U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 1997
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 November 3, 1997, there were issued and outstanding
3,508,001 shares of common stock of the issuer.
<PAGE>
REAL GOODS TRADING CORPORATION
INDEX
Page
Form 10-QSB Cover Page 1
Index 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheet
at September 27, 1997 3
Condensed Consolidated Statements of Operations
for the three-month and six-month periods ended
September 27, 1997 and September 28, 1996 4
Condensed Consolidated Statements of Cash Flows
for the six-month period ended September 27, 1997
and September 28, 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 11
Item 2. Changes in Securities.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security-Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
Signatures 11
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
REAL GOODS TRADING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(In thousands except share data)
<TABLE>
September 27,
1997
<CAPTION>
<S>
<C>
ASSETS
Current Assets
Cash $ 332
Accounts Receivable, net of allowance of $6 314
Inventories 2,349
Deferred catalog costs, net 702
Prepaid expenses 435
Total current assets 4,132
Property, equipment and improvements, net 3,402
Intangible assets and other assets, net 123
Total assets $ 7,657
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities
Accounts payable $ 1,282
Accrued expenses 300
Customer deposits 611
Current maturities of short term debt 38
Deferred income taxes 13
Income taxes and other taxes payable (166)
Total current liabilities 2,078
Long-term debt 1,120
Shareowners' equity
Common stock, without par value: Authorized
10,000,000 shares;
Issued and outstanding 3,408,001 shares 4,272
Retained Earnings 187
Total shareowners' equity 4,459
Total liabilities and shareowners' equity $7,657
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
REAL GOODS TRADING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
(In thousands except share data)
<TABLE>
Three Months Ended Six Months Ended
September September September September
27, 1997 28, 1996 27, 1997 28, 1996
<C> <C> <C> <C>
Net Sales $3,337 $3,287 $6,556 $8,279
Cost of sales 1,781 1,713 3,476 4,644
Gross Profit 1,556 1,574 3,079 3,635
Selling, general
and administrative
expenses 1,701 1,575 3,444 3,306
Earnings (loss)
from operations (145) ( 1) (365) 329
Interest income
net of Interest
expense (25) (25) (55) (23)
Earnings (loss)
before income
taxes (170) (26) (420) 306
Income tax
Benefit (expense) 68 (9) 168 (122)
Net Earnings
(loss) $ (102) $(35) $ (252) $ 184
Net Earnings
(loss) per share $(0.03) (0.01) $(0.07) $0.05
Weighted average
shares used to
compute earnings
per share 3,405,203 3,415,512 3,404,503 3,420,428
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
REAL GOODS TRADING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
Six Months Ended
September 27, September 28,
1997 1996
<C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings (Loss) $ (252) $ 184
Adjustments to reconcile net
earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 151 125
Other 20 16
Changes in assets and liabilities:
Accounts receivable (145) (135)
Inventory (237) (853)
Deferred catalog costs (319) (174)
Prepaid expenses (323) 99
Accounts payable 801 760
Accrued expenses (4) (72)
Income and other taxes payable (214) 116
Customer deposits 527 (567)
Net Cash (used in) Operating Activities 5 (50)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of land, equipment, and
construction in progress (197) (580)
Purchase of other assets 7
Proceeds from sale of equipment
and other assets 35
Net Cash (used in) investing activities (162) (573)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings 1333
Proceeds from issuance of common stock 13
Repayment of debt (23)
Purchase of common stock (100)
Net cash provided by (used in)
financing activities (23) 1,246
Net increase (decrease) in cash (180) 172
Cash at beginning of period 513 270
Cash at end of period $ 332 $ 442
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
REAL GOODS TRADING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND SIX MONTH PERIODS ENDED SEPTEMBER 27,
1997
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared from the records of the Company
without audit and, in the opinion of management, include all
adjustments (consisting of only normal recurring accruals)
necessary to present fairly the financial position at September
27, 1997 and the interim results of operations for the three
month and six month periods ended September 27, 1997 and
September 28, 1996 and cash flows for the six months ended
September 27, 1997 and September 28, 1996. Certain
reclassifications have been made in the September 1996 financial
statements to conform to the September 1997 presentation.
Accounting policies followed by the Company are described in Note
1 to the audited financial statements for the fiscal year ended
March 31, 1997. 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, 1997.
The results of operations for the three and six month periods
herein presented are not necessarily indicative of the results to
be expected for the full year.
NOTE 2 - NEW ACCOUNTING PROUNCEMENTS
In February 1997 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings
per Share" (SFAS 128). The Company is required to adopt SFAS 128
in the third quarter of fiscal 1997 and will restate at that time
earnings per share (EPS) data for prior periods to conform with
SFAS 128. Earlier application is not permitted.
SFAS 128 replaces current EPS reporting requirements and requires
a dual presentation of basic and diluted EPS. Basic EPS excludes
dilution and is computed by dividing net income (available to
common shareowners) by the weighted average of common shares
outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were
exercised or converted into common stock. If SFAS 128 had been
in effect during the current and prior periods, basic EPS (loss)
would have been $(0.03) and $(0.01) for the three months ended
September 27, 1997 and September 28, 1996 respectively, and
$(0.07) and $0.05 for the six months ended September 27, 1997 and
September 28, 1996. Diluted EPS and SFAS 128 would not have been
significantly different than primary EPS currently reported for
the periods.
In June 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 130 ("Reporting
Comprehensive Income"), which requires that an enterprise report,
by major components and as a single total, the change in its net
assets during the period from the nonowner source: and No. 131
("Disclosures about Segments of an Enterprise and Related
Information"), which establishes annual and interim reporting
standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas and
major customers. Adoption of these statements will not impact
the Company's consolidated financial position, results of
operations or cash flows, and any effect will be limited to the
form and content of its disclosures. Both statements are
effective for fiscal years beginning after December 15, 1997,
with earlier application permitted.
NOTE 3 - LINE OF CREDIT
On April 8, 1997, the Company entered into a $1,500,000 line of
credit agreement with National Bank of the Redwoods (the "Bank").
Borrowings bear interest at 1% over the prime rate, and interest
is payable monthly. The line is personally guaranteed by the
Company's majority shareowner. This agreement expires April 8,
1998. On September 27, 1997, no amounts were outstanding on the
Company's line of credit.
The line of credit agreement contains restrictive covenants
including debt to net worth and current ratios, restrictions on
capital expenditures, positive cash flow at a certain point in
the fiscal year 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 inventory,
accounts receivable and mailing lists as well as a key person
life insurance policy on the life of the company's majority
shareowner. The Company was in compliance with all covenants of
the extended line of credit agreement as of September 27, 1997.
NOTE 4 - SHAREOWNERS' EQUITY
On August 11, 1997, the Company commenced a direct public
offering of 1,000,000 shares of newly issued stock and 300,000
shares of a selling shareowner.
Through September 27, 1997, the Company had sold 100,000 shares
of common stock for proceeds of $544,000. As the related stock
had not been issued as of September 27,1997, the proceeds are
included in deposits. The Company also owed $120,000 to the
selling shareowner for shares sold by the selling shareowner and
collected by the Company on this date, which is listed in
accounts payable. The Company shares were issued in October,
1997. Additionally, as of September 1997 the Company had incurred
costs of $235,000 related to the direct public offering, which
are included as prepaid expenses
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SALES
Net sales for the first six months of fiscal 1998 were
$6,556,000, which was an increase of 3% compared to $6,347,000 in
the first six months of the previous year excluding the
non-recurring $2 million sale of a photovoltaic system for a
resort in Belize in fiscal 1997. Including the Belize sale, net
sales declined by 21 % from $8,279,000 in the previous year.
Since the Belize sale, the Company has separately discussed the
results of its operations including and excluding the Belize sale.
Catalog net sales for the first six months were up 2% to
$4,078,000 compared with $4,006,000 in the previous year. The
Company attained the higher sales on fewer catalogs, as 9% fewer
catalogs were mailed in the first six months, or 2,084,000
catalogs compared to 2,300,000 catalogs mailed in the same period
of the previous year. Sales per catalog mailed increased to
$1.88 per catalog, compared to $1.73 per catalog for the first
six months of the previous year. Catalog sales were adjusted by
those sales attributable to the Company's Skymall offering in
order to more fairly present sales per book.
Retail store sales in the first six months increased 1% to
$1,383,000 compared to $1,369,000 for the same period in the
previous year. Unusual circumstance affected each store during
comparable periods. On August 29,1997, the Company completed the
sale of its Snow Belt store to two former employees. Sales in
this store had not met Company expectations, and year to year
comparisons were 40% below the previous year. The Hopland
store moved to the Solar Living Center in May 1996, and the
Eugene store moved to a downtown location in the same month.
Sales at the Hopland store increased 21% in the six month period,
and sales at the Eugene store increased 12% for the same period.
Renewable energy sales in the first six months increased 12% to
$1,053,000, compared to $940,000 for the same six months,
excluding the $2 million sale in Belize in fiscal 1997. 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, increased customer service in this area, as
well as doubling of the number of products included in the
renewables catalog and a complete revamping of the catalog.
For the three months ended September 27, 1997, the Company's net
sales increased 8% or $250,000 to $3,337,000 compared to
$3,087,000 in the previous period excluding the Belize $200,000
bonus that was paid in the second quarter of fiscal 1997. Catalog
net sales for the three months were up 14% to $1,974,000,
compared to $1,727,000 for the same period in the previous year.
Retail store sales for the three months were $739,000, a decrease
of 7% from the previous year's sales of $792,000. Sales for the
three months reflect comparable operations at the new locations
of the Hopland and Eugene stores. Hopland store sales increased
15% in the three month period, and Eugene store sales increased
24% in the same period. The decline in retail sales was due to
64% lower sales in the period for the Snow Belt operation, which
was sold in August 1997. Renewable energy sales increased 10% to
$598,000 compared to $546,000 for the previous year, excluding
the $200,000 bonus from the Belize sale.
GROSS PROFIT
For the first six months, gross profit rose to 46.97% of sales,
or $3,079,000, compared to 43.91% of sales, including the Belize
sale, or $3,635,000 for the first six months of fiscal 1997.
Overall sales comparisons to the previous year decreased by 21%,
yet margins declined by only 15%. Gross margins improved in all
segments of the Company in the six month period, due to
continuing efforts to improve purchasing efficiencies and terms
with vendors.
For the six months ended September 27, 1997, catalog sales had a
gross profit of $2,107,000 or 51.67% of sales, compared to
$2,061,000 or 51.44% of sales for the previous period. Retail
store sales had a gross margin of $562,000 or 40.61% of sales,
compared to $555,000 of sales of 40.52% in the previous period.
Renewable energy sales had a gross margin of 35.05% or $369,000,
compared to 34.43% of sales or $989,000 for the previous period
which included the Belize sale.
For the three months ended September 27,1997 gross profit
decreased to 46.63% of sales, or $1,556,000, compared to 47.87%
of sales, or $1,574,000. The prior year period includes a
$200,000 bonus paid for the Belize sale. Catalog and retail
sales showed improvements in gross margins over the same periods
in previous year, and renewable energy sales were at a more
historical rate in comparison to the pervious period that
included the bonus for on time completion of the Belize sale.
Catalog sales had a gross profit of $1,009,000 or 51.09% of
sales, compared to $879,000 or 50.89% of sales for the previous
period. Retail store sales had a gross margin of $299,000 or
40.47% of sales, compared to $307,000 or 38.7% of sales in the
previous period. Renewable energy sales had a gross margin of
$223,000 or 37.27% of sales, compared to $367,000 or 49.1% of
sales in the previous year, distorted by the on time bonus.
OPERATING EXPENSES
Selling, general and administrative expenses were $3,444,000 for
the six months ending September 27, 1997, compared to $3,306,000
for the previous year. The large renewable energy sale in the
previous period distorts customary comparisons of expenses as a
percentage of sales. Selling, general and administrative expenses
amounted to $1,701,000 for the quarter, compared to $1,575,000
for the same period in the previous year.
Paper and postage costs remained at 24% of catalog sales despite
the UPS strike, as there was stability in the paper markets, and
the small reductions the Company has experienced due to favorable
postal reclassification regulations. The Company spent $171,000
on advertising in the six months, compared to $72,000 in the
previous year, largely in attempts to grow catalog sales through
exploring other options to acquire names, particularly through
Skymall. The Company also invested in its web site, and
currently has a significant catalog and renewable energy sales
site that has just begun to contribute to sales.
The sale of the Snow Belt store was concluded in the three month
period, however the Company still owns the land and building.
Additionally, a third retail store is scheduled to open in
Berkeley, California in November. The Company has undergone some
reorganizational and staffing up costs in preparation for this
opening, as well as selling expenses in connection with the sale
of Snow Belt.
INTEREST
The Company had $55,000 of net interest expense in the first six
months, compared to $23,000 of net interest expense in the same
period of the previous year. The interest expense increase is
due to the loans required to finance the Solar Living Center.
EARNINGS
The Company had a before tax loss of $420,000 and a net loss of
$252,000 or $0.07 per share for the first six months of fiscal
1998. In the previous year, the Company had before tax earnings
of $306,000, and net earnings of $184,000 or $0.05 per share,
which were due to the large Belize sale in the period, and were
the largest ever reported by the Company for the first six
months. For the three months ended September 27, 1997, the
Company had a before tax loss of $170,000 with a net loss of
$102,000, or $0.03 per share compared to a before tax loss of
$26,000 and a net loss of $35,000 or $0.01 per share in the
comparable prior year period. The Company generally experiences
seasonal effects, with sales and earnings increasing in the first
three quarters with the largest gains in the Company's third
quarter, which is the holiday season, while sales and earnings
fall in the fourth quarter.
INCOME TAXES
Income taxes as a percentage of pretax income was 40% for both
six month periods. The Company believes that the applied tax rate
accurately reflects its actual experience.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended September 27, 1997 cash of $5,000 was
used by operations, primarily due to an increase in accounts
payable of $801,000, which includes $120,000 payable to the
selling shareholder, as well as an increase in customer deposits
of $526,000 which includes receipts from the current direct
public offering for shares not yet issued. These gains in
operating cash were offset by increases in accounts receivable of
$145,000, due to the sales to Skymall, inventory increases of
$237,000 used to stock the Berkeley store, and increased deferred
catalog costs of $319,000 due to slightly accelerated holiday
mail dates. The Company's direct public offering generated
$429,000 of cash and $235,000 expenses, as well as $120,000 in
accounts payable and $544,000 of customer deposits.
Cash used in investing activities reflects the purchase of
equipment of $197,000, offset by $35,000 received from the sale
of Snow Belt equipment and other assets. Cash of $23,000 was
used to repay debt.
The net effect of all of the Company's activities was to decrease
cash by $180,000 at the end of the first six months from $513,000
at the end of fiscal 1997 to $332,000.
In August 1997 the Company commenced a direct public offering of
1,000,000 shares of common stock. The net proceeds of such
offering are expected to provide the Company with resources
primarily to expand the Company's retail presence, to build
additional infrastructure and to retire indebtedness. In the
absence of proceeds from the offering, 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, 1998, the Company
does not anticipate any difficulty renewing the line of credit.
EFFECTS OF INFLATION
The overall effects of inflation on the Company's business during
the periods discussed were not believed to be material.
*****
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable.
Item 2. Changes in Securities.
Not Applicable.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security-Holders.
The Annual Meeting of shareowners of Real Goods Trading
Corporation was held on August 16, 1997.
The following persons were elected to serve as Directors
of the Corporation for a term of one year or until their
successors are elected and qualified:
<TABLE>
CAPTION
Witheld, against
For and abstentions
<C> <C>
Linda Francis 3,043,035 6,617
John Lenser 3,043,190 6,462
Stephen Morris 3,043,035 6,617
Barry Reder 3,042,692 6,960
James Robello 3,041,894 7,758
John Schaeffer 3,043,542 6,110
</TABLE>
The number of shares issued, outstanding and entitled to vote at
the meeting was 3,049,652.
Item 5. Other Information.
Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
Not Applicable
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)
by:[S]DONNA MONTAG
Donna Montag/Chief Financial Officer
DATED: November 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-27-1997
<CASH> 332
<SECURITIES> 0
<RECEIVABLES> 320
<ALLOWANCES> 6
<INVENTORY> 2,349
<CURRENT-ASSETS> 4,139
<PP&E> 4,045
<DEPRECIATION> 651
<TOTAL-ASSETS> 7,657
<CURRENT-LIABILITIES> 2,078
<BONDS> 0
0
0
<COMMON> 4,272
<OTHER-SE> 187
<TOTAL-LIABILITY-AND-EQUITY> 7,657
<SALES> 6,556
<TOTAL-REVENUES> 6,556
<CGS> 3,476
<TOTAL-COSTS> 3,476
<OTHER-EXPENSES> 3,444
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55
<INCOME-PRETAX> (420)
<INCOME-TAX> (168)
<INCOME-CONTINUING> (252)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (252)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
