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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 September 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   84-1113527
(State or other jurisdiction of
incorporation or organization)
  (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 November 7, 2002
Class A Common Stock
($.0001 par value)
  8,634,040

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 September 30, 2002 and December 31, 2001

 

 

Condensed Consolidated Statements of Income for the three months ended September 30, 2002 and 2001

 

 

Condensed Consolidated Statements of Income for the nine months ended September 30, 2002 and 2001

 

 

Condensed Consolidated Statement of Cash Flows for the nine months ended September 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

Item 4.

 

Controls and Procedures

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

 
  September 30,
2002

  December 31,
2001

 
 
  (Unaudited)

   
 
Assets              
Current assets:              
  Cash and cash equivalents   $ 17,136,706   $ 22,243,647  
  Accounts receivable, net     19,425,628     15,747,329  
  Accounts and notes receivable, other     2,442,314     2,086,085  
  Inventory, less allowances     14,835,296     15,447,434  
  Deferred advertising costs     2,931,012     1,779,443  
  Other current assets     942,927     489,846  
   
 
 
Total current assets     57,713,883     57,793,784  

Property and equipment, net

 

 

11,317,412

 

 

13,278,545

 
Capitalized production costs, net     4,782,863     3,551,478  
Video library, net     4,073,884     4,332,777  
Goodwill, net     10,195,828     7,266,714  
Deferred tax assets     1,390,545     1,390,545  
Other assets     651,668     573,210  
   
 
 
Total assets   $ 90,126,083   $ 88,187,053  
   
 
 

Liabilities and stockholders' equity

 

 

 

 

 

 

 
Current liabilities:              
  Accounts payable   $ 8,847,892   $ 8,954,607  
  Accrued liabilities     3,507,869     4,352,290  
  Accrued royalties     514,776     1,458,367  
  Income taxes payable     1,194,934     1,413,643  
  Capital lease obligations, current     901,869     211,745  
   
 
 
Total current liabilities     14,967,340     16,390,652  
 
Capital lease obligations, long-term

 

 

95,749

 

 

238,078

 
  Deferred tax liability     537,408     517,414  
   
 
 
Total long-term liabilities     633,157     755,492  

Minority interest

 

 

6,411,416

 

 

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, 8,633,858 and 8,581,806 shares issued and outstanding at September 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     48,554,892     48,261,202  
  Deferred compensation     (298,326 )   (352,326 )
  Retained earnings     13,856,201     10,722,358  
   
 
 
Total stockholders' equity     62,114,170     58,632,632  
   
 
 
Total liabilities and stockholders' equity   $ 90,126,083   $ 88,187,053  
   
 
 

See accompanying notes.


GAIAM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 
  For the Three Months Ended
September 30,

 
 
  2002
  2001
 
Net revenue   $ 25,793,600   $ 23,945,703  
Cost of goods sold     10,763,823     9,724,074  
   
 
 
Gross profit     15,029,777     14,221,629  
Expenses:              
  Selling and operating     10,700,319     10,468,798  
  Corporate, general and administration     2,083,780     1,960,528  
   
 
 
Total expenses     12,784,099     12,429,326  
   
 
 
Income from operations     2,245,678     1,792,303  

Other income (expense)

 

 

(161,677

)

 

68,294

 
Interest income     41,654     63,280  
   
 
 
Total other income (expense)     (120,023 )   131,574  
   
 
 
Income before income taxes and minority interest     2,125,655     1,923,877  

Provision for income taxes

 

 

754,607

 

 

671,434

 
Minority interest in net (income) loss of consolidated subsidiary, net of tax     23,744     (282,979 )
   
 
 
Net income   $ 1,394,792   $ 969,464  
   
 
 
Net income per share:              
  Basic   $ 0.10   $ 0.07  
  Diluted   $ 0.10   $ 0.07  
Shares used in computing net income per share:              
  Basic     14,033,066     13,005,026  
  Diluted     14,376,074     13,496,612  

See accompanying notes.


GAIAM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 
  For the Nine Months Ended
September 30,

 
 
  2002
  2001
 
Net revenue   $ 74,144,566   $ 63,635,911  
Cost of goods sold     30,663,662     25,343,656  
   
 
 
Gross profit     43,480,904     38,292,255  
Expenses:              
  Selling and operating     31,731,033     28,866,459  
  Corporate, general and administration     6,275,838     5,349,724  
  Non-recurring restructuring charges     375,953      
   
 
 
Total expenses     38,382,824     34,216,183  
   
 
 
Income from operations     5,098,080     4,076,072  

Other income (expense)

 

 

(414,618

)

 

423,888

 
Interest income (expense)     155,134     (183,546 )
   
 
 
Total other income (expense)     (259,484 )   240,342  
   
 
 
Income before income taxes and minority interest     4,838,596     4,316,414  

Provision for income taxes

 

 

1,717,701

 

 

1,569,353

 
Minority interest in net (income) loss of consolidated subsidiary, net of tax     12,947     (806,166 )
   
 
 
Net income   $ 3,133,842   $ 1,940,895  
   
 
 
Net income per share:              
  Basic   $ 0.22   $ 0.16  
  Diluted   $ 0.22   $ 0.16  
Shares used in computing net income per share:              
  Basic     14,020,392     11,864,398  
  Diluted     14,458,952     12,252,957  

See accompanying notes.


GAIAM, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

 
  For the Nine Months
Ended September 30,

 
 
  2002
  2001
 
Operating activities              
Net income   $ 3,133,843   $ 1,940,895  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:              
  Depreciation     1,478,232     1,693,183  
  Amortization     258,893     466,055  
  Stock compensation     54,000     52,875  
  Minority interest in consolidated subsidiary     3,139     806,166  
  Changes in operating assets and liabilities, net of effects from acquisitions:              
    Accounts receivable     (4,029,332 )   (2,287,467 )
    Inventory     612,138     (6,662,612 )
    Deferred advertising costs     (1,151,569 )   (956,841 )
    Capitalized production costs     (1,231,385 )   (127,165 )
    Other current assets     (453,081 )   619,850  
    Other assets     (53,015 )   42,694  
    Accounts payable     (1,009,910 )   1,231,727  
    Accrued liabilities     (3,498,962 )   (1,492,945 )
    Income taxes payable     (101,475 )   (2,806 )
   
 
 
Net cash (used in) provided by operating activities     (5,988,484 )   (4,676,391 )
   
 
 
Investing activities              
Purchase of property and equipment     (2,142,644 )   (1,051,495 )
Proceeds from the sale of property and equipment     2,748,292      
Payments for acquisitions, net of cash acquired     255,230     (3,777,576 )
   
 
 
Net cash (used in) provided by investing activities     860,878     (4,829,071 )
   
 
 
Financing activities              
Principal payments on capital leases     (156,176 )   (82,490 )
Proceeds from issuance of common stock     176,841     31,721,754  
Net proceeds from borrowings         (5,512,148 )
   
 
 
Net cash provided by financing activities     20,666     26,127,116  
   
 
 
Net change in cash and cash equivalents     (5,106,941 )   16,621,654  
Cash and cash equivalents at beginning of period     22,243,647     8,578,668  
   
 
 
Cash and cash equivalents at end of period   $ 17,136,706   $ 25,200,322  
   
 
 
Supplemental cash flow information              
Interest paid   $ 45,115   $ 323,841  
Income taxes paid     2,367,737     1,572,159  

See accompanying notes.


Gaiam, Inc.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

September 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 September 30, 2002, the interim results of operations for the three and nine months ended September 30, 2002 and 2001, and cash flows for the nine months ended September 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 nine months ended September 30, 2002, Gaiam issued 28,052 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
September 30,

  Nine Months Ended
September 30,

 
  2002
  2001
  2002
  2001
Net income   $ 1,394,792   $ 969,464   $ 3,133,842   $ 1,940,895
   
 
 
 
Denominator:                        
Weighted average shares for basic earnings per share     14,033,066     13,005,026     14,020,392     11,864,398
Effect of Dilutive Securities:                        
Weighted average of common stock, stock options and warrants     343,008     491,586     438,560     388,559
   
 
 
 
Denominator for diluted earnings per share     14,376,074     13,496,612     14,458,952     12,252,957
   
 
 
 
Net income per share—basic   $ 0.10   $ 0.07   $ 0.22   $ 0.16
Net income per share—diluted   $ 0.10   $ 0.07   $ 0.22   $ 0.16

4. Segment Information

        Gaiam has two business segments: Direct to Consumer and 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 September 30,

  For the Nine Months
Ended September 30,

 
 
  2002
  2001
  2002
  2001
 
Net revenue:                          
  Direct to consumer   $ 12,772,864   $ 12,463,127   $ 35,455,764   $ 34,670,347  
  Business     13,020,736     11,482,576     38,688,802     28,965,564  
   
 
 
 
 
    Consolidated net revenue     25,793,600     23,945,703     74,144,566     63,635,911  
Contribution margin:                          
  Direct to consumer     452,020     691,344     769,007     1,308,673  
  Business     1,793,658     1,100,959     4,705,026     2,767,399  
  Non-Recurring restructuring charge *             375,953      
   
 
 
 
 
    Consolidated contribution margin     2,245,678     1,792,303     5,098,080     4,076,072  
Reconciliation of contribution margin to net income:                          
  Other income (expense)     (120,023 )   131,574     (259,484 )   240,342  
  Income tax expense     754,607     671,434     1,717,701     1,569,353  
  Minority interest expense     23,744     (282,979 )   12,947     (806,166 )
   
 
 
 
 
Net income   $ 1,394,792   $ 969,464   $ 3,133,842   $ 1,940,895  
   
 
 
 
 

*
Accrued one-time charge for severance and relocation costs associated with the 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 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.


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 September 30, 2002 compared to three months ended September 30, 2001

        Revenues increased to $25.8 million for the three months ended September 30, 2002 from $23.9 million during the three months ended September 30, 2001. The closure of some catalog operations and the multi-store retail operation we acquired in connection with the Real Goods transaction lowers our year over year sales growth comparison. Sales growth in the business segment coupled with increased sales of proprietary products contributed to the internal growth rate of 13%.

        Gross profit, which consists of revenues less cost of sales (primarily merchandise acquisition costs and in-bound freight) increased to $15.0 million for the third quarter of 2002 from $14.2 million during the same period in 2001. As a percentage of revenue, gross profit declined to 58.3% in 2002 from 59.4% 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 $10.7 million for the three months ended September 30, 2002 from $10.5 million for the same period in 2001. As a percentage of revenues, selling and operating expenses decreased to 41.5% in 2002 from 43.7% 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 third quarter of 2002, from $2.0 million during 2001. As a percentage of revenues, general and administrative expenses decreased marginally to 8.1% in 2002 from 8.2% in 2001.

        Operating income, as a result of the factors described above, increased 25.3% to $2.2 million for the three months ended September 30, 2002, from $1.8 million for the comparable period in 2001. As a percentage of revenues operating income increased 120 basis points to 8.7% in the third quarter ended September 30, 2002 up from 7.5% for the like period in 2001.

        Gaiam recorded $120,023 in other expense for the three months ended September 30, 2002 compared to other income of $131,574 for the three month ended September 30, 2001. Minority interest was $23,744 during the third quarter of 2002, compared to ($282,979) during the third quarter of 2001. Minority interest changed 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 was $754,607 for the three months ended September 30, 2002 compared to $671,434 for the prior year period.

        Net income, as a result of the factors described above, increased 43.9% to $1,394,792 for the three months ended September 30, 2002 from $969,464 for the three months ended September 30, 2001.

Nine months ended September 30, 2002 compared to nine months ended September 30, 2001

        Revenues increased to $74.1 million for the nine months ended September 30, 2002 from $63.6 million during the nine months ended September 30, 2001. Sales growth in the business segment coupled with increased sales of proprietary products contributed to the internal growth rate of 24%.

        Gross profit increased to $43.5 million for the nine months ended September 30, 2002 from $38.3 million during the same period in 2001. As a percentage of revenue, gross profit declined to 58.6% 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.

        Selling and operating expenses increased to $31.7 million for the nine months ended September 30, 2002 from $28.9 million for the same period in 2001. As a percentage of revenues, selling and operating expenses decreased to 42.8% in 2002 from 45.4% in 2001 primarily due to increases percentage of sales from our business segment.

        Corporate, general and administrative expenses increased to $6.3 million for the nine months ended September 30, 2002, compared to $5.3 million for the corresponding period in 2001 primarily to support the Company's growth. As a percentage of revenues, general and administrative expenses increased to 8.5% in 2002 from 8.4% in 2001.

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

        Operating income, as a result of the factors described above, increased 25.1% to $5.1 million for the nine months ended September 30, 2002 from $4.1 million for the comparable period in 2001. Excluding the accrued one-time charge (described above) operating income increased 34.3% to $5.5 million or 7.4% of sales in 2002 compared to $4.1 million or 6.4% of sales in 2001.

        Gaiam recorded $259,484 in other expense during the nine months ended September 30, 2002, compared to other income of $240,342 for the comparable period in 2001. This was partly 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 $12,947 for the nine months ended September 30, 2002 compared to ($806,166) for the prior year period. Minority interest changed 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 $1,717,702 for the nine months ended September 30, 2002 from $1,569,353 for the comparable period in 2001.

        Net income, as a result of the factors described above, increased 61.5% to $3,133,842 for the nine months ended September 30, 2002 from $1,940,895 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 used net cash of $6.0 million and $4.7 million for the nine months ended September 30, 2002 and 2001, respectively. Gaiam's net cash used by operating activities for nine months ended September 30, 2002 arose primarily from an increase in accounts receivable associated with the growth in our business segment and increased sales to major national retailers that typically require longer payment terms, and a decrease in accrued liabilities. Gaiam's net cash used by operating activities for 2001 arose primarily from an increase in inventories in order to support additional revenue growth, including store-within-store rollouts.

        Gaiam's investing and acquisition activities provided net cash of $860,878 for the nine months ended September 30, 2002 and used cash of $4.8 million for the comparable period in 2001. The cash provided by investing activities in 2002 primarily arose from the sale of the Gaiam Yoga Center for net proceeds of $2.7 million. During third quarter 2002, Gaiam acquired a majority interest in a catalog company for $600,000. This acquisition was accounted for using the purchase method, and, since this company had negative net worth (liabilities exceeded assets), Gaiam recorded $2.9 million of goodwill. 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 nine months ended September 30, 2002, Gaiam's financing activities provided $20,666 in cash. During the nine months ended September 30, 2001, Gaiam's financing activities provided $26.1 million in cash, primarily resulting from the completion of Gaiam's secondary offering, net of loan repayments.

        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.


Item 4. Controls and Procedures

        Based on their evaluation of our disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934) as of a date within 90 days of the filing date of this quarterly report, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.


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.

        None.


Item 5. Other Information.

        None.


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


Exhibit No.
  Description

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

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)
November 11, 2002

 

 

By:

 

/s/  
JIRKA RYSAVY      
Jirka Rysavy
Chief Executive Officer

 

 

 

 

/s/  
YUDHISTER BAHL      
Yudhister Bahl
Chief Financial Officer

CERTIFICATIONS

I, Jirka Rysavy, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Gaiam, Inc.;

2.
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.
The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)
designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)
evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c)
presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.
The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a)
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6.
The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 11, 2002

/s/  JIRKA RYSAVY      
Jirka Rysavy
Chairman and Chief Executive Officer
   

CERTIFICATIONS

I, Yudhister Bahl, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Gaiam, Inc.;

2.
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.
The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)
designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)
evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c)
presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.
The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a)
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6.
The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 11, 2002

/s/  YUDHISTER BAHL      
Yudhister Bahl
Chief Financial Officer