Welcome and thank you for standing by. At this time, all participants are in a listen-only mode. (Operator instructions) Today's conference is being recorded. If you have any objects you may disconnect at this time. And now, I would like to turn the meeting over to Mr. John Mills. Thank you.

Thank you. Good afternoon everyone and welcome to Gaiam's first quarter 2008 earnings conference call. The following constitutes the Safe Harbor statement the Private Securities Litigation Reform Act of 1995. Except for historical information contained herein, the matters discussed in this call are forward-looking statements that involve risks and uncertainties including, but not limited to, general business conditions, integration of acquisitions, the timely development of new businesses, the impact of competition, and other risks detailed from time to time in the company's SEC reports. The company does not undertake any obligation to update forward-looking statements. On the call today representing Gaiam is Jirka Rysavy, Chairman and CEO, Lynn Powers, President, and Vilia Valentine, CFO. Now, I'd like to turn the call over to the company's Chairman and CEO, Mr. Jirka Rysavy. Go ahead, Jirka.

Thank you, John, and welcome everyone to our first call. And I'm very pleased to say again, it was another good quarter. Revenue for the first quarter ended March 31, this year, increased 11.5% to $65.2 million from $58.5 million in the same period of '07. Gross margin was 62.9% compared to 64.1% of revenue in the same period of last year. The change in gross margin reflects the company investment in lower-margin solar business. Excluding solar, our gross margin actually improved to 66.8%. Operating expenses as a percentage of revenue decreased 250 basis points to 58.8% from 61.3%. Selling and operating expenses decreased 120 basis points and G&A expenses decreased 30 basis points. Operating income increased 64% or 130 basis points to 4.1% of revenue from 2.8% of revenue in the first Q of '07, which reflects the good leveragability of our infrastructure. EPS increased 29% to $0.09 per share from $0.07 in the first Q of last year. The $0.09 EPS includes $0.03 loss from our community business during the quarter, which is $0.01 improvement from $0.04 loss than in the fourth quarter. Depreciation and amortization for the quarter was $2.5 million. During the first quarter, we acquired SPRI, Carlson Solar and the remaining 49% ownership in Conscious Enlightenment, and also our non-LOHAS publication which were part of a previous acquisition. Also during the quarter, we sold our ownership in UK subsidiary, which completed our strategy to change how we operate in international markets. We expect that the transition from sales of products to licensing arrangement will improve our profitability, reduce complexity of the operations, lower capital requirements and limit the impact to the weak U.S. currency. Because of the impact of reporting change of international revenue, we will provide this time some additional revenue information and some…

Thank you, Jirka. We are pleased with our first quarter performance, the continued growth in revenue and increase in operating income. In the first quarter of 2008, we achieved another quarter of double-digit revenue growth, with sales of $65.2 million, up 11.5% from $58.5 million in the first quarter of 2007. Revenue generated by our direct-to-consumer segment increased 13.8% to $38.8 million from $34.1 million in the first quarter of 2007, reflecting the strong performance from our direct marketing and community programs and businesses acquired since the first quarter of 2007. Revenue from our business segment increased 8.2% to $26.4 million during the first quarter of 2008, from $24.4 million in the first quarter of 2007, driven by our successful roll out of category management in retail and the acquisition of SPRI, partially offset by the change to licensing arrangements in our international business. As we discussed in our last quarter conference call, we are transitioning our international businesses to licensing arrangements, which has and will continue to have an impact on our revenue line. This change is expected to reduce reported international revenue by approximately $25.7 million from the $33.7 million recognized in 2007 to approximately $8 million in 2008, as international license arrangements average between 20% to 25% of product sales. Converting our international businesses to a licensing model will contribute a higher percentage of bottom line income and will allow us to better leverage the infrastructure of our international partners. During the first quarter, we divested our UK direct operations and transitioned this relationship to a license agreement. This divestiture completes our transition to licensing agreements in all international markets. During the first quarter, we also divested our non-LOHAS publications that were included as part of a previous acquisition. Giving effect to these divestitures, our recent acquisitions…

Thanks, Vilia. Following another year in 2007 of strong internal growth and bottom line performance, we continued this trend into Q1 with double-digit revenue growth, a 64% increase in operating income and a 29% increase in earnings per share. We began this year focused on executing our 2008 strategies outlined in our year-end earnings call. During Q1, we began the process of capitalizing on our solar division by filing an IPO, finalized our international market transition to a licensing-based model, including divesting our ownership in our UK subsidiary, launched our wellness media into retail and expanded our store-within-store presence, executed on our strategy to be the prominent category manager for fitness media, acquired SPRI products and initiated its integration into our trade business, continued to drive our catalog customers to utilize our e-commerce site and join as community members, and evaluated several acquisition opportunities in the media space. I would now like to elaborate on some of our key initiatives and accomplishments by business unit. Early in the first quarter, our solar subsidiary, Real Goods Solar, completed the acquisition of a solar integrator in Southern California, increasing Real Goods' presence in the lucrative Southern California market. On May 8, Real Goods Solar announced that it priced its $55 million initial public offering of Class A common stock. Approximately $20 million of the proceeds of the offering will be used to repay inter-company debt to Gaiam. Post-offering, Gaiam owns 10 million shares or approximately 65% of Real Goods Solar. Our business unit segment's performance in Q1 remained strong despite an overall weakening of the retail sector as a result of a variety of unfavorable economic conditions. While we have certainly felt the impact of increased fuel costs and the weakening U.S. dollar, we executed a number of innovative sales strategies that…

Thank you. (Operator instructions) And our first question comes from Mark Argentino [ph]. Your line is open.

Good afternoon, good quarter. Just got a couple of quick questions for you. Lynn, you were talking about how you guys got another four feet at Target after the original test, the 13-week test. Is that going to be in line with other Gaiam feet or is that an encap, or could you talk a little more specifically on exactly what that's going to look like?

Sure, Mark. Obviously, we're still working with Target, but it is anticipated that the four feet will be in line as a lead-in to the department.

Got you. Can you use it for both hard good products and media or just media?

This will be a 100% media and it will be our official category management role for fitness media within Target.

How many different brands are you guys carrying right now in terms of the different media products, or how many different brands are you managing roughly?

I think we're probably working with about five or six.

Got you. Have you seen any mix shift at all? I know one of the things you guys had talked about when introducing the category management role would be, there's an opportunity to increase revenue, you might see a down-tick in share. Has that played out at all?

Absolutely. We saw certainly an increase in revenue and an increase for the entire category according to Nielsen VideoScan, which is a nice increase of 16%. So, yes, we saw the Gaiam share go down, but overall what we manage maintained around 50%.

Great.

It's category expanding, so we actually get increased revenue.

Is the category definition expanding to include wellness, or is that a different channel altogether?

That's up to Nielsen VideoScan but, right now, I believe that they'll be putting wellness under the fitness category.

And just quickly following up on the Mayo Clinic launch as well, do you know roughly how many stores you guys were able to get distribution for that product in, in Q1?

Well over 1,000 doors.

Okay. And then you said also you're going to just see a store-in-a-store there in the book channel?

We are, and we are launching the wellness kits or products in Q2, so we'll see some full store-within-store rollout in Q2.

All right. And then Jirka, in terms of the community, I know you didn't provide an updated subscriber number. I know you don't do that every quarter. But, overall trends on the subscriber community and subscription side, still seeing the adds where you'd like, customer acquisition costs, is there anything there that you could touch on?

We provided the update as March 1, so I kind of remember (inaudible) March 30. We won't [ph] do it monthly, but we will do it quarterly on pretty much every quarter, we intend to do update. Yes, I think that it continues pretty nicely and we mentioned the losses dropped for $0.01 which is 25% from the $0.04 to the $0.03 and I think as we go and start to market it, as we always said, end of the year, so that's when you're going to see a dramatic impact in expansion of our marketing efforts.

All right. And that's still planned second half of this year, is that the goal, Q3, Q4?

Yes, it's going to be definitely after people get back from school, so probably from like mid to end September. But, really the push is for Christmas.

All right. And then Vilia, I don't know if you have handy any of the cash flow metrics in the quarter. I know it looks like you guys prepaid some of your payables a little bit, so do you have free cash or operating cash for the quarter?

Yes. Just as an FYI, we just filed the Form 10-Q, so that information is out there. Our cash flow from operations was a use of cash of about $1.4 million, which is showing our planned reduction into accounts payable during the quarter.

That's $11 million between payables and accrued liabilities when we pay down, so that's really causing that.

Great. Thanks, guys, appreciate it.

Thanks, Mark.

And our next question comes from Lloyd Walmsley with Thomas Weisel Partners. Sir, your line is open. Lloyd Walmsley – Thomas Weisel Partners: Great, thank you. I was wondering if you could provide us with what your plans are for the $20 million in proceeds to Gaiam from the Real Goods IPO?

No immediate plans. It is up to the Board. We're going to the Board on June 3. Lloyd Walmsley – Thomas Weisel Partners: If you had to just guess now where that would be focused, do you think more buybacks versus M&A opportunities?

I'm not going to guess; we wait for the Board meeting. Lloyd Walmsley – Thomas Weisel Partners: Yes, okay. In terms of the M&A opportunity, do you see a lot of interesting targets out there for tucking in?

Yes, as Lynn mentioned, we recently reviewed one and we expect to probably have a couple deals announced in second quarter. Lloyd Walmsley – Thomas Weisel Partners: Which segments would those be focused in, do you think?

Media.

Media. Lloyd Walmsley – Thomas Weisel Partners: Media.

And the business segment. Lloyd Walmsley – Thomas Weisel Partners: Yes. Is it possible to provide a quarterly breakdown from last year of the international revenue that's converting from direct to licensing?

We can look at that. We probably look at what was actually reported, but as we introduce these changes by countries and by product line, it's going to be quite a project for accounting to do something what our auditor's going to bless to release. But, I don't want to commit to it because I'm sure – really that's kind of putting – not like to because there will be a lot of work for her to do, so I don't want to commit to it, but when we follow up let's talk about it. Lloyd Walmsley – Thomas Weisel Partners: Yes, okay. And did I hear you right, you said for the second quarter you think revenue, existing internal growth rates equates to $56 million?

Yes, I said if you were to deliver existing climate mid-teens number what we historically last two years we did probably between $15 million and $19 million, so if you stay within a range for the second Q which we fully expect to do, that would equate to about $56 million. I'm just saying it because the impact of international from last year, it's hard to adjust it differently. And I understand fully your question the international for quarterly so that's why we try to assess, and so I try to provide a guidance, which we usually don't do. So assuming we deliver the mid teens, it will be about $56 million and we do expect to deliver in mid-teens in internal growth for second Q. Lloyd Walmsley – Thomas Weisel Partners: Okay. Is it possible to quantify the e-commerce portion of your business? It sounds like growth there is really strong.

Yes, that business is growing pretty strong. Maybe I would like to also hear back from Mark, what do you guys think about changing our reporting for reporting community and solar separate?

I think that would be helpful. The more transparency, the better.

Thank you. Sir, I might have stopped you from the questions. Lloyd Walmsley – Thomas Weisel Partners: That's it for now, but thank you.

Hey, Mark, can you put your opinion in from changing to reporting to back? Operator, if you have another question in the meantime?

I'm not showing any further questions at this time.

Okay. Thank you very much and we'll be talking to you next quarter.

Thank you.