14. Subsequent Events

Pending Sale of the Brand Business

On May 10, 2016 we entered into agreements to sell the assets and liabilities of our Gaiam Brand Business in exchange for $167.0 million. The Brand Business consists of all the assets and liabilities of our Gaiam Brand segment, except for our interest in our eco-travel subsidiary, which was sold on May 4, 2016 as explained below. Our Gaiam Brand Business constitutes the vast majority of our consolidated revenues and expenses, and consists of our yoga, fitness and wellness consumer products, and content. If the sale of the Brand Business is consummated, our remaining business will consist of our Gaia video subscription service business and on-line community and will operate in our Gaia segment. Upon closing the sale of the Brand Business, we expect to conduct a tender offer for up to 12 million shares of our Class A common stock and vested stock options. The sale of our Brand Business is planned to occur after the period covered by this report. Therefore, the information in this report should be read in light of the pending sale of our Brand Business. There can be no assurance that we will be able to successfully consummate the sale of our Brand Business.

Sale of Natural Habitat

On May 4, 2016 we sold all our interest in Natural Habitat, Inc. (“Natural Habitat”), our eco-travel subsidiary, in exchange for $12.85 million in cash.

The following pro forma condensed consolidated financial information is based on our historical financial statements, including certain pro forma adjustments, and has been prepared to illustrate the pro forma effect of the sale of Natural Habitat. The unaudited pro forma condensed consolidated statements of operations for the quarter ending March 31, 2016 and for the year ending December 31, 2015 assume that the sale occurred as of January 1, 2015. The unaudited pro forma condensed consolidated balance sheet as of March 31, 2016 is presented as if the sale had occurred on March 31, 2016.

The unaudited pro forma condensed consolidated financial information has been prepared based upon available information and management estimates; actual amounts may differ from these estimated amounts. The unaudited pro forma condensed consolidated financial information is not necessarily indicative of the financial position or results of operations that might have occurred had the sale occurred as of the dates stated above. The pro forma adjustments are described in the notes.

The unaudited pro forma condensed consolidated financial information should be read in conjunction with the audited financial statements and notes and related Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

 

Unaudited Pro Forma Condensed Consolidated Financial Information

Gaiam, Inc.

Unaudited Pro Forma Condensed Consolidated Statement of Operations

Quarter Ending March 31, 2016

(in thousands, except per share data)

 

		Gaiam Historical Financial Statements				Less: Natural Habitat Historical Financial Statements (a)(c)				Pro Forma Adjustments (Disposition of Natural Habitat)				Notes		Pro Forma Results (Adjusted for Disposition of Natural Habitat)
Net revenues		$	35,327			$	9,585			$	—					$	25,742
Cost of goods sold			18,937				6,312				—						12,625
Gross profit			16,390				3,273				—						13,117
Selling, general, and administrative			24,593				4,209				3			(b)			20,387
Loss from operations			(8,203	)			(936	)			(3	)					(7,270	)
Interest and other income (expense)			509				944				—						(435	)
(Loss) income before income taxes			(7,694	)			8				(3	)					(7,705	)
Income tax (benefit) expense			(9	)			1				—						(10	)
Net (loss) income from continuing operations			(7,685	)			7				(3	)					(7,695	)
Net loss attributable to noncontrolling interest			61				47				—						14
Net (loss) income from continuing operations attributable to Gaiam, Inc.		$	(7,624	)		$	54			$	(3	)				$	(7,681	)
Net loss from continuing operations per share:
Basic and Diluted		$	(0.31	)												$	(0.31	)
Weighted-average shares outstanding:
Basic and Diluted			24,531														24,531

 

(a)	Represents the revenues and expenses excluding certain fixed overhead costs of Natural Habitat included in Gaiam’s historical financial statements.

(b)	Operating expenses are increased to reverse the impact of a human resources service allocation to Natural Habitat from Gaiam.

(c)	Results are consolidated then adjusted for noncontrolling interests. Gaiam owned 51.4% of Natural Habitat.

 

Unaudited Pro Forma Condensed Consolidated Financial Information

Gaiam, Inc.

Unaudited Pro Forma Condensed Consolidated Statement of Operations

Year Ending December 31, 2015

(in thousands, except per share data)

 

		Gaiam Historical Financial Statements				Less: Natural Habitat Historical Financial Statements (a)(c)				Pro Forma Adjustments (Disposition of Natural Habitat)				Notes		Pro Forma Results (Adjusted for Disposition of Natural Habitat)
Net revenues		$	188,018			$	43,514			$	—					$	144,504
Cost of goods sold			103,249				27,544				—						75,705
Gross profit			84,769				15,970				—						68,799
Selling, general, and administrative			80,588				12,126				10			(b)			68,472
Income (loss) from operations			4,181				3,844				(10	)					327
Interest and other income (expense)			(1,406	)			(1,168	)			—						(238	)
Loss from equity method investments			(465	)			—				—						(465	)
Income (loss) before income taxes			2,310				2,676				(10	)					(376	)
Income tax expense (benefit)			1,219				1,154				—						65
Net income (loss) from continuing operations			1,091				1,522				(10	)					(441	)
Net income attributable to noncontrolling interest			(694	)			(672	)			—						(22	)
Net income (loss) from continuing operations attributable to Gaiam, Inc.		$	397			$	850			$	(10	)				$	(463	)
Net income (loss) from continuing operations per share:
Basic and Diluted		$	0.02													$	(0.02	)
Weighted-average shares outstanding:
Basic			24,510														24,510
Diluted			24,612														24,612

 

(a)	Represents the revenues and expenses excluding certain fixed overhead costs of Natural Habitat included in Gaiam’s historical financial statements.

(b)	Operating expenses are increased to reverse the impact of a human resources service allocation to Natural Habitat from Gaiam.

(c)	Results are consolidated then adjusted for noncontrolling interests. Gaiam owned 51.4% of Natural Habitat.

 

Unaudited Pro Forma Condensed Consolidated Financial Information

Gaiam, Inc.

Unaudited Pro Forma Condensed Consolidated Balance Sheet

As of March 31, 2016

(in thousands)

 

		Gaiam Historical Financial Statements				Less: Natural Habitat Historical Financial Statements (a)				Pro Forma Adjustments (Disposition of Natural Habitat)				Notes		Pro Forma Results (Adjusted for Disposition of Natural Habitat)
Cash		$	11,228			$	3,951			$	11,050			(b)		$	18,327
Accounts receivable, net			13,002				389				—						12,613
Inventory, less allowances			16,847				—				—						16,847
Other current assets			14,351				8,714										5,637
Total current assets			55,428				13,054				11,050						53,424
Property and equipment, net			25,590				1,418				—						24,172
Media library, net			9,348				—				—						9,348
Goodwill			15,448				3,384				—						12,064
Other intangibles, net			782				75				—						707
Other assets			4,160				423				—						3,737
Total assets		$	110,756			$	18,354			$	11,050					$	103,452
Accounts payable		$	10,437			$	2,615			$	—					$	7,822
Accrued liabilities			20,779				13,310				544			(c)			8,013
Total current liabilities			31,216				15,925				544						15,835
Total Gaiam, Inc. shareholders’ equity			76,743				1,501				10,506			(d)			85,748
Noncontrolling interest			2,797				928				—						1,869
Total equity			79,540				2,429				10,506						87,617
Total liabilities and equity		$	110,756			$	18,354			$	11,050					$	103,452

 

(a)	Represents the assets, liabilities, and equity attributable to Natural Habitat included in Gaiam’s historical financial statements.

(b)	Cash is adjusted to reflect the $11.0 million estimated net proceeds from the sale.

(c)	Accrued liabilities have been adjusted to reflect the accrual of estimated nonrecurring costs directly related to the disposition (not paid in close).

(d)	Equity is adjusted to reflect the estimated net gain of $9.0 million on the sale of Natural Habitat. We expect that there will be minimal income taxes on the gain due to utilization of our net operating losses.