U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2000 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(IRS Employer Identification Number)
(incorporation or organization)
3440 Airway Drive, Santa Rosa, California 95403
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (707) 542-2600
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
Common Stock Chicago Stock Exchange
Securities registered under Section 12(g) of the Exchange Act:
Common Stock (Title of Class)
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
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B not contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year.
$18,979,378
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the
stock was sold, or the average bid and asked prices of such
stock, as of a specified date within the past 60-days.
$12,659,435 as of June 20, 2000. The number of shares of the
issuer's Common Stock outstanding as of June 20, 2000 was
4,080,742.
Documents Incorporated by Reference
A portion of the Real Goods Trading Corporation's Proxy Statement
for the 2000 Annual Meeting of Shareowners to be filed with the
Commission on or before June 30, 2000 is incorporated by
reference into Part III, Items 9, 10, 11 and 12 of this Annual
Report on Form 10-KSB. With the exception of those portions
which are specifically incorporated by reference in this Annual
Report on Form 10-KSB, the Real Goods Trading Corporation Proxy
Statement for the 2000 Annual Meeting of Shareowners is not to be
deemed filed as part of this report.
PART I
Item 1. DESCRIPTION OF BUSINESS
Mission Statement: To promote and inspire an ecologically
sustainable future.
Introduction. Real Goods Trading Corporation ("Real Goods" or
the "Company") sells primarily healthy living, environmental, and
renewable energy products through mail order catalogs, direct
sales, retail stores and its Internet site (www.realgoods.com).
The Company mailed catalogs under the names of Real Goods(,
Chelsea Green Junction, Real Goods News, and the Renewable Energy
Products Catalog, Real Goods Renewables in fiscal 2000. The
Company also sells renewable energy products directly to its
customers through its renewable energy division, Real Goods
Renewables. The Company's four retail stores are located in
Hopland, Berkeley, and Los Gatos, California and Eugene, Oregon.
The Company plans to close its Eugene, OR store and has opened a
store in West Los Angeles, CA. The Company also has an outlet
store inside its Berkeley store.
A. The Company's Markets
The Company serves several related market segments within the
single line of business of specialty retailing.
The "Healthy Living & Environmental Products Market" consists of
catalog customers who wish to pursue more energy conserving and
wholesome lifestyles with a belief in preserving the earth's
resources in a sustainable manner. Consumers in this market tend
to live in urban and suburban areas served by the conventional
electric utility power grid.
Several regional markets are served by the Company's retail
stores. Each of the four stores carries substantially all of the
products in the catalogs but also carries environmental, healthy
living and clothing products as well as unique regional products.
The Company's demonstration retail store at the Solar Living
Center in Hopland, California was built with sustainable building
materials, including straw bale construction, and is 100% powered
by renewable energy systems. Over 130,000 visitors come to the
Solar Living Center every year. The Company uses its outlet
store in Berkeley, California, to reduce overstocks, returns and
discontinued products.
The Company's original focus, the "Renewable Energy Market,"
consists of homeowners and others living and working without the
benefit of the traditional electric company power grid who
generate their own electricity using solar, wind, and hydro power
systems. The Company has also identified eco-tourism and the
commercial market as a promising sub market for its renewable
energy sales. As the price of renewable energy products
(particularly photovoltaic (solar electric) modules) declines,
this market will become more mainstream.
In conjunction with its product marketing efforts, the Company
has always emphasized the "Consumer Education Market." The
Company produces and sells a wide variety of educational
materials through its catalogs and retail stores and has a
successful co-publishing relationship with Chelsea Green
Publishing Company of Vermont with whom it has co-published over
20 book titles.
1. Healthy Living and Environmentally Related Products
Market. Using both mail order catalogs and the Internet, the
Company markets energy saving conservation devices, healthy
living and environmentally related products, durable tools, and
educational and well-made gifts to urban and suburban dwellers.
Approximately 68% of the Company's total sales in fiscal 2000
were derived from catalogs, down from 75% in 1999. The Company
mailed approximately 4,387,500 catalogs in the current year,
compared to 4,716,500 in the previous year as the Company focused
its marketing strategy and diversified further into the Internet.
Approximately 7.8% of the Company's total sales in fiscal 2000
were made over the Internet, up from 2.9% in fiscal 1999; certain
of those sales were of renewable energy products.
The environmentally related products offered by the Company
comprise a full spectrum of energy-efficient lighting equipment;
high efficiency appliances; water saving devices such as low-flow
showerheads, low-flush toilets and faucet aerators; recycled
paper products including toilet paper, paper towels and facial
tissue; bed and bath products, organic cotton apparel, and
household products including a wide variety of non-toxic
cleaners. The Company also sells water and air purification
devices, health-related products, solar tools, and durable tools
to this same customer base.
2. Regional Retail Market. The Company's retail stores
serve as demonstration centers for itd mail order catalog and
renewable energy products. The Company markets energy saving
devices, healthy living and environmentally related products,
educational and well-made gifts and unique regional products in
each of its retail stores. The Company's four retail stores
accounted for 23% of total sales in fiscal 2000 compared to 22%
in fiscal 1999. The Company had 15,500 square feet of retail
space during fiscal 2000, up from 14,300 square feet in fiscal
1999.
The Solar Living Center ("SLC"), which opened in 1996 in Hopland,
California, is a twelve acre demonstration site that is the home
of the Company's flagship store. The 4,200 square foot retail
store is constructed of adobe-like covered rice straw bales and
has a utility intertie system with Green Mountain Energy. The
Company's 10 kilowatt photovoltaic array and 3 kilowatt wind
generator can seasonally produce more power than is necessary for
the site; the Company sells the excess power back to Green
Mountain. The Solar Living Center embodies the Company's core
principles and provides an opportunity to demonstrate the
practicality of living and working on a low consumption,
environmentally sensitive and renewable energy basis. The site
is immediately adjacent to Highway 101 in Hopland, California,
and has to date been of interest both to residents of Northern
California and to tourists who have made it a destination.
Nearly 132,000 visitors came to the SLC in fiscal 2000. The
Company believes that the Solar Living Center remains important
to the Company's future. In September 1999, a 132 kw array was
constructed by GPU AstroPower on the site from which the energy
is sold to Green Mountain Energy under a long term contract.
In addition to serving as a demonstration center for renewable
energy products and catalog products, the Hopland store also
offers retail products, some of which are unique to the Northern
California bio-region. Many of these unique products are
handmade or made in small quantities that are not suitable for
mail order. Approximately two-thirds of the Hopland store's
products are catalog and renewable energy items; one third are
retail unique items.
The 4,800 square foot Berkeley store serves as an urban
demonstration center for the Company's catalog and renewable
energy products. In January 1998, the Company opened a 1,500
square foot outlet store which recently was moved inside the
Berkeley store. The Company conducts its clearance programs
through this store.
The Los Gatos store, 3,400 square feet, was opened in November
1999 and serves an affluent suburban market. It is located in a
mall with a Whole Foods Market store. The Company believes that
the store will further the Company's mission of spreading
renewable energy and sustainable living to a wider audience.
The West L.A. store is a 3,100 square foot store that opened in
late May, 2000. The store is situated adjacent to a Whole Foods
Market store and services a densely populated affluent area.
The Eugene, OR store is located in a low population area and has
been under-performing. Therefore, the Company has decided to
close this store in the near future.
3. Renewable Energy Products Market. Real Goods Renewables
offers power systems for the eco-tourism market and for domestic
remote homes using renewable sources of energy including
photovoltaic (solar electric), hydroelectric and wind electric,
as well as emerging renewable energy technologies such as
hydrogen fuel cells and a new generation of photovoltaic cells.
Real Goods Renewables endeavors to provide a broad array of
appliances and other system components for most aspects of the
independent power systems lifestyle. These products include
battery storage systems, power conversion devices, charge
controllers, meters, low voltage water pumping systems, solar and
propane gas water heaters, high efficiency refrigerators, solar
cooling devices, composting toilets and a wide variety of
low-voltage household appliances.
The traditional customers for these power systems have been
owners of remote homes in excess of one-quarter mile from the
power companies' lines in the United States and remote villages
in third world countries. The Company believes over 26,000 homes
have used its products to migrate to renewable energy primarily
through solar systems. In addition the Company believes that the
market for small scale solar electric systems in the developing
third world market is increasing significantly. The Company is
seeking to serve the domestic remote home market directly and to
develop strategic alliances to address the developing third world
market through product sales and education.
President Clinton's "million solar roofs" initiative has brought
much interest in renewable energy to mainstream America.
Currently the federal government is proposing tax credits for
homeowners installing renewable energy systems. The U.S.
Department of Energy continues to provide funds for photovoltaic
installations via the Team UP program. The California Energy
Commission is offering a significant (up to 50%) renewable energy
rebate program for homeowners who install utility intertie
systems. Many other states have, or will soon have, similar
rebate programs. The Company has offered assistance in
fulfillment of the program requirements for its customers and is
well positioned to take advantage of these offers.
Real Goods Renewables markets its products through the Real
Goods Renewables Catalog, a technical catalog mailed to the more
sophisticated renewable energy buyer, as well as through the
Company's own Solar Living Sourcebook and other educational
materials, and by direct sales. The Company's technical staff is
fully trained in energy system sizing and specializes in
designing solar systems of all sizes.
4. Consumer Education Activities. The Company has
traditionally emphasized consumer education as part of its
mission and continues to produce and sell a wide variety of
educational materials. The Company has adopted the slogan
"knowledge is our most important product." The Company's
primary product for this market is the tenth edition of its Solar
Living Sourcebook, a 575 page textbook that the Company
periodically revises, which features all of the Company's
renewable energy products. The Solar Living Sourcebook is
currently distributed by an independent publisher (Chelsea Green)
as well as by the Company itself. Over 125,000 copies of this
book have been sold in 47 countries. The Company also markets
many publications on specific aspects of renewable energy
conservation and sustainable living within its catalogs and in
its retail stores. The Company does not spend material amounts
for research and development.
The Company has established a successful co-publishing
relationship with Chelsea Green Publishing Company of Vermont.
Through this relationship, twenty books have been co-published
under the "Real Goods Solar Living Series" imprint, including the
Company's own Solar Living Sourcebook. The Company believes that
these co-publishing efforts have significantly boosted its
position as an education leader in the sustainability movement.
The Company also contributes significant funds to a non-profit
corporation which operates the Institute for Solar Living (ISL).
Originally founded by the Company and currently in its ninth
season, the Institute for Solar Living offers over 40 educational
seminars each year for individuals on a variety of topics such as
"Planning and Building Your Renewable Energy Home" and "Strawbale
Construction." The seminars are taught by the Institute
employees and by third-party industry specialists. The Institute
creates increased consumer awareness with regard to renewable
energy products and rents the Solar Living Center as a
demonstration site. The ISL sponsors an annual energy festival,
SolFest, every summer which brings 5,000-10,000 visitors onsite
to experience workshops, speakers, renewable energy
demonstrations, and entertainment. The Company believes that
SolFest contributes significantly to its educational efforts and
enhances brand recognition. The Company has been contributing
funds to the Institute until the Institute can develop its
fundraising efforts and become self-funding.
5. Internet Site. The Company has established a website
(www.realgoods.com) which provides the Company with an
alternative channel for offering its products and explaining its
mission, history, programs and products. The Company believes
that its customers on its website can find the largest array of
environmental and healthy living products anywhere in the world.
In fiscal 2000 the Company sold $1,482,000 worth of products
through its website, representing 269% of the previous year's
sales. The Company also maintains an innovative bulletin board
on its website for interested shareowners and prospective stock
purchasers to agree upon the purchase and sale of the Company's
common stock without the intermediation of stock brokers.
Transactions are without cost to purchasers, and sellers pay only
transfer fees. The Company received the approval of the staff of
the Securities and Exchange Commission for this program in 1996,
and this approval was the first of its kind. There can be no
assurance that the Company will continue to offer this service to
its shareowners in the future.
B. Vendors
The Company currently purchases its products from a vendor base
of more than 700 suppliers, none of which accounts for more than
3.5% of the Company's purchases. The Company's ten largest
vendors account for 24.6% of purchases. The four largest annual
purchases are from vendors who sell renewable energy products,
including solar electric modules, high efficiency appliances, and
inverters (power conditioning equipment). While there are many
suppliers of these products, the Company has chosen to limit the
majority of its renewable energy purchases to four vendors:
Astropower, a distributor of solar modules; Applied Power, a
distributor of solar modules and other equipment manufactured by
Siemens Solar Industries; Kyocera, a distributor of solar modules
and high efficiency refrigerators; and Trace Engineering, a
manufacturer of inverters and other solar electric controls. The
Company has had long-term relationships with all of these
vendors. Because many of the renewable energy products are
relatively new, the number of suppliers for these products can be
limited, and the Company, from time to time, may face short-term
dependencies upon certain manufacturers for these products.
However, the Company believes it would not face long-term
difficulties in securing alternate sources of supply for such
products if it experiences an interruption in its current supply.
The Company believes such an interruption would be brief and is
not likely to have a long term material adverse effect on the
Company's orders and sales revenues for the period affected.
The Company generally does not enter into long-term contracts
with its suppliers because adequate alternative sources for most
products exist allowing flexibility to take advantage of
competitive price fluctuations or improvements in technology or
quality by not being obligated pursuant to long-term
arrangements. As a result, there can be no assurance that the
Company will not be subject to unanticipated cost increases or
shortages of supply.
C. Seasonality
Forty percent of the Company's revenues are realized in its third
fiscal quarter, which ends on December 31. Renewable energy
products are also subject to seasonality, but the cycle for these
products is the inverse of the environmental, conservation and
gift products, which lessens the effect of the holiday season on
the Company's sales. The Company's fiscal year ends on March 31.
The Company's sales generally increase sequentially over the
first, second and third fiscal quarters, and generally decline in
the fourth fiscal quarter. It is possible that such seasonal
effects will be increased if the Company's customer base
continues to include a greater percentage of urban and suburban
dwellers. The Company believes that current trends reflect (i)
increased demands for its renewable energy products during the
mild-weather months when its customers are more likely to
undertake construction and major home improvement projects and
(ii) increased demand for environmentally related gift products,
similar to that generally experienced by conventional retailers,
during the holiday season. (See: "Description of Business - A.
The Company's Markets".)
D. Backorders; Returns
Backorders are considered common in certain other industries;
however, in the mail order industry, backorders can be symptoms
of inefficiency, lack of inventory or bad strategic planning
since they create both additional costs and risks of lost sales.
The majority of the Company's backorders arise when (i) vendors
fail to deliver as promised, or (ii) sales of certain products
are higher than anticipated. At March 31, 1999, backorders were
$236,000, which was 23% of that month's catalog sales. At March
31, 2000, backorders were $11,000, which was 2% of that month's
catalog sales. The main cause for the increase in backorders at
the end of fiscal 1999 was the significant increase in sales of
Y2K related products by substantially more than the Company
anticipated. This large backorder status had been significantly
reduced by December 1999.
Although the Company does have a 90-day return policy for
products returned by customers in their original condition, the
Company has not historically experienced substantial product
returns for its catalog segment. For fiscal 2000, returns of
catalog sales were 9.0% of gross catalog sales. This is an
increase over last year (6.6%) as a result of increasing the soft
goods portion of the product mix. The Company believes that the
hard goods catalog industry in general experiences returns of
5-6% and the soft goods catalog industry experiences returns of
15-30%.
E. Competition
Within the catalog market, the Company is very small compared to
industry leaders. The market for environmentally related and
healthy living products has grown, and the number of both large
and small catalog retailers carrying these products has
increased. The same is true of Internet sales. Real Goods has
also developed a small number of proprietary products. There can
be no assurance that the Company will ever sell material
quantities of branded goods or proprietary products. In the
retail market, the Company is experimenting with retail store
formats and it expects to continue to refine its retail store
approach.
In the renewable energy market, the Company operates in a niche
presently too technical and application specific to interest the
larger catalogs. The Company's knowledge of its customer and
awareness of vendor offerings as well as its superior technical
knowledge and experienced staff enable it to be a better
intermediary between suppliers and customers for its segment of
the market than larger catalogs. The Company believes that some
Internet vendors without technical support staff are underselling
the Company's prices for common goods. There can be no assurance
that the resources or market positions of the Company's
competitors in this area will not change.
In all three markets, the Company competes on the basis of price,
selection and service. The Company has continued to work to
improve its pricing through selective, focused buying and
improved vendor discounts. In fiscal 2000 the Company increased
its presence at trade shows and plans to continue to improve its
product selection.
The Company believes that its image is enhanced by the various
accomplishments that it has made in achieving its mission,
including the opening of its Solar Living Center demonstration
site along with its ongoing educational programs, the completion
of the sale of the largest solar array in Latin America, the
tenth edition of the Solar Living Sourcebook, the Company's
increased presence on the Internet, the mission message in the
mail order catalogs and public relations efforts.
The Company has a program in which participants pay a $50 fee to
receive a designated book, a newsletter with special pricing,
closeout bargains and substantial additional information, as well
as a 5% discount on all purchases. In most cases if customers
have a large initial purchase, then will opt for the program in
order to take advantage of the discount on their order. The
Company's program customers order much more frequently and have a
higher average order than the Company's other customers. In
fiscal 2000 the number of customers who availed themselves of the
discount program increased by 13% to approximately 62,000.
F. Regulation
Although the Company believes that certain federal, state and
local laws to promote energy conservation may encourage the
purchase of its products, the Company also believes that most of
its customers purchase its products for other reasons. The
Company does not believe that it is subject to regulation other
than regulations applicable to catalog vendors of comparable
products. The Company does not believe that the costs and
effects of its own compliance with federal, state and local
environmental laws are likely to be material. The Company does
not generally seek or obtain governmental approval for the
products it sells; rather, it believes that obtaining such
approval is the responsibility of its vendors or the products'
manufacturers. The Company has not, to its knowledge, been named
in any environmental cause of action relating to its products or
the sales thereof.
G. Employees
The Company currently has the full time equivalent of 101
employees. Of those employees, approximately 25 are employed at
the Company's retail stores, 5 are employed at Real Goods
Renewables in Ukiah, approximately 39 are employed in Ukiah
providing support to the catalog and corporate functions, and 32
are employed at Santa Rosa, California at the Corporate
Headquarters. As with many retailers, the Company increases its
use of temporary employees during its third fiscal quarter to
meet the increased demands of the holiday season. The Company
believes its use of temporary employees contributes to its
ability to control overhead costs. The Company is not subject
to any collective bargaining agreements and believes its
relationships with its employees are good.
H. Trademarks
The Company has registered the trademark "Real Goods" and has a
license to use the name "Earth Care" for recycled paper products
but has discontinued that product line. That license may be
terminated under certain circumstances. The Company has
registered the name "Real Goods" in Japan. The Company does not
believe that any other patents, trademarks, licenses, franchises,
concessions, royalty agreements or labor contracts are material
to the business of the Company.
I. Relationship with Whole Foods Market, Inc. and
WholePeople.com
In September 1999 the Company entered into a pair of agreements
with Whole Foods Market, Inc. Pursuant to one agreement, Whole
Foods Market is to provide certain marketing assistance to the
Company. Pursuant to the other agreement which was assigned to
its affiliate, WholePeople.com, the Company sold 800,000 shares
of the Company's common stock to WholePeople.com for $3.6 million
(see note 10 to the financial statements and "Certain
Considerations", subsection N).
Concurrently, John Schaeffer, Chairman and CEO of the Company,
agreed to support a designee of WholePeople.com for election to
the Company's Board of Directors, (see Certain Considerations -
Whole Foods Market, Inc. Relationship).
Item 2. DESCRIPTION OF PROPERTIES.
As of May 15, 2000, the following describes the Company's
properties:
The Company owns the 12-acre parcel in Hopland, California that
is the site of the Solar Living Center and its flagship store.
Hopland is located approximately 12 miles south of Ukiah, on US
Highway 101, a major interstate highway.
The Company owns a facility in Amherst, Wisconsin which
previously housed one of the Company's retail stores. This
property consists of a 5,000 square foot cold warehouse, a 3,000
square foot cold storage building and a 1,600 square foot office
and retail store. This property is listed for sale and is
currently rented.
The Company leases its 10,560 square foot administrative and
executive headquarters in Santa Rosa, CA. This lease expires at
the end of February, 2004.
The Company has a three year lease through March 2002 on its
5,500 square foot Ukiah, California telephone sales facility.
The Company's 15,300 square foot office/warehouse and overflow
storage facilities (also located in Ukiah, California) are leased
through mid October, 2000 and January, 2002 respectively.
The Company has a lease agreement expiring in April 2002 for the
3,800 square foot retail store in Eugene, Oregon.
The Company has a five year lease agreement, which expires at the
end of February 2004, for the 4,800 square foot retail store in
Berkeley, California. The Company recently vacated its the 1,500
square foot Outlet store in Berkeley, California and has moved
the outlet activities within the Berkeley retail store.
The Company leases a 3,400 square foot retail store facility in
Los Gatos, California. This is a 5 year lease expiring in
November 2004.
The Company opened a new 3,100 square foot store in leased
facilities in West Los Angeles on May 28, 2000. The lease is for
10 years, terminating on March 31, 2010, but may be terminated on
March 31, 2005 with proper notice.
The Company believes that it maintains adequate insurance for its
real and personal property.
Item 3. LEGAL PROCEEDINGS.
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
</PAGE>
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED SHAREOWNER MATTERS
The Company's stock is listed on the Chicago Stock Exchange under
the symbol RGT and it is currently also listed on the Nasdaq
Small Cap Market under the symbol RGTC and traded on the bulletin
board maintained on the Company's web site. The following chart
sets forth the high and low actual sale prices of the Company's
common stock for each quarter within the last two fiscal years.
TRADING INFORMATION
<TABLE>
<CAPTION>
Fiscal Year Ended March 31
High Low
<S> <C> <C>
1999:
First Quarter $6 $4-7/8
Second Quarter 5-3/8 3
Third Quarter 4-1/4 3-1/2
Fourth Quarter 4-1/2 3-7/8
2000:
First Quarter $5-9/16 $3-1/2
Second Quarter 5-1/4 4-1/8
Third Quarter 5-1/32 3-9/32
Fourth Quarter 4 3-1/4
</TABLE>
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Sales
The Company reported a 1.3% increase in net sales to $18,979,000
for fiscal 2000, compared to $18,736,000 for fiscal 1999.
In fiscal 2000, the Company changed its presentation (see Note 1
to the financial statements) and included freight collected in
sales and freight out expense in cost of sales. Previously, these
amounts were included in selling, general and administrative
expenses. The amounts in fiscal 1999 have been reclassified to
conform to the new presentation.
Catalog sales decreased 1.8% to $11,699,000, or 61.6% of net
sales in fiscal 2000, compared to $11,914,000 or 63.6% in the
prior year. Internet sales (included in the catalog) division
were $1,482,000 or 7.8% of sales for fiscal 2000 compared with
$551,000, or 2.9% in fiscal 1999. The Company mailed 4,167,500
catalogs in fiscal 2000 compared to 4,431,500 catalogs in fiscal
1999, a decrease of 6%. Catalog division sales per catalog
increased from $2.69 per catalog mailed to $2.81 per catalog and
is attributed to the effect of Internet sales growth. Included in
net catalog sales for the years ended March 31, 2000 and 1999 are
shipping and handling fees collected from customers of $1,256,000
and $1,373,000, respectively.
Retail store sales increased 8.1% to $4,046,000, or 21.3% of net
sales in fiscal 2000, compared to $3,743,000 or 20.0% of net
sales in the prior year. The Company opened a new store in Los
Gatos, California in November, 1999 which contributed $302,000
in total revenue for fiscal 2000. Therefore, the Company had
four retail stores and one outlet store open with 15,500 square
feet of retail selling space at the end of fiscal 2000 compared
with 14,300 square feet of selling space in fiscal 1999. On a
comparable basis, excluding Los Gatos, retail sales for fiscal
2000 were $3,744,000 compared to $3,743,000 for fiscal 1999. A
sharp drop in the Company's sales of renewable energy products in
the fourth fiscal quarter contributed to the of sales results in
fiscal 2000.
Renewable energy sales increased 5.0% to $3,234,000, or 17.0% of
net sales in fiscal 2000, compared to $3,079,000, or 16.4% of
net sales in the prior year. The increase in this area of the
Company's business was primarily due to Y2K concerns but also
reflects the public's increased awareness of energy utilization
and a desire to safeguard the earth's natural resources, energy
incentive credit programs sponsored by many state agencies in
conjunction with the deregulation of utilities, and customers'
interests in potential renewable energy solutions. The Company
also continues to market its services to the "eco-tourism"
market. Included in net renewable energy sales for fiscal years
2000 and 1999 are shipping and handling fees collected from
customers of $144,000 and $143,000, respectively.
GROSS PROFIT
Gross profit amounted to $7,834,000, or 41.3% of net sales in
fiscal 2000 compared to $7,832,000, or 41.8% of sales in fiscal
1999. The relative flatness of gross profit is attributable to
the lack of growth in the catalog division.
Catalog sales had a 2.4% decrease in gross profit of $5,327,000
or 45.5% of catalog net sales in fiscal 2000, compared to
$5,459,000 or 45.8% of catalog net sales in the prior year. The
slight margin decrease is attributable to the reduction in net
shipping income, the reduction of prices on selected merchandise
to promote sales, and increased cost of product which was not
passed through to customers for competitive reasons. Net shipping
income included in catalog gross profit was $240,000 in fiscal
2000 and $332,000 in fiscal 1999.
Retail stores sales had a gross profit of $1,519,000 or 37.5% of
retail net sales in fiscal 2000 compared to $1,400,000 or 37.4%
of retail net sales in fiscal 1999. This margin percentage
reflects the same mix of renewable energy and retail product as
in fiscal 1999.
Renewable energy sales had a gross profit of $988,000 or 30.6% of
net renewable energy sales compared to $973,000 or 31.6% of net
renewable energy sales for the prior year. This decrease in gross
profit percentage is attributable to higher product costs and
increased competition in the renewable energy field. Renewable
energy products have generally lower profit margins. Net shipping
income included in renewable gross profit was $30,000 in fiscal
2000 and $32,000 in fiscal 1999.
OPERATING EXPENSES
Selling, general, and administrative expenses were $9,402,000 or
49.5% of sales in fiscal 2000, compared to $8,497,000 or 45.4% of
sales in the prior year. Increases in expenses occurred in the
areas of labor and benefits, catalog expenses, supplies,
depreciation, rents, utilities, travel, and general corporate
expenses. These increases more than offset the decreases that
occurred in postage, purchased services, and recruitment costs.
Many of the expense increases were attributable to costs
associated with moving the Company headquarters from Ukiah to
Santa Rosa, California.
OTHER INCOME AND EXPENSE
In fiscal 2000, interest expense was $47,000 and interest income
was $110,000, resulting in a net interest income of $63,000. In
the previous fiscal year, interest expense was $48,000 and
interest income was $90,000, for a net interest income of
$42,000. The Company had lower interest expense and higher
interest income due to the cash position following the equity
investment by WholePeople.com.
The Company recorded a $354,000 net loss on write down and
disposition of assets in fiscal 2000. In fiscal 1999, a $1,000
net gain was recorded on the sale of assets. In fiscal 1999, the
Company recorded a $10,000 write down of the land and building in
Amherst, Wisconsin to reflect the estimated net realizable value
of the property held for sale.
INCOME TAXES
Income tax benefits as a percentage of pretax loss were 30% in
fiscal 2000 due to the Company's reported loss, compared to a tax
benefit of 24% for the previous year. The applied tax rate
reflects the Company's actual experience of the turnaround in
timing differences and the expected utilitzation of net operating
loss carryforwards in future periods.
NET LOSS
For the year ended March 31, 2000, the Company had a loss before
tax benefit of $1,859,000 and a net loss of $1,290,000 or $0.29
per share. In the previous year, the Company had a loss before
tax benefit of $632,000 and a net loss of $482,000 or $0.12 per
share.
LIQUIDITY AND CAPITAL RESOURCES
During the fiscal year ended March 31, 2000, cash of $1,172,000
was used in the business.
The Company used $2,037,000 of cash in operations, primarily for
inventory and the Company's operating loss.
The Company used $2,701,000 of cash in investing activities for
purchases of property, equipment and improvements, (primarily for
retail stores) and computer equipment and assets, and purchase of
marketable securities.
Cash provided by financing activities was $3,566,000 due
primarily to the investment in the Company by WholePeople.com of
$3,578,000.
The net effect of all of the Company's activities was to decrease
the Company's cash by $1,172,000 to $876,000 at the end of the
period from $2,048,000 at the beginning of the period.
Additional funds in the form of short-term investments in
marketable securities are available to the Company to fund
current operations and totaled $1,568,000 at March 31, 2000.
The Company extended its $1,500,000 line of credit through
February 2001 to use for seasonal fluctuations in inventory
levels as well as operating expenses; the Company did not use the
line of credit during fiscal 2000 except to support letters of
credit. The Company intends to review its banking relations in
July of 2000 and will review its line of credit at that time.
Management believes that cash flow from operations together with
bank debt financing and existing cash reserves will be sufficient
to fund the Company's operations through fiscal 2001.
EFFECTS OF INFLATION
The overall effects of inflation on the Company's business during
the periods discussed were not material.
Year 2000 Preparedness and Results
As of the date hereof, the Company has not experienced any
significant business disruptions as a result of Y2K issues. The
Company addressed the Y2K problem through a comprehensive
evaluation and improvements of its hardware, software,
communications and key external vendors and suppliers. The cost
of the evaluation and upgrades was approximately $250,000, most
of which was incurred in the normal course of business as
periodic software and hardware upgrades.
The Company does not foresee significant risks associated with
its Y2K compliance at this time. However, if the Company
identifies significant risks related to Y2K issues, the Company
will develop a plan of action at that time.
CERTAIN CONSIDERATIONS
Except for the historical information contained in this Annual
Report on Form 10-KSB, the matters discussed in this document are
forward looking statements. These forward looking statements
concern matters that involve risks and uncertainties, including,
but not limited to, those set forth below, that could cause
actual results to differ materially from those in the forward
looking statements. The matters set forth below should be
carefully considered when evaluating the Company's business and
prospects.
A. SALES. The Company is susceptible to the ebb and flow of
both retail industry trends and the general economy. While the
Company could be a beneficiary of a trend which increases the
popularity of the Company's products, that trend could also ebb
away. Of approximately 350 products in each of the Real Goods
color catalogs, 35% are new to those catalogs; there can be no
assurance that the product selection will be effective. While
the Company must incur catalog production and mailing costs,
purchase inventory and staff up in preparation for customer
responses in advance of need, if customer response is below
management's expectations and the Company's sales decrease, the
Company's expenses cannot be reduced timely and proportionately.
In addition, the Company will be reliant to some extent on the
state of the general economy. An adverse economic environment
could impact the mail order catalog industry as a whole.
Finally, catalog companies seeking to increase revenues and their
"house list" often "prospect" with rented lists; excessive
prospecting can adversely affect operating results.
B. RETAIL STORES. There are substantial risks in store
retailing, including poor location of retail stores, failing to
identify consumer trends correctly, theft by customers and
employees, inadequate merchandise selection, inadequate financial
controls, and losing customers to competitors. The Company is
experimenting with retail store formats; there can be no
assurance that any of those formats will be profitable, or, if
profitable, replicatable. The Company has only limited
experience with its new urban store format.
C. SOLAR LIVING CENTER. The Company's mission is "To promote
and inspire an ecologically sustainable future." The Company
spent approximately $3,000,000 to acquire the land for the Solar
Living Center, landscape the land and construct it as a
demonstration of many of the principles underlying the Company's
mission and vision. Although the response has been extremely
encouraging in both sales and number of visitors, there can be no
assurance that the Company will ever realize a suitable return on
its investment or that the Company will not incur a substantial
loss from the Solar Living Center. The Solar Living Center is
located on a flood plain; the building at the Solar Living Center
is covered by flood insurance and is above the 100 year flood
mark. Currently, a portion of the Solar Living Center is rented
to the Real Goods Institute for Solar Living, a not-for-profit
organization.
D. SEASONALITY. As with nearly all retail enterprises, the
Company's business is seasonal, and it customarily generates
approximately 40% of its revenues in its third fiscal quarter
which is the last calendar quarter of the year. The Company's
execution in its third quarter is material to its financial
success for a fiscal year. Poor third quarter results in any
given year would adversely impact the Company to a greater
absolute extent than poor results in any other quarter.
E. COMPETITION. In the catalog market, the Company is small
compared to industry leaders. If one or more of the larger
retailers decides either to have an environmental products
section in an existing catalog or to launch a comparable catalog
or Internet site, the Company's business could be adversely
affected. In addition, if the Company successfully identifies an
unmet consumer need, the idea can be copied quickly by retailers
with greater buying power and greater prominence. As to its
renewable energy market, the Company believes it operates in a
niche presently too technical and application specific to
interest the larger catalogs and the Company's knowledge of its
customers and vendors offerings enables it to be a better
intermediary between suppliers and customers for its segment of
the market than larger catalogs. Finally, the options available
on the Internet allow potential customers to obtain certain of
the Company's value added services without a charge, and then
purchase their goods more cheaply from less service oriented
vendors.
F. EMPLOYEES. Like most other businesses in Northern
California, the Company is concerned about its ability to attract
and retain employees in a full-employment environment. If the
Company is not able to attract or retain all necessary employees,
the Company's operating results could be adversely affected.
G. UNCONTROLLABLE EVENTS. The Company is subject to larger
trends and events which are beyond the Company's control. For
instance, a severe recession would decrease consumers' disposable
income and the amounts people spend on non-essential products
such as those the Company offers. If there is a war, earthquake,
fire or similar event, the Company could be adversely impacted.
While the Company carries reasonable insurance considering its
size and economics, such insurance may not fully protect the
Company from events which are beyond the Company's control. Any
long term drop in energy prices could also reduce the
attractiveness of certain of the Company's products;
reciprocally, the Company could benefit from a long term increase
in energy prices.
H. SALES TAXES. In 1992, the United States Supreme Court ruled
that states may not impose taxes on out-of-state direct
marketers, but it suggested that Congress could delegate that
power. To date, there has been no congressional action. The
Company collects sales tax only on sales made in California. If
the Congress does delegate the power to levy a sales tax and
states do levy those taxes, the operations of the Company will
likely be affected substantially because the Company's average
order is relatively high and the combination of sales taxes with
shipping charges may affect consumer buying decisions.
I. DEPENDENCE ON KEY PERSONNEL. The Company is substantially
dependent on the continued services of its Founder and Chairman,
John Schaeffer. The loss of Mr. Schaeffer's services for any
substantial period of time could possibly have a material adverse
impact on the Company. The Company maintains a $1,000,000
insurance policy on Mr. Schaeffer's life.
J. DEPENDENCE ON CERTAIN SUPPLIERS,INCLUDING FOREIGN SUPPLIERS.
The Company carries approximately 350 products in each color
catalog. No more that 6% of the Company's sales arise from a
single product. Approximately 7% of the Company's sales are
generated from products purchased directly from foreign
countries. Accordingly, the Company is subject to both exchange
rate fluctuations and possible disruptions in supplies for those
products. The Company could also be vulnerable because 5.7% of
its revenues derive from products purchased from a single
supplier. However, there is at least one alternative supplier
for each product in every case, and management believes that any
such effect would be temporary.
K. COST INCREASES. For the portion of its sales derived from
mail order catalogs, the Company is particularly susceptible to
increases in paper prices and postal and shipping charges. There
is an immediate effect on the Company's catalog marketing costs
as a result of the paper market price fluctuations. Since paper
capacity is relatively fixed, the Company believes that prices in
this market are directly affected by the strength of the economy.
Increased paper prices as well as increased mailing and shipping
charges could substantially adversely impact the Company's
catalog growth and profitability. Lower paper prices result in
lower costs, but other catalog merchants may be encouraged to
expand their mailings. Postage costs are also affected by price
changes by the United States Postal Service and United Parcel
Service. The Company does expect annual increases in United
Parcel Service's charges.
L. CONTROL. Because of his stock ownership position, John
Schaeffer is likely to continue to have the ability to
significantly influence control over the operations and strategy
of the Company.
M. FUTURE CAPITAL NEEDS. The Company expects that cash flow
from operations, available borrowings under the Company's credit
line and existing cash reserves will satisfy its cash
requirements for at least the next 12 months. However, the
Company may incur significant working capital expenditures in
connection with its growth strategy and otherwise. To the extent
that the cash resources are insufficient to fund the Company's
activities, additional funds would be required. There can be no
assurance that additional financing will be available on
reasonable terms or at all. Failure to obtain such financing
could delay or prevent the Company's planned expansion, which
could adversely affect the Company's business, financial
condition and results of operations. In addition, if additional
capital is received through the sale of additional equity or
convertible securities, dilution to the Company's shareowners
could occur.
N. WHOLE FOODS MARKET, INC. RELATIONSHIP. The Company believes
that its relationship with Whole Foods Market, Inc. and
WholePeople.com have provided certain prospects for growth in
certain of the Company's markets. In June 2000, WholePeople.com
entered into one or more agreements with Gaiam, Inc. and/or
Gaiam.com, the Company's primary competitor. At this time, the
Company is unable to assess the impact of those agreements upon
the Company and its prospects. However, if the result of those
agreements is that WholePeople.com and/or Whole Foods Market,
Inc. do not perform their respective obligations to the Company
(see Description of the Business - subsection I.), the Company
and its prospects could be materially and adversely affected.
</PAGE>
Item 7. FINANCIAL STATEMENTS.
REAL GOODS TRADING CORPORATION
TABLE OF CONTENTS PAGE
INDEPENDENT AUDITORS' REPORT - MOSS ADAMS, LLP 16
INDEPENDENT AUDITORS' REPORT - DELOTTE & TOUCHE, LLP 17
FINANCIAL STATEMENT AS OF AND FOR THE YEARS
ENDED MARCH 31, 2000 AND 1999:
Balance Sheets 18
Statements of Operations 19
Statements of Cash Flows 20
Statements of Shareowners' Equity 21
Notes to Financial Statements 22
</PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Real Goods Trading Corporation
We have audited the accompanying balance sheet of Real Goods
Trading Corporation as of March 31, 2000, and the related
statements of operations, shareholders' equity and cash flows for
the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Real Goods Trading Corporation as of March 31, 2000, and the
results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting
principles.
[S]MOSS ADAMS LLP
Moss Adams LLP
Santa Rosa, California
May 24, 2000
</PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareowners
Real Goods Trading Corporation:
We have audited the accompanying balance sheet of Real Goods
Trading Corporation (the "Company") as of March 31, 1999 and the
related statements of operations, shareowners' equity and cash
flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respect, the financial position of Real Goods Trading
Corporation as of March 31, 1999, and the results of its
operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the
United States of America.
[S]DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Oakland, CA
May 21, 1999
</PAGE>
REAL GOODS TRADING CORPORATION
BALANCE SHEETS
MARCH 31, 2000 and 1999
(In thousands except share data)
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
ASSETS
Current assets:
Cash $ 876 $ 2,048
Marketable securities 1,568 -
Accounts receivable, net of allowance of $6
in 2000 and 1999 152 240
Note receivable - 20
Inventories, net 3,165 2,080
Deferred catalog costs, net 381 272
Prepaid expenses 150 266
Deferred income taxes 34 89
Total current assets 6,326 5,015
Property, equipment and improvements, net 4,063 3,553
Other assets 253 198
Property held for sale 78 78
Note receivable - affiliate, net of
allowance of $259 in 2000 60 196
Deferred income taxes 664 39
Total assets $11,444 $ 9,079
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Accounts payable $ 1,374 $ 873
Accrued expenses 309 620
Deposits 55 138
Current maturities of long-term debt 17 16
Other taxes payable 39 57
Total current liabilities 1,794 1,704
Long-term debt, less current maturities 534 552
Total liabilities 2,328 2,256
Shareowners' equity:
Common stock, without par value:
Authorized 10,000,000 shares;
issued and outstanding,
4,881,742 and 4,080,742 shares,
respectively 10,771 7,188
Accumulated deficit (1,655) (365)
Total shareowners' equity 9,116 6,823
Total liabilities and shareowners'
equity $ 11,444 $ 9,079
</TABLE>
See notes to financial statements
REAL GOODS TRADING CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 2000 AND 1999
(In thousands except share and per share data)
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Net Sales $ 18,979 $ 18,736
Cost of sales 11,145 10,904
Gross profit 7,834 7,832
Selling, general and administrative
expenses 9,402 8,497
Loss from operations (1,568) (665)
Interest income, net 63 42
Loss on disposition of assets (354) (9)
Loss before income taxes (1,859) (632)
Income tax benefit 569 150
Net loss $ (1,290) $ (482)
Net loss per share, basic and diluted $ (0.29) $ (0.12)
Weighted average shares outstanding,
basic and diluted 4,384,887 4,004,286
</TABLE>
See notes to financial statements
</PAGE>
REAL GOODS TRADING CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2000 AND 1999
(In Thousands)
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,290) $ (482)
Adjustments to reconcile net loss
to net cash from operating activities:
Depreciation and amortization 452 344
Loss/writedown on disposition of assets 252 9
Deferred income taxes (570) (151)
Other (18) 14
Changes in assets and liabilities:
Accounts receivable 88 (30)
Note receivable 20 (20)
Inventories (1,085) 256
Deferred catalog costs, net (109) 167
Prepaid expenses 116 (52)
Income taxes receivable - 167
Accounts payable 501 147
Accrued expenses and other (311) 298
Deposits (83) (296)
NET CASH FROM OPERATING ACTIVITIES (2,037) 371
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment, and construction
in progress (962) (514)
Investments in marketable securities (3,093) -
Maturities of marketable securities 1,525 -
Purchase of other assets (55) (45)
Proceeds from sale of equipment and
other assets - 25
Note receivable - affiliate (116) (196)
NET CASH FROM INVESTING ACTIVITIES (2,701) (730)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock,
net 3,586 1,138
Repayment of debt (17) (17)
Purchase of common stock (3) (15)
NET CASH FROM FINANCING ACTIVITIES 3,566 1,106
NET INCREASE (DECREASE) IN CASH (1,172) 747
CASH AT BEGINNING OF PERIOD 2,048 1,301
CASH AT END OF PERIOD $ 876 $ 2,048
Other cash flow information:
Interest paid $ 47 $ 48
Income taxes paid 1 1
</TABLE>
See notes to financial statements
</PAGE>
REAL GOODS TRADING CORPORATION
STATEMENTS OF SHAREOWNERS' EQUITY
YEARS ENDED MARCH 31, 2000 AND 1999
(In thousands)
<TABLE>
<CAPTION>
Common Stock
Retained Total
Number of Earnings Shareowners
Shares Amount (Deficit) Equity
<S> <C> <C> <C> <C>
BALANCE, MARCH 31, 1998 3,857 $6,065 $ 117 $6,182
Issuance of common stock
in direct public
offering, net of offering
costs of $99 228 1,138 - 1,138
Shares repurchased (4) (15) - (15)
Net loss - - (482) (482)
BALANCE, MARCH 31, 1999 4,081 7,188 (365) 6,823
Issuance of common stock,
net of issue costs of $22 800 3,578 - 3,578
Exercise of common
stock options under
option plan 2 8 - 8
Shares repurchased (1) (3) - (3)
Net loss - - (1,290) (1,290)
BALANCE, MARCH 31, 2000 4,882 $10,771 $(1,655) $9,116
See notes to financial statements
</TABLE>
</PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Real Goods Trading Corporation (the "Company") was
organized on July 1, 1990 and sells primarily environmentally
related, "healthy living" and renewable energy products through
mail order catalogs, four retail stores, the Internet, and direct
sales from its renewable energy department.
USE OF ESTIMATES - The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
CHANGE IN PRESENTATION - Included in net sales for fiscal years
2000 and 1999 are shipping and handling fees collected from
customers of $1,388,000 and $1,516,000, respectively. Included in
cost of sales for fiscal years 2000 and 1999 are freight out
expenses of $1,118,000 and $1,152,000 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 the Company's true sales and cost of sales
amounts.
CASH AND MARKETABLE SECURITIES - Marketable securities are
classified as available-for-sale and are available to support
current operations or to take advantage of other investment
opportunities. Marketable securities are stated at estimated
fair value based upon market quotes and consist of bonds,
commercial paper and Federal agency securities. As of March 31,
2000, fair value approximated cost and no unrealized gain or loss
was included in retained earnings. Realized gains and losses are
included in other income. Interest earned is included in
interest income. The Company has deposits in money funds in
excess of federally insured levels. These deposits are placed
with quality financial institutions.
Inventories are stated at the lower of cost (first-in/first-out
method) or market. Inventories include expenses associated with
acquiring the inventory.
DEFERRED CATALOG COSTS - The Company capitalizes the direct cost
of producing and distributing its mail order catalogs. Deferred
catalog costs are amortized based on the estimated sales lives of
the catalogs, generally eighteen weeks.
PROPERTY, EQUIPMENT AND IMPROVEMENTS are stated at cost.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, which range from 5 to 40
years.
INTERNET SITE COSTS - Costs capitalized in accordance with AICPA
Statement of Position (SOP) 98-1 and EITF 00-2 in connection with
construction of Internet site.
PROPERTY HELD FOR SALE - The building and land which were the
former Snow Belt Store are currently held for sale.
NOTE RECEIVABLE - AFFILIATE - The note receivable represents net
funds advanced to the Real Goods Institute for Solar Living
("ISL") and bears interest at 5.25% per year. Interest only is
payable until the ISL becomes self-funding.
PRE-OPENING COSTS for retail stores are expensed as incurred.
INCOME TAXES - The Company accounts for its income taxes using an
asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's
financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future
events other than changes in tax laws.
LOSS PER SHARE - Basic loss per share is computed by dividing net
loss by the weighted average number of shares outstanding for the
period. Diluted loss per share reflects the potential dilution
that could occur if contracts to issue common stock were
exercised or converted to common stock. Dilutive stock options
were not included for the fiscal years ended March 31, 2000 and
1999, as the Company incurred a net loss in each year and the
effect would be antidilutive.
RECLASSIFICATION - The 1999 financial statements have been
reclassified in order to conform to the March 31, 2000
presentation.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS - Statement of
Financial Accounting Standard ("SFAS") No. 107, "Disclosures
About Fair Value of Financial Instruments" requires disclosure of
the estimated fair value of financial instruments. The carrying
values of cash, marketable securities, accounts receivable,
accounts payable, and long-term debt approximates their estimated
fair values.
STOCK-BASED COMPENSATION - The Company accounts for stock-based
awards to employees using the intrinsic value method in
accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees".
COMPREHENSIVE INCOME - Comprehensive loss and net loss are the
same.
2. MARKETABLE SECURITIES
During the year ended March 31, 2000, the Company purchased
marketable securities consisting of bonds and commercial paper.
The following is a summary of short-term investments included in
marketable securities (in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Loses Value
March 31, 2000:
<S> <C> <C> <C> <C>
Corporate Bonds
$ 411 $ - $ - $ 411
Federal agency
securities 579 - - 579
Commercial Paper 578 - - 578
$ 1,568 $ - $ - $ 1,568
</TABLE>
All short-term investments mature within one year of March 31,
2000.
3. PROPERTY, EQUIPMENT AND IMPROVEMENTS
<TABLE>
<CAPTION>
Property, equipment and improvements consist of the following
at March 31 (in thousands):
2000 1999
<S> <C> <C>
Land $ 480 $ 480
Land improvements 783 783
Buildings and leasehold improvements 1,821 1,551
Equipment, furniture and fixtures 2,219 1,732
Internet site costs 139 -
Construction in progress 84 15
Total 5,526 4,561
Less accumulated depreciation (1,463) (1,008)
Property, equipment and improvements, net $ 4,063 $ 3,553
</TABLE>
4. LINE OF CREDIT
The Company has a line of credit agreement for $1,500,000 with
National Bank of the Redwoods (the "Bank"), which expires on
February 28, 2001. Borrowings bear interest at 1.5% over the
prime rate, payable in monthly installments. At March 31, 2000
and 1999, 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 Chairman and
largest shareowner.
5. DEBT
<TABLE>
<CAPTION>
Long term debt consists of the following at March 31 (in
thousands):
2000 1999
<S> <C> <C>
Small Business Administration
term loan, interest at 7.77%,
payable through September 2016,
secured by land and building
in Hopland, California. $ 551 $ 568
Other - -
Total 551 568
Less: current portion 17 16
Long-term portion $ 534 $ 552
</TABLE>
<TABLE>
<CAPTION>
Principal payments on long-term debt
are as follows (in thousands):
Fiscal Year ending March 31:
<C> <C>
2001 $ 17
2002 19
2003 20
2004 22
2005 23
Thereafter 450
Total $ 551
</TABLE>
6. ASSET HELD FOR SALE
The Company owns land and buildings in Amherst, Wisconsin which
it is seeking to sell. At March 31, 1999 and 2000, the land and
building had a net book value of $78,000 and was rented out while
it is being offered for sale.
7. LEASES
The Company has operating leases for its offices, warehouse
facilities, the Eugene and Berkeley stores and certain equipment,
which expire from October 2000 through March 2010. Rental
expense for the years ended March 31, 2000 and 1999 was $403,000
and $308,000 respectively.
<TABLE>
(CAPTION>
Future minimum annual lease payments under operating leases are
as follows (in thousands):
Fiscal Year ending March 31:
<C> <C>
2001 $ 533
2002 525
2003 463
2004 456
2005 193
Thereafter 631
Total $ 2,801
</TABLE>
8. INCOME TAXES
<TABLE>
<CAPTION>
Income tax benefits consist of the following for the years ended
March 31 (in thousands):
2000 1999
<S> <C> <C>
Current:
Federal $ - $ -
State 1 1
Total 1 1
Deferred - federal (570) (151)
Total benefit $ (569) $ (150)
</TABLE>
<TABLE>
<CAPTION>
The income tax benefit for financial reporting purposes are
different from the tax provision computed by applying the
statutory federal income tax rate. The differences for each year
are reconciled as follows (in thousands):
2000 1999
<S> <C> <C>
Federal income taxes at
statutory income tax rate (34%) $ (632) $ (215)
State taxes net of federal tax
benefit (112) (14)
Effect of permanent differences 6 8
Valuation allowance 100 107
Other 69 (36)
Benefit $ (569) $ (150)
</TABLE>
<TABLE>
<CAPTION>
The components of the net deferred tax asset (liability) at
year-end are as follows (in thousands):
2000 1999
<S> <C> <C>
Deferred tax assets:
Benefit of net operating
loss carryforwards $ 792 $ 183
Allowance for doubtful accounts 110 -
Stock option compensation 14 14
Reduction in cost of property 30 15
Other 1 10
947 222
Less valuation allowance (283) (183)
Non-current deferred tax asset 664 39
Deferred tax assets (liabilities):
Inventory reserves 47 99
Catalog costs (22) (37)
Accruals 24 32
Other 3 (5)
Current deferred tax assets 52 89
Less valuation allowance (18) -
Current deferred tax asset 34 89
Net deferred tax asset $ 698 $ 128
</TABLE>
Because of the uncertain nature of their ultimate utilization, a
partial valuation allowance is recorded against the deferred tax
assets associated with the net operating losses. At March 31,
2000, the Company has net operating losses available for
carryforward of approximately $1,950,000 and $1,536,000 for
federal and state purposes, respectively. The federal net
operating loss and $430,000 of the state net operating losses
will expire in 2013 through 2020. The remaining state net
operating losses expire through 2005. The Company intends to use
various tax planning strategies to fully utilize the loss
carryforwards prior to expiration.
9. SHAREOWNER AGREEMENTS
The Chairman of the Board, founder and largest shareowner has a
renewable one-year employment agreement with the Company which
provides for an annual salary of $125,000. As of April 1, 2000
the Chairman voluntarily agreed to a reduction in such salary to
$110,000 on a month to month basis.
The Company also has a split dollar life insurance agreement with
this individual whereby the Company pays the premiums. The
Company has been granted a security interest in the cash value
and death benefit of the policy, and certain shares of the
Company stock owned by the Chairman of the Board have been
pledged as additional collateral during the period in which the
premiums exceed the cash surrender value. The net cash surrender
value at March 31, 2000 was $215,000 and is included in other
assets.
10. SHAREOWNERS' EQUITY
On August 11, 1997 the Company commenced a direct public offering
of up to 1,000,000 shares of newly issued stock and 300,000
shares offered by a selling shareholder at $5.50 per share. The
offering closed on June 30, 1998. Through March 31, 1999, the
Company had issued 676,641 new shares of common stock, generating
gross proceeds of $3,620,000, and had incurred costs of $697,000
related to the direct public offering.
In August 1998, the Company was authorized to repurchase up to
$100,000 of common stock in open market and private transactions.
In fiscal 1999, 3,900 shares were repurchased for $14,850. In
fiscal 2000, 800 shares were repurchased for $2,750. Through
March 31, 2000, a total of 13,884 shares had been repurchased for
$66,643.
On September 23, 1999 WholePeople.com purchased 800,000 shares of
common stock for $3,578,000, net of issuance costs of $22,000.
Subsequent to year-end, in April 2000, the Company repurchased
50,000 shares for $100,000.
11. BENEFIT PLANS AND STOCK OPTIONS
The Company sponsors a 401(k) retirement plan. The plan does not
require matching funds from the Company, and the Company has made
no contributions to the plan.
Under the Company's Third Amended and Restated Fiscal 1993 Stock
Incentive Plan ("Employee Plan") the Company can grant incentive
and non-qualified options to purchase 1,200,000 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 a period not exceeding five years from the
date of grant. Options expire ten years from date of grant. As
of March 31, 2000, options to purchase 1,110,550 shares were
outstanding
In September 1998 the Board of Directors revised the exercise
price of all outstanding Employee Plan options to $4.50 per
share.
The Company has reserved 100,000 shares of common stock for its
Non-Employee Directors' Stock Option Plan ("Director's Plan").
As of March 31, 2000, options to purchase 75,000 shares were
outstanding and none have been exercised.
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
(in thousands)
<S> <C> <C>
Outstanding at March 31, 1998 344 $ 5.37
Granted 448 4.50
Forfeited (125) 5.37
Terminated as a result of
option repricing (341) 5.39
Issued as a result of
option repricing 341 4.50
Outstanding at March 31, 1999 667 4.59
Granted 838 4.50
Forfeited (317) (4.52)
Exercised (2) (4.50)
Outstanding at March 31, 2000 1,186 $ 4.57
Shares exercisable at March 31, 2000 194 $ 4.54
Shares available for grant at
March 31, 2000 114
Range of exercise prices $3.38 to $7.12
Weighted average remaining
contractual life at March 31, 2000 7.5 years
</TABLE>
Additional Stock Plan Information
As discussed in Note 1, the Company continues to account for its
stock-based awards using the intrinsic value method in accordance
with Accounting Principles Board No.25, "Accounting for Stock
Issued to Employees" and its related interpretations.
Accordingly, no compensation expense has been recognized in the
financial statements for employee stock arrangements in fiscal
1999 or 1998.
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation", (SFAS 123) requires the disclosure
of pro forma net income and earnings per share had the Company
adopted the fair value method as of the beginning of fiscal 1996.
Under SFAS 123, the fair value of stock-based awards to employees
is calculated through the use of the option pricing models, even
though such models were developed to estimate the fair value of
freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock
option awards. These models also require subjective assumptions,
including future stock price volatility and expected time to
exercise, which greatly affect the calculated values. The
Company's calculations were made using the Black-Scholes option
pricing model with the following weighted average assumptions:
Expected life, 120 months following vesting in fiscal 2000 and
fiscal 1999, stock volatility, 32% in fiscal 1999 and 55% in
fiscal 2000; risk free interest rate 5.50% in fiscal 1999 and
5.65 % in fiscal 2000; and no dividends during the expected term.
The Company's calculations are based on a multiple option
valuation approach and forfeitures are calculated at a 50% rate,
based on the Company's historical experience. If the computed
fair values of the fiscal 2000 and fiscal 1999 awards had been
amortized to expense over the vesting period of the awards, pro
forma net loss would have been $569,000 or $.14 per share in
fiscal 1999, and the pro forma net loss would have been
$1,549,000 or $ .35 per share in fiscal 2000.
12 SEGMENT INFORMATION
The Company has three divisions (Catalog, Retail and Renewables),
all of which sell products purchased from other suppliers for
sale directly to customers. The customer bases of all three
divisions overlap to some extent, and the purchases and delivery
processes to customers overlap as well.
<TABLE>
<CAPTION>
Each of the three divisions qualifies as a reportable segment
because each is more than 10% of the combined revenue of all
operating segments. Contribution is defined as net sales less
cost of goods sold and direct expenses. Financial information for
the Company's business segments was as follows:
FY 2000 FY 1999
<S> <C> <C>
Net Sales:
Catalog Division $11,699 $11,914
Retail Division 4,046 3,743
Renewables Division 3,234 3,079
Consolidated Net Sales $18,979 $18,736
Contribution:
Catalog Division $ 5,327 $ 5,459
Retail Division 1,519 1,400
Renewables Division 988 973
Consolidated Contribution $ 7,834 $ 7,832
Reconciliation of Contribution to net loss:
Selling, general & administrative
expenses
Catalog Division $ 5,757 $ 5,687
Retail Division 2,267 1,748
Renewables Division 1,351 1,032
Solar Living Center 27 30
Consolidated S G & A expenses 9,402 8,497
Interest (income) expense (63) (42)
Loss on sales of assets 354 9
Income tax benefit (569) (150)
Net Loss $(1,290) $ (482)
</TABLE>
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
At the Meeting of the Board of Directors of the Company on
January 8, 2000, it was determined to dismiss Deloitte and Touche
LLP as the independent accountants for the Company and to engage
Moss Adams LLP. The report of Deloitte and Touche LLP on the
financial statements for each of the past two years did not
contain an adverse opinion or a disclaimer of opinion, nor was it
qualified or modified as to uncertainty of scope or accounting
principles. The Audit Committee concurred in the determination
of the Board of Directors.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
A. General Information Regarding Directors and Executive
Officers
Information about (i) each director nominee and (ii) the
executive officers of the Company who are not directors is set
forth below as of June 29, 2000
<TABLE>
<C> <C>
Name Age Office Director Term
Since Expires
John Schaeffer 50 Chief Executive Office 1990 2000
and Chairman of the
Board
Stehphen Morris 53 Director 1993 2000
Samuel Salkin 50 Director August 1998 2000
John Lenser 56 Director May 1996 2000
Barry Reder 55 Director May 1996 2000
Rich Cundiff 43 Director Jan 2000 2000
Mark A. Swedlund 49 President N/A N/A
Les Seely 56 Chief Financial Officer N/A N/A
and Secretary
</TABLE>
B. Professional Experience of Executive Officers and Directors:
JOHN SCHAEFFER. Mr. Schaeffer founded the Company's predecessor
in 1986 and since 1990 has been the Company's Chief Executive
Officer and Chairman of the Board. Mr. Schaeffer has been
involved in retail businesses since 1978. In 1994 Mr. Schaeffer
was named California Small Businessperson of the Year.
Mr.Schaeffer received a B.A. degree in anthropology from the
University of California at Berkeley in 1971.
STEPHEN MORRIS. Mr. Morris joined the Company's Board of
Directors in October 1993. On July 1, 1994, Mr. Morris became
Executive Vice President and Chief Operating Officer of the
Company. He resigned from such position in June, 1995. Prior to
July 1, 1994 and subsequent to June, 1995, Mr. Morris has been
the principal of Stephen Morris Associates, a provider of sales
and marketing consulting services. He is currently the President
and Publisher at Chelsea Green Publishing Co. in Vermont. Mr.
Morris received an B.A. degree in Psychology from Yale University
in 1970.
SAMULE SALKIN. Mr. Salkin joined the Company's Board of
Directors in August 1998. Mr. Salkin has held the position of VP
Merchandising for more.com, an e-commerce start-up specializing
in health and wellness. In 1997 and 1998, Mr. Salkin was Chief
Operating Officer for the San Francisco Jewish Community
Federation and from 1994 to 1996 served as President and CEO of
Peet's Coffee & Tea, Inc. Mr. Salkin has also held high level
positions with other consumer product and direct marketing
companies and is a visiting lecturer at The Haas School of
Business at UC Berkeley. He holds his BS and MS degrees from
Cornell University.
JOHN LENSER. Mr. Lenser joined the Company's Board of Directors
in May 1996. Mr. Lenser was President of Hearthsong and David
Kay Catalog from 1992 to 1995. Mr. Lenser has been an
independent consultant from 1994 to the present. Mr. Lenser
received a B.A. degree in 1966 and a Masters Degree in 1969 from
the University of California at Berkeley.
BARRY REDER. Mr. Reder joined the Company's Board of Directors
in May 1996. Since October 1993, Mr. Reder has been a partner at
the San Francisco firm of Coblentz, Patch, Duffy & Bass, a
California law firm. Mr. Reder has served as counsel to the
Company since 1990. He is general corporate and securities
counsel for a broad range of businesses throughout the United
States. His expertise is in mergers and acquisitions, venture
capital, contracts and real estate. Mr. Reder received a B.A.
degree from Wesleyan University in 1966 and a J.D. degree from
Cornell Law School in 1969 He is also a director of HS
Resources, Inc.
RICH CUNDIFF. Mr. Cundiff was elected to the Board of Directors
on January 8, 2000. He currently serves as President, Southern
Pacific Region of Whole Foods Market, and has worked with Whole
Foods since 1988. Previously he was a Merchandise Manager and
buyer for Macy's and has over 20 years of retail experience. He
received his B.A. in Marketing and his Masters in Finance from
the University of Texas at Austin.
MARK SWEDLUND. Mr. Swedlund was elected President of the Company
on June 14, 1999. Mr. Swedlund served as Senior Vice President
and Division President of Foster & Gallagher, Inc. from 1990 to
1997. From 1982 to 1990 he was a partner of The Silbert Group, a
consulting firm specializing in providing strategic services to
consumer catalog marketers. From 1978 to 1982, he was a
consultant with Kestnbaum & Company. Mr. Swedlund is a 1973
graduate of the College of the University of Chicago and received
a Masters in Business Administration from that institution in
1978.
LES SEELY. Mr. Seely was appointed Chief Financial Officer and
Secretary of Real Goods in June, 1998. Prior to joining the
Company, Mr. Seely served as Chief Financial Officer for Schurman
Fine Papers from 1991 to 1997 and prior to that as Chief
Financial Officer of Dakin Inc. from 1984 to 1990. He received
his B.A. degree from the University of Colorado in 1966, his MBA
degree from the Wharton Graduate School of Business in 1970 and
his CPA certificate in 1975.
There is no family relationship among the directors, executive
officers or persons nominated or chosen by the Company to become
directors or executive officers.
C. Reports Required by Section 16(A)
Section 16(a) of the Exchange Act requires the Company's
directors and executive officers and persons who own more than
ten percent (10%) of the Company's Common Stock to file with the
Securities and Exchange Commission and any exchange on which the
Company's stock is traded reports of ownership and changes in
ownership of the Company's Common Stock.
Based solely on its review of the copies of Forms 3, 4 and 5
received by the Company or written representations from certain
reporting persons that no Form 5 reports were required for such
persons, the Company has determined that, during the fiscal year
ended March 31, 2000, the following Section 16(a) filing
requirements applicable to its officers, directors and 10%
shareholders were filed late: Form 3 - options as to 70,000
shares granted to Mr. Seely; options as to 20,000 shares granted
to Mr. Salkin; 1,000 shares purchased by Mr. Salkin; options as
to 200,000 shares granted to Mr. Swedlund, and 3,000 shares
purchased by Mr. Swedlund. Form 4 - options as to 10,000 shares
each granted to Mr. Morris and Mr. Lenser; options as to 250,000
shares granted to Mr. Schaeffer. The Company believes that all
necessary filings under section 16(A) of the Exchange Act have
been brought to a current status as of March 31, 2000.
Item 10. EXECUTIVE COMPENSATION.
A. Remuneration of Directors
Under the Company's Amended and Restated Non-Employee Directors'
Plan (the "Amended Directors' Plan") each Director receives an
option to purchase 10,000 shares of the Company's Common Stock
upon election, and an option to purchase 2,000 shares of stock on
the sixth and each succeeding anniversary of service thereafter.
In accordance with policies of his law firm, Mr. Reder has
disclaimed participation in the Amended Directors' Plan.
Each non-employee director of the Company receives an annual cash
retainer fee of $6,000 per year, and each non-employee director
who chairs the Compensation Committee and Audit Committee of the
Board receives an additional $3,000 per year for chairing each
such committee. Mr. Reder is the chairman of the Audit Committee
and the Compensation Committee.
The directors are reimbursed for their extraordinary travel
expenses in connection with their service on the Company's Board.
B. Compensation of Executive Officers
The following table sets forth the cash, bonus and other annual
compensation received by Mr. Schaeffer, the Company's Chairman of
the Board and Chief Executive Officer, and the compensation of
each other officer in excess of $100,000 per year for the three
fiscal years ending on March 31, 1998 through 2000, respectively.
Mr. Schaeffer received no bonuses, reportable perquisites,
securities or property, long term compensation awards in the form
of restricted stock awards, option or SAR awards, or payouts
pursuant to any long term incentive plan during fiscal 1999 or
the two preceding fiscal years. In July 1999, Mr Schaeffer was
granted options to purchase 250,000 shares of the Company's
common stock at $6.00 per share. In May 1999, Mr. Seely was
granted options to purchase 20,000 shares of the Company's common
stock at $3.38 per share.
<TABLE>
<CAPTION>
Summary Compensation Table
<C> <C> <C> <C>
Name and Principal Fiscal Annual All Other
Position Year Compensation Compensation 3
Salary 1,2
John Schaeffer, 2000 $130,423 $ 15,387
Chairman of the Board 1999 $ 82,199 $ 12,966
and Chief Executive 1998 $ 69,225 $ 10,509
Officer
Les Seely 2000 $107,884 $ -
Chief Financial Officer1999 $ 80,267 -
and Secretary 1998 - -
</TABLE>
1 Includes amounts deferred at the election of Mr. Schaeffer
pursuant to the Company's 401(k) Plan established pursuant
to Section 401(k) of the Internal Revenue Code of 1986, as
amended.
2 Includes certain amounts accrued during the year indicated
and paid the following year.
3 Consists entirely of the cash value benefit to Mr.
Schaeffer of split-dollar life insurance premiums paid by
the Company on a $2,500,000 life insurance policy owned by
the Schaeffer 1994 Irrevocable Trust. The figure was
established using the demand loan valuation method and
assuming a long-term interest rate of 7.5%. Such
split-dollar life insurance policy and the arrangement
between Mr. Schaeffer, the Schaeffer 1994 Irrevocable Trust
and the Company regarding such policy is discussed under
"Employment Contracts, Employment Termination and
Change-in-Control Arrangements" below.
C. Employment Contracts, Employment Termination and
change-in-Control Arrangements
John Schaeffer has had an employment agreement with the Company
since June 1990. The agreement is renewable on an annual basis,
commencing February 28th of each year, and is terminable by Mr.
Schaeffer upon thirty (30) days' notice, or by the Company upon
sixty (60) days' notice. Mr. Schaeffer's base salary is subject
to annual increase by the Board as determined by the Board. Mr.
Schaeffer is also eligible to participate in the Company's
benefit plans, including option, profit sharing, insurance and
similar plans. If Mr. Schaeffer becomes disabled during the term
of his employment, his disability benefits will be paid through
the remaining term of the agreement. The agreement requires Mr.
Schaeffer's full-time service to the Company.
Mr. Schaeffer owns 1,783,014 shares of the Company's Common
Stock. Mr. Schaeffer and the Company have been advised that on
the death of Mr. Schaeffer the estate may be required to sell all
or a substantial portion of such shares to satisfy estate tax
obligations. The sale of such number of shares would likely
destabilize the market for the Company's stock. The Company
agreed to pay a portion of the premiums due on a life insurance
policy for Mr. Schaeffer (the "Policy"). The Policy is owned by
the Schaeffer 1994 Irrevocable Trust (the "Trust") established
for the benefit of Mr. Schaeffer's children. Pursuant to a
Split-Dollar Agreement dated May 15, 1995, among the Company, Mr.
Schaeffer and the Trustee of the Trust, the Company will be
reimbursed for the amount of the premiums it pays on the policy
at such time as the Split-Dollar Agreement is terminated, the
Trust surrenders or cancels the Policy, or when the Policy's
death benefit proceeds are paid. Such repayment has been secured
by the collateral assignment of the Policy by the Trust to the
Company.
Mr. Morris, Mr. Lenser and Mr. Salkin have all served as
part-time consultants to the Company on an infrequent basis. In
fiscal 2000, aggregate fees paid to all three were less than
$10,000. Mr. Morris may exercise stock options to purchase
31,300 shares of Company Common Stock at any time until 30 days
after his term as a part-time consultant has ended.
Future Transactions
Any future transactions (including loans) between the Company and
any officer, director, principal shareholder or affiliate of the
Company will be approved by a majority of the directors
disinterested in such transactions and by a majority of the
independent outside directors, each of whom shall have determined
that the transaction is fair to the Company and its shareowners
and that the terms of such transaction are no less favorable to
the Company than could be obtained from unaffiliated parties.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth certain information regarding
beneficial ownership of the Company's Common Stock as of June 29,
2000, by (i) each person (including any "group" as that term is
used in Section 13(d)(3) of the Securities Exchange Act of 1934
(the "Exchange Act")) who is known by the Company to own
beneficially 5% or more of the Common Stock, (ii) each director
of the Company, and (iii) all directors and executive officers as
a group. Unless otherwise indicated, all persons listed below
have sole voting power and investment power with respect to such
shares.
<TABLE>
<C> <C> <C>
Name and Address of Share Amount Percentage
Beneficial Owner and Nature of of Class
Beneficial Ownership*
John Schaeffer
3440 Airway Drive 1,796,614 1 36.5
Santa Rosa, CA 95403
WholePeople.com
1500 E. 128th Avenue 800,000 16.4
Thornton, CO 80214
Les Seely
3440 Airway Drive 15,250 2 **
Santa Rosa, CA 95403
Mark Swedlund
3440 Airway Drive 3,000 **
Santa Rosa, CA 95403
Stephen Morris
3440 Airway Drive 35,300 3 **
Santa Rosa, CA 95403
Sam Salkin
3440 Airway Drive 3,000 4 **
Santa Rosa, CA 95403
John Lenser
3440 Airway Drive 8,000 5 **
Santa Rosa, CA 95403
Barry Reder
222 Kearny Street, 7th Floor None 6 **
San Francisco, CA 94108
All directors and officers 1,847,564 37.8
as a group (7 persons)
</TABLE>
* The amounts and percentages indicated as beneficially
owned were calculated pursuant to Rule 13d-3(d)(1) under the
Exchange Act which provides that beneficial ownership of a
security is acquired by a person if that person has the
right to acquire beneficial ownership of such security
within 60 days through the exercise of a right such as the
exercise of an option or the conversion of a convertible
security into common stock. Any securities not outstanding
which are subject to options or conversion privileges are
deemed outstanding for the purpose of computing the
percentage of outstanding securities of the class
owned by the person who owns the option or conversion
privilege but are not deemed outstanding for the purpose of
computing the percentage of the class owned by any other
person.
** Less than one percent of such class of stock.
1 The amount reported excludes 13,600 shares by an irrevocable
trust established for the benefit of Mr. Schaeffer's
children. Mr. Schaeffer does not have voting or investment
powers over these shares, and Mr. Schaeffer disclaims
beneficial ownership of all of the shares held in this
irrevocable trust.
2 15,250 shares subject to issuance within 60 days after May
20, upon exercise of stock options.
3 35,300 shares subject to issuance within 60 days after May
20, 2000 upon the exercise of stock options.
4 1,000 shares owned in Individual Retirement Account;
includes 2,000 shares subject to issuance within 60 days
after May 20, 2000 upon exercise of stock options.
5 Includes 6,000 shares subject to issuance within 60 days
after May 20, 1999 upon the exercise of stock options.
6 The policies of Mr. Reder's law firm prohibit him from
owning shares of the Company's common stock.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Stephen Morris, a director of the Company, currently serves as
the publisher at, and owns 10% of the Common Stock of, Chelsea
Green Publishing Co. ("CGP") in Vermont, a company which has
co-published twenty books with the Company and is a distributor
of the Company's Real Goods Solar Living Sourcebook. All
transactions between the Company and CGP resulted in total gross
payments of $108,949 made by the Company to CGP from April 1,
1999 through March 31, 2000.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) See Index to Exhibits following Signature Page.
........................
</PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on this 27th day of June, 2000.
REAL GOODS TRADING CORPORATION
(Registrant)
By:[S]LESLIE B. SEELY
Leslie B. Seely
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant in the capacities and on the dates
indicated.
Signature Title Date
[S]LESLIE B.SEELY Chief Financial Officer
Leslie B. Seely
[S]JOHN SCHAEFFER Chief Executive Officer
John Schaeffer
[S]MARK SWEDLUND President
Mark Swedlund
[S]RICH CUNDIFF Director
Rich Cundiff
[S]JOHN LENSER Director
John Lenser
[S]STEPHEN MORRIS Director
Stephen Morris
[S]BARRY REDER Director
Barry Reder
[S]SAMUEL SALKIN Director
Samuel Salkin
Item 13. INDEX TO EXHIBITS.
Exhibit No. Description
3.1* Articles of Incorporation
3.2* Bylaws
3.2^^ Amendments to Article II of the Bylaws, adopted
March 13, 1999.
10.1* Form of Indemnification Agreement with Directors
10.12**** Split Dollar Agreement by and among the Company and
John C. Schaeffer and the Trustee of the Schaeffer
1994 Irrevocable Trust dated May 15, 1995 and
Assignment of Life Insurance Policy as Collateral by
Trustee of the Schaeffer 1994 Irrevocable Trust
10.14**** Amended and Restated Real Goods Trading Corporation
Fiscal 1993 Stock Incentive Plan
10.15**** The Real Goods Trading Corporation Non-Employee
Directors' Stock Option Plan
10.18^ Term Loan agreement between the Company and Small
Business Administration, dated June 17, 1996 and
certain ancillary documents.
10.20** Loan Agreement between the Company and National
Bank of the Redwoods dated April 7, 1998 and cer-
tain ancillary documents.
10.23** Lease of 1324 Tenth St., Berkeley, California.
10.25^^ Changes in Terms of Loan Agreement between the
Company and National Bank of the Redwoods dated
April 7, 1999.
10.26^^ Lease of 3440 Airway Drive, Santa Rosa, California.
10.27^^ Lease of 205 Clara Street, Unit A, Ukiah, California.
10.28^^ Lease of 77 W. Broadway, Eugene, Oregon.
10.29^^ Lease of 1031 N. State Street, Ukiah, California.
10.30^^ Agreement with Mark Swedlund dated June 1, 1999.
10.31 Lease of 15954 Los Gatos Blvd., Los Gatos, CA
10.32 Lease of 11666 National Blvd., Los Angeles, CA
10.33 Stock Purchase Agreement dated September 23, 1999
by and among Real Goods Trading Corporation and
Whole Foods Market, Inc.
10.34 Strategic Alliance Agreement dated September 23,
1999 by and between Whole Foods Market,Inc. and
Real Goods Trading Corporation.
23.2 Independent Auditors' Consent.
* Incorporated by reference to the Company's for 10KSB
filed with the Securities and Exchange Commission on
October 1, 1993.
** Incorporated by reference to the Company's for 10KSB
filed with the Securities and Exchange Commission on
June 19, 1998.
*** Incorporated by reference to the Company's Form 10-KSB
filed with the Securities and Exchange Commission on
June 29, 1994.
**** Incorporated by reference to the Company's Form 10-KSB
filed with the Securities and Exchange Commission on
June 28, 1995.
^ Incorporated by reference to the Company's Form 10-KSB
filed with the Securities and Exchange Commission on
June 11, 1997.
^^ Incorporated by reference to the Company's Form 10-KSB
filed with the Securities and Exchange Commission on
June 25, 1999.
