At this time, all participants are in a listen-only mode. (Operator Instructions) Now, I'd like to turn the meeting over to Mr. John Mills. Sir, you may begin.

Thank you. Good afternoon, everyone, and welcome to Gaiam's fourth quarter and full year 2007 Earnings Call. The following constitutes a Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. Except for the 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 fiscal year 2007 conference call. And I am very pleased to say it was another very good year and quarter. Revenue for the year which ended December 31, 2007 increased 20% to $263 million from $219 million in 2006. Internal growth rate was 17.5%. Our results improved in all aspects. Gross margin increased. Most expense lines as a percentage of revenue decreased in spite of increased expenses related to our community. Operating income increased 85% to $10.5 million from $5.6 million a year ago. Net income increased 51% to $8.5 million from $5.6 million in 2006. EPS increased 48% to $0.34 from $0.23 during last year. And depreciation and amortization for 2007 was $12.3 million. For the fourth quarter, revenue increased 12.4% to $81.8 million from $72.8 million in the same quarter of last year. With the portion of revenue received by end of the third quarter, as we announced in our last call, our internal growth rate for the second half was 19.7%. Earnings per share for the quarter was $0.17, and depreciation and amortization $3.7 million. During 2007, we generated $13.4 million in cash from operation compared to cash used of $0.5 million during the last year. And after 2.5 million shares repurchased in the year, we ended the year with $66 million in cash and no debt. According to Nielsen's VideoScan in 2007, our US market share in DVD in the fitness/wellness category increased to 49.4% from 44.7% of last year. In 2007, we strengthened on our online community by acquiring Zaadz, LIME Media and majority ownership in Conscious Enlightenment, and also became an exclusive provider of paid subscription services and ecommerce for Care2, which is a social networking site with about 7.5 million members. Subsequent to the yearend,…

As Jirka mentioned we are extremely pleased with our financial results for 2007. We achieved double-digit revenue growth, improved our operating margins and generated strong cash flow from operations. For the full year 2007, our revenue grew by $43.5 million to $262.9 million, an increase of 19.8% from $219.5 million in 2006. Revenues generated by our direct-to-consumer segment increased $25.8 million or 20.5% to $151.4 million during 2007 from $125.7 million during 2006. This increase reflects the continued success of our direct marketing programs and from businesses acquired over the last year. Revenues from our business segment increased $17.7 million or 18.9% to $111.5 million during 2007 from $93.8 million during 2006, reflecting our success in international markets. Overall, gross margins remained strong at 64% of revenue. Solid margins coupled with revenue growth contributed to a $28.1 million increase in gross margin dollars from $140.3 million in 2006 to $168.4 million in 2007. As a percentage of revenue, selling and operating expenses for the year improved to 53.9% in 2007 from 54.5% in 2006. Our corporate general and administrative expenses as a percentage of revenue improved to 6.2% in 2007 from 6.8% in 2006, reflecting increased leveraging on a higher revenue base. Operating income for 2007 increased 85.3% to $10.5 million compared to $5.6 million in 2006. Operating margins for 2007 as a percentage of revenue expanded 150 basis points to 4%, compared to 2.5% in 2006. Net income for 2007 increased 51% to $8.5 million or $0.34 per share from $5.6 million or $0.23 per share in 2006. Turning to the fourth quarter of 2007, our revenue increased 12.4% on top of 35.8% revenue growth in the third quarter of 2007 bringing the growth for the second half of the year to 22.1%. Fourth quarter revenue of $81.8 million…

Thanks Vilia. We had another great year in '07, achieving a 17.5% internal growth and an 85% increase in operating income. Our revenues increased by 20%, while we continue to execute on the strategies we laid out during the year. We ended the year with a 48% increase in EPS. As discussed in our March 2007 conference call last year, we focused during the year on several key initiatives. Establishing a new line look and branding for Gaiam to allow international expansion, building the firm as a mass market fitness brand, increasing Gaiam market share in US DVD sales, introducing wellness as a concept in Media, expanding our position as a category manager in LOHAS through our acquisition of the balance of Newmark Media for racking, moving our direct buyers to subscribers, building an online LOHAS community and pursuing strategic acquisitions for community, distribution channels and content. I would now like to review our accomplishments in these areas by operating segment, and begin to outline our strategy for 2008. 2007 was another terrific year for the business segment. Year-over-year sales increased 19% to $111 million, up from $94 million in 2006. Growth in this segment was driven by the success of our international business, as well as the expansion of media in product categories in domestic trade. As of the end of 2007, our media titles may be found in approximately 70,000 doors in the US, up from 68,000 at the end of '06. Our industry expertise and commitment to high-quality media content continue to translate into improved market share. At the end of December, according Nielsen VideoScan, Gaiam ranked sixth in overall US non-theatrical DVD sales ahead of 20th Century Fox, Universal and Sony. Our year-to-date market share for the Fitness Wellness category increased to 49% at the end…

(Operator Instructions) Our first question is from Mark Argento with Craig-Hallum Capital. Sir, your line is open.

Yeah. Hi, Jirka could you comment at all in terms of -- [recruiting] in a slowing economy. Could you comment at all, what you see if any in terms of buying trends both at the retail product side and also the direct to consumer products?

Overall, obviously you can see it didn't have very much impact on us in the quarter. We were actually -- best performer in Target, even though Target's overall was down, but I will probably let Lynn talk about it.

Mark, we're continuing to see strong sell-through at the retail level. However, certainly we as everyone else are reading the publications and watching what's happened at the consumer base. But I can tell you, sell through at retail has not slowed down for us.

In terms of your new initiative with Target, I know you had mentioned that in the category manager role, you might end up giving up share. But you think you can stay with revenues overall, are you going to end up with more square feet at Target or could you just explain with a little more clarity if possible, how we should think through that relationship?

Obviously yes, Mark, the plan is to have more square footage at Target as the category manager. We tested an end cap, four-foot end cap of fitness media within the sporting goods section. As you know, Target media department discontinued fitness in third quarter of this year. It was moved with us as category manager to the sporting goods section, we ended up with four additional feet in a 13-week test. The test right now is looking to be successful, so we're working with Target on how that would go forward after the 13-week test.

And as the category manager then, are you responsible -- you end up picking the way the products sit on the shelves for who's represented there?

That's correct.

Okay.

Plus, in a lot of the stores, we were only fitness there before. We actually bring competitors in our space. That's why we think we'll cannibalize our market share, but increase our revenues overall. Because depending how we charge, what we receive and what's the story, but it's focused to increase revenue and profitability, and it will be a long term hard. We keep growing this market share forever, and we kind of want to keep growing it further, but right now it's important really to expand our presence and increase profitability, so we have kind of taken this bold step to bring competitors to our space, because we have 70,000 doors and most of them have half of that. So we are really kind of holding some leverage here and which we intend to use.

Then quickly just shifting over to community. I think you provided a number on the call about the loss generated from the community, the $1.7 million, was that for the quarter or for the last year? Could you quantify that and explain that number a little bit?

That was just for the quarter. We bought three companies in 3Q; there are virtually no revenues but 90 people about. And as well as we are developing and testing our products, so it's all to build up on, so that was absorbed in the fourth quarter, just because people asked how much roughly it is? We only say there is a cost to the community. So they are just trying to provide a color of what it is. Obviously that's improving right now, because as we start to get revenues, we mentioned we have right now, 200 members with a little over $2 million for February. So four months till February. So we just tried to provide some more details on it, because we don't intend to provide these numbers in every quarter because we had so many questions about it.

Sure. And then in terms of 200,000 number, is that comparable to the 135,000 number that you provided at the end of June last year?

Well we kind of look at it differently. We get some subscription, but yes this is effectively -- we try to get away from measuring, because some of the clubs, like we launched right now recently, an environmental club circle.

Earth Cinema Circle.

Earth Cinema Circle. And it's a bi-monthly club. So its kind of hard to say if they pay in that month, some pay previous months, so we kind of intend to right now do overall subscribers under revenues because some of the clubs are monthly, some of those will be weekly and some of those will be bi-monthly, so that's why we prefer to do this way.

Last one and I'll hop back in the queue, but in terms of -- I know you had offering out there. You have been fine tuning the Gaiam.com site. When do you actually go out and proactively start marketing, spend marketing dollars to go after subscribers, proactively go after subscribers particularly currently in your core customer. But now it seems like you just have it out there in your beta testing and when do you go to alpha?

Its not actually beta testing anymore but we are still doing a lot of changes, we do releases almost every week, so we will probably start to market it when all the consumer pick up before the fall.

Great, thank you.

Our next question from Lloyd Walmsley with Thomas Weisel Partners. Your line is open sir.

Good afternoon. I was wondering if you could just give us a little bit of color on how much of the fourth quarter and 2008 guidance is from your acquisitions and particularly in the solar space. And then if you could maybe quantify the impact of the switch from a license -- to a licensing model in some of your foreign territories. Either what revenue could have been? Where your guidance would have been in '08? Had those been booked on the old basis?

That's exactly the reason why we provided the revenue guidance, which we typically don't give because it's pretty complex. We made these acquisitions which we can go little more and more detail but they are relatively all small, but and we also don't keep all the pieces of them. And then we could divest it some and there's a big -- obviously the spend on the licensing work, typical license if you sell a product which we used to do in Canada; you sell a product, you get a receipt let's say US$15 roughly for a DVD. In a licensing agreement it would be somewhere depending on the country between 20% and 25% on those revenues what actually we booked through the revenue line, obviously, it's pretty much all gross profit. But there are several changes with going through, we I think one was provided last week -- in January.

In the fourth quarter.

Fourth quarter, so we always reported that as product revenues. But to really go into detail to say how much it was I think Vilia will have her added touch [on how did you do that]. So we went through -- looked at what's actually going to be and how it works with [solar activations] and that's why we cannot take above the 300 million revenue guidance.

So you can't put any parameters around how much of that $300 million might be from international licensing, just so we can get a sense what it would have been on an apples-to-apples basis?

We can probably try to figure it out, but we don’t have it now.

Yeah, okay. And then you mentioned sort of expanding Wellness into potentially green living titles. If I understood you correctly in your prepared remarks, you mentioned potentially looking to expand as a category manager, target to other categories. Would that be associated with green living, and if you could just give us a little more color there, that would be great?

That’s a little bit of a misunderstanding that it would be a target. We're looking to be category manager for those different classifications of business and building out our assortments with that in mind. Not just a target, but to really own the green living space in media and products as well as the Wellness space.

Right. And if I understand correctly, the green living would be a new category in terms of media?

Yes.

And is that something you are working on, now or…?

And we plan to launch in late 2008. We will be showing it initially at the Natural Product Show this week and Ed Begley, Jr., has already agreed to be our host for those titles.

Well, that's great. Thank you.

I now would like to turn the call back to Mr. Jirka Rysavy. Sir, you may continue.

Okay. There are no more questions. I would like to thank everybody and hopefully we will see you in another hopefully good year as good as we just had. And we are really happy with whatever happened. And thank you very much.

Thank you everyone for participating in today's conference call. You may disconnect now at this time.