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 December 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 January 27,1997, there were issued and outstanding
3,404,704 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 December 28, 1996 3
Condensed Consolidated Statements of Operations
for the three-month and nine-month periods ended
December 28, 1996 and December 30, 1995 4
Condensed Consolidated Statements of Cash Flows
for the nine month periods ended December 28, 1996
and December 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
<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> December 28,
<S> 1996
ASSETS <C>
Current Assets:
Cash $1,742
Accounts receivable, net of allowance of $6 167
Inventories 2,376
Deferred catalog costs, net 371
Prepaid expenses 284
Total current assets 4,940
Property, equipment and improvements, net 3,387
Intangible assets and other assets, net 140
Total assets $ 8,467
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Accounts payable $ 1,568
Accrued expenses 371
Income taxes payable 344
Customer deposits 79
Current maturities of short term debt 38
Deferred income taxes 40
Total current liabilities 2,440
Long-term debt 1,153
Shareowners' equity
Common stock, without par value: Authorized 10,000,000
shares; issued and outstanding 3,404,704 shares 4,282
Retained Earnings 592
Total shareowners' equity 4,874
Total liabilities and shareowners' equity $8,467
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
REAL GOODS TRADING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except share data)
<TABLE>
Three Months Ended Nine Months Ended
December 28, December 30, December 28, December 30,
1996 1995 1996 1995
<C> <C> <C> <C>
Net sales $6,932 $6,066 $15,211 $12,683
Cost of sales 3,268 2,948 7,912 6,522
Gross profit 3,664 3,118 7,299 6,161
Selling,general
and administrative
expenses 3,071 2,562 6,377 6,188
Earnings (loss)
from operations 593 556 922 (27)
Interest income
net of interest
expense (40) 6 (62) 21
Earnings (loss)
before income
taxes 553 562 860 (6)
Income tax
benefit (expense) (221) (191) (344) 2
Net earnings
(loss) $ 332 $ 371 $ 516 $(4)
Net earnings
(loss) per share $0.10 $0.11 $0.15 $(0.00)
Weighted average
shares used to
compute earnings
per share 3,406,371 3,440,733 3,421,368 3,431,767
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
REAL GOODS TRADING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
Nine Months Ended
December 28, December 30,
1996 1995
<C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings (Loss) $ 516 (4)
Adjustments to reconcile net
earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 197 134
Non cash compensation expenses 21 35
Provision for deferred income tax (99)
Changes in assets and liabilities:
Accounts receivable 12 (97)
Inventory (238) 589
Deferred catalog costs 32 182
Prepaid expenses and other assets 119 39
Accounts payable and accrued expenses 990 173
Customer deposits (591) 6
Income and other taxes payable 344 96
Net cash provided by
operating activities 1,402 1,054
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of land, equipment, improvements,
and construction in progress (621) (1,005)
Net cash used in investing activities (621) (1,005)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowing on long-term debt 788 314
Proceeds from issuance of common stock, net 13 119
Purchase of stock options and common stock (110) (19)
Net cash provided by financing activities 691 413
Net increase in cash 1,472 462
Cash at beginning of period 270 832
Cash at end of period $1,742 $ 1,294
Other cash flow information:
Interest paid 59 1
Income taxes paid 184 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 NINE MONTH PERIODS ENDED DECEMBER 28, 1996
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared from the records of the Company
and, in the opinion of management, include all adjustments
(consisting of only normal recurring accruals) necessary to
present fairly the financial position at December 28, 1996
and the interim results of operations for the three and nine
month periods ended December 28, 1996 and December 30,1995
and cash flows for the nine months ended December 28, 1996
and December 30, 1995. Certain reclassifications have been
made in the December 1995 financial statements to conform to
the December 1996 presentation.
Accounting policies followed by the Company are described in
Note 1 to the audited financial statements included in the
Company's Annual Report on Form 10-K for the 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 financial statements, including notes
thereto, for the year ended March 31, 1996.
The results of operations for the three and nine 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 December 28, 1996, there was no outstanding balance 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
receivable, inventory and mailing lists as well a key person
life insurance policy on the life of the Company's majority
shareowner.
NOTE 3 - LONG TERM DEBT
On July 3, 1996 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 a first 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 December 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
December 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 December 28, 1996, the
Company had repurchased 8,284 shares at an average price of $5.37
per share.
In July 1996, the Company repurchased 30,000 shares of
unregistered stock from its President and majority shareowner at
a below-market price of $3.33 per share.
NOTE 6 - DISPOSITION OF ASSETS
The Company has put its retail store in Amherst, Wisconsin on
the market. The Company does not anticipate taking a material
loss on the disposition of store.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales
The Company's net sales for the nine months ended December 28,
1996 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 project that was earned in the second quarter. While the
amounts of this sale and timely completion 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 nine months ended December 28, 1996 the Company's net
sales were $15,211,000, an increase of $2,528,000 or 20% from the
prior year's sales of $12,683,000. Without the Belize resort
sale, net sales for the nine months were $13,250,000, up 4% from
the previous year. Excluding the Belize resort sale, retail and
renewable energy sales continued to grow as a percentage of total
Company sales, and catalog sales decreased as a percentage of sales.
For the nine month period, excluding the Belize resort sale, catalog
sales were 74% of total sales, compared to 78% in the same period of
the previous year. Retail sales were 17% of total sales, compared to
14% in the previous year. Renewable energy sales were 9% of total
sales, compared to 8% in the previous year.
Catalog sales for the nine months showed a decrease of 2% to
$9,720,000, compared to $9,878,000 in the previous year. The
Company's first two quarters had shown a 16% decrease in catalog
sales due to a more selective spring mail plan. For the reasons
discussed below, year to date catalog circulation was increased 11%
over the previous year because the third quarter mailing was
higher than in the previous year.
Retail store sales in the nine months increased 27% to $2,238,000
compared to $1,757,000 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. The continuing increase in sales
is due to the Company's increased emphasis on retail sales and
maximizing the synergies of catalog and retail markets.
Renewable energy sales, which include the $2 million Belize
resort sale were $3,208,000 compared to $1,009,000 in the
previous nine month period. Excluding the Belize resort sale,
renewable energy sales increased 24% in the nine month period.
The continuing increase in sales is attributable 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 December 28, 1996, the Company's net
sales increased 14% or $866,000 to $6,932,000 compared to
$6,066,000 in the same period of the previous year. Catalog net
sales for the three months were $5,713,000, up 13% or $635,000
from $5,078,000. While catalog mailings had been lower in the
first two quarters, the Company decided to take advantage of
paper price declines to increase circulation in the traditionally
strong third quarter. Retail store sales for the three months
were $869,000, an increase of 23% over the previous year's sales
of $708,000. Sales for the three months reflect full operation
at the new locations of the Hopland and Eugene stores. Sales at
the Snow-belt retail store in Amherst, Wisconsin were down 20% in
the third quarter, to 252,000, compared to $314,000 in the same
period of the previous year. The Company put the store on the
market in November, 1996, and does not anticipate taking a loss
on the disposition of store assets. Renewable energy sales for
the same three months increased 20% to $335,000, compared to
$280,000 for the same quarter in the previous year, reflecting
the Company's increased investment in this segment of its business.
Gross Profit
For the nine months ended December 28, 1996, gross profit
increased 18.5% to $7,299,000 or 48% of sales, compared to gross
profit in the prior year period of $6,161,000 or 48.6% of sales.
The year to date 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 nine months in
the previous year. Catalog sales had a gross profit of
$5,231,000 or 53.8% of sales, compared to $5,108,000 or 51.7% of
sales for the same period in the previous year. Retail store
sales had a gross profit of $898,000, or 40.1% of sales, compared
to $696,000 or 39.6% of sales in the previous period. Renewable
energy sales had a gross profit of $1,125,000, or 35% of sales,
compared to $318,000 or 31.5% of sales in the previous period.
The continued gains in margins in all areas were attributed 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.
For the three months ended December 28, gross profit increased
17.5% to $3,664,000 or 52.8% of sales compared to $3,118,000 or
51.4% of sales for the same period in the previous year. Catalog
sales had a gross profit of $3,170,000 or 55.4% of sales,
compared to $2,736,000 or 53.8% of sales for the previous period.
Retail store sales had a gross profit of $343,000 or 39.4% of
sales, compared to $290,000 or 41.1% of sales in the previous
period. Renewable energy sales had a gross profit of $136,000 or
40.5% of sales, compared to $91,000 or 32.8% of sales for the
three month period in the previous year.
Operating Expenses
Sales other than the Belize resort sale were up 4% for the nine
months, but selling, general and administrative expenses increased
only 3% or $189,000 to $6,377,000 compared to $6,188,000 for the
previous year, showing an improved operating efficiency year to
date over the previous year.
Selling, general and administrative expenses amounted to
$3,071,000 in the third quarter, which was an increase of 20% or
$509,000 over the same period in the previous year of $2,562,000.
With sales showing an increase of 14% for the quarter, earnings
from operations were 8.5% of sales, compared to 9.2% in the third
quarter of the previous year. The Company had taken advantage of
decreased paper prices that occurred in the second quarter to
increase holiday catalog circulation. Catalog circulation had
been down 21% in the first six months. Year to date, with the
increased third quarter circulation, catalog circulation
increased 11%, yet year to date catalog revenues showed a 2%
decrease. The Company has higher fixed costs than in the
previous year due to increasing its retail presence through the
completed Solar Living Center as well as a larger Eugene store,
and investments in improving the Renewable Energy department.
Interest
Interest income, net of interest expense, was an expense of
$62,000 for the nine month period, compared to $21,000 income for
the nine months of the previous year. The Company has ongoing
interest expense due to the borrowing for the Solar Living
Center, which came on line in June, 1996. (See Note 3.) For the
three month period, interest expense was $40,000, as compared to
interest income in the previous year of $6,000, reflecting the
higher levels of borrowing. The Company largely uses its line of
credit to increase inventory levels for the holiday season.
Income Taxes
Income taxes as a percentage of pretax income was 40% for the
nine month period, as well as for the third quarter, compared to
34% in the both periods of the previous year. The Company
believes that the applied tax rate accurately reflects its actual
experience.
Earnings
Year to date earnings of $860,000 before tax, and $516,000 net of
tax or $0.15 per share are the largest ever reported by the
Company. In the previous year, the Company had a before tax loss
of $6,000, and a net loss of $4,000 or $0.00 per share for the
nine months. For the third quarter, the Company had earnings
before taxes of $553,000, and net earnings of $332,000 or
$0.10 per share, compared to earnings before tax of $562,000
and net earnings of $371,000, or $0.11 per share in the previous
year. While the Company's EBIT, (earnings before interest and
taxes) was higher in the third quarter this year than in the third
quarter last year, interest expense in the current period resulted
in the $0.01 lower earnings per share. 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 nine months ended December 28, 1996, cash of
$1,402,000 was provided by operations, primarily due to an
increase in accounts payable and accrued expenses of $990,000 due
to increased inventory levels for the holiday season, and an
increase in net earnings of $516,000. The $591,000 decrease in
customer deposits was due to the completion of the large
renewable energy sale. The Company invested $621,000 for the
nine months, largely for the completion of the Solar Living
Center in Hopland, California. Borrowings on long term debt were
$788,000, reflecting the completion of the Solar Living Center.
The net effect of all of the Company's activities was to increase
cash to $1,472,000 at the end of the first nine 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.
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: January 31, 1997
by:
[S]DONNA MONTAG
Donna Montag
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-28-1996
<CASH> 1,742
<SECURITIES> 0
<RECEIVABLES> 173
<ALLOWANCES> 6
<INVENTORY> 2,376
<CURRENT-ASSETS> 4,940
<PP&E> 4,018
<DEPRECIATION> 631
<TOTAL-ASSETS> 8,467
<CURRENT-LIABILITIES> 2,440
<BONDS> 0
0
0
<COMMON> 4,282
<OTHER-SE> 592
<TOTAL-LIABILITY-AND-EQUITY> 8,467
<SALES> 15,211
<TOTAL-REVENUES> 15,211
<CGS> 7,912
<TOTAL-COSTS> 7,912
<OTHER-EXPENSES> 6,377
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62
<INCOME-PRETAX> 860
<INCOME-TAX> 344
<INCOME-CONTINUING> 516
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 516
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
