U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-22524
REAL GOODS TRADING CORPORATION
(Exact name of small business issuer as specified in its charter)
California 68-0227324
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
555 Leslie Street, Ukiah, California 95482
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (707) 468-9292
Former name, former address and former fiscal year, if changed
since last report.
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the past 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
As of October 26, 1996, there were issued and outstanding
3,406,704 shares of common stock of the issuer.
<PAGE>
REAL GOODS TRADING CORPORATION
INDEX
Page
Form 10-QSB Cover Page 1
Index 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheet
at September 28, 1996 3
Condensed Consolidated Statements of Earnings
for the three-month and six-month periods
ended September 28, 1996 and September 30, 1995 4
Condensed Consolidated Statements of Cash Flows
for the six month periods ended September 28,
1996 and September 30,1995 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 11
Item 2. Changes in Securities.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of
Security-Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
Signatures 11
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
REAL GOODS TRADING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(In thousands except share data)
<TABLE>
<CAPTION> September 28,
<S> 1996
ASSETS <C>
Current Assets
Cash $ 442
Accounts Receivable, net of allowance of $6 314
Inventories 2,992
Deferred catalog costs, net 577
Prepaid expenses 298
Total current assets 4,623
Property, equipment and improvements, net 3,409
Intangible assets and other assets, net 149
Total assets $ 8,181
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities
Accounts payable $ 1,335
Accrued expenses 302
Income taxes payable 122
Customer deposits 103
Current maturities of short term debt 573
Deferred income taxes 40
Total current liabilities 2,475
Long-term debt 1,162
Shareowners' equity
Common stock, without par value: Authorized
10,000,000 shares;issued and outstanding
3,406,704 shares 4,284
Retained Earnings 260
Total shareowners' equity 4,561
Total liabilities and shareowners' equity $8,181
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
REAL GOODS TRADING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
(In thousands except share data)
<TABLE>
Three Months Ended Six Months Ended
Sept 28, Sept 30, Sept 28, Sept30,
1996 1995 1996 1995
<C> <C> <C> <C>
Net Sales $3,287 $3,158 $8,279 $6,617
Cost of sales 1,713 1,764 4,644 3,574
Gross Profit 1,574 1,394 3,635 3,043
Selling, general and
administrative expenses 1,575 1,697 3,306 3,626
Earnings (loss) from
operations (1) (303) 329 (583)
Interest income net
of interest expense (25) 7 (23) 15
Earnings (loss) before
income taxes (26) (296) 306 (568)
Income tax benefit (expense) (9) 85 (122) 193
Net Earnings (Loss) $ (35) $(211) $ 184 $(375)
Net earnings (loss)
per share $(0.01) $(0.06) $0.05 $(0.11)
Weighted average shares
used to compute
earnings per share 3,415,512 3,432,928 3,420,428 3,425,789
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
REAL GOODS TRADING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
Six Months Ended
Sept 28, Sept 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES <C> <C>
Net Earnings (Loss) $ 184 $(375)
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 125 88
Non cash compensation expenses 16 15
Provision for deferred income tax (99)
Changes in assets and liabilities:
Accounts receivable (135) (158)
Inventory (853) 261
Deferred catalog costs (174) 56
Prepaid expenses and other assets 105
Accounts payable and accrued expenses 684 440
Customer deposits (567) 1
Income and other taxes payable 123 (94)
Net cash provided by (used in)
operating activities (492) 135
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of land equipment, improvements, and
construction in progress (580) (689)
Net cash used in investing activities (580) (689)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowing on long-term debt
Proceeds from issuance of common stock, net 1,331 217
Purchase of stock options and common stock (87) 117
Net cash provided by financing activities 1,244 334
Net increase (decrease) in cash 172 (220)
Cash at beginning of period 270 832
Cash at end of period $ 442 $ 612
Other cash flow information:
Interest paid 31
Income taxes paid 148 1
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
REAL GOODS TRADING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND SIX MONTH PERIOD ENDED SEPTEMBER 28, 1996
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared from the records of the Company
without audit and, in the opinion of management, include all
adjustments (consisting of only normal recurring accruals)
necessary to present fairly the financial position at
September 28, 1996 and September 30, 1995, and the interim
results of operations for the three month and six month periods
ended September 28, 1996 and September 30, 1995 and cash flows
for the six months ended September 28, 1996 and September 30,
1995. Certain reclassifications have been made in the September
1995 financial statements to conform to the September 1996
presentation.
Accounting policies followed by the Company are described in Note
1 to the audited financial statements for the fiscal year ended
March 31, 1996. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted for purposes of the condensed financial statements.
The condensed consolidated financial statements should be read in
conjunction with the audited financial statements, including
notes thereto, for the year ended March 31, 1996. The results of
operations for the three and six month periods herein presented
are not necessarily indicative of the results to be expected for
the full year.
NOTE 2 - LINE OF CREDIT
On April 4, 1996 the Company renewed its $1,000,000 line of
credit agreement with National Bank of the Redwoods (the "Bank").
Borrowings bear interest at 2% over the prime rate, and interest
is payable monthly. The line is personally guaranteed by the
Company's majority shareowner. This agreement expires April 4,
1997. On September 28, 1996, $535,000 was outstanding on the
Company's line of credit.
The loan agreement contains restrictive covenants including debt
to net worth and current ratios, restrictions on capital
expenditures and prohibitions on payment of cash dividends
without the Bank's approval. The line is collateralized by
substantially all of the Company's assets including the accounts
receivables, inventory and the Company's mailing lists as well as
key man life insurance policy on the life of the Company's
majority shareowner.
NOTE 3 - LONG TERM DEBT
On August 10, 1995 the Company entered into a construction loan
agreement with the Bank to finance $1,170,000 of the cost of the
construction of the Solar Living Center. Borrowings under the
agreement are collateralized by a First Deed of Trust on the land
and improvements on the twelve acre parcel in Hopland,
California. On June 29, 1996 $1,170,000 was outstanding on the
construction loan.
On July 3, 1996 the Company refinanced the construction loan
into two term loans. The Company borrowed $585,000 from National
Bank of the Redwoods with interest at prime plus .50 points
payable through June 30, 2021. The Company also has a Small
Business Administration Loan for $604,000 that bears interest at
8.37% per year, payable through September 1, 2016. Collateral
for both loans is the 1st Deed of trust on the Hopland,
California property.
NOTE 4 - STOCK OPTIONS
Under the Company's Second Amended and Restated Fiscal 1993
Stock Incentive Plan (the "Plan") the Company can grant incentive
and non-qualified stock options to purchase 600,000 shares of
common stock. Incentive Stock Options can be granted at prices
not less than 100% of the fair market value of the common shares
(85% for non-qualified options) on the date the option is
granted, and normally vest over a period not exceeding four years
from the date of grant. As of September 28, 1996, options to
purchase 26,100 shares had been exercised.
In June 1995 the Company reserved 50,000 shares for its
Non-Employee Directors' Stock Option Plan. In May 1996 the
Company Amended and Restated the Non-Employee Directors' Stock
Option plan and increased the plan to 100,000 shares. As of
September 28, 1996, options to purchase to purchase 35,000 shares
were outstanding, and none had been exercised.
NOTE 5 - SHAREOWNERS' EQUITY
In September 1995, the Board of Directors approved a stock
repurchase program. The Company is authorized to repurchase up
to $250,000 of common stock. As of September 28, 1996, the
Company had repurchased 6,284 shares at an average price of $5.50
per share.
In July 1996, the Company also repurchased 30,000 shares of
unregistered stock from its President and majority shareowner at
a below market cost of $3.33 per share.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales
The Company's net sales include a $1.8 million 100 kilowatt
photovoltaic renewable energy sale to a resort in Belize that
occurred in the first quarter, as well as a $200,000 bonus for
the on time completion of the sale that was earned in the second
quarter. While the amounts of this sale and timely completed
bonus distort some of the amounts and percentages set forth
herein, they are included for completeness. The Company reserves
the right to state amounts and percentages with and without the
Belize resort sale at a future time if the Company believes that
the fairness of the presentation is enhanced thereby.
For the six months ended September 28, 1996 the Company's net
sales were $8,279,000, an increase of $1,662,000 or 25% from the
prior year's sales of $6,617,000. Without the Belize resort sale,
net sales for the current period were $6,347,000, down 4% from
the previous year. Catalog sales decreased by 16.5% to
$4,006,000, compared with $4,797,000 in the previous year. The
$791,000 decrease in catalog net sales was attributable to the
Company mailing catalogs more selectively and effectively,
particularly in the spring quarter. The Company mailed 21% fewer
catalogs in the first six months, yet catalog net sales declined
by only 16.5%, reflecting increased efficiencies and sales per
catalog. Sales per catalog mailed increased to $1.73 per
catalog, compared to $1.66 per catalog for the first six months
of the previous year, contributing to increased profitability.
Retail store sales in the first six months increased 30.5% to
$1,369,000 compared to $1,049,000 for the same period in the
previous year. In the first quarter the Hopland store relocated
to the newly completed Solar Living Center, and the Eugene store
moved to a larger downtown location.
Renewable energy sales, which include the $2 million Belize
resort sale were $2,872,000 compared to $729,000 in the previous
period. The continuing increase in sales is attributed to the
Company's strategy to support the specialization of some of its
sales staff in renewable energy and a new emphasis on
international eco-tourist resort sales, as well as increased
customer service in this area.
For the three months ended September 28, 1996, the Company's net
sales increased 4% or $129,000 to $3,287,000 compared to
$3,158,000 in the previous period. Without the Belize on time
bonus in the quarter, sales were down 2% to $3,087,000. Catalog
net sales for the three months were $1,727,000, down 17%
from the same period in the previous year of $2,089,000. The
number of catalogs mailed remained at 21% lower, yet sales
declined by only 17%, increasing profitability per catalog.
Retail store sales for the three months were $792,000, an
increase of 37% over the previous year's sales of $578,000.
Sales for the three months reflect full operation at the new
locations of the Hopland and Eugene stores. Renewable energy
sales were $746,000 including the on time bonus of the Belize
sale, compared to $464,000 for the previous year. Without the
bonus, renewable energy sales showed a 16% increase for the
period.
Gross Profit
For the six months ended September 28, 1996, gross profit
increased 19% to $3,635,000 or 43.9% of sales, compared to gross
profit in the prior year period of $3,043,000 or 46% of sales.
The current period gross profit includes the $2 million renewable
sale to the eco-tourism market; traditionally renewable energy
sales have lower margins than catalog sales. Catalog, retail and
renewable energy sales all showed an improvement in gross margins
when compared to the same period in the previous year. Catalog
sales had a gross profit of $2,061,000 or 51.4% of sales,
compared to $2,372,000 or 49.4% of sales for the previous period.
Retail store sales had a gross margin of $555,000, or 40.5% of
sales, compared to $406,000 or 38.7% of sales in the previous
period. Renewable energy sales had a gross margin of $989,000,
or 34.4% of sales, compared to $226,000 or 31% of sales in the
previous period.
For the three months ended September 28, gross profit increased
13% to $1,574,000 or 47.9% of sales compared to gross profit in
the prior year period of $1,394,000 or 44.1% of sales. Catalog
and retail and renewable energy sales all showed increases in
gross margins over the same period in the previous year. Catalog
sales had a gross profit of $879,000 or 50.8% of sales, compared
to $1,014,000 or 48.6% of sales for the previous period. Retail
store sales had a gross margin of $307,000 or 38.7% of sales,
compared to $209,000 or 36.1% of sales in the previous period.
Renewable energy sales had a gross margin of $367,000 or 49.1% of
sales, distorted by the on time bonus, compared to $143,000 or
30.8% of sales in the previous year. The Company continued to
show gains in margin in all areas due to continued efforts to
improve terms with vendors that allow for cash discounts, to
take advantage of quantity discounts and in general improve
purchasing efficiencies.
Operating Expenses
Selling, general and administrative expenses decreased 9% or
$320,000 to $3,306,000 for the six months ending September 28,
1996, compared to $3,626,000 for the previous year. Selling,
general and administrative expenses amounted to $1,575,000 in the
quarter, down 7% or $123,000 from the prior year's level of
$1,697,000. The large renewable energy sale distorts customary
comparisons of expenses as a percentage of sales. However,
excluding the expenses and revenue related to that sale, expenses
continued to decrease at a rate in excess of sales primarily due
to the Company's plan of mailing catalogs to a more targeted
audience. The Company mailed approximately 2,300,000 catalogs in
the first half of fiscal 1997, a 21% decrease from the 2,900,000
catalogs mailed in the same period of fiscal 1996, due to the
reduced use of rented lists because of paper and postage price
increases.
Income Taxes
Income taxes as a percentage of pretax income was 40% for the six
month period, as compared to 34% in the same period of the
previous year. For the first quarter of fiscal 1997 the Company
had applied a 34% tax rate. For the first quarter of fiscal 1996
the tax rate applied was 41%. The Company believes that the
applied tax rate accurately reflects its actual experience.
Earnings
Earnings of $306,000 before tax, and $184,000 net of tax or $0.05
per share are the largest ever reported by the Company for the
first six months. In fiscal 1996, the Company had a before tax
loss of $568,000 and a net loss of 375,000 or $0.11 per share
in the same period per share. For the three months ended
September 28, 1996, the Company's loss before taxes was $26,000
with a net loss of $35,000 or $0.01 per share compared to a loss
before taxes of $296,000 and a net loss of $211,000 or $0.06 per
share in the comparable prior year period. The Company generally
experiences seasonal effects, with sales and earnings increasing
in the first three quarters with the largest gains in the
Company's third quarter, which is the holiday season, and falling
in the fourth quarter.
Liquidity and Capital Resources
During the six months ended September 28, 1996, cash of $492,000
was used by operations, primarily due to an increase in inventory
of $853,000 and increase in accounts payable of $684,000, due to
increasing inventory levels for the pending holiday season. The
decrease in customer deposits was due to the completion of the
large renewable energy sale. The Company used $580,000 largely
for the completion of the Solar Living Center in Hopland,
California. Borrowings on the long term debt were $1,331,000 at
the project's completion.
The net effect of all of the Company's activities was to increase
cash to $442,000 at the end of the first six months from $270,000
at the end of the fiscal year.
The Company believes it can finance its operations for the next
twelve months with available cash and the proceeds of bank
borrowings. While the Company's line of credit matures in April,
1997, the Company does not anticipate any difficulty renewing the
line of credit.
Effects of Inflation
The overall effects of inflation on the Company's business during
the periods discussed were not believed to be material.
*****
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable.
Item 2. Changes in Securities.
Not Applicable.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security-Holders.
The Annual Meeting of shareowners of Real Goods Trading
Corporation was held on August 24, 1996. The following
persons were elected to serve as Directors of the
Corporation for a term of one year or until their
successors are elected and qualified:
Linda Francis
John Lenser
Stephen Morris
Barry Reder
James Robello
John Schaeffer
In addition, the Amended and Restated Real Goods Trading
Corporation Non-Employee Directors' Stock Option Plan was
approved by a vote of 2,961,973 in favor, 21,504 against
or withheld, 31,401 abstentions and broker non-votes.
Item 5. Other Information.
Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
Form 8-K filed dated April 25, 1996.
Form 8-K filed dated May 21, 1996.
Form 8-K filed dated August 7, 1996
SIGNATURES
In accordance with the requirements of the Securities Exchange
Act, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
REAL GOODS TRADING CORPORATION
(Registrant)
DATED: November 12, 1996
by:
[S]DONNA MONTAG
Donna Montag/Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-28-1996
<CASH> 442
<SECURITIES> 0
<RECEIVABLES> 320
<ALLOWANCES> 6
<INVENTORY> 2992
<CURRENT-ASSETS> 4623
<PP&E> 4036
<DEPRECIATION> 627
<TOTAL-ASSETS> 8181
<CURRENT-LIABILITIES> 2475
<BONDS> 0
0
0
<COMMON> 4284
<OTHER-SE> 260
<TOTAL-LIABILITY-AND-EQUITY> 8181
<SALES> 8279
<TOTAL-REVENUES> 8279
<CGS> 4644
<TOTAL-COSTS> 4644
<OTHER-EXPENSES> 3635
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23
<INCOME-PRETAX> 306
<INCOME-TAX> 122
<INCOME-CONTINUING> 184
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 184
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
