U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 23, 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 of (IRS Employer Identification
incorporation or organization) Number)
3440 Airway Drive, Santa Rosa, California 95403
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (707) 542-2600
Former name, former address and former fiscal year, if changed
since last report.
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
As of October 23, 2000, there were issued and outstanding
4,814,242 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 Balance Sheets as of September 23,
2000 and March 31, 2000 3
Condensed Statements of Operations for the three
and six months ended September 23, 2000 and
September 25, 1999 4
Condensed Statements of Cash Flows for the
six months ended September 23, 2000 and September
25, 1999 5
Notes to Condensed 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 BALANCE SHEETS
(Unaudited)
(In thousands except share data)
<TABLE>
<CAPTION>
September 23, March 31,
2000 2000
<S> <C> <C>
ASSETS
Current Assets
Cash $ 709 $ 876
Marketable securities - 1,568
Accounts receivable,
net of allowance $6 190 152
Inventories, net 2,644 3,165
Deferred catalog costs, net 330 381
Prepaid expenses 190 150
Deferred taxes 34 34
Total current assets 4,097 6,326
Property, equipment and
improvements, net 4,083 3,924
Property held for sale 78 78
Internet project 92 139
Note receivable - affiliate,
net of allowance of $259 64 60
Other assets 253 253
Deferred taxes 1,029 664
TOTAL ASSETS $ 9,696 $ 11,444
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities
Accounts payable $ 842 $ 1,374
Accrued expenses 272 309
Customer deposits 111 55
Current maturities of long-term
debt 18 17
Other taxes payable 54 39
Total current liabilities 1,297 1,794
Long-term debt 525 534
TOTAL LIABILITIES 1,822 2,328
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
4,814,242 shares and 4,881,742
respectively 10,624 10,771
Accumulated deficit (2,750) (1,655)
Total shareowners' equity 7,874 9,116
TOTAL LIABILITIES AND SHAREOWNERS'
EQUITY $ 9,696 $ 11,444
</TABLE>
See notes to condensed financial statements
</PAGE>
REAL GOODS TRADING CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Sept. 23, Sept. 25, Sept. 23, Sept. 25,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales $3,477 $3,984 $6,679 $8,101
Cost of sales 2,171 2,350 4,148 4,822
Gross profit 1,306 1,634 2,531 3,279
Selling, general and
administrative expenses 2,100 1,941 4,033 3,807
Loss from operations (794) (307) (1,502) (528)
Interest income, net of
interest expense 27 3 42 8
Loss before income taxes (767) (304) (1,460) (520)
Income tax benefit 192 106 365 182
NET LOSS $ (575) $ (198) $ (1,095) $ (338)
Net LOSS PER SHARE,
BASIC AND DILUTED $(0.12) $(0.05) $ (0.23) $(0.08)
Weighted average shares
outstanding,basic and
diluted 4,814,242 4,082,785 4,824,354 4,081,339
</TABLE>
See notes to condensed financial statements
</PAGE>
REAL GOODS TRADING CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
Sept. 23, Sept. 25,
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,095) $ (338)
Adjustments to reconcile net loss to net
cash from operating activities:
Depreciation and amortization 259 204
Deferred income taxes (365) (182)
Changes in assets and liabilities:
Receivables (38) (77)
Inventory 520 (1,087)
Deferred catalog costs 51 -
Prepaid expenses (40) 36
Other - 11
Accounts payable ( 532) (136)
Accrued expenses (36) (122)
Customer deposits 56 (29)
Other taxes payable 16 (30)
Net cash from operating activities (1,204) (1,750)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment, improvements,
and construction in progress (372) (188)
Note and interest receivable from affiliate (4) (95)
Marketable Securities 1,568 -
Net cash from investing activities 1,192 (283)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of stock (147) (3)
Repayment of debt (8) (8)
Proceeds from issuance of common stock,
net of issue costs - 3,587
Net cash from financing activities (155) 3,576
Net increase (decrease) in cash (167) 1,543
Cash at beginning of period 876 2,048
Cash at end of period $ 709 $ 3,591
</TABLE>
See notes to condensed financial statements
</PAGE>
REAL GOODS TRADING CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 23, 2000
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have
been prepared from the records of the Company and, in the opinion
of management, include all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial
position as of September 23, 2000 and the interim results of
operations and cash flows for the three and six months ended
September 23, 2000 and September 25, 1999. The balance sheet as
of March 31, 2000 was derived from the Company's audited
financial statements included in the Company's Annual Report on
Form 10-KSB for the year ended March 31, 2000.
Accounting policies followed by the Company are described in Note
1 to the audited financial statements for the fiscal year ended
March 31, 2000 included in the Company's fiscal 2000 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 financial statements should be read in
conjunction with the audited financial statements, including
notes thereto, for the year ended March 31, 2000.
The results of operations for the three and six month periods
herein presented are not necessarily indicative of the results to
be expected for the full year.
NOTE 2 - PRESENTATION OF SHIPPING AND HANDLING FEES
Included in net sales for the three and six month periods ended
September 23, 2000 and September 25, 1999 are shipping and
handling fees collected from customers of $226,000 and $438,000
in fiscal 2001 and $259,000 and $536,000 in fiscal 2000,
respectively. Included in cost of sales for the three and six
month periods ended September 23, 2000 and September 25, 1999 are
freight out expenses of $225,000 and $424,000 in fiscal 2001 and
$184,000 and $432,000 in fiscal 2000, respectively.
NOTE 3 - 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. The line of credit agreement contains restrictive
covenants including debt to net worth, current ratios,
restrictions on capital expenditures, 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. As of September 23,
2000, no amounts were outstanding on the Company's line of
credit.
NOTE 4 - SHAREOWNERS' EQUITY
In two separate resolutions in August 1998 and April 2000, the
Board of Directors authorized the Company to purchase up to a
total of $200,000 of common stock in open market and private
transactions. During the first six months of fiscal 2001 the
Company repurchased 67,500 shares at an average cost of $2.17 per
share.
NOTE 5 - SEGMENT INFORMATION
The Company has four divisions (Catalog, Internet, Retail and
Renewables), all of which sell products purchased from other
suppliers directly to customers. The customer bases of all four
divisions overlap to some extent, and the purchase and delivery
processes to customers overlap as well.
Each of the four divisions qualifies as a reportable segment
because each is more than 10% of the combined revenue of all
operating segments. Financial information for the Company's
business segments for the six months ended September 23, 2000 and
September 25, 1999 was as follows:
<TABLE>
<CAPTION>
Sept. 23, Sept. 25,
2000 1999
<S> <C> <C>
Net Sales:
Catalog Division $ 2,624 $ 4,066
Internet Division 833 445
Retail Division 2,083 1,701
Renewables Division 1,059 1,889
Other 80 ____
Consolidated Net Sales 6,679 8,101
Gross Profit:
Catalog Division 1,115 1,840
Internet Division 343 200
Retail Division 773 656
Renewables Division 270 583
Other 30 -
Consolidated Gross Profit 2,531 3,279
Reconciliation of Gross Profit to Net Loss:
Selling, general & administrative expenses:
Catalog Division 1,678 1,979
Internet Division 482 141
Retail Division 1,326 921
Renewables Division 472 753
Other 75 13
Consolidated S G & A expenses 4,033 3,807
Interest income 65 31
Interest expense (23) (23)
Gain on sale of assets - -
Income tax benefit 365 182
Net Loss $ (1,095) $ (338)
</TABLE>
</PAGE>
NOTE 6 - SUBSEQUENT EVENT
On October 13, 2000, the Company signed an agreement to merge the
Company with a subsidiary of Gaiam, Inc. subject to Real Goods
shareholder approval and other customary conditions. Details
about this agreement can be found by examining the Company's
press releases and the Form 8K filed on October 31, 2000.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SALES
Net sales of $6,679,000 for the first six months of fiscal 2001
were down 18% from $8,101,000 for the first six months of fiscal
2000 due to reduced catalog mailings and weaker sales of catalog
and renewable energy products due primarily to the extended sales
malaise occurring after Y2K fears failed to materialize on
January 1, 2000.
Catalog division net sales in the first six months of fiscal 2001
decreased by 35% to $2,624,000 from $4,066,000 in the first six
months of fiscal year 2000 as a result of the post Y2K sales
malaise mentioned above, weaker response rates to the Company's
catalogs, lower average orders and "cannibalization" by Internet
division sales which nearly doubled over the comparable period.
Catalog division sales, were 39% of total net sales in the first
six months of fiscal 2001 as compared to 50% in the first six
months of fiscal 2000.
Internet division net sales increased 87% to $832,000 in the
first six months of fiscal 2001 from $445,000 in the first six
months of fiscal 2000, reflecting improvements in the website and
the addition of new site partners. To some extent, these
increases were at the expense of the catalog division as the
company believes that traditional catalog customers chose to
order through the Internet channel instead of the catalog
channel. Internet division sales amounted to 12% of total net
sales in the first six months of fiscal 2001 compared with 5% of
total net sales in the first six months of fiscal 2000.
Retail store division net sales increased 23% to $2,083,000 in
the first six months of fiscal 2001 from $1,701,000 in the first
six months of fiscal 2000 primarily due to the addition of the
Los Gatos and West Los Angeles stores. Sales included in the
first six months of fiscal 2001 attributable to the new stores
total $537,000. Same store sales dropped 9% from $1,701,000 in
the first six months of fiscal 2000 to $1,546,000 in the first
six months of fiscal 2001 reflecting a weaker interest in
renewable energy products on the part of the consumers due to the
extended post Y2K sales malaise. Retail division sales amounted
to 31% of total net sales in the first six months of fiscal 2001
compared to 21% of total net sales in the first six months of
fiscal 2000.
Renewable energy sales decreased 44% to $1,059,000 in the first
six months of fiscal 2001 from $1,890,000 in the first six months
of fiscal 2000. Fiscal 2000 revenues included a single $182,000
sale of a solar system to a winery in Northern California. The
renewable energy industry as a whole has experienced a marked
drop in consumer interest following Y2K although the Company
expects demand to pick up soon due to increasing gasoline and
utility company prices. Renewable energy sales amounted to 16%
of total net sales in the first six months of fiscal 2001
compared with 23% of the total net sales in the first six months
of fiscal 2000. The California Energy Commission program, begun
in March 1999 as an incentive to install renewable energy systems
where customers can buy solar systems for up to 50% off retail
price, is mandated by the California legislature to continue for
a minimum of four years from inception. The Company's Renewable
Energy Division aggressively markets the CEC program.
For the three months ended September 23, 2000, the Company's net
sales decrease 13%, or $507,000, to $3,477,000 compared to
$3,984,000 in the previous period for the reasons cited above.
Net catalog sales of the three months were down 33% to $1,338,000
compared to $1,989,000 for the same period in the previous year.
Internet sales for the three months were up 116% to $453,000,
compared to $210,000 for the same period in the previous year.
Retail stores sales for the three months were $1,185,000, an
increase of 30% from the previous year's comparable sales of
$911,000. Reneable energy sales for the three months were
$488,000, a decrease of 44% from the previous year's comparable
sales of $874,000.
GROSS PROFIT
Gross profit for the first six months of fiscal 2001 was
$2,531,000 or 38% of sales compared with $3,279,000 or 40% for
the first six months of fiscal 2000. Overall margins declined
with the relatively lower proportion of catalog sales, which
historically produce the Company's highest gross profit as a
percentage of sales. The decline in margin also reflects
aggressive sale pricing on Y2K product overstocks in the first
six months of fiscal 2001 which succeeded in reducing inventory
by over $520,000.
Catalog sales had a gross profit of 42% or $1,115,000 for the
first six months of fiscal 2001 compared with 45% or $1,840,000
in the first six months of fiscal 2000 due to the Company's
decision to aggressively price Y2K product overstocks in catalog
mailings and sales fliers to reduce inventory. Retail stores
division gross profit for the first six months of fiscal 2001 was
37% or $773,000 and was down from the 39% margin level or
$656,000 in the first six months of fiscal 2000. This decrease
reflects increased levels of items on sale to reduce inventory.
Renewable energy division sales, including design and consulting
fees for solar, wind and hydro projects, had a gross margin of
25% or $270,000 in the first six months of fiscal 2001 compared
to a gross margin of 31% or $583,000 in the first six months of
fiscal 2000. The drop in percentage in fiscal 2001 results from
a one-time large sale completed at less than a 20% margin.
Renewable energy sales typically have lower gross margins which
tend to reduce the Company's overall average gross margin.
For the three months ended September 23, 2000, gross profit
decreased to 38%, or $1,306,000 compared to 41%, or $1,634,000
for the reasons cited above. The catalog division provided a
gross profit of $563,000 or 42% compared to $911,000 or 46% for
the previous period. The internet division provided a gross
profit of $188,000 or 42% compared to $96,000 or 46% for the
previous period. The retail division provided a gross profit of
$425,000 or 36% compared to $354,000 or 39% for the previous
period. The renewable energy division provided a gross profit of
$127,000 or 26% compared to $273,000 or 31% for the previous
period.
OPERATING EXPENSES AND INTEREST INCOME
Selling, general and administrative expenses were $4,033,000, or
60% of net sales in the first six months of fiscal 2001 compared
with $3,807,000 or 47% of net sales in the first six months of
fiscal 2000. Selling, general and administrative expenses
amounted to $2,1000,000, 60% of sales, for the quarter compared
to $1,941,000, or 49% of sales, for the previous year's
comparable quarter. This increase in percentage reflects the
drop in sales and increases in catalog and printing, advertising,
supplies, depreciation, and rents expense. These increases were
offset by decreases in the areas of labor and benefits, equipment
expense, utilities, training, recruitment, and general
administrative expense. In the first six months of fiscal 2001,
the Company had net interest income of $42,000 compared with net
interest income of $7,000 in the first six months of
fiscal 2000. For the quarter, net interest and other income was
$27,000 compared with $3,000 for the previous year's quarter.
EARNINGS
For the first six months of fiscal 2001, the Company incurred a
pre-tax loss of $1,460,000 and a net loss of $1,095,000, or $.23
per share compared to a pre-tax loss in the first six months of
fiscal 2000 of $520,000 and a net loss of $338,000 or $.08 per
share. For the quarter, the Company incurred a pre-tax loss of
$767,000 and a net loss of $575,000 or $0.12 per share as
compared to a pre-tax loss of $304,000 and a net loss of $198,000
or $0.05 per share in the previous year's quarter. Weak sales
due to the extended post Y2K malaise and lower
margins due to sale prices reducing inventory levels were the
primary reasons for these increased losses. The Company
typically experiences seasonality with sales and earnings
building toward the fiscal third quarter (the holiday season)
which is historically the Company's strongest and most profitable
quarter.
INCOME TAX BENEFIT
The income tax benefit used by the Company was 25% in the first
six months of fiscal 2001 compared with 35% in the first six
months of fiscal 2000. These rates represent the projected
realizable rates expected by management for each fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
For the first six months of fiscal 2001, cash used in operations
was $1,204,000 primarily due to the net loss and reductions in
accounts payable. Overall, the Company generated $1,192,000 from
net investing activities and used $155,000 in its financing
activities. The net effect of these activities was to decrease
cash from $876,000 at March 31, 2000 to $709,000 at September 23,
2000. 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.
</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.
September 1, 2000 - Resignation of Director
September 20, 2000 - Management changes / Resignation
of Directors
October 31, 2000 - Merger agreement with Gaiam, Inc.
SIGNATURES
In accordance with the requirements of the Securities Exchange
Act, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
REAL GOODS TRADING CORPORATION
(Registrant)
DATED: November 6, 2000
by:[S]JOHN SCHAEFFER
John Schaeffer
Pesident/CEO
