A LIFESTYLE COMPANY

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS Report of Independent Auditors 1 CONSOLIDATED FINANCIAL STATEMENTS: Consolidated Balance Sheets 2 Consolidated Statements of Income 3 Consolidated Statements of Stockholders’ Equity 4 Consolidated Statements of Cash Flows 5 Notes to Consolidated Financial Statements 6 REPORT OF INDEPENDENT AUDITORS Stockholders and Board of Directors Gaiam, Inc. PART II 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. Denver, Colorado February 27, 2001 /s/ Ernst & Young LLP 36
GAIAM, INC. CONSOLIDATED BALANCE SHEETS For the years ended December 31 Assets 2000 1999 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 PART II See accompanying notes. 37
Page 1 and 2: ® A LIFESTYLE COMPANY
Page 3: GAIAM was created as a multi-channe
Page 6 and 7: LETTER TO THE SHAREHOLDERS We recog
Page 8 and 9: LOHAS INDUSTRY l ifestyle o f h eal
Page 10 and 11: DISTRIBUTION CHANNELS media
Page 12 and 13: DISTRIBUTION CHANNELS retailers and
Page 14 and 15: DISTRIBUTION CHANNELS catalogs and
Page 16 and 17: CENTRAL OPERATIONS infrastructure O
Page 18 and 19: NEW ADDITIONS expansion
Page 20 and 21: PEOPLE corporate culture and commun
Page 22 and 23: ® A LIFESTYLE COMPANY
Page 24 and 25: ITEM 1. BUSINESS GAIAM Gaiam is a m
Page 26 and 27: OUR COMPETITIVE STRENGTHS We believ
Page 28 and 29: • Offer Quality, Convenience and
Page 30 and 31: SEASONALITY See the Quarterly and S
Page 32 and 33: ITEM 5. MARKET FOR REGISTRANT’S C
Page 34 and 35: ITEM 7. MANAGEMENT’S DISCUSSION A
Page 36 and 37: QUARTERLY AND SEASONAL FLUCTUATIONS
Page 40 and 41: GAIAM, INC. CONSOLIDATED STATEMENTS
Page 42 and 43: GAIAM, INC. CONSOLIDATED STATEMENTS
Page 44 and 45: Goodwill, Net Goodwill, net represe
Page 46 and 47: On June 30, 2000, Gaiam, Inc. and W
Page 48 and 49: 7. INCOME TAXES The provision for i
Page 50 and 51: A summary of stock options outstand
Page 52 and 53: ITEM 10. DIRECTORS AND EXECUTIVE OF
Page 54 and 55: “In our every deliberation we mus
Page 56: “Never doubt that a small group o

A LIFESTYLE COMPANY

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