Use these links to rapidly review the documentINDEX TO FORM 10-Q

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United States
Securities and Exchange CommissionWashington, D.C. 20549

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Form 10-Q

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

For the Fiscal Quarter Ended March 31, 2002

OR

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

Commission File Number 0-27517

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

COLORADO(State or other jurisdiction of
incorporation or organization)

84-1113527(I.R.S. Employer
Identification No.)


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

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

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Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

YES ý    NO o

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

Class

Shares outstanding as of May 10, 2002Class A Common Stock ($.0001 par value)

8,621,884Class B Common Stock ($.0001 par value)

5,400,000


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INDEX TO FORM 10-Q



|         |  |                                                                                                                                      
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------
|PART I.  |  | FINANCIAL INFORMATION                                                                                                                
|Item 1.  |  | Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at March 31, 2002 and December 31, 2001
|         |  | Condensed Consolidated Statements of Income for the three months ended March 31, 2002 and 2001                                       
|         |  | Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2002 and 2001                                    
|         |  | Notes to Quarterly Condensed Consolidated Financial Statements                                                                       
|Item 2.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                                
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                                                           
|PART II. |  | OTHER INFORMATION                                                                                                                    
|Item 1.  |  | Legal Proceedings                                                                                                                    
|Item 2.  |  | Changes in Securities and Use of Proceeds                                                                                            
|Item 3.  |  | Defaults Upon Senior Securities                                                                                                      
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                                                  
|Item 5.  |  | Other Information                                                                                                                    
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                                                                     

This
report may contain forward-looking statements that involve risks and uncertainties. When used in this discussion, the words "anticipate," "believe," "plan," "estimate," "expect," "strive,"
"future," "intend" and similar expressions as they relate to Gaiam or its management are intended to identify such forward-looking statements. Gaiam's actual results could differ materially from the
results anticipated in these forward-looking statements as a result of certain factors set forth under "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Market
Risk" and elsewhere in this report. Risks and uncertainties that could cause actual results to differ include, without limitation, competition, loss of key personnel, pricing, brand reputation, growth
of e-commerce, acquisitions, security and information systems, legal liability for website content, merchandise supply problems, failure of third parties to provide adequate service,
reliance on centralized customer service, overstocks and merchandise returns, future internet related taxes, control of Gaiam by its founder, fluctuations in quarterly operating results, limited
experience in operating retail stores, consumer trends, customer interest in our products, general economic conditions, the effect of government regulation and other risks and uncertainties included
in Gaiam's filings with the Securities and Exchange Commission. We caution you that no forward-looking statement is a guarantee of future performance, and you should not place undue reliance on these
forward-looking statements which reflect our management's view only as of the date of this report. We undertake no obligation to update any forward-looking information.





GAIAM, INC.  CONDENSED CONSOLIDATED BALANCE SHEETS

|Assets                                           |                                                                                                                                                                                    | March 31,
2002 |            | December 31,
2001 |  
|------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ---------- | ----------------- | -
|
|Current assets:                                  |                                                                                                                                                                                    |                |            |                   |  
|                                                 | Cash and cash equivalents                                                                                                                                                          |                | $          | 16,986,342        |  
|                                                 | Accounts receivable, net                                                                                                                                                           |                |            | 18,084,955        |  
|                                                 | Accounts and notes receivable, other                                                                                                                                               |                |            | 2,673,080         |  
|                                                 | Inventory, less allowances                                                                                                                                                         |                |            | 14,509,211        |  
|                                                 | Deferred advertising costs                                                                                                                                                         |                |            | 1,567,701         |  
|                                                 | Other current assets                                                                                                                                                               |                |            | 1,091,887         |  
|                                                 |                                                                                                                                                                                    |                |            |                   |  
|Total current assets                             |                                                                                                                                                                                    |                | 54,913,176 |                   |  
|Property and equipment, net                      |                                                                                                                                                                                    |                | 13,261,464 |                   |  
|Capitalized production costs, net                |                                                                                                                                                                                    |                | 4,097,201  |                   |  
|Video library, net                               |                                                                                                                                                                                    |                | 4,246,479  |                   |  
|Goodwill, net                                    |                                                                                                                                                                                    |                | 7,266,714  |                   |  
|Deferred tax assets                              |                                                                                                                                                                                    |                | 1,390,545  |                   |  
|Other assets                                     |                                                                                                                                                                                    |                | 627,106    |                   |  
|                                                 |                                                                                                                                                                                    |                |            |                   |  
|Total assets                                     |                                                                                                                                                                                    | $              | 85,802,685 |                   | $
|                                                 |                                                                                                                                                                                    |                |            |                   |  
|Liabilities and stockholders' equity             |                                                                                                                                                                                    |                |            |                   |  
|Current liabilities:                             |                                                                                                                                                                                    |                |            |                   |  
|                                                 | Accounts payable                                                                                                                                                                   |                | $          | 7,189,219         |  
|                                                 | Accrued liabilities                                                                                                                                                                |                |            | 4,600,528         |  
|                                                 | Accrued royalties                                                                                                                                                                  |                |            | 1,067,449         |  
|                                                 | Income taxes payable                                                                                                                                                               |                |            | 43,646            |  
|                                                 | Capital lease obligations, current                                                                                                                                                 |                |            | 203,950           |  
|                                                 |                                                                                                                                                                                    |                |            |                   |  
|Total current liabilities                        |                                                                                                                                                                                    |                | 13,104,792 |                   |  
|                                                 | Capital lease obligations, long-term                                                                                                                                               |                |            | 195,383           |  
|                                                 | Deferred tax liability                                                                                                                                                             |                |            | 517,414           |  
|                                                 |                                                                                                                                                                                    |                |            |                   |  
|Total long-term liabilities                      |                                                                                                                                                                                    |                | 712,797    |                   |  
|Minority interest                                |                                                                                                                                                                                    |                | 6,410,939  |                   |  
|Redeemable Class A preferred stock in subsidiary |                                                                                                                                                                                    |                | 6,000,000  |                   |  
|Stockholders' equity:                            |                                                                                                                                                                                    |                |            |                   |  
|                                                 | Class A common stock, $.0001 par value, 150,000,000 shares authorized, 8,621,372 and 8,581,806 shares issued and outstanding at March 31, 2002 and December 31, 2001, respectively |                |            | 862               |  
|                                                 | Class B common stock, $.0001 par value, 50,000,000 shares authorized, 5,400,000 issued and outstanding at March 31, 2002 and December 31, 2001, respectively                       |                |            | 540               |  
|                                                 | Additional paid-in capital                                                                                                                                                         |                |            | 48,449,080        |  
|                                                 | Deferred compensation                                                                                                                                                              |                |            | (334,326          | )
|                                                 | Retained earnings                                                                                                                                                                  |                |            | 11,458,001        |  
|                                                 |                                                                                                                                                                                    |                |            |                   |  
|Total stockholders' equity                       |                                                                                                                                                                                    |                | 59,574,157 |                   |  
|                                                 |                                                                                                                                                                                    |                |            |                   |  
|Total liabilities and stockholders' equity       |                                                                                                                                                                                    | $              | 85,802,685 |                   | $
|                                                 |                                                                                                                                                                                    |                |            |                   |  

See accompanying notes.



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

|                                                                       |                                       | For the Three Months Ended
March 31, |           
|---------------------------------------------------------------------- | ------------------------------------- | ------------------------------------ | ----------
|
|Net revenue                                                            |                                       | $                                    | 24,283,540
|Cost of goods sold                                                     |                                       |                                      | 10,014,628
|                                                                       |                                       |                                      |           
|Gross profit                                                           |                                       |                                      | 14,268,912
|Expenses:                                                              |                                       |                                      |           
|                                                                       | Selling and operating                 |                                      |           
|                                                                       | Corporate, general and administration |                                      |           
|                                                                       | Non-recurring restructuring charges   |                                      |           
|                                                                       |                                       |                                      |           
|Total expenses                                                         |                                       |                                      | 13,093,698
|                                                                       |                                       |                                      |           
|Income from operations                                                 |                                       |                                      | 1,175,214 
|Other income (expense)                                                 |                                       |                                      | (86,522   
|Interest income/(expense)                                              |                                       |                                      | 55,965    
|                                                                       |                                       |                                      |           
|Total other income (expense)                                           |                                       |                                      | (30,557   
|                                                                       |                                       |                                      |           
|Income before income taxes and minority Interest                       |                                       |                                      | 1,144,657 
|Provision for income taxes                                             |                                       |                                      | 406,353   
|Minority interest in net income of consolidated subsidiary, net of tax |                                       |                                      | 2,662     
|                                                                       |                                       |                                      |           
|Net income                                                             |                                       | $                                    | 735,642   
|                                                                       |                                       |                                      |           
|Net income per share:                                                  |                                       |                                      |           
|                                                                       | Basic                                 |                                      | $         
|                                                                       | Diluted                               |                                      | $         
|Shares used in computing net income per share:                         |                                       |                                      |           
|                                                                       | Basic                                 |                                      |           
|                                                                       | Diluted                               |                                      |           

See accompanying notes.



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

|                                                                                            |                                                                                | For the Three Months
Ended March 31, |           
|------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ------------------------------------ | ----------
|
|Operating activities                                                                        |                                                                                |                                      |           
|Net income                                                                                  |                                                                                | $                                    | 735,642   
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |                                                                                |                                      |           
|                                                                                            | Depreciation                                                                   |                                      |           
|                                                                                            | Amortization                                                                   |                                      |           
|                                                                                            | Stock compensation                                                             |                                      |           
|                                                                                            | Minority interest in consolidated subsidiary                                   |                                      |           
|                                                                                            | Changes in operating assets and liabilities, net of effects from acquisitions: |                                      |           
|                                                                                            |                                                                                | Accounts receivable                  |           
|                                                                                            |                                                                                | Inventory                            |           
|                                                                                            |                                                                                | Deferred advertising costs           |           
|                                                                                            |                                                                                | Capitalized production costs         |           
|                                                                                            |                                                                                | Other current assets                 |           
|                                                                                            |                                                                                | Other assets                         |           
|                                                                                            |                                                                                | Accounts payable                     |           
|                                                                                            |                                                                                | Accrued liabilities                  |           
|                                                                                            |                                                                                | Income taxes payable                 |           
|                                                                                            |                                                                                |                                      |           
|Net cash provided by (used) in operating activities                                         |                                                                                |                                      | (4,885,215
|                                                                                            |                                                                                |                                      |           
|Investing activities                                                                        |                                                                                |                                      |           
|Purchase of property and equipment                                                          |                                                                                |                                      | (430,513  
|Payments for acquisitions, net of cash acquired                                             |                                                                                |                                      |          
|                                                                                            |                                                                                |                                      |           
|Net cash used in investing activities                                                       |                                                                                |                                      | (430,513  
|                                                                                            |                                                                                |                                      |           
|Financing activities                                                                        |                                                                                |                                      |           
|Principal payments on capital leases                                                        |                                                                                |                                      | (50,490   
|Proceeds from issuance of common stock                                                      |                                                                                |                                      | 108,913   
|Net proceeds from borrowings                                                                |                                                                                |                                      |          
|                                                                                            |                                                                                |                                      |           
|Net cash provided by financing activities                                                   |                                                                                |                                      | 58,423    
|                                                                                            |                                                                                |                                      |           
|Net change in cash and cash equivalents                                                     |                                                                                |                                      | (5,257,305
|Cash and cash equivalents at beginning of period                                            |                                                                                |                                      | 22,243,647
|                                                                                            |                                                                                |                                      |           
|Cash and cash equivalents at end of period                                                  |                                                                                | $                                    | 16,986,342
|                                                                                            |                                                                                |                                      |           
|Supplemental cash flow information                                                          |                                                                                |                                      |           
|Interest paid                                                                               |                                                                                | $                                    | 12,829    
|Income taxes paid                                                                           |                                                                                |                                      | 2,367,469 

See accompanying notes.





Gaiam, Inc.        Notes to Quarterly Condensed Consolidated Financial Statements        (Unaudited)        March 31, 2002







Gaiam, Inc.        Notes to Interim Condensed Consolidated Financial Statements        (Unaudited)        March 31, 2002



Three Months Ended
March 31,2002

2001Net income

$
735,642

$
419,028Denominator:Weighted average shares for basic earnings per share


14,005,480


11,205,844Effect of Dilutive Securities:Weighted average of common stock, stock options and warrants


526,871


357,328Denominator for diluted earnings per share


14,532,351


11,563,172Net income per share  basic

$
0.05

$
0.04Net income per share  diluted

$
0.05

$
0.04




|                                                     |                                                 | For the Three Months Ended March 31,
|---------------------------------------------------- | ----------------------------------------------- | ------------------------------------
|
|Net revenue:                                         |                                                 |                                     
|                                                     | Direct to consumer                              |                                     
|                                                     | Business to business                            |                                     
|                                                     |                                                 |                                     
|                                                     |                                                 | Consolidated net revenue            
|Contribution margin:                                 |                                                 |                                     
|                                                     | Direct to consumer                              |                                     
|                                                     | Business to business                            |                                     
|                                                     | Non-recurring restructuring charge *            |                                     
|                                                     |                                                 |                                     
|                                                     |                                                 | Consolidated contribution margin    
|Reconciliation of contribution margin to net income: |                                                 |                                     
|                                                     | Other income (expense)                          |                                     
|                                                     | Income tax expense                              |                                     
|                                                     | Minority interest in net income of consolidated |                                     
|                                                     |                                                 | Subsidiary, net of tax              
|                                                     |                                                 |                                     
|Net income                                           |                                                 | $                                   
|                                                     |                                                 |                                     





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

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

Three months ended March 31, 2002 compared to three months ended March 31, 2001

Revenues increased 37.4% to $24.3 million for the three months ended March 31, 2002 from $17.6 million during the three months ended
March 31, 2000. Gaiam's internal growth rate was 45%, fueled primarily by the growth in sales in the business-to-business channel and from proprietary products.

Gross
profit, which consists of revenues less cost of sales (primarily merchandise acquisition costs and in-bound freight) increased 31.8% to $14.3 million for the
first quarter of 2002 from $10.8 million during the same period in 2001. As a percentage of revenue, gross profit declined to 58.8% in 2002 from 61.3% in 2001. This was primarily attributable
to increased sales contribution from the business-to-business channel, which carries lower gross margin but higher operating margin. Gaiam continues to pursue growth of its
proprietary product offerings and increase focus on media products, on which Gaiam has better margins.

Selling
and operating expenses, which consist primarily of sales and marketing costs, commission and fulfillment expenses, increased 24%, which is less than the revenue increase of 37%,
to $10.6 million for the three months ended March 31, 2002 from $8.5 million for the same period in 2001. As a percentage of revenues, selling and operating expenses decreased to
43.6% in 2002 from 48.3% in 2001 primarily due to the increased percentage of sales from our business-to-business segment.

Corporate,
general and administrative expenses increased to $2.1 million during the first quarter of 2002, from $1.6 million during 2001, primarily due to higher revenues.
As a percentage of revenues, general and administrative expenses were 8.8% for the comparable periods in both 2002 and 2001.

A
non-recurring one-time charge of $375,953 was taken in the first quarter of 2002. The charge is for severance and relocation costs associated with the planned
consolidation of our finance and creative staff from California into our Colorado headquarters. The consolidation is planned over the next two quarters and is expected to improve productivity and
lower our operating costs by the end of the year.

Operating
income, as a result of the factors described above, increased 59.8% to $1,175,214 for the three months ended March 31, 2002, from $735,635 for the comparable period in
2001. Excluding the accrued one-time charge (described above) operating income increased 110.9% to $1,551,167 or 6.4% of sales in 2002 compared to $735,635 or 4.2% of sales in 2001.

Gaiam
recorded $30,557 in other expense for the three months ended March 31, 2002 compared to other income of $67,698 for the three month ended March 31, 2001. Minority
interest was $2,662 during the first quarter of 2002, compared to $82,645 during the first quarter of 2001.

Income
tax provision increased to $406,353 for the three months ended March 31, 2002 from $301,390 for the comparable period in 2001 primarily due to increased profits. The
effective tax rate on pre-tax income for 2002 declined to 35.5% from 37.5% in 2001.

Net
income, as a result of the factors described above, increased 75.6% to $735,642 for the three months ended March 31, 2002, from $419,028 for the three months ended
March 31, 2001.

Liquidity and Capital Resources

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

Gaiam's
operating activities used net cash of $4.9 million and provided net cash of $1.2 million for the three months ended March 31, 2002 and 2001, respectively.
Gaiam's net cash used by operating
activities for 2002 arose primarily from the decrease in Accounts Payable as we took advantage of early payment terms with our vendors, an increase in accounts receivable associated with the growth in
our business-to-business segment and the payment of Income Taxes for last year. Gaiam's net cash provided by operating activities for 2001 arose primarily from an increase in
cash generated from net income and depreciation and amortization.

Gaiam's
investing and acquisition activities used cash of $430,513 and $3,868,319 for the three months ended March 31, 2002 and 2001, respectively. During the first quarter of
2001, Gaiam completed its merger with Real Goods Trading Corporation, and also acquired all of the stock and net assets of Earthlings, Inc. and Self Care, Inc. for a total combined
purchase price for both companies of $3.8 million

During
the three months ended March 31, 2002, Gaiam's financing activities provided $58,423 in cash. During the three months ended March 31, 2001, Gaiam's financing
activities provided $490,290 in cash, as borrowing under Gaiam's line of credit agreement increased $500,000.

We
believe our available cash, cash expected to be generated from operations, and borrowing capabilities of $15 million (unused line of credit) will be sufficient to fund our
operations on both a short-term and long-term basis. However, our projected cash needs may change as a result of acquisitions, unforeseen operational difficulties or other
factors.

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We do not believe that any of our financial instruments have significant risk associated with market sensitivity. We are not exposed to financial market risks
from changes in foreign exchange rates and are only minimally impacted by changes in interest rates. In the future, we may enter into transactions denominated in non-U.S. currencies, which
could increase our exposure to these market risks. We have not used, and currently do not contemplate using, any derivative financial instruments.

PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

Gaiam is not party to any material legal proceedings.

Item 2.    Changes in Securities and Use of Proceeds

None.

Item 3.    Defaults Upon Senior Securities

None.

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

None.

Item 5.    Other Information.

None.

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

None.





Signatures

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

| |  | Gaiam, Inc.
(Registrant)
May 10, 2002
| |  | -------------------------------------
| |  | By:                                  
| |  |