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 25, 1999
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)
3440 Airway Drive, Santa Rosa, California 95403
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (707) 542-2600
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 October 29, 1999, there were issued and outstanding
4,879,942 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 Sheets as of
September 25, 1999 and March 31, 1999 3
Condensed Consolidated Statements of Operations
for the three and six months ended September 25,
1999 and September 26, 1998 4
Condensed Consolidated Statements of Cash Flows
for the six months ended September 25, 1999
and September 26, 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 12
Item 2. Changes in Securities. 12
Item 3. Defaults Upon Senior Securities. 12
Item 4. Submission of Matters to a Vote
of Security-Holders. 12
Item 5. Other Information. 12
Item 6. Exhibits and Reports on Form 8-K. 12
Signatures 13
</PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
REAL GOODS TRADING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands except share data)
<TABLE>
<CAPTION>
September 25, March 31,
1999 1999
<S> <C> <C>
ASSETS
Current Assets
Cash $ 3,591 $ 2,048
Accounts receivable,
net of allowance of $6 317 240
Interest receivable from affiliate 5 -
Note receivable - 20
Inventories, net 3,167 2,080
Deferred catalog costs, net 272 272
Prepaid expenses 230 266
Deferred taxes 89 89
Total current assets 7,671 5,015
Property, equipment and
improvements, net 3,537 3,553
Property held for sale 78 78
Note receivable from affiliate 286 196
Other assets 207 198
Deferred taxes 221 39
Total Assets $ 12,000 $ 9,079
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities
Accounts payable $ 737 $ 873
Accrued expenses 498 620
Customer deposits 109 138
Current maturities of long-term debt 17 16
Other taxes payable 27 57
Total current liabilities 1,388 1,704
Long-term debt 543 552
TOTAL LIABILITIES 1,931 2,256
Shareowners' Equity
Preferred stock, without par value;
Authorized 1,000,000 shares;
None issued or outstanding - -
Common stock, without par value;
Authorized 10,000,000 shares;
Issued and outstanding 4,879,942
shares at September 25, 1999 and
4,080,742 at March 31, 1999 10,772 7,188
Accumulated deficit (703) (365)
Total shareowners' equity 10,069 6,823
TOTAL LIABILITIES AND
SHAREOWNERS' EQUITY $ 12,000 $ 9,079
</TABLE>
See notes to condensed consolidated financial statements
</PAGE>
REAL GOODS TRADING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Sept 25, Sept 26, Sept 25, Sept 26,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales $3,984 $3,797 $8,101 $7,130
Cost of sales 2,350 2,208 4,822 4,126
Gross profit 1,634 1,589 3,279 3,004
Selling, general and
administrative expenses 1,941 1,770 3,807 3,510
Loss from operations (307) (181) (528) (506)
Interest income, net
of interest expense 3 9 8 29
Loss before income taxes (304) (172) (520) (477)
Income tax benefit 106 68 182 190
Net loss $ (198) $ (104) $ (338) $ (287)
NET LOSS PER SHARE,
BASIC AND DILUTED $(0.05) $(0.03) $(0.08) $(0.07)
Weighted average
shares outstanding,
basic and diluted 4,082,785 4,032,800 4,081,339 3,950,760
</TABLE>
See notes to condensed consolidated financial statements
</PAGE>
REAL GOODS TRADING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
September 25, September 26,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (338) $ (287)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 204 173
Deferred income taxes (182) (190)
Changes in assets and liabilities:
Accounts receivable (77) (71)
Inventory (1,087) (226)
Deferred catalog costs - 34
Prepaid expenses 36 48
Other 11 -
Accounts payable (136) 301
Accrued expenses (122) 98
Customer deposits (29) (331)
Other taxes payable (30) 8
NET CASH USED IN
OPERATING ACTIVITIES (1,750) (443)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment, improvements,
and construction in progress (188) (205)
Note and interest receivable
from affiliate (95) (111)
Proceeds from sale of assets - 19
NET CASH USED IN INVESTING ACTIVITIES (283) (297)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of stock (3) -
Repayment of debt (8) (7)
Proceeds from issuance of common
stock, net of issue costs 3,587 1,130
NET CASH PROVIDED BY
FINANCING ACTIVITIES 3,576 1,123
NET INCREASE IN CASH 1,543 383
CASH AT BEGINNING OF PERIOD 2,048 1,301
CASH AT END OF PERIOD $ 3,591 $ 1,684
</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 MONTHS ENDED SEPTEMBER 25, 1999
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 as of September 25, 1999
and the interim results of operations and cash flows for the
three and six months ended September 25, 1999 and September 26,
1998. Certain reclassifications have been made to the prior year
amounts to conform to the September 1999 presentation (see Note 2
below). The balance sheet as of March 31, 1999 was derived from
the Company's audited consolidated financial statements included
in the Company's Annual Report on Form 10KSB for the year ended
March 31, 1999.
Accounting policies followed by the Company are described in Note
1 to the audited financial statements for the fiscal year ended
March 31, 1999 included in the Company's fiscal 1999 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,
1999.
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 - CHANGE OF PRESENTATION
Included in net sales for the three and six month periods ended
September 25, 1999 and September 26, 1998 are shipping and
handling fees collected from customers of $259,000 and $536,000
in fiscal 2000 and $263,000 and $541,000 in fiscal 1999,
respectively. Included in cost of sales for the three and six
month periods ended September 25, 1999 and September 26, 1998 are
freight out expenses of $184,000 and $432,000 in fiscal 2000 and
$139,000 and $285,000 in fiscal 1999, respectively. Previously
these amounts were presented as a net amount in selling, general
and administrative expenses. Such sales and cost of sales have
been reclassified into net sales and cost of sales for the
periods presented because management believes this more
accurately represents its true sales and cost of sales amounts.
NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure these instruments at
fair value. This statement is effective for the Company's first
quarterly filing of fiscal 2002. The Company believes that this
statement will not have a material effect on its financial
statements.
NOTE 4 - LINE OF CREDIT
The Company has a line of credit agreement for $1,500,000 with
National Bank of the Redwoods (the "Bank"). Borrowings bear
interest at 1.5% over the prime rate, payable in monthly
installments. At September 25, 1999 no amounts were outstanding
on the Company's line of credit. Effective September 1, 1999,
the line was extended through August 31, 2000.
The line of credit agreement contains restrictive covenants
including debt to net worth, 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 Chairman and
largest shareowner. At September 25, 1999 the Company was in
compliance with all covenants of the line of credit agreement.
NOTE 5 - SHAREOWNERS' EQUITY
On September 22, 1999 the Company sold 800,000 shares of its
previously unissued common stock to WholePeople.com for
$3,600,000.
</PAGE>
NOTE 6 - SEGMENT INFORMATION
The Company has three divisions (Catalog, Retail and Renewables),
all of which sell products purchased from other suppliers
directly to customers. The customer bases of all three divisions
overlap to some extent, and the purchase and delivery processes
to customers overlap as well.
Each of the three divisions qualifies as a reportable segment
because each is more than 10% of the combined revenue of all
operating segments. Financial information for the Company's
business segments was as follows:
<TABLE>
<CAPTION>
September 25, September 26,
1999 1998
<S> <C> <C>
Net Sales:
Catalog Division $ 4,511 $ 4,009
Retail Division 1,701 1,704
Renewables Division 1,889 1,417
Consolidated Net Sales 8,101 7,130
Gross Margin:
Catalog Division 2,040 1,855
Retail Division 656 686
Renewables Division 583 463
Consolidated Gross Margin 3,279 3,004
Reconciliation of Gross Margin to
Net Loss:
Selling, general & administrative
expenses
Catalog Division 2,120 2,152
Retail Division 921 833
Renewables Division 766 525
Consolidated S G & A expenses 3,807 3,510
Interest income 31 34
Interest expense (23) (24)
Gain on sale of assets - 19
Income tax benefit 182 190
Net Loss $(338) $ (287)
</TABLE>
</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 2000 were
$8,101,000, up 14% from $7,130,000 in the first six months of the
previous year.
Catalog net sales for the first six months of fiscal 2000 were up
13% to $4,511,000 compared with $4,009,000 in the previous year
due to a higher response rate to the Company's Real Goods catalog
and increased sales from the Company's Internet channel which
operates within the catalog division. Catalog sales were 56% of
total net sales in the first half of fiscal 2000 and fiscal 1999.
Retail store sales in the first six months of fiscal 2000 were
$1,701,000 compared to $1,704,000 for the same period in the
previous year. Retail stores amounted to 21% of total net sales
in the first half of fiscal 2000, compared with 24% of total net
sales in the same period last year. The Company had 3 retail
stores and one outlet store open for the full six months in both
reporting periods.
Renewable energy sales in the first six months of fiscal 2000
increased 33% to $1,889,000 compared to $1,417,000 for the same
period in fiscal 1999 due to the Company's utilization of the
incentive program being offered through at least March 2002 by
the California Energy Commission in conjunction with the
deregulation of California utilities and the heightened
interest in energy independence and the potential for Y2K
computer problems. Renewable energy sales amounted to 23% of
total net sales, compared with 20% in fiscal 1999.
For the three months ended September 25, 1999, the Company's net
sales increased 5%, or $187,000, to $3,984,000 compared to
$3,797,000 in the previous period. Net catalog sales for the
three months were up 10% to $2,199,000 compared to $2,009,000 for
the same period in the previous year for the reasons cited above.
Retail store sales for the three months were $911,000, a decrease
of 3% from the previous year's sales of $942,000. The decrease in
retail sales was due to weaker demand for renewable energy
products in part stimulated by a lessening of concern for
potential Y2K computer uncertainties. Renewable energy sales
increased 3% to $874,000 compared to $846,000 for the previous
year.
GROSS PROFIT
For the first six months of fiscal 2000, gross profit dropped to
40.5%, or $3,279,000, compared to 42.1%, or $3,004,000 for the
first six months of fiscal 1999. This decrease in gross profit
percentage for the six month period was primarily due to lower
margins on catalog sales, historically the Company's most
profitable segment, and a higher proportion of lower margin
renewable energy sales in the first half of fiscal 2000, compared
with the first half of fiscal 1999.
The Company's margins were lower in all divisions. For the first
six months ended September 25, 1999, the catalog division had a
gross profit of $2,040,000, or 45.2%, compared to $1,855,000, or
46.3% for the previous period. The retail store division had a
gross profit of $656,000, or 38.6%, compared to $686,000, or
40.3% in the previous period. The renewable energy division had
a gross profit of 30.9%, or $583,000, compared to 32.7% or
$463,000 for the previous period. Decreases in gross profit were
a direct result of the Company's desire to initiate more
competitive pricing on key products and to move discontinued
product via sales promotions.
For the three months ended September 25, 1999, gross profit
decreased to 41.0%, or $1,634,000, compared to 41.8%, or
$1,589,000 all for the reasons cited above. The catalog and
retail divisions showed decreases in gross profit over the same
periods in the previous year, and the renewable energy division's
gross profit was up slightly over the previous period. The
catalog division provided a gross profit of $1,007,000, or 45.8%,
compared to $949,000, or 47.2% for the previous period. The
retail store division generated a gross profit of $354,000, or
38.9%, compared to $379,000, or 40.2% in the previous period. The
decline in gross profit for retail is attributed to a much larger
portion of retail sales being renewable energy product sales,
compared with other, higher margin product sales. The renewable
energy division created a gross profit of $273,000, or 31.2%,
compared to $261,000, or 30.9% in the previous year.
OPERATING EXPENSES
Selling, general and administrative expenses were $3,807,000, or
47.0% of sales for the six months ending September 25, 1999,
compared to $3,510,000, or 49.2% of sales for the previous year.
Selling, general and administrative expenses amounted to
$1,941,000, or 48.7% for the quarter, compared to $1,770,000, or
46.6% for the same period last year as the Company continued to
build infrastructure and upgrade positions.
Increases in operating expenses occurred in the areas of
salaries, wages and benefits, supplies, rents, utilities,
purchased services and travel. Depreciation in the first half of
fiscal 2000 was $204,000, compared with $173,000 in the previous
year. Savings in operating expenses have been made in the areas
of catalog expenses, advertising, postage and freight, repairs
and maintenance, training and education, and recruitment.
INTEREST EXPENSE AND OTHER INCOME
The Company had $8,000 of net interest income in the first six
months, compared to $10,000 of net interest income in the same
period of the prior year. The Company also had a gain of $19,000
on the sale of equipment in the first half of fiscal 1999.
SEASONALITY
The Company's second quarter, which ends at the end of September,
is historically a weak quarter and has never been profitable. As
a retailer, the Company typically experiences seasonality with
sales and earnings building toward the third quarter (the holiday
season) which is historically the Company's strongest quarter.
Income Tax Benefit
The income tax benefit was 35% in the first half of fiscal 2000
compared with 40% in the first half of fiscal 1999. These rates
represent the projected rates expected by management for each
fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended September 25, 1999, $1,750,000 was
used in the Company's operations, primarily to build inventory
for the holiday season and for deferred taxes, accounts payable
and accrued expenses. The Company used $283,000 in its investing
activities, primarily for fixed assets and to fund advances to
the Institute for Solar Living. The Company generated $3,576,000
in net proceeds from its financing activities, primarily through
the sale of 800,000 shares of common stock to Wholepeople.com;
see Note 5 to financial statements.
The net effect of these activities was to increase cash from
$2,048,000 at March 31, 1999 to $3,591,000 at September 25, 1999.
The Company believes that cash balances 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.
YEAR 2000 PREPAREDNESS
The Company continues to address the Year 2000 ("Y2K") problem
through a comprehensive evaluation of its hardware, software,
communications and key external vendors and suppliers. At
September 25, 1999 the Company estimates that it has completed
substantially all of the necessary hardware upgrades and a large
portion of its software upgrades. Costs of the evaluation and
upgrades approximate $250,000 most of which has been incurred in
the normal course of business as periodic software and hardware
upgrades through September 25, 1999.
During the first six months of fiscal 2000, the Company upgraded
its Ukiah facility server and related hardware and software. It
also performed upgrades on its Eugene, Oregon and Hopland,
California stores and added several new PC's and software
upgrades.
The Company continues its software upgrades and vendor
evaluations and certifications. The Company's Y2K initiatives are
on schedule and no major problems have been encountered to this
time. However, there can be no assurance that the systems of
other companies on which the Company and its systems rely will be
converted in a timely fashion, or that any such failure to
convert by another company would not have an adverse effect on
the Company's systems. Furthermore, there can be no guarantee
that these schedules will be achieved, and actual results could
differ materially from these estimates. Specific factors that
might cause such material differences include, but are not
limited to, the availability of personnel trained in this area
and the cost of such personnel, and the ability to locate and
correct all relevant computer codes and similar uncertainties.
While the Company cannot accurately predict a "worst case
scenario" with regard to its Y2K issues, the failure by the
Company and/or vendors to complete Y2K compliance work in a
timely manner could have a materially adverse effect on the
Company's operations. The Company is in the process of assessing
these risks and uncertainties and developing appropriate courses
of action.
*****
</PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable.
Item 2. Changes in Securities.
Incorporated by reference; see Note 5 - "Shareowners' Equity" in
accompanying Notes to Condensed Consolidated Financial
Statements.
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 21, 1999. Two matters were voted
upon:
(1) 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>
Withheld,
abstentions and
For no responses
<S> <C> <C>
John Lenser 2,820,717 1,260,025
Stephen Morris 2,821,484 1,259,258
Barry Reder 2,820,482 1,260,260
Sam Salkin 2,820,966 1,259,776
John Schaeffer 2,821,972 1,258,770
</TABLE>
The number of shares issued, outstanding and entitled to vote at
the meeting was 4,080,742.
(2) A proposal to increase the number of shares in the
Company's Option Plan (the "Second Amended and Restated Fiscal
1993 Stock Incentive Plan") from 600,000 to 1,200,000 shares was
adopted by a vote of shareowners present at the meeting:
1,854,138 votes in favor, 88,482 votes against and 5,510 votes
abstaining.
Item 5. Other Information.
Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
September 23, 1999 - News Release
Real Goods Sells 16% of the Company to Whole
Foods Market for $3.6mm - Strategic Partnership to
Focus on Broad Based Internet and Retail Expansion
</PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange
Act, the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
REAL GOODS TRADING CORPORATION
(Registrant)
DATED: November 5, 1999
by:[S]LESLIE B. SEELY
Leslie B. Seely
Chief Financial Officer
