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INDEX TO FORM 10-Q



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


Form 10-Q

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

For the Fiscal Quarter Ended June 30, 2002

OR

o 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.,
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 ý                NO o

        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 July 29, 2002
Class A Common Stock
($.0001 par value)
  8,631,684

Class B Common Stock
($.0001 par value)

 

5,400,000




INDEX TO FORM 10-Q

 
   
PART I.   FINANCIAL INFORMATION

Item 1.

 

Condensed Consolidated Financial Statements (Unaudited)
        Condensed Consolidated Balance Sheets at June 30, 2002
        and December 31, 2001
        Condensed Consolidated Statements of Income for the three
        months ended June 30, 2002 and 2001
        Condensed Consolidated Statements of Income for the six
        months ended June 30, 2002 and 2001
        Condensed Consolidated Statement of Cash Flows for the six
        months ended June 30, 2002 and 2001
    Notes to Interim Condensed 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, 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.
CONDENSED CONSOLIDATED BALANCE SHEETS

 
  June 30,
2002

  December 31,
2001

 
 
  (Unaudited)

   
 
Assets              
Current assets:              
  Cash and cash equivalents   $ 19,243,169   $ 22,243,647  
  Accounts receivable, net     18,903,507     15,747,329  
  Accounts and notes receivable, other     1,961,875     2,086,085  
  Inventory, less allowances     13,759,301     15,447,434  
  Deferred advertising costs     2,029,601     1,779,443  
  Other current assets     477,230     489,846  
   
 
 
Total current assets     56,374,683     57,793,784  

Property and equipment, net

 

 

10,853,562

 

 

13,278,545

 
Capitalized production costs, net     4,589,574     3,551,478  
Video library, net     4,160,182     4,332,777  
Goodwill, net     7,266,714     7,266,714  
Deferred tax assets     1,390,545     1,390,545  
Other assets     673,319     573,210  
   
 
 
Total assets   $ 85,308,579   $ 88,187,053  
   
 
 

Liabilities and stockholders' equity

 

 

 

 

 

 

 
Current liabilities:              
  Accounts payable   $ 7,318,724   $ 8,954,607  
  Accrued liabilities     2,696,896     4,352,290  
  Accrued royalties     956,835     1,458,367  
  Income taxes payable     358,218     1,413,643  
  Capital lease obligations, current     197,899     211,745  
   
 
 
Total current liabilities     11,528,572     16,390,652  
 
Capital lease obligations, long-term

 

 

145,808

 

 

238,078

 
  Deferred tax liability     517,414     517,414  
   
 
 
Total long-term liabilities     663,222     755,492  
Minority interest     6,435,159     6,408,277  
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, 8,631,402 and 8,581,806 shares issued and outstanding at June 30, 2002 and December 31, 2001, respectively     863     858  
  Class B common stock, $.0001 par value, 50,000,000 shares authorized, 5,400,000 issued and outstanding at June 30, 2002 and December 31, 2001, respectively     540     540  
  Additional paid-in capital     48,535,139     48,261,202  
  Deferred compensation     (316,326 )   (352,326 )
  Retained earnings     12,461,410     10,722,358  
   
 
 
Total stockholders' equity     60,681,626     58,632,632  
   
 
 
Total liabilities and stockholders' equity   $ 85,308,579   $ 88,187,053  
   
 
 

See accompanying notes.



GAIAM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

 
  For the Three Months Ended
June 30,

 
 
  2002
  2001
 
Net revenue   $ 24,067,426   $ 22,018,695  
Cost of goods sold     9,885,211     8,771,992  
   
 
 
Gross profit     14,182,215     13,246,703  
Expenses:              
  Selling and operating     10,439,462     9,859,309  
  Corporate, general and administration     2,065,565     1,838,990  
   
 
 
Total expenses     12,505,027     11,698,299  
   
 
 
Income from operations     1,677,188     1,548,404  

Other income (expense)

 

 

(166,419

)

 

170,979

 
Interest income (expense)     57,516     (129,909 )
   
 
 
Total other income (expense)     (108,903 )   41,070  
   
 
 
Income before income taxes and minority              
  Interest     1,568,285     1,589,474  

Provision for income taxes

 

 

556,741

 

 

596,529

 
Minority interest in net income of consolidated subsidiary, net of tax     8,135     440,542  
   
 
 
Net income   $ 1,003,409   $ 552,403  
   
 
 
Net income per share:              
  Basic   $ 0.07   $ 0.05  
  Diluted   $ 0.07   $ 0.05  

Shares used in computing net income per share:

 

 

 

 

 

 

 
  Basic     14,022,326     11,362,524  
  Diluted     14,468,424     11,679,287  

See accompanying notes.



GAIAM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

 
  For the Six Months Ended
June 30,

 
 
  2002
  2001
 
Net revenue   $ 48,350,966   $ 39,690,208  
Cost of goods sold     19,899,839     15,619,582  
   
 
 
Gross profit     28,451,127     24,070,626  

Expenses:

 

 

 

 

 

 

 
  Selling and operating     21,030,713     18,397,661  
  Corporate, general and administration     4,192,058     3,389,196  
  Non-recurring restructuring charges     375,953      
   
 
 
Total expenses     25,598,724     21,786,857  
   
 
 
Income from operations     2,852,403     2,283,769  

Other income (expense)

 

 

(252,941

)

 

355,594

 
Interest income (expense)     113,480     (246,826 )
   
 
 
Total other income (expense)     (139,461 )   108,768  
   
 
 
Income before income taxes and minority              
  Interest     2,712,942     2,392,537  

Provision for income taxes

 

 

963,095

 

 

897,919

 
Minority interest in net income of consolidated subsidiary, net of tax     10,797     523,187  
   
 
 
Net income   $ 1,739,050   $ 971,431  
   
 
 
Net income per share:              
  Basic   $ 0.12   $ 0.09  
  Diluted   $ 0.12   $ 0.08  

Shares used in computing net income per share:

 

 

 

 

 

 

 
  Basic     14,013,949     11,284,632  
  Diluted     14,500,285     11,621,677  

See accompanying notes.



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

 
  For the Six Months
Ended June 30,

 
 
  2002
  2001
 
Operating activities              
Net income   $ 1,739,050   $ 971,431  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:              
  Depreciation     865,251     1,097,888  
  Amortization     172,596     306,992  
  Stock compensation     36,000     35,250  
  Minority interest in consolidated subsidiary     26,883     523,187  
 
Changes in operating assets and liabilities, net of effects from acquisitions:

 

 

 

 

 

 

 
    Accounts receivable     (3,031,969 )   236,300  
    Inventory     1,688,133     (3,806,803 )
    Deferred advertising costs     (250,158 )   (668,821 )
    Capitalized production costs     (1,038,096 )   132,608  
    Other current assets     12,616     (133,226 )
    Other assets     (100,109 )   33,766  
    Accounts payable     (1,635,883 )   1,067,359  
    Accrued liabilities     (2,156,926 )   (122,001 )
    Income taxes payable     (942,892 )   407,919  
   
 
 
Net cash (used in) provided by operating activities     (4,615,504 )   81,849  
   
 
 
Investing activities              
Purchase of property and equipment     (1,188,560 )   (721,574 )
Proceeds from the sale of property and equipment     2,748,292      
Payments for acquisitions, net of cash acquired         (3,527,576 )
   
 
 
Net cash (used in) provided by investing activities     1,559,732     (4,249,150 )
   
 
 
Financing activities              
Principal payments on capital leases     (106,116 )   (36,025 )
Proceeds from issuance of common stock     161,410     52,626  
Net proceeds from borrowings         4,522,481  
   
 
 
Net cash provided by financing activities     55,294     4,539,112  
   
 
 
Net change in cash and cash equivalents     (3,000,478 )   371,811  
Cash and cash equivalents at beginning of period     22,243,647     8,578,668  
   
 
 
Cash and cash equivalents at end of period   $ 19,243,169   $ 8,950,479  
   
 
 
Supplemental cash flow information              
Interest paid   $ 24,648   $ 278,617  
Income taxes paid     2,367,469     490,000  

See accompanying notes.



Gaiam, Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)
June 30, 2002

1. Interim Condensed 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 a broad selection of information, products 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 condensed 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, 2002, the interim results of operations for the three and six months ended June 30, 2002 and 2001, and cash flows for the six months ended June 30, 2002 and 2001. These interim statements have not been audited. The balance sheet as of December 31, 2001 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 principals 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, 2001 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, 2001.

        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 generally accepted accounting principles 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.

        In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets (SFAS No. 142"), which revises the accounting for purchased goodwill and other intangible assets. Under SFAS No. 142, goodwill and other intangible assets with indefinite lives will no longer be systematically amortized into operating results. Instead, each of these assets will be tested for impairment, in the absence of an indicator of possible impairment, at least annually, and upon an indicator of possible impairment, immediately. As required under SFAS No. 142, any goodwill resulting from a business


combination occurring subsequent to June 30, 2001, will not be systematically amortized. The provisions of SFAS No. 142 are required to be applied starting with fiscal years beginning after December 15, 2001 and must be applied as of the beginning of a fiscal year. Gaiam has adopted SFAS No. 142 as of January 1, 2002.

2. Stockholders' Equity

        During the first quarter of 2002, Gaiam issued 24,000 shares of Class A common stock upon exercise of warrants. In addition, for the six months ended June 30, 2002, Gaiam issued 25,596 shares of Class A common stock upon exercise of options granted under the 1999 Long-Term Incentive Plan.

3. Earnings per Share

        Basic earnings per share exclude any dilutive effects of options 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,

 
  2002
  2001
  2002
  2001
Net income   $ 1,003,409   $ 552,403   $ 1,739,050   $ 971,431
   
 
 
 
Denominator:                        
Weighted average shares for basic earnings per share     14,022,326     11,362,524     14,013,949     11,284,632
Effect of Dilutive Securities:                        
Weighted average of common stock, stock options and warrants     446,098     316,763     486,336     337,045
   
 
 
 
Denominator for diluted earnings per share     14,468,424     11,679,287     14,500,285     11,621,677
   
 
 
 
Net income per share—basic   $ 0.07   $ 0.05   $ 0.12   $ 0.09
Net income per share—diluted   $ 0.07   $ 0.05   $ 0.12   $ 0.08

4. 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 accounts for more than 10% of combined revenue. Contribution margin is defined as net sales, less cost of goods sold and direct expenses. Financial information for Gaiam's business segments was as follows:

 
  For the Three Months
Ended June 30,

  For the Six Months
Ended June 30,

 
  2002
  2001
  2002
  2001
Net revenue:                        
  Direct to consumer   $ 11,299,964   $ 11,670,834   $ 22,682,900   $ 22,207,220
  Business to business     12,767,461     10,347,861     25,668,066     17,482,988
   
 
 
 
    Consolidated net revenue     24,067,426     22,018,695     48,350,966     39,690,208
Contribution margin:                        
  Direct to consumer     190,285     519,593     316,988     617,329
  Business to business     1,486,903     1,028,811     2,911,368     1,666,440
  Non-Recurring restructuring charge *             375,953    
   
 
 
 
    Consolidated contribution margin     1,677,188     1,548,404     2,852,403     2,283,769
Reconciliation of contribution margin to net income:                        
  Other income (expense)     (108,903 )   41,070     (139,461 )   108,768
  Income tax expense     556,741     596,529     963,095     897,919
  Minority interest expense     8,135     440,542     10,797     523,187
   
 
 
 
Net income   $ 1,003,409   $ 552,403   $ 1,739,050   $ 971,431
   
 
 
 

*
Accrued one- time charge for severance and relocation costs associated with the planned consolidation of our finance and creative staff from California into our Colorado headquarters.

5. Restructuring Charge

        During the first quarter of 2002, Gaiam accrued $375,953 for severance and relocation costs associated with the planned consolidation of our finance and creative staff from California into our Colorado headquarters. These charges include approximately $286,000 for severance/relocation and other costs associated with the workforce consolidation. The remainder of the charge primarily relates to lease termination and other costs associated with office consolidation. This consolidation should be completed by third quarter 2002 and is expected to improve productivity and lower our operating costs by the end of the year.



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 condensed consolidated financial statements included elsewhere in this document.

Three months ended June 30, 2002 compared to three months ended June 30, 2001

        Revenues increased to $24.1 million for the three months ended June 30, 2002 from $22.0 million during the three months ended June 30, 2001. The closure, as planned, of the multi-store retail operation we acquired in connection with the Real Goods transaction in the first quarter of 2001 lowers our year over year sales growth comparison. Gaiam's internal growth rate of 19% was driven by sales growth in the business segment and proprietary products.

        Gross profit, which consists of revenues less cost of sales (primarily merchandise acquisition costs and in-bound freight) increased to $14.2 million for the second quarter of 2002 from $13.2 million during the same period in 2001. As a percentage of revenue, gross profit declined to 58.9% in 2002 from 60.2% in 2001. This was primarily attributable to increased sales contribution from the business segment, which carries lower gross margin but also lower operating expenses. Gaiam continues to pursue growth of its proprietary product offerings and increase focus on media products, on which Gaiam has better margins.

        Selling and operating expenses, which consist primarily of sales and marketing costs, commission and fulfillment expenses, increased to $12.5 million for the three months ended June 30, 2002 from $11.7 million for the same period in 2001. As a percentage of revenues, selling and operating expenses decreased to 43.4% in 2002 from 44.8% in 2001 primarily due to the increased percentage of sales from our business segment.

        Corporate, general and administrative expenses increased to $2.1 million during the second quarter of 2002, from $1.8 million during 2001, primarily due to higher revenues. As a percentage of revenues, general and administrative expenses increased marginally to 8.6% in 2002 from 8.4% in 2001.

        Operating income, as a result of the factors described above, increased to $1.7 million for the three months ended June 30, 2002, from $1.5 million for the comparable period in 2001.

        Gaiam recorded $108,903 in other expense for the three months ended June 30, 2002 compared to other income of $41,070 for the three month ended June 30, 2001. This shift was primarily attributable to the loss of $181,708 associated with the sales commission and other expenses paid on the sale of the Gaiam Yoga Center. Minority interest was $8,135 during the second quarter of 2002, compared to $440,542 during the second quarter of 2001.

        Income tax provision was $556,741 for the three months ended June 30, 2002 compared to $596,529 for the prior year period. The effective tax rate was 35.5%.

        Net income, as a result of the factors described above, increased 81.6% to $1,003,409 for the three months ended June 30, 2002 from $552,403 for the three months ended June 30, 2001.

Six months ended June 30, 2002 compared to six months ended June 30, 2001

        Revenues increased to $48.4 million for the six months ended June 30, 2002 from $39.7 million during the six months ended June 30, 2001.

        Gross profit increased to $28.5 million for the six months ended June 30, 2002 from $24.1 million during the same period in 2001. As a percentage of revenue, gross profit declined to 58.8% in 2002 from 60.6% in 2001. This was primarily attributable to increased sales contribution from the business-to-business channel, which carries lower gross margin but also lower operating expenses.



        Selling and operating expenses increased to $21.0 million for the six months ended June 30, 2002 from $18.4 million for the same period in 2001. As a percentage of revenues, selling and operating expenses decreased to 43.5% in 2002 from 46.4% in 2001.

        Corporate, general and administrative expenses increased to $4.2 million for the six months ended June 30, 2002, compared to $3.4 million for the corresponding period in 2001. As a percentage of revenues, general and administrative expenses increased to 8.7% in 2002 from 8.5% in 2000.

        A non-recurring one-time charge of $375,953 was taken in the first quarter of 2002. The charge is for severance and relocation costs associated with the planned consolidation of our finance and creative staff from California into our Colorado headquarters.

        Operating income, as a result of the factors described above, increased 24.9% to $2.9 million for the six months ended June 30, 2002 from $2.3 million for the comparable period in 2001. Excluding the accrued one-time charge (described above) operating income increased 41.3% to $3.2 million or 6.7% of sales in 2002 compared to $2.3 million or 5.8% of sales in 2001.

        Gaiam recorded $139,461 in other expense during the six months ended June 30, 2002, compared to other income of $108,768 for the comparable period in 2001. Minority interest decreased to $10,797 for the six months ended June 30, 2002 from $523,187 for the comparable period in 2001. Minority interest declined year-over-year due to Gaiam's purchase of the remaining minority interests in our organic clothing and two renewable energy businesses.

        Income tax provision increased to $963,094 for the six months ended June 30, 2002 from $897,919 for the comparable period in 2001.

        Net income, as a result of the factors described above, increased 79.0% to $1,739,050 for the six months ended June 30, 2002 from $971,431 for the comparable period in 2001.

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 will continue to evaluate possible investments in businesses, products and technologies, and plans to expand sales and marketing programs and conduct more aggressive brand promotions.

        Gaiam's operating activities generated net cash of $269,711 for the second quarter ended June 30, 2002. Operating activities used net cash of $4,615,504 and provided net cash of $81,849 for the six months ended June 30, 2002 and 2001, respectively. Gaiam's net cash used by operating activities for six months ended June 30, 2002 arose primarily from the decrease in accounts payable and accrued liabilities, an increase in accounts receivable associated with the growth in our business segment and the payment of income taxes payable for last year. Gaiam's net cash provided by operating activities for 2001 arose primarily from an increase in cash generated from net income prior to depreciation and amortization.

        Gaiam's investing and acquisition activities provided net cash of $1.6 million for the six months ended June 30, 2002 and used cash of $4.2 million for the comparable period in 2001. During the second quarter of 2002, Gaiam sold the Gaiam Yoga Center for net proceeds of $2.7 million. The cash used in investing activities in 2001, primarily arose from Gaiam's merger with Real Goods Trading



Corporation, and also the acquisition of the stock and net assets of Earthlings, Inc. and Self Care, Inc. for a total combined purchase price for both companies of $3.8 million.

        During the six months ended June 30, 2002, Gaiam's financing activities provided $55,294 in cash. During the six months ended June 30, 2001, Gaiam's financing activities provided $4.5 million in cash, as a result of borrowings under Gaiam's loan agreements.

        We believe our available cash, cash expected to be generated from operations, and borrowing capabilities of $15 million (unused line of credit) 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, minority investment, strategic relationship and other business combination opportunities in the LOHAS (Lifestyles of Health and Sustainability) market. 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. In the future, we may enter into transactions denominated in non-U.S. currencies, 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 May 23, 2002, Gaiam held its Annual Meeting of Shareholders. The shareholders elected six directors of Gaiam to serve until the next annual meeting of shareholders to be held in 2003 or until their successors are duly elected and qualified. The results of this vote follow:

Jirka Rysavy   For:   60,153,744   Withheld:   828,134
Lynn Powers   For:   60,153,931   Withheld:   827,947
James Argyropoulous   For:   60,845,709   Withheld:   136,169
Barnet Feinblum   For:   60,845,565   Withheld:   136,313
Barbara Mowry   For:   60,845,360   Withheld:   136,518
Paul Ray   For:   60,845,258   Withheld:   136,620

        In addition, Gaiam's shareholders approved an amendment to Gaiam's 1999 Long-Term Incentive Plan to increase the number of shares of Class A Common Stock permitted to be granted under the



plan to 2,100,000 shares from 1,600,000 shares. The vote on this proposal was 58,120,519 in favor, 1,339,021 opposed, and 1,522,338 abstaining.


Item 5. Other Information.

        None.


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


Exhibit No.
  Description
10.1   Amendment to Gaiam, Inc. 1999 Long-Term Incentive Plan (incorporated by reference to Gaiam's Proxy Statement dated April 22, 2002)

99.1

 

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.2

 

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

        None



SIGNATURES

        In accordance with the requirements of the Securities and Exchange Act, the registrant caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized.

    Gaiam, Inc.
(Registrant)
August 2, 2002

 

 

By:

 

/s/ Jirka Rysavy

Jirka Rysavy
Chief Executive Officer

 

 

 

 

/s/ Yudhister Bahl

Yudhister Bahl
Chief Financial Officer