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INDEX TO FORM 10-Q



United States
Securities and Exchange Commission
Washington, D.C. 20549


Form 10-Q


/x/

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the Fiscal Quarter Ended June 30, 2001

OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

Commission File Number 0-27517


GAIAM, INC.
(Exact name of registrant as specified in its charter)

COLORADO
(State or other jurisdiction of
incorporation or organization)
  84-1113527
(I.R.S. Employer
Identification No.)

360 INTERLOCKEN BLVD., SUITE 300
BROOMFIELD, COLORADO 80021
(Address of principal executive offices)

(303) 222-3600
(Registrant's telephone number, including area code)


    Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES /x/  NO / /

    Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

Class

  Shares outstanding as of August 6, 2001
Class A Common Stock
($.0001 par value)
  8,498,880

Class B Common Stock
($.0001 par value)

 

5,400,000




INDEX TO FORM 10-Q

 
PART I.  FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements (Unaudited)
    Consolidated Balance Sheets at June 30, 2001 and December 31, 2000
    Consolidated Statements of Income for the three months ended June 30, 2001 and 2000
    Consolidated Statements of Income for the six months ended June 30, 2001 and 2000
    Consolidated Statement of Cash Flows for the six months ended June 30, 2001 and 2000
    Notes to Interim Consolidated Financial Statements

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

Item 2.  Changes in Securities and Use of Proceeds

Item 3.  Defaults Upon Senior Securities

Item 4.  Submission of Matters to a Vote of Security Holders

Item 5.  Other Information

Item 6.  Exhibits and Reports on Form 8-K

This report may contain forward-looking statements that involve risks and uncertainties. When used in this discussion, the words "anticipate," "believe," "plan," "estimate," "expect," "strive," "future," "intend" and similar expressions as they relate to Gaiam or its management are intended to identify such forward-looking statements. Gaiam's actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain factors set forth under "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Market Risk" and elsewhere in this report. Risks and uncertainties that could cause actual results to differ include, without limitation, competition, loss of key personnel, pricing, brand reputation, growth of e-commerce, acquisitions, security and information systems, legal liability for website content, merchandise supply problems, failure of third parties to provide adequate service, reliance on centralized customer service, overstocks and merchandise returns, reliance on a centralized fulfillment center, increases in postage and shipping costs, future internet related taxes, control of Gaiam by its founder, fluctuations in quarterly operating results, limited experience in operating retail stores, consumer trends, customer interest in our products, general economic conditions, the effect of government regulation and other risks and uncertainties included in Gaiam's 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 management's view only as of the date of this report. We undertake no obligation to update any forward-looking information.



GAIAM, INC.
CONSOLIDATED BALANCE SHEETS

 
  June 30, 2001
  December 31, 2000
 
 
  (Unaudited)

   
 
Assets              

Current assets:

 

 

 

 

 

 

 
  Cash and cash equivalents   $ 8,950,479   $ 8,578,668  
  Accounts receivable, net     8,891,480     8,472,828  
  Accounts and notes receivable, other     346,475     1,097,390  
  Inventory, less allowances     12,538,029     6,361,046  
  Deferred advertising costs     2,402,753     1,625,285  
  Other current assets     1,287,298     1,307,416  
   
 
 
Total current assets     34,416,514     27,442,633  
Property and equipment, net     15,101,175     10,797,501  
Capitalized production costs, net     2,524,058     2,656,666  
Video library, net     4,470,327     4,631,140  
Goodwill, net     5,937,060     2,379,861  
Deferred tax assets     1,285,132     146,132  
Other assets     497,085     450,409  
   
 
 
Total assets   $ 64,231,351   $ 48,504,342  
   
 
 
Liabilities and stockholders' equity              
Current liabilities:              
  Accounts payable   $ 10,218,322   $ 8,091,569  
  Accrued liabilities     4,913,677     2,109,036  
  Accrued royalties     1,191,240     867,667  
  Income taxes payable     1,170,778     790,267  
  Capital lease obligations, current     162,722     147,649  
  Other current liabilities     169,210     167,349  
   
 
 
Total current liabilities     17,825,949     12,173,537  
  Capital lease obligations, long-term     251,391     270,171  
  Deferred tax liability     412,001     412,001  
  Long-term debt     10,541,368     5,500,000  
   
 
 
Total long-term liabilities     11,204,760     6,182,172  

Minority interest

 

 

6,411,359

 

 

6,037,868

 
Redeemable Class A preferred stock in subsidiary     6,000,000     6,000,000  

Stockholders' equity:

 

 

 

 

 

 

 
  Class A common stock, $.0001 par value, 150,000,000 shares authorized, 5,965,557 and 5,473,184 shares issued and outstanding at June 30, 2001 and December 31, 2000, respectively     597     547  
  Class B common stock, $.0001 par value, 50,000,000 shares authorized, 5,400,000 issued and outstanding at June 30, 2001 and December 31, 2000, respectively     540     540  
  Additional paid-in capital     15,537,521     11,865,734  
  Deferred compensation     (387,576 )   (422,826 )
  Retained earnings     7,638,201     6,666,770  
   
 
 
Total stockholders' equity     22,789,283     18,110,765  
   
 
 
Total liabilities and stockholders' equity   $ 64,231,351   $ 48,504,342  
   
 
 

See accompanying notes.



GAIAM, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

 
  For the Three Months Ended June 30,
 
 
  2001
  2000
 
Net revenue   $ 22,018,695   $ 11,385,982  
Cost of goods sold     8,771,992     4,655,562  
   
 
 
Gross profit     13,246,703     6,730,420  

Expenses:

 

 

 

 

 

 

 
  Selling and operating     9,859,309     5,421,658  
  Corporate, general and administration     1,838,990     1,014,321  
   
 
 
Total expenses     11,698,299     6,435,979  
   
 
 
Income from operations     1,548,404     294,441  

Other income

 

 

170,979

 

 

121,918

 
Interest expense     (129,909 )   (96,046 )
   
 
 
Other income, net     41,070     25,872  
   
 
 
Income before income taxes and minority interest     1,589,474     320,313  

Provision for income taxes

 

 

596,529

 

 

120,213

 
Minority interest in net (income) loss of consolidated subsidiary, net of tax     (440,542 )   352  
   
 
 
Net income   $ 552,403   $ 200,452  
   
 
 
Net income per share:              
  Basic   $ 0.05   $ 0.02  
  Diluted   $ 0.05   $ 0.02  

Shares used in computing net income per share:

 

 

 

 

 

 

 
  Basic     11,362,524     10,856,413  
  Diluted     11,679,287     11,551,619  

See accompanying notes.



GAIAM, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

 
  For the Six Months Ended June 30,
 
 
  2001
  2000
 
Net revenue   $ 39,690,208   $ 23,944,419  
Cost of goods sold     15,619,582     9,577,873  
   
 
 
Gross profit     24,070,626     14,366,546  

Expenses:

 

 

 

 

 

 

 
  Selling and operating     18,397,661     11,485,448  
  Corporate, general and administration     3,389,196     2,130,298  
   
 
 
Total expenses     21,786,857     13,615,746  
   
 
 
Income from operations     2,283,769     750,800  

Other income

 

 

355,594

 

 

45,623

 
Interest expense     (246,826 )   (142,696 )
   
 
 
Other income (expense), net     108,768     (97,073 )
   
 
 
Income before income taxes and minority interest     2,392,537     653,727  

Provision for income taxes

 

 

897,919

 

 

245,343

 
Minority interest in net (income) loss of consolidated subsidiary, net of tax     (523,187 )   (4,640 )
   
 
 
Net income   $ 971,431   $ 403,744  
   
 
 
Net income per share:              
  Basic   $ 0.09   $ 0.04  
  Diluted   $ 0.08   $ 0.04  

Shares used in computing net income per share:

 

 

 

 

 

 

 
  Basic     11,284,632     10,848,935  
  Diluted     11,621,677     11,524,526  

See accompanying notes.



GAIAM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

 
  For the Six Months Ended June 30,
 
 
  2001
  2000
 
Operating activities              
Net income   $ 971,431   $ 403,744  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:              
  Depreciation     1,097,888     421,694  
  Amortization     306,992     202,214  
  Stock compensation     35,250      
  Minority interest in consolidated subsidiary     523,187     4,640  
  Changes in operating assets and liabilities, net of effects from acquisitions:              
    Accounts receivable     236,300     944,229  
    Inventory     (3,806,803 )   (1,840,329 )
    Deferred advertising costs     (668,821 )   (25,086 )
    Capitalized production costs     132,608     (577,420 )
    Other current assets     (133,226 )   (62,501 )
    Other assets     33,766     5,205  
    Accounts payable     1,067,359     142,529  
    Accrued liabilities     (122,001 )   (425,674 )
    Income taxes payable     407,919     245,343  
   
 
 
Net cash provided by (used in) operating activities     81,849     (561,412 )
   
 
 
Investing activities              
Purchase of property and equipment     (721,574 )   (4,670,436 )
Proceeds from sale of stock in subsidiary         9,000,000  
Payments for acquisitions, net of cash acquired     (3,527,576 )    
   
 
 
Net cash provided by (used in) investing activities     (4,249,150 )   4,329,564  
   
 
 
Financing activities              
Principal payments on capital leases     (36,025 )   (53,173 )
Proceeds from issuance of common stock     52,656      
Net proceeds from borrowings     4,522,481     1,000,000  
   
 
 
Net cash provided by financing activities     4,539,112     946,827  
   
 
 
Net change in cash and cash equivalents     371,811     4,714,979  
Cash and cash equivalents at beginning of period     8,578,668     3,877,465  
   
 
 
Cash and cash equivalents at end of period   $ 8,950,479   $ 8,592,444  
   
 
 
Supplemental cash flow information              
Interest paid   $ 278,617   $ 131,638  
Income taxes paid     490,000      

See accompanying notes.



Gaiam, Inc.
Notes to Interim Consolidated Financial Statements
(Unaudited)
June 30, 2001

1.  Interim Consolidated Financial Statements

    Gaiam, Inc. was incorporated under the laws of the State of Colorado on July 7, 1988. Gaiam is a multi-channel lifestyle company providing information, goods and services to customers who value natural health, personal development and renewable energy.

    The accompanying consolidated financial statements include the accounts of Gaiam, its subsidiaries and partnerships in which ownership is greater than 50% and considered to be under the control of Gaiam. All material intercompany accounts and transaction balances have been eliminated in consolidation.

    The interim consolidated financial statements included herein have been prepared by the management of Gaiam pursuant to the rules and regulations of the United States Securities and Exchange Commission, and, in the opinion of management, contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly Gaiam's consolidated financial position as of June 30, 2001, the interim results of operations for the three and six months ended June 30, 2001 and 2000, and cash flows for the six months ended June 30, 2001 and 2000. These interim statements have not been audited. The balance sheet as of December 31, 2000 was derived from Gaiam's audited consolidated financial statements included in Gaiam's annual report on Form 10-K.

    Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. Accounting policies followed by Gaiam are described in Note 1 to the audited financial statements for the fiscal year ended December 31, 2000 included in Gaiam's annual report on Form 10-K. The consolidated financial statements contained herein should be read in conjunction with the audited financial statements, including the notes thereto, for the year ended December 31, 2000.

    The consolidated financial position, results of operations and cash flows for the interim periods disclosed within this report are not necessarily indicative of future financial results.

    The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual results could differ from those estimates.

    Certain reclassifications have been made to the 2000 financial statements to conform to 2001 presentation.

2.  Mergers and Acquisitions

    During the first quarter of 2001, Gaiam completed its merger with Real Goods Trading Corporation. In the tax-free stock-for-stock transaction, Real Goods shareholders received one share of Gaiam Class A common stock in exchange for each ten shares of Real Goods stock owned. The merger was accounted for using the purchase method. Gaiam also acquired all of the stock of Earthlings, Inc.


and Self Care, Inc. (companies under common ownership with the Chief Executive Officer of Gaiam) at his company's net investment cost plus transaction expenses. As these companies were under common control, the purchase was accounted for using historical costs, similar to a pooling transaction. Therefore, the difference between the purchase price and the value of net assets acquired was accounted for as a reduction to additional paid-in capital. The total combined purchase price for both companies was $3,848,014.

    During the second quarter of 2001, Gaiam exercised its option to purchase the remaining equity interest in Ecosport, thus eliminating the minority interest.

3.  Long-term debt

    During the second quarter of 2001, Gaiam entered into new credit agreements with Wells Fargo Bank West N.A. These agreements increase Gaiam's borrowing capacity from $6.5 million to $14.9 million. Under a revolving line of credit Gaiam has availability of up to $10 million with a maturity date of June 30, 2003, and under a term loan Gaiam may borrow up to $4.9 million, with a maturity of July 1, 2006. Borrowings under these agreements bear interest at the lower of prime rate less 50 basis points or LIBOR plus 275 basis points. These borrowings are secured by a pledge of Gaiam's assets, and contain various financial covenants, including a prohibition on the payment of cash dividends to Gaiam's shareholders and requiring the maintenance of certain financial ratios.

4.  Stockholders' Equity

    During the first quarter of 2001, Gaiam agreed to issue approximately 481,424 shares of Class A common stock in conjunction with its merger with Real Goods. In addition, for the six months ended June 30, 2001, Gaiam issued 10,949 shares of Class A common stock upon exercise of options granted under the 1999 Long-Term Incentive Plan.

5.  Earnings per Share

    Basic earnings per share exclude any dilutive effects of options, warrants and dilutive securities. Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period. Common equivalent shares are excluded from the computation if their effect is antidilutive. All earnings per share amounts for all period have been presented and conform to the Statement No. 128 requirements.

    The following table sets forth the computation of basic and diluted earnings per share:

 
  Three Months Ended June 30,
  Six Months Ended June 30,
 
  2001
  2000
  2001
  2000
Net income   $ 552,403   $ 200,452   $ 971,431   $ 403,744
   
 
 
 
Denominator:                        
Weighted average shares for basic earnings per share     11,362,524     10,856,413     11,284,632     10,848,935

Effect of Dilutive Securities:

 

 

 

 

 

 

 

 

 

 

 

 
Weighted average of common stock, stock options and warrants     316,763     695,206     337,045     675,591
   
 
 
 
Denominator for diluted earnings per share     11,679,287     11,551,619     11,621,677     11,524,526
   
 
 
 
Net income per share—basic   $ 0.05   $ 0.02   $ 0.09   $ 0.04
Net income per share—diluted   $ 0.05   $ 0.02   $ 0.08   $ 0.04

6.  Subsequent Events

    On August 3, 2001, Gaiam completed its secondary offering of 2,200,000 shares of Class A common stock, plus the overallotment of 330,000 shares, at an offering price of $13.75 per share.

7.  Segment Information

    Gaiam has two business segments: Direct to Consumer and Business to Business; both of which sell products, services and information produced or purchased from other suppliers. Although the customer bases do not overlap to any significant extent, the production, purchase and delivery processes overlap in some areas. Gaiam does not accumulate the balance sheet by segment for purposes of management review.

    Each of the two segments qualifies as such because each is more than 10% of combined revenue. Financial information for Gaiam's business segments was as follows (contribution margin as used below is net sales, less cost of goods sold and direct expenses):

 
  For the Three Months Ended June 30,
  For the Six Months Ended June 30,
 
 
  2001
  2000
  2001
  2000
 
Net revenue:                          
  Direct to consumer   $ 11,670,834   $ 8,922,219   $ 22,207,220   $ 18,731,874  
  Business to business     10,347,861     2,463,763     17,482,988     5,212,545  
   
 
 
 
 
  Consolidated net revenue     22,018,695     11,385,982     39,690,208     23,944,419  

Contribution margin:

 

 

 

 

 

 

 

 

 

 

 

 

 
  Direct to consumer     519,593     (37,836 )   617,329     6,540  
  Business to business     1,028,811     332,277     1,666,440     744,260  
   
 
 
 
 
  Consolidated contribution margin     1,548,404     294,441     2,283,769     750,800  

Reconciliation of contribution margin to net income:

 

 

 

 

 

 

 

 

 

 

 

 

 
  Other income (expense)     41,070     25,872     108,768     (97,073 )
  Income tax expense     596,529     120,213     897,919     245,343  
  Minority interest expense     440,542     (352 )   523,187     4,640  
   
 
 
 
 
Net income   $ 552,403   $ 200,452   $ 971,431   $ 403,744  
   
 
 
 
 


Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations

    The following discussion and analysis of Gaiam's financial condition and results of operations should be read in conjunction with the interim consolidated financial statements included elsewhere in this document.

Three months ended June 30, 2001 compared to three months ended June 30, 2000

    Revenues increased 93.4% to $22.0 million for the three months ended June 30, 2001 from $11.4 million during the three months ended June 30, 2000. Gaiam's internal growth rate was 67% for the three months ended June 30, 2001, fueled primarily by the growth in sales of Gaiam's proprietary products.

    Gross profit, which consists of revenues less cost of sales (primarily merchandise acquisition costs and in-bound freight) increased 96.8% to $13.2 million for the second quarter of 2001 from $6.7 million during the same period in 2000. As a percentage of revenue, gross profit increased to 60.2% in 2001 from 59.1% in 2000. This increase in gross profit percentage was also primarily the result of Gaiam's continuing efforts to increase the number of proprietary products offered, on which Gaiam has better margins than other products.

    Selling and operating expenses, which consist primarily of sales and marketing costs, commission and fulfillment expenses, increased 81.9%, less than the revenue increase of 93.4%, to $9.9 million for the three months ended June 30, 2001 from $5.4 million for the same period in 2000. As a percentage of revenues, selling and operating expenses decreased to 44.8% in 2001 from 47.6% in 2000.

    Corporate, general and administrative expenses increased to $1.8 million during the second quarter of 2001, from $1.0 million during 2000, primarily as a result of Gaiam's growth. As a percentage of revenues, general and administrative expenses decreased to 8.4% in 2001 from 8.9% in 2000.

    Operating income, as a result of the factors described above, increased 425.9% to $1.5 million for the three months ended June 30, 2001, from $294,441 for the comparable period in 2000.

    Gaiam recorded $41,070 in other income for the three months ended June 30, 2001 compared to $25,872 in other income for the three months ended June 30, 2000.

    Minority interest in net income of consolidated subsidiaries was $440,542 during the second quarter of 2001, compared to a negative $352 during the second quarter of 2000.

    Income tax provision increased to $596,529 for the three months ended June 30, 2001 from $120,213 for the comparable period in 2000.

    Net income, as a result of the factors described above, increased 175.6% to $552,403 for the three months ended June 30, 2001, from $200,452 for the three months ended June 30, 2000.

Six months ended June 30, 2001 compared to six months ended June 30, 2000

    Revenues increased 65.8% to $39.7 million for the six months ended June 30, 2001 from $23.9 million during the six months ended June 30, 2000. Gaiam's internal growth rate was 43% for the six months ended June 30, 2001, fueled primarily by the growth in sales of Gaiam's proprietary products.

    Gross profit increased 67.5% to $24.1 million for the six months ended June 30, 2001 from $14.4 million during the same period in 2000. As a percentage of revenue, gross profit increased to 60.6% in 2001 from 60.0% in 2000. This increase in gross profit percentage was primarily attributable to increases in the sales of proprietary or private-labeled branded products, on which Gaiam has better margins than other products.

    Selling and operating expenses increased 60.2%, corresponding to the revenue increase, to $18.4 million for the six months ended June 30, 2001 from $11.5 million for the same period in 2000. As a percentage of revenues, selling and operating expenses decreased to 46.4% in 2001 from 48.0% in 2000.


    Corporate, general and administrative expenses increased to $3.4 million for the six months ended June 30, 2001, compared to $2.1 million for the corresponding period in 2000. As a percentage of revenues, general and administrative expenses decreased to 8.5% in 2001 from 8.9% in 2000.

    Operating income, as a result of the factors described above, increased 204.2% to $2.3 million for the six months ended June 30, 2001 from $750,800 for the six months ended June 30, 2000.

    Gaiam recorded $108,768 in other income during the six months ended June 30, 2001, compared to other expense of $97,073 for the comparable period in 2000.

    Minority interest in net income increased to $523,187 for the six months ended June 30, 2001 from $4,640 for the same period in 2000.

    Income tax provision was $897,919 for the six months ended June 30, 2001 as compared to a provision of $245,343 for the six months ended June 30, 2000.

    Net income, as a result of the factors described above, increased 140.6% to $971,431 for the six months ended June 30, 2001 from $403,744 for the comparable period in 2000.

Liquidity and Capital Resources

    Gaiam's capital needs arise from working capital required to fund our operations, capital expenditures related to expansions and improvements to Gaiam's infrastructure, development of e-commerce, and funds required in connection with the acquisitions of new businesses and Gaiam's anticipated future growth. These capital requirements depend on numerous factors, including the rate of market acceptance of Gaiam's product offerings, the ability to expand Gaiam's customer base, the cost of ongoing upgrades to Gaiam's product offerings, the level of expenditures for sales and marketing, the level of investment in distribution and other factors. The timing and amount of these capital requirements cannot accurately be predicted. Additionally, Gaiam continues to evaluate possible investments in businesses, products and technologies, and plans to expand sales and marketing programs and conduct more aggressive brand promotions.

    During the second quarter of 2001, Gaiam entered into new loan agreements with Wells Fargo increasing Gaiam's borrowing capacity from $6.5 million to $14.9 million. The new revolving line of credit, which extends through June 30, 2003, allows borrowings up to $10 million based upon the collateral value of Gaiam's accounts receivable and inventory held for resale. Wells Fargo has also provided Gaiam with a term loan in the amount of up to $4.9 million, which matures on July 1, 2006, and allowed a $537,228 term note assumed as part of the Real Goods merger to remain outstanding. Borrowings under these agreements are secured by a pledge of Gaiam's assets, and bear interest at the lower of prime rate less 50 basis points or LIBOR plus 275 basis points. The Wells Fargo credit agreements contain various financial covenants and also prohibit Gaiam from paying cash dividends to shareholders.

    On August 3, 2001, Gaiam completed its secondary offering of 2,200,000 shares of Class A common stock, plus the overallotment of 330,000 shares, at an offering price of $13.75 per share.

    Gaiam's operating activities provided net cash of $81,849 for the six months ended June 30, 2001, compared to use of net cash of $561,412 for the six months ended June 30, 2000. Gaiam's net cash provided by operating activities for 2001 arose primarily from an increase in cash generated from net income and depreciation and amortization. Gaiam's net cash used by operating activities for 2000 arose primarily from increases in inventories in order to support additional revenue growth, including store-within-store rollouts.

    Gaiam's investing and acquisition activities used cash of $4.2 million for the six months ended June 30, 2001 and provided cash of $4.3 million for the six months ended June 30, 2001. During the first quarter of 2001, Gaiam completed its merger with Real Goods Trading Corporation, and also acquired all of the stock and certain assets of Earthlings, Inc. and Selfcare for a total combined purchase price of $3.8 million. During the second quarter of 2001, Gaiam eliminated the minority interest in Ecosport by acquiring the remaining equity interest. The cash provided by investing activities in 2000 arose


primarily from the sale of stock in Gaiam.com, net of the costs associated with the design and implementation of the Gaiam.com website, and additional property and equipment purchases to support Gaiam's increased business volume.

    During the six months ended June 30, 2001, Gaiam's financing activities provided $4.5 million in cash, as borrowing under Gaiam's loan agreements increased. During the six months ended June 30, 2000, Gaiam's financing activities provided cash of $946,827 through borrowing on its line of credit.

    We believe our available cash, cash expected to be generated from operations, and borrowing capabilities will 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, unforeseen operational difficulties or other factors.

    In the normal course of our business, we investigate, evaluate and discuss acquisition, joint venture, majority and minority investment, strategic relationship and other business combination opportunities in the LOHAS (Lifestyles of Health and Sustainability) industry. In the event of any future investment, acquisition or joint venture opportunities, we may consider using then-available liquidity, issuing equity securities or incurring additional indebtedness.



Item 3.  Quantitative and Qualitative Disclosures About Market Risk

    We do not believe that any of our financial instruments have significant risk associated with market sensitivity. We are not exposed to financial market risks from changes in foreign exchange rates and are only minimally impacted by changes in interest rates. Borrowing under our bank credit facility are at a variable rate of interest, and based on the current level of borrowings, we experience only modest changes in interest expense when market interest rates change. However, in the future, we may enter into transactions denominated in non-U.S. currencies or increase the level of our borrowings, which could increase our exposure to these market risks. We have not used, and currently do not contemplate using, any derivative financial instruments.



PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

    Gaiam is not party to any material legal proceedings.


Item 2.  Changes in Securities and Use of Proceeds

    None.


Item 3.  Defaults Upon Senior Securities

    None.


Item 4.  Submission of Matters to a Vote of Security Holders.

    On June 7, 2001, Gaiam held its Annual Meeting of Shareholders. The shareholders elected all six currently serving directors of Gaiam to serve until the next annual meeting of shareholders to be held in 2002 or until their successors are duly elected and qualified. The results of this vote follow:

Jirka Rysavy   For:   58,730,221   Withheld:   42,614
Lynn Powers   For:   58,730,601   Withheld:   42,234
Barnet Feinblum   For:   58,735,881   Withheld:   36,954
John Mackey   For:   58,735,761   Withheld:   36,974
Barbara Mowry   For:   58,730,172   Withheld:   42,663
Paul Ray   For:   58,730,330   Withheld:   42,505


Item 5.  Other Information.

    None.



Item 6.  Exhibits and Reports on Form 8-K.

    a)  Exhibits

Exhibit No.
  Description

3.1   Amended and Restated Articles of Incorporation of Gaiam, Inc. (incorporated by reference to Exhibit 3.1 of Gaiam's Registration Statement on Form S-1 (No. 333-83283))

3.2

 

Bylaws of Gaiam, Inc. (incorporated by reference to Exhibit 3.2 of Gaiam's Registration Statement on Form S-1 (No. 333-83283))

4.1

 

Form of Gaiam, Inc. Stock Certificate (incorporated by reference to Exhibit 4.1 of Gaiam's Registration Statement on Form S-1 (No. 333-83283))

10.1

 

Loan Agreement, dated as of April 16, 2001, between Gaiam, Inc. and Wells Fargo Bank West, N.A. (incorporated by reference to Exhibit 10.1 of Gaiam's Registration Statement on Form S-1 (No. 333-63488))

10.2

 

Gaiam, Inc. 1999 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 of Gaiam's Registration Statement on Form S-1 (No. 333-83283))

10.3

 

Lease, dated December 16, 1999, between Gaiam, Inc. and Duke-Weeks Realty Limited Partnership (incorporated by reference to Exhibit 10.2 of Gaiam's Registration Statement on Form S-4 (No. 333-50560))

10.4

 

Lease, dated December 18, 1997, between Gaiam, Inc. and Orix Prime West Broomfield Venture (incorporated by reference to Exhibit 10.4 of Gaiam's Registration Statement on Form S-1 (No. 333-83283))

    b)  Reports on Form 8-K.



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 thereunto duly authorized.

    Gaiam, Inc.
(Registrant)
August 10, 2001

 

 

By:

 

/s/ 
JIRKA RYSAVY   
Jirka Rysavy
Chief Executive Officer

 

 

 

 

/s/ 
JANET MATHEWS   
Janet Mathews
Chief Accounting Officer