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 June 24, 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) (ZipCode)
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 July 24, 2000, there were issued and outstanding 4,814,242
shares of common stock of the issuer.
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 at June 24, 2000 and March 31, 2000 3
Condensed Statements of Operations for the
three-month periods ended June 24, 2000 and June 26, 1999 4
Condensed Statements of Cash Flows for the
three month periods ended June 24, 2000 and June 26, 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. 10
Item 2. Changes in Securities.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security-Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
Signatures 10
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
REAL GOODS TRADING CORPORATION
CONDENSED BALANCE SHEETS
(Unaudited)
(In thousands except share data)
June 24, March 31,
2000 2000
ASSETS
Current Assets
Cash $ 805 $ 876
Marketable securities 575 1,568
Accounts receivable, net of allowance
of $6 159 152
Inventories, net 2,910 3,165
Deferred catalog costs, net 369 381
Prepaid expenses 121 150
Deferred taxes 34 34
Total current assets 4,973 6,326
Property, equipment and improvements, net 4,213 3,924
Property held for sale 78 78
Internet project 116 139
Note receivable - affiliate,
net of allowance of $259 56 60
Other assets 253 253
Deferred income taxes 837 664
Total Assets $ 10,526 $ 11,444
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities
Accounts payable $ 1,008 $ 1,374
Accrued expenses 404 309
Deposits 50 55
Current maturities of long-term debt 17 17
Other taxes payable 46 39
Total current liabilities 1,525 1,794
Long-term debt 530 534
Total Liabilities 2,055 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 4,822,642 shares and
4,881,742, respectively 10,646 10,771
Accumulated deficit (2,175) (1,655)
Total shareowners' equity 8,471 9,116
Total Liabilities and Shareowners'
Equity $ 10,526 $ 11,444
See notes to condensed financial statements
REAL GOODS TRADING CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except share and per share data)
Three Months Ended
June 24, June 26,
2000 1999
Net sales $ 3,202 $ 4,117
Cost of sales 1,977 2,472
Gross Profit 1,225 1,645
Selling, general and administrative expenses 1,933 1,866
Loss from operations (708) (221)
Interest and other income and expense, net 15 5
Loss before income taxes (693) (216)
Income tax benefit 173 76
Net loss $ (520) $ (140)
Net loss per share, basic $ (0.11) $ (0.03)
Weighted average shares outstanding, basic 4,876,870 4,080,742
See notes to condensed financial statements
REAL GOODS TRADING CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
June 24, June 26,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (520) $ (140)
Adjustments to reconcile net loss to net
cash from operating activities:
Depreciation and amortization 158 97
Deferred income taxes (173) (75)
Changes in assets and liabilities:
Accounts receivable (7) 253
Interest receivable from affiliate (5)
Note receivable - 20
Inventory 255 (410)
Deferred catalog costs 12 13
Prepaid expenses 29 116
Accounts payable (366) (168)
Accrued expenses 95 (193)
Other taxes payable 11 (15)
Customer deposits (5) (49)
Net cash from operating activities (511) (1,062)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment, improvements,
and construction in progress (424) (107)
Marketable securities 993 -
Note receivable from affiliate - (45)
Net cash from investing activities 569 (152)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (4) (5)
Repurchase of common stock (125) -
Net cash from financing activities (129) (5)
Net decrease in cash (71) (1,219)
Cash at beginning of period 876 2,048
Cash at end of period $ 805 $ 829
See notes to condensed financial statements
REAL GOODS TRADING CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTH PERIOD ENDED JUNE 24, 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 at June 24, 2000 and the interim results of operations
and cash flows for the three months ended June 24, 2000 and June
26, 1999. Certain reclassifications have been made to the prior
year amounts to conform to the June 2000 presentation. 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 month period 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 and cost of sales for the three month
periods ended June 24, 2000 and June 26, 1999 are shipping and
handling fees collected from customers of $212,000 and $277,000
and freight out expense of $198,000 and $248,000, 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 monthly. At June
24, 2000 no amounts were outstanding on the Company's line of
credit.
The line of credit agreement contains restrictive covenants
including debt to net worth, current ratios, restrictions on
capital expenditures, a limitation on the maximum allowable loss
through September 2000, 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.
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 quarter of fiscal 2001 the
Company repurchased 59,100 shares at an average cost of $2.11 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 purchases 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 was as follows:
Three Months Ended
June 24, June 26,
2000 1999
Net Sales:
Catalog Division $ 1,286 $ 2,077
Internet Division 380 235
Retail Division 898 790
Renewables Division 571 1,015
Other 67 -0-
Consolidated Net Sales 3,202 4,117
Gross Margin:
Catalog Division 552 929
Internet Division 155 104
Retail Division 348 302
Renewables Division 143 310
Other 27 -0-
Consolidated Gross Margin 1,225 1,645
Reconciliation of Gross Margin to
Net Loss:
Selling, general & administrative
expenses
Catalog Division 766 957
Internet Division 232 71
Retail Division 652 442
Renewables Division 242 389
Other 41 7
Consolidated S G & A expenses 1,933 1,866
Interest income 27 17
Interest expense (12) (12)
Income tax benefit 173 76
Net Loss $ (520) $ (140)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales
Net sales of $3,202,000 for the first quarter of fiscal 2001 were
down 22% from the first quarter of fiscal 2000 (net sales of
$4,117,000) due to weaker sales of catalog and renewable energy
products due primarily to the sales malaise occuring after Y2K
fears failed to materialize on January 1, 2000.
Catalog division net sales in the first quarter of fiscal 2001
decreased by 38% to $1,286,000 from $2,077,000 in the first
quarter of fiscal year 2000 as a result of the Y2K sales malaise
mentioned above,weaker response rates to the Company's catalogs,
lower average orders and "cannibalization" by Internet division
sales. Catalog division sales, were 40% of total net sales as
compared to 50% in the first quarter of fiscal 2000.
Internet division net sales increased 62% to $380,000 from
$235,000 in the first quarter last year, 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 traditional catalog customers chose to order through
the Internet channel. Internet division sales amounted to 12% of
total net sales in the first quarter of fiscal 2001 compared with
6% of total net sales in the same period last year.
Retail store division net sales increased 14% to $898,000 from
$790,000 in the first quarter last year primarily due to the
addition of the Los Gatos and West Los Angeles stores. Sales
included in fiscal 2000 attributable to the new stores total
$189,000. Same store sales dropped 8% from $790,000 in fiscal
2000 to $709,000 in fiscal 2001 reflecting a weaker interest in
renewable energy products on the part of the consumers due to the
post Y2K sales malaise. Also, Solfest, a big source of retail
sales at the Hopland store was postponed this year until August.
Retail division sales amounted to 28% of total net sales in the
first quarter of fiscal 2001 compared with 19% of total net
sales in the same period last year.
Renewable energy sales decreased 44% to $571,00 in the first
quarter of fiscal 2001 from $1,015,000 in the same period in
fiscal 2000. Fiscal 2000 revenues included a one-time $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. Renewable energy sales
amounted to 18% of total net sales in the first quarter of fiscal
2001 compared with 25% of the total in the same period last year.
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.
Gross Profit
Gross profit for the three months ended June 26, 2000 was
$1,225,000 or 38% of sales compared with $1,645,000 or 40% for
the same period last year. 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, and a higher proportion of lower margin renewable energy
sales in the first quarter of fiscal year 2001 compared with the
first quarter of the prior year. The decline in margin also
reflects aggressive sale pricing on Y2K product overstocks in the
quarter which succeeded in reducing inventory by over $250,000.
Catalog sales had a gross profit of 43% or $552,000 for the first
quarter of fiscal 2001 compared with 45% or $929,000 in 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
quarter of fiscal 2000 was 39% or $348,000 and was up slightly
from the 38% margin level or $302,000 of the same period in
fiscal 2000. This slight increase reflects a lower percentage of
renewable energy product sales in the sales mix. Renewable
energy division sales, including design and consulting fees for
solar, wind and hydro projects, had a gross margin of 25% or
$143,000 compared to a gross margin of 31% or $310,000 in the
same period of the prior fiscal year. 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.
Operating Expenses and Interest Income
Selling, general and administrative expenses were $1,933,000, or
60% of net sales compared with $1,866,000 or 45% of net sales in
the first three months of the prior year. This increase in
percentage reflects the drop in sales and decreases in the areas
of labor and benefits, postage and freight, equipment expense,
utilities, training, recruitment, and general administrative
expense. Decreases in these areas were offset by increases in
catalog and printing, advertising, supplies, depreciation, rents,
and purchased services. In the first quarter of fiscal 2001, the
Company had net interest income of $15,000 compared with net
interest income of $5,000 in the first quarter of fiscal 2000.
Earnings
For the first three months of fiscal 2001, the Company incurred a
pre-tax loss of $693,000 and a net loss of $520,000, or $.11 per
share compared to a pre-tax loss in the first quarter of fiscal
2000 of $216,000, and a net loss of $140,000 or $.03 per share.
Weak sales due to post Y2K malaise and lower margins due to sale
prices reducing inventory levels were the primary reasons for
these increased losses. The pre-tax loss of $693,000 is slightly
better than was budgeted.
The Company's first fiscal quarter, which ends at the end of
June, is historically a weak quarter and has never been
profitable. The Company typically experiences seasonality with
sales and earnings building toward the 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
quarter of fiscal 2001 compared with 35% in the first quarter of
fiscal 2000. These rates represent the projected rates expected
by management for each fiscal year.
Liquidity and Capital Resources
For the quarter ended June 24, 2000, cash used in operations was
$511,000 primarily due to reductions in accounts payable.
Overall, the Company generated $569,000 from net investing
activities and used $129,000 in its financing activities. The net
effect of these activities was to decrease cash from $876,000 at
March 31, 2000 to $805,000 at June 24, 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. The bank
line of credit financing, which is presently not being used by
the Company, is subject to the Company's ability to limit its
pre-tax loss for the period ended September 23, 2000. There can
be no assurance that the Company will be able to so limit its
pre-tax loss. If the Company cannot retain its bank financing,
its ability to conduct its business in the ordinary course could
be materially and adversely affected.
Effects of Inflation
The overall effects of inflation on the Company's business during
the periods discussed were not material.
*****
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
No 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.
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: August 4, 2000
by:[S]LESLIE B. SEELY
Leslie B. Seely
Chief Financial Officer