Forward-Looking Statements

This report contains forward-looking statements that involve risks and uncertainties. When used in this discussion, we intend the words "anticipate," "believe," "plan," "estimate," "expect," "strive," "future," "intend" and similar expressions as they relate to us to identify such forward-looking statements. Our 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," "Market Risk" and elsewhere in this report. Risks and uncertainties that could cause actual results to differ include, without limitation, general economic conditions, competition, loss of key personnel, pricing, brand reputation, acquisitions, new initiatives we undertake, security and information systems, legal

liability for website content, merchandise supply problems, failure of third parties to provide adequate service, reliance on centralized customer service, overstocks and merchandise returns, our reliance on a centralized fulfillment center, increases in postage and shipping costs, E-commerce trends, future Internet related taxes, our founder's control of us, fluctuations in quarterly operating results, consumer trends, customer interest in our products, the effect of government regulation and programs and other risks and uncertainties included in our filings with the Securities and Exchange Commission. 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 views only as of the date of this report. We undertake no obligation to update any forward-looking information.

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and related notes included elsewhere in this document. This section is designed to provide information that will assist readers in understanding our consolidated financial statements, changes in certain items in those statements from year to year, the primary factors that caused those changes and how certain accounting principles, policies and estimates affect the consolidated financial statements.

Overview and Outlook

We are a lifestyle media company providing a broad selection of information, media, products and services to customers who value personal development, wellness, ecological lifestyles, responsible media and conscious community. Our media brand is built around our ability to develop and offer media content, products, lifestyle solutions and community to consumers in the LOHAS market.

We offer our customers the ability to make purchasing decisions and find responsible content based on these values while providing quality offerings at a price comparable to mainstream alternatives. We market our media and products through a multi-channel approach including traditional media channels, direct to consumers via the Internet, direct response marketing, community, subscriptions, catalog, and through national retailers and corporate accounts.

Our content forms the basis of our proprietary offerings, which then drive demand for parallel product and service offerings. Our operations are vertically integrated from content creation, through product development and sourcing, to customer service and distribution. We market our products and services across three segments: business, direct to consumer, and solar. We distribute the majority of our products in our business and direct to consumer segments from our fulfillment center or drop-ship products directly to customers. We also utilize a third party replication and fulfillment center for media distribution in our business segment.

Our business segment sells directly to retailers, with our products available in approximately 73,000 retail doors in the United States. During 2008, this segment generated revenue of $88.9 million, down from $111.5 million during 2007. The business segment revenue increased 6.4% excluding international revenues, which were affected by the transition from product sales to licensing arrangements and the disposition of our UK subsidiary. During the year we expanded our store-within-store presentations, which include customer fixtures that we design, to over 10,000 locations, up from 7,000 at the end of 2007.

Through its diverse media reach, the direct to consumer segment provides an opportunity to launch and support new media releases, a sounding board for new product testing, promotional opportunities, a growing online and off-line community, and customer feedback on us and the LOHAS industry's focus and future. During 2008, this segment generated revenues of $129.8 million, down from $132.5 million during 2007. This decrease reflects a planned reduction to our catalog circulation of 16%, a decline in direct response marketing media spend and the overall economic environment.

On May 13, 2008, our solar energy business consummated an initial public offering and has since been managed as a separate segment. Through recent acquisitions, this business has grown its sales and expanded its market territories. During 2008, this segment generated revenues of $39.2 million, up from $18.9 million during 2007. We have and will continue to use the IPO proceeds to fund this segment's working capital needs and general corporate purposes, which may include future acquisitions of businesses.

During 2008, we completed acquisitions targeted towards expanding and enhancing our solar market, community reach and media content. The solar energy integrator acquisitions were Carlson Solar, Inc., located in southern California, and Independent Energy Systems, Inc. and Regrid Power, Inc., both located northern California. We also purchased SPRI Products, Inc. ("SPRI"), a leading marketer of exercise products for the professional health and fitness industry.

Given the adverse financial market conditions, the current and projected economic conditions, we evaluated the recoverability of certain assets. As a result of this evaluation, we impaired $80.0 million of goodwill and other intangibles, acquired media libraries, and other assets during 2008. The impairment of goodwill, resulting from the application SFAS No.

142, Goodwill and Other Intangible Assets, is primarily driven by adverse financial market conditions (a decline in our stock price as quoted on NASDAQ) that have reduced our market capitalization below net carrying value on our balance sheet. The impairment takes into account the deteriorating macro-economic environment, the reduced accessibility to the credit markets for customers, and the high degree of uncertainty about the eventual return to normalcy.

We believe our growth will be driven by information, media content, products, and online community offerings delivered to the consumer via Internet, retailers, international licensing, electronic downloads and subscription systems. We have increased our focus on our media content creation and distribution, which strategically provides increased branding opportunities, higher operating contribution and greater mainstream penetration.

We believe a number of factors are important to our long-term success, including building our brands, increasing international growth by expanding into new markets primarily through license arrangements, extending our product lines into wellness, edutainment, and children's programs, and enhancing our multimedia platform community through new media opportunities, new membership programs, initiatives and acquisitions.

Critical Accounting Policies

We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States, which requires us to make judgments, estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Note 2 to the consolidated financial statements in Item 8 of this Form 10-K summarizes the significant accounting policies and methods used in the preparation of our consolidated financial statements.

We believe the following to be critical accounting policies whose application has a material impact on our financial presentation, and involve a higher degree of complexity, as they require us to make judgments and estimates about matters that are inherently uncertain.

Allowances for Doubtful Accounts and Product Returns

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We make estimates of the collectibility of our accounts receivable by analyzing historical bad debts, specific customer creditworthiness, and current economic trends. If the financial condition of our customers were to deteriorate such that their ability to make payments to us was impaired, additional allowances could be required.

We record allowances for product returns to be received in future periods at the time we recognize the original sale. We base the amounts of the returns allowances upon historical experience and future expectations.

Inventory

Inventory consists primarily of finished goods held for sale and is stated at the lower of cost (first-in, first-out method) or market. We identify the inventory items to be written down for obsolescence based on the item's current sales status and condition. We write down discontinued or slow moving inventories based on an estimate of the markdown to retail price needed to sell through our current stock level of the inventories.

Goodwill and Other Intangibles

Goodwill represents the excess of the purchase consideration over the estimated fair value of assets acquired less liabilities assumed in a business acquisition. Our other intangibles mainly consist of customer and marketing related assets. We no longer amortize goodwill, but instead we review it for impairment annually or more frequently if impairment indicators arise, on a reporting unit level. We compare the estimated fair value of a reporting unit with its carrying amount, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, we consider the goodwill of the reporting unit not impaired. If the carrying amount of a reporting unit exceeds its estimated fair value, we perform the goodwill impairment test to measure the amount of impairment loss. We use a traditional present value method for the purposes of testing for potential impairment. The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment at many points during the analysis. Application of alternative assumptions and definitions could yield significantly different results.

Investments

We account for investments in limited liability companies in which we have the ability to exercise significant influence or control, or in which we hold a five percent or more membership interest, under the equity method. We account for investments in corporations in which we have the ability to exercise significant influence or control, or in which we hold a

twenty percent or more ownership, under the equity method. Under the equity method, we record our share of the income or losses of the investment by increasing or decreasing the carrying value of our investment and recording the income or expense through the consolidated statement of operations. Under the cost method of accounting, we carry investments in private companies at cost and adjust them only for other-than-temporary declines in fair value. Determining whether we have the ability to exercise significant influence or control over a company is highly subjective and requires a high degree of judgment.

Purchase Accounting

We account for the acquisition of a controlling interest in a business using the purchase method. In determining the estimated fair value of certain acquired assets and liabilities, we make assumptions based upon many different factors, such as historical and other relevant information and analysis performed by independent parties. Assumptions may be incomplete, and unanticipated events and circumstances may occur that could affect the validity of such assumptions, estimates, or actual results.

Media Library

The media library asset represents the fair value of the library of produced videos acquired through business combinations, the purchase price of media rights to both video and audio titles, and the capitalized cost to produce media products, all of which we market to retailers and to direct-mail and online customers. We amortize the fair value of acquired or purchased media titles and content on a straight-line basis over succeeding periods on the basis of their estimated useful lives. We defer capitalized production costs for financial reporting purposes until the media is released and, then, we amortize these costs over succeeding periods on the basis of estimated sales. Historical sales statistics are the principal factor used in estimating the amortization rate.

Share-Based Compensation

As of January 1, 2006, we adopted the provisions of SFAS No. 123(R), Share-Based Payment, which requires companies to recognize compensation cost for share-based awards based on the estimated fair value of the award on date of grant. We measure compensation cost at the grant date based on the fair value of the award and recognize compensation cost upon the probable attainment of a specified performance condition or over a service period. We use the Black-Scholes option valuation model to calculate the fair value disclosures under SFAS 123(R). In calculating this fair value, there are certain assumptions that we use, as disclosed in Note 12, Share-Based Compensation, consisting of the expected life of the option, risk-free interest rate, dividend yield, and volatility. The use of a different estimate for any one of these components could have a material impact on the amount of calculated compensation expense.

Results of Operations

The following table sets forth certain financial data as a percentage of revenues for the periods indicated:

                                                      Years ended December 31,
                                                    2008        2007        2006
Net revenue                                          100.0 %     100.0 %     100.0 %
Cost of goods sold                                    42.0 %      36.0 %      36.1 %
Gross profit                                          58.0 %      64.0 %      63.9 %

Expenses:
Selling and operating                                 55.4 %      55.0 %      54.6 %
Corporate, general and administration                  5.1 %       5.0 %       6.8 %
Other general income and expense                      32.2 %         - %         - %
Total expenses                                        92.7 %      60.0 %      61.4 %

Income (loss) from operations                        -34.7 %       4.0 %       2.5 %

Gain from issuance of subsidiary stock                12.8 %         - %         - %
Other income (expense), net                            0.5 %       1.5 %       1.8 %
Income (loss) before income taxes and minority
interest                                             -21.4 %       5.5 %       4.3 %
Income tax expense (benefit)                          -2.9 %       2.2 %       1.7 %
Minority interest in net (income) loss of
consolidated subsidiaries, net of tax                  4.6 %      -0.1 %         - %
Net income (loss)                                    -13.9 %       3.2 %       2.6 %

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

Net revenue. Net revenue decreased $5.8 million, or 2.2%, to $257.2 million during 2008 from $262.9 million during 2007. Net revenue in our direct to consumer segment decreased $2.7 million to $129.8 million during 2008 from $132.5 million during 2007. This decrease in the direct to consumer segment net revenue primarily reflects overall slower consumer spending and our decision to reduce catalog circulation by 16%. Net revenue in our business segment decreased $22.6 million to $88.9 million during 2008 from $111.5 million during 2007, primarily reflecting lower international product sales, which includes the shift to licensing arrangements and the disposition of our UK operations. Excluding international revenues, our business segment net revenues increased $5.0 million, or 6.4%, to $83.8 million during 2008 from $78.8 million during 2007, primarily reflecting the acquisition of SPRI. Net revenue in our solar segment increased $20.3 million to $39.2 million during 2008 from $18.9 million during 2007, primarily due to the acquisition of Carlson Solar in the first quarter of 2008, Independent Energy Systems in the third quarter of 2008, and Regrid Power in the fourth quarter of 2008.

Gross profit. Gross profit decreased $19.1 million, or 11.3%, to $149.3 million during 2008 from $168.4 million during 2007. As a percentage of net revenue, gross profit decreased to 58.1% during 2008 from 64.0% during 2007. Gross profit in our direct to consumer segment decreased $3.4 million, or 3.7%, to $87.2 million during 2008 from $90.6 million during 2007 and, as a percentage of net revenue, decreased to 67.2% during 2008 from 68.4% during 2007, primarily reflecting our decision to utilize aggressive promotional strategies, including offering free shipping during the holiday season. Gross profit in our business segment decreased $19.5 million, or 27.4%, to $51.8 million during 2008 from $71.2 million during 2007 and, as a percentage of net revenue, decreased to 58.2% during 2008 from 63.9% during 2007, primarily reflecting the change in international business, our success in expanding our category manager role in media at retailers, and expanding our distribution footprint by maintaining retail prices while absorbing cost increases from higher freight charges and the dollar decline. Gross profit in our solar segment increased $4.0 million, or 60.7%, to $10.4 million during 2008 from $6.5 million during 2007 and, as a percentage of net revenue, decreased to 26.6% during 2008 from 34.3% during 2007, primarily reflecting the acquisition of Independent Energy Systems and Regrid Power which have larger average installation sizes that traditionally produce lower gross profit margins.

Selling and operating expenses. Selling and operating expenses decreased $2.4 million, or 1.6%, to $142.4 million during 2008 from $144.8 million during 2007. This change is primarily a result from reduced catalog circulation, lower royalty payments, and lower compensation costs, partially offset by investments made in our online community and increased bad debt reserve, and lower amortization from the impairment of certain intangibles assets. As a percentage of net revenue, selling and operating expenses increased to 55.4% during 2008 from 55.0% during 2007.

Corporate, general and administration expenses. Corporate, general and administration expenses decreased $0.1 million, or 0.7%, to $13.1 million during 2008 from $13.2 million during 2007. As of percentage of net revenue, corporate, general and administration expenses increased slightly to 5.1% during 2008 from 5.0% during 2007.

Other general income and expense. Other general income and expense was $82.9 million during 2008 and was comprised of impairment charges of $44.4 million of goodwill, $27.1 million of media libraries (primarily from the GoodTimes and Lime acquisitions), $1.5 million of other intangibles, $2.2 million of property and equipment (primarily web site development), $1.5 million of deferred advertising costs, and $3.3 million of other related assets, and operating expenses related to the consummation of the Real Goods initial public offering and guaranteed payments that we are obligated to make, but for which we expect to receive no benefit, including reduction in force costs, totaling $2.9 million.

Gain from issuance of subsidiary stock. Gain from issuance of subsidiary stock was $32.8 million during 2008 and represented the increase in carrying value of our investment in Real Goods as a result of its issuance of new stock.

Interest and other income. Interest and other income decreased $2.9 million to $1.2 million during 2008 from $4.1 million during 2007. The decrease reflects lower interest earnings as we used cash to acquire our corporate facilities, acquire businesses and assets and repurchase 1.3 million shares of our Class A common stock for $19.3 million, and the decline of average interest rates received on our cash investments from 4.6% as of December 31, 2007 to 0.2% at December 31, 2008. At December 31, 2008, the majority of our cash was in short-term treasuries.

Minority interest in net (income) loss of consolidated subsidiaries, net of income taxes. Minority interest in net loss of consolidated subsidiaries, net of income taxes, increased to $12.0 million during 2008 from minority interest net income of $0.3 million during 2007 primarily as a result of impairment of goodwill in the solar segment.

Net income (loss). As a result of the above factors, net income decreased $44.1 million to a net loss of $35.6 million during 2008 from net income of $8.5 million during 2007. Net income per share decreased to a net loss of $1.46 per share during 2008 from net income of $0.34 per share during 2007. Excluding the impairment charges, disposition of businesses and the loss from consolidating Real Goods Solar, our net income would have been $0.8 million, or $0.03 per share, for 2008. Refer to the Non-GAAP Financial Measures table immediately below.

Non-GAAP Financial Measures

We have utilized the non-GAAP information set forth below as an additional device to aid in understanding and analyzing our financial results for the year ended December 31, 2008. We believe that these non-GAAP measures will allow for a better evaluation of the operating performance of our business and facilitate meaningful comparison of the results in the current period to those in prior periods and future periods. Reference to these non-GAAP measures should not be considered a substitute for results that are presented in a manner consistent with GAAP.

A reconciliation of the our year ended December 31, 2008 GAAP net loss to our year ended December 31, 2008 non-GAAP net loss is set forth below (in millions except share and per share data):

                                                                     For the Year
                                                                         Ended
                                                                   December 31, 2008

Net loss                                                          $             (35.6 )

Exclusion of Real Goods Solar net loss                                           28.0

Exclusion of minority interest in Real Goods Solar                              (12.1 )

Exclusion of non-cash gain on issuance of Real Goods Solar
stock                                                                           (20.1 )

Exclusion for disposition of businesses                                           1.4

Exclusion of non-cash impairment of goodwill and intangible
assets                                                                           39.2

Non-GAAP net income                                               $               0.8

Non-GAAP weighted average shares used in earnings per share
calculation (diluted)                                                      24,599,000

Non-GAAP earnings per share (diluted)                             $              0.03

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

Net revenue. Net revenue increased $43.5 million, or 19.8%, to $262.9 million during 2007 from $219.5 million during 2006. During the year, we added distribution to over 2,000 new retail doors, bringing the total number of retail doors in the United States to approximately 70,000. Net revenue in our direct to consumer segment increased $23.6 million, or 21.7%, to $132.5 million during 2007 from $108.9 million during 2006. This increase in the direct to consumer segment net revenue primarily reflects the continued success of our direct response marketing revenues and increased revenues from businesses acquired during 2007. Net revenue in our business segment increased $17.7 million, or 18.9%, to $111.5 million during 2007 from $93.8 million during 2006, primarily reflecting our success in the international market. Net revenue in our solar segment increased $2.1 million, or 12.6%, to $18.9 million during 2007 from $16.8 million during 2006, primarily due to the acquisition of Marin Solar in November 2007 and increased penetration in existing markets.

Gross profit. Gross profit increased $28.0 million, or 20.0%, to $168.4 million during 2007 from $140.3 million during 2006. As a percentage of net revenue, gross profit increased slightly to 64.0% during 2007 from 63.9% during 2006. Gross profit in

our direct to consumer segment increased $14.9 million, or 19.6%, to $90.6 million during 2007 from $75.8 million during 2006 and, as a percentage of net revenue, increased to 68.4% during 2007 from 59.6% during 2006, primarily reflecting our investment in higher margin online community businesses. Gross profit in our business segment increased $12.6 million, or 21.5%, to $71.2 million during 2007 from $58.6 million during 2006 and, as a percentage of net revenue, increased to 63.9% during 2007 from 62.5% during 2006. Gross profit in our solar segment increased $0.5 million, or 9.2%, to $6.5 million during 2007 from $6.0 million during 2006 and, as a percentage of net revenue, decreased to 34.3% during 2007 from 35.4% during 2006, primarily reflecting the acquisition of Marin Solar, which historically has produced lower margins.

Selling and operating expenses. Selling and operating expenses increased $22.0 million, or 18.4%, to $141.7 million during 2007 from $119.7 million during 2006, resulting primarily from increased sales and investments made in community, branding, personnel, advertising, and marketing programs. As a percentage of net revenue, selling and operating expenses decreased to 53.9% during 2007 from 54.6% during 2006.

Corporate, general and administration expenses. Corporate, general and administration expenses increased $1.2 million, or 7.9%, to $16.2 million during 2007 from $15.0 million during 2006, primarily due to our planned investments to support the increased revenue base. As of percentage of net revenue, corporate, general and administration expenses decreased to 6.1% during 2007 from 6.8% during 2006, primarily reflecting the leverage on the higher revenue base.

Other income. Other income increased $0.2 million, or 6.2%, to $4.1 million during 2007 from $3.9 million during 2006. As a percentage of net revenue, other income deceased to 1.5% during 2007 from 1.8% during 2006. The increase reflects the interest earnings from proceeds of our sale of our Class A common stock in our secondary offering during May 2006, partially offset by our use of . . .