U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 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 (IRS Employer Identification
Number)
incorporation or organization)
555 Leslie Street, Ukiah, California 95482
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (707) 468-9292
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
Common Stock Pacific Stock Exchange
Securities registered under Section 12(g) of the Exchange Act:
(Title of Class)
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
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this
form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-
KSB. [ ]
State issuer's revenues for its most recent fiscal year
$15,432,000.
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the
stock was sold, or the average bid and asked prices of such
stock, as of a specified date within the past 60 days $6,500,385
as of May 23, 1996.
Documents Incorporated by Reference
A portion of the Real Goods Trading Corporation's Proxy
Statement for the 1996 Annual Meeting of Shareowners to be filed
with the Commission on or before July 25, 1996 is incorporated
by reference into Part III, Item 10, of this Annual Report on
Form 10-KSB. With the exception of those portions which are
specifically incorporated by reference in this Annual Report on
Form 10KSB, the Real Goods Trading Corporation Proxy Statement
for the 1996 Annual Meeting of Shareowners is not to be deemed
filed as part of this report.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Introduction. Real Goods Trading Corporation ("Real Goods"
or the "Company") sells primarily environmentally related
products and renewable energy products through mail order
catalogs, direct sales and three retail stores. The Company
currently mails catalogs under the names of Real Goods*, Earth
Care*, Real Goods News, Real Stuff and Post Consumer. Direct
sales are through the reorganized Renewable Energy department.
The Company's three retail stores are located in Hopland,
California, Amherst, Wisconsin, and Eugene, Oregon. The Company
also conducts consumer education activities through the
"Institute for Solar Living", a seminar series.
In May after the end of the Company's fiscal year, the Company
opened its Solar Living Center, a twelve acre demonstration site
housing a 5,000 square foot retail store, constructed of adobe
covered rice straw bales and with no conventional electric power.
The Solar Living Center embodies the Company's core principles
and provides an opportunity to demonstrate the practicality of
living and working on a low consumption, environmentally
sensitive and renewable energy basis. The Company purchased the
land for the Solar Living Center in 1993, and has been developing
it since that time. The site is immediately adjacent to Highway
101 in Hopland, California, and the Company believes that it will
be of interest both to residents of Northern California and to
tourists who will make it a destination. The Company believes
that the Solar Living Center has the potential to be of strategic
importance to the Company's future.
A. The Company's Markets
The Company serves several related market segments within the
single line of business of specialty retailing. The
"Environmentally Related Products Market," consists of consumers
who wish to pursue simpler, more energy conserving, wholesome
lifestyles with a belief in preserving the earth's resources in a
sustainable manner. Consumers in this market tend to live in
urban and suburban residences served by the conventional electric
utility power grid. The Company has revamped its color Real
Goods and Earth Care catalogs to be more appealing to these
customers, and these catalogs now carry primarily these products.
The "Regional Retail Market" is served by the Company's three
retail stores, located in Hopland, California, Eugene, Oregon and
Amherst, Wisconsin. Each of the three stores carries
environmentally related and renewable energy products with a
unique focus. The Amherst, Wisconsin store, Snow-Belt, is the
Company's national hearth center, marketed through the Real Goods
News special catalog. The Eugene, Oregon store features technical
sales of hot water systems and is also the Company's Outlet store
for inventory no longer available through mail order. The
Hopland, California store, recently relocated to the Company's
new Solar Living Center, features a number of products that are
handmade locally, or in small quantities that are not suitable
for mail order sale.
The Company's original focus, the "Renewable Energy Market",
consists of homeowners and others living and working without the
benefit of the traditional electric company power grid and
generating their own electricity. Installation and use of
renewable energy products requires a substantial investment of
time and money by the consumer. These products are often
purchased in connection with constructing or rehabilitating
residences with systems and appliances that supply renewable
sources of energy or otherwise circumvent the consumer's need to
use conventional sources of energy. To increase customer service
as well as more effectively manage these larger sales, the
Company has created a Renewable Energy department that relates to
each customer.
[FN]Real Goods and Earth Care are registered trademarks owned or
licensed by the Company.
<PAGE>
In conjunction with its product marketing efforts, the Company
has always emphasized the "Consumer Education Market; it's
primary product for this market is the Solar Living Sourcebook.
The Company produces and sells a wide variety of educational
materials through its catalogs and retail stores. In 1992, the
Company established the Institute for Solar Living, which offers
educational seminars on a variety of topics. With the opening of
the SLC in May, 1996 the Company has a demonstration site for the
Institute, as the retail store there has been built with
sustainable building techniques, including strawbale
construction, and has many functioning renewable energy systems.
1. ENVIRONMENTALLY RELATED PRODUCTS MARKET. The Company's
mail order catalogs market energy saving conservation devices and
environmentally related products to urban and suburban dwellers,
and approximately 78% of the Company's sales are derived from
catalogs. The environmentally related products comprise a full
spectrum of energy-efficient lighting equipment; high efficiency
appliances; water saving devices such as low-flow showerheads,
low-flush toilets and faucet aerators; recycled paper products
including toilet paper, paper towels and facial tissue; household
products; gifts; and cards and wraps. The Company also sells
non-toxic household cleaning products, water and air purification
devices and magnetic radiation meters to this same customer base.
2. REGIONAL RETAIL MARKET. In fiscal 1996, the Company's
three retail stores accounted for 14% of total sales. In July,
1994, the Company's flagship store was relocated to Hopland,
California, on the side of a busy interstate highway. This
rented location was approximately 3500 square feet. Renewable
energy department sales were combined into the Hopland store
sales for a portion of fiscal 1995. In May 1996, the Hopland
store moved to the Solar Living Center, the twelve acre
demonstration site that the Company purchased and developed over
the past two years. This site is also adjacent to the interstate
highway. The Hopland store, in addition to stocking a majority
of the products in the Company catalogs, also offers items that
are unique to the Northern California bio-region that are
handmade or in such small quantities that they are not suitable
for mail order.
The Company's Snow-Belt store in Amherst, Wisconsin, emphasizes
hearth stoves products, as well as many items sold by the Company
through its catalogs in its 1,300 square foot showroom.
Subsequent to year end, in July 1996, the Company is launching a
national hearth catalog, a special issue of the Real Goods News,
to initiate national hearth sales through the store.
In July, 1994, the Company opened a third retail store at a
rented location of approximately 2,400 square feet in Eugene,
Oregon. Subsequent to year end, in April, 1996, the Eugene store
moved to a 3,800 square foot downtown location. In addition to
being nationally advertised as the outlet center, the store
specializes in solar hot water systems.
During the November through January months, the Company has
previously operated a seasonal outlet store in Ukiah as a
clearance center for returned and discontinued merchandise.
There can be no assurance the Company will continue to operate a
seasonal outlet store.
3. RENEWABLE ENERGY PRODUCTS MARKET. Approximately 8% of
the Company's revenues in fiscal 1996 were generated from sales
of renewable energy products for the Renewable Energy Department
(RED). From the Real Goods News, a specific catalog mailed for
the more sophisticated renewable energy buyer, as well as
through the Company's own Solar Living Sourcebook, the RED offers
power systems for remote homes using renewable sources of energy
including photovoltaic (solar electric), hydroelectric and wind
electric, as well as emerging alternative technologies such as
hydrogen fuel cells and a new generation of photovoltaic cells.
The RED endeavors to provide a broad array of appliances and
other system components for most aspects of the independent power
systems lifestyle. These products include battery storage
systems, power conversion devices, charge controllers, meters,
low voltage water pumping systems, solar and propane gas water
heaters, high efficiency refrigerators, solar cooling devices,
composting toilets and a wide variety of low-voltage household
appliances. The traditional markets for these power systems have
been remote homes in excess of one-quarter mile from the
<PAGE>
power companies lines in the United States and remote villages in
third world countries.
4. CONSUMER EDUCATION ACTIVITIES. The Company has
traditionally emphasized consumer education as part of its
mission, and continues to produce and sell a wide variety of
educational materials. The Company's primary product for this
market is its Solar Living Sourcebook, a 658-page textbook that
the Company periodically (now in its ninth edition) revises and
which features all of the Company's renewable energy products.
The Solar Living Sourcebook is currently distributed by an
independent publisher (Chelsea Green) as well as the Company
itself. The Company also markets many publications on specific
aspects of renewable energy and conservation within its catalogs
and its retail stores.
In 1992, the Company established the Institute for Solar Living,
which offers seminars each year for individuals on a variety of
topics such as "Planning and Building Your Renewable Energy Home"
and "Strawbale Construction." The seminars are taught by the
Company's employees and by third-party industry specialists. The
Company believes the Institute for Solar Living creates increased
consumer awareness with regard to the Company's products and
should integrate well with the Solar Living Center as a
demonstration site.
B. Vendors. The Company currently purchases its products from a
vendor base of more than 1000 suppliers, none of which accounts
for more than 12% of purchases. The Company's three largest
purchases are from vendors who sell renewable energy products,
including photovoltaics, appliances, and inverters. While there
are many suppliers of these products, the Company has chosen to
limit the majority of its renewable energy purchases to three
vendors: Solar Electric Specialties Company, a distributor of
solar modules manufactured by Siemens Solar Industries;
Photocomm, Inc., a distributor of solar modules manufactured by
Sharp Inc. and others, and high efficiency refrigerators; and
Trace Engineering, a manufacturer of inverters and other solar
electric controls. The Company has developed long-term
relationships with all three of these vendors. Because many
of the renewable energy products are relatively new, the number
of suppliers for these products can be limited, and the Company,
from time to time, may face short-term dependencies upon certain
manufacturers for these products. However, the Company believes
it would not face long-term difficulties in securing alternate
sources of supply for such products if it experiences an
interruption in its current supply. The Company believes such
an interruption would be brief and is not likely to have a
material adverse effect on the Company's backorders and sales
revenues for the period affected.
The Company generally does not enter into long-term contracts
with its suppliers because the Company believes that adequate
alternative sources for most products exist and that it has
greater flexibility to take advantage of competitive price
fluctuations or improvements in technology or quality by not
being obligated pursuant to long-term arrangements. As a result,
there can be no assurances that the Company will not be subject
to unanticipated cost increases or shortages of supply.
C. Seasonality. The Company's revenues are not subject to the
extreme seasonality experienced by certain other retailers,
however 40% of the Company's revenue are realized in the third
quarter. There is an increasing seasonal effect, reflecting the
increasing percentage of environmentally related products sales,
with sales generally increasing sequentially over the term of the
first, second and third fiscal quarters, and generally declining
in the fourth fiscal quarter. It is possible that such seasonal
effects will be increased if the Company's customer base
continues to include a greater percentage of urban and suburban
dwellers. The Company believes these seasonal trends reflect (i)
increased demands for its renewable energy products during
the mild-weather months when its customers are more likely
to undertake construction and major home improvement projects and
(ii) increased demand for environmentally related and gift
products, similar to that generally experienced by conventional
retailers, during the holiday season. (See: "Description of
Business -- A. The Company's Markets".)
<PAGE>
D. Backorders; Returns. The Company's backorders are generally
less than $100,000 at any one time. At March 31, 1996, the
Company's backorders were $27,000, which was 3% of March catalog
sales. At the year end of fiscal 1995, backorders were $64,000,
which was 6.5% of March catalog sales. Backorders are considered
healthy in certain other industries; however, in the mail order
industry, backorders can be symptoms of inefficiency, lack of
inventory or bad strategic planning or implementation, since they
create both additional costs and risks of lost sales. The
majority of the Company's backorders arise when (i) vendors fail
to deliver as promised, or (ii) sales are higher than
anticipated. The Company attempts to keep its backorders at any
given time to less than 10% of its total orders; the Company
believes this is the industry standard. However, the Company may
experience fluctuations in backorder levels due to seasonal
changes in demand, inventory levels and delivery from suppliers.
Although the Company does have a 90-day return policy for
products returned by customers in their original condition,
the Company has not historically experienced substantial product
returns. For the fiscal year ended March 31, 1996, returns for
the catalogs were 4.8% of gross catalog sales; in the previous
year, returns for the catalogs were 4.3% of gross catalog sales.
E. Competition. In the sale of environmentally related
products, the Company believes that it has many competitors, many
of whom are substantially larger than the Company; those
competitors range from other catalog retailers selling similar
products to specialty retailers and local hardware stores. The
Company is currently studying a program to sell branded goods.
There can be no assurance that the Company will ever sell
material quantities of branded goods.
The Company has a number of competitors in the sale of renewable
energy products, none of whom is known to the Company to be
substantially larger than the Company. However, there can be no
assurance that the resources or market positions of the Company's
competitors in this area will not change.
In both product areas, the Company competes on the basis of
price, selection and service and believes that its image is
enhanced by its association with the Solar Living Sourcebook,
by its national mail order catalogs, by the opening of its Solar
Living Center demonstration site, and by substantial public
relations efforts.
The Company has a membership program in which members pay a fee
to receive a designated newsletter with special pricing, closeout
bargains and substantial additional information, as well as a 5%
discount on all purchases. The Company believes that members
order more frequently and have a higher average order than the
Company's other customers. The Company currently has
approximately 29,000 members. The Company does not presently
spend material amounts for research and development.
F. Regulation. Although the Company believes that certain
federal, state and local laws to promote energy conservation may
encourage the purchase of its products, the Company also believes
that most of its customers purchase its products for other
reasons. The Company does not believe that it is subject to
regulation other than regulations applicable to catalog vendors
of comparable products. While the Company does not believe that
the costs and effects of its own compliance with federal, state
and local environmental laws are likely to be material, the
Company does not generally seek or obtain governmental approval
for the products it sells; rather, it believes that obtaining
such approval is the responsibility of its vendors or the
products' manufacturers. The Company has not, to its knowledge,
been named in any environmental cause of action relating to its
products or the sales thereof.
G. Employees. The Company currently has the full time
equivalent of 88 employees. Of those employees, approximately
<PAGE>
20 are employed at the Company's three retail stores and
approximately 68 are employed in Ukiah providing support to
the catalog and corporate functions. As with many retailers,
the Company increases its use of temporary employees during
its third fiscal quarter to meet the increased demands of the
holiday season. The Company believes its use of temporary
employees contributes to its ability to control overhead costs.
The Company is not subject to any collective bargaining
agreements, and the Company believes its relationships with its
employees are good.
H. Trademarks. The Company has registered the trademark "Real
Goods". In addition, the Company has a license to use the name
"Earth Care" for recycled paper products. That license may be
terminated under certain circumstances. The Company has
submitted an application to register the name "Real Goods"
in Japan. The Company does not believe that any other patents,
trademarks, licenses, franchises, concessions, royalty agreements
or labor contracts are material to the business of the Company.
ITEM 2. DESCRIPTION OF PROPERTIES.
The Company currently leases its Ukiah, California operations
facilities, which consist of a 15,300 square foot
warehouse/distribution center facility, and a 13,790 square foot
office/customer service/warehouse facility. The lease terms
expire in 1996 and 1998 and then revert to month-to-month leases.
The Company owns a 12-acre parcel in Hopland, California, the
site of the Solar Living Center and retail store. Hopland is
located approximately 12 miles south of Ukiah, on a major
interstate highway.
The Company owns the Amherst, Wisconsin facility housing the
Snow-Belt retail store. This property consists of a 5,000 square
foot warehouse, a 3,000 square foot cold storage building and a
1,300 square foot office and retail store.
The Company has a lease agreement expiring in 1999 for the
3,800 square foot retail store in Eugene, Oregon.
The Company leases its IBM RISC 6000 computer system and portions
of its telephone system. The Company believes that it maintains
adequate insurance for its real and personal properties.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock has been eligible for over-the-counter
trading since February 25, 1993. The Company's common stock was
listed on the Pacific Stock Exchange on April 11, 1994. Between
the Company's initial public offering in 1991 and the date listed
on the Pacific Stock Exchange, trading in the Company's
securities was extremely isolated because the Company's shares
were traded only through a single broker offering a passive
"bulletin board" matching service. The following chart sets
forth the high and low actual sale prices of the Company's common
stock for each quarter within the last three fiscal years, to the
extent the Company is aware thereof.
<TABLE> <CAPTION> Fiscal Year Ended March 31
High (Purchase) Low (Sale)
by Share by Share
<C> <C>
1993:
First Quarter $7-1/2 $7-1/2
Second Quarter 5-1/2 5-1/2
Third Quarter 6-3/8 5-1/2
Fourth Quarter 5-1/2 5-1/2
1994:
First Quarter 5-5/8 5-1/2
Second Quarter 5-3/4 5-1/2
Third Quarter 6-3/4 5-1/4
Fourth Quarter 6-3/4 6-3/4
1995:
First Quarter 16 8
Second Quarter 12-1/2 9-3/4
Third Quarter 11-3/4 8-1/2
Fourth Quarter 9-7/8 8
1996:
First Quarter 9 8
Second Quarter 8-7/8 5-3/4
Third Quarter 7-1/4 5-1/8
Fourth Quarter 6 5-1/2
</TABLE>
Effective April 11, 1994, the Company's common stock was
listed for trading on the Pacific Stock Exchange under the symbol
RGT.P.
To the extent the Company is aware thereof, the prices on the
foregoing table reflect the actual prices paid or received by the
investors before commissions and taxes. There were 3,434,666
shares of the Company's common stock outstanding as of May 23,
1996. The Company had 4110 shareholders of record as of May 23,
1996.
<PAGE>
ITEM 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
SALES
For the fiscal year ended March 31, 1996, the Company's net sales
were $15,432,000 a decrease of 6% from fiscal 1995's net sales of
$16,341,000. Catalog sales were 78% of total current year
Company sales, as compared to 84% in the previous fiscal year.
Retail store sales were 14% of current year sales, as compared to
10% in the prior year. Renewable energy department sales were 8%
of current year sales, as compared to 5% in the prior year.
Catalog sales decreased 9% to $11,972,000, compared to prior year
sales of $13,785,000. This decrease in catalog net sales was
attributable to the Company's strategy of mailing catalogs more
selectively in an attempt to increase response rates and revenue
per catalog, which strategy was implemented due to increased
paper and postage costs. At year end, the Company had mailed 18%
fewer catalogs than in the previous year, yet catalog net sales
declined only 9%, reflecting better mailing efficiencies. The
Company believes this revised mailing plan was a success, in that
sales per catalog mailed increased to $2.08 per catalog in fiscal
1996, compared to $1.91 in fiscal 1995. The Company's revised
mailing strategy also encompassed a full redesign of its Earth
Care catalog title. This catalog was totally remerchandised,
re-positioned and expanded in format from 48 to 56 pages. The
Company believes that this strategy was particularly successful
as revenues for the 1995 Earth Care holiday catalogs showed a 76%
increase, averaging $2.46 per catalog, compared to the 1994 Earth
Care holiday catalogs average of $1.40 per catalog.
Retail store sales increased 21% to $2,181,000, compared to
$1,797,000 in the previous fiscal year. Previous period results
reflect the August 1994 opening of the Eugene, Oregon store, as
well as the move from Ukiah to the larger Hopland, California
store in the same month, skewing year to year comparisons.
Subsequent to year end, the Eugene store moved on April 15th to a
larger, more central location, and the Hopland store in May moved
to its permanent location at the Company's Solar Living Center in
Hopland. Same store comparisons were available for complete
fiscal year for the Snow-Belt store, and retail sales showed a 7%
increase.
Sales from the Company's Renewable Energy department (RED)
increased 96% to $1,237,000 from $632,000 in the previous year.
Fiscal 1995 sales also reflect only partial year results as
operations and separate reporting of these sales began in August
1994. Previously these sales were incorporated into retail
sales. The Company believes that its RED has shown a significant
sales increase due to the department's increased staff levels,
emphasis on customer service, and utilization of a separate and
more technical catalog, the Real Goods News, for the renewable
energy customers. The RED is able to pursue many new leads in
both national and international markets, as well as in the
expanding "eco-tourism" business. Subsequent to year end, the
Company filed an 8-K announcing a sale of approximately
$2,000,000 that relates to this market. The sale is planned to
be completed in June and has no effect on fiscal 1996 results.
GROSS PROFIT
For the 1996 fiscal year, gross profit amounted to $7,426,000, or
48.1% of sales, compared to the prior year of $8,077,000 or
49.4% of sales. Catalog sales, which were 78% of total sales,
had a gross profit of 51.4%, or $6,151,000 in the current year,
compared to 84% of sales in the prior year, with gross profits of
50.9% or $7,018,000. Retail store sales, 14% of total sales, had
<PAGE>
a gross margin of 38.4%, or $839,000, compared to 10% of total
sales in the prior year, with a gross margin of 41% or $742,000,
due to an increase in the percentage of sales at outlet prices.
Renewable energy sales, with 8% of total sales in the current
year, had a gross margin of 31.8%, or $394,000, compared to 5% of
sales in the prior year, with a gross margin of 30% or $190,000.
Overall margins decreased due to the growth lower margins of
retail stores and renewable energy sales. The Company's gain of
margin in catalog sales was a result of a concerted effort to
improve terms with vendors that allow for cash discounts, to take
advantage of quantity discounts, and in general to improving
purchasing efficiencies. The contribution of this increased
margin was an additional $239,000 in fiscal 1996.
OPERATING EXPENSES
Selling, general, and administrative expenses amounted to
$7,745,000 or 50.1% of sales in fiscal 1996, compared to
$8,103,000 or 49.5% of sales in the prior year, reflecting a
decrease of 4% or $358,000. Labor and benefits dropped
$63,000, primarily due to the Company's efforts to improve and
streamline internal management. Catalog expense declined by
$79,000. However, the production cost per catalog was $.40 in the
current year, compared to only $.34 per catalog in the prior
year. This $.06 per catalog increase ($355,000 for the 5,916,000
catalogs the Company mailed) was attributable to paper price
increases. There was a $73,000 decline in postage expense, but
postage costs were up $.005 per catalog $1 of sales; this would
have equalled a $60,000 increase in postage expense if the same
number of catalogs had been mailed in fiscal 1996. The Company
attempted to bring expenses into balance by reducing outside
consulting expenses, general expenses, and other variable costs.
Fixed costs of rents, depreciation and utilities showed an
increase of $97,000, largely reflecting the full year of expenses
of the retail stores.
EARNINGS
The Company showed a before tax loss of $287,000 in the current
fiscal year that was also before the cumulative effect of an
accounting change ( see Notes to Consolidated Financial
Statements), compared to a before tax profit in the prior year of
$35,000. Income tax and the accounting change resulted in a net
loss for the current fiscal year of $175,000, compared to a net
earnings of $21,000 in the prior fiscal year. Earnings per
share were a loss of $.05 in the current fiscal year, compared to
a profit of $.01 in the prior year.
Management believes that the effects of severely increased paper
costs for its annual production, as well as increases in postage
and shipping were primarily responsible for its first annual net
loss. The Company has remained committed to its mission of
reducing waste and pollution and heightening environmental
awareness by continuing to print catalogs on recycled paper,
despite a greater increase in the costs of recycled paper
compared to virgin paper from a prior year premium of 4% to a
current year premium of approximately 10%.
The Company also attributes its current year net earnings loss to
the lack of contribution from its Amherst, Wisconsin retail
store, Snow-Belt. The store had disproportionately high labor
costs in relation to sales, 30% of sales, or labor and benefits
of $272,000 for sales of $920,000. The store showed a loss
of $182,000 before tax. The Company reduced labor costs at
the end of the fiscal year, and plans to continue these
reductions. The Company also began employing the Wisconsin site
as a national hearth center of catalog mail order stoves and will
be issuing a special catalog for these products in July, 1996.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the fiscal year ended March 31, 1996, interest income was
$32,000, compared to $62,000 in the prior year. Interest expense
was capitalized into the construction in progress, $52,000 for
the current year and $10,000 in the prior year. The interest
expense, as well as the Company's cash position was kept at these
low levels due to the limited draw on the construction loan. See
Notes to Consolidated Financial Statements.
Cash generated from operations was $463,000, with a $630,000
increase in customer deposits due to the renewable energy sale to
the eco-tourism market not yet reflected in operating results.
Prepaid expenses used $300,000 in cash, largely due to the same
renewable energy sale. Non cash expenses included depreciation
of $176,000, and the Unicap adjustment due to change in
accounting principle of $47,000 (see Note 2 to Consolidated
Financial Statements). Cash was increased by a decrease in
inventory of $110,000, as well as a decrease in deferred catalog
expense of $189,000. The Company has reduced its spring mail
plan and subsequently the inventory level for that period.
The Company used $1,408,000 of cash for the purchase of property,
equipment and improvements mostly related to the construction of
its Solar Living Center. Construction in progress totalled
$2,135,000 at March 31, 1996. Prior year total for the SLC was
$864,000.
Cash provided by financing activities was $383,000, primarily due
to borrowings on the construction loan for the SLC which on March
31 were $387,000, as well as from the exercise of stock options,
which contributed $109,000.
The net effect of all of the Company's activities was to decrease
the Company's cash position at the beginning of fiscal 1996 from
$832,000 to $270,000 at the end of the period.
Management has $700,000 available on the construction loan that
can be drawn down as needed. Additionally, the Company has
secured a $1,000,000 line of credit for fiscal 1997 to use for
seasonal fluctuations in inventory levels as well as operating
expenses. Management believes that cash flow from operations
together with bank debt financing and existing cash reserves will
be sufficient to fund the Company's operations through fiscal
1997.
The overall effects of inflation on the Company's business during
the periods discussed were not believed to be material.
<PAGE>
CERTAIN CONSIDERATIONS
Except for the historical information contained in this Annual
Report on Form 10-KSB, the matters discussed in this document are
forward looking statements. These forward looking statements
concern matters that involve risks and uncertainties, including,
but not limited to, those set forth below, that could cause
actual results to differ materially from those in the forward
looking statements. The matters set forth below should be
carefully considered when evaluating the Company's business and
prospects.
A. CATALOG SALES. The mail order industry is susceptible to the
ebb and flow of both trends and the general economy. While the
Company could be a beneficiary of increased popularity of the
Company's products, that trend could also ebb away. Of
approximately 360 products in each of the Real Goods and Earth
Care color catalogs, 30% are new to those catalogs; there can be
no assurance that the product selection will be effective. While
the Company must both incur catalog production and mailing costs
and purchase inventory and staff up in preparation for customer
responses in advance of need, if customer response is below
management's expectations and the Company's gross income
decreases, the Company's expense cannot be reduced timely and
proportionately. In addition, the Company will be reliant to
some extent on the state of the general economy. An adverse
economic environment could impact the mail order catalog industry
as a whole. Finally, catalog companies seeking to increase
revenues and their "house list" often "prospect" with rented
lists; unwise or excessive prospecting can adversely affect
operating results.
B. RETAIL STORES. There are substantial risks in store
retailing, including poor location of retail stores, failing to
identify consumer trends correctly, theft by customers and
employees, poor financial controls, excessive and uncollectible
receivables and losing customers to competitors. The Company is
experimenting with retail store formats; there can be no
assurance that any of those formats will be profitable, or, if
profitable, replicatable.
C. SOLAR LIVING CENTER. The Company has spent $2,388,000 as of
April, 1996 to construct the Solar Living Center as a
demonstration of many of the principles underlying the Company's
mission and vision. There can be no assurance that the Solar
Living Center, which opened in May 1996, will fulfill the
Company's hopes to increase the public's awareness of the Real
Goods mission, that the Company will ever realize a suitable
return on its investment or that the Company will not incur a
substantial loss from the Solar Living Center. The Solar Living
Center is located on a flood plain.
D. SEASONALITY. As with nearly all retail enterprises, the
Company's business is very seasonal, and it customarily generates
approximately 40% of its revenues in the third fiscal quarter
which is the last calendar quarter of the year. The Company's
execution in its third quarter is material to its financial
success for a fiscal year. Poor third quarter results in any
given year would adversely impact the Company to a greater
absolute extent than poor results in any other quarter.
E. COMPETITION. The Company believes that as to certain of its
products it operates in a niche presently too technical and
specific to interest the larger catalogs and that the Company's
knowledge of its customers and vendors offerings enables it to be
a better intermediary between suppliers and customers for its
segment of the market than larger catalogs. However, the Company
is small compared to industry leaders. If one of more of the
larger catalog retailers either decides to have a major
alterative energy and conservation section in an existing catalog
or to launch a comparable catalog, the Company's business could
be adversely affected.
<PAGE>
F. UNCONTROLLABLE EVENTS. The Company is subject to larger
trends and events which are beyond the Company's control. For
instance, a severe recession would decrease disposable income and
the amounts people spend on non-essential products such as those
the Company offers. If there is a war, earthquake, fire or
similar event, the Company will be adversely impacted. While the
Company will carry reasonable insurance considering its size and
economics, such insurance may not fully protect the Company from
events which are beyond the Company's control. Any long term
drop in energy prices could also reduce the attractiveness of
certain of the Company's products. The Company could benefit
from a long term increase in energy prices.
G. SALES TAXES. In 1992, the United States Supreme Court ruled
that states may not impose taxes on out-of-state direct
marketers, but it suggested that Congress could delegate that
power. To date, these has been no congressional action. The
Company collects sales tax only on sales made in the States of
California and Wisconsin. If the Congress does delegate the
power to levy a sales tax and states do levy those taxes, the
operations of the Company will likely be affected substantially
because the Company's average order is relatively high and sales
taxes combined with shipping charges may affect consumer buying
decisions.
H. DEPENDENCE ON CERTAIN SUPPLIERS, INCLUDING FOREIGN SUPPLIERS.
The Company carries approximately 360 articles in each color
catalog. No more that 5% of the Company's sales arise from a
single product. Approximately 3.3% of the Company's sales are
generated from products made in foreign countries. Accordingly,
the Company is subject to both exchange rate fluctuations and
possible disruptions in supplies for those products. The Company
could also be vulnerable because 12% of its revenues derive from
products purchased from a single supplier. However, there is at
least one alternative supplier for each product in every case,
and management believes that any such effect would be temporary.
I. DEPENDENCE ON KEY PERSONNEL. The Company is substantially
dependent on the continued services of John Schaeffer. The loss
of Mr. Schaeffer's services for any substantial period of time is
certain to have a material adverse impact on the Company. The
Company does not anticipate acquiring disability insurance on Mr.
Schaeffer.
J. COST INCREASES. As a mail order catalog, the Company is
particularly susceptible to increase in paper prices and postal
and shipping charges. In late 1994 and early 1995 paper prices
increased dramatically. Additionally, both the United States
Postal Service and United Parcel Service increased their rates in
early 1995. While the Company cannot predict paper prices, it
anticipates that they will be directly affected by the strength
of the economy, since the paper industry's capacity is relatively
fixed. Management does not anticipate significant increases in
the cost of mailing catalogs, but does expect annual increases in
United Parcel Services's charges. Increased paper prices as well
as increased mailing and shipping charges could substantially
impact the Company's growth and profitability.
K. CONTROL. Because of his stock ownership position, John
Schaeffer will at all times have the ability to control the
operations and strategy of the Company.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
INDEPENDENT AUDITORS' REPORT
Board of Directors
Real Goods Trading Corporation:
We have audited the accompanying consolidated balance sheets of
Real Goods Trading Corporation and subsidiary (the "Company") as
of March 31, 1996 and 1995, and the related consolidated
statements of earnings, shareowners' equity and cash flows for
the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Real
Goods Trading Corporation and subsidiary as of March 31, 1996 and
1995, and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the financial statements in 1996 the
Company changed its method of accounting for certain inventory
acquisition and distribution costs.
Deloitte & Touche LLP
June 3, 1996
<PAGE>
REAL GOODS TRADING CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND 1995
<TABLE>
(In thousands except share data)
<CAPTION>
1996 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 270 $ 832
Accounts Receivable, net of allowance of $6 179 87
Inventories 2,139 2,249
Deferred catalog costs, net 403 592
Prepaid expenses 403 137
Total current assets 3,394 3,897
PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET 2,936 1,668
INTANGIBLE ASSETS AND OTHER ASSETS, NET 167 169
TOTAL ASSETS $6,497 $5,734
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 575 $ 848
Accrued expenses 380 195
Customer deposits 670 40
Current maturities of construction loan 387
Current maturities of long-term notes 20
Deferred income taxes 40 71
Total current liabilities 2,052 1,174
LONG-TERM DEBT 15 41
SHAREOWNERS' EQUITY:
Common stock, without par value:
Authorized 10,000,000 shares;
Issued and outstanding, 3,434,666
and 3,421,674 shares respectively 4,354 4,268
Retained Earnings 76 251
Total shareowners' equity 4,430 4,519
TOTAL LIABILITIES AND
SHAREOWNERS' EQUITY $6,497 $5,734
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE>
REAL GOODS TRADING CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
YEARS ENDED MARCH 31, 1996 AND 1995
<TABLE>
(In thousands except share data)
<CAPTION>
1996 1995
<S> <C> <C>
Net Sales $15,432 $16,341
Cost of Sales 8,006 8,264
Gross Profit 7,426 8,077
Selling, General and Administrative
Expenses 7,745 8,104
Loss From Operations (319) (27)
Interest Income 32 62
Earnings (Loss) Before Income Taxes
and Cumulative Effect of Change in
Accounting Principle (287) 35
Income Tax Benefit (Expense) 85 (14)
Earnings (Loss) Before Cumulative Effect of
Change in Accounting Principle (202) 21
Cumulative Effect of Change in
Accounting Principle, net of tax (Note 2) 27 -
Net Earnings (Loss) $(175) $21
Earnings (Loss) Per Share of Common Stock:
Before Cumulative Effect of Change in
Accounting Principle ($0.06) $0.01
Cumulative Effect of Change in
Accounting Principle - Accounting for Certain
Inventory Acquisition and Distribution Costs $0.01 -
Net Earnings (Loss) Per Share ($0.05) $0.01
Proforma Amounts Assuming Accounting
Change Made Retroactively:
Earning(Loss) Before Cumulative Effect
of Change in Accounting Principle $(202) $ 21
Earnings (Loss) Per Common Share $(0.06) $0.01
Net Earnings(Loss) (175) 18
Earnings (Loss) Per Common Share $(0.05) $ 0.01
Weighted Average Shares
Used to Compute Earnings Per Share 3,435,167 3,415,805
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE>
REAL GOODS TRADING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED MARCH 31,1996 AND 1995
<TABLE>
(In thousands except share data)
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earning(Loss) before cumulative
effect of change in accounting principle $(202) $ 21
Adjustments to reconcile net loss before
cumulative effect of change in accounting
principle to net cash (used in) operating
activities:
Depreciation and amortization 176 157
Non cash compensation expenses 28 58
Unicap adjustment 47
Provision for deferred income taxes (31) (5)
Loss on disposal of equipment (5) (14)
Changes in assets and liabilities:
Accounts receivable (92) 57
Inventory 110 (905)
Deferred catalog costs 189 (181)
Prepaid expenses and other assets (299) (38)
Accounts payable and accrued expenses (88) 92
Customer deposits 630 (30)
Net cash provided by(used in) operating
activities 463 (788)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of land, equipment,
and construction in progress (1,411) (1,007)
Proceeds from sale of equipment 3
Net cash (used) in investing activities (1,408) (1,007)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment on long-term debt (26) (9)
Borrowings on construction loan 387
Proceeds from issuance of common stock 109 38
Stock issuance costs 3
Repayment of notes payable (20) (10)
Purchase of stock options and common stock (67)
Net cash provided from financing activities 383 22
NET DECREASE IN CASH (562) (1,773)
CASH AT BEGINNING OF PERIOD 832 2,605
CASH AT END OF PERIOD $ 270 $ 832
OTHER CASH FLOW INFORMATION:
Interest paid 5
Income taxes paid 1 64
Subscriptions received converted to
issuance of stock 38
Stock issued in exchange for notes receivable 17
Notes receivable cancelled upon repurchase of
options (17)
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE>
REAL GOODS TRADING CORPORATION
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
YEARS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION> (In thousands except share data)
Total
Common Stock Subscrip- Share-
Number of Notes tions Retained owners'
Shares Amount Received Received Earnings Equity
<S> <C> <C> <C> <C> <C> <C>
Balance March 31, 1994 3,406 $4,144 $38 $230 $4,412
Issuance of Stock for:
Services, bonuses,
other 8 58 (38) 20
Stock options
exercised 8 45 $(17) 28
Stock Option Compensation 38 38
Net Earnings 21 21
Balance March 31, 1995 3,422 4,285 (17) - 251 4,519
Issuance of Stock For:
Bonuses 1 10 10
Stock options
exercised 18 109 109
Repurchase of Stock
and Stock Options (6) (68) 17 (51)
Stock Option Compensation 18 18
Net Earnings (175) (175)
Balance March 31, 1996 3,435 $4,354 $ - $ - $ 76 $4,430
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Real Goods Trading Corporation (the "Company") is
a specialty retailer of renewable energy and conservation
products, which it markets through mail order catalogs, retail
stores, and direct sales of its renewable energy department. The
Company was organized on July 1, 1990.
PRINCIPLES OF CONSOLIDATION - In December, 1995 the Company
transferred the assets and liabilities of Snow-Belt Energy Center
Inc. (Snow-Belt) to Real Goods and liquidated the legal
corporation of Snow-Belt Energy Center Inc. The consolidated
financial statements include the accounts of the Company and its
wholly owned subsidiary, Snow-Belt. Intercompany transactions
and balances have been eliminated.
USE OF ESTIMATES - The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
INVENTORIES are stated at the lower of cost (first-in/first-out
method) or market. Inventories include expenses associated with
acquiring the inventory. See Note 2 to the financial statements.
DEFERRED CATALOG COSTS - The Company capitalizes the direct cost
of producing and distributing its mail order catalogs. Deferred
catalog costs are amortized based on the estimated sales lives of
the catalogs, generally over an eighteen week period, at
predetermined monthly rates which approximate the rates of
catalog sale.
PROPERTY, EQUIPMENT AND IMPROVEMENTS are stated at cost.
Depreciation is computed using the straight-line method over
the estimated useful lives of the assets, which range from 3 to
20 years. PRE-OPENING COSTS for retail stores are expensed as
incurred.
GOODWILL - The excess of cost over tangible net assets acquired
is amortized over 5 years.
INCOMES TAXES - The Company accounts for its income taxes using
an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's
financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected
future events other than changes in tax laws.
EARNINGS PER SHARE are computed based on the weighted average
number of shares outstanding during the period.
RECLASSIFICATION - Certain reclassification have been made to
prior year amounts in order to conform to the current year
presentation.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS - Statement of
Financial Accounting Standard ("SFAS") No. 107, "Disclosures
About Fair Value of Financial Instruments" requires disclosure of
the estimated fair value of financial instruments. The carrying
values of cash, accounts receivable, accounts payable, and
long-term debt approximates their estimated fair values.
NEW ACCOUNTING STANDARDS - In Fiscal 1997, Real Goods will be
subject to the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
SFAS No.121 establishes recognition and measurement criteria for
impairment losses when the Company no longer expects to recover
the carrying values of a long-lived asset. The adoption of SFAS
No. 121 is not expected to impact the Company.
In fiscal 1997, Real Goods will also be subject to the provisions
of SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS
No. 123 establishes accounting and disclosure requirements using
a fair value based method of accounting for stock based employee
compensation plans. Under SFAS No. 123 the Company may either
adopt the new fair value based accounting method or continue the
intrinsic value based method and provide pro forma disclosures of
net income and earnings per share as if the accounting provisions
of SFAS No. 123 had been adopted. The Company plans to adopt
only the disclosure requirements of SFAS No. 123; therefore such
adoption will have no effect on the Company's net earnings or
cash flows.
2. CHANGE IN ACCOUNTING PRINCIPLE
The Company changed its method of accounting for certain
inventory acquisition and distribution costs to capitalize such
costs into merchandise inventories to better match these costs
with their related sales and to conform to the predominant
industry practice. Previously, such costs were expended as
incurred. Elsewhere in this report this change is referred to as
a "Unicap adjustment". The cumulative effect on prior years
of adopting this method was an increase in retained earnings of
$27,000, which is included in 1996 et income. If this accounting
change had been recorded retroactively, then net income for the
year ended March 31, 1995 would have been $18,000 and earnings
per share would have been $ 0.01.
3. PROPERTY, EQUIPMENT AND IMPROVEMENTS
<TABLE>
<CAPTION>
Property, equipment and improvements consist of the following at
March 31 (in thousands):
1996 1995
<S> <C> <C>
Land $ 262 $ 257
Buildings and leasehold improvements 200 168
Equipment, furniture and fixtures 798 697
Construction in progress 2,136 864
Total 3,396 1,986
Less accumulated depreciation
and amortization (460) (318)
Property, equipment
and improvements, net $2,936 $1,668
</TABLE>
At the end of fiscal 1996, construction in progress of $2,136,000
related to the Solar Living Center (SLC), located in Hopland,
California. The SLC is a twelve acre demonstration site of
sustainable living practices and renewable energy systems and
includes a retail store. The Solar Living Center was completed
in May, 1996. $62,000 of interest was capitalized over a two year
period in connection with this project.
<PAGE>
4. LINE OF CREDIT
On March 31, 1996, no amounts were outstanding on the Company's
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
prime
rate, and interest is payable monthly. The line is personally
guaranteed by the Company's majority shareowner. This agreement
expires April 4, 1997. 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 lender's approval. The line
is collateralized by substantially all of the Company's assets
including the Company's mailing lists as well as a key man life
insurance policy on the life of the Company's majority
shareowner.
5. DEBT
On August 10, 1995 the Company entered into a construction
commitment agreement with the Bank for $1,170,000 to finance the
construction of the Solar Living Center in Hopland, California.
Borrowings bear interest at 2% over the prime rate, and interest
is payable monthly. Borrowings under the agreement are
collateralized by a First Deed of Trust on the land and
improvements on the twelve acre parcel in Hopland, housing the
SLC. As of March 31, 1996, $387,000 was outstanding on the
construction loan. The construction loan is due the earlier of
August 1996 or upon completion of construction.
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.
During fiscal 1996, the Company repaid the mortgage note on the
Hopland property for $47,000 as well as the remaining note
payable of $20,000 for the acquisition of Snow-Belt Energy
Center, Inc.
6. LEASES
The Company has operating leases for office, warehouse
facilities, the Eugene store and certain equipment, which expire
from 1996 through 2000. Rental expense for the years ended March
31, 1996 and 1995 was $264,000 and $203,000, respectively.
Future minimum annual lease payments under operating leases are
as follows (in thousands):
Fiscal Year ending March 31:
1997 $ 198
1998 166
1999 43
2000 11
2001 5
Total $ 423
<PAGE>
7. INCOME TAXES
<TABLE>
<CAPTION>
Income taxes consist of the following for the years ended March
31 (in thousands):
1996 1995
<S> <C> <C>
Current:
Federal $ (40) $ 4
State 1 1
Total (39) 5
Deferred (31) 9
Total $ (70) $ 14
</TABLE>
The provisions for income taxes for financial reporting purposes
are different from the tax provision computed by applying the
statutory federal income tax rate. The differences for
each year are reconciled as follows (in thousands):
<TABLE>
<CAPTION> 1996 1995
<S>
Federal income taxes at statutory <C> <C>
income tax rate (34%) $ (84) $ 12
State taxes net of federal tax benefit (10) 2
Effect of nondeductible expenses 13 12
Other 11 (12)
Provision $ (70) $ 14
</TABLE>
<TABLE>
The components of the net deferred tax liability at year-end are
as follows (in thousands):
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax assets:
Accrued reserves $ 23 $ 18
Stock option compensation 8 18
State income taxes 1 5
Other 21
Total deferred tax assets 32 62
Deferred tax liabilities:
Catalog costs (63) (119)
Other (9) (14)
Total deferred tax liabilities (72) (133)
Net deferred tax liability (40) $(71)
</TABLE>
<PAGE>
8. MAJORITY SHAREOWNER AGREEMENTS
The President and majority stockholder has a renewable one-year
employment agreement with the Company which provides for an
annual salary of $72,000, payable bi-weekly.
The President and majority shareowner has personally guaranteed
the Company's line of credit agreement. See Note 4 to the
financial statements.
The Company has a split dollar life insurance agreement with its
President, whereby the Company pays the premiums. The Company
has been granted a security interest in the cash value and death
benefit of the policy, and stock has been pledged as additional
collateral during the period the premiums exceed the cash
surrender value. The amount receivable at March 31, 1996 was
$77,000.
9. SHAREOWNERS' EQUITY
In September 1995 the Company announced that its Board of
Directors approved a stock repurchase program. The Company
is authorized to repurchase up to $250,000 of common stock. As of
March 31, 1996, the Company repurchased 6,284 shares at an
average price of $5.50 per share.
10. BENEFIT PLANS AND STOCK OPTIONS
In August 1992 the Company adopted the Real Goods Trading Corpor-
ration 401(k) Retirement Plan effective for the plan year
commencing on January 1, 1992. The Plan does not require
matching funds from the Company, and the Company has made no
contributions.
The Company's Fiscal 1993 Stock Incentive Plan (the "Plan")
allows for the
granting of incentive and nonqualified stock options. In June
1995, the
Company reserved 50,000 shares for its Non-Employee Directors'
Stock Option
Plan. As of March 31, 1996, 600,000 common shares had been
reserved for
issuance under the Plans. Stock options are to be granted at
prices not
less than 85% of the fair market value of the common shares on
the date the
option is granted, and normally vest over a period not exceeding
four years
from the date of grant. The following is a summary of stock
option activity
under the Plans for 1996 and 1995.
<TABLE>
<CAPTION> Number of Average
Shares
Price (in thousands)
Outstanding at:
<S> <C> <C>
March 31, 1994 277 $5.10
Granted 100 $8.38
Exercised (8) $5.10
Forfeited (44) $5.10
March 31, 1995 325 $6.10
Granted 103 $5.79
Exercise (18) $5.10
Cancelled (100) $8.38
Forfeited (79) $5.10
March 31, 1996 231 $5.48
Shares exercisable at March 31, 1996 94
Shares available for grant
at March 31, 1996 343
</TABLE>
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT.
On August 23, 1995 Michael Potts resigned from the Board of
Directors. On October 23, 1995, James Robello resigned from his
position as Chief Financial Officer of Real Goods, and that day
was elected to the Board of Directors. On April 1, 1996, Susan
Jordan resigned from the Board of Directors. On May 21, 1996 the
holders of a majority of the shares of this Corporation's common
stock amended the Bylaws to increase the number of Directors from
a range of three to five to a range of four to seven, and the
number of Directors was set at six until changed by the Board of
Directors itself. That created three vacancies, which
were filled by Barry Reder, Linda Francis and John Lenser.
The following chart sets forth certain information with respect
to all directors and executive officers as of May 23, 1996 and
all persons nominated or chosen to become such:
<TABLE>
<CAPTION>
Name Age Office Director Term
Since Expires
<S> <C> <C> <C> <C>
John Schaeffer 46 President,Chief 1990 1996
Executive Officer and
Chairman of the Board
Stephen Morris 48 Director 1993 1996
James T. Robello 50 Director 1995 1996
Barry Reder 51 Director/Attorney 1996 1996
John Lenser 51 Director 1996 1996
Linda Francis 47 Director 1996 1996
<TABLE/>
John Schaeffer. Mr. Schaeffer founded the Company's
predecessor in 1986 and since 1990 has been the Company's
President, Chief Executive Officer and Chairman of the Board.
Mr. Schaeffer has been involved in retail businesses since 1978.
In 1994 Mr. Schaeffer was named California Small Businessperson
of the Year. Mr. Schaeffer received a B.A. degree in anthropology
from the University of California at Berkeley in 1971.
<PAGE>
Stephen Morris. Mr. Morris joined the Company's Board of
Directors in October, 1993. On July 1, 1994 Mr. Morris became
Executive Vice President and Chief Operating Officer of the
Company. He resigned from such position in June 1995. Prior to
July 1, 1994 and subsequent to June 1995, Mr. Morris has been the
principal of Stephen Morris Associates, a provider of sales and
marketing consulting services. From 1978 to 1990, Mr. Morris was
a Sales Manager, Director of Sales and Distribution and Vice
President, Sales and Marketing for Vermont Castings, Inc. of
Randolph, Vermont, a manufacturer of wood stoves. He is currently
the publisher at Chelsea Green Publishing Company in Vermont. Mr.
Morris received an A.B.degree in Psychology from Yale University
in 1970.
James T. Robello. Mr. Robello joined the Company's Board of
Directors in October 1995. Mr. Robello was hired by Real Goods as
its Controller in 1991, and in August 1992 was appointed its
Chief Financial Officer. He resigned from that position in
October, 1995 to become General Administrator of Santa
Rosa Anesthesiology Medical Group. At that time he was elected
to the Board of Directors of Real Goods. From 1983 to 1991, Mr.
Robello was employed at Cray Research, Inc., a manufacturer and
distributor of supercomputers, as a Business Controls Manager,
Western Region; Business Manager I; and Business Manager
II,Western/Asia Pacific Region. Mr. Robello received a B.A.
in finance and business environment from the University of Oregon
in 1967.
Barry Reder. Mr. Reder joined the Company's Board of
Directors in May 1996. Since October 1993 Mr. Reder has been
a partner with the San Francisco firm of Coblentz, Cahen, McCabe
& Breyer a California law firm. From 1976 to October 1993 Mr.
Reder was a partner in the San Francisco firm of Dinkelspiel,
Donovan & Reder, a California law firm that dissolved in October
1993. Mr. Reder has served as counsel to the Company since 1990.
He is a general corporate and securities counsel for a broad
range of businesses throughout the United States. His expertise
is in mergers and acquisitions, venture capital, contracts and
real estate. Mr. Reder received a B.A. degree from Wesleyan
University in 1966 and a J.D. degree From Cornell Law School
in 1969.
Linda Francis. Ms. Francis joined the Company's Board of
Directors in May 1996. Ms. Francis has been a self-employed
management consultant since 1989. Ms. Francis founded
and ran a non-profit corporation serving developmentally disabled
persons. Since 1995 Ms. Francis has worked with Real Goods
to fine tune its organization and corporate structure, utilizing
her experience in "openbook management" and employee motivational
programs. She graduated from Sonoma State University with a B.A.
in Sociology in 1972 and has an M.A. in Education, a Special
Education and a teaching credential.
John Lenser. Mr. Lenser joined the Company's Board in May
1996. Mr. Lenser Chairman of the Board of The Music Box Company
from 1978 to 1991, and was President of the Hearthsong and
David Kay Catalog from 1992 to 1995. Mr. Lenser has been an
independent consultant from 1994 to present. Mr. Lenser received
a B.A. degree and Masters degree from the University of
California at Berkeley in 1969.
There are no family relationships among directors, executive
officers or persons nominated or chosen by the Company to become
directors or executive officers.
ITEM 10. EXECUTIVE COMPENSATION.
John Schaeffer received $79,000 in cash compensation during
fiscal 1996 as President and Chief Executive Officer of the
Company. No other compensation was paid to Mr. Schaeffer.
No executive officer of the Company received a total annual
salary and bonus in excess of $100,000. During fiscal 1996, no
compensation (other than the grant of options to purchase
shares of common stock pursuant to the Fiscal 1993 Stock Option
Plan, which are subject to vesting over time) was granted to the
Company's non-employee directors for their services.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth information regarding beneficial
ownership of the Company's common stock as of May 23, 1996 (i)
with respect to the persons who are known to the Company to be
the beneficial owners of more than 5% of any class of the
Company's voting securities, (ii) with respect to each director,
(iii) with respect to each executive officer, and (iv) with
respect to all executive officers and directors as a group.
Unless otherwise indicated, all persons listed have sole voting
and investment power with respect to such shares.
</TABLE>
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percentage
Beneficial Ownership Beneficial Owner of Class
<S> <C> <C>
John and Nancy Schaeffer 2,471,646 shares<F1> 71.9%
555 Leslie Street
Ukiah, CA 95482
James T. Robello 7,115 shares<F2> *
555 Leslie Street
Ukiah, CA 95482
Stephen Morris 36,300 shares<F3> *
555 Leslie Street
Ukiah, CA 95482
All directors and 2,515,061 shares 73.2%
officers as a
group (6 persons)
<FN>
<F*>Less than one percent of such class of stock.
<F1>
1 Mr. Schaeffer, who is the President, Chairman of the Board and
Chief Executive Officer of the Company, and his wife, Nancy, own
their interest as community property. Includes 250 shares held
in
the name of their son, as to which they disclaim any beneficial
interest.
<F2>
2 Includes 5,000 shares subject to issuance after May 23, 1996
upon the exercise of stock options granted pursuant to the
Directors Stock Option Plan.
<F3>
3 Includes 32,300 shares subject to issuance after May 23, 1996
upon the exercise of stock options granted pursuant to the
Directors Stock Option Plan and Fiscal 1994 Stock Incentive Plan.
</TABLE>
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
John Schaeffer might be deemed to be a "promoter" of the Company.
Mr. Schaeffer is currently the President, Chief Executive Officer
and Chairman of the Board of the Company, and receives a salary
with respect thereto. On July 1, 1990, Mr. Schaeffer transferred
all of the assets of his sole proprietorship, subject to all
liabilities of the sole proprietorship, to the Company for 56,460
shares of the Company's common stock. Those shares were split 46
for 1 in 1991.
John Schaeffer personally guarantees payment of the Company's
$1,000,000 line of credit from National Bank of the Redwoods. No
amounts were outstanding under that line of credit on March 31,
1996.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) No reports on Form 8-K filed during the three months
ended March 31, 1996.
Form 8-K filed dated April 25, 1996
Form 8-K filed dated May 21, 1996.
(b) See Index to Exhibits following Signature Page.
........................
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto
duly authorized, on this 14TH day of June 1996 .
REAL GOODS TRADING CORPORATION
(Registrant)
By: Donna Montag, Controller
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant in the capacities and on the dates
indicated.
Signature Title Date
Donna Montag Controller June 14, 1996
John Schaeffer President/CEO June 14, 1996
Stephen Morris Director June 14, 1996
James T. Robello Director June 14, 1996
Linda Francis Director June 14, 1996
John Lenser Director June 14, 1996
Barry Reder Director June 14, 1996
<PAGE>
PART III
ITEM 13. INDEX TO EXHIBITS.
EXHIBIT DESCRIPTION PAGE
NO.
2.1* Agreement and Plan of Merger dated August 2,
1993 (Snow Belt Energy Center, Inc.)
2.2* Asset Purchase Agreement dated August 2, 1993
(Earth Care assets)
3.1* Articles of Incorporation
3.2* Bylaws
10.1* Form of Indemnification Agreement with Directors
10.2** Contract to Purchase Hopland Property
10.3** Lease of 200 Clara Avenue, Ukiah, California
10.6* Fiscal 1993 Stock Incentive Plan
10.7** License Agreement, as amended, between Sierra
Club and Earth Care Paper Company, Inc., and
consent letter from Sierra Club to the Company
10.8*** Lease of 13201 S. Hwy 101, Hopland, California
10.9*** Lease of 1670 West 7th Avenue, Eugene, Oregon
10.10**** Lease on 555 Leslie Street, Ukiah, California
10.11**** Loan Agreement between the Company and National
Bank of the Redwoods dated April 4, 1995 and
certain ancillary documents
10.12**** Split Dollar Agreement by and among the Company
John C. Schaeffer and the Trustee of the Schaeffer
1994 Irrevocable Trust dated May 15, 1995 and
Assignment of Life Insurance Policy as Collateral
by Trustee of the Schaeffer 1994 Irrevocable Trust
10.13**** Consulting Agreement with Stephen Morris
10.14**** Amended and Restated Real Goods Trading
Corporation Fiscal 1993 Stock Incentive Plan
10.15**** The Real Goods Trading Corporation Non-Employee
Directors' Stock Option Plan
21.1** Subsidiaries
* Incorporated by reference to the Company's Registration
Statement of Form 10-KSB filed with the Securities and
Exchange Commission on October 1, 1993.
** Incorporated by reference to Amendment No. 1 to the
Company's Registration Statement on Form 10-KSB filed
with
the Securities and Exchange Commission on December 21,
1993.
*** Incorporated by reference to the Company's Form 10-KSB
filed with the Securities and Exchange Commission on June
29,1994
**** Incorporated by reference to the Company's Form 10-KSB
filed with the Securities and Exchange Commission on June
28, 1995.
