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 June 29,1996
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 June 29,1996, there were issued and outstanding
3,434,666 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 June 29, 1996 3
Condensed Consolidated Statements of Earnings
for the three-month period ended June 29,1996
and July 1, 1995 4
Condensed Consolidated Statements of Cash Flows
for the three month period ended June 29, 1996
and July 1, 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. 10
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 10
<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>
June 29, 1996
<S> <C>
ASSETS
Current Assets
Cash $ 1,043
Accounts Receivable, net of allowance of $6 463
Inventories 2,048
Deferred catalog costs, net 218
Prepaid expenses 137
Total current assets 3,909
Property, equipment and improvements, net 3,387
Intangible assets and other assets, net 158
Total assets $ 7,454
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities
Accounts payable $ 814
Accrued expenses 515
Income taxes payable 113
Customer deposits 127
Current maturities of construction loan 1,170
Deferred income taxes 40
Total current liabilities 2,779
Long-term debt 17
Shareowners' equity
Common stock, without par value: Authorized 10,000,000
shares; issued and outstanding 3,434,666 shares 4,363
Retained Earnings 295
Total shareowners' equity $4,658
Total liabilities and shareowners' equity $7,454
</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
June 29, July 1
1996 1995
<C> <C>
Net Sales $4,992 $3,458
Cost of sales 2,930 1,809
Gross Profit 2,062 1,649
Selling, general and administrative expenses 1,731 1,929
Earnings (loss) from operations 331 (280)
Interest income net of interest expense 1 8
Earnings (loss) before income taxes 332 (272)
Income tax benefit (expense) (113) 109
Net Earnings (Loss) $ 219 $ (163)
Net earnings (loss) per share $0.06 $(0.05)
Weighted average shares used to compute
earnings per share 3,434,666 3,427,549
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
REAL GOODS TRADING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
Three Months Ended
June 29, July 1,
1996 1995
<C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings(Loss) $ 219 $(163)
Adjustments to reconcile net earnings(loss)
to net cash provided by(used in)
operating activities:
Depreciation and amortization 51 44
Changes in assets and liabilities:
Accounts receivable (284) (119)
Inventories 91 372
Deferred catalog costs 185 158
Prepaid expenses and other assets 266 (29)
Accounts payable and accrued expenses 375 (256)
Customer deposits (542) 21
Income and other taxes payable 113 (109)
Net cash provided by (used in)
operating activities 474 (81)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of land equipment, improvements,
and construction in progress (493) (201)
Net cash used in investing activities (493) (201)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on construction loan 783
Repayment of notes payable (2)
Proceeds from issuance of common stock, net 9 56
Net cash provided by financing activities 792 54
Net increase(decrease) in cash 773 (228)
Cash at beginning of period 270 832
Cash at end of period $1,043 $ 604
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
REAL GOODS TRADING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTH PERIOD ENDED JUNE 29, 1995
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 June 29,
1996 and July 1, 1995, and the interim results of operations and
cash flows for the three months then ended. Certain
reclassifications have been made in the July 1995 financial
statements to conform to the June 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 month period 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 June 29, 1996, no amounts were outstanding on the
Company's line of credit.
Borrowings under the line are secured by accounts receivable and
inventory. 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 Company's mailing lists as well as key man life
insurance policy on the life of the Company's majority
shareowner.
NOTE 3 - DEBT
On August 10, 1995 the Company entered into a construction
agreement with the Bank for $1,170,000 to finance 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. The Company has long term debt commitments
totaling $1,170,000 which will be used to pay the outstanding
balance of the construction loan. The terms are 1.5% - 2.0% over
prime with twenty to twenty-five year maturities.
NOTE 4 - STOCK OPTIONS
The Company's Fiscal 1993 Stock Incentive Plan (the "Plan")
allows for the granting of incentive and non-qualified stock
options. The Second Amended and Restated Fiscal 1993 Stock
Incentive Plan has 600,000 common shares reserved for issuance.
As of June 29 1996, 25,600 options 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 reserve to 100,000 shares. 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.
In September 1995, the Company announced that its Board of
Directors had approved a stock repurchase program. The Company
is authorized to repurchase up to $250,000 of common stock. As of
June 29, 1996, the company repurchased 6,284 shares at an average
price of $5.50 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 for the
three months ended June 29, 1996. Net sales for the quarter were
$4,992,000, an increase of $1,534,000 or 44.4% from the prior
year's sales of $3,458,000.
Catalog net sales for the quarter decreased by 15.9% to
$2,280,000 compared to $2,711,000 in the previous year. This
$431,000 decrease in catalog net sales was attributable to the
Company mailing catalogs more selectively particularly in the
spring quarter. The Company mailed 31% fewer catalogs in the
first quarter, compared to the previous year, yet catalog net
sales declined by only 16%, reflecting increased efficiencies and
profitability. The Company believes that this revised mailing
plan was successful, in that sales per catalog mailed increased
to $1.83 per catalog compared to $1.50 per catalog for the same
period in the previous year, contributing to increased
profitability.
Retail store sales increased 22% to $577,000 for the first
quarter, compared to $471,000 for the same period in the previous
year. First quarter results included the Grand Opening weekend
for the Hopland store at the Solar Living Center that took place
in June, 1996 as well as a Grand Opening in the Eugene store at
a larger downtown location in the same month.
Renewable energy sales, which include the $1,800,000 sale to the
eco-tourism market, were $2,126,000, compared to $265,000 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 sales, as well as increase
customer service in this area.
Gross Profit
For the first quarter ended June 29, 1996, gross profit increased
25%, to $2,062,000 or 41.3% of sales, compared to gross profit in
the prior year period of $1,649,000 or 47.68% of sales. The
current period gross profit includes the renewable sale to the
eco-tourism market; traditionally renewable energy sales have
lower margins than catalog sales. Catalog sales and retail sales
showed an improvement in gross margin when compared to the same
period in the previous year. Catalog sales had a gross profit of
$1,182,000 or 51.8% of sales, compared to $1,358,000 or 50.0% of
sales for the previous period. Retail store sales had a gross
margin of $248,000, or 43.0% of sales, compared to $196,000 or
41.7% of sales in the previous period. Renewable energy sales
had a gross margin of $622,000, or 29.27% of sales, compared to
$83,000 or 31.31% of sales in the previous period. The
eco-tourism sales had a lower margin than the traditional
renewable energy sale margin, but the remaining sales in
renewable energy showed margin gains. The Company continued to
show gains in margin 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 10% or
$198,000 to $1,731,000, compared to $1,929,000 for the previous
year. The large rewnewable energy sale distorts customary
comparisons of expenses in ratio to 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 reduced catalog mailings. The Company mailed
approximately 1,243,000 catalogs in the first quarter of fiscal
1997, a 31% decrease from the 1,796,000 mailed in the first
quarter of fiscal 1996. The cost of catalogs and mailing
decreased $213,000 in the current period; however, the cost per
catalog was increased to $.496 each from $.462 each due to those
price increases.
Earnings
The Company reported the largest first quarter pre-tax
earnings in its history of $332,000, compared to a loss of
$272,000 in 1995. The Company generally experiences seasonal
effects, with sales and earnings increasing in the first two
quarters, and the largest gains in the Company's third quarter,
which is the holiday season.
Income Tax Provision
The provision for income taxes was 34%, compared to the previous
years comparable period of 40%. The Company believes that the
applied tax rate more accurately reflects its actual experience.
Liquidity and Capital Resources
During the three months ended June 29,1996, cash generated from
operations was $474,000, primarily due to a decrease in prepaid
catalog expenses of $186,000 and an inventory decrease of $91,000
in response to the reduced spring mail plan. The increase in
accrued expenses and the increase in accounts receivable, and a
comparable decrease in customer deposits was due to the
completion of the large renewable energy sale. The Company used
$493,000 largely for the completion of the Solar Living Center in
Hopland, California. Borrowings on the construction loan were
$783,000, as the project was completed. The net effect of all of
the Company's activities was to increase cash to $1,043,000 at
the end of the first quarter from $270,000 at the end of the
fiscal year.
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.
Not Applicable
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
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: August 9, 1996
by:
[S]DONNA MONTAG
Donna Montag
Chief Financial Officer
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<PERIOD-END> JUN-29-1996
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