension Label Linkbase.

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase.

104 Cover Page Interactive Data File

* Indicates management contract or compensatory plan or arrangement.

Item 16. Form 10-K Summary

None

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SIGNATURES

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.

GAIA, INC.

By: /s/ Jirka Rysavy

Jirka Rysavy

Chief Executive Officer

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/ James Colquhoun James Colquhoun Director March 6, 2023

/s/ Kristin Frank Kristin Frank Director March 6, 2023

/s/ David Maisel David Maisel Director March 6, 2023

/s/ Keyur Patel Keyur Patel Director March 6, 2023

/s/ Paul Sutherland Paul Sutherland Director March 6, 2023

/s/ Anaa Udaybabu Anaa Udaybabu Director March 6, 2023

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