Gaiam, Inc. said revenue for the first quarter ended March 31, 2009 decreased 14.2% to $55.9 million from $65.2 million recorded in the same period last year. The reduction in sales was primarily due to a decrease in consumer spending, closure of businesses and reporting of international revenues, which were affected by the transition from product sales to licensing, a planned reduction in catalog circulation and conservative retail buying throughout the quarter.

Gross profit decreased to $31.0 million or 55.4% of revenue for the first quarter of 2009, from $41.0 million, or 62.9% of revenue, in the comparable quarter last year. The change in gross margin reflects the company's investment in the lower margin solar business, and the effect of higher deductions and allowances to retailers.

Selling and operating expenses decreased $1.0 million, or 2.8%, to $33.9 million during the first quarter of 2009, from $34.9 million during the same quarter last year, partially reflecting recent cost control initiatives.

Operating loss for the first quarter of 2009 was $6.2 million compared to an operating gain of $2.7 million in the same quarter last year. Excluding the consolidation of our 56% own subsidiary Real Goods Solar, operating loss was $4.0 million in the quarter. Total net loss for the quarter was $3.1 million, or 13 cents per share, compared to net income of $2.2 million in the same period last year.

Included in the first quarter results are a number of costs related to the closing of a non-profitable business and large reductions in payroll and related severance payouts. On an annual basis, cost savings generated by these measures approximate $10 million.

“While our first quarter results reflect the broader market trends, we remain committed to our strategic plan. In this difficult economic climate, we are focused on the appropriate balance of cash conservation and investing in the growth strategies that will build our brand and partnerships,” said Lynn Powers, president and CEO. “In addition, we continue to implement cost savings measures, including renegotiating freight contracts and product costs with our manufacturers, overhead restructuring, and optimizing our direct business through reduced catalog prospecting and increased online customer acquisition strategies.”

“In the first quarter, we generated free cash flow of $7.1 million, a $10.5 million improvement from cash use of $3.4 million during the same quarter of the last year,” said Chairman Jirka Rysavy. “We ended the quarter with $38.2 million in cash, up $6.2 million in last 90 days, no debt and a current ratio of 4.8, up from 3.9, at the end of last quarter. We continue to use the current macroeconomic environment as an opportunity to further expand our branded store within store presence at retail, which we have increased to 10,500 and focus on the free cash flow.”

                                 GAIAM, INC.
                     (In thousands, except per share data)

                               Three Months Ended     Three Months Ended
                                March 31, 2009          March 31, 2008

    Net revenue                $55,923     100.0%      $65,173    100.0%

    Cost of goods sold          24,937      44.6%       24,195     37.1%

    Gross profit                30,986      55.4%       40,978     62.9%

    Operating expenses          37,212      66.5%       38,312     58.8%

    Income (loss) from
     operations                 (6,226)    -11.1%        2,666      4.1%

    Other income                    74       0.1%          469      0.7%

    Income (loss) before
     income taxes               (6,152)    -11.0%        3,135      4.8%

    Income tax expense
     (benefit)                  (2,249)     -4.0%        1,238      1.9%

    Net income (loss)           (3,903)     -7.0%        1,897      2.9%

    Net loss attributable to
     the noncontrolling interest   813       1.5%          316      0.5%

    Net income (loss)
     attributable to
     Gaiam, Inc.               $(3,090)     -5.5%       $2,213      3.4%

    Weighted-average shares
         Basic                  23,957                  25,084
         Diluted                23,957                  25,352

    Net income (loss) per
     share attributable to
     Gaiam, Inc. common
         Basic                 $(0.13)                  $0.09
         Diluted               $(0.13)                  $0.09