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 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 February 2, 1998, there were issued and outstanding
3,768,998 shares of common stock of the issuer.
<PAGE>
REAL GOODS TRADING CORPORATION
INDEX
<TABLE>
<S> <C>
Page
Form 10-QSB Cover Page 1
Index 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance sheet at December 27, 1997 3
Condensed Consolidated Statements of Operations for the
three-month and nine-month periods ended December 27, 1997
and December 28, 1996 4
Condensed Consolidated Statements of Cash Flows for the
nine month periods ended December 27, 1997 and December
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
</TABLE>
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
REAL GOODS TRADING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(In thousands except share data)
<TABLE>
December 27,
1997
<S> <C>
ASSETS
Current Assets:
Cash $1,043
Accounts receivable, net of allowance of $6 360
Inventories 2,653
Deferred catalog costs, net 354
Prepaid expenses 162
Total current assets 4,572
Property, equipment and improvements, net 3,558
Intangible assets and other assets, net 121
Total assets $ 8,251
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Accounts payable $ 928
Accrued expenses 486
Customer deposits 206
Current maturities of short term debt 15
Deferred income taxes 13
Income taxes payable (24)
Total current liabilities 1,624
Long-term debt 578
Total Liabilities 2,202
Shareowners' equity
Common stock, without par value: Authorized 10,000,000
shares; issued and outstanding 3,748,028 shares 5,649
Retained Earnings 400
Total shareowners' equity 6,049
Total liabilities and shareowners' equity $8,251
</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 27, December 28, December 27, December 28,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $6,977 $6,932 $13,533 $15,211
Cost of sales 3,338 3,268 6,815 7,912
Gross profit 3,639 3,664 6,718 7,299
Selling, general and
administrative expenses 3,266 3,071 6,710 6,377
Earnings from operations 373 593 8 922
Interest expense (16) (40) (71) (62)
Earnings (loss)
before income taxes 357 553 (63) 860
Income tax benefit (expense) (143) (221) 25 (344)
Net earnings (loss) $ 214 $ 332 $ (38) $ 516
Net earnings (loss) per
share, basic and diluted $ 0.06 $0.10 $(0.01) $0.15
Weighted average shares
outstanding, basic 3,580,103 3,406,371 3,427,684 3,421,368
Weighted average shares
outstanding, diluted 3,742,677 3,542,371 3,586,036 3,557,368
</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 27, December 28,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings (Loss) $ (38) $516
Adjustments to reconcile net earnings
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 233 197
Other 21
Changes in assets and liabilities:
Accounts receivable (191) 12
Inventory (541) (238)
Deferred catalog costs 29 32
Prepaid expenses (50) 119
Accounts payable 447 993
Accrued expenses 127 (26)
Customer deposits 121 (591)
Income and other taxes payable (16) 367
Net cash provided by operating activities 121 1,402
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of land, equipment and
construction in progress (434) (621)
Proceeds from sale of equipment
and other assets 35 7
Net cash (used in) investing activities (399) (614)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings 788
Proceeds from issuance of common stock, net 1,397 13
Repayment of debt (589)
Purchase of common stock (110)
Net cash provided by financing activities 808 691
Net increase in cash 530 1,472
Cash at beginning of period 513 270
Cash at end of period $1,043 $ 1,794
</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, 1997
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 27, 1997 and
the interim results of operations for the three and nine month
periods ended December 27, 1997 and December 28, 1996 and cash
flows for the nine months ended December 27, 1997 and December
28, 1996. Certain reclassifications have been made in the
December 1996 financial statements to conform to the December
1997 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, 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 financial statements, including notes thereto, for the
year ended March 31, 1997.
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 - NEW ACCOUNTING PROUNCEMENTS
During the quarter ended December 27, 1997 the Company adopted
Statement of Financial Accounting Standards No. 128, "Earnings
per Share" (SFAS 128). Prior periods have been restated to
conform with the requirements of SFAS 128. 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.
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 nonowner sources: 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.
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 on April
8, 1998. On December 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 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 December 27, 1997.
NOTE 4 - LONG TERM DEBT
On November 13, 1997, the Company repaid its loan from National
Bank of the Redwoods. $554,000 was outstanding on the loan on
that date.
NOTE 5 - 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 December 27, 1997, the Company had sold and issued
340,027 new shares of common stock , generating gross proceeds of
$1,809,000, and had incurred costs of $433,000 related to the
direct public offering.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales
Net sales for the first nine months of fiscal 1998 were
$13,533,000, which was an increase of 2% compared to $13,250,000
in the first nine 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 11% from $15,211,000 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 sales for the nine months were flat at $9,715,000,
compared to $9,720,000 in the previous year. Catalog circulation
for the nine months increased 5% over the previous year, with the
third quarter mailing showing a 17% increase over the previous
year.
Retail store sales in the nine months increased 3% to $2,300,000
compared to $2,238,000 for the same period in the previous year.
The Company opened a retail store in Berkeley, California on
November 20, 1997. Unusual circumstances affected each of the
Company's stores during comparable periods. In August 1997 the
Company completed the sale of its Snow Belt store to two former
employees. Sales in this store had not met Company expectations.
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 10% in the nine
month period, and sales at the Eugene store increased 11% in the
same period.
Renewable energy sales in the first nine months increased 13% to
$1,466,000, compared to $1,292,000 for the same nine months,
excluding the $2 million sale in Belize in fiscal 1997. The
continuing increase in sales is attributable to the Company's
strategy to support the specialization of sales staff and to
increase catalog effort for this market.
For the three months, ended December 27, 1997, the Company's net
sales were flat at $6,977,000 compared to $6,932,000 in the same
period of the previous year. Catalog net sales for the three
months were flat at $5,637,000 compared to $5,713,000. The
Company had increased catalog circulation 17% in the
traditionally strong third quarter. Retail store sales for the
three months increased 6% to $917,000, compared to $869,000 for
the third quarter of the previous year. Sales for the three
months reflect full comparable operations at the Hopland and
Eugene stores, and 6 weeks of results for the Berkeley store,
with the previous year including the results at the Snow Belt
store. Hopland store sales decreased 8% in the quarter, and
Eugene store sales increased 10% in the same period. Renewable
energy sales increased 23% in the third quarter to $412,000,
compared to $335,000 for the same quarter in the previous year.
Gross Profit
For the nine months, ended December 27, 1997, gross profit rose
to 49.6% of sales, or $6,718,000 compared to 48% of sales
including the Belize sale in the previous year, or $7,299,000.
Sales comparisons for the previous year including the Belize
sale, declined by 11%, yet margins declined by only 8%. Gross
margins remained at improved levels in all segments of the
Company in the nine month period, due to implemented improvements
in purchasing agreements.
For the first nine months catalog sales had flat gross profits of
$5,209,000 or 53.6% of sales, compared to $5,231,000 or 53.8% of
sales for the same period in the previous year. Retail store
sales increased 3% in the period, but margins increased by 5%.
The retail stores had a gross profit of $941,000, or 40.9% of
sales, compared to $898,000 or 40.1% of sales in the previous
period. Renewable energy sales realized a gross profit of 35%,
or $514,000 compared to $1,125,000 in the previous period.
For the three months ended December 27, 1997 gross profit
remained flat at $3,639,000 or 52.2% of sales compared to
$3,664,000 or 52.8% of sales for the same period in the previous
year. Catalog sales had a gross profit of $3,103,000 or 55% of
sales, compared to $3,170,000 or 55.4% of sales for the previous
period. Retail store sales increased 6% in the three month
period, yet gross profit increased 11%. Retail store sales had a
gross profit of $380,000 or 41.4% of sales, compared to $343,000
or 39.4% of sales in the previous period. Renewable energy sales
had a gross profit of $145,000 or 35.2% of sales, which is the
more traditional margin compared to $136,000 or 40.5% of sales in
the previous year.
Operating Expenses
Sales other than the Belize resort sale were up 2% for the nine
months, but selling, general and administrative expenses
increased 5% or $333,000 to $6,710,000, compared to $6,377,000
for the previous year. The Company spent $350,000 on advertising
in the nine months, compared to $117,000 in the same period of
the previous year, because of the net effect of initiatives to
increase the house file, particularly through Skymall. The
Company has higher fixed costs than in the previous year due to
an increased retail presence.
Selling, general and administrative expenses amounted to
$3,266,000 in the third quarter, which was an increase of 6% or
$195,000 over the same period in the previous year of $3,071,000.
With sales flat in for the quarter, earnings from operations were
5.3% of sales, compared to 8.5% in the third quarter of the
previous year. The Company had internal reorganization costs due
to a changing emphasis on retail and startup costs related to the
opening the Berkeley store in the quarter.
Interest
Interest expense, net of interest income, was $71,000 for the
nine month period, compared to $62,000 in the previous year. The
Company repaid a $554,000 loan in November (see Note 4).
Earnings
For the first nine months, the Company had a before tax loss of
$63,000, and a net loss of $38,000 or $.01 per share, compared
with earnings of $860,000 before tax, and $516,000 net of tax, or
$0.15 per share the previous year that included the Belize sale.
For the third quarter, the Company had earnings before tax of
$357,000, and net earnings of $214,000 or $0.06 per share,
compared to earnings before taxes of $553,000 and net earnings of
$332,000 or $0.10 per share in the previous year. 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.
Income Taxes
Income taxes as a percentage of pretax income was 40% for both
nine month periods. The Company believes that the applied tax
rate accurately reflects its actual experience.
Liquidity and Capital Resources
During the nine months ended December 27, 1997, cash of $121,000
was provided by operations, primarily due to an increase in
accounts payable and accrued expenses of $574,000, offset by the
increase in holiday inventory of $541,000. The Company invested
$434,000 for the nine months, largely in fixtures for the
Berkeley store as well as ongoing investments for upgrading
computer equipment. Cash of $1,397,000 was received, net of
issuance costs, through the Company's ongoing direct public
offering, and $554,000 was used to repay an outstanding loan.
The net effect of all of the Company's activities was to increase
cash to $1,043,000 at the end of the first nine months from
$513,000 at the end of the previous 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,
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.
*****
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 December 30, 1997
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: February 10, 1998
