<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-K

     [X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
                                      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                        84-1113527
          (STATE OR OTHER JURISDICTION OF          (I.R.S. EMPLOYER
          INCORPORATION OR ORGANIZATION)          IDENTIFICATION NO.)

                       360 INTERLOCKEN BLVD., SUITE 300
                             BROOMFIELD, CO 80021
                   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                                (303) 222-3600
             (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                     NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                    CLASS A COMMON STOCK, $.0001 PAR VALUE

     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 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 by check mark if disclosure of delinquent filers pursuant to Item
     405 of Regulation S-K is not contained herein, and will not be contained,
     to the best of the Registrant's knowledge, in a definitive proxy or
     information statement incorporated by reference in Part III of this
     Form 10-K or any amendment to this Form 10-K   [_]

     The aggregate market value of the voting and non-voting common equity held
     by non-affiliates of the Registrant was approximately $33,368,080 as of
     March 21, 2001, based upon the closing price on the Nasdaq National Market
     reported for such date. As of March 21, 2001, 5,955,578 shares of the
     Registrant's $.0001 par value Class A common stock and 5,400,000 shares of
     the Registrant's Class B common stock were outstanding. Shares of Common
     Stock held by each executive officer and director and by each person who
     beneficially owns more than 5% of the outstanding Common Stock has been
     excluded in that such person may, under certain circumstances, be deemed to
     be affiliates. This determination for executive officer or affiliate status
     is not necessarily a conclusive determination for other purposes.

                      DOCUMENTS INCORPORATED BY REFERENCE
     The following documents (or portions thereof) are incorporated by reference
     into the Parts of this Form 10-K noted:


     Part III incorporates by reference from the definitive proxy statement for
     the Registrant's 2001 Annual Meeting of Stockholders to be filed with the
     Commission pursuant to Regulation 14A not later than 120 days after the end
     of the fiscal year covered by this Form.
<PAGE>



                                  Gaiam, Inc.
                                  -----------

     Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2000

                                    Part I

     Item 1.    Business
     Item 2.    Properties
     Item 3.    Legal Proceedings
     Item 4.    Submission of Matters to a Vote of Security Holders

                                    Part II

     Item 5.    Market for Registrant's Common Equity and Related Stockholder
                Matters
     Item 6.    Selected Financial Data
     Item 7.    Management's Discussion and Analysis of Financial Condition and
                Results of Operations
     Item 7A.   Quantitative and Qualitative Disclosures About Market Risk
     Item 8.    Financial Statements and Supplementary Data
     Item 9.    Changes in and Disagreements with Accountants on Accounting and
                Financial Disclosure

                                   Part III

     Item 10.   Directors and Executive Officers of the Registrant
     Item 11.   Executive Compensation
     Item 12.   Security Ownership of Certain Beneficial Owners and Management
     Item 13.   Certain Relationships and Related Transactions

                                    Part IV

     Item 14.   Exhibits, Financial Statement Schedules, 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 included, 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.
<PAGE>

                                    PART I


     ITEM 1.    BUSINESS

     GAIAM

       Gaiam is a multi-channel lifestyle company that markets to customers who
     value personal development, healthy living and the environment. We are
     dedicated to providing a broad selection of high quality information, goods
     and services in a customer-friendly manner using a multi-channel approach
     through catalogs, e-commerce, business to business channel, media
     broadcasts and 21,000 retail points including leading names such as
     Discovery, Borders, Musicland, Dicks, Amazon.com, Target and Whole Foods.
     We provide customers with natural and healthy alternatives to traditional
     products.

       We strive to serve consumers who live a lifestyle that places a high
     value on promoting healthy living, personal development and the quality of
     the Earth's environment, recognizing that our personal health and the
     health of our children depend on it. We offer to consumers an opportunity
     to make purchasing decisions for goods and services based on these values,
     in addition to the traditional criteria of price and performance.

     OUR HISTORY

       Gaiam was founded in Boulder, Colorado in 1988 to support "Conscious
     Commerce", the practice of making purchasing decisions based on lifestyle
     and values. In 1995, we began to expand our business nationally. In 1996,
     Gaiam made a large investment in infrastructure and operating systems to
     support rapid growth. In 1998, a team of key executives joined Gaiam to
     help facilitate future growth.

     OUR CORE VALUES

      Gaiam's approach to business is based on our core values:

        .   We emphasize integrity in all of our relationships.

        .   We stress a triple bottom line:  profits - people - planet.

        .   We value the environment as a base to personal health and view
            all resources as precious assets.

        .   We understand living our beliefs is more than just the right thing
            to do; it is the only path to take.

        .   We strive to motivate every person to make a positive difference in
            their lives and in our world by the simple choices they make every
            day.

     OUR MARKET - THE LOHAS INDUSTRY

       The Lifestyles of Health and Sustainability (LOHAS) industry was $230
     billion in the year 2000 in the United States alone, according to Natural
     Business Communications. The industry consists of five main sectors:

        .   Sustainable Economy is comprised of renewable energy, energy
            conservation, recycling and recycled goods, environmental management
            services, sustainable manufacturing processes and related services
            and information.

        .   Healthy Living includes natural and organic foods, dietary
            supplements, personal care products and related information and
            services.
<PAGE>

        .   Alternative Healthcare includes health and wellness solutions and
            alternative health practices. The Journal of American Medical
            Association conducted a study in 1998 that concluded 83 million
            Americans practiced some sort of alternative healthcare in 1997
            accounting for $27 billion, mostly out of pocket expenses.

        .   Personal Development includes solutions, information, products and
            experiences relating to mind, body and spiritual development.
            Companies offering yoga and other stress reducing fitness
            alternatives to their employees are enhancing this sector. A survey
            by Wall Street Journal found that 23% of adults surveyed did yoga,
            meditation or other similar practices.

        .   Ecological Lifestyles include environmentally friendly cleaning and
            household products, green and organic cotton bedding and clothing,
            and eco-tourism. According to Natural Business Communication, this
            may be the fastest growing segment of the industry as business-to-
            business industries and consumer services (such as the hospitality
            industry) are pressured by consumers to incorporate these products
            and services into their business.

      Gaiam participates in all five segments of the LOHAS industry.

     OUR DISTRIBUTION CHANNELS

        .   Catalogs/Print Advertising

       Gaiam offers a large variety of LOHAS products directly to the consumer
     through our catalogs and through consumer lifestyle publications such as
     Self, Shape and Yoga Journal magazines. We produce quality catalogs in all
     segments of LOHAS utilizing sub-brands such as Gaiam Harmony, Gaiam Living
     Arts, Gaiam Innerbalance, Gaiam Real Goods and Gaiam Jade Mountain. We
     circulate catalogs to the 1.5 million customers in our database on a
     regular basis.

       For the benefit of our direct customers, we provide unconditional return
     guarantees, toll-free telephone ordering, an in-house, well-trained
     customer service staff, and on-hand inventory to support over 90% of our
     in-stock orders. It is our practice to ship each order no later than the
     next business day.

        .   Retailers

       Gaiam currently sells products through 21,000 retail points including
     lifestyle stores such as Discovery Stores and The Walking Company, book
     stores such as Borders and Barnes and Noble, mass merchants such as Target,
     sporting goods stores such as Dicks and Galyans, women's beauty stores such
     as Ulta and Origins, specialty stores such as Pea in the Pod and Dandelion,
     on-line retailers such as Amazon.com and natural food retailers such as
     Whole Foods. We have recently launched our integrated branded lifestyle
     concepts in selected retail establishments.

     Gaiam is expanding proprietary product offerings to our retailers.

        .   E-Commerce

       We believe that our business is also well suited to Internet commerce.
     The use of many of our products is enhanced by extensive product education
     and information that we are making available online. The online environment
     offers wider shelf space and the capacity to present consumer information
     less expensively. In addition, many Internet products and information are
     not widely found in conventional stores.

       We have upgraded our website and technology systems to create a platform
     that takes advantage of the unique characteristics of online retailing. We
     currently have approximately 10,000 SKU's on our website. Our online gross
     profit average margin is over 55%, making our Internet channel an
     attractive business model.

       Our goal is to grow this segment of our customers and to educate them
     about their own ability to affect positive change through purchases that
     will result in improvements to the environment and their well being - and
     thereby demonstrating to them that their choices can "make a difference."
<PAGE>

        .   Corporate Supplier

       Gaiam provides products and services to businesses that desire healthy
     and natural alternatives, which range from organic cotton robes and bedding
     to hospitals and hospitality chains to solar powered safety and security
     systems to the Dallas Airport. Gaiam is developing a line of promotional
     products in organic cotton that includes t-shirts, sweatshirts, caps, bags,
     etc. for customers such as Mercedes Benz and Aveda.

       Gaiam also has a design and consulting service for corporate accounts
     that assesses their energy needs and makes recommendations for more
     efficient solutions. We have consulted with clients such as The White
     House, The Vatican, Sony, Disney, NASA and Discovery Channel. We expect
     this service be in considerable demand with the ongoing energy crisis in
     California.

        .   Media

       Gaiam produces information and programming targeted to consumers who
     value healthy and environmental lifestyles. Currently, thirteen of our
     programs are broadcast domestically and five internationally. Our programs
     are also available in over 500,000 hotel rooms in the U.S. and 200,000 in
     Canada through on demand programming available in such hotels as Marriott,
     Hyatt, Westin, Hilton, Radisson and Four Seasons.

       Gaiam also publishes programs on DVD and video and co-publishes books and
     programming on sustainable living as well as over 100 music titles.

     OUR COMPETITIVE STRENGTHS


      We believe the following factors have contributed to our growth and
     success:

        .   Focus on Large Market

       Gaiam believes that the expansion and fast growth of the LOHAS industry
     is being fueled by Conscious Commerce, a trend of making purchasing
     decisions based on lifestyle and personal values, driven by a growing
     population segment called Cultural Creatives. A study published by the
     Institute of Noetic Sciences in 1996 coined the term "Cultural Creatives."
     Paul Ray, who authored this study, is now a member of our board of
     directors. American Demographics (February 1997) estimates that this
     growing population segment, which has in common the values of environmental
     awareness, healthy lifestyles and personal development, numbered 44 million
     adults in the United States alone in 1996 and according to Mr. Ray, grew to
     50 million in 1998. We believe the growth of these consumers is evidenced
     also by the growth of our customer base. Cultural Creatives tend to be
     well-educated consumers, with a median age of 42, a 60/40 women-to-men
     ratio and an average annual income of $52,000.

       Gaiam targets Cultural Creatives and we believe that our customer
     demographics and loyalty contribute significantly to our high average order
     value of approximately $90 for the year ended December 31, 2000, as
     compared to a lower average for the direct marketing industry and the
     e-commerce sector.

       See Note 1 to Gaiam's Consolidated Financial Statements for information
     about our international sales.

        .   Experienced Executive Team

       Gaiam has an experienced team of corporate managers. Our founder and
     Chief Executive Officer, Jirka Rysavy, was the founder and Chief Executive
     Officer of Corporate Express, Inc., which he built to a Fortune 500
     company. He was also the founder and CEO of Crystal Market, Inc., which was
     sold to become the first Wild Oats Markets store. Our President and Chief
     Operating Officer, Lynn Powers, has over 15 years of senior management
     experience in the retail industry as a Senior Vice President of
     Merchandising, Marketing and Strategic Planning for Miller's Outpost, which
     she helped to grow from a $25 million startup to over $500 million in
     revenues. Our Chief Information Officer, Pavel Bouska, was a member of the
     founding team and an officer of Corporate Express for over 10 years,
     serving in various positions, including Chief Information Officer and Vice
     President of Information Systems.
<PAGE>

        .   Distinctive, Branded Products

       Gaiam offers information, proprietary products and services under its
     brand name. These products appeal to Gaiam's well-educated customers and
     are not widely available in conventional stores. These products are
     designed to enhance customers' lifestyles and experiences and provide
     healthy, natural solutions while being eco-friendly and promoting a
     sustainable economy. Private brand product sales were approximately 37% in
     year 2000, up from 24% in 1999 and 10% in 1998. Because we use a multi-
     channel approach to our business we are able to leverage our product
     development costs across all channels of our business.

        .   Exceptional Customer Service

       Gaiam maintains a customer-focused approach at all stages of its business
     to build long-term customer relationships based on loyalty and trust. Gaiam
     stands by its advertised "no-risk guarantee" by providing its customers a
     full refund of the purchase price for products that are returned any time,
     for any reason. We believe that this guarantee, coupled with the quality of
     our customer service personnel, encourages greater customer loyalty and
     repeat sales. We ensure that we have on hand inventory to support 90% of
     in-stock orders. It is our practice to ship each order no later than the
     next business day.

       According to Jupiter Communications, 90% of online customers prefer human
     interaction when they require customer service. Our in-house customer
     service department includes product specialists, who have specific product
     knowledge and assist customers in selecting products and solutions that
     meet their needs, design, price and style criteria. Gaiam also enhances its
     customer service through initiatives such as extensive product training for
     customer service representatives. We believe that, by offering exceptional
     customer service, we encourage repeat purchases by our customers, enhance
     our brand identity and reputation and build stronger relationships with our
     customers.

        .   Established Infrastructure

       Gaiam has invested in its physical facilities, technology and information
     systems. In 2000, we expanded our distribution to a 208,100 square foot
     fulfillment center near Cincinnati, Ohio, a facility that is in the central
     United States and conveniently located to hubs for major shipping
     companies. This location allows us to achieve shipping cost efficiency to
     most locations across the Continental United States. It is located within
     30 minutes of both UPS and Airborne hubs. We also installed our supply
     chain management information system to support virtually all segments of
     our business, including, merchandising, customer database management and
     marketing, order processing, fulfillment, inventory management, customer
     service and financial reporting. This investment reduced our costs of
     fulfillment by providing an integrated system that reduces labor costs and
     time needed to procure inventory and fill orders. This existing
     infrastructure is allowing us to integrate acquired businesses in an
     efficient and cost-effective manner.

        .   Operating Model

       Our business structure is designed to provide high operating leverage on
     the revenue growth and enable each Gaiam distribution channel to achieve
     individual sales growth, while realizing cost savings from the combined
     enterprise. The managers of our channels retain responsibility for
     merchandising and creative presentation. Gaiam provides strategic
     direction, technology, financial resources and administrative services, as
     well as marketing, customer service, fulfillment, purchasing and sourcing,
     thus leveraging our current infrastructure in a highly scaleable model.

     OUR OPERATING STRATEGIES

        .   Strengthen our Brand

       We are striving to establish the Gaiam brand as an authority in the LOHAS
     industry. We plan to strengthen the Gaiam brand by increasing marketing
     efforts, strengthening relationships with traditional and e-commerce
     retailers, and increasing the breadth of our proprietary product and audio,
     video and digital informational offerings while maintaining our high level
     of customer service. Our products, services and information will generally
     bear the Gaiam symbol.
<PAGE>

       We believe that the expanding demand by consumers for eco-friendly and
     natural products will permit us to obtain products in greater volume and,
     in turn, offer the products at lower prices than might otherwise be
     available. As we are able to lower prices in this manner, we expect to
     attract additional customers.

        .   Capitalize on our Multi-channel Approach

       We intend to make purchasing quality, natural and healthy lifestyle
     products from us convenient regardless of the channel customers prefer. In
     our direct business, we are open 24 hours a day, and shopping for our
     products does not need to require a trip to a store. We offer our entire
     selection of products on our Internet site. We cross-market between our
     catalogs and our e-commerce, introducing our customers to all aspects of
     LOHAS. A direct customer coming to us for a yoga videotape will also be
     exposed to our organic cotton performance wear line.

       In our business-to-business sector, we are expanding our retail exposure,
     which is currently at 21,000 retail points, and building store-within-store
     concepts in Whole Foods Markets, Discovery Stores, Dicks and Galyans. We
     are expanding into women's beauty stores such as Ulta and Origins, sporting
     goods chains such as Dicks and Galyans, and bed and bath specialty stores
     such as Bed Bath and Beyond. This expansion at the retail level
     increasingly allows our customers to find Gaiam products no matter how or
     where they shop.

       Our media, especially TV broadcast, is also an excellent opportunity for
     Gaiam to strengthen its brand. We partner with experts in LOHAS to produce
     proprietary content that we leverage through TV broadcast, on demand
     programming as well as audio, video and digital products, which we market
     through our consumer and B-to-B channels.

        .   Expand our Proprietary Products

       We grew our proprietary products from 24% of our business in 1999 to 37%
     of our business in 2000. These products carry a higher margin and
     distinguish us from many of our competitors. We now offer over 2000 SKUs of
     proprietary product that range from audio and video tapes to organic cotton
     baby clothes. We are expanding our supply chain with overseas suppliers in
     Europe and South America. Our merchants are continuing to develop and
     source new product in all aspects of LOHAS. We leverage our development
     costs over all sales channels.

        .   Offer Quality, Convenience and Selection

       We ship products directly to the customer's home or office. We believe
     that customers may buy more natural and healthy lifestyle products from us
     because they can get the information and advice they require, have more
     hours to shop, can act immediately on a purchase impulse and can locate
     products that may be hard-to-find. Because online and catalog shopping are
     not tied to a geographic location, we can deliver a wide selection of
     natural and healthy lifestyle products to customers in rural or other
     locations that cannot support a large-scale LOHAS products retail store.

        .   Develop Business-to-Business Opportunities

       Gaiam is focused on increasing its sales to other businesses that have a
     need for sustainable or natural and healthy lifestyle products and
     services. These businesses include retailers, broadcasters, governmental
     agencies, hospitality companies, spas and resorts, health care providers,
     as well as industrial companies. We believe that the Gaiam brand and
     product mix are well suited to these businesses. As companies prepare to
     market to consumers in the LOHAS industry, we believe many will desire to
     partner with a lifestyle authority such as Gaiam. We believe that the
     expertise and knowledge we have and can develop in the LOHAS industry will
     make Gaiam one of the information sources of choice for businesses that
     wish to service the LOHAS industry.

        .   Complement our Existing Business with Selective Strategic
            Acquisitions

       Even though our strategy is not dependent on acquisitions, we will
     consider strategic acquisitions in the LOHAS industry that complement our
     existing business, especially companies with a strong brand identity and
     with customer and product information databases that augment our databases.
     We believe that significant acquisition opportunities exist and our
     willingness to retain existing operating management makes us an
<PAGE>

     attractive acquiring party. Gaiam generally allows the acquired company's
     management team to retain responsibility for front-end business functions
     such as creative presentation and marketing, while consolidating
     operational functions under the Gaiam organization to realize economies of
     scale.

     OUR BUSINESS SEGMENTS

       We separate our business into two business segments: Direct-to-Consumer,
     which includes catalogs, print advertising, and e-commerce; and
     Business-to-Business, which includes sales to retailers, corporations and
     our media channel.

       We are in the process of significantly increasing our sales to other
     businesses that have a need for eco-friendly products and services or
     natural and healthy lifestyle products. Business-to-Business revenues were
     13% of 1998 revenues, 24% of revenues for 1999 and 28% of revenues for
     2000. See Note 12 to our Consolidated Financial Statements for further
     information on our segments.

     OUR INTELLECTUAL PROPERTY

       Gaiam, Gaiam.com, and various product names are subject to trademark or
     pending trademark applications of Gaiam or a Gaiam company. We also
     currently hold various web domain names relating to our brand, including
     www.gaiam.com.  We believe these trademarks and domain names are
     --------------
     significant assets to our business.

     OUR COMPETITIVE POSITION

       We believe that the LOHAS industry is characterized by fragmented
     supplier and distribution networks, and we are not aware of a dominant
     leader. Gaiam's goal is to establish itself as the industry leader.

       Our business is evolving and competitive. Larger, well-established and
     well-financed entities may acquire, invest in or form joint ventures with
     our competitors. Many of such entities are larger, have longer operating
     histories and have greater financial and marketing resources than we have.
     Increased competition from these or other competitors could reduce our
     revenue and profits. In addition, the smaller businesses we compete against
     may be able to more effectively personalize their relationships with
     customers.

       We expect industry consolidation to increase competition. Our competitors
     may adopt aggressive pricing or inventory policies, which could result in
     reduced operating margins, loss of market share and a diminished brand
     franchise.

       We believe the principal competitive factors in the LOHAS market are
     distinctiveness of products and services, authenticity of information,
     quality of product, brand recognition, and price. We believe we compete
     favorably on the relevant factors as evidenced by our sales growth.

     OUR EMPLOYEES

       As of March 15, 2001, Gaiam and the Gaiam companies employed
     approximately 295 persons. None of our employees is covered by a collective
     bargaining agreement.

     REGULATORY MATTERS

       An increasing number of laws and regulations pertaining to the Internet
     exist. In addition, a number of legislative and regulatory proposals are
     under consideration by federal, state, local and foreign governments and
     agencies. Laws or regulations may be adopted with respect to the Internet
     relating to liability for information retrieved from or transmitted over
     the Internet, online content regulation, user privacy, taxation and quality
     of products and services. Moreover, it may take years to determine whether
     and how existing laws such as those governing such issues as intellectual
     property ownership and infringement, privacy, libel, copyright, trade mark,
     trade secret, obscenity, personal privacy, taxation, regulation of
     professional services, regulation of medical devices and the regulation of
     the sale of other specified goods and services apply to the Internet and
     Internet advertising. New legislation or regulations, or any unanticipated
     application or interpretation of existing laws, may decrease the growth in
     the use of the Internet, which could in turn decrease the demand for our
     products,
<PAGE>

     information and services, increase our cost of doing business or
     otherwise have a material adverse effect on our business, results of
     operations and financial condition.

       Further, several telecommunications carriers have requested the Federal
     Communications Commission ("FCC") to regulate telecommunications over the
     Internet. Due to the increasing use of the Internet and the burden it has
     placed on the current telecommunications infrastructure, telephone carriers
     have requested the FCC to regulate Internet service providers and online
     service providers and impose access fees on those providers. If the FCC
     imposes access fees, the costs of using the Internet could increase
     dramatically. This could result in the reduced use of the Internet as a
     medium for commerce, which could materially adversely affect our business.

       There are a number of different bills under consideration by Congress and
     various state legislatures that would restrict disclosure of consumers'
     personal information, which may make it more difficult for Gaiam to
     generate additional customers, and restrict unsolicited electronic mail or
     printed materials. Although Gaiam believes it is generally in compliance
     with current laws and regulations and that these laws and regulations have
     not had a significant impact on our business to date, it is possible that
     existing or future regulatory requirements will impose a significant burden
     on us.

       The Gaiam companies generally collect sales taxes only on sales to
     residents of the state in which Gaiam is headquartered, where orders are
     fulfilled or where Gaiam has a location. A number of legislative proposals
     have been made at the federal, state and local level, and by foreign
     governments, that would impose additional taxes on the sale of goods and
     services over the Internet and certain states have taken measures to tax
     Internet-related activities. Although Congress placed a moratorium on state
     and local taxes on Internet access or on discriminatory taxes on electronic
     commerce, existing state or local laws were expressly excepted from this
     moratorium. Further, once this moratorium is lifted, some type of federal
     and/or state taxes may be imposed upon Internet commerce. Legislation or
     other attempts at regulating commerce over the Internet may substantially
     impair the growth of commerce on the Internet and, as a result, adversely
     affect our opportunity to derive financial benefit from these activities.

       Our business is also subject to a number of other governmental
     regulations, including the Mail or Telephone Order Merchandise Rule and
     related regulations of the Federal Trade Commission. These regulations
     prohibit unfair methods of competition and unfair or deceptive acts or
     practices in connection with mail and telephone order sales and require
     sellers of mail and telephone order merchandise to conform to certain rules
     of conduct with respect to shipping dates and shipping delays. We are also
     subject to regulations of the U.S. Postal Service and various state and
     local consumer protection agencies relating to matters such as advertising,
     order solicitation, shipment deadlines and customer refunds and returns. In
     addition, merchandise imported by Gaiam is subject to import and customs
     duties and, in some cases, import quotas.

     SEASONALITY

       See the Quarterly and Seasonal Fluctuations section of Item 7.,
     Management's Discussion and Analysis of Financial Condition and Results of
     Operations, for information pertaining to the seasonal aspects of our
     business.


     ITEM 2.    PROPERTIES

     Our principal executive offices are located in Boulder County, Colorado.
     Our main fulfillment center is located in the Cincinnati, Ohio area. This
     facility houses most of our fulfillment functions. We selected the
     Cincinnati site after considering the availability and cost of facilities
     and labor, proximity to major highways, air delivery hubs and support of
     local government of new businesses. We also believe that Cincinnati is
     ideal for providing the lowest cost shipping available from a single
     central point to a customer base that conforms to the overall U.S.
     population. Approximately 90% of our orders are filled and shipped from the
     Cincinnati facility. The balance is shipped directly from suppliers.

     The following table sets forth certain information relating to our primary
     facilities, all of which are leased:
<PAGE>

<TABLE>
<CAPTION>
Primary Locations                          Size                           Use                           Lease Expiration
-----------------------------------  ----------------  ------------------------------------------  ---------------------------
<S>                                  <C>               <C>                                         <C>
Boulder County, CO                    32,000 sq. ft.       Headquarters and customer service               March 2002
Cincinnati, OH                       208,100 sq. ft.       Fulfillment center                              March 2006
Venice, CA                             9,000 sq. ft.       Creative staff offices                          July 2005
</TABLE>

     We have options to renew our headquarters lease. On March 1, 2000, due to
     the growth of our operations, we entered into a new fulfillment center
     lease, which expanded our facility to 208,100 sq. ft. This site holds our
     warehousing and distribution services group. We believe our facilities are
     adequate to meet our current needs and that suitable additional facilities
     will be available for lease or purchase when, and, as we need it.

     The Gaiam Yoga Center, purchased in December 2000, is situated on 160 acres
     in Paulden, Arizona.

     ITEM 3.    LEGAL PROCEEDINGS

     Gaiam is not a party to any material legal proceedings.

     ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were brought to a vote of our stockholders in the fourth quarter
     of the fiscal year ended December 31, 2000.


                                   MANAGEMENT

     EXECUTIVE OFFICERS AND DIRECTORS

     Our executive officers and directors, their respective ages as of December
     31, 2000 and their positions are as follows:

<TABLE>
<CAPTION>
     NAME                                          AGE                   POSITION
     ----------                                 ---------              ------------
<S>                                             <C>                    <C>
     Jirka Rysavy                                 46                   Founder, Chairman of the Board and Chief Executive Officer
     Lynn Powers                                  51                   President, Chief Operating Officer and Director
     Pavel Bouska                                 46                   Executive Vice President and Chief Information Officer
     Barnet M. Feinblum (1) (2)                   53                   Director
     Barbara Mowry  (1) (2)                       52                   Director
     John Mackey                                  47                   Director
     Paul H. Ray  (1) (2)                         61                   Director
</TABLE>

        (1)  Member of the Compensation Committee
        (2)  Member of the Audit Committee

     JIRKA RYSAVY - Founder, Chairman and Chief Executive Officer of Gaiam. He
     has been Chairman since Gaiam's inception and became the full-time Chief
     Executive Officer in December 1998. In 1986, Mr. Rysavy founded Corporate
     Express, Inc., which, under his leadership, grew to become a Fortune 500
     company supplying office and computer products and services. He was its
     Chairman and Chief Executive Officer until September 1998. Mr. Rysavy also
     founded and served as Chairman and Chief Executive Officer of Crystal
     Market, a health foods market, which was sold in 1987 and became the first
     Wild Oats Markets store. Mr. Rysavy is also a director of Whole Foods
     Market.

     LYNN POWERS - President, Chief Operating Officer and a director of Gaiam
     since February 1996. From 1992 to 1996, she was Chief Executive Officer of
     La Scelta, an importer of natural fiber clothing products. Before that, Ms.
     Powers was Senior Vice President Marketing/Strategic Development and Vice
     President Merchandising of Miller's Outpost, a specialty retailer.

     PAVEL BOUSKA - Executive Vice President and Chief Information Officer since
     March 1999. He served as a director of Gaiam from 1991 until August 1999.
     Prior to joining Gaiam, from June 1988 to March 1999, Mr. Bouska was an
     officer and one of the founding members of Corporate Express, serving in
     various positions, including Chief Information
<PAGE>

     Officer and Vice President Information Systems, responsible for system
     development, information technology, operations, systems conversions and
     business consolidations. Prior to joining Corporate Express, he was project
     leader for Software Design & Management, a German software company
     subsequently acquired by Ernst & Young.

     BARBARA MOWRY - Director since October 1999. From November 1997 until
     February 2001, Ms. Mowry was  the President and Chief Executive Officer of
     Requisite Technology, a business-to-business e-commerce company
     specializing in the creation and management of electronic content and
     catalogs. Prior to joining Requisite Technology, Ms. Mowry was an officer
     of two Fortune 500 companies, Telecommunications, Inc. (cable television)
     from 1995 to 1997, and UAL, Inc. (airline) from 1983 to 1990. In 1990,
     Ms. Mowry founded, and until 1995 served as Chief Executive Officer of The
     Mowry Company, a relationship marketing firm focusing on the development of
     customer relations for businesses.

     JOHN MACKEY - Director since September 2000. Mr. Mackey has been the
     Chairman and Chief Executive Officer of Whole Foods Markets, Inc., the
     world's largest natural food retailer, since he co-founded the company 20
     years ago. Mr. Mackay is also a director of Jamba Juice.

     BARNET M. FEINBLUM - Director since October 1999. Mr. Feinblum is a
     director and served as the President and Chief Executive Officer of Horizon
     Organic Dairy from May 1995 until January 2000. From July 1993 through
     March 1995, Mr. Feinblum was the President of Natural Venture Partners, a
     private investment company. From August 1976 until August 1993, Mr.
     Feinblum held various positions at Celestial Seasonings, Inc., including
     President, Chief Executive Officer, and Chairman of the Board. He is also
     a director of Seventh Generation, Inc.

     PAUL H. RAY - Director since October 1999. Mr. Ray is a senior partner in
     Integral Partnership, consulting firm specializing in Cultural Creative
     topics. From November 1986 until December 2000, he was Executive Vice
     President of American LIVES, Inc., a market research and opinion-polling
     firm, since November 1986. Prior to joining American LIVES, Mr. Ray was
     Chief of Policy Research on Energy Conservation at the Department of
     Energy, Mines and Resources of the Government of Canada from 1981 to 1983.
     From 1973 to 1981, Mr. Ray was Associate Professor of Urban Planning at the
     University of Michigan. He is the author of "The Integral Culture Survey,"
     which first identified the Cultural Creatives subculture.

     Each director serves for a one-year term. Each officer serves at the
     discretion of the Board of Directors. There are no family relationships
     among any of the directors or officers of Gaiam.

                                    PART II


     ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
     MATTERS

     Stock Price History
     -------------------

          Gaiam's Class A common stock has been quoted on the NASDAQ under the
     symbol "GAIA" since the Gaiam's initial public offering on October 29,
     1999. On March 21, 2001, the Company had 9,287 stockholders of record and
     5,955,578 shares of $.0001 par value Class A common stock outstanding, and
     one stockholder and 5,400,000 shares of $.0001 par value Class B common
     stock outstanding.

          The following table sets forth certain sales price and trading volume
     data for the Company's Class A common stock for the period indicated:

<TABLE>
<CAPTION>
                                                                      Average
                                                                       Daily
                                      High Bid    Low Bid    Close    Volume
                                      ---------  ---------  --------  ------
<S>                                   <C>        <C>        <C>       <C>
     Fiscal 2000:
       First Quarter                  $      19  $13 59/64  $ 17 1/2  11,057
       Second Quarter                 $24 11/16  $      14  $ 18 1/2  12,383
       Third Quarter                  $      19  $      15  $ 18 5/16 11,176
       Fourth Quarter                 $  18 1/4  $  14 5/8  $ 15 7/16  8,224
     Fiscal 1999 - Fourth Quarter
       Commencing October 29, 1999    $  18 1/4  $   5 3/8  $ 15 7/8  58,952
</TABLE>
<PAGE>

     Dividend Policy
     ---------------

          Gaiam has never declared or paid any cash dividends on its capital
     stock. Gaiam currently intends to retain earnings, to support its growth
     strategy and does not anticipate paying cash dividends in the foreseeable
     future. In addition, our bank credit agreement prohibits payment of any
     dividends to our shareholders.

     Sales of Unregistered Securities
     --------------------------------

          During 2000, we acquired a yoga props company and a 70% interest in an
     organic clothing manufacturer. Total consideration paid for these
     acquisitions was approximately $315,000 in cash and 21,243 shares of Class
     A common stock. These shares were issued on February 29, 2000 (14,000
     shares) and June 20, 2000 (7,243 shares). The shares were issued pursuant
     to an exemption from registration under Section 4(2) of the Securities Act
     of 1933.


     ITEM 6.    SELECTED FINANCIAL DATA

          The selected statement of operations for the years ended December 31,
     1998, 1999 and 2000 and balance sheet data as of December 31, 1999 and 2000
     set forth below are derived from Gaiam's audited consolidated financial
     statements. The audited consolidated financial statements include
     statements of operations for the years ended December 31, 1998, 1999 and
     2000, and balance sheets as of December 31, 1999 and 2000. These financial
     statements appear elsewhere in this Form 10-K. The selected statement of
     operations for the years ended December 31, 1996, and 1997 and balance
     sheet data as of December 31, 1996, 1997 and 1998 set forth below are
     derived from Gaiam's audited consolidated financial statements. The
     historical operating results are not necessarily indicative of the results
     to be expected for any other period. The data set forth below should be
     read in conjunction with "Management's Discussion and Analysis of Financial
     Condition and Results of Operations" and Gaiam's consolidated financial
     statements and related notes, included elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
                                                   SELECTED FINANCIAL DATA
                                        (Amounts in thousands, except per share data)

                                                                                 Year Ended December 31,
                                                          ------------------------------------------------------------------
                                                                 2000          1999          1998          1997         1996
                                                          ------------------------------------------------------------------
<S>                                                         <C>           <C>           <C>           <C>           <C>
STATEMENT OF OPERATIONS DATA
Net revenues                                                  $60,588       $45,725       $30,739       $19,898      $14,801
Cost of goods sold                                             23,793        18,176        13,174         8,462        6,762
                                                          ------------------------------------------------------------------
Gross profit                                                   36,795        27,549        17,565        11,436        8,039
Selling, operating, general
  and administrative expenses                                  32,367        25,425        16,580        12,002       10,471
                                                          ------------------------------------------------------------------
Operating income (loss)                                         4,428         2,124           985          (566)      (2,432)
Other income (loss) (1)                                          (283)          606           388         1,583        2,984
                                                          ------------------------------------------------------------------
Income before income taxes and
   Minority interest                                            4,145         2,730         1,373         1,017          552
Income taxes                                                    1,556         1,063           251           363          212
Minority interest                                                 (60)          (51)          262             -            -
                                                          ------------------------------------------------------------------
Net income                                                    $ 2,649       $ 1,718       $   860       $   654      $   340
                                                          ==================================================================
Net income per share:
   Basic                                                        $0.24         $0.20         $0.11         $0.08        $0.04
   Diluted                                                      $0.23         $0.19         $0.11         $0.08        $0.04
                                                          ==================================================================
Shares outstanding:
   Basic                                                       10,858         8,785         8,073         8,040        8,040
   Diluted                                                     11,525         9,119         8,119         8,040        8,040
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                                                                                      December 31,
                                                          ------------------------------------------------------------------
                                                                 2000          1999          1998          1997         1996
                                                          ------------------------------------------------------------------
<S>                                                         <C>           <C>           <C>           <C>          <C>
BALANCE SHEET DATA
Cash                                                          $ 8,579       $ 3,877       $ 1,410       $ 1,612      $   380
Securities available-for-sale (2)                                   -             -         1,634         4,828           56
Working capital (deficiency)                                   15,269         5,911           (81)        5,226       (1,838)
Total assets                                                   48,477        27,260        16,677        10,774        6,256
Long-term debt (net of current maturities)                      5,770         2,109           299            42           89
Stockholders' equity (2)                                       18,111        14,951         3,661         4,736          920
</TABLE>

(1)  Other income in 1996, 1997, 1998 and 1999 primarily reflects income from
       sale of securities available-for-sale.
(2)  Securities valued at fair market value in 1996, 1997 and 1998.

ITEM 7.    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
     consolidated financial statements and related notes included elsewhere in
     this document.

     Overview
     --------

          Gaiam is a multi-channel lifestyle company catering to customers who
     value personal development, healthy living and the environment. Gaiam was
     incorporated in Colorado in 1988. In 1995, Gaiam began to expand
     nationally and make acquisitions. From 1996 to 2000, our revenues
     increased from $14.8 million to $60.6 million, representing a compound
     annual growth rate of approximately 42.2%.

          Gaiam's business model is evolving as evidenced by the increase in the
     percentage of our revenues attributable to our business-to-business segment
     and the launch of our e-commerce channel. During 1998, business-to-
     business revenues accounted for approximately 13% of all revenues, while in
     2000, this segment's revenues increased to approximately 28% of total
     revenue. Although Gaiam has used acquisitions to grow its business,
     internal growth remained strong at 24% during 2000, up from 18% in 1999.
     In addition, Gaiam's gross margin continued to increase as a result of
     developing more proprietary merchandise, on which we have better margins,
     and negotiating better pricing from our vendors due to volume discounts.

     Results of Operations
     ---------------------

     The following table sets forth certain financial data as a percentage of
     revenues for the periods indicated:

<TABLE>
<CAPTION>
                                                                       For the Year Ended December 31,
<S>                                                               <C>           <C>            <C>
                                                                         2000           1999           1998
                                                                        -----          -----          -----
Net revenue                                                             100.0%         100.0%         100.0%
Cost of goods sold                                                       39.3%          39.8%          42.9%
                                                                        -----          -----          -----
Gross profit                                                             60.7%          60.2%          57.1%
Expenses:
  Selling and operating                                                  45.1%          48.8%          46.1%
  Corporate, general and administrative                                   8.3%           6.7%           7.8%
                                                                        -----          -----          -----
Total expenses                                                           53.4%          55.5%          53.9%
                                                                        -----          -----          -----
Income (loss) from operations                                             7.3%           4.7%           3.2%
Other income (expense), net                                              -0.4%           1.3%           1.3%
                                                                        -----          -----          -----
Income before income taxes and minority interest                          6.9%           6.0%           4.5%
Provision for income taxes                                                2.6%           2.3%           0.8%
Minority interest in net income of consolidated
   subsidiary, net of tax                                                -0.1%          -0.1%           0.9%
                                                                        -----          -----          -----
Net income                                                                4.4%           3.8%           2.8%
                                                                        =====          =====          =====
</TABLE>
<PAGE>

     Year ended December 31, 2000 compared to year ended December 31, 1999
     ---------------------------------------------------------------------

          Revenues increased 32.5% to $60.6 million in 2000 from $45.7 million
     in 1999. Gaiam's internal growth rate was 24%, fueled primarily by the
     growth in sales to national retail chains and e-commerce business.
     Business-to-business revenues grew 50.3% to $16.8 million in 2000 from
     $11.2 million in 1999.

          Gross profit, which consists of revenues less cost of sales (primarily
     merchandise acquisition costs and in-bound freight), increased
     33.6% to $36.8 million in 2000 from $27.5 million during 1999. As a
     percentage of revenue, gross profit increased to 60.7% in 2000 from 60.2%
     in 1999. This was primarily attributable to the growth of Gaiam's
     proprietary product offerings, on which we have better margins, which
     constituted 37% of sales in 2000, up from 24% in 1999.

          Selling and operating expenses, which consist primarily of sales and
     marketing costs, commissions and fulfillment expenses, increased 22.3%,
     which is less than the revenue increase of 32.5%, to $27.3 million in 2000
     from $22.3 million in 1999. As a percentage of revenues, selling and
     operating expenses decreased to 45.1% in 2000 from 48.8% in 1999.

          Corporate, general and administrative expenses increased to $5.1
     million for 2000 from $3.1 million in 1999. As a percentage of revenues,
     general and administrative expenses increased to 8.3% in 2000 from 6.7% in
     1999, primarily as a result of an increase in depreciation expense and the
     expenses associated with a public company.

          Operating income, as a result of the factors described above,
     increased 108.4% to $4.4 million in 2000 from $2.1 million in 1999.

          Gaiam recorded $73,947 in other expense during 2000, compared to other
     income of $971,159 in 1999. During 1999, Gaiam recognized gains on the
     sales of its marketable securities of $2.5 million. Net interest expense
     declined to $209,167 in 2000 from $365,294 in 1999, primarily as a result
     of interest income generated in the third and fourth quarters of 2000.

          Minority interest net income was $59,706 in 2000 and $50,858 during
     1999.

          Income tax provision increased to $1.6 million in 2000, an effective
     tax rate of 37.5% on pre-tax income, from $1.0 million in 1999.

          Net income, as a result of the factors described above, increased
     54.2% to $2.6 million in 2000 from $1.7 million during 1999.

     Year ended December 31, 1999 compared to year ended December 31, 1998
     ---------------------------------------------------------------------

          Revenues increased 48.8% to $45.7 million in 1999 from $30.7 million
     in 1998. This revenue growth was primarily attributable to acquisitions.
     Gaiam's internal growth rate was 18% for fiscal 1999. Business-to-business
     revenues grew 49.4% to $11.2 million in 1999 compared to $7.5 million in
     1998. The commencement of e-commerce sales in September 1999 resulted in
     $2.1 million of revenues, with $2.0 million recognized during the fourth
     quarter.

          Gross profit, which consists of revenues less cost of sales, increased
     56.8% to $27.5 million in 1999 from $17.6 million in 1998. As a percentage
     of revenues, gross profit increased to 60.2% in 1999 from 57.1% in 1998.
     This was primarily attributable to increases in sales of proprietary or
     private-labeled branded products, on which Gaiam has better margins than
     other products, and continued better pricing from vendors due to increased
     volume.

          Selling and operating expenses, which consist primarily of sales and
     marketing costs, commissions and fulfillment expenses, increased 57.5% to
     $22.3 million in 1999 compared to $14.2 million in 1998. As a percentage
     of revenues, selling and operating expenses increased to 48.8% in 1999 from
     46.1% in 1998, as a result of the increased emphasis on revenue growth,
     particularly in the business-to-business and e-commerce sectors, and the
     sourcing, development and branding of our proprietary products.
<PAGE>

          Corporate, general and administrative expenses increased to $3.1
     million in 1999 compared to $2.4 million in 1998. As a percentage of
     revenues, general and administrative expenses decreased to 6.7% in 1999
     from 7.8% in 1998.

          Operating income, as a result of the factors described above,
     increased 115.7% to $2.1 million fro 1999 from $984,843 in 1998.

          Other income, comprised primarily of gains on sales of marketable
     securities and interest expense, increased to $605,865 in 1999 from
     $388,491 in 1998. This change is primarily due to an increase in the
     number of securities sold during 1999, and was partially offset by higher
     interest expense due to borrowings and other extraordinary expenses
     associated with our initial public offering, the acquisition of the
     minority interest in Living Arts, and expenses associated with moving our
     warehousing and distribution center.

          Minority interest expense decreased to a negative $50,858 for 1999
     compared to $261,598 in 1998. The majority of this amount represents our
     former minority partner's one-third interest in the Living Arts losses, net
     of tax. During 1998, minority interest of $261,598 represented the 33%
     Living Arts minority interest, net of tax, for the period September 14,
     1998 through December 31, 1998.

          Income tax provision grew to $1.0 million in 1999, as compared to
     $251,955 in 1998. The decrease in the effective tax rate to 18.4% of
     pre-tax net income for 1998 was primarily due to a one-time tax benefit
     related to the 1998 settlement of a Living Arts legal judgment incurred
     prior to Gaiam's ownership.

          Net income, as a result of the factors described above, increased
     99.9% to $1.7 million for 1999 from $859,781 for 1998.

     Quarterly and Seasonal Fluctuations
     -----------------------------------

          The following table sets forth our unaudited quarterly results of
     operations for each of the quarters in 2000 and 1999. In management's
     opinion, this unaudited financial information includes all adjustments,
     consisting solely of normal recurring accruals and adjustments, necessary
     for a fair presentation of the results of operations for the quarters
     presented. This financial information should be read in conjunction with
     our consolidated financial statements and related notes included elsewhere
     in this Form 10-K. The results of operations for any quarter are not
     necessarily indicative of future results of operations.

<TABLE>
<CAPTION>
                                                                                  Fiscal 2000
                                                        First             Second             Third              Fourth
                                                       Quarter           Quarter            Quarter            Quarter
                                                   --------------   ---------------    ----------------   ----------------
                                                                   (in thousands, except for per share data)
<S>                                                  <C>              <C>                <C>                <C>
Net revenue                                               $12,558           $11,386             $13,630            $23,014
Gross profit                                                7,636             6,730               8,129             14,300
Operating income (loss)                                       456               295                 982              2,695
Net income                                                    203               201                 579              1,666
Net income per share                                      $  0.02           $  0.02             $  0.05            $  0.14
Weighted average shares outstanding                        11,505            11,552              11,538             11,506

                                                                                  Fiscal 1999
                                                        First            Second              Third              Fourth
                                                       Quarter           Quarter            Quarter            Quarter
                                                   --------------   ---------------    ----------------   ----------------
                                                                   (in thousands, except for per share data)

Net revenue                                               $ 9,495           $ 8,068             $10,288            $17,874
Gross profit                                                5,639             4,849               6,222             10,839
Operating income (loss)                                       110              (294)                393              1,915
Net income                                                    106                72                 551                989
Net income per share                                      $  0.01           $  0.01             $  0.06            $  0.10
Weighted average shares outstanding                         8,215             8,420               8,826             10,633
</TABLE>
<PAGE>

Note:  The aggregate of certain of the above amounts differs from that reported
       for the the full fiscal year due to the effects of rounding.

          Quarterly fluctuations in Gaiam's revenues and operating results are
     due to a number of factors, including the timing of new product
     introductions and mailings to customers, advertising, acquisitions
     (including costs of acquisitions and expenses related to integration of
     acquisitions), competition, pricing of products by vendors and expenditures
     on our systems and infrastructure. The impact on revenue and operating
     results, due to the timing and extent of these factors, can be significant.
     Our sales are also affected by seasonal influences. On an aggregate basis,
     Gaiam experiences strongest revenues and net income in the fourth quarter
     due to increased holiday spending.

     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.

          During the first six months of 1999, Gaiam raised $1.45 million from
     the private placement of 331,429 shares of Class A common stock and $1.425
     million in debentures. The privately placed shares were sold at $4.375 per
     share, and the 8% convertible debentures matured on the earlier of one year
     after the date of the debenture or the closing date of the initial public
     offering. In October 1999, we repaid $500,000 of the convertible
     debentures and, simultaneous with the closing of the initial public
     offering, converted the remaining $1.475 million in debentures to 295,000
     shares of Class A common stock.

          Gaiam's initial public offering of 1,705,000 shares of Class A common
     stock at $5.00 per share was completed in October 1999. Giving effect to
     the conversion of $1.475 million in debentures to 295,000 shares of common
     stock, the total issuance was 2,000,000 shares. The offering's
     underwriters also exercised their overallotment option for 102,861
     additional shares during November 1999. Net proceeds to Gaiam, after
     deducting all commissions and expenses associated with the offering, were
     $6.1 million.

          During 2000, Gaiam consolidated its line of credit agreements with
     Wells Fargo Bank into one agreement. The new credit agreement, which
     extends through January 31, 2003, permits borrowings of up to $6.5 million
     based upon the collateral value of Gaiam's accounts receivable and
     inventory. Borrowings under this agreement are secured by a pledge of
     Gaiam's assets. Principal repayment of amounts borrowed under this line of
     credit agreement are due either when the collateral value of Gaiam's
     accounts receivable and inventory drops below prescribed levels or upon
     maturity of the agreement, whichever occurs first. Borrowings under the
     Wells Fargo credit agreement bear interest at the prime rate. The Wells
     Fargo credit agreement contains various financial covenants and also
     prohibits Gaiam from paying dividends to shareholders.

          Gaiam's operating activities used net cash of  $1.7 million and $4.6
     million during 2000 and 1999, respectively. Gaiam's net cash used in
     operating activities for 2000 arose primarily from increases in accounts
     receivable of $4.1 million associated with growth in the
     business-to-business segment, increased inventories of $1.7 million
     correlating to increased business volumes, and $1.0 million to produce
     additional Living Arts video titles. These uses were partially offset by
     net cash provided by operations of $4.8 million. Net cash used during 1999
     was primarily a result of increases in accounts receivable and inventories
     associated with business-to-business growth.

          Gaiam's investing activities provided net cash of $2.9 million during
     2000 and used cash of $2.4 million during 1999. In June 2000, Gaiam sold
     6,000 shares of Redeemable Class A preferred stock in Gaiam.com, Inc. at a
     price of $1,000 per share for an aggregate price of $6 million. On June 30,
     2000, Gaiam and Whole Foods Market merged their Internet businesses into
     Gaiam.com, Inc. Gaiam owns 50.1% of Gaiam.com, while Whole
<PAGE>

     Foods Market currently owns 35% and the remainder is owned by various
     venture capital funds. As part of this transaction, Whole Foods Market,
     through its subsidiary, contributed $6 million in cash plus other assets to
     Gaiam.com. During 2000, Gaiam used approximately $8.7 million primarily for
     the Gaiam.com website, the purchase of a 160 acre conference resort in
     Paulden, Arizona (Gaiam Yoga Center), and additional infrastructure
     improvements to support the Gaiam's growth. During 1999, Gaiam generated
     $2.5 million from the sale of marketable securities and used $2.7 million
     primarily for its acquisitions. Gaiam also used $2.2 million primarily to
     expand and upgrade e-commerce, computer and telecommunications systems.

          Gaiam's financing activities provided net cash of $3.5 million during
     2000, primarily from increased borrowings on the Gaiam's line of credit.
     During 1999, Gaiam's financing activities generated $9.5 million in net
     cash, primarily from the initial public offering.

          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, minority investment, strategic
     relationship and other business combination opportunities in the LOHAS
     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 7A.    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 currency exchange rates and
     are only minimally impacted by changes in interest rates. Borrowings 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.


     ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

<S>                                                    <C>
     Report of Independent Auditors................... F-1

     Consolidated Financial Statements

     Consolidated Balance Sheets...................... F-2
     Consolidated Statements of Income................ F-3
     Consolidated Statements of Stockholders' Equity.. F-4
     Consolidated Statements of Cash Flows............ F-5
     Notes to Consolidated Financial Statements....... F-6

</TABLE>
<PAGE>

                        REPORT OF INDEPENDENT AUDITORS



Stockholders and Board of Directors
Gaiam, Inc.

We have audited the accompanying consolidated balance sheets of Gaiam, Inc. and
subsidiaries as of December 31, 2000 and 1999, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Gaiam, Inc. and
subsidiaries at December 31, 2000 and 1999 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.

                                    /s/ Ernst & Young LLP
Denver, Colorado
February 27, 2001
<PAGE>

                                  GAIAM, INC.
                          CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                        December 31,
Assets                                                                            2000                 1999
                                                                        ------------------------------------------
<S>                                                                       <C>                  <C>
Current assets:
 Cash and cash equivalents                                                        $ 8,578,668          $ 3,877,465
 Accounts receivable, net of allowance for
  doubtful accounts of $301,539 in 2000
  and $158,292 in 1999                                                              8,472,828            4,326,594
 Accounts and notes receivable, other                                               1,097,390              755,924
 Inventory, less allowances                                                         6,361,046            4,555,436
 Deferred advertising costs                                                         1,625,285            2,176,325
 Other current assets                                                               1,307,416              393,330
                                                                        ------------------------------------------
Total current assets                                                               27,442,633           16,085,074

Property and equipment, net                                                        10,797,501            3,168,183
Capitalized production costs, net                                                   2,656,666            1,636,706
Video library, net                                                                  4,631,140            4,792,456
Goodwill, net                                                                       2,379,861            1,239,507
Other assets                                                                          569,508              337,759
                                                                        ------------------------------------------
Total assets                                                                      $48,477,309          $27,259,685
                                                                        ==========================================
Liabilities and stockholders' equity
Current liabilities:
 Accounts payable                                                                 $ 8,091,569          $ 7,618,344
 Accrued liabilities                                                                2,276,385            1,734,310
 Accrued royalties                                                                    867,667              725,541
 Capital lease obligations, current                                                   147,649               95,844
 Income taxes payable                                                                 790,267                    -
                                                                        ------------------------------------------
Total current liabilities                                                          12,173,537           10,174,039

Capital lease obligations, long-term                                                  270,171              209,074
Deferred tax liability                                                                384,968                    -
Line of credit                                                                      5,500,000            1,900,000
                                                                        -------------------------------------------
Total long-term liabilities                                                         6,155,139            2,109,074

Minority interest                                                                   6,037,868               26,030
Redeemable Class A preferred stock in
    subsidiary                                                                      6,000,000                    -

Stockholders' equity:
 Class A common stock, $.0001 par value,
  92,965,000 shares authorized, 5,473,184
  and 5,441,537shares issued and outstanding
  at December 31, 2000 and 1999, respectively                                             547                  544
 Class B common stock, $.0001 par value,
  7,035,000 shares authorized, 5,400,000 and
  5,400,000 shares issued and outstanding at
  December 31, 2000 and 1999, respectively                                                540                  540
 Additional paid-in capital                                                        11,865,734           11,038,551
 Deferred compensation                                                               (422,826)            (106,992)
 Retained earnings                                                                  6,666,770            4,017,899
                                                                        ------------------------------------------
Total stockholders' equity                                                         18,110,765           14,950,542
                                                                        ------------------------------------------
Total liabilities and stockholders' equity                                        $48,477,309          $27,259,685
                                                                        ===========================================
</TABLE>


                            See accompanying notes.
<PAGE>

                                  GAIAM, INC.
                       CONSOLIDATED STATEMENTS OF INCOME



<TABLE>
<CAPTION>
                                                                        Years ended December 31,
                                                                 2000                1999                1998
                                                     -----------------------------------------------------------
<S>                                                    <C>                 <C>                 <C>
Net revenue                                                  $60,588,018         $45,724,662         $30,738,540
Cost of goods sold                                            23,793,492          18,175,787          13,173,536
                                                     -----------------------------------------------------------
Gross profit                                                  36,794,526          27,548,875          17,565,004

Expenses:
 Selling and operating                                        27,309,857          22,337,950          14,186,215
 Corporate, general and administration                         5,056,903           3,086,514           2,393,946
                                                     -----------------------------------------------------------
Total expenses                                                32,366,760          25,424,464          16,580,161
                                                     -----------------------------------------------------------

Income from operations                                         4,427,766           2,124,411             984,843

Other income (expense):
 Realized gain on sale of securities
  And other (see Note 3)                                         (73,947)            971,159             696,992
 Interest expense                                               (209,167)           (365,294)           (308,501)
                                                     -----------------------------------------------------------
Other income (expense)                                          (283,114)            605,865             388,491
                                                     -----------------------------------------------------------

Income before income taxes and minority
 interest                                                      4,144,652           2,730,276           1,373,334

Provision for income taxes                                     1,555,487           1,062,789             251,955
Minority interest in net income (loss) of
 consolidated subsidiary, net of tax                             (59,706)            (50,858)            261,598
                                                     -----------------------------------------------------------
Net income                                                   $ 2,648,871         $ 1,718,345         $   859,781
                                                     ===========================================================
Net income per share:
 Basic                                                             $0.24               $0.20               $0.11
 Diluted                                                           $0.23               $0.19               $0.11

S Shares used in computing net income per share:
 Basic                                                        10,858,139           8,785,205           8,072,877
 Diluted                                                      11,525,120           9,119,108           8,118,791
</TABLE>


                            See accompanying notes.
<PAGE>


                                  GAIAM, INC.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY



<TABLE>
<CAPTION>
                                                                                              Accumulated
                       Class A               Class B          Additional                        Other
                    Common Stock           Common Stock        Paid-in          Deferred     Comprehensive     Retained
                   Shares      Amount     Shares    Amount     Capital        Compensation      Income         Earnings       Total
                   ----------------------------------------------------------------------------------------------------------------
<S>                <C>          <C>     <C>          <C>      <C>             <C>              <C>              <C>            <C>
Balance at
December
 31, 1997           1,005,000  $101    7,035,000    $ 704   $   133,833     $       -      $ 3,161,263     $1,439,773  $ 4,735,674

Issuance of
common stock          160,000    16       -             -       574,984             -                -              -      575,000

Return of
 capital to
 shareholder
 through
 purchase of
 Inner Balance,
 Inc.                       -     -       -             -      (331,183)            -                -              -      (331,183)

Comprehensive
 income (loss):
 Net income                 -     -       -             -             -             -                -        859,781      859,781
 Decrease in
  fair market
  value of
  securities
  available for
  sale, net of
  reclass-
  ification
  adjustment (see
   Note 1), net
   of tax of
   $618,578                 -     -       -             -             -             -       (2,178,137)             -    (2,178,137)
                                                                                                                         ----------
Total comprehensive
 loss                                                                                                                    (1,318,356)
                   ----------------------------------------------------------------------------------------------------------------

Balance at
 December
 31, 1998           1,165,000   117    7,035,000      704       377,634             -          983,126      2,299,554    3,661,135

Issuance of
 common stock         331,429    32       -             -     1,449,968             -                -              -    1,450,000

Shares issued
 in connection
 with IPO,
 including the
 underwriter's
 overallotment      1,807,861   181       -             -     6,142,007             -                -              -    6,142,188

Issuance of
 common stock
 in conjunction
 with acquisitions
 and share
 conversion         1,842,247   185   (1,635,000)    (164)    1,593,971      (106,992)               -              -    1,487,000

Shares issued
 in connection
 with conversion
 of debt              295,000    29       -             -     1,474,971             -                -              -    1,475,000

Comprehensive
 income (loss):
 Net income                 -     -       -             -             -             -                -      1,718,345    1,718,345
 Decrease in fair
 market value of
 available for sale
 securities,
 net of
 reclassification
 (see Note 1)               -     -       -             -             -             -         (983,126)             -      (983,126)
                   ----------------------------------------------------------------------------------------------------------------
Total comprehensive
 income                                                                                                                    735,219
                   ----------------------------------------------------------------------------------------------------------------
Balance at
 December
 31, 1999           5,441,537   544    5,400,000      540    11,038,551      (106,992)               -      4,017,899   14,950,542


Issuance of
 common stock
 in conjunction
 with acquisitions
 and compensation      31,647     3                             827,183      (315,834)                                     511,352
Net income and
 comprehensive
 income                                                                                                     2,648,871    2,648,871
                   ----------------------------------------------------------------------------------------------------------------
Balance at
 December
 31, 2000           5,473,184  $547    5,400,000    $ 540   $11,865,734     $(422,826)               -     $6,666,770  $18,110,765
               ====================================================================================================================
</TABLE>


                            See accompanying notes.

<PAGE>

                                  GAIAM, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>
                                                                                  Years ended December 31,
                                                                            2000               1999               1998
                                                                 --------------------------------------------------------
<S>                                                                <C>                <C>                <C>
OPERATING ACTIVITIES
Net income                                                              $ 2,648,871        $ 1,718,345        $   859,781
Adjustments to reconcile net income to net cash provided
 by (used in) operating activities:
  Depreciation                                                            1,245,155            391,000            240,431
  Amortization                                                              414,695            293,315             85,466
  Stock compensation                                                        147,492                  -                  -
  Interest expense added to principal of margin loan                              -             16,513            116,158
  Minority interest in consolidated subsidiary                              (59,706)           (50,858)           261,598
  Realized gains on sales of securities and property and
   equipment                                                                      -         (2,516,110)          (691,137)
  Deferred tax expense                                                      384,968            (53,718)             9,684
  Changes in operating assets and liabilities, net of
   effects from acquisitions:
     Accounts receivable                                                 (4,127,458)        (2,296,771)        (1,501,242)
     Inventory                                                           (1,739,231)        (1,161,724)          (591,519)
     Deferred advertising costs                                             551,040           (418,480)          (243,630)
     Capitalized production costs                                        (1,019,960)          (964,268)          (212,361)
     Other current assets                                                  (914,086)          (109,494)             8,527
     Other assets                                                          (229,295)            41,615           (266,757)
     Accounts payable                                                        (8,730)           717,852          2,569,358
     Accrued liabilities                                                    167,310            198,741            329,672
     Income taxes payable                                                   805,123           (424,745)           (69,784)
                                                                 --------------------------------------------------------
Net cash provided by (used in) operating activities                      (1,733,812)        (4,618,787)           904,245
                                                                 --------------------------------------------------------


INVESTING ACTIVITIES
Purchase of property and equipment                                       (8,735,390)        (2,212,961)          (134,378)
Proceeds from the sale of property and equipment                                  -                  -             32,090
Proceeds from the sale of securities available-for-sale                           -          2,548,310            477,500
Proceeds from sale of stock in subsidiary                                11,959,923                  -                  -
Payments for acquisitions, net of cash acquired                            (305,773)        (2,740,703)        (1,656,611)
                                                                 --------------------------------------------------------
Net cash provided by (used in) investing activities                       2,918,760         (2,405,354)        (1,281,399)
                                                                 --------------------------------------------------------
FINANCING ACTIVITIES
Principal payments on capital leases                                        (99,617)           (60,671)           (49,699)
Proceeds from issuance of common stock                                       15,872          2,875,002            575,000
Net proceeds from initial public offering                                         -          6,142,188                  -
Proceeds from convertible debt                                                    -                  -            549,999
Net proceeds from (payments on) borrowings                                3,600,000            535,148           (900,000)
                                                                 --------------------------------------------------------
Net cash provided by financing activities                                 3,516,255          9,491,667            175,300
                                                                 --------------------------------------------------------

Net change in cash and cash equivalents                                   4,701,203          2,467,526           (201,854)
Cash and cash equivalents at beginning of year                            3,877,465          1,409,939          1,611,793
Cash and cash equivalents at end of year                                $ 8,578,668        $ 3,877,465        $ 1,409,939
                                                                 ========================================================
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid                                                           $   287,080        $   348,580        $   126,025
Income taxes paid                                                            82,099          1,541,253            312,100
Common stock issued for acquisitions                                        333,131          1,487,000                  -
Common stock issued for convertible debt                                          -          1,425,000                  -
Fixed assets acquired under capital lease                                   212,519            297,740                  -
</TABLE>


                            See accompanying notes.
<PAGE>

                                  GAIAM, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Organization

     Gaiam, Inc. (the "Company") 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 personal
     development, healthy living and the environment.

     Basis of Consolidation

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

     Cash and Cash Equivalents

     For purposes of the statement of cash flows, cash and cash equivalents
     include demand deposit accounts with financial institutions and all highly
     liquid investments, which mature within three months of date of purchase.

     Securities Available-for-Sale

     Securities available-for-sale consist of equity securities and are recorded
     at market value. All unrealized gains or losses, net of tax, are recorded
     as a separate component of stockholders' equity.

     Provision for Doubtful Accounts

     The Company records a provision for doubtful accounts for all receivables
     not expected to be collected.

     Inventory

     Inventory, consisting primarily of finished goods, is stated at the lower
     of cost (first-in, first-out method) or market.

     Deferred Advertising Costs

     Deferred costs primarily relate to preparation, printing and distribution
     of catalogs. Such costs are deferred for financial reporting purposes until
     the catalogs are distributed, then amortized over succeeding periods (not
     to exceed seven months) on the basis of estimated sales. Historical sales
     statistics are the principal factor used in estimating the amortization
     rate. Other advertising and promotional costs are expensed as incurred.
     Advertising costs incurred were $10.5 million, $10.1 million and $7.1
     million for the years ended December 31, 2000, 1999 and 1998, respectively.

     Property and Equipment

     Property and equipment are stated at cost less accumulated depreciation and
     amortization, which includes the amortization of assets recorded under
     capital leases. Included in property and equipment is the cost of internal-
     use software, including software used in connection with the Company's
     websites. The Company expenses all costs related to the development of
     internal-use software other than those incurred during the application
     development stage. Costs incurred during the application development stage
     are capitalized and amortized over the estimated useful life of the
     software (generally five years).
<PAGE>

                                  GAIAM, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     Property and Equipment (continued)

     Depreciation of property and equipment is computed on the straight-line
     method over estimated useful lives (generally five to ten years). Property
     and equipment purchased under capital leases are amortized on a straight-
     line basis over the lesser of the estimated useful life of the asset or the
     lease term.

     Capitalized Production Costs

     Capitalized production costs include costs incurred to produce
     informational videos marketed by the Company to retail marketers and
     direct-mail customers. These costs are deferred for financial reporting
     purposes until the videos are released, then amortized over succeeding
     periods on the basis of estimated sales. Historical sales statistics are
     the principal factor used in estimating the amortization rate. Accumulated
     amortization at December 31, 2000 and 1999 was $1.7 million and $1.3
     million, respectively.

     Video Library, Net

     The video library asset represents the cost of the library of produced
     videos acquired through a business combination. The video library is
     presented net of accumulated amortization of $674,059 and $332,401 at
     December 31, 2000 and 1999 and is being amortized over a 15-year life.

     Goodwill, Net

     Goodwill, net represents the excess of the purchase price over the fair
     value of assets acquired in business acquisitions accounted for under the
     purchase method. Goodwill is presented net of related accumulated
     amortization of $88,922 and $15,884 at December 31, 2000 and 1999, and is
     being amortized over lives ranging from 10 to 20 years.

     Long-Lived Assets

     The carrying values of intangible and other long-lived assets are reviewed
     quarterly to determine if any impairment indicators are present. To date,
     no such impairment has been indicated. If it is determined that such
     indicators are present and the review indicates that the assets will not be
     recoverable, based on undiscounted estimated cash flows over the remaining
     amortization and depreciation period, their carrying values are reduced to
     estimated fair market value.

     Accrued Royalties

     The Company has various royalty agreements with instructors and artists
     requiring royalty payments of specified product sales based upon unit
     sales, or upon a specified minimum royalty amount. Payments are made
     quarterly and semi-annually.

     Income Taxes

     The Company provides for income taxes pursuant to the liability method as
     prescribed in Statement of Financial Accounting Standards (SFAS) No. 109,
     Accounting for Income Taxes. The liability method requires recognition of
     deferred income taxes based on temporary differences between financial
     reporting and income tax bases of assets and liabilities, using currently
     enacted income tax rates and regulations.

     Revenues

     The Company recognizes revenue at the time merchandise is shipped to the
     customer. Amounts billed to customers for postage and handling charges,
     which approximate $3.5 million for 2000, $3.0 million for
<PAGE>

                                  GAIAM, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     Revenue (continued)

     1999 and $2.2 million for 1998, are recognized as revenue at the time that
     the revenues on the product shipments are recognized. Postage and handling
     costs, which approximate $3.3 million for 2000, $3.0 million for 1999, and
     $2.1 million for 1998, are included in selling and operating expense along
     with other fulfillment costs incurred to warehouse, package and deliver
     products to customers. The Company provides a reserve for expected future
     returns at the time the sale is recorded based upon historical experience.

     The Company's sales are attributable mainly to sales within the U.S., with
     a very small percentage, less than 1% of sales, to international customers.
     No customer represented more than 5% of sales for any of the years ended
     December 31, 2000, 1999 and 1998. The Company generally does not require
     collateral.

     Fair Value of Financial Instruments

     The Company's financial instruments consist of cash and cash equivalents,
     securities available-for-sale, accounts receivable, payables and debt
     obligations. The carrying values of these financial instruments as reported
     in the accompanying balance sheets are assumed to approximate their fair
     value.

     Use of Estimates

     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the amounts reported in our financial statements
     and accompanying notes including the valuation of stated accounts
     receivable and inventory balances. Actual results could differ from those
     estimates.

     Stock-Based Compensation

     The Company accounts for its stock-based compensation arrangements under
     the provisions of Accounting Principles Board Opinion No. 25, Accounting
     for Stock Issued to Employees ("APB No. 25") and related interpretations,
     including FASB Interpretation No. 44, Accounting for Certain Transactions
     Involving Stock Compensation, rather than the alternative fair value
     accounting allowed by SFAS No. 123, Accounting for Stock Based
     Compensation.

     Defined Contribution Plan

     In 1999, the Company adopted a defined contribution retirement plan under
     Section 401(k) of the Internal Revenue Code, which covers substantially all
     employees. Eligible employees may contribute amounts to the plan, via
     payroll withholding, subject to certain limitations. The 401(k) plan
     permits, but does not require, additional matching contributions to the
     401(k) plan by the Company on behalf of all participants in the 401(k)
     plan. To date, the Company has not made any matching contributions to the
     401(k) plan.

     Reporting Comprehensive Income

     On January 1, 1998, the Company adopted the Financial Accounting Standards
     Board ("FASB") issued SFAS No. 130, Reporting on Comprehensive Income
     ("Statement No. 130"). SFAS No. 130 establishes standards for reporting and
     display of comprehensive income and its components in the financial
     statements. The only item of comprehensive income that the Company has is
     unrealized gains (losses) on securities available-for-sale. The
     reclassification adjustment for gains and losses included in net income for
     1998, net of tax of $618,578 include unrealized losses of $1.8 million and
     net realized gains of $427,813. The reclassification adjustment for gains
     and losses included in net income for 1999 include unrealized losses of
     $2.6 million and net realized gains of $1.6 million. As of December 31,
     1999, all available-for-sale securities were sold.
<PAGE>

                                  GAIAM, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     New Accounting Pronouncements

     In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
     Instruments and Hedging Activities, as amended by Statements 137 and 138 in
     June 1999 and June 2000, respectively. SFAS No. 133 is effective for the
     Company's fiscal year beginning on January 1, 2001. SFAS No. 133 requires
     that all derivative instruments be recorded on the balance sheet at their
     fair value. Changes in the fair value of derivatives are recorded each
     period in current earnings or other comprehensive income, depending on
     whether a derivative is designed as part of a hedge transaction and, if it
     is, the type of hedge transaction. The Company does not expect that the
     adoption of SFAS No. 133 will have a material impact on its financial
     statements because it does not currently hold any derivative instruments.

     Earnings Per Share

     Basic earnings per share excludes 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 periods have been
     presented and conform to SFAS No. 128, Earnings per Share, requirements.

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

<TABLE>
<CAPTION>
                                                                     2000               1999               1998
                                                          ---------------------------------------------------------
<S>                                                         <C>                <C>                <C>
Numerator for basic earnings per share                             $ 2,648,871         $  1,718,345      $  859,781

Effect of Dilutive Securities:
 8% convertible debentures                                                 --                56,401          19,234
                                                          ---------------------------------------------------------
Numerator for diluted earnings per share                           $ 2,648,871         $  1,774,746      $  879,015
                                                          =========================================================
Denominator:
Weighted average shares for basic
  earnings per share                                                10,858,139           8,785,205        8,072,877

Effect of Dilutive Securities:
 Weighted average of common stock, stock
  options, warrants and convertible debentures                         666,981             333,903           45,915
                                                          ---------------------------------------------------------
Denominators for diluted earnings per share                         11,525,120           9,119,108        8,118,792
                                                          =========================================================

Net income per share--basic                                        $      0.24          $     0.20       $     0.11
Net income per share--diluted                                      $      0.23          $     0.19       $     0.11
</TABLE>

     2. MERGERS AND ACQUISITIONS

     In September 1998, the Company acquired a 67% ownership in a newly formed
     entity, Healing Arts Publishing, LLC (dba Living Arts) for $2.5 million in
     cash. Healing Arts Publishing, Inc., which produced and distributed
     exercise and relaxation videos and sold environmentally oriented products
     through its mail order catalogs and through sales to retailers, contributed
     the majority of its assets and certain liabilities to
<PAGE>

                                  GAIAM, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


     2. MERGERS AND ACQUISITIONS (CONTINUED)

     Living Arts in exchange for a 33% membership interest. Effective July 1999,
     the Company acquired the remaining 33% minority interest in Living Arts.
     Additionally, effective November 1999, the Company acquired a 50.1%
     controlling interest in an environmental products provider. Total
     consideration paid by the Company for the 1999 acquisitions was $2.3
     million in cash and 207,247 shares of the Company's Class A common stock.

     On June 30, 2000, Gaiam, Inc. and Whole Foods Market merged their Internet
     businesses into Gaiam.com, Inc. Gaiam owns 50.1% of Gaiam.com. Whole Foods
     Market currently owns 35% of Gaiam.com and the remainder is owned by
     various venture capital funds. As part of the transaction, Whole Foods
     Market, through its subsidiary, contributed $6 million in cash plus other
     assets to Gaiam.com. On June 19, 2000, Gaiam, Inc. sold 6,000 shares of
     Redeemable Class A preferred stock in Gaiam.com, Inc. at a price of $1,000
     per share for an aggregate price of $6,000,000. This stock doesn't carry
     any dividend rights and is redeemable only upon the consummation of an
     offering by Gaiam.com of its equity securities to the public pursuant to an
     effective registration statement with the Securities and Exchange
     Commission.

     Additionally, in 2000, the Company acquired a yoga props company and a 70%
     interest in an organic clothing manufacturer. Total consideration paid by
     the Company for these acquisitions was approximately $315,000 in cash and
     21,243 shares of Class A common stock. These acquisitions were accounted
     for using the purchase method and the results of operations are included in
     the consolidated financial statements of the Company from the effective
     acquisition dates. Goodwill associated with these acquisitions totaled
     approximately $1.2 million, and is being amortized on a straight-line basis
     over a period of 20 years.


     3. SECURITIES AVAILABLE-FOR-SALE

     Securities available-for-sale consisted of shares of common stock from one
     issuer. During 1998, the Company sold 60,000 shares of this common stock at
     market value for $703,125 to a related party and recognized a gain of
     $696,992 on the sale. During the first and second quarters of 1999, the
     Company sold 100,000 shares of the common stock at market value for
     $538,750 to a related party, and recognized a gain of $528,528 on the sale.
     During the third and fourth quarters of 1999, the Company sold its
     remaining 215,000 shares of common stock for $2.0 million to a non-related
     party and recognized a gain of $2.0 million on the sale.
<PAGE>

                                  GAIAM, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


     4. PROPERTY AND EQUIPMENT

     Property and equipment, stated at cost, consists of the following:

<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                                    2000                   1999
                                                                        --------------------------------------------
<S>                                                                       <C>                   <C>
Land                                                                              $ 1,100,000             $        -
Buildings                                                                           1,800,000                      -
Furniture, fixtures and equipment                                                   1,295,030                805,182
Leasehold improvements                                                                714,460                333,747
Website development (including construction-
    in-process costs)                                                               5,391,243              1,600,728
Computer/telephone equipment                                                        2,571,033              1,632,065
Warehouse equipment                                                                   567,667                222,329
                                                                        --------------------------------------------
                                                                                   13,439,433              4,594,051
Accumulated depreciation and amortization                                          (2,641,932)            (1,425,868)
                                                                        --------------------------------------------
                                                                                  $10,797,501            $ 3,168,183
                                                                        ============================================
</TABLE>

     5. COMMITMENTS

     At December 31, 2000 and 1999, the Company's property held under capital
     leases consisted of the following, which is included in property and
     equipment:
<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                                      2000                  1999
                                                                        --------------------------------------------
<S>                                                                       <C>                    <C>
Warehouse equipment                                                                  $  40,229              $ 40,229
Computer/telephone equipment                                                           578,064               365,545
                                                                        --------------------------------------------
                                                                                       618,293               405,774
Accumulated amortization                                                              (181,085)              (99,189)
                                                                                     $ 437,208              $306,585
                                                                        ============================================
</TABLE>


     The Company leases equipment and office, retail, and warehouse space
     through capital and operating leases. The following schedule represents the
     annual future minimum payments, as of December 31, 2000:

<TABLE>
<CAPTION>
                                                                                     Capital           Operating
                                                                              --------------------------------------
<S>                                                                             <C>                <C>
2001                                                                                   $ 155,692          $1,100,818
2002                                                                                     147,379           1,081,874
2003                                                                                     125,412           1,039,092
2004                                                                                      55,458           1,039,092
                                                                              --------------------------------------
Total minimum lease payments                                                             483,941          $4,260,876
                                                                                                          ==========
Less portion related to interest                                                         (66,121)
                                                                              ------------------
Present value of future minimum lease payments                                           417,820
Less current portion                                                                    (147,649)
                                                                              ------------------
                                                                                       $ 270,171
                                                                              ==================
</TABLE>

     The Company incurred rent expense of $1,084,071, $790,393 and $646,886 for
     the years ended December 31, 2000, 1999 and 1998, respectively.
<PAGE>

                                  GAIAM, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


     6. LINE OF CREDIT

     The Company is party to revolving line of credit agreements, which extend
     through January 31, 2003. The credit agreements permit borrowings up to
     $6.5 million based upon the collateral value of the Company's accounts
     receivable and inventory. Borrowings under these agreements bear interest
     at the prime rate, which was 9.5% at December 31, 2000. These borrowings
     are secured by a pledge of the Company's assets, and contain various
     financial covenants, including prohibiting the payment of cash dividends to
     its shareholders and requiring the maintenance of certain financial ratios.
     At December 31, 2000, the Company is in compliance with all the financial
     covenants.


     7. INCOME TAXES

     The provision for income taxes is comprised of the following:

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                           2000                  1999                  1998
                                                              -----------------------------------------------------------------
<S>                                                             <C>                   <C>                   <C>
Current:
 Federal                                                                 $1,117,823            $1,006,008              $197,142
 State                                                                      155,954               156,426                45,129
                                                              -----------------------------------------------------------------
                                                                          1,273,777             1,162,434               242,271
Deferred:
 Federal                                                                    322,798               (37,610)               25,852
 State                                                                      (41,088)              (62,035)              (16,168)
                                                              -----------------------------------------------------------------
                                                                            281,710               (99,645)                9,684
                                                              -----------------------------------------------------------------
Total                                                                    $1,555,487            $1,062,789              $251,955
                                                              =================================================================
</TABLE>

     Variations from the federal statutory rate are as follows:

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                             2000                 1999                  1998
                                                               ----------------------------------------------------------------
<S>                                                              <C>                  <C>                  <C>
Expected federal income tax expense at
 statutory rate of 34%                                                    $1,409,182           $  928,294             $ 466,934

Effect of legal judgment - permanent difference                                    -                    -              (251,609)
Effect of other permanent differences                                         27,359               40,104                20,276
State income tax expense, net of federal benefit                             118,946               94,391                16,354
                                                               ----------------------------------------------------------------
Income tax expense                                                        $1,555,487           $1,062,789             $ 251,955
                                                               ================================================================
</TABLE>

     The legal judgment was a liability acquired in the purchase of a 67%
     interest in Healing Arts Publishing. This $740,000 liability paid by the
     Company in 1998 resulted in a permanent tax benefit.

     Deferred income taxes reflect net tax effects of temporary differences
     between the carrying amounts of assets and liabilities for financial
     reporting purposes and the amounts used for income tax purposes. The
     components of the net accumulated deferred income tax asset or liability as
     of December 31, 2000 and 1999 are as follows:
<PAGE>

                                  GAIAM, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     7. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
                                                                                       December 31,
                                                                                 2000                1999
                                                                       --------------------------------------
<S>                                                                      <C>                <C>
Deferred tax assets:
  Reserve for bad debts                                                         $ 113,373            $ 57,386
  Capitalized inventory                                                            30,165              29,777
    Amortization                                                                    2,594                   -
                                                                       --------------------------------------
                                                                                  146,132              87,163
Deferred tax liabilities:
  Amortization                                                                          -             (66,060)
    Prepaid catalog costs                                                         (24,439)                  -
  Depreciation                                                                   (387,562)             (1,181)
                                                                       --------------------------------------
                                                                                 (412,001)            (67,241)
                                                                       --------------------------------------
Deferred tax asset (liability), net                                             $(265,869)           $ 19,922
                                                                       ======================================
</TABLE>

     8. Stockholders' Equity

     The Company has warrant certificates outstanding during the year and at
     December 31, 2000 that entitle the holder to purchase 24,000 shares of
     Class A common stock at $.50 per share. The warrant is exercisable during a
     two-year period beginning January 20, 2002 and ending January 9, 2004.

     In June 1999, the Company completed a private placement whereby 331,429
     shares of Class A common stock were issued at $4.375 per share. A total of
     $2.0 million in convertible debentures with a stated interest rate of 8%
     were issued during 1998 and the first six months of 1999. These debentures
     were convertible automatically upon the closing of the initial public
     offering into Class A common stock at the initial public offering per share
     price. A total of $1.5 million of these debentures were converted into
     295,000 shares of Class A common stock, and a $500,000 debenture was repaid
     in cash.

     Gaiam's initial public offering of 1,705,000 shares of Class A common stock
     at $5.00 per share was completed in October 1999. The underwriters also
     exercised their overallotment option for 102,861 additional shares during
     November 1999. Net proceeds to Gaiam, after deducting all commissions and
     expenses associated with the offering, were $6.1 million.

     In 1999, Gaiam issued 207,247 shares of Class A common stock in lieu of
     cash payments for acquisitions, and Gaiam's Chief Executive Officer
     converted 1,635,000 shares of Class B common stock into 1,635,000 shares of
     Class A common stock.

     During 2000, Gaiam issued 21,243 shares of Class A common stock for two
     acquisitions, 6,776 shares of Class A common stock to three directors, in
     lieu of cash compensation, and 3,628 shares of Class A common stock upon
     exercise of options granted under the 1999 Long-Term Incentive Plan.

     As of December 31, 2000, the Company had the following Class A common
     shares reserved for future issuance:

<TABLE>
<CAPTION>
     <S>                                                                                <C>
     Awards under the 1999 Long-Term Incentive Plan                                        1,127,562
     Shares reserved for warrant exercise                                                     24,000
     Total shares reserved for future issuance                                             1,151,562
                                                                                   ==================
</TABLE>
<PAGE>

                                  GAIAM, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


     9. STOCK OPTION PLANS

     On June 1, 1999, the Company adopted the 1999 Long-Term Incentive Plan
     ("the Plan"), which provides for the granting of options to purchase up to
     1.6 million shares of the Company's common stock. Both incentive stock
     options and non-qualified stock options may be issued under the provisions
     of the Plan. Employees of the Company and its affiliates, members of the
     Board of Directors, consultants and certain key advisors are eligible to
     participate in the plan, which shall terminate no later than June 1, 2009.
     These options granted under the Plan generally vest and become exercisable
     at 2% per month for the 50 months beginning in the eleventh month after
     date of grant. All grants expire 7 years from the date of grant.

     The Company recorded deferred compensation of $413,320 and $106,992 in 2000
     and 1999, respectively. In 2000, deferred compensation was recorded in
     connection with: acquisitions made by the Company in which options were
     issued to employees of an acquired company; options issued to employees
     whereby the grant price differed from the deemed fair value of the
     Company's common stock; and options issued to non-employees for services to
     be provided over the related terms of their respective agreements. The
     amounts recorded in 1999 represent the difference between the grant price
     and the deemed fair value of the Company's common stock for shares subject
     to options granted in 1999. The amortization of deferred compensation is
     charged to operations over the service period of the options, which is
     typically 5 years. Total amortization expense recognized in 2000 and 1999
     related to deferred compensation was $97,486 and $0, respectively.

     A summary of stock option activity and weighted average exercise prices for
     the year ended December 31, 2000 follows:


<TABLE>
<CAPTION>
                                                      2000                       1999
                                           -------------------------   ------------------------
                                                           Weighted                   Weighted
                                                            Average                   Average
                                                           Exercise                   Exercise
                                               Shares        Price         Shares      Price
                                           -------------------------   ------------------------
<S>                                          <C>           <C>           <C>         <C>
Outstanding at beginning of year                 890,900      $ 6.10              -  $        -
Granted:
  Price equal to fair value                      253,500       15.96        851,200        4.51
  Price less than fair value                      39,000       15.28         39,700        7.18
Exercised                                         (3,628)       4.38              -           -
Forfeited                                        (52,210)       6.52              -           -
                                           -------------------------   ------------------------
Outstanding at end of year                     1,127,562      $ 7.45        890,900       $6.10
                                                 128,552      $ 4.47              -  $        -
Exercisable at end of year

Shares available on December 31,
 for options that may be granted                 472,438                    709,100
</TABLE>
     A summary of stock options outstanding as of December 31, 2000 follows:
<PAGE>

                                  GAIAM, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


     9. STOCK OPTION PLANS (CONTINUED)


<TABLE>
<CAPTION>
                           Outstanding Stock Options                                   Exercisable Stock Options
        -----------------------------------------------------------------------    --------------------------------
                                                        Weighted      Weighted                          Weighted
                                                        Average       Average                           Average
             Range of                   Shares         Remaining      Exercise                          Exercise
         Exercise Prices              Outstanding     Life (Years)     Price             Shares          Price
        -----------------------------------------------------------------------    --------------------------------

        <S>                         <C>              <C>             <C>             <C>             <C>
          $4.00 - $4.99                     637,712            5.4       $ 4.38             102,128          $ 4.38
          $5.00 - $5.99                     171,500            5.8       $ 5.00              24,950          $ 5.00
          $7.00 - $7.99                      33,350            5.9       $ 7.18               1,334          $ 7.18
         $15.00 - $15.99                    193,000            6.8       $15.28                 140          $15.50
         $16.00 - $16.99                     15,000            6.6       $16.34                   -               -
         $17.00 - $17.99                     77,000            6.7       $17.18                   -               -
        -----------------------------------------------------------------------    --------------------------------
          $4.00 - $17.99                  1,127,562            5.9       $ 7.46             128,552          $ 4.54
</TABLE>


       Had compensation cost for the Company's stock-based compensation plan
     been determined under the fair value methodology for determining
     compensation cost under SFAS No. 123, the Company's net income and income
     per share for the years ended December 31, 2000 and 1999, would have been
     as follows:


<TABLE>
<CAPTION>
                                                                        For the Years Ended
                                                                            December 31,
                                                               ------------------------------------
                                                                        2000               1999
                                                               ------------------------------------
<S>                                                              <C>                <C>
Net income
  As reported                                                         $2,648,871         $1,718,345
  Pro forma                                                            2,258,005          1,599,102
Net income per common share
  As reported                                                         $     0.24         $     0.20
  Pro forma                                                           $     0.21         $     0.18
Fully diluted net income per common share:
  As reported                                                         $     0.23         $     0.19
  Pro forma                                                           $     0.20         $     0.18
</TABLE>

     In estimating the pro forma compensation expense for each equity award
     granted during the year, the Company used the Black Scholes option pricing
     model, with the following weighted-average assumptions used for grants in
     2000 and 1999, respectively: risk-free interest rates in a range of 6.00%
     and 5.78%, expected dividend yield of zero; expected option lives of 5
     years, and expected volatility of 0.48 and 1.29. Options granted prior to
     the Company's initial public offering were valued using the minimum value
     method and, therefore, volatility was not applicable.
<TABLE>
<CAPTION>
                                                           2000    1999
                                                           ----    ----
<S>                                                      <C>     <C>
               Weighted-average fair value of options
                 granted during the year:
                    Price equal to fair value            $11.85   $ 1.85
                    Price less than fair value           $11.38   $11.21
</TABLE>
<PAGE>

                                  GAIAM, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     10. RELATED PARTY TRANSACTIONS

     In 1997, the Company entered into a fulfillment agreement with InnerBalance
     Health, publisher of a natural health catalog, (a related party under
     common ownership with the Chief Executive Officer of the Company) to
     provide customer sales, service, warehousing and distribution services. On
     October 1, 1998, the Company acquired all of the stock and net assets of
     InnerBalance Health, Inc. As these were companies under common control, the
     Company accounted for the purchase using historical cost. Therefore, the
     excess of the purchase price of $523,677 over the value of net assets was
     accounted for as a reduction to additional paid-in capital.

     In 1999, the Company engaged the services of ccplanet.com, Inc. (a related
     party under common ownership with the Chief Executive Officer of the
     Company) to develop and implement a new web site design utilizing the
     latest technology for its direct to consumer operations. The Company paid
     ccplanet a total of $4.5 million for work performed on said project during
     1999 and 2000, and the new Gaiam.com website was placed into service in
     March 2000. The Company has made its customer database and certain visual
     media available to ccplanet in exchange for fees totaling $600,000 during
     1999, and $1.4 million in 2000.

     Because of Whole Foods Market's investments in Gaiam.com, Whole Foods
     Market may be considered a related party. Whole Foods Market and Gaiam have
     also entered into a 10-year joint marketing agreement to promote each
     other's businesses and share customer data. The companies are testing a
     store-within-a-store concept, presenting Gaiam's lifestyle products in
     Whole Foods Market's larger stores.

     In 2000, the Chief Executive Officer advanced funds to purchase a 70%
     interest in an organic clothing manufacturer. These advances, plus
     applicable interest, were repaid in December 2000. Additionally, the
     Company purchased approximately $300,000 in inventory from Earthlings, Inc.
     (a related party under common ownership with the Chief Executive Officer of
     the Company) at Earthlings' cost.

     11. SUBSEQUENT EVENTS

     On October 13,2000, the Company entered into a Merger Agreement with Real
     Goods Trading Corporation, Inc. (Real Goods) pursuant to which the Company
     will acquire 100% of the Real Goods issued and outstanding common stock in
     exchange for shares of Gaiam Class A common stock. The merger was subject
     to approval by the Real Goods shareholders and certain other conditions
     described in the merger agreement, which were satisfied in January 2001. In
     the tax-free, stock-for-stock exchange, 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 completed on January 29,2001, and
     481,424 shares of Class A common stock were issued. The merger was
     accounted for using the purchase method.

     12. SEGMENT INFORMATION

     The Company 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 extent, the production, purchase and delivery processes overlap in
     some areas. The Company 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. Contribution margin is defined as net sales, less cost of
     goods sold and direct expenses. Financial information for the Company's
     business segments was as follows:
<PAGE>

                                  GAIAM, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

       12. SEGMENT INFORMATION (CONTINUED)


<TABLE>
<CAPTION>
                                                                                  Year Ended December 31,
                                                                      2000                   1999                 1998
                                                          ----------------------------------------------------------------
<S>                                                         <C>                  <C>                    <C>
Net revenue:
  Direct to consumer                                               $43,823,460            $34,573,540          $26,897,236
  Business to business                                              16,764,558             11,151,122            3,841,304
                                                          ----------------------------------------------------------------
      Consolidated net revenue                                      60,588,018             45,724,662           30,738,540
Contribution margin:
  Direct to consumer                                                   841,351               (243,949)             128,691
  Business to business                                               3,586,415              2,368,360              856,152
                                                          ----------------------------------------------------------------
     Consolidated contribution margin                                4,427,766              2,124,411              984,843
Reconciliation of Contribution margin to
 net income:
  Other income (expense)                                              (283,114)               605,865              388,491
  Income tax expense                                                 1,555,487              1,062,789              251,955
  Minority interest (income) expense                                   (59,706)               (50,858)             261,598
                                                          ----------------------------------------------------------------
Net income                                                         $ 2,648,871            $ 1,718,345          $   859,781
                                                          ================================================================
</TABLE>
<PAGE>

     ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                FINANCIAL DISCLOSURES

          None.

     ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        For information with respect to the executive officers of the
     Registrant, See Item 4 - "Directors and Executive Officers of the
     Registrant" at the end of Part I of this report.  The information required
     by this Item concerning the Directors of the Company is incorporated herein
     by reference to the Company's Proxy Statement for its Annual Meeting of
     Stockholders, to be held on June 7, 2001, to be filed with the Commission
     pursuant to Regulation 14A.

     ITEM 11.    EXECUTIVE COMPENSATION

        The information required by this Item is incorporated herein by
     reference to the Company's Proxy Statement for its Annual Meeting of
     Stockholders, to be held on June 7, 2001, to be filed with the Commission
     pursuant to Regulation 14A.

     ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The information required by this Item is incorporated herein by
     reference to the Company's Proxy Statement for its Annual Meeting of
     Stockholders to be held on June 7, 2001, to be filed with the Commission
     pursuant to Regulation 14A.

     ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The information required by this Item is incorporated herein by
     reference to the Company's Proxy Statement for its Annual Meeting of
     Stockholders to be held on June 7, 2001, to be filed with the Commission
     pursuant to Regulation 14A.

                                    PART IV

     ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
                 FORM 8-K

          (A)   Documents filed as part of this report are as follows:

            1.  Financial Statements.

                See listing of Financial Statements included as part of this
                Form 10-K in Item 8 of Part II.

            2.  Financial Statement Schedules.

                None required.

            3.  Exhibits

                See Item 14(c) below

          (B)   No reports on Form 8-K were filed during the last quarter of the
                period covered by this Form 10-K.

          (C)   Exhibits:

                1.  The following exhibits are incorporated by reference:
<PAGE>

            Exhibit No.   Description
            -----------   -----------

                 3.1 *    Amended and Restated Articles of Incorporation
                 3.2 *    Bylaws of Gaiam, Inc.
                 4.1 *    Form of Gaiam, Inc. Stock Certificate
                10.1 *    Loan Agreement dated as of May 11, 2000 between
                          Gaiam, Inc. and Norwest Bank Colorado N.A. - Boulder
                10.2 *    Lease dated December 16, 1999, commencing March 1,
                          2000 between Gaiam, Inc. and Duke-Weeks Realty Limited
                          Partnership
                10.3 *    Lease dated December 18, 1977 between Gaiam, Inc.
                          and Orix Prime West Broomfield Venture
                10.4 *    Gaiam, Inc. 1999 Long-Term Incentive Plan

     *  Previously filed
<PAGE>

                                  SIGNATURES


               Pursuant to the requirements of Section 13 or 15(d) of the
     Securities and Exchange Act of 1934, the Registrant has caused this report
     to be signed on its behalf by the undersigned, thereunto duly authorized,
     in the City of Broomfield, State of Colorado, on this 26th day of March,
     2001.


                              GAIAM, INC.


                              By:  /s/  Jirka Rysavy
                                   -----------------
                                   Jirka Rysavy
                                   Chief Executive Officer

<TABLE>
<CAPTION>
      Signature                Title                                Date
      ---------                -----                                ----
<S>                      <C>                                 <C>

/s/ Jirka Rysavy         Chairman of the Board and             March 26, 2001
------------------       Chief Executive Officer
    Jirka Rysavy

/s/ Lynn Powers          President, Chief Operating Officer    March 26, 2001
---------------          Secretary and Director
    Lynn Powers

/s/ Barnet M. Feinblum   Director                              March 26, 2001
----------------------
    Barnet M. Feinblum

----------------------
Barbara Mowry            Director                              March 26, 2001


/s/ John Mackey          Director                              March 26, 2001
---------------
    John Mackey

/s/ Paul H. Ray          Director                              March 26, 2001
---------------
    Paul H. Ray

/s/ Janet Mathews        Chief Financial Officer (Principal    March 26, 2001
-----------------        Financial and Accounting Officer)
    Janet Mathews
</TABLE>