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 27, 1998 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 July 27, 1998, there were issued and outstanding 3,955,160
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 27, 1998 3
Condensed Consolidated Statements of Operations for the
three-month periods ended June 27, 1998 and June 28, 1997 4
Condensed Consolidated Statements of Cash Flows for the
three month periods ended June 27, 1998 and 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)
<TABLE>
<CAPTION>
June 27,
1998
<S> <C>
ASSETS
Current Assets
Cash $1,539
Accounts Receivable, net of allowance of $6 169
Note receivable from affiliate 59
Inventories 2,374
Deferred catalog costs, net 202
Prepaid expenses 171
Total current assets 4,514
Property, equipment and improvements, net 3,568
Intangible assets and other assets, net 152
Income taxes receivable 289
Total assets $ 8,523
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities
Accounts payable $ 649
Accrued expenses 338
Customer deposits 507
Current maturities of long-term debt 17
Deferred income taxes 23
Other taxes payable 82
Total current liabilities 1,616
Long-term debt 564
Total liabilities 2,180
Shareowners' equity
Preferred stock, no par value;
Authorized 1,000,000 shares;
None issued or outstanding -
Common stock, no par value:
Authorized 10,000,000 shares;
Issued and outstanding 3,955,160 shares 6,409
Retained Deficit (66)
Total shareowners' equity $6,343
Total liabilities and shareowners' equity $ 8,523
</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>
<CAPTION>
Three Months Ended
June 27, June 28,
1998 1997
<S> <C> <C>
Net Sales $3,055 $3,219
Cost of sales 1,699 1,696
Gross Profit 1,356 1,523
Selling, general and administrative expenses 1,681 1,743
Loss from operations (325) (220)
Interest and other income (expense), net 20 (30)
Loss before income taxes (305) (250)
Income tax benefit 122 100
Net Loss $ (183) $ (150)
Net loss per share $ (0.05) $ (0.04)
Weighted average shares outstanding 3,910,008 3,403,804
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
REAL GOODS TRADING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
June 27, June 28,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (183) $ (150)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 57 75
Changes in assets and liabilities:
Accounts receivable 41 48
Note receivable from affiliate (59) -
Inventory (38) 66
Deferred catalog costs 237 153
Prepaid expenses 43 (80)
Income taxes receivable (122) (98)
Accounts payable (77) 179
Accrued expenses ( 7) (32)
Other taxes payable 48 30
Customer deposits 73 3
Net cash provided by operating activities 13 194
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment, improvements,
and construction in progress (115) (85)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (4) (10)
Sale of common stock 344 -
Net cash provided by (used in)
financing activities 340 (10)
Net increase in cash 238 99
Cash at beginning of period 1,301 513
Cash at end of period $ 1,539 $ 612
</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 27, 1998
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 June 27, 1998 and June
28, 1997, and the interim results of operations and cash flows
for the three months then ended. Certain reclassifications have
been made in the June 1997 financial statements to conform to
the June 1998 presentation.
Accounting policies followed by the Company are described in Note
1 to the audited financial statements for the fiscal year ended
March 31, 1998 included in the Company's fiscal 1998 Annual
Report to Shareowners. 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,
1998.
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 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997 the Financial Accounting Standards Board issued two
new prouncements, SFAS No. 130 "Reporting Comprehensive Income"
and SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 130 requires companies to report,
by major components and as a single total, the change in its net
assets during the period from non-owner sources. SFAS No. 131
establishes annual and interim reporting standards for a
company's operating segments and related disclosures about its
products, services, geographic areas and major customers.
Adoption of these new prouncements will not impact the financial
position, results of operations or cash flows of the Company 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.
NOTE 3 - LINE OF CREDIT
On April 7, 1998 the Company renewed its $1,500,000 line of
credit agreement with National Bank of the Redwoods (the "Bank")
through April 7, 1999. Borrowings bear interest at 1.5% over the
prime rate, interest is payable monthly, and there are no loan
fees. The line is personally guaranteed by the Company's CEO and
majority shareowner. On June 27, 1998, 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 CEO and
majority shareowner. The Company was in compliance with all
covenants of the extended line of credit agreement as of June 27,
1998.
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 June 27, 1998, the Company had sold and issued 543,701
shares of common stock, generating gross proceeds of $2,907,000
and had incurred costs of $663,000 related to the direct public
offering. As of the closing date of the offering on June 30,
1998, the Company had sold 677,000 shares for gross proceeds of
$3.6 million with costs of approximately $675,000.
Under the terms of the Company's Articles of Incorporation, the
Board of Directors may determine the rights, preferences and
terms of the Company's authorized, but unissued shares of
preferred stock.
NOTE 5 - LEGAL ACTION
The Company has been named as the defendant in a class-action
suit, which alleges that, with respect to three products sold
through the Company's catalogs, certain claims are deceptive,
untrue or misleading. The suit seeks restitution for the amount
of revenues derived from these products over the four years prior
to this suit and attorney fees.
The Company intends to defend the matter aggressively. No
reserves for this action have been established as of June 27,
1998.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SALES
Net sales of $3,055,000 for the first quarter of fiscal 1999 were
down 5% from the first quarter of fiscal 1998 of $3,219,000
primarily due to weaker Real Goods catalog sales and the
elimination of the Earth Care catalog.
Catalog net sales in the first quarter of fiscal 1999 decreased
by 20% to $1,752,000 from $2,103,000 in the first quarter of
fiscal year 1998. The primary cause for this decrease was a lower
response rate to the Company's Real Goods Catalog and a drop of
$98,000 in revenue as a result of discontinuing the Earth Care
catalog. Catalog sales were 57% of total net sales in the first
quarter of fiscal year 1999 as compared with 65% in the first
quarter of fiscal 1998.
Retail store net sales increased 18% to $762,000 from $644,800 in
the first quarter last year. The primary cause for this increase
was the addition of new retail and outlet stores (two separate
but adjacent locations) in Berkeley, California in November 1997.
These sales increases were offset by a small drop in sales at the
flagship Hopland, California store and the closure of the
Company's store in Amherst, Wisconsin in fiscal 1998. The Company
is continuing to revise its retail store format and approach
before implementing additional new stores. Retail sales amounted
to 25% of total net sales in the first quarter of fiscal 1999 as
compared with 20% of total net sales in the same period last
year.
Renewable energy sales increased 19% to $540,000 in the first
quarter of fiscal 1999 from $455,000 in the same period in fiscal
1998. The primary reason for this increase is the success of the
Company's utilization of the incentive program being provided by
the California Energy Commission in connection with the
deregulation of California utilities. This program did not exist
at the same time last year. Renewable energy sales amounted to
18% of total net sales in the first quarter of fiscal 1999 as
compared with 14% of the total in the same period last year.
GROSS PROFIT
Gross profit for the three months ended June 27, 1998 was
$1,356,000 or 44.4% of sales as compared with $1,523,000 or 47.3%
in the same period last year. Overall margins declined with the
relatively lower proportion of catalog sales, which are
historically the Company's most profitable area, and a higher
proportion of low margin renewable energy sales in the first
quarter of fiscal year 1999 as compared with the first quarter of
the prior year.
Catalog sales had a gross profit of 48.7% or $853,000, for the
first quarter of fiscal 1999 as compared with a gross profit of
52.2% or $1,098,000 for the same period in fiscal 1998. This drop
of 3.5% in profitability reflects an increase in the cost of
products sold and higher sales returns as compared with the same
period in fiscal 1998. Retail stores' margins for the first
quarter of fiscal 1999 were 40.4% or $308,000 and were roughly
the same percentage of sales as that of the prior year, 40.8% or
$263,000 respectively. Renewable energy sales had a gross margin
of $195,000 or 36.1% of sales as compared to $146,000 or 32.1% of
sales in the same period of the prior fiscal year. The increase
in margin for renewable energy sales is a result of higher volume
and better profit margins stimulated by the California Energy
Commission Credits program.
OPERATING EXPENSES
Selling, general and administrative expenses were $1,681,000, or
55.0% of net sales and were relatively flat as a percentage of
sales compared with the first three months of the prior year,
$1,743,000 and 54.2%, respectively. This slight increase in
percentage reflects percentage increases in the areas of labor,
depreciation and fixed charges such as rent and training costs.
INTEREST EXPENSE AND OTHER INCOME
In the first quarter of fiscal 1999, the Company had net other
income of $20,000 as compared with net interest expense of
$30,000 in the first quarter of fiscal 1998. The income figure of
$20,000 in fiscal 1999 consists of a gain on the sale of
equipment; interest expense on the SBA loan for the Solar Living
Center was offset by an equivalent amount of interest income on
the direct public offering funds. In the same period last year,
the $30,000 interest expense figure was composed of interest on
the SBA loan and the credit line, the latter of which has since
been repaid.
EARNINGS
For the first three months of fiscal 1999 the Company incurred a
before tax loss of $305,000 and a net loss of $183,000, or $.05
per share compared to a before tax loss in the first quarter of
fiscal 1998 of $250,000, and a net loss of $150,000 or $.04 per
share.
The Company's first fiscal quarter, which ends at the end of
June, is historically a weak quarter and is almost never
profitable. The Company typically experiences a moderate degree
of seasonality with sales and earnings building toward the third
quarter (the holiday season) which is historically the Company's
strongest quarter. Fiscal 1999 is a restructuring transition year
and, based on current budgets, management does not expect it to
be profitable.
INCOME TAX PROVISION
The provision for income taxes was 40% in both periods. The
Company believes that the applied tax rate accurately reflects
its projected rate for the year.
LIQUIDITY AND CAPITAL RESOURCES
For the quarter ended June 27, 1998, cash generated from
operations was $13,000 despite a net loss of $183,000 primarily
due to a decrease in deferred catalog costs and an increase in
customer deposits relating to the direct public offering. The
Company used $115,000 to upgrade its main computer systems at its
headquarters and it increased its cash position by $344,000
through the sale of stock in its direct public offering.
The net effect of these activities was to increase cash from
$1,301,000 at March 31, 1998 to $1,539,000 at June 27, 1998.
The Company believes that cash from operations and available
borrowings will be adequate to meet anticipated requirements for
working capital, capital expenditures and debt service for the
foreseeable future.
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.
Incorporated by reference; see Note 5 - "Legal Action" in
accompanying Notes to Condensed Consolidated Financial
Statements.
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 10, 1998
by:[S]LESLIE B. SEELY
Leslie B. Seely
Chief Financial Officer
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-27-1998
<CASH> 1,539
<SECURITIES> 0
<RECEIVABLES> 234
<ALLOWANCES> 6
<INVENTORY> 2,374
<CURRENT-ASSETS> 4,514
<PP&E> 4,410
<DEPRECIATION> 842
<TOTAL-ASSETS> 8,523
<CURRENT-LIABILITIES> 1,616
<BONDS> 0
0
0
<COMMON> 6,409
<OTHER-SE> (66)
<TOTAL-LIABILITY-AND-EQUITY> 8,523
<SALES> 3,055
<TOTAL-REVENUES> 3,055
<CGS> 1,699
<TOTAL-COSTS> 1,699
<OTHER-EXPENSES> 1,681
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (20)
<INCOME-PRETAX> (305)
<INCOME-TAX> 122
<INCOME-CONTINUING> (183)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (183)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
