U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 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 Identification
incorporation or organization) Number)
555 Leslie Street, Ukiah, California 95482
(Address of principal executive office) (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 July 25, 1997, there were issued and outstanding 3,403,804
shares of common stock of the issuer.
<PAGE>
REAL GOODS TRADING CORPORATION
INDEX
Page
Form 10-QSB Cover Page 1
Index 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheet at June 28, 1997 3
Condensed Consolidated Statements of Operations for the
three-month period ended June 28, 1997 4
Condensed Consolidated Statements of Cash Flows for the
three month period ended June 28, 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 10
Item 2. Changes in Securities.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of
Security-Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
Signatures 10
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
REAL GOODS TRADING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(In thousands except share data)
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<CAPTION>
<S> <C>
June 28,
1997
ASSETS
Current Assets
Cash $ 612
Accounts Receivable, net of allowance of $6 121
Inventories 2,046
Deferred catalog costs, net 230
Prepaid expenses 192
Total current assets 3,201
Property, equipment and improvements, net 3,366
Intangible assets and other assets, net 157
Total assets $ 6,724
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities
Accounts payable $ 659
Accrued expenses 272
Customer deposits 88
Current maturities of long-term debt 37
Deferred income taxes 13
Income taxes and other taxes payable (20)
Total current liabilities 1,049
Long-term debt 1,134
Total liabilities 2,183
Shareowners' equity
Common stock, without par value: Authorized 10,000,000
shares; Issued and outstanding 3,403,804 shares 4,252
Retained Earnings 289
Total shareowners' equity $4,541
Total liabilities and shareowners' equity $6,724
</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>
<CAPTION>
Three Months Ended
June 28, June 29,
1997 1996
<S> <C> <C>
Net Sales $3,219 $4,992
Cost of sales 1,696 2,930
Gross Profit 1,523 2,062
Selling, general and administrative
expenses 1,743 1,731
Earnings (loss) from operations (220) 331
Interest income (expense), net (30) 1
Earnings (loss) before income taxes (250) 332
Income tax benefit (expense) 100 (113)
Net earnings (Loss) $ (150) $ 219
Net earnings (loss) per share $(0.04) $0.06
Weighted average shares used to
compute earnings per share 3,403,804 3,434,666
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
REAL GOODS TRADING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
June 28, June 29,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings (Loss) $ (150) $ 219
Adjustments to reconcile net
earnings (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 74 51
Changes in assets and liabilities:
Accounts receivable 48 (284)
Inventory 66 91
Deferred catalog costs 153 185
Prepaid expenses (80) 266
Accounts payable 179 239
Accrued expenses 12 136
Income taxes and other taxes payable (111) 113
Customer deposits 3 (542)
Net cash provided by operating activities 194 474
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of land, equipment, and construction
in progress (85) (493)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings 783
Repayment of debt (10)
Purchase of common stock 9
Net cash provided by (used in) financing
activities (10) 792
Net increase in cash 99 773
Cash at beginning of period 513 270
Cash at end of period $ 612 $ 1,043
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
REAL GOODS TRADING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTH PERIOD ENDED JUNE 28, 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 June 28,
1997 and June 29, 1996, and the interim results of operations and
cash flows for the three months then ended. Certain
reclassifications have been made in the June 1996 financial
statements to conform to the June 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, 1996.
The results of operations for the three month period herein
presented are not necessarily indicative of the results to be
expected for the full year.
NOTE 2 - NEW ACCOUNTING PRONOUNCEMENTS
In February 1997 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earning 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 would have been ($.04) and $.06 for the three months
ended June 28, 1997 and June 29, 1996 respectively. 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 June 28, 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 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 June 28, 1997.
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 up to 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 five years from the date of grant. As of June
28, 1997 25,600 options had been exercised and options to purchase
340,700 shares were outstanding.
Under the Company's Amended and Restated Non-Employee Directors'
Stock Option plan the Company can grant non-qualified options to
purchase up to 100,000 shares of common stock. As of June 28, 1997,
no options had been exercises, and options to purchase 35,000
shares were outstanding.
In September 1995, the Company announced that its Board of
Directors had approved a stock repurchase program. The Company is
authorized to repurchase up to $250,000 of common stock. As of
June 28,1997, the company repurchased 6,284 shares at an average
price of $5.50 per share.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales
Net sales for the first quarter of fiscal 1998 were $3,219,000,
which was flat compared to $3,192,000 in the first quarter of the
previous year if the $1.8 million sale in Belize is excluded. First
quarter fiscal 1997 net sales were $4,992,000 including the $1.8
million 100 kilowatt photovoltaic renewable energy sale.
Catalog net sales for the quarter decreased by 8% to $2,103,000
compared to $2,280,000 in the previous year. Catalog circulation
was flat at 1,235,000 compared to 1,243,000 in the previous year.
Prospecting lists for the spring book did not respond as well as in
the previous year, resulting in the lower response rate. Catalog
sales were 65% of total sales in the first quarter of fiscal 1998,
compared to 71% in the first quarter of fiscal 1997, excluding the
Belize sale.
Retail store sales increased 12% to $644,000 for the first quarter,
compared to $577,000 for the same period in the previous year. In
fiscal 1997 the Solar Living Center came on line in May, and the
Eugene store moved in the same month to a larger location. Retail
sales were 20% of total sales in the first quarter of fiscal 1998,
compared to 18% in the first quarter of fiscal 1997, excluding the
Belize sale.
Renewable energy sales were $455,000, compared to $2,126,000 which
included the $1,800,000 sale to the eco-tourism market, showing a
40% growth if the Belize sale were excluded. The continuing
increase in sales is attributed to the Company's strategy to
support the specialization of some of its sales staff in renewable
energy sales, to increase customer service in this area, and to
explore new marketing strategies for the department, including
cultivating the international eco-tourism market. Renewable energy
sales were 14% of total sales in the first quarter of fiscal 1998,
compared to 10% of sales in first quarter of fiscal 1997, excluding
the Belize sale.
Gross Profit
For the first quarter ended June 28, 1997, gross profit was 47.3%
of sales, or $1,523,000, compared to gross profit in the prior year
period of 41.3% of sales, or $2,062,000. Overall margins
increased due to the higher proportion of catalog and retail sales
in overall sales, in comparison to the previous year which had
included the large renewable energy sale. Additionally, margins
increased due to the Company's continued success in improving
purchasing efficiencies and improving terms with vendors.
Catalog sales had a gross margin of $1,098,000 or 52.2% of sales,
compared to $1,182,000 or 51.8% of sales in the previous year.
Retail store sales had a gross margin or $263,000 or 40.8% of
sales, compared to $248,000 or 43% of sales for the previous year,
primarily reflecting retail inventory markdowns due to the planned
sale or closing of the SnowBelt store. Renewable energy sales had
a gross margin of $146,000, or 32.1% of sales, compared to
$622,000 or 29.3% of sales in the previous year including the
Belize sale.
Operating Expenses
Selling, general and administrative expenses remained flat at
$1,743,000 compared to $1,731,000 for the previous year. Due to
lower paper prices, catalog marketing costs were lowered to 27% of
catalog sales, compared to 29% in the previous year. These gains
were offset by higher depreciation and general expenses including
insurance.
Interest
The Company had $30,000 of net interest expense in the first
quarter, compared to $2,000 of interest income in the previous
year. The interest expense increase is due to the loans required
to finance the Solar Living Center.
Earnings
The Company incurred a loss for the first three months of fiscal
1998 of $250,000 before tax, and a loss of $150,000 net of tax, or
$ .04 per share, compared to earnings in the first quarter of
fiscal 1997 of $332,000, and $219,000 net of tax or $ .06 per
share. The Company's first fiscal quarter, which ends at the end
of June, is usually a weak quarter for the Company and historically
has not been a profitable quarter. With the exception of the first
quarter of fiscal 1997 due to the Belize sale, the Company
generally experiences seasonal effects, with sales and earnings
increasing in the first two quarters, and the largest gains in the
Company's third quarter, which is the holiday season.
Income Tax Provision
The provision for income taxes was 40%, compared to the previous
year's comparable period of 34%. The Company believes that the
applied tax rate accurately reflects its projected rate for the
year.
Liquidity and Capital Resources
During the three months ended June 28, 1997, cash generated from
operations was $194,000, despite a net loss of $150,000, primarily
due to a decrease in deferred catalog costs of $153,000 and an
increase in accounts payable of $179,000. The Company used $85,000
largely to upgrade some computer and phone
systems.
The net effect of all of the Company's activities was to increase
cash to $612,000 at the end of the first quarter from $513,000 at
the end of the fiscal year.
The Company has commenced an 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. If the offering is not successful, the Company will
revise its retail expansion plans. In the absence of proceeds from
the offering, the Company believes that cash flow from operations
together with bank debt financing and existing cash reserves will
be sufficient to fund the Company's operations for the next twelve
months.
Effects of Inflation
The overall effects of inflation on the Company's business during
the periods discussed were not believed to be material.
*****
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable.
Item 2. Changes in Securities.
Not Applicable.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security-Holders.
Not Applicable
Item 5. Other Information.
Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
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)
DATED: August 12, 1997
by:[S]DONNA MONTAG
Donna Montag
Chief Financial Officer
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<PERIOD-END> JUN-28-1997
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<ALLOWANCES> 6
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0
0
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<OTHER-SE> 289
<TOTAL-LIABILITY-AND-EQUITY> 6724
<SALES> 3219
<TOTAL-REVENUES> 3219
<CGS> 1696
<TOTAL-COSTS> 1696
<OTHER-EXPENSES> 1743
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