U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 25, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-22524
REAL GOODS TRADING CORPORATION
(Exact name of small business issuer as specified in its charter)
California 68-0227324
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
3440 Airway Drive, Santa Rosa, California 95403
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (707) 542-2600
Former name, former address and former fiscal year, if changed
since last report.
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
As of January 28, 1999, there were issued and outstanding
4,879,942 shares of common stock of the issuer.
</PAGE>
REAL GOODS TRADING CORPORATION
INDEX
Page
Form 10-QSB Cover Page 1
Index 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets as of
December 25, 1999 and March 31, 1999 3
Condensed Consolidated Statements of Operations
for the three and nine months ended
December 25, 1999 and December 26, 1998 4
Condensed Consolidated Statements of Cash Flows
for the nine months ended December 25, 1999 and
December 26, 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 12
Item 2. Changes in Securities. 12
Item 3. Defaults Upon Senior Securities. 12
Item 4. Submission of Matters to a
Vote of Security-Holders. 12
Item 5. Other Information. 12
Item 6. Exhibits and Reports on Form 8-K. 12
Signatures 12
</PAGE> PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
REAL GOODS TRADING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands except share data)
<TABLE>
<CAPTION>
December 25, March 31,
1999 1999
<S> <C> <C>
ASSETS
Current Assets
Cash $ 4,247 $ 2,048
Accounts receivable,
net of allowance of $6 188 240
Interest receivable from affiliate 12 -
Note receivable - 20
Inventories, net 2,855 2,080
Deferred catalog costs, net 304 272
Prepaid expenses 197 266
Deferred taxes 89 89
Total current assets 7,892 5,015
Property, equipment
and improvements, net 3,714 3,553
Property held for sale 78 78
Note receivable from affiliate 298 196
Other assets 301 198
Deferred taxes 108 39
TOTAL ASSETS $ 12,391 $ 9,079
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities
Accounts payable $ 784 $ 873
Accrued expenses 659 620
Customer deposits 59 138
Current maturities of long-term debt 17 16
Other taxes payable 90 57
Total current liabilities 1,609 1,704
Long-term debt 539 552
Total Liabilities 2,148 2,256
Shareowners' Equity
Preferred stock, without par value:
Authorized 1,000,000 shares;
None issued or outstanding - -
Common stock, without par value:
Authorized 10,000,000 shares;
Issued and outstanding 4,879,942
shares at December 25, 1999 and
4,080,742 at March 31, 1999 10,762 7,188
Accumulated deficit (519) (365)
Total shareowners' equity 10,243 6,823
TOTAL LIABILITIES AND
SHAREOWNERS' EQUITY $ 12,391 $ 9,079
</TABLE>
See notes to condensed consolidated financial statements
</PAGE>
REAL GOODS TRADING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 25, December 26, December 25, December 26,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales $ 7,609 $ 6,989 $15,710 $14,119
Cost of sales 4,181 4,029 9,003 8,156
Gross profit 3,428 2,960 6,707 5,963
Selling,
general and
administrative
expenses 3,172 2,795 6,979 6,304
Earnings(loss)
from operations 256 165 (272) (341)
Interest income,
net of interest
expense 41 7 49 36
Earnings(loss)
before income
taxes 297 172 (223) (305)
Income tax
benefit(expense) (113) (69) 69 121
NET EARNINGS
(LOSS) $ 184 $ 103 $ (154) $ (184)
NET EARNINGS(LOSS)
PER SHARE,BASIC
AND DILUTED $ 0.04 $ 0.03 $(0.04) $(0.05)
Weighted average
shares outstanding,
basic and
diluted 4,879,942 4,080,742 4,186,328 3,982,251
</TABLE>
See notes to condensed consolidated financial statements
</PAGE>
REAL GOODS TRADING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
December 25, December 26,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (154) $ (184)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation and amortization 318 257
Deferred income taxes (69) 46
Changes in assets and liabilities:
Receivables 72 9
Inventory (775) 134
Deferred catalog costs (32) 101
Prepaid expenses 69 46
Other (103) 2
Accounts payable ( 89) 178
Accrued expenses 39 484
Customer deposits (79) (326)
Other taxes payable 33 166
NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES (770) 913
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment, improvements,
and construction in progress (479) (265)
Note and interest
receivable from affiliate (114) (176)
Proceeds from sale of assets - 19
NET CASH USED IN
INVESTING ACTIVITIES (593) (422)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of stock (3) (15)
Repayment of debt (12) (9)
Proceeds from issuance of
common stock, net of issue costs 3,577 1,145
NET CASH PROVIDED BY
FINANCING ACTIVITIES 3,562 1,121
NET INCREASE IN CASH 2,199 1,612
CASH AT BEGINNING OF PERIOD 2,048 1,301
CASH AT END OF PERIOD $ 4,247 $ 2,913
</TABLE>
See notes to condensed consolidated financial statements
</PAGE>
REAL GOODS TRADING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 25, 1999
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared from the records of the Company
and, in the opinion of management, include all adjustments
(consisting of only normal recurring accruals) necessary to
present fairly the financial position as of December 25, 1999 and
the interim results of operations and cash flows for the three
and nine months ended December 25, 1999 and December 26, 1998.
Certain reclassifications have been made to the prior year
amounts to conform to the December 1999 presentation (see Note 2
below). The balance sheet as of March 31, 1999 was derived from
the Company's audited consolidated financial statements included
in the Company's Annual Report on Form 10KSB for the year ended
March 31, 1999.
Accounting policies followed by the Company are described in Note
1 to the audited financial statements for the fiscal year ended
March 31, 1999 included in the Company's fiscal 1999 Annual
Report to Shareowners. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted for purposes of the condensed financial
statements. The condensed consolidated financial statements
should be read in conjunction with the audited financial
statements, including notes thereto, for the year ended March 31,
1999.
The results of operations for the three and nine month periods
herein presented are not necessarily indicative of the results to
be expected for the full year.
NOTE 2 - CHANGE OF PRESENTATION
Included in net sales for the three and nine month periods ended
December 25, 1999 and December 26, 1998 are shipping and handling
fees collected from customers of $599,000 and $1,134,000 in
fiscal 2000 and $614,000 and $1,156,000 in fiscal 1999,
respectively. Included in cost of sales for the three and nine
month periods ended December 25, 1999 and December 26, 1998 are
freight out expenses of $441,000 and $873,000 in fiscal 2000 and
$445,000 and $860,000 in fiscal 1999, respectively. Previously
these amounts were presented as a net amount in selling, general
and administrative expenses. Such amounts have been reclassified
into net sales and cost of sales for the periods presented
because management believes this more accurately represents the
nature of these items.
NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure these instruments at
fair value. This statement is effective for the Company's first
quarterly filing of fiscal 2002. The Company believes that this
statement will not have a material effect on its financial
statements.
NOTE 4 - LINE OF CREDIT
The Company has a line of credit agreement for $1,500,000 with
National Bank of the Redwoods (the "Bank"). Borrowings bear
interest at 1.5% over the prime rate, payable in monthly
installments. At December 25, 1999 no amounts were outstanding
on the Company's line of credit. Effective September 1, 1999,
the line was extended through August 31, 2000.
The line of credit agreement contains restrictive covenants
including debt to net worth, current ratios, restrictions on
capital expenditures, positive cash flow at a certain point in
the fiscal year and prohibitions on payment of cash dividends
without the Bank's approval. The line is collateralized by
substantially all of the Company's assets, including inventory,
accounts receivable and mailing lists as well as a key person
life insurance policy on the life of the Company's Chairman and
largest shareowner. At December 25, 1999 the Company was in
compliance with all covenants of the line of credit agreement.
NOTE 5 - SHAREOWNERS' EQUITY
On September 22, 1999 the Company sold 800,000 shares of its
previously unissued common stock to WholePeople.com for
$3,600,000.
</PAGE>
NOTE 6 - SEGMENT INFORMATION
The Company has three divisions (Catalog, Retail and Renewable
Energy), all of which sell products purchased from other
suppliers directly to customers. The customer bases of all three
divisions overlap to some extent, and the purchase and delivery
processes to customers overlap as well.
Each of the three divisions is a reportable segment. Financial
information for the Company's business segments for the nine
months ended December 25, 1999 and December 26, 1998 was as
follows:
<TABLE>
<CAPTION>
December 25, December 26,
1999 1998
<S> <C> <C>
Net Sales:
Catalog Division $ 9,764 $ 8,952
Retail Division 3,161 2,929
Renewable Energy Division 2,785 2,238
Consolidated Net Sales 15,710 14,119
Gross Profit:
Catalog Division 4,597 4,150
Retail Division 1,219 1,109
Renewable Energy Division 891 704
Consolidated Gross Profit 6,707 5,963
Reconciliation of Gross Profit to
Net Loss:
Selling, general &
administrative expenses:
Catalog Division 4,357 4,288
Retail Division 1,541 1,270
Renewable Energy Division 1,081 746
Consolidated S G & A expenses 6,979 6,304
Interest income 84 53
Interest expense (35) (36)
Gain on sale of assets - 19
Income tax benefit 69 121
Net Loss $ (154) $ (184)
</TABLE>
</PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SALES
Net sales for the first nine months of fiscal 2000 were
$15,710,000, up 11% from $14,119,000 in the first nine months of
the previous year.
Catalog division net sales for the first nine months of fiscal
2000 increased 9% to $9,764,000 compared with $8,952,000 in the
previous year due to a higher response rate to the Company's Real
Goods catalog and increased Internet sales which are included
within the catalog division. Catalog division sales were 62% of
total net sales in the first nine months of fiscal 2000 compared
with 63% in fiscal 1999. Internet sales were $1,078,000 compared
with $326,000 in the same nine month period of the prior year.
Retail division net sales in the first nine months of fiscal 2000
were $3,161,000, an increase of $232,000 or 8%, compared to
$2,929,000 for the same period in the previous year. Retail
store sales amounted to 20% of total net sales in fiscal 2000,
compared with 21% of total net sales in the same period last
year. The Company had 3 retail stores and one outlet store open
for the full nine months and opened a fourth retail store in the
month of November. Comparable store sales were $2,999,000 for
the nine months ended December 25, 1999 compared with $2,929,000
for the same period last year, a 2.4% increase.
Renewable energy division net sales in the first nine months of
fiscal 2000 increased 24% to $2,785,000 compared to $2,238,000
for the same period in fiscal 1999 due to the Company's
utilization of the incentive program being offered through at
least March 2002 by the California Energy Commission in
conjunction with the deregulation of California utilities and due
to the heightened interest in energy independence and potential
Y2K computer problems. Improvements in customer service and
sales also helped increase sales. Renewable energy sales
amounted to 18% of total net sales, compared with 16% in fiscal
1999.
For the three months ended December 25, 1999, the Company's net
sales increased 9%, or $620,000, to $7,609,000 compared to
$6,989,000 in the same period of the previous year. Net catalog
division sales for the three months were up 6% to $5,253,000
compared to $4,943,000 for the same period in the previous year
for the reasons mentioned above. Internet sales within the
catalog division for the quarter were $633,000 compared to
$181,000 for the same period in the prior year. Retail division
sales for the three months were $1,460,000, an increase of 19%
from the previous year's sales of $1,225,000. Comparable store
sales for the quarter were $1,297,000 compared to $1,225,000 for
the same period in the prior year, a growth of 6%. The increase
in retail sales was due to stronger demand for renewable energy
products in part stimulated by a heightened concern for potential
Y2K computer uncertainties. $163,000 of the increase also
pertains to the new Los Gatos retail store that was opened in
November 1999. Renewable energy division sales increased 9% to
$896,000 compared to $821,000 for the previous year.
GROSS PROFIT
For the first nine months of fiscal 2000, gross profit increased
to 42.7%, or $6,707,000, compared to 42.2%, or $5,963,000 for the
first nine months of fiscal 1999. This increase in gross profit
percentage for the nine month period was primarily due to slight
improvement of margins on catalog sales, historically the
Company's most profitable segment, offset by a slightly higher
proportion of lower margin renewable energy sales in the first
nine months of fiscal 2000, compared with the first nine months
of fiscal 1999.
The Company's margins improved in all divisions. For the first
nine months ended December 25, 1999, the catalog division had a
gross profit of $4,597,000, or 47.1%, compared to $4,150,000, or
46.4% for the previous period. The retail division had a gross
profit of $1,219,000, or 38.6%, compared to $1,109,000, or 37.9%
in the previous period. The renewable energy division had a
gross profit of 32%, or $891,000, compared to 31.5% or $705,000
for the previous period. Increases in gross profit were the
result of changes in product line and improvements in purchasing
of key products.
For the three months ended December 25, 1999, gross profit
increased to 45.1%, or $3,428,000, compared to 42.4%, or
$2,960,000 for the reasons cited above. The catalog division
provided a gross profit of $2,557,000, or 48.7%, compared to
$2,295,000, or 46.4% for the previous period. The retail
division generated a gross profit of $563,000, or 38.6%, compared
to $423,000, or 34.5% in the previous period. The increase in
gross profit for retail is attributed to a larger portion of
retail sales being non-renewable energy product sales, which
typically have a higher margin. The renewable energy division had
a gross profit of $308,000, or 34.4%, compared to $242,000, or
29.5% in the previous year. This increase is largely a result of
a change in product mix and better purchasing of certain
products.
OPERATING EXPENSES
Selling, general and administrative expenses were $6,979,000, or
44.4% of sales for the nine months ending December 25, 1999,
compared to $6,304,000, or 44.7% of sales for the previous year.
Selling, general and administrative expenses amounted to
$3,172,000, or 41.7% for the three months ended December 25,
1999, compared to $2,795,000, or 40.0% for the same period last
year as the Company continued to build infrastructure and upgrade
positions.
Increases in operating expenses occurred in the areas of
salaries, wages and benefits, postage and freight, supplies,
rents, utilities, purchased services and travel and bank charges.
Savings in operating expenses have been made in the areas of
catalog expenses, advertising, training and education, and
recruitment.
INTEREST EXPENSE AND OTHER INCOME
The Company had $49,000 of net interest income in the first nine
months, compared to $17,000 of net interest income in the same
period of the prior year. The Company also had a gain of $19,000
on the sale of equipment in the first nine months of fiscal 1999.
SEASONALITY
The Company's third quarter, which ends at the end of December,
is historically its strongest quarter and has always been
profitable. As a retailer, the Company typically experiences
seasonality with sales and earnings building toward the third
quarter (the holiday season).
INCOME TAX BENEFIT
The income tax benefit was 31% in the first nine months of fiscal
2000 compared with 40% in the same period of fiscal 1999. These
rates represent the projected rates expected by management for
each fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended December 25, 1999, $770,000 was used
in the Company's operations, primarily for inventory and other
working capital needs. The Company used $593,000 in its
investing activities, primarily for fixed assets and to provide a
loan to the Institute for Solar Living. The Company generated
$3,562,000 in net proceeds from its financing activities,
primarily through the sale of 800,000 shares of common stock to
Wholepeople.com; see Note 5 to financial statements.
The net effect of these activities was to increase cash from
$2,048,000 at March 31, 1999 to $4,247,000 at December 25, 1999.
The Company believes that cash balances and available borrowings
will be adequate to meet anticipated requirements for working
capital, capital expenditures and debt service for the
foreseeable future.
EFFECTS OF INFLATION
The overall effects of inflation on the Company's business during
the periods discussed were not believed to be material.
YEAR 2000 PREPAREDNESS 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.
*****
</PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable.
Item 2. Changes in Securities.
Not Applicable.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security-Holders.
Not Applicable.
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
Not Applicable.
SIGNATURES
In accordance with the requirements of the Securities Exchange
Act, the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
REAL GOODS TRADING CORPORATION
(Registrant)
DATED: January 31, 2000
by:[S]LESLIE B. SEELY
Leslie B. Seely
Chief Financial Officer
