8-K/A
GAIA, INC (GAIA)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): December 22, 2021
GAIA, INC.
(Exact Name of Registrant as Specified in its Charter)
| Colorado | 000-27517 | 84-1113527 |
|---|---|---|
| (State or Other Jurisdiction<br>of Incorporation) | (Commission File<br>Number) | (IRS Employer<br>Identification No.) |
| 833 West South Boulder Road, Louisville, CO 80027-2452 | ||
| (Address of Principal Executive Offices; Zip Code) | ||
| Registrant’s telephone number, including area code: (303) 222-3600 | ||
| (Former Name or Former Address, if Changed Since Last Report) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|
| ☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Class A Common Stock | GAIA | NASDAQ Global Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Introductory Note
As previously disclosed, on December 22, 2021, Gaia, Inc., a Colorado corporation (the “Company” or “Gaia”), entered into, and completed its acquisition of Yoga International Inc., a Delaware corporation (“YI”) pursuant to the previously disclosed Agreement and Plan of Merger (“Merger Agreement”), with YI, YI Merger Sub I, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company (“Merger Sub I”), and YI Merger Sub II, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company (“Merger Sub II” and, together with Merger Sub I, the “Merger Subs”). On the closing date, pursuant to the Merger Agreement, and upon the terms and conditions set forth therein, Merger Sub I merged with and into YI (the “First Merger”), with YI surviving the First Merger and continuing as a wholly owned subsidiary of the Company. Immediately following the First Merger, and as part of the same overall integrated transaction, YI merged with and into Merger Sub II (the “Second Merger” and, together with the First Merger, the “Merger”), with Merger Sub II continuing as a wholly owned subsidiary of the Company.
This Amendment No. 1 to the Current Report on Form 8-K filed by the Company on December 23, 2021 (the “Original Form 8-K”) amends the Original Form 8-K to include the financial statements required by Item 9.01(a) and the pro forma financial information required by Item 9.01(b). Except as provided herein, the disclosures made in the Original Form 8-K remain unchanged.
| Item 9.01 | Financial Statements and Exhibits |
|---|
(a) Financial Statements of Business Acquired.
The audited consolidated balance sheet of Yoga International, LLC and Subsidiary as of December 31, 2020, the related consolidated statements of operations and comprehensive income (loss), changes in members’ equity (deficit) and cash flows of Yoga International, LLC and Subsidiary for the year ended December 31, 2020 and the notes related thereto, together with the report thereon of WithumSmith+Brown, PC included in the audited consolidated financial statements, are filed as Exhibit 99.1 hereto and are incorporated herein by reference.
The unaudited condensed consolidated balance sheet of Yoga International, Inc. and its subsidiaries as of September 30, 2021 and the related condensed consolidated statements of operations and comprehensive income (loss) and cash flows for the nine months ended September 30, 2021 and 2020, and the related notes thereto, are filed as Exhibit 99.2 hereto and are incorporated by reference.
(b) Pro Forma Financial Information.
The unaudited pro forma combined statements of operations of Gaia, Inc. for the year ended December 31, 2020 and condensed combined statement of operations of Gaia, Inc. for the nine months ended September 30, 2021, the unaudited pro forma condensed combined balance sheet of Gaia, Inc. as of September 30, 2021, and the notes related thereto, are filed as Exhibit 99.3 hereto and are incorporated herein by reference.
(d) Exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
GAIA, INC.
By: /s/ Paul Tarell Name: Paul Tarell Title: Chief Financial Officer
Date: March 7, 2022
gaia-ex231_43.htm
EX 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-231112 and 333-161450) and the Registration Statement on Form S-3 (No. 333-255734), of Gaia Inc. of our report dated March 30, 2021 with respect to the consolidated financial statements of Yoga International, LLC and Subsidiary, as of and for the year ended December 31, 2020, which is included in Gaia, Inc’s current report on Form 8-K/A dated March 7, 2022.
/s/ WithumSmith+Brown, PC
Whippany, New Jersey
March 7, 2022
gaia-ex991_6.htm
EX 99.1
YOGA INTERNATIONAL, LLC AND SUBSIDIARY
Consolidated Financial Statements
December 31, 2020
With Independent Auditor’s Report
Yoga International, LLC and Subsidiary
Table of Contents
December 31, 2020
Independent Auditor’s Report1
Consolidated Financial Statements
Consolidated Balance Sheet2
Consolidated Statements of Operations and Comprehensive Income (Loss)3
Consolidated Statement of Changes in Members’ Equity (Deficit)4
Consolidated Statement of Cash Flows5
Notes to Consolidated Financial Statements6-15
INDEPENDENT AUDITOR’S REPORT
To the Members,
Yoga International, LLC and Subsidiary:
We have audited the accompanying consolidated financial statements of Yoga International, LLC and Subsidiary (the “Company”), which comprise the consolidated balance sheet as of December 31, 2020, and the related consolidated statements of operations and comprehensive income (loss), changes in members’ equity (deficit) and cash flows for the year then ended, and the related notes to consolidated financial statements.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of their operations and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
March 30, 2021
Whippany, New Jersey
Yoga International, LLC and Subsidiary
Consolidated Balance Sheet
December 31, 2020
| Assets | |||
|---|---|---|---|
| Current assets | |||
| Cash and cash equivalents | $ | 1,740,368 | |
| Accounts receivable | 10,866 | ||
| Prepaid expenses and other current assets | 171,630 | ||
| Total current assets | 1,922,864 | ||
| Non-current assets | |||
| Digital content, net | 2,091,105 | ||
| Property and equipment, net | 50,362 | ||
| Intangible assets, net | 57,081 | ||
| Total non-current assets | 2,198,548 | ||
| $ | 4,121,412 | ||
| Liabilities and Members' Equity (Deficit) | |||
| Current liabilities | |||
| Accounts payable | $ | 496,365 | |
| Accrued expenses and other current liabilities | 344,005 | ||
| Promissory notes - related parties, current portion | 500,121 | ||
| PPP loan liability | 445,000 | ||
| Deferred revenue | 1,717,149 | ||
| Total current liabilities | 3,502,640 | ||
| Non-current liabilities | |||
| Promissory notes - related parties, net of current portion | 269,338 | ||
| Promissory note | 250,000 | ||
| Total non-current liabilities | 519,338 | ||
| Members' deficit | (314,778 | ) | |
| Accumulated other comprehensive income | 40,751 | ||
| (274,027 | ) | ||
| Non-controlling interest | 373,461 | ||
| Total members' equity (deficit) | 99,434 | ||
| $ | 4,121,412 |
The Notes to Consolidated Financial Statements are an integral part of these statements.
Yoga International, LLC and Subsidiary
Consolidated Statements of Operations and Comprehensive Income
Year Ended December 31, 2020
| Net revenues | $ | 14,780,349 | |
|---|---|---|---|
| Cost of revenue | 3,139,519 | ||
| Gross profit | 11,640,830 | ||
| Expenses | |||
| General and administrative | 3,964,118 | ||
| Sales and marketing | 6,635,810 | ||
| Research and development | 744,222 | ||
| 11,344,150 | |||
| Income from operations | 296,680 | ||
| Other income (expense) | |||
| Interest income | 4,682 | ||
| Interest expense | (112,083 | ) | |
| (107,401 | ) | ||
| Net income | 189,279 | ||
| Other comprehensive income | |||
| Foreign currency translation adjustment | 23,438 | ||
| Comprehensive income | 212,717 | ||
| Comprehensive loss attributable to non-controlling interest | 61,818 | ||
| Comprehensive income attributable to controlling interest | $ | 274,535 |
The Notes to Consolidated Financial Statements are an integral part of these statements.
Yoga International, LLC and Subsidiary
Consolidated Statement of Changes in Members’ Equity (Deficit)
Year Ended December 31, 2020
| Accumulated | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Other | |||||||||||
| Members' | Comprehensive | Noncontrolling | |||||||||
| Equity (Deficit) | Income | Interest | Total | ||||||||
| Balance, December 31, 2019 | $ | (565,875 | ) | $ | 17,313 | $ | 435,279 | $ | (113,283 | ) | |
| Net income | 251,097 | - | (61,818 | ) | 189,279 | ||||||
| Foreign currency translation adjustment | - | 23,438 | - | 23,438 | |||||||
| Balance, December 31, 2020 | $ | (314,778 | ) | $ | 40,751 | $ | 373,461 | $ | 99,434 |
The Notes to Consolidated Financial Statements are an integral part of these statements.
Yoga International, LLC and Subsidiary
Consolidated Statement of Cash Flows
Year Ended December 31, 2020
| Operating activities | |||
|---|---|---|---|
| Net income | $ | 189,279 | |
| Adjustments to reconcile net income to | |||
| net cash provided by operating activities | |||
| Depreciation and amortization | 144,069 | ||
| Amortization of digital content | 1,287,642 | ||
| Changes in | |||
| Accounts receivable | (2,247 | ) | |
| Prepaid expenses and other current assets | (85,188 | ) | |
| Accounts payable | 173,159 | ||
| Accrued expenses and other current liabilities | (20,527 | ) | |
| Deferred revenue | 1,352,334 | ||
| Net cash provided by operating activities | 3,038,521 | ||
| Investing activities | |||
| Purchases of fixed assets | (13,391 | ) | |
| Additions to digital content | (1,744,005 | ) | |
| Net cash used in investing activities | (1,757,396 | ) | |
| Financing activities | |||
| Proceeds from promissory note | 125,000 | ||
| Proceeds from promissory notes - related parties | 400,000 | ||
| Repayment of promissory notes - related parties | (1,304,740 | ) | |
| Proceeds from PPP loan liability | 445,000 | ||
| Net cash used in by financing activities | (334,740 | ) | |
| Effect of foreign exchange rate changes | 23,438 | ||
| Net change in cash and cash equivalents | 969,823 | ||
| Cash and cash equivalents | |||
| Beginning of year | 770,545 | ||
| End of year | $ | 1,740,368 | |
| Supplemental disclosure of cash flow information | |||
| Cash paid during the year for interest | $ | 123,772 |
The Notes to Consolidated Financial Statements are an integral part of these statements.
Yoga International, LLC and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2020
| 1. | NATURE OF OPERATIONS AND BASIS OF PRESENTATION |
|---|
Nature of Business
Yoga International, LLC (the “Company”) was incorporated on January 22, 2015 and is a web-based business that sells access to online educational material and products related to yoga from its sole location in Honesdale, Pennsylvania. The Company’s content can be accessed through its website or its Application (the “App”).
The Company began operations on January 22, 2015 as a result of a spin-off activity from a related organization, Himalayan International Institute of Yoga Science and Philosophy of the USA, that was known as Yoga International. There were no significant book values of assets contributed to the Company.
The Company created Yoga International Espanol, LLC (“YI Espanol”), an 82% owned subsidiary of the Company, on June 29, 2018. The primary purpose of YI Espanol is to provide yoga-related education, products, and marketing services to Spanish-speaking markets.
Principles of Consolidation
The consolidated financial statements include accounts of Yoga International, LLC and its subsidiary, Yoga International Espanol, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation.
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|---|
Liquidity and Management’s Plans
The Company has historically incurred losses from operations and as of December 31, 2020 negative working capital of approximately $1,500,000. In January 2021, the Company has received full forgiveness related to the $445,000 PPP Loan liability. For the year ended December 31, 2020, the Company improved cash flow from operations to a positive of approximately $3,000,000 and net income of $189,279. Based on these factors, the Company expects to have sufficient funding to sustain operations through April 2022. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include the streaming content asset amortization policy, valuation of acquired intangible assets, depreciation and amortization. Actual results may differ from those estimates.
Cash and Cash Equivalents
The Company considers cash equivalents to be only those investments which are highly liquid, readily convertible to cash and have an original maturity date of ninety days or less from the date of purchase.
Accounts Receivable
Accounts receivable are uncollateralized, non-interest-bearing customer obligations due under normal trade terms. Management reviews individual customer account balances and determines delinquency based on specific customers’ agreed upon terms. Management does not charge interest on delinquent balances. The Company applies collections of accounts receivable to specific invoices in accordance with customer specifications, or if unspecified, to the oldest outstanding invoices.
Yoga International, LLC and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2020
Digital Content
The Company produces digital content in order to offer members unlimited viewing of yoga classes. For production, the Company capitalizes costs associated with the production, including development costs, direct costs and production overhead. These amounts are included in digital content, net on the consolidated balance sheets.
Based on factors including historical and estimated viewing patterns, the Company amortizes the digital content in cost of revenues on the consolidated statements of operations and comprehensive income (loss) over the shorter of each title's contractual window of availability or estimated period of use of approximately 5 years, beginning with the month of first availability. The amortization is on an accelerated basis, as the Company typically expects more upfront viewing. The Company reviews factors impacting the amortization of the digital content on an ongoing basis. The Company's estimates related to these factors require considerable management judgment.
The Company's business model is subscription based as opposed to a model generating revenues at a specific title level. Therefore, digital content is reviewed in aggregate for when an event or change in circumstances indicates a change in the expected usefulness of the digital content. To date, the Company has not identified any such event or changes in circumstances. If such changes are identified in the future, these aggregated digital contents will be stated at the lower of unamortized cost, net realizable value or fair value. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off.
Comprehensive Income
Comprehensive income includes net income as well as charges to equity that are not the result of transactions with members. Comprehensive income is comprised of changes that result from foreign currency translation adjustments.
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). This new standard replaces all previous accounting guidance on this topic and eliminates all industry-specific guidance. The new revenue recognition guidance provides a unified model to determine how revenue is recognized. 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 to be entitled in exchange for those goods or services. In doing so, companies need to use more judgment and make more estimates than under prior guidance. Judgments include identifying performance obligations in the contract, estimating the amount of consideration to include in the transaction price, and allocating the transaction price to each performance obligation.
Effective January 1, 2019, the Company elected to adopt the requirements of Topic 606 using the modified retrospective method which applied to all new contracts initiated on or after January 1, 2019 and for all open contracts which have remaining obligations as of that date.
In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under its agreements, the Company performs the following steps (i) identify contracts with customers; (ii) identify performance obligations; (iii) determine the transaction price; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
Yoga International, LLC and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2020
The Company has three revenue streams consisting of: 1) subscription revenue from users purchasing monthly or annual memberships that gives them access to articles, classes, and digital workshops (recognizing this revenue stream at time of sale of monthly membership fees is not significantly different from amortizing billings of the month of access); 2) revenue from online users purchase for a one-time fee for unlimited access to digital courses; 3) revenue from in-person classes at the Company’s yoga studio. Revenues are recognized when promised goods or services are delivered to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
The Company’s revenue is generated from the following sources:
Subscription Revenue
The Company generates subscription-based revenue from the purchase of a monthly or annual membership that gives the customer access to articles, classes, and digital workshops. Revenue is recognized over time, as the performance obligation is satisfied by transferring the control of the promised service to a customer in an amount that reflects the consideration that the Company expects to receive in exchange for the service. For annual subscriptions paid up front, revenue is deferred and recognized as revenue ratably over the term of the contract. Customers make payments in advance of gaining access to the Company’s content. Cash receipts from customers who sign-up or renew their membership after the 15th of each month are recorded as deferred revenue on the consolidated balance sheets, when more than 50% of the services have been provided. At the time of customer purchase of annual or monthly subscription, the Company has the right to receive payment for the content provided. During the year ended December 31, 2020, the Company recognized approximately $10,500,000 of revenue related to subscription revenue.
One-Time Digital Purchase
The Company generates revenue from the purchase of a one-time fee for unlimited access to certain digital courses. Revenue is recognized at the time the performance obligation is satisfied by transferring the control of the promised service to a customer in an amount that reflects the consideration that the Company expects to receive in exchange for the service. The Company recognizes revenue upon completion of the one-time purchase as its performance obligation is satisfied when the customer gains access to the course content. The Company does not have contract assets or contract liabilities as the payment of the transaction price is concurrent with the fulfillment of the obligation. At the time of customer purchase, the Company has the right to receive payment for content provided. During the year ended December 31, 2020, the Company recognized approximately $4,150,000 of revenue related to one-time digital purchases.
In-Person Course
The Company generates revenue from in-person classes at the Company’s yoga studio. Revenue is recognized at the time the performance obligation is satisfied by transferring the control of the promised service to a customer in an amount that reflects the consideration that the Company expects to receive in exchange for the service. The Company recognizes revenue upon completion of the in-person course as its performance obligation is satisfied when the customer attends the course. The Company does not have contract assets or contract liabilities as the payment of the transaction price is concurrent with the fulfillment of the services. At the time of customer purchase, the Company has the right to receive payment for the course provided. During the year ended December 31, 2020, the Company recognized approximately $115,000 of revenue related to in-person course revenue.
During the year ended December 31, 2020, the Company recognized approximately $70,000 of other various revenue sources.
Yoga International, LLC and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2020
Property and Equipment
Property and equipment are carried at cost less depreciation. Depreciation of property and equipment is provided using the straight-line method at the following rates:
| Estimated | |
|---|---|
| Description | Life (Years) |
| Equipment | 7 |
| Vehicle | 5 |
| Leasehold improvements** | 3 |
** Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset.
Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for repairs and maintenance are charged to operating expense as incurred.
Intangibles
The Company developed an application that is available for mobile applications as well as for streaming on devices to access its content of yoga resources. Application costs incurred for planning, designing, coding, and testing are expensed (similar to research and development). The costs incurred once the product has been tested and there is a working model are capitalized. Amortization is computed using the straight-line method over three years. Additionally, the intangibles included in the consolidated balance sheets of the Company include customer list intangible assets acquired by YI Espanol.
The Company expenses all website development costs during the planning stage, content development stage and operating stage. The Company capitalizes certain development costs during the application and infrastructure development stage and the graphics development stage.
Intangible assets that have finite useful lives are amortized over the estimated useful life of the assets. The useful life of certain intangibles may be affected by their legal life, which for certain intangibles such as trademarks, may provide for renewals upon expiration. The Company evaluates the remaining useful life of an intangible asset that is being amortized each reporting period to determine whether events or circumstances warrant a revision to the remaining period of amortization. If the estimate of the remaining life is changed, the remaining carrying amount of the intangible assets will be amortized prospectively over the revised remaining useful life.
Cost of Revenue
Cost of revenue is primarily made up of course content expenses, including instructor fees. Costs incurred for content assets are capitalized and amortized in accordance with the Company’s intangible assets policy. Instructor fees are expensed as incurred and accounted for as a cost of revenue.
General and Administrative
General and administrative expenses primarily include salaries and wages, professional fees, travel, and other office expenses. Costs are expensed as incurred.
Sales and Marketing
Costs incurred for sales and marketing consist primarily of costs incurred pertaining to advertising costs and various marketing initiatives to reach a greater audience. Sales and marketing costs are expensed as incurred. Advertising costs totaled approximately $6,605,000 for the year ended December 31, 2020.
Yoga International, LLC and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2020
Research and Development
Costs incurred for research and product development consist primarily of costs incurred pertaining to app and web development and are expensed as incurred.
Income Taxes
The Company is treated as a partnership for federal and Pennsylvania income tax purposes. Consequently, federal and state income taxes are not payable, or provided for, by the Company. Members are taxed on their share of the Company's net income. The Company's net income is allocated among the members in accordance with its operating agreement. As of December 31, 2020, there are no unrecognized tax uncertainties and the Company evaluates its unrecognized tax position each reporting period.
Concentration of Credit Risk
The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in these accounts and does not believe it is exposed to any significant credit risk from cash and cash equivalents.
The Company is evaluating its past and present state and local sales tax positions. To date, the Company has not identified any specific non-compliance. However, the process is ongoing, and management has not determined if this evaluation will have a significant impact on the Company’s consolidated financial position or results of operations.
Sales Tax
The Company collects sales tax imposed by the Commonwealth of Pennsylvania on the sale of tangible personal property. The Company’s policy is to exclude the tax collected and remitted from revenue and costs and expenses.
| 3. | RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS |
|---|
Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and subsequent amendments to the initial guidance: ASU 2017-13, ASU 2018-01, ASU 2018-10, and 2018-11 (collectively, “Topic 842”). Topic 842 requires companies to generally recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use assets. Topic 842 is effective for the Company beginning January 1, 2022, and earlier adoption is permitted. The Company is currently evaluating the impact of its impending adoption on its consolidated financial statements. The Company currently expects that its operating lease commitment will be subject to the new standard and recognized as an operating lease liability and right-of-use asset upon adoption of Topic 842, which will increase the Company’s total assets and total liabilities.
| 4. | DIGITAL CONTENT, NET |
|---|
Digital content consists of the following as of December 31, 2020:
| Produced content | $ | 4,986,083 | |
|---|---|---|---|
| In production | 436,001 | ||
| Total cost | 5,422,084 | ||
| Accumulated amortization | (3,330,979 | ) | |
| Digital content, net | $ | 2,091,105 |
Yoga International, LLC and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2020
On average, over 90% of licensed or produced digital streaming content is expected to be amortized within four years after its month of first availability. Amortization of digital contents amounted to $1,287,642 for the year ended December 31, 2020 and is included in cost of revenue on the consolidated statement of operations and comprehensive income (loss).
The future amortization of digital content is as follows:
| 2021 | $ | 1,137,195 |
|---|---|---|
| 2022 | 508,752 | |
| 2023 | 254,376 | |
| 2024 | 127,188 | |
| 2025 | 63,594 | |
| $ | 2,091,105 | |
| 5. | PROPERTY AND EQUIPMENT, NET | |
| --- | --- |
Property and equipment consists of the following as of December 31, 2020:
| Equipment | $ | 82,452 | |
|---|---|---|---|
| Vehicle | 18,290 | ||
| Leasehold improvements | 35,570 | ||
| Total cost | 136,312 | ||
| Accumulated depreciation | (85,950 | ) | |
| Property and equipment, net | $ | 50,362 |
Depreciation expense amounted to $18,608 for the year ended December 31, 2020 and is included in general and administrative expenses on the consolidated statement of operations and comprehensive income (loss).
| 6. | INTANGIBLE ASSETS, NET |
|---|
Intangible assets consist of the following as of December 31, 2020:
| Application development | $ | 73,861 | |
|---|---|---|---|
| Customer lists | 289,743 | ||
| Accumulated amortization | (306,523 | ) | |
| Intangible assets, net | $ | 57,081 |
On January 4, 2019, Yoga International Espanol, LLC entered into an Asset Purchase Agreement to acquire various intangible assets in exchange for 180,000 common units. The acquired intangible assets consist of $224,388 of digital content (Note 4) and $289,743 of various customer lists. The Company valued the acquired assets using the cost approach. The estimated useful life of acquired intangible assets ranges from 2-3 years.
Yoga International, LLC and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2020
Amortization expense amounted to $125,461 for the year ended December 31, 2020 and is included in general and administrative expenses on the consolidated statement of operations and comprehensive income (loss).
| 7. | PROMISSORY NOTES - RELATED PARTIES |
|---|
During the year ended December 31, 2020, the Company entered into various promissory note agreements with investors totaling $400,000. The repayment terms of the promissory note consist of making an interest payment on the first month after payment is received followed by installment payments of principal and interest on the first day of each quarter with various maturity dates through July 1, 2022. Interest will accrue at a rate equal to 1.5% plus the United States prime rate on April 30, 2020. Interest expense for the year ended December 31, 2020 amounted to approximately $95,000. Outstanding promissory notes - related parties amounted to $769,460 as of December 31, 2020.
Principal payments over the next two years ended December 31 are as follows:
| 2021 | $ | 500,121 |
|---|---|---|
| 2022 | 269,338 | |
| $ | 769,459 | |
| 8. | PROMISSORY NOTE | |
| --- | --- |
On January 4, 2019, the Company entered into a promissory note agreement with a bank in the amount of $250,000. The repayment terms of the promissory note consist of 24 monthly interest payments, beginning February 4, 2019, at a rate of 6.25% with principal and interest payments beginning on February 4, 2021. The promissory note is secured by collateral of the Company and matures on January 3, 2024. Interest expense for the year ended December 31, 2020 amounted to approximately $15,000. As of December 31, 2020, the Company has drawn amounts totaling $250,000 of the total available amount of $250,000, which remains outstanding as of December 31, 2020.
Principal payments over the next four years ended December 31 are as follows:
| 2021 | $ | 71,492 |
|---|---|---|
| 2022 | 82,794 | |
| 2023 | 88,120 | |
| 2024 | 7,594 | |
| $ | 250,000 | |
| 9. | PPP LOAN LIABILITY | |
| --- | --- |
On April 20, 2020, the Company received loan proceeds in the amount of $445,000 under the Paycheck Protection Program (“PPP”). The PPP, established as part of the CARES Act, provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after eight or twenty-four weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period.
Yoga International, LLC and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2020
The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1% per annum, with a deferral of payments for the first six months. The maturity date of the PPP loan is April 20, 2022 and payment will commence should the loan not be forgiven. The Company has used the proceeds for purposes consistent with the PPP. While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan in whole, there can be no assurance that it will not take actions that could cause the Company to be ineligible for forgiveness of the loan, in whole or in part. The Company is currently in the process of applying for forgiveness of this loan. As of December 31, 2020, no amount of the PPP loan had been forgiven. In January 2021, the Company has received forgiveness from its lender and will record the forgiveness of the loan as a gain on extinguishment within that period.
| 10. | MEMBERS’ EQUITY |
|---|
Limitation of Liability
Member’s liability is limited to the member’s capital account.
Membership Units
The Company’s ownership interest is divided into units. The Company’s Board of Directors is authorized to issue up to 1,050,001 units for operating percentage interests. In addition, the Company is authorized to issue profits interest units (Note 11).
Since its inception, the Company has issued 1,050,001 units for operating percentage interest purposes. The Company granted 99,000 profits interest units prior to 2019 (Note 11).
During the year ended December 31, 2020, the Company did not grant any units to members.
Allocation of Profits and Losses
Profits and losses are allocated to each member in proportion to their operating percentage interest. If the operating percentage interest changes during the year, profits and losses shall be allocated on a monthly basis among the members in accordance with their operating percentage interest as of the first day of each month. Profits and losses are only allocated to members based on their capital ownership. The profits interest members do not share in the profits and losses of the Company (Note 11).
Additional Capital Contributions and Distributions
Besides the initial capital contributions by each member, there were no additional capital contributions by any of the existing members during the year ended December 31, 2020.
| 11. | PROFITS INTEREST UNITS |
|---|
The Company issued profits interest units on August 14, 2017, which included one of its original members and three new members. The profits interest units do not have any voting rights and are not a capital interest, and therefore, do not share in the profits and losses of the Company. The profits interest units were issued as a dilution of Member A’s ownership percentage (Note 10).
Yoga International, LLC and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2020
The holders of profits interest units only receive distributions related to their units if there is a capital transaction. A capital transaction, as defined by the Company’s operating agreement, is as follows: (a) sale, exchange or other disposition of all or substantially all (as determined by the Board of Directors in its sole discretion, to constitute substantially all) of the Company’s assets and (b) if and to the extent determined by the Board of Directors, in its sole discretion, to constitute a capital transaction, the (i) sale, exchange or other disposition of a substantial portion (but less than all or substantially all) of the Company’s assets, (ii) issuance by the Company of any securities (including additional units) and (iii) any financing or refinancing by the Company.
If there is a capital transaction, then distributions with respect to vested profits interest units are outlined by the Company’s operating agreement in a specific ordering. There were no such capital transactions in 2020.
The profits interest by member is summarized as follows at December 31, 2020:
| Total Profit | ||
|---|---|---|
| Member | Interest Units | |
| A | 33,000 | |
| D | 27,500 | |
| E | 19,250 | |
| F | 19,250 | |
| 99,000 |
The Company performed a valuation during 2017 to determine the fair value of the profits interest units. It was determined the fair value per unit was $.20 or $19,800 in aggregate, which considers both the time and performance vesting components will be achieved by the vesting date. These awards have fully vested as of December 31, 2019 and therefor there was no compensation expense was recorded during 2020.
| 12. | COMMITMENTS AND CONTINGENCIES |
|---|
Leases
The Company rents its office space from a related organization, Himalayan International Institute of Yoga Science and Philosophy of the USA (“Himalayan”). The lease term is from February 2016 through January 2019 with an automatic renewal option for an additional two years through January 2021. Monthly rent payments are $2,575 per month through January 2021. In April 2020, the Company entered into a second lease agreement for $950 per month through April 1, 2022.
The future minimum lease payments relating to these commitments are approximately as follows:
| 2021 | $ | 13,975 |
|---|---|---|
| 2022 | 3,800 | |
| $ | 17,775 |
Rent expense for the year ended December 31, 2020 was approximately $35,000 and is included in general and administrative expense on the consolidated statements of operations and comprehensive income (loss).
Yoga International, LLC and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2020
Risk and Uncertainties – COVID-19
Management continues to evaluate the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations, the specific impact is not readily determinable as of the date of these consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Risk and Uncertainties – Foreign Operations
The Company has foreign operations in Mexico relating to its Yoga International Espanol, LLC subsidiary as well as its corresponding IP and intangible assets. The Company’s operations are subject to various political, economic, and other risks and uncertainties inherent in the countries in which the Company operates.
| 13. | RELATED PARTY TRANSACTIONS |
|---|
The Company’s majority member is Sage Holdings, Inc., which is a C corporation for federal and state income tax purposes consisting of 75% capital ownership units. Sage Holdings is owned 100% by Himalayan International Institute of Yoga Science and Philosophy of the USA, which is a not-for-profit corporation as described in Section 501(c)(3) of the Internal Revenue Code (the “Code”) and is exempt from federal income taxes on its exempt income under Section 170(b)(1)(A)(i) of the Code.
During the year ended December 31, 2020 the Company entered into various promissory notes with Members of the Company totaling $400,000 (Note 7).
| 14. | SUBSEQUENT EVENTS |
|---|
The Company has evaluated all known subsequent events through March 30, 2021, the date these consolidated financial statements were available to be issued, and has determined that, no events have occurred requiring recognition or disclosure in these consolidated financial statements.
15
gaia-ex992_44.htm
EX 99.2
YOGA INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2021 and 2020
Yoga International, Inc. and Subsidiaries
Table of Contents
September 30, 2021 and 2020
Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at September 30, 2021 and December 31, 20201
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for
the nine months ended September 30, 2021 and 20202
Condensed Consolidated Statement of Cash Flows for the nine months
ended September 30, 2020 and 20213
Notes to interim condensed consolidated financial statements4-7
Yoga International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
| (in thousands) | September 30,<br><br><br>2021 | December 31,<br><br><br>2020 | ||
|---|---|---|---|---|
| (unaudited) | ||||
| Assets | ||||
| Current assets | ||||
| Cash and cash equivalents | $ | 1,979 | $ | 1,740 |
| Accounts receivable | 41 | 11 | ||
| Prepaid expenses and other current assets | 268 | 172 | ||
| Total current assets | 2,288 | 1,923 | ||
| Non-current assets | ||||
| Digital content, net | 2,284 | 2,091 | ||
| Property and equipment, net | 57 | 50 | ||
| Intangible assets, net | 14 | 57 | ||
| Total non-current assets | 2,355 | 2,198 | ||
| $ | 4,643 | $ | 4,121 | |
| Liabilities and Members' Equity (Deficit) | ||||
| Current liabilities | ||||
| Accounts payable | $ | 511 | $ | 497 |
| Accrued expenses and other current liabilities | 261 | 344 | ||
| Promissory notes - related parties, current portion | 1,154 | 500 | ||
| Promissory note | 205 | - | ||
| PPP loan liability | - | 445 | ||
| Deferred revenue | 1,705 | 1,717 | ||
| Total current liabilities | 3,836 | 3,503 | ||
| Non-current liabilities | ||||
| Promissory notes - related parties, net of current portion | - | 269 | ||
| Promissory note | - | 250 | ||
| Total non-current liabilities | - | 519 | ||
| Total equity | 807 | 99 | ||
| $ | 4,643 | $ | 4,121 |
See accompanying notes to the interim condensed consolidated financial statements.
Yoga International, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income
| Nine Months Ended<br><br><br>September 30, | ||||||
|---|---|---|---|---|---|---|
| (in thousands) | 2021 | 2020 | ||||
| (unaudited) | ||||||
| Net revenues | $ | 10,460 | $ | 10,996 | ||
| Cost of revenue | 2,104 | 2,333 | ||||
| Gross profit | 8,356 | 8,663 | ||||
| Expenses | ||||||
| General and administrative | 3,550 | 2,869 | ||||
| Sales and marketing | 3,789 | 5,067 | ||||
| Research and development | 703 | 466 | ||||
| 8,042 | 8,402 | |||||
| Income from operations | 314 | 261 | ||||
| Other income (expense) | ||||||
| Gain on PPP loan forgiveness | 448 | - | ||||
| Interest income (expense, net) | (47 | ) | (86 | ) | ||
| Other expense | (24 | ) | - | |||
| 377 | (86 | ) | ||||
| Net income | 691 | 175 | ||||
| Other comprehensive income | ||||||
| Foreign currency translation adjustment | (42 | ) | 18 | |||
| Comprehensive income | 649 | 193 | ||||
| Comprehensive loss attributable to non-controlling interest | 17 | 51 | ||||
| Comprehensive income attributable to controlling interest | $ | 666 | $ | 244 |
See accompanying notes to the interim condensed consolidated financial statements.
Yoga International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
| Nine Months Ended<br><br><br>September 30, | ||||||
|---|---|---|---|---|---|---|
| (in thousands) | 2021 | 2020 | ||||
| (unaudited) | ||||||
| Operating activities | ||||||
| Net income | $ | 691 | $ | 175 | ||
| Adjustments to reconcile net income to | ||||||
| net cash provided by operating activities | ||||||
| Depreciation and amortization | 61 | 106 | ||||
| Amortization of digital content | 1,069 | 886 | ||||
| Gain on PPP loan forgiveness | (445 | ) | - | |||
| Changes in | ||||||
| Accounts receivable | (30 | ) | (15 | ) | ||
| Prepaid expenses and other current assets | (96 | ) | (34 | ) | ||
| Accounts payable | 14 | 23 | ||||
| Accrued expenses and other current liabilities | (83 | ) | (122 | ) | ||
| Deferred revenue | (12 | ) | 1,176 | |||
| Net cash provided by operating activities | 1,169 | 2,195 | ||||
| Investing activities | ||||||
| Purchases of fixed assets | (25 | ) | (14 | ) | ||
| Additions to digital content | (1,202 | ) | (1,226 | ) | ||
| Net cash used in investing activities | (1,227 | ) | (1,240 | ) | ||
| Financing activities | ||||||
| Proceeds from promissory note | - | 125 | ||||
| Proceeds from promissory notes - related parties | 694 | 400 | ||||
| Repayment of promissory note | (46 | ) | - | |||
| Repayment of promissory notes - related parties | (308 | ) | (827 | ) | ||
| Proceeds from PPP loan liability | - | 445 | ||||
| Net cash provided by financing activities | 340 | 143 | ||||
| Effect of foreign exchange rate changes | (43 | ) | 18 | |||
| Net change in cash and cash equivalents | 239 | 1,116 | ||||
| Cash and cash equivalents | ||||||
| Beginning of period | 1,740 | 771 | ||||
| End of period | $ | 1,979 | $ | 1,887 | ||
| Supplemental disclosure of cash flow information | ||||||
| Cash paid during the period for interest | $ | 39 | $ | 92 |
See accompanying notes to the interim condensed consolidated financial statements.
Yoga International, Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements
| 1. | Organization, Nature of Operations, and Principles of Consolidation |
|---|
Organization
Yoga International, Inc. (the “Company”) was incorporated on April 29, 2021. On this date, the members of Yoga International, LLC (“YI LLC”) entered into an Equity Contribution Agreement (“Contribution Agreement”) whereby each member contributed 100% of their equity interests in YI LLC in exchange for shares of Class A Common Stock, Series LP-1 Preferred Stock and Series LP-2 Preferred Stock as authorized and outlined in the Certificate of Incorporation of the Company filed with the Delaware Department of State – Division of Corporations. As a result of this transaction YI LLC became a wholly owned subsidiary of the Company.
In connection with Contribution Agreement, the former majority member of YI LLC, Sages Holdings, Inc. (a C corporation for federal and state income tax purposes) who owned 75% of the capital ownership units of YI LLC became a wholly owned subsidiary of the Company.
YI LLC was incorporated and began operations on January 22, 2015 as a result of spin-off activity from a related organization, Himalayan International Institute of Yoga Science and Philosophy of the USA, that was known as Yoga International. There were no significant book values of assets contributed to the Company.
YI LLC created Yoga International Espanol, LLC (“YI Espanol”), an 82% owned subsidiary of YI LLC, on June 29, 2018. The primary purpose of YI Espanol is to provide yoga-related education, products, and marketing services to Spanish-speaking markets. On December 16, 2021, YI LLC entered into a Unit Purchase Agreement with the minority owner of YI Espanol. YI LLC purchased the 18% interest in YI Espanol not owned by YI LLC for $80,000. Following this transaction, YI Espanol became a wholly owned subsidiary of YI LLC.
On December 22, 2021, Gaia, Inc., a Colorado corporation (“Gaia”), entered into, and completed its acquisition of the Company pursuant to, an Agreement and Plan of Merger (“Merger Agreement”), with the Company, YI Merger Sub I, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company (“Merger Sub I”), and YI Merger Sub II, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company (“Merger Sub II” and, together with Merger Sub I, the “Merger Subs”). All capitalized terms used below and not otherwise defined have the definitions as set forth in the Merger Agreement.
Pursuant to the Merger Agreement, and upon the terms and conditions set forth therein, Merger Sub I merged with and into the Company (the “First Merger”), with the Company surviving the First Merger and continuing as a wholly owned subsidiary of the Company. Immediately following the First Merger, and as part of the same overall integrated transaction, the Company merged with and into Merger Sub II (the “Second Merger” and, together with the First Merger, the “Merger”), with Merger Sub II continuing as a wholly owned subsidiary of Gaia. At the closing of the Merger, all of the issued and outstanding shares of the Company’s preferred and common stock were converted into the right to receive an aggregate of $9,065,000 in cash plus a total of 1,134,613 shares of Gaia Class A common stock. Additional information related to the Merger is contained in Form 8-K filed by Gaia with the United States Securities and Exchange Commission on December 23, 2021.
Nature of Business
The Company is a web-based business that sells access to online educational material and digital content related to yoga from its sole location in Honesdale, Pennsylvania. The Company’s content can be accessed through its website or its mobile applications.
Yoga International, Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements
Principles of Consolidation
We have prepared the accompanying unaudited interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”), and they include our accounts and those of our subsidiaries. Intercompany transactions and balances have been eliminated. Operating results for the nine months ended September 30, 2021 and 2020 are not necessarily indicative of the results that may be expected for a full year or any future interim period. These interim statements have not been audited. The balance sheet as of December 31, 2020 was derived from our audited consolidated financial statements. The interim condensed consolidated financial statements contained herein should be read in conjunction with our audited consolidated financial statements, including the notes thereto, for the year ended December 31, 2020.
There have been no material changes in our significant accounting policies, as compared to the significant accounting policies described in our audited consolidated financial statements and related notes thereto for the year ended December 31, 2020.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the accompanying financial statements and disclosures. Although we base these estimates on our best knowledge of current events and actions that we may undertake in the future, actual results may be different from the estimates. Significant items subject to such estimates and assumptions include the streaming content asset amortization policy, valuation of acquired intangible assets, depreciation, and amortization. Actual results may differ from those estimates.
| 2. | Revenue Recognition |
|---|
The Company’s revenue is generated from the following sources:
Subscription Revenue
The Company generates subscription-based revenue from the purchase of a monthly or annual membership that gives the customer access to articles, classes, and digital workshops. During the nine months ended September 30, 2021 and 2020 the Company recognized approximately $8.1 million and $8.0 million, respectively, of subscription revenues.
One-Time Digital Purchases
The Company generates revenue from the sale of digital courses in exchange for a one-time fee for unlimited access to the course. During the nine months ended September 30, 2021 and 2020 the Company recognized approximately $2.6 million and $3.2 million, respectively, of revenue related to one-time digital purchases. In November 2021, the Company launched a premium level subscription offering that includes access to this course library. With the launch of this premium subscription offering, the Company plans to discontinue selling digital courses as one-time digital purchases.
| 3. | Intangible Assets, net |
|---|
Intangible assets, net include acquired customer lists. During the nine months ended September 30, 2021 and 2020, amortization expense was $43 thousand and $87 thousand, respectively. This is included in general and administrative expenses on the condensed consolidated statements of operations and comprehensive income (loss).
Yoga International, Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements
| 4. | Income Taxes |
|---|
Beginning April 29, 2021, with the formation of Yoga International, Inc., the Company became a C-Corp for federal and state income tax reporting purposes. Prior to this, YI LLC was treated as a partnership for federal and state income tax purposes. Consequently, federal and state income taxes were not payable, or provided for, by YI LLC. As the Company has had a history of losses, a full valuation allowance is in place and no tax expense or benefit was included in the results of operations for the nine months ended September 30, 2021 and 2020.
| 5. | Debt |
|---|
PPP Loan Liability
On April 20, 2020, the Company received loan proceeds in the amount of $0.4 million under the Paycheck Protection Program (“PPP”). The PPP, established as part of the CARES Act, provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loan and accrued interest are forgivable after eight or twenty-four weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The Company has used the proceeds for purposes consistent with the PPP. In January 2021, the Company received forgiveness from its lender for the full amount of the PPP loan and recorded a $0.4 million gain on the extinguishment of this debt in the nine months ended September 30, 2021.
Related Party Promissory Notes
The Company has historically entered into various promissory note agreements with investors during the nine months ended September 30, 2021 and 2020. The balances due on these promissory notes with related parties are separately identified on the accompanying condensed consolidated balance sheets. The outstanding promissory notes of the Company were repaid in full and the associated notes were cancelled in connection with the Merger. The balances due at September 30, 2021 are included in current liabilities on the accompanying condensed consolidated balance sheet.
Promissory Note
On January 4, 2019, the Company entered into a promissory note agreement with a bank in the amount of $250 thousand. The repayment terms of the promissory note consist of 24 monthly interest payments, beginning February 4, 2019, at a rate of 6.25% with principal and interest payments beginning on February 4, 2021. The promissory note is secured by collateral of the Company and matures on January 3, 2024. The balance due on this promissory note was repaid in full and the note was cancelled in connection with the Merger. The balance due at September 30, 2021 is included in current liabilities on the accompanying condensed consolidated balance sheet.
Interest expense for the nine months ended September 30, 2021 and 2020 was $52 thousand and $88 thousand, respectively.
| 6. | Equity |
|---|
The audited consolidated financial statements for the year ended December 31, 2020 included Members’ Equity. As a result of the Contribution Agreement discussed in Note 1, all member equity interests were converted into Class A Common Stock, Series LP-1 Preferred Stock and Series LP-2 Preferred Stock of the Company and is now presented as Shareholders’ Equity.
The only changes in equity during the nine months ended September 30, 2021 and 2020, were the result of changes in retained earnings as a result of net income and accumulated comprehensive income for each respective period, including the allocation to the non-controlling interest.
Yoga International, Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements
As a result of the Unit Purchase Agreement between YI LLC and YI Espanol discussed in Note 1, there is no longer a non-controlling interest as all subsidiaries are wholly owned.
With the consummation of the merger with Gaia discussed in Note 1, all of the issued and outstanding shares of the Company’s preferred and common stock were converted into the right to receive an aggregate of $9,065,000 in cash plus a total of 1,134,613 shares of Gaia Class A common stock.
| 7. | Commitments and 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 September 30, 2021 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.
Leases
The Company leases approximately 3,800 square feet of office and filming space. Monthly rental payments under the leases are $1,950 per month, with a 5% increase on any renewal period. The current lease terms expire in April 2022 and May 2023, with an auto renewal for two additional years.
7
gaia-ex993_62.htm
EX 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined financial statements (referred to as the “pro forma financial statements”) presented below are derived from the historical consolidated financial statements of Gaia, Inc. and its subsidiaries (collectively, the “Company” or “Gaia”), and Yoga International, Inc. (collectively with its subsidiaries, “Yoga International”), as adjusted to reflect the acquisition of Yoga International pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), dated as of December 22, 2021, by and among Gaia, Yoga International and the other parties thereto, pursuant to which on December 22, 2021 Gaia acquired Yoga International (the “Merger”).
The unaudited pro forma condensed combined balance sheet as of September 30, 2021, assumes that the Merger occurred on September 30, 2021.
The unaudited pro forma condensed combined statements of income for the twelve months ended December 31, 2020 and the nine months ended September 30, 2021, assume that the Merger occurred on January 1, 2020.
The following unaudited pro forma condensed combined financial information should be read in conjunction with the following financial statements:
| • | the audited consolidated financial statements of Gaia as of December 31, 2021 and for the two years ended December 31, 2021; |
|---|---|
| • | the unaudited consolidated financial statements of Gaia as of and for the nine months ended September 30, 2021 and 2020; |
| --- | --- |
| • | the audited consolidated financial statements of Yoga International as of and for the year ended December 31, 2020; and |
| --- | --- |
| • | the unaudited consolidated financial statements of Yoga International as of and for the nine months ended September 30, 2021. |
| --- | --- |
The pro forma adjustments reported in these unaudited pro forma condensed combined financial statements are based upon available information and certain assumptions that the Company’s management believes are reasonable. The unaudited pro forma condensed combined financial information of Gaia, after giving effect to the Merger (the “Combined Company”) is presented for informational purposes only and is not intended to represent or be indicative of what the results of operations or financial condition would have been had the Merger actually occurred on the dates indicated, nor is it meant to be indicative of future results of operations or financial condition for any future period or as of any future date. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed combined financial statements.
Combined Company
Pro Forma Condensed Combined Balance Sheet (Unaudited)
As of September 30, 2021
| (in thousands, except share and per share data) | Gaia | Yoga<br><br><br>International<br><br><br>Reported | Pro Forma Adjustments | Pro Forma Combined | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| ASSETS | ||||||||||
| Current assets: | ||||||||||
| Cash | $ | 14,428 | $ | 1,979 | $ | (8,089 | ) | a | $ | 8,318 |
| Accounts receivable | 2,589 | 41 | — | 2,630 | ||||||
| Prepaid expenses and other current assets | 1,863 | 268 | — | 2,131 | ||||||
| Total current assets | 18,880 | 2,288 | (8,089 | ) | 13,079 | |||||
| Media library, software and equipment, net | 42,246 | 2,341 | 4,686 | b | 49,273 | |||||
| Right-of-use lease asset, net | 8,061 | — | — | 8,061 | ||||||
| Real estate, investment, and other assets, net | 29,199 | 14 | 2,256 | b | 31,469 | |||||
| Goodwill | 17,289 | — | 11,581 | b | 28,870 | |||||
| Total assets | $ | 115,675 | $ | 4,643 | $ | 10,434 | $ | 130,752 | ||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||
| Current liabilities: | ||||||||||
| Accounts payable, accrued and other liabilities | $ | 9,855 | $ | 2,131 | $ | (494 | ) | c | $ | 11,492 |
| Deferred revenue | 14,130 | 1,705 | — | 15,835 | ||||||
| Total current liabilities | 23,985 | 3,836 | (494 | ) | 27,327 | |||||
| Long-term mortgage, net | 6,146 | 6,146 | ||||||||
| Long-term lease liability | 7,416 | — | — | 7,416 | ||||||
| Deferred taxes | 257 | — | — | 257 | ||||||
| Total liabilities | 37,804 | 3,836 | (494 | ) | 41,146 | |||||
| Total shareholders' equity | 77,871 | 807 | 10,928 | d | 89,606 | |||||
| Total liabilities and shareholders' equity | $ | 115,675 | $ | 4,643 | $ | 10,434 | $ | 130,752 |
Combined Company
Pro Forma Condensed Combined Statements of Operations
For the Nine Months Ended September 30, 2021
| (in thousands, except per share data) | Gaia | Yoga<br><br><br>International<br><br><br>Reported | Reclasses | Yoga<br><br><br>International Reclassed | Pro Forma Adjustments | Pro Forma<br><br><br>Combined<br><br><br>Company | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenues, net | $ | 58,744 | $ | 10,460 | $ | 10,460 | $ | (2,559 | ) | e | $ | 66,645 | |||||||
| Cost of revenues | 7,573 | 2,104 | 2,104 | (1,383 | ) | e, f | 8,294 | ||||||||||||
| Gross profit | 51,171 | 8,356 | 8,356 | (1,176 | ) | 58,351 | |||||||||||||
| Expenses: | |||||||||||||||||||
| Selling and operating | 44,820 | 3,789 | 703 | 4,492 | (25 | ) | e, f | 49,287 | |||||||||||
| Corporate, general and administration | 4,506 | 3,550 | 3,550 | — | 8,056 | ||||||||||||||
| Research and development | — | 703 | (703 | ) | — | — | — | ||||||||||||
| Total operating expenses | 49,326 | 8,042 | 8,042 | (25 | ) | 57,343 | |||||||||||||
| Income (loss) from operations | 1,845 | 314 | 314 | (1,151 | ) | 1,008 | |||||||||||||
| Interest and other income (expense), net | (197 | ) | 377 | 377 | (397 | ) | g | (217 | ) | ||||||||||
| Income before income taxes | 1,648 | 691 | 691 | (1,548 | ) | 791 | |||||||||||||
| Provision for (benefit from) income taxes | — | — | — | — | h | — | |||||||||||||
| Income (loss) from continuing operations | 1,648 | 691 | 691 | (1,548 | ) | 791 | |||||||||||||
| Income from discontinued operations | — | — | — | 1,097 | e | 1,097 | |||||||||||||
| Net income (loss) | 1,648 | 691 | 691 | (451 | ) | 1,888 | |||||||||||||
| Other comprehensive income | |||||||||||||||||||
| Foreign currency translation adjustment | — | (42 | ) | (42 | ) | (68 | ) | i | (110 | ) | |||||||||
| Comprehensive income (loss) | 1,648 | 649 | 649 | (519 | ) | 1,778 | |||||||||||||
| Comprehensive loss attributable to non-controlling interest | — | 17 | 17 | (17 | ) | i | — | ||||||||||||
| Comprehensive income (loss) attributable to non-controlling interest | $ | 1,648 | $ | 666 | $ | 666 | $ | (536 | ) | $ | 1,778 | ||||||||
| Basic: | |||||||||||||||||||
| Continuing operations | $ | 0.09 | $ | 0.04 | |||||||||||||||
| Discontinued operations | — | 0.06 | |||||||||||||||||
| Basic net income (loss) per share | $ | 0.09 | $ | 0.10 | |||||||||||||||
| Diluted: | |||||||||||||||||||
| Continuing operations | $ | 0.08 | $ | 0.04 | |||||||||||||||
| Discontinued operations | — | 0.06 | |||||||||||||||||
| Diluted net income (loss) per share | $ | 0.08 | $ | 0.10 | |||||||||||||||
| Weighted-average shares outstanding: | |||||||||||||||||||
| Basic | 19,262 | 19,262 | |||||||||||||||||
| Diluted | 19,787 | 19,787 |
Combined Company
Pro Forma Condensed Combined Statements of Operations
For the Twelve Months Ended December 31, 2020
| (in thousands, except per share data) | Gaia | Yoga<br><br><br>International<br><br><br>Reported | Reclasses | Yoga<br><br><br>International Reclassed | Pro Forma Adjustments | Pro Forma<br><br><br>Combined<br><br><br>Company | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenues, net | $ | 66,827 | $ | 14,780 | $ | 14,780 | $ | (4,193 | ) | e | $ | 77,414 | |||||||
| Cost of revenues | 8,651 | 3,140 | 3,140 | (2,257 | ) | e, f | 9,534 | ||||||||||||
| Gross profit | 58,176 | 11,640 | 11,640 | (1,936 | ) | 67,880 | |||||||||||||
| Expenses: | |||||||||||||||||||
| Selling and operating | 56,937 | 6,636 | 744 | 7,380 | (101 | ) | e, f | 64,216 | |||||||||||
| Corporate, general and administration | 5,867 | 3,964 | 3,964 | — | 9,831 | ||||||||||||||
| Research and development | — | 744 | (744 | ) | — | — | — | ||||||||||||
| Acquisition related costs | — | — | — | 360 | j | 360 | |||||||||||||
| Total operating expenses | 62,804 | 11,344 | 11,344 | 259 | 74,407 | ||||||||||||||
| Income (loss) from operations | (4,628 | ) | 296 | 296 | (2,195 | ) | (6,527 | ) | |||||||||||
| Interest and other income (expense), net | 5,327 | (107 | ) | (107 | ) | 112 | g | 5,332 | |||||||||||
| Income before income taxes | 699 | 189 | 189 | (2,083 | ) | (1,195 | ) | ||||||||||||
| Provision for (benefit from) income taxes | 180 | — | — | — | h | 180 | |||||||||||||
| Income (loss) from continuing operations | 519 | 189 | 189 | (2,083 | ) | (1,375 | ) | ||||||||||||
| Income from discontinued operations | — | — | — | 1,703 | e | 1,703 | |||||||||||||
| Net income | 519 | 189 | 189 | (380 | ) | 328 | |||||||||||||
| Other comprehensive income | |||||||||||||||||||
| Foreign currency translation adjustment | — | 23 | 23 | (23 | ) | i | — | ||||||||||||
| Comprehensive income | 519 | 212 | 212 | (403 | ) | 328 | |||||||||||||
| Comprehensive loss attributable to non-controlling interest | — | 62 | 62 | (62 | ) | i | — | ||||||||||||
| Comprehensive income attributable to non-controlling interest | $ | 519 | $ | 274 | $ | 274 | $ | (465 | ) | $ | 328 | ||||||||
| Earnings per share: | |||||||||||||||||||
| Basic: | |||||||||||||||||||
| Continuing operations | $ | 0.03 | $ | (0.07 | ) | ||||||||||||||
| Discontinued operations | — | 0.09 | |||||||||||||||||
| Basic net income (loss) per share | $ | 0.03 | $ | 0.02 | |||||||||||||||
| Diluted: | |||||||||||||||||||
| Continuing operations | $ | 0.03 | $ | (0.07 | ) | ||||||||||||||
| Discontinued operations | — | 0.09 | |||||||||||||||||
| Diluted net income (loss) per share | $ | 0.03 | $ | 0.02 | |||||||||||||||
| Weighted-average shares outstanding: | |||||||||||||||||||
| Basic | 18,921 | 18,921 | |||||||||||||||||
| Diluted | 19,305 | 19,305 |
Combined Company
Notes to Pro Forma Condensed Combined Financial Statements
| 1. | Basis of Presentation |
|---|
The unaudited pro forma condensed combined financial information includes pro forma adjustments that are (1) directly attributable to the Merger, (2) factually supportable and (3) with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the operating results of the Combined Company.
The Merger was accounted for by Gaia as a business combination using the acquisition method of accounting under ASC Topic 805, Business Combinations. Under the acquisition method of accounting, the purchase price was allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair values at the date of acquisition, with any excess purchase price allocated to goodwill. To date, Gaia has estimated a preliminary allocation of the purchase price to the assets acquired and liabilities assumed in the Merger, and the final allocation of such purchase price will be determined as further information becomes available. The final purchase price allocation may differ from that reflected in the following unaudited pro forma condensed combined financial statements, and these differences may be material.
The unaudited pro forma condensed combined consolidated balance sheet as of September 30, 2021, assumes that the Merger occurred on September 30, 2021. The unaudited pro forma condensed combined statements of income for the twelve months ended December 30, 2020 and the nine months ended September 30, 2021, assumes the Merger occurred on January 1, 2020.
The pro forma adjustments reported in these unaudited pro forma condensed combined financial statements are based upon available information and certain assumptions that the Company’s management believes are reasonable. The unaudited pro forma condensed combined financial information is presented for informational purposes only and is not intended to represent or be indicative of what the results of operations or financial condition would have been had the Merger actually occurred on the dates indicated, nor is it meant to be indicative of future results of operations or financial condition for any future period or as of any future date. The unaudited pro forma condensed combined financial information of the Combined Company should be read in conjunction with the audited and unaudited historical financial statements and related notes of Gaia and Yoga International.
Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed combined financial information.
| 2. | Sources of Purchase Price |
|---|
At the closing of the Merger 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. 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 and retained the remainder to offset identified closing liabilities in accordance with the terms of the Merger Agreement. These adjustments have been factored into the purchase price summarized below.
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 |
Combined Company
Notes to Pro Forma Condensed Combined Financial Statements
| 3. | Purchase Price Allocation |
|---|
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 preliminary 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 estimated fair values calculated using data that were available on the acquisition date. The items that may affect our preliminary purchase price determination relate to any and all contingencies, including income and other taxes. At the time such contingencies may arise within the measurement period of 12 months from the acquisition closing date, it may result in adjustments to liability balances and goodwill.
The following allocation of the purchase price to acquired identifiable assets and assumed liabilities is based on the valuation of the tangible and identifiable intangible assets acquired and liabilities assumed in the Merger as of September 30, 2021, used by management to prepare the unaudited pro forma condensed combined financial information. The following table summarizes the allocation of the estimated purchase price based on preliminary estimates of fair value:
| (in thousands) | Total | ||
|---|---|---|---|
| Cash | $ | 829 | |
| Accounts receivable | 21 | ||
| Prepaid expenses and other current assets | 248 | ||
| Media library, software and equipment | 47 | ||
| Intangible assets | 9,240 | ||
| Goodwill | 11,581 | ||
| Accounts payable and other liabilities | (993 | ) | |
| 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:
| (in thousands) | Total | Estimated Life (months) | ||
|---|---|---|---|---|
| Customer relationships | $ | 2,000 | 48 | |
| Content library | 6,970 | 90 | ||
| Tradenames | 270 | 48 | ||
| Total intangible assets acquired | $ | 9,240 |
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.
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.
Combined Company
Notes to Pro Forma Condensed Combined Financial Statements
| 4. | Reclassifications |
|---|
After the Merger, the accounting policies applicable to Yoga International will be conformed to those of the Company. The Company has identified preliminary adjustments to the presentation of the historical financial statements of Yoga International to those of the Company based upon currently available information and assumptions management believes to be reasonable. Yoga International’s research and development expenses were reclassified to selling and operating expenses to conform with the Company’s presentation. These expenses relate primarily to the support and operations of Yoga International’s digital streaming service.
Management of the Company is currently in the process of conducting a more detailed review of accounting policies used in the historical financial statements of Yoga International to determine if differences in accounting policies require any further reclassification to conform to the Company’s accounting policies and classifications. As a result, we may identify additional differences between the accounting policies of the Company and Yoga International that, when conformed, could have a material impact on these unaudited pro forma condensed combined financial statements.
| 5. | Pro Forma Adjustments |
|---|
The pro forma adjustments set forth in the unaudited condensed combined financial information reflect the following:
| a. | Cash used by the Merger of $5.8 million for payment of initial cash purchase consideration, $1.4 million for the repayment of all outstanding debt of Yoga International pursuant to the terms of the Merger Agreement, and $0.8 million for transaction related expenses incurred by Yoga International. |
|---|---|
| b. | The preliminary estimate of fair value of assets acquired and liabilities assumed, as described in Note 3 to the unaudited pro forma condensed combined financial statements, and the elimination of historical intangible assets of Yoga International of $14 thousand. |
| --- | --- |
| c. | Elimination of $1.4 million in outstanding promissory notes of Yoga International offset by $0.9 million of deferred purchase consideration paid on March 1, 2022. |
| --- | --- |
| d. | Fair value of Gaia Class A common stock issued as purchase consideration of $9.7 million and $2.0 million tax benefit related to a partial valuation allowance release for tax impact of acquired intangibles, offset by $0.8 million elimination of Yoga International’s shareholders’ equity and related minority interest. |
| --- | --- |
| e. | Discontinued operations presentation for the legacy one-time digital course sales. With the completion of the Merger and the launch of a premium level subscription tier that includes access to these courses on a subscription basis, the Company will be discontinuing this revenue stream. The pro forma adjustments reflect the reclass of revenues, associated costs of revenues and directly attributed marketing expenses to discontinued operations for both periods presented. |
| --- | --- |
| f. | Amortization of acquired intangible assets beginning on January 1, 2020. Amortization of acquired media library is reflected in cost of revenues and amortization for other acquired intangibles is included in selling and operating expenses on the accompanying condensed combined statements of operations. |
| --- | --- |
| g. | Elimination of interest expense for all periods for Yoga International promissory notes assumed to be paid off and cancelled as of January 1, 2020 in connection with the Merger. Also reflects the elimination of gain on forgiveness of debt for the Paycheck Protection Program loan as the Combined Company would not have applied for or qualified for this loan assuming the Merger closed on January 1, 2020. |
| --- | --- |
| h. | The Combined Company has a full valuation allowance in place and therefore there is no tax impact reflected for the pro forma adjustments in the condensed combined statements of operations. |
| --- | --- |
Combined Company
Notes to Pro Forma Condensed Combined Financial Statements
| i. | Elimination of non-controlling interest and foreign currency translation adjustments which also eliminates other comprehensive income. Foreign denominated intangible assets and minority interest were eliminated as a result of transactions completed to affect the Merger. |
|---|---|
| j. | Transaction costs incurred by Gaia directly attributed to the Merger. |
| --- | --- |
7