-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CeYDLM+CtVGTig966Vg9rNBJC2WV3Cvgk1Ix6MZ+4uFAjGE1MgR5yjycXnA2h9Pg afZlBPqpYNweR7x7W9RqeQ== 0000912953-00-000003.txt : 20000203 0000912953-00-000003.hdr.sgml : 20000203 ACCESSION NUMBER: 0000912953-00-000003 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19991225 FILED AS OF DATE: 20000131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REAL GOODS TRADING CORP CENTRAL INDEX KEY: 0000912953 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 680227324 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-12964 FILM NUMBER: 517288 BUSINESS ADDRESS: STREET 1: 3440 AIRWAY DRIVE STREET 2: SUITE E CITY: SANTA ROSA STATE: CA ZIP: 95403 BUSINESS PHONE: 7075422600 MAIL ADDRESS: STREET 1: 3440 AIRWAY DRIVE CITY: SANTA ROSA STATE: CA ZIP: 95403 10QSB 1 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. 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 PART I FINANCIAL INFORMATION Item 1. Financial Statements REAL GOODS TRADING CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands except share data)
December 25, March 31, 1999 1999 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
See notes to condensed consolidated financial statements REAL GOODS TRADING CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands except share and per share data)
Three Months Ended Nine Months Ended December 25, December 26, December 25, December 26, 1999 1998 1999 1998 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
See notes to condensed consolidated financial statements REAL GOODS TRADING CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Nine Months Ended December 25, December 26, 1999 1998 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
See notes to condensed consolidated financial statements 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. 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:
December 25, December 26, 1999 1998 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)
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. ***** 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 -----END PRIVACY-ENHANCED MESSAGE-----