United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the Fiscal Quarter Ended June 30, 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, COLORADO 80021
(Address of principal executive offices)
(303) 222-3600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--------- ---------
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 August 10, 2000
- ---------------------- ----------------------------------------
Class A Common Stock 5,462,780
($.0001 par value)
Class B Common Stock 5,400,000
($.0001 par value)
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets at June 30, 2000
and December 31, 1999 3
Consolidated Statements of Income for the three
months ended June 30, 2000 and June 30, 1999 4
Consolidated Statements of Income for the six
months ended June 30, 2000 and June 30, 1999 5
Consolidated Statement of Cash Flows for the six
months ended June 30, 2000 and June 30, 1999 6
Notes to Interim Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
This report may contain forward-looking statements that involve risks and
uncertainties. When used in this discussion, the words "anticipate," "believe,"
"estimate," "expect," and similar expressions as they relate to the Company or
its management are intended to identify such forward-looking statements. The
Company'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" and elsewhere in this report. Risks and uncertainties that could
cause actual results to differ include, without limitation, competition,
pricing, brand reputation, acquisitions, our shift in emphasis to Internet
sales, security and information systems, consumer trends, customer interest in
our products, general economic conditions, and the effect of government
regulation. 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
statement.
2
GAIAM, INC.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
Assets 2000 1999
---------------------------------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 8,592,444 $ 3,877,465
Accounts receivable, net 3,689,060 4,326,594
Accounts and notes receivable, other 3,266,755 573,450
Inventory, less allowances 6,553,398 4,555,436
Income tax receivable - 182,474
Deferred advertising costs 2,201,411 2,176,325
Other current assets 455,831 393,330
---------------------------------------
Total current assets 24,758,899 16,085,074
Property and equipment, net 7,019,068 3,168,183
Capitalized production costs, net 2,214,126 1,636,706
Video library, net 4,621,630 4,792,456
Goodwill, net 1,208,119 1,239,507
Other assets 665,735 337,759
---------------------------------------
Total assets $40,487,577 $27,259,685
=======================================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 7,862,417 $ 7,618,344
Accrued liabilities 1,849,863 1,734,310
Accrued royalties 359,314 725,541
Income taxes payable 62,869 -
Capital lease obligations, current 90,547 95,844
---------------------------------------
Total current liabilities 10,225,010 10,174,039
Capital lease obligations, long-term 161,198 209,074
Line of credit 2,900,000 1,900,000
Minority interest 5,902,646 26,030
Stockholders' equity:
Class A common stock, $.0001 par value,
92,965,000 shares authorized, 5,462,780
and 5,441,537 shares issued and
outstanding at June 30, 2000 and
December 31, 1999, respectively 546 544
Class B common stock, $.0001 par value,
7,035,000 shares authorized, 5,400,000
issued and outstanding at June 30, 2000
and December 31, 1999, respectively 540 540
Redeemable Class A preferred stock in
subsidiary, $.0001 par value, 10,000 shares
authorized, 6,000 shares issued and outstanding 6,000,000 -
Additional paid-in capital 10,982,986 11,038,551
Deferred compensation (106,992) (106,992)
Retained earnings 4,421,643 4,017,899
---------------------------------------
Total stockholders' equity 21,298,723 14,950,542
---------------------------------------
Total liabilities and stockholders' equity $40,487,577 $27,259,685
=======================================
3
GAIAM, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three Months Ended
June 30,
2000 1999
--------------------------------------
Net revenue $11,385,982 $8,068,069
Cost of goods sold 4,655,562 3,219,003
--------------------------------------
Gross profit 6,730,420 4,849,066
Expenses:
Selling and operating 5,421,658 4,301,235
Corporate, general and administration 1,014,321 842,045
--------------------------------------
Total expenses 6,435,979 5,143,280
--------------------------------------
Income (loss) from operations 294,441 (294,214)
Other income (expense):
Realized gain on sale of securities
and other income (expense) 121,918 261,940
Interest expense (96,046) (112,800)
--------------------------------------
Other income (expense) 25,872 149,140
--------------------------------------
Income (loss) before income taxes and minority
interest 320,313 (145,074)
Provision for income taxes 120,213 (53,968)
Minority interest in net income (loss) of
consolidated subsidiary, net of tax (352) (162,569)
--------------------------------------
Net income $ 200,452 $ 71,463
======================================
Net income per share:
Basic $0.02 $0.01
Diluted $0.02 $0.01
Shares used in computing net income per share:
Basic 10,856,342 8,358,493
Diluted 11,544,391 8,605,593
4
GAIAM, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Six Months Ended
June 30,
2000 1999
--------------------------------------
Net revenue $23,944,419 $17,563,080
Cost of goods sold 9,577,873 7,074,663
--------------------------------------
Gross profit 14,366,546 10,488,417
Expenses:
Selling and operating 11,485,448 8,877,360
Corporate, general and administration 2,130,298 1,795,610
--------------------------------------
Total expenses 13,615,746 10,672,970
--------------------------------------
Income (loss) from operations 750,800 (184,553)
Other income (expense):
Realized gain on sale of securities
and other income (expense) 45,623 409,688
Interest expense (142,696) (207,926)
--------------------------------------
Other income (expense) (97,073) 201,762
--------------------------------------
Income before income taxes and minority
interest 653,727 17,209
Provision for income taxes 245,343 6,401
Minority interest in net income (loss) of
consolidated subsidiary, net of tax 4,640 (166,822)
--------------------------------------
Net income $ 403,744 $ 177,630
======================================
Net income per share:
Basic $0.04 $0.02
Diluted $0.04 $0.02
Shares used in computing net income per share:
Basic 10,848,935 8,317,822
Diluted 11,524,526 8,564,932
5
GAIAM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Six Months
Ended June 30,
2000 1999
----------------------------------
Operating activities
Net income $ 403,744 $ 177,630
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 623,908 273,419
Interest expense added to principal of margin loan - 7,411
Minority interest in consolidated subsidiary 4,640 (166,822)
Realized gains on sale of securities and property and
equipment - (482,692)
Deferred tax expense - (45,835)
Changes in operating assets and liabilities,
net of effects from acquisitions:
Accounts receivable 637,534 1,463,260
Inventory (1,840,329) (521,175)
Deferred advertising costs (25,086) 11,232
Capitalized production costs (577,420) (152,169)
Prepaid assets (62,501) (406,362)
Other assets 5,205 (357,236)
Accounts payable 142,529 (3,714,935)
Accrued liabilities (425,674) (579,287)
Income taxes payable 245,343 (108,599)
----------------------------------
Net cash provided by (used in) operating activities (868,107) (4,602,160)
----------------------------------
Investing activities
Purchase of property, equipment and other assets (4,670,436) (64,884)
Proceeds from the sale of securities available-for-sale - 538,750
Cash acquired through acquisition activities 3,000,000 -
Payments (borrowings) on notes receivable 306,695 (91,130))
----------------------------------
Net cash provided by (used in) investing activities (1,363,741) 382,736
----------------------------------
Financing activities
Principal payments on capital leases (53,173) (27,889)
Proceeds from issuance of common stock - 1,450,000
Proceeds from sale of preferred stock in subsidiary 6,000,000 -
Proceeds from convertible debt - 1,151,949
Net proceeds from (payments on) borrowings 1,000,000 1,091,470
----------------------------------
Net cash provided by (used in) financing activities 6,946,827 3,665,530
----------------------------------
Net change in cash and cash equivalents 4,714,979 (553,894)
Cash and cash equivalents at beginning of period 3,877,465 1,409,939
----------------------------------
Cash and cash equivalents at end of period $ 8,592,444 $ 856,045
==================================
Supplemental cash flow information
Interest paid $ 131,638 $ 166,824
Income taxes paid - 115,000
6
Gaiam, Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)
June 30, 2000
1. Interim Condensed Consolidated Financial Statements
---------------------------------------------------
Organization and Nature of Operations
-------------------------------------
Gaiam, Inc. (the "Company") was incorporated under the laws of the
State of Colorado on July 7, 1988. Gaiam is a lifestyle company
providing information, goods and services to customers who value the
environment, personal development and healthy lifestyles.
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.
Preparation of Interim Condensed Consolidated Financial Statements
------------------------------------------------------------------
The interim condensed consolidated financial statements included
herein have been prepared by the management of Gaiam, Inc. pursuant to
the rules and regulations of the United States Securities and Exchange
Commission, and, in the opinion of management, contain all adjustments
(consisting of only normal recurring adjustments) necessary to present
fairly the Company's consolidated financial position as of June 30, 2000
and the interim results of operations and cash flows for the three and
six months ended June 30, 2000 and 1999. These interim statements have
not been audited. The balance sheet as of December 31, 1999 was derived
from the Company's audited consolidated financial statements included in
the Company's annual report on Form 10-K.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principals have been condensed or omitted pursuant to
such rules and regulations. Accounting policies followed by the Company
are described in Note 1 to the audited financial statements for the
fiscal year ended December 31, 1999 included in the Company's annual
report on Form 10-K. The consolidated financial statements contained
herein should be read in conjunction with the audited financial
statements, including the notes thereto, for the year ended December 31,
1999.
The consolidated financial position, results of operations and cash
flows for the interim periods disclosed within this report are not
necessarily indicative of future financial results.
7
Gaiam, Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)
June 30, 2000
Use of Estimates
----------------
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements.
Actual results could differ from those estimates.
Recently Issued Accounting Standards Not Yet Adopted
----------------------------------------------------
On June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 is effective for fiscal
years beginning after June 15, 2000. 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 material derivative instruments.
In May 2000, the Emerging Issues Task Force issued EITF 00-14,
"Accounting for Certain Sales Incentives." Under the provisions of EITF
00-14, for sales incentives that will not result in a loss on the sale of
a product or service, a vendor should recognize the "cost" of the sales
incentive at the latter of the date the related revenue is recorded by
the vendor or the date the sales incentive is offered. A reduction to or
refund of the selling price of the product or service resulting from any
cash sales incentive should be classified as a reduction of revenue.
Costs of free products or services delivered at the time of sale should
be classified as an expense. The EITF should be applied in the fourth
quarter of the fiscal year beginning after December 15, 1999. Management
does not expect the adoption of EITF 00-14 to have a material impact on
the Company's consolidated financial statements.
2. Mergers and Acquisitions
------------------------
On June 30, 2000, Gaiam, Inc. and Wholepeople.com, Inc. ("Amrion")
contributed their Internet properties (the "Contribution") into a newly
formed company subsequently renamed Gaiam.com, Inc. The Contribution was
made pursuant to the terms of a contribution agreement among Gaiam,
Amrion, and certain related parties. In exchange for the contributed
Internet properties, Gaiam received 50.1% of Gaiam.com's common stock and
Amrion received the
8
Gaiam, Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)
June 30, 2000
Mergers and Acquisitions (continued)
------------------------------------
remaining 49.9% of Gaiam.com's common stock. Gaiam.com, which will
continue its Internet e-commerce business, and will be consolidated by
Gaiam with Gaiam's other operations. In exchange for their share of
Gaiam.com, Amrion contributed $3.0 million in cash, a $3.0 million short-
term note and other Internet assets. On July 11, 2000, Gaiam, Inc. filed
a report on Form 8-K reporting this transaction. In accordance with the
provisions of the instructions to Item 7 (a) and (b) of Form 8-k, the
financial statements and pro forma financial information required by
these Items will be filed no later than 60 days after the date the report
on Form 8-K must be filed.
3. Line of Credit
--------------
In May 2000, the Company consolidated its line of credit agreements
with Wells Fargo Bank into one agreement. The new credit agreement,
which extends through January 31, 2002, permits borrowings up to $5
million based upon the collateral value of Gaiam's accounts receivable
and inventory held for resale. Borrowings under this agreement bear
interest at the prime rate, which was 9.5% at June 30, 2000. These
borrowings are secured by a pledge of Gaiam's assets and contain various
financial covenants, including prohibiting the payment of cash dividends
to its shareholders and requiring maintenance of certain financial
ratios.
4. Stockholders' Equity
--------------------
On June 19, 2000, Gaiam, Inc. sold 6,000 shares of Redeemble Class A
preferred stock in its Internet subsidiary, Gaiam.com, Inc., at a price
of $1,000 per share for an aggregate price of $6,000,000. This stock is
redeemable upon the consummation of any offering by Gaiam.com of its
equity securities to the public pursuant to an effective registration
statement with the Securities and Exchange Commission.
During the second quarter of 2000, Gaiam issued 21,243 shares of Class
A common stock for an acquisition, and the e-commerce rights and
purchase option in an organic clothing manufacturer.
9
Gaiam, Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)
June 30, 2000
5. 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 period have been presented and conform to the Statement
No. 128 requirements.
The following table sets forth the computation of basic and diluted
earnings per share:
Six Months Ended
June 30,
2000 1999
------------------------------------
Numerator for basic earnings per share $ 403,744 $ 177,630
Effect of Dilutive Securities:
8% convertible debentures - 24,245
------------------------------------
Numerator for diluted earnings per share $ 403,744 $ 201,875
====================================
Denominator:
Weighted average shares for basic
earnings per share 10,848,935 8,317,822
Effect of Dilutive Securities:
Weighted average of common stock,
Stock options, warrants and
convertible debentures 675,591 247,110
------------------------------------
Denominator for diluted earnings per share 11,524,526 8,564,932
====================================
Net income per share - basic $ 0.04 $ 0.02
Net income per share - diluted $ 0.04 $ 0.02
10
Gaiam, Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)
June 30, 2000
6. 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 significant 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:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
----------------------------------------- -----------------------------------------
Net revenue:
Direct to consumer $ 8,922,219 $ 6,759,439 $18,731,874 $13,771,675
Business to business 2,463,763 1,308,630 5,212,545 3,791,405
----------------------------------------- -----------------------------------------
Consolidated net revenue 11,385,982 8,068,069 23,944,419 17,563,080
Contribution margin:
Direct to consumer (37,836) 64,504 6,540 (448,539)
Business to business 332,277 (358,718) 744,260 263,986
----------------------------------------- -----------------------------------------
Consolidated contribution margin 294,441 (294,214) 750,800 (184,553)
Reconciliation of contribution
margin to net income:
Other income 25,872 149,140 (97,073) 201,762
Income tax expense 120,213 (53,968) 245,343 6,401
Minority interest expense (352) (162,569) 4,640 (166,822)
----------------------------------------- -----------------------------------------
Net income $ 200,452 $ 71,463 $ 403,744 $ 177,630
========================================= =========================================
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.
11
Three months ended June 30, 2000 compared to three months ended June 30, 1999
- -----------------------------------------------------------------------------
Revenues increased 41.1% to $11.4 million for the three months ended June 30,
2000 from $8.1 million during the three months ended June 30, 1999. The
Company's internal growth rate was 33% for the second quarter of 2000, fueled
primarily by the continued success of its e-commerce business and a growing
presence of the Gaiam brand in national retailers.
Gross profit, which consists of revenues less costs of sales, increased 38.8% to
$6.7 million for the second quarter of 2000 from $4.8 million during the same
period in 1999. As a percentage of revenue, gross profit decreased to 59.1% in
2000 from 60.1% in 1999. This was primarily attributable to a shift in the
sales mix. Gaiam.com generated $3.0 million in revenues for the second quarter
of 2000, and achieved a gross profit margin of 55.9%.
Selling and operating expenses, which consist primarily of sales and marketing
costs, commissions and fulfillment expenses increased 26% to $5.4 million for
the three months ended June 30, 2000 from $4.3 million for the same period in
1999. As a percentage of revenues, selling and operating expenses decreased to
47.6% in 2000 from 53.3% in 1999.
Corporate, general and administrative expenses increased to $1 million for the
second quarter of 2000, compared to $842,045 for the corresponding period in
1999. As a percentage of revenues, general and administrative expenses
decreased to 8.9% in 2000 from 10.4% in 1999.
Operating income, as a result of the factors described above, increased to
$294,441 for the three months ended June 30, 2000 from an operating loss
$294,214 for the three months ended June 30, 1999.
The Company recorded $121,918 in other income during the second quarter of 2000,
compared to other income of $261,940 for the comparable period in 1999. During
1999, the Company recognized a gain on the sale of its marketable securities of
$223,014. Interest expense declined to $96,046 for the three months ended June
30, 2000 from $112,800 for the three months ended June 30, 1999, due to a
reduction in debt levels.
Minority interest in net income was a negative $352 for the three months ended
June 30, 2000 compared to a negative $162,569 for the same period in 1999.
Income tax provision was $120,213 for the three months ended June 30, 2000 as
compared to a credit of $53,968 for the three months ended June 30, 1999.
Net income, as a result of the factors described above, increased 180.5% to
$200,452 for the three months ended June 30, 2000 from $71,463 for the
comparable period in 1999.
12
Six months ended June 30, 2000 compared to six months ended June 30, 1999
- -------------------------------------------------------------------------
Revenues increased 36.3% to $23.9 million for the six months ended June 30, 2000
from $17.6 million during the six months ended June 30, 1999. The Company's
internal growth rate was 29% for the first six months of 2000, fueled primarily
by the growth of its e-commerce business.
Gross profit, which consists of revenues less costs of sales, increased 37% to
$14.4 million for the first six months of 2000 from $10.5 million during the
same period in 1999. As a percentage of revenue, gross profit increased to 60%
in 2000 from 59.7% in 1999. This was primarily attributable to increases in the
sales of proprietary or private-labeled branded products, on which Gaiam has
better margins than other products.
Selling and operating expenses, which consist primarily of sales and marketing
costs, commissions and fulfillment expenses, increased 29.4%, less than the
revenue increase of 36.3%, to $11.5 million for the six months ended June 30,
2000 from $8.9 million for the same period in 1999. As a percentage of revenues,
selling and operating expenses decreased to 48% in 2000 from 50.5% in 1999.
Corporate, general and administrative expenses increased to $2.1 million for the
first six months of 2000, compared to $1.8 million for the corresponding period
in 1999. As a percentage of revenues, general and administrative expenses
decreased to 8.9% in 2000 from 10.2% in 1999.
Operating income, as a result of the factors described above, increased to
$750,800 for the six months ended June 30, 2000 from an operating loss $184,553
for the six months ended June 30, 1999.
The Company recorded $45,623 in other income during the six months ended June
30, 2000, compared to other income of $409,688 for the comparable period in
1999. During 1999, the Company recognized gains on the sale of its marketable
securities of $528,528. Interest expense declined to $142,696 for the first
half of 2000 from $207,926 for the three months ended June 30, 1999, due to a
reduction in debt levels.
Minority interest in net income was $4,640 for the six months ended June 30,
2000 compared to a negative $166,822 for the same period in 1999.
Income tax provision of $245,343 represented 37.5% of pre-tax income for the six
months ended June 30, 2000, as compared to a $6,401 tax provision, or 37.2% of
pre-tax income, for the six months ended June 30, 1999.
Net income, as a result of the factors described above, increased 127.3% to
$403,744 for the six months ended June 30, 2000 from $177,630 for the comparable
period in 1999.
13
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 its 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 its 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 its 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. Simultaneous with this
offering, Gaiam converted $1.475 million in debentures to 295,000 shares of
Class A common stock, resulting in a total issuance of 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.
In May 2000, Gaiam consolidated its line of credit agreements with Wells
Fargo Bank into one agreement. The new credit agreement, which extends through
January 31, 2002, permits borrowings up to $5 million based upon the collateral
value of Gaiam's accounts receivable and inventory held for resale. 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 agreements, 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 its shareholders.
Gaiam's operating activities used net cash of $868,107 for the six
months ended June 30, 2000 and used $4.6 million of net cash for the same period
in 1999. Gaiam's net cash used by operating activities for 2000 arose primarily
from an increase in inventories in order to support additional revenue growth,
including store-within-store rollouts. Net cash used
14
during 1999 was primarily a result of a seasonal reduction in accounts payable
and accrued expenses.
Gaiam's investing activities used cash of $1.3 million for the six months
ended June 30, 2000. This use of cash arose primarily from costs associated
with the direct-to-consumer web site, and additional property and equipment
purchases to support our increasing volumes totaling $4.7 million. On June 30,
2000, Gaiam and Wholepeople.com ("Amrion"), a subsidiary of Whole Foods Market,
merged their Internet businesses into a newly formed company subsequently
renamed Gaiam.com, Inc. In exchange for contributed Internet properties, Gaiam
received 50.1% of Gaiam.com's common stock and Amrion received the remaining
49.9% of Gaiam.com's common stock. As part of this transaction, Amrion
contributed $3 million in cash, a $3 million short-term note, and other Internet
assets to Gaiam.com. During the first six months of 1999, Gaiam generated
$382,736 in cash from investing activities, largely from the sale of marketable
securities.
During the six months ended June 30, 2000, Gaiam's financing activities
provided $6.9 million in cash. In June 2000, Gaiam sold 6,000 shares of
Redeemable Series A Preferred Stock in Gaiam.com for a total consideration of $6
million. During the same period in 1999, Gaiam's financing activities provided
$3.7 million in cash primarily from borrowing activities and the issuance of
common stock.
As Gaiam continues to expand its business-to-business e-commerce presence,
we anticipate making additional investments in web site design and technology,
and, with additional planned business growth, will be investing in additional
capacity.
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, majority and 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 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.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Gaiam is not party to any material legal proceedings.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders.
On June 8, 2000, Gaiam held its Annual Meeting of Shareholders. The
shareholders elected all five currently serving directors of Gaiam to serve
until the next annual meeting of shareholders to be held in 2001 or until
their successors are duly elected and qualified. The results of this vote
follow:
Jirka Rysavy For: 58,191,400 Withheld: 5,878
Lynn Powers For: 58,191,550 Withheld: 5,728
Barnet Feinblum For: 58,191,450 Withheld: 5,828
Barbara Mowry For: 58,191,500 Withheld: 5,778
Paul Ray For: 58,191,450 Withheld: 5,828
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
27.1 Financial Data Schedule
b) Reports on Form 8-K.
On July 11, 2000, Gaiam, Inc. filed a report on Form 8-K
reporting that,
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on June 30, 2000, Gaiam, Inc. and Wholepeople.com, Inc.
("Amrion") contributed their Internet properties (the
"Contribution") into a newly formed company subsequently renamed
Gaiam.com. Inc. The Contribution was made pursuant to the terms
of a contribution agreement among Gaiam, Amrion, and certain
related parties. In exchange for the contributed Internet
properties, Gaiam received 50.1% of Gaiam.com's common stock and
Amrion received the remaining 49.9% of Gaiam.com's common stock.
Gaiam.com, which will continue its Internet e-commerce business,
and will be consolidated by Gaiam with Gaiam's other operations.
In accordance with the provisions of the instructions to Item 7
(a) and (b) of Form 8-K, the financial statements and pro forma
financial information required by these Items will be filed no
later than 60 days after the date the report on Form 8-K must be
filed.
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Signatures
In accordance with the requirements of the Securities and Exchange Act, the
registrant caused this report to be signed on its behalf, by the undersigned,
thereunto duly authorized.
Gaiam, Inc.
(Registrant)
August 10, 2000
By: /s/ Jirka Rysavy
Jirka Rysavy
Chief Executive Officer
By: /s/ Janet Mathews
Janet Mathews
Chief Financial and Accounting Officer
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