HEALTHY PLANET PRODUCTS INC, SB-2, 1995-08-18

HEALTHY PLANET PRODUCTS INC
SB-2, 1995-08-18
GREETING CARDS

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<PAGE> 1
As filed with the Securities and Exchange Commission on August 18, 1995

REGISTRATION NO. 33-
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
HEALTHY PLANET PRODUCTS, INC.
(Name of Small Business Issuer in Its Charter)
----------------
<TABLE>
<S> <C> <C>
DELAWARE 2271 94-2601764
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
1129 NORTH MCDOWELL BOULEVARD
PETALUMA, CALIFORNIA 94954
(707) 778-2280
(Address and Telephone Number of Principal Executive Offices and Principal
Place of Business)
----------------
BRUCE A. WILSON
PRESIDENT
HEALTHY PLANET PRODUCTS, INC.
1129 NORTH MCDOWELL BOULEVARD
PETALUMA, CALIFORNIA 94954
(707) 778-2280
(Name, Address and Telephone Number of Agent for Service)
WITH COPIES TO:
CHARLES P. AXELROD, ESQ.
BRIAN C. DAUGHNEY, ESQ.
GOLDSTEIN, AXELROD & DIGIOIA
369 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 599-3322
TELEFAX (212) 557-0295

----------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the Registration Statement becomes effective.

----------------

The shares registered hereunder represent shares issuable by the
Company upon the exercise of Common Stock Purchase Warrants. Such shares, upon
their issuance by the Company may be resold from time to time by the exercising
Warrantholder.

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
=============================================================================================================
DOLLAR AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED SHARE (1) PRICE(1) FEE
=============================================================================================================

<S> <C> <C> <C> <C>
Common Stock, par value $.01
per share .................... 51,095(2) $11 $562,045 $194
=============================================================================================================

Total ................... $194
=============================================================================================================
</TABLE>

(1) Estimated solely for the purpose of computing the registration fee, pursuant
to Rule 457(a), based upon the reported closing sale price of the Company's
Common Stock on the American Stock Exchange on August 16, 1995.

(2) If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration for the same offering. / /____ (No._________________)

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / / If delivery of the prospectus is
expected to be made pursuant to Rule 434, please check the following
box. / /

----------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

<PAGE> 2
HEALTHY PLANET PRODUCTS, INC.

Cross-reference sheet pursuant to Rule 404(a) of Regulation C

<TABLE>
<CAPTION>
ITEM
NUMBER FORM SB-2 CAPTION LOCATION IN PROSPECTUS
------ ----------------- ----------------------
<S> <C> <C>
1. Front of Registration Statement and Outside Facing Page; Outside Front Cover Page of
Front Cover of Prospectus Prospectus

2. Inside Front and Outside Back Cover Inside Front and Outside Back
Page of Prospectus Cover Pages of Prospectus

3. Summary Information and Risk Factors Prospectus Summary; Risk Factors

4. Use of Proceeds Use of Proceeds

5. Determination of Offering Price Outside Front Cover Page of Prospectus;
Underwriting

6. Dilution Not Applicable

7. Selling Security Holders Selling Stockholders

8. Plan of Distribution Outside Front Cover Page of Prospectus;
Underwriting

9. Legal Proceedings Business

10. Directors, Executive Officers, Promoters Management; Principal Stockholders
and Control Persons

11. Security Ownership of Certain Beneficial Principal Stockholders
Owners and Management

12. Description of Securities Description of Capital Stock

13. Interest of Named Experts and Counsel Not Applicable

14. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act
Liabilities

15. Organization Within Last Five Years Certain Transactions

16. Description of Business Business

17. Management's Discussion and Analysis Management's Discussion and Analysis of
or Plan of Operations Financial Condition and Results of
Operations

18. Description of Property Business

19. Certain Relationships and Related Certain Transactions
Transactions

20. Market for Common Equity and Related Price Range of Common Stock and Certain
Stockholder Matters Market Information

21. Executive Compensation Management

22. Financial Statements Financial Statements

23. Changes in and Disagreements With
Accountants and Financial Disclosure Not applicable
</TABLE>

<PAGE> 3
THE FOLLOWING LEGEND APPEARS ON THE SIDE OF THE COVER PAGE OF THE PROSPECTUS:

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

<PAGE> 4
SUBJECT TO COMPLETION, DATED AUGUST 18, 1995

51,095 SHARES

HEALTHY PLANET PRODUCTS, INC.

COMMON STOCK
----------------------------

This Prospectus relates to 51,095 shares of Common Stock, $.01 par
value (the "Shares") of Healthy Planet Products, Inc. (the "Company") being sold
by certain shareholders (the "Selling Shareholders") upon exercise of Common
Stock Purchase Warrants (the "Selling Shareholder Warrants"). The Company will
not receive any proceeds from the sale of the Shares by the Selling
Shareholders. See "Selling Shareholders".

The Common Stock of the Company is listed on the American Stock
Exchange ("AMEX") under the trading symbol HPP. The reported closing price of
the Common Stock of the Company on the AMEX on August 16, 1995, was $11 per
share. See "Price Range of Common Stock".

The Selling Shareholders' Shares may be offered from time to time by
the Selling Shareholders or by their transferees, through ordinary brokerage
transactions on the AMEX, third market transactions, in negotiated transactions
or otherwise, at market prices prevailing at the time of sale or at negotiated
prices. No underwriting arrangements have been entered into by the Selling
Shareholders. Usual and customary, or specifically negotiated brokerage fees or
commissions may be paid by the Selling Shareholders in connection with sales of
the Selling Shareholders' Shares. See "Plan of Distribution".

The Selling Shareholders may be deemed to be "underwriters" as that
term is defined in the Securities Act of 1933, with respect to their Shares. All
costs, expenses and fees in connection with the registration of the Shares
offered by Selling Shareholders will be borne by the Company. Brokerage
commission, if any, attributable to the sale of the Selling Shareholders' Shares
will be borne by the Selling Shareholders. The Company will not receive any of
the proceeds from the sale of the Shares. All of the Selling Shareholders will
be required to represent that they have knowledge of Rules 10b-2, 10b-6 and
10b-7 promulgated under the Exchange Act of 1934 which proscribe certain
manipulative and deceptive practices in connection with a distribution of
securities.

Please see "Risk Factors", page 6 for certain investment
considerations.

----------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

----------------------------

THE DATE OF THIS PROSPECTUS IS AUGUST _____, 1995.

<PAGE> 5
AVAILABLE INFORMATION

The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission") under the File No. 1-13048. Such reports, proxy
statements and other information filed by the Company can be inspected and
copies at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates, and at the
following Regional Offices of the Commission: Chicago Regional Office, 500 West
Madison Street, Chicago, Illinois 60661 and New York Regional Office, 7 World
Trade Center, New York, New York 10048.

The Company distributes to its stockholders annual reports containing
audited financial statements examined by its independent public accountants.

<PAGE> 6
PROSPECTUS SUMMARY

The following is a summary of certain information contained in this
Prospectus and is qualified in its entirety by the more detailed information and
financial statements appearing elsewhere in this Prospectus.

THE COMPANY

Healthy Planet Products, Inc. (the "Company") designs, publishes and
markets, throughout the United States and Canada, a diversified line of cause
related, nature and wildlife contemporary greeting and note cards, holiday
cards, stationery and gifts. The Company also currently markets its products on
a limited basis in England, France, Germany, New Zealand, Australia and Japan.
Sales and marketing in these foreign countries are not viewed by the Company as
significant.

In response to environmental considerations, and in connection with its
identification with the Sierra Club as a licensee, all of the Company's paper
products are produced on recycled paper using soy-based ink. The Company
publishes and markets over 500 everyday, occasional and seasonal cards,
including over 380 images which comprise the Company's principal Sierra Club
card line. The Company's products are predominantly marketed through
approximately 125 independent sales representatives to over 4,400 retail sales
outlets comprised of card shops, stationery stores, gift, notion and variety
shops, drug stores, book stores, department stores and miscellaneous chain and
retail sales outlets. See "Business".

The Company is the exclusive licensee of the Sierra Club, a nationally
known environmental and conservationist organization, for the use of the Sierra
Club name on a line of wilderness and wildlife cards, stationery, tablets and
magnets. The Sierra Club line has evolved to become the principal line of the
Company, accounting for approximately 83.2% and 76.2% of the Company's net sales
for the year ended December 31, 1994 and the six months ended June 30, 1995,
respectively.

THE OFFERING

<TABLE>
<S> <C>
SECURITIES OFFERED BY THE
SELLING SHAREHOLDERS ........................... 51,095 Shares of Common Stock offered
by the Selling Shareholders upon exercise
of Selling Shareholder Common Stock
Purchase Warrants

COMMON STOCK OUTSTANDING
PRIOR TO OFFERING (1) .......................... 1,692,716 Shares
</TABLE>

<PAGE> 7
<TABLE>
<S> <C>
COMMON STOCK TO BE OUTSTANDING
UPON COMPLETION OF OFFERING (1) ................ 1,743,811 Shares

USE OF PROCEEDS ................................ The Company will not receive any
proceeds from the sale of the Shares
by the Selling Shareholders. The
Company will receive from the
Selling Shareholders maximum
aggregate proceeds of approximately
$304,000 as a result of the Selling
Shareholders exercising their
Warrants.

RISK FACTORS ................................... Purchasers of the Shares should
carefully review the factors under
the heading "Risk Factors".

AMEX SYMBOL .................................... HPP
</TABLE>

----------------------------

(1) Does not include (i) 330,000 shares of Common Stock reserved for
issuance under the Company's 1991 Senior Management Incentive Plan,
(ii) 75,000 shares reserved for issuance under the Company's
Non-Employee Director Plan, (iii) 5,500 shares of Common Stock reserved
for issuance upon conversion of 1,249.999 shares of Series B Preferred
Stock, (iv) 254,675 shares of Common Stock reserved for issuance upon
conversion of 254,675 shares of Series D Preferred Stock and (v) 15,000
shares of Common Stock reserved for issuance upon exercise of
miscellaneous outstanding warrants.

<PAGE> 8

SUMMARY OF FINANCIAL INFORMATION

The following summary financial information has been abstracted from,
and is qualified in its entirety by reference to, the Company's financial
statements included elsewhere in this Prospectus and should be read in
conjunction with such financial statements and notes thereto, as well as
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". Information as to the six months ended June 30, 1995 is not
indicative of future results of operations.

STATEMENT OF OPERATIONS DATA:

<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30
----------------------- -------------------------
1993 1994 1994 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales $3,546,174 $4,736,401 $1,291,193 $2,036,865
Operating Income $ 313,213 $ 707,676 $ 44,184 $ 180,301
Operating Income per share(1) $ .17 $ .36 $ .02 $ .09
Net Income per Common Shares(1)(2)(3) $ .25 $ .56 $ .04 $ .18
</TABLE>

BALANCE SHEET DATA:

<TABLE>
<CAPTION>
June 30, 1995
-------------
<S> <C>
Total Assets $6,449,080
Total Long-Term Liabilities 90,498
Working Capital 4,484,328
Stockholders' Equity 5,670,404
Net Tangible Book Value per Common Share(1) $2.80
</TABLE>
--------------------

(1) Computed using the weighted average number of Common and Common
equivalent shares outstanding during the year.
(2) Calculated after giving effect to dividends accrued or paid on shares
of Preferred Stock.
(3) Net income reflects the adoption by the Company in January 1992 of the
provisions of Statement of Financial Accounting Standards No. 109,
which permitted the Company to recognize, as an addition to income on a
current basis, the future benefit of its net operating loss
carryforwards. This resulted in net income per share for the year ended
December 31, 1994 and the six months ended June 30, 1995, increasing by
$.18 and $.06 respectively, and for the year ended December 31, 1993
increasing by $.07. (See accompanying financial statements and Note 4
to Notes to Financial Statements.)

<PAGE> 9

THE COMPANY

In response to environmental considerations, and in connection with its
identification with the Sierra Club as a licensee, all of the Company's paper
products are produced on recycled paper using soy-based ink. The Company
publishes and markets over 600 everyday, occasional and seasonal cards,
including over 380 images which comprise the Company's principal Sierra Club
card line. The Company's products are predominantly marketed through
approximately 125 independent sales representatives to over 4,400 retail sales
outlets comprised of card shops, stationery stores, gift, notion and variety
shops, drug stores, book stores, department stores and miscellaneous chain and
retail sales outlets. See "Business".

The Company was originally organized under the laws of the State of
California in 1979, and effected a domiciliary reincorporation under the laws of
the state of Delaware in 1985. The Company's executive offices, sales and
warehouse facilities are located at 1129 North McDowell Boulevard, Petaluma,
California 94954, and its telephone number is (707) 778-2280.

RISK FACTORS

The Shares offered by the Selling Shareholders involve a high degree of
risk. The following risk factors should be considered, together with the other
information set forth in this Prospectus, in evaluating an investment in the
Common Stock of the Company.

DEPENDENCE ON EXECUTIVE OFFICER

The Company is currently dependent upon the services of its President,
Bruce A. Wilson, under whose executive direction, the redirection of the Company
since 1988, and its achievement of profitability has been accomplished. The loss
of Mr. Wilson's services would have a material adverse effect on the Company.
The Company's present employment agreement with Mr. Wilson expires on December
31, 1999. The Company maintains key man life insurance in the amount of
$1,000,000 on the life of Mr. Wilson. See "Management - Employment Agreements."

<PAGE> 10

DEPENDENCE UPON OUTSIDE ARTISTS TO CREATE CARDS

While the overall concept and design of its cards is developed by the
Company in-house, the Company principally relies on independent, unaffiliated
photographers to create card lines. Agreements between the Company and its
photographers apply to specific cards submitted by a photographer and accepted
by the Company, and are exclusive as to those cards. The Company utilizes an
available pool of 800-900 photographers, in addition to unsolicited submissions
from various photographers. When utilizing the work of a particular photographer
for Sierra Club cards, the Company generally makes a one-time payment of
$250-$400, which entitles the Company to utilize the particular work on an
exclusive basis for greeting cards for three to five years without further
royalty payments. See "Business - Source of Product and Arrangements with
Photographers and Others."

RELIANCE UPON SIERRA CLUB CARD LINE

Since June 4, 1980, the Company has been licensed by the Sierra Club, a
nationally known environmental and conservation organization, to use, on an
exclusive basis, the Sierra Club name on a line of wilderness and wildlife
cards. This line accounted for 90.3% and 83.2% of the Company's net sales for
the years ended December 31, 1993 and 1994, respectively, and 79.4% and 76.2% of
the Company's net sales for the six months ended June 30, 1994 and 1995,
respectively. The loss of this line would have a material adverse effect upon
the Company's business. The Company's present license agreement with the Sierra
Club expires on December 31, 2005. See "Business - License Agreements."

SEASONAL ASPECTS OF THE COMPANY'S BUSINESS

The greeting card and social stationery business is seasonal, centering
on Christmas and holiday card sales. This generally results in peak seasonal
production costs in the second and third quarters of the year, and a seasonal
buildup of accounts receivable in the third and fourth quarters, thereby
resulting in an increase in capital carrying costs during these periods. Such
factors require the application of working capital to both carrying accounts
receivable during the last two quarters of the year and to covering production
costs during peak production periods. See "Business - Seasonal Aspects of the
Company's Business."

NO INDEPENDENTLY OWNED MANUFACTURING FACILITIES TO PRODUCE CARDS

Cards which are published by the Company are physically produced by
unaffiliated printers, contractors and suppliers. Although the Company currently
utilizes one printer to do substantially all of its printing of cards, the
Company believes that there is an adequate supply of alternative printers
available at competitive prices so that the loss of its current printer would
not have a material adverse effect upon its business. The Company also believes
that other necessary contractors and suppliers are readily available at
competitive costs to fulfill the Company's present and anticipated future
production needs for its various products. See "Business - Manufacture of
Cards."

<PAGE> 11

COMPETITION

The greeting card and social stationery industry is highly competitive.
The Company primarily competes with smaller independent stationery and gift
companies that emphasize alternative cards. Several of these companies have
substantially greater sales, financial resources and experience than that of the
Company. The Company may also be deemed to compete in the contemporary card
market with major card companies such as Hallmark Cards, Inc. and American
Greetings Corporation, which have more experience, greater sales, and financial
and distribution resources than that of the Company. The most significant
factors which form the basis upon which the Company competes are quality of
product, uniqueness of product and its licensed Sierra Club card line. See
"Business - Competition."

SHARES ELIGIBLE FOR FUTURE SALE

Of the 1,692,716 shares of issued and outstanding Common Stock,
approximately 617,066 shares have not been registered under the federal
securities laws ("Restricted Shares"), and may only be sold in the public market
and without the benefit of registration to the extent permitted under Rule 144
under the general rules and regulations of the Securities Act of 1933, as
amended ("Rule 144"). In addition, 254,675 shares of Series D Preferred Stock
convertible into 254,675 shares of Common Stock, and 1,250 shares of Series B
Preferred Stock convertible into 5,500 shares of Common Stock are also eligible
to be sold under Rule 144. Rule 144 provides that a person holding restricted
securities for a period of two years may sell in brokerage transactions an
amount equal to the greater of 1% of the Company's outstanding Common Stock
every three months or the average weekly trading volume, if any, during the four
calendar weeks preceding the sale. A person who is a non-affiliate of the
Company and who has restricted securities for over three years is not subject to
the aforesaid volume limitation as long as the other conditions of Rule 144 are
met. The sale of any Restricted Shares may have an adverse effect on the market
price for the Company's Common Stock.

NO DIVIDENDS

To date, the Company has not paid any cash dividends on its Common
Stock and does not expect to declare or pay any cash or other dividends in the
foreseeable future. See "Dividend Policy."

CLASSIFIED BOARD OF DIRECTORS

On August 11, 1995, at the Annual Meeting of Stockholders, the
Company's Stockholders authorized and approved an amendment to the Company's
Certificate of Incorporation to provide for a classified Board of Directors
consisting of three classes of directors with initial terms expiring at the
1996, 1997 and 1998 Annual Meeting of Stockholders. Any further amendment to the
Company's Certificate of Incorporation affecting the classified Board may only
be adopted upon the affirmative vote of not less than 65% of the issued and
outstanding shares entitled to vote thereon.

<PAGE> 12

BLANK CHECK PREFERRED STOCK; ANTI-TAKEOVER EFFECT

There are currently authorized 750,000 shares of Preferred Stock, of
which 14,250 shares have been designated Series B Preferred Stock and 399,344
shares have been designated Series D Preferred Stock, and 336,406 shares are
undesignated. The Board of Directors of the Company has the authority, without
further vote or action by the stockholders, to issue these undesignated shares
of Preferred Stock in one or more series and to fix the rights, qualifications,
preferences, privileges, limitations and restrictions of each such series,
including dividend rights, voting rights, terms of redemption, liquidation
preferences and the number of shares constituting any series or the designation
of such series. The Board of Directors may, therefore, issue Preferred Stock
with voting and conversion rights which could adversely affect the voting power
of the holders of Common Stock. In addition, the issuance of Preferred Stock may
have the effect of delaying, deferring or preventing a change in control of the
Company. See "Description of Capital Stock - Preferred Stock."

USE OF PROCEEDS

The Company will not receive any proceeds from the sale of the Common
Stock by the Selling Stockholders. The maximum aggregate amount the Company will
receive by reason of the Selling Stockholders exercising their Warrants is
approximately $304,000.

PRICE RANGE OF COMMON STOCK
AND CERTAIN MARKET INFORMATION

On April 7, 1995, the Company's Common Stock was listed for trading on
the American Stock Exchange ("AMEX") under the symbol "HPP". Prior to being
listed on the AMEX, the Common Stock of the Company was traded in the
over-the-counter market and included in the Small-Cap Market of the Nasdaq Stock
Market under the Nasdaq symbol "HPPI", and since May 9, 1994, the Company's
Common Stock was admitted for trading on the Pacific Stock Exchange under the
symbol "HPP.P". The range of high and low bid prices for the Common Stock of the
Company while traded on the Nasdaq Stock Market were as follows for the periods
indicated below:

<TABLE>
<CAPTION>
Year High Low
---- ---- ---
<S> <C> <C>
1994
----
1st Quarter 8-3/8 7
2nd Quarter 8-3/4 7-3/4
3rd Quarter 8-7/8 7-5/8
4th Quarter 9-1/4 7-7/8

1993
----
1st Quarter 6-5/8 4-1/2
2nd Quarter 6-5/8 5-7/8
3rd Quarter 7-5/8 6-3/8
4th Quarter 7-1/2 6-3/8

1995
----
1st Quarter 10 7-1/2
</TABLE>

<PAGE> 13

The above quotations, reported by Nasdaq, represent prices between dealers and
do not include retail mark-up, mark-down or commissions. Such quotations do not
necessarily represent actual transactions.

Since listing on AMEX, the high and low closing prices for the second
quarter of 1995 were $11 1/2 and $9 1/8, respectively.

The approximate number of record holders of the Company's Common Stock
as of August 16, 1995 was 183. Such number of record owners was determined from
the Company's shareholder records, and does not include beneficial owners of the
Company's Common Stock whose shares are held in the names of various security
holders, dealers and clearing agencies. The Company believes that the number of
beneficial owners of its Common Stock held by others as or in nominee names
exceeds 1,147 in number.

DIVIDEND POLICY

The Company has never paid a dividend, whether cash or property, on its
shares of Common Stock and has no present expectation of doing so in the
foreseeable future.

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
June 30, 1995:

<TABLE>
<CAPTION>
June 30, 1995
-------------
Actual
------
<S> <C>
Debt and obligations
Short term debt and obligations (1) . . . . . . . . . . . . . $ 688,178
-----------
Total debt and obligations . . . . . . . . . . . . . . . . . $ 778,676
===========
Shareholders' equity
Common Stock, $.01 par value, 12,000,000 shares authorized;
1,682,716 shares outstanding (2) . . . . . . . . . . . . . . $ 16,827
Series B Preferred Stock, $.10 par value, 14,250 shares
authorized; and 1,250 shares outstanding . . . . . . . . . $ 126
Series D Preferred Stock, $.10 par value, 399,344 shares
authorized, 254,675 shares outstanding . . . . . . . . . . $ 25,467
Additional paid-in capital . . . . . . . . . . . . . . . . . . $11,923,593
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . $(6,295,609)
Total shareholders' equity . . . . . . . . . . . . . . . . . $ 5,670,404
</TABLE>

------------------------------

(1) See "Notes to Financial Statements" for further information as to short
and long term debt and obligations and lease obligations
(2) Does not include (i) 340,000 shares of Common Stock reserved for
issuance under the Company's 1991 Senior Management Incentive Plan,
(ii) 75,000 shares reserved for issuance under the Company's
Non-Employee Director Plan, (iii) 5,500 shares of Common Stock reserved
for issuance upon conversion of 1,250 shares of Series B Preferred
Stock, (iv) 254,675 shares of Common Stock reserved for issuance upon
conversion of 254,675 shares of Series D Preferred Stock and (v) 15,000
shares of Common Stock reserved for issuance upon exercise of
outstanding warrants.

<PAGE> 14

SELECTED FINANCIAL DATA

A summary of selected financial data follows:

STATEMENT OF OPERATIONS DATA:

BALANCE SHEET DATA:

--------------------

<PAGE> 15

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated, percentages
which certain items reflected in the financial data bear to the revenues of the
Company:

<TABLE>
<CAPTION>
RELATIONSHIP TO TOTAL REVENUES
FISCAL YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------- -----------------
1993 1994 1994 1995
---- ---- ---- ----

<S> <C> <C> <C> <C>
Net Sales 100% 100% 100% 100%

Operating Expenses:
Cost of Goods 37.8% 37.7% 29.3% 33.9%
Selling, General and
Administrative 53.4% 47.4% 67.3% 57.2%

Income From Operations 8.8% 14.9% 3.4% 8.9%
Interest and Other
Income (Expense) 0.9% 1.1% 3.0% 3.4%

Income Before
Income Taxes 9.7% 16.0% 6.4% 12.3%
Net Income 13.1% 23.4% 6.4% 18.2%
</TABLE>

YEAR END RESULTS - APPLICABILITY OF FAS 109

At December 31, 1994, the Company had available federal net operating
loss and investment tax credit carryforwards of approximately $7,014,000 and
$15,600 to be applied against future federal taxable income, of which $4,474,000
are subject to a limitation under Section 382 of the Internal Revenue Code of
approximately $476,950 per year. The Company has available approximately
$1,075,000 of California net operating losses which can be carried forward and
offset against future taxable income. These loss carryforwards expire through
1999. Effective January 1992, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109 ("FAS 109"), "Accounting for Income
Taxes", which requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under FAS 109, the Company is allowed to
recognize currently the future benefit of its net operating loss carryforwards.
As a result of the expected utilization of the Company's net operating loss
carryforwards, a deferred tax asset was derived as follows:

<PAGE> 16

<TABLE>
<S> <C>
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,265,000
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,615,000)
Net deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . $ 1,010,000
Deferred income taxes expected to be utilized in 1995 . . . . . . . . . (450,000)
-----------
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . $ 560,000
===========
</TABLE>

Management of the Company believes that it is more likely than not that
the tax benefits of the net operating loss carryforwards, net of valuation
allowance, will be realized. Management's belief is based on the Company's
actual profitable results in each of the years 1992, 1993 and 1994. In order to
utilize the full benefit of the deferred income tax asset, the Company needs to
realize aggregate taxable income of approximately $2,525,000, which it expects
to generate during the years 1995 through 2002. The Company has estimated its
future taxable income based on its actual results for the years 1992, 1993 and
1994. It anticipates taxable income will increase at the annual rate of 10% per
year through 2000 and 5% per year from 2001 until all loss carryforward periods
expire. The foregoing constitutes Management's best estimates based upon current
conditions and most recent results of operations. The results of operations in
future years are subject to many conditions, many of which are beyond the
control of Management and which may affect the amount of taxable income that may
be generated in future years, and the resultant ability of the Company to fully
utilize the deferred income tax asset. Such conditions include general economic
conditions, the ability of the Company to maintain is present gross margins,
competition generally and specifically relating to greeting cards having an
environmental and wildlife theme, the ability of the Company to continue to
renew its principal Sierra Club License Agreement which presently expires on
December 31, 2005, and continuity of present Management. The net operating
losses expire as follows:

<TABLE>
<CAPTION>
Year Ending December 31, Amount
------------------------ ----------
<S> <C>
1999 $ 60,000
2000 920,000
2001 745,000
2002 2,755,000
2003 817,000
2004 1,300,000
2005 385,000
2006 32,000
----------

$7,014,000
==========
</TABLE>

<PAGE> 17

In light of profitability for each of the last four fiscal years, the
Company is of the reasonable belief that it is more likely than not that it will
realize the tax benefits of its net operating loss carryforwards based upon the
assumptions and increase in taxable income as discussed above. This anticipated
growth is the result of increased sales, continued control of costs and
inflationary effects. In calculating the benefit of the loss carryforwards, the
Company has taken into account the provisions of Section 382 of the Internal
Revenue Code which limits the maximum amount of loss to be utilized to be
approximately $476,950 per year for losses incurred prior to 1988 and
anticipated loss of benefits of one of the prior years' losses due to the
expiration of the 15-year carryforward. Since the Company only has a recent
history of earnings and must utilize a long carryforward period, it has recorded
a 75% valuation allowance on non-current deferred taxes. The Company has not
contemplated the use of any new tax planning strategies in calculating the
deferred income tax asset.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

SALES

Sales for the year ended December 31, 1994 were $4,736,401. This
reflected an increase versus the prior year level of $3,546,174 of $1,190,227 or
33.6%. Included in the year end results was a provision for future returns of
approximately $104,000. The return provision recognizes and provides for the
return of unsold seasonal merchandise from customers who have been given the
return privilege in exchange for varying levels of display of everyday
merchandise year round.

During 1994 sales of the Company's two largest product lines, The
Sierra Club and The Humane Society of the United States, accounted for 83.2% and
6.8% of total revenues, respectively, and showed a year to year gain of 29.0%.
The balance of the year to year sales increase was due to the introduction of
new product lines comprised of The Wilderness Society, Wild World, Sea Dreams
and Healthy Planet lines.

The Company reported operating income of $707,676 or $.36 per share.
This level of operating income represented a 126% gain versus the prior year
operating income of $313,213 or $.17 per share. Not included in operating income
was approximately $51,000 in interest income. Including the impact of interest
income, income before taxes amounted to $758,498 or $.39 per share versus the
prior year income before taxes of $344,632 or $.19 per share. Increased sales
volume combined with lower percentage operating costs to result in this year to
year income gain.

Cost of sales amounted to $1,782,428 for the year ended December 31,
1994 representing 37.7% of sales. This rate is consistent with the prior year
rate of 37.8%. New products introduced during 1994 with lower margins were
offset in part by higher volumes of established product lines to result in the
overall percentage.

<PAGE> 18

OPERATING EXPENSES

Selling, shipping and marketing expenses of $847,395 were $132,657 or
18.6% above 1993 actual results. Commissions and sales incentives on increased
Company sales for the year ended December 31, 1994, as well as increased
shipping expenses, accounted for the period to period increase.

General and administrative expenses amounted to $1,398,902 for 1994
reflecting an increase versus the prior year level of $222,689 or 18.9%.
Budgeted increases in key positions including the hiring of a Vice President of
Sales and Marketing accounted for the year to year increase.

INCOME

The Company's net profit for the year ended December 31, 1994 was
$1,107,698, representing $.56 per share. The Company's operating income amounted
to $707,676 or $.36 per share. Included in both 1994 and 1993 year end results
is a provision for deferred income taxes of $350,000 and $120,000 respectively.
These provisions represent the recognition of estimated future NOL uses.

BALANCE SHEET

Total assets at December 31, 1994 amounted to $5,724,481 which
reflected an increase of $1,051,221 when compared to the 1993 level of
$4,673,260. Increased accounts receivable and inventory in support of the sales
increase combined with an increase in the deferred income tax reserve accounted
for the overall increase. Liabilities decreased from the 1993 level of $753,293
by $78,937 to finish 1994 at $674,356. Royalties accounted for this year to year
decline.

RESULTS AT INTERIM PERIODS - SIX MONTHS ENDED JUNE 30, 1995
COMPARED TO JUNE 30, 1994

SALES

For the six months ended June 30, 1995, the Company's net sales were
$2,036,865. This reflected an increase of $745,672 or 57.7% versus the prior
year's level of $1,291,193. This improvement was a result of the combination of
a 16% price increase on counter cards phased in during the beginning of the year
and an increase in unit sales of the Company's lines of products. Sales of the
Sierra Club line increased 51% while sales of all the other lines increased 81%
to result in the overall increase of 57.7%.

For the three months ended June 30, 1995, net sales amounted to
$1,151,032 which reflected an increase of $500,742 or 77% versus the prior year
level of $650,290. Sales of the Company's Sierra Club line increased 71.5% on a
period to period basis. This improvement was the result of the price increase
and increased unit sales.

<PAGE> 19

GROSS PROFIT

For the six months ended June 30, 1995, gross profit amounted to
$1,346,339 or 66.1% of sales. For the comparable prior year quarter, gross
profit amounted to $912,932 or 70.7% of sales. Increased sales of lower margined
packaged goods and non-counter card products combined with increased export
sales to account for the decline in gross margin.

For the three months ended June 30, 1995, gross profit amounted to
$718,526 or 62.4% of sales. For the comparable prior year quarter, gross profit
amounted to $460,417 or 70.8% of sales. Increased export sales and sales of
lower margined products accounted for the gross margin period to period
percentage decline.

OPERATING EXPENSES

For the six months ended June 30, 1995, selling, shipping and marketing
expenses amounted to $395,280 reflecting an increase of $105,404 versus the
prior year's level of $289,876. Higher incremental commissions and shipping
expenses associated with increased sales principally contributed to the period
to period increase.

For the three months ended June 30, 1995, selling, shipping and
marketing expenses amounted to $219,247 reflecting an increase of $62,229 versus
last year's level of $157,018. Higher commissions, show expenses and shipping
expenses accounted for the increase.

General and administrative expenses amounted to $770,758 for the six
months ended June 30, 1995, reflecting an increase of $191,886 versus last
year's level of $578,872. The period to period increase was a result of one time
non-recurring costs associated with the Company's move to the American Stock
Exchange, timing differences on other professional fees and budgeted increases
in office and warehouse expenditures in support of increased sales.

For the three months ended June 30, 1995, general and administrative
expenses amounted to $415,304 reflecting an increase of $119,206 versus the
prior year level of $296,098. Anticipated increases in staffing, warehouse space
and supplies to support a sales increase accounted for the year to year
increase.

INCOME

Operating income amounted to $180,301 for the six months ended June 30,
1995, reflecting an increase versus the prior year level of $44,184 or 308%. For
the six months ended June 30, 1995, the Company's operating income before taxes
was $249,829 or $.12 per share. For the comparable prior year period, the
Company had net operating income before taxes of $83,517 or $.04 per share.
Income before taxes improved $166,312 or 199.0% on a period to period basis. The
comparative per share data is based on weighted average shares outstanding in
each of the respective periods.

<PAGE> 20

BALANCE SHEET

Total assets amounted to $6,449,080 as of June 30, 1995 versus the
December 31, 1994 level of $5,724,481, reflecting an increase of $724,599. The
period to period increase was caused by a reduction in cash and receivables
offset by increases in royalty advances, inventories and prepaid expenses and
capital expenditures. Total current liabilities amounted to $688,178 at June 30,
1995 versus the December 31, 1994 level of $587,541. The increase was a result
of the build-up of trade payables and bonuses offset by payment of seasonal
commissions during the beginning of the year.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 1995, the Company's working capital was $4,484,328
reflecting an increase over working capital at December 31, 1994 of $4,140,479.
Cash of $124,395 was used during the period to support operating activities.
Cash of $277,025 was used during the period for capital expenditures. The major
purchase was an automated boxing machine which will improve the Company's
capacity and efficiency. Cash of $248,750 was generated by the exercise of
employee stock options.

The present primary sources of the Company's liquidity have been cash
internally generated from operations, proceeds obtained by the Company through
the public sale of its securities, and the availability of a secured line of
credit. The Company has a $500,000 secured line of credit from Westamerica Bank.
The Company draws on this line from time to time on a short term basis. As of
June 30, 1995, there was no outstanding amount under this line of credit. The
Company believes and anticipates that the primary source of its liquidity and
capital resources derives from its cash on hand, funds available to it under its
line of credit and from cash internally generated from sales; all of which the
Company believes are adequate and sufficient for its immediately foreseeable
operating needs.

EFFECTS OF INFLATION

The Company does not view the effects of inflation to have a material
effect upon its business. Increases in paper and labor costs have been offset by
increases in the price of the Company's cards and through higher print runs
which have reduced the unit cost of the Company's product. While the Company has
in the past increased its prices to its customers, it has maintained its
relative competitive price position.

<PAGE> 21

BUSINESS

GENERAL

The Company designs, publishes and markets, throughout the United
States and Canada, a diversified line of cause related, nature and wildlife
contemporary greeting and note cards, holiday cards, stationery and gifts. The
Company also currently markets its products on a limited basis in England,
France, Germany, New Zealand, Australia and Japan. Sales and marketing in these
foreign countries are not viewed by the Company as significant.

In response to environmental considerations, and in connection with its
identification with the Sierra Club as a licensee, all of the Company's paper
products are produced on recycled paper using soy-based ink. The Company
publishes and markets over 600 everyday, occasional and seasonal cards,
including over 380 images which comprise the Company's principal Sierra Club
card line. The Company's products are predominantly marketed through
approximately 125 independent sales representatives to over 4,400 retail sales
outlets comprised of card shops, stationery stores, gift, notion and variety
shops, drug stores, book stores, department stores and miscellaneous chain and
retail sales outlets.

The Company is the exclusive licensee of the Sierra Club, a nationally
known environmental and conservationist organization, for the use of the Sierra
Club name on a line of wilderness and wildlife cards, stationery, tablets and
magnets. The Sierra Club line has evolved to become the principal line of the
Company, accounting for approximately 83.2% of the Company's net sales for the
year ended December 31, 1994, and approximately 76.2% of net sales for the six
months ended June 30, 1995.

In furtherance of its business strategy of directing its main focus to
the sale of cause-related, nature and wildlife product lines, the Company has
obtained an exclusive license from The Humane Society of the United States to
use its name on a line of greeting cards. This line, which presently is
comprised of a series of 108 images, was completed and introduced by the Company
in the fourth quarter of 1993. This new line features archival and contemporary
black and white art photography celebrating the special and endearing bond
between people and animals. The Company remits 5% to 7% of the wholesale
proceeds from the sale of these cards to The Humane Society of the United
States, the largest animal protection organization in America. For the year
ended December 31, 1994 and the six months ended June 30, 1995, this line
accounted for approximately 6.8% and 4.7% of the Company's net sales,
respectively.

In the fourth quarter of 1993, the Company introduced its SEA
DREAMS(TM) line, which is presently comprised of 75 designs in a 5x7 blank
notecard format and 24 designs in a 4x5 boxed blank notecard format. SEA
DREAMS(TM) is a collection of underwater photographs of the sea and its
creatures, and features corals, fish, sea-mammals and other inhabitants of the
sea. A portion of the wholesale proceeds of this line, to be determined by the
Company, will be contributed to established scientific, research and
environmental organizations whose principal mission is to protect the oceans of
the world and their inhabitants. For the year ended

<PAGE> 22

December 31, 1994 and the six months ended June 30, 1995, this line accounted
for approximately 2.9% and 8.4% of the Company's net sales, respectively.

In the fourth quarter of 1993, the Company introduced its WILD
WORLD(TM) line. This line is presently comprised of 36 5x7 blank notecards and
12 4x5 blank boxed notecards. WILD WORLD(TM) utilizes the work of some of the
foremost contemporary wildlife artists of the day. As with SEA DREAMS(TM), a
portion of the wholesale proceeds of this line, to be determined by the Company,
will be contributed to established scientific, research and environmental
organizations whose principal mission is the protection and preservation of
wildlife. For the year ended December 31, 1994, this line accounted for
approximately 1.6% of the Company's net sales and accounted for a negligible
amount of net sales for the six months ended June 30, 1995.

The Company's products utilize both graphics and greetings to appeal to
a broad spectrum of consumer tastes. In the case of the Company's Sierra Club
products (which presently constitute the Company's principal line in terms of
dollar amount of gross sales) and the Company's new sea life and wildlife card
lines consist of high quality wilderness, wildlife and underwater photographic
images which are intended to evoke an identification with environmental issues,
nature and wildlife. Everyday note cards contain no written message, whereas
seasonal greeting cards contain short contemporary messages which the Company
believes fulfills a desire for simplicity in communication.

INDUSTRY OVERVIEW

The greeting card occupies a unique place in the American retail
market, and has been incorporated into the everyday lives of Americans. Over
seven billion greeting cards are sent in America each year, one third being
Christmas cards. Since greeting cards are an inexpensive personalized gift,
sales tend to continue to increase even during difficult economic times.

There is little, if any, price competition in the card industry. The
retail prices of the Company's cards range from $.75 to $1.75 with most in the
$1.50 to $1.75 range. The Company has met no price resistance to its retail
price structure for two reasons that apply generally to industry retail sales as
a whole: first, greeting cards are one of the least expensive forms of gifts,
and second, cards have become a socially required form of communication for
everyday and special occasions. At the wholesale level, competition generally
does not relate to price, but rather to quality of service, the number of
different images that can be placed on store card displays, how quickly cards
sell at the retail level, and the compatibility between the buyer's tastes and
the card lines offered.

The market for contemporary cards, and more particularly cause related
and nature theme cards, is of recent origin, having developed primarily in the
last ten years to appeal to a large segment of the population with a taste for
more contemporary graphics and copy or those who wish to express their support
of a particular social cause by utilizing cards associated with the cause.
Contemporary, cause related and nature theme cards, including those published by
the Company, creatively join graphics and copy to express a message or convey a
thought or

<PAGE> 23

sentiment or, in the case of its Sierra Club, Sea Dreams(TM) and Wild World(TM)
lines, high quality wildlife, wilderness and nature photography. These have been
sold in the past predominantly through single-location, independently-owned
businesses, such as boutiques, gift shops and book stores, rather than through
stationery, card, drug or department stores, which have been the traditional
outlet for more conservative, mass-marketed cards published by the major card
companies. The more traditional marketplace represents a large sales source for
contemporary and cause related cards. The Company believes that the market for
cause related cards will continue to grow for the foreseeable future as
consumers express a desire to express support for a particular cause while
satisfying their greeting card needs. It has been estimated that the total
number of retail outlets for cards exceeds 350,000 outlets, of which the
traditional outlets are a substantial portion.

SOURCE OF PRODUCT AND ARRANGEMENT WITH PHOTOGRAPHERS AND OTHERS

While the overall concept and design of its products are developed by
the Company in-house, it principally relies on independent, unaffiliated
photographers to create images for its product lines. Agreements between the
Company and its photographers apply to specific images submitted by a
photographer and accepted by the Company, and are exclusive as to those images,
and do not normally cover all of a photographer's works. The Company utilizes an
available pool of 600-700 photographers. It additionally receives unsolicited
submissions from time to time from various photographers. When utilizing the
work of a particular photographer, the Company generally makes a one time
payment of $250-$400, which entitles the Company to utilize the particular work
for three to five years without further royalty payments.

No single photographer with whom the Company has entered into a license
or purchase of rights agreement has created products which have accounted for 3%
or more of the Company's sales.

LICENSE AGREEMENTS

The following are the principal license agreements to which the Company
is a party:

THE SIERRA CLUB

The Company has been licensed since June 4, 1980 by the Sierra Club to
use its name on an exclusive worldwide basis on a line of greeting, note and
seasonal cards as well as stationery products, tablets and magnets. This license
agreement has been extended through December 31, 2005. Sales of the Sierra Club
line represented approximately 83.2% and 90.3% of the Company's sales for the
years ended December 31, 1994 and 1993, respectively. The Sierra Club card line
is comprised of over 300 everyday designs and over 75 holiday designs, all of
which are printed on recycled paper using soy-based ink. All products developed
by the Company which comprise the Sierra Club line are subject to the prior
approval of the Sierra Club. Under the current license agreement, the Sierra
Club is to receive an annual guaranteed minimum royalty of $300,000 for the
calendar year 1995, with an annual guaranteed minimum royalty of $300,000 for
each year thereafter increased by 7% per year for each year through the

<PAGE> 24

year 2000, and 5% per year for each year through the year 2005. In addition, the
minimum annual guaranteed royalty, the Company is to pay Sierra Club a one time
additional royalty of $60,000 for the year 1995 and $50,000 for the year 2001.
The license agreement may be terminated by the Sierra Club prior to its regular
expiration date in the event of a material breach or default by the Company of
its material obligations which remains uncured for 60 days. The material
obligations of the Company principally relate to the payment of royalties. The
experience of the Company with its Sierra Club line has been that sales in each
license year have exceeded the base levels on which the guaranteed minimum is to
be paid. For the year ended December 31, 1994, the Company paid aggregate
royalties of $302,000 to the Sierra Club. No assurance may be given that actual
royalties to the Sierra Club in future years will equal or exceed the minimum
guaranteed royalty.

The Company's Sierra Club line is comprised of 5x7 blank note cards
which utilize over 250 images and retail for $1.75 each; 4x5 boxed cards which
consist of eight cards and envelopes and have a suggested retail price of $5.95.
Holiday boxed cards have a suggested retail price of $10.95 and consist of 15
cards and envelopes.

The Company believes that the loss of the Sierra Club license and the
right to use the Sierra Club name in connection with the lines could have a
material adverse affect upon the Company's business insofar as the success of
the lines may have been attributable to the Sierra Club name, unless the lines
would have the same market success and acceptance without the Sierra Club name.

THE HUMANE SOCIETY OF THE UNITED STATES

In furtherance of its focus and concentration on the design and
development of cause-related, nature and wildlife card lines, the Company, on
March 1, 1993, entered into a license agreement with The Humane Society of the
United States (the "Humane Society"), pursuant to which the Company was granted
the right to use the Humane Society name and logo in the United States and
Canada in connection with greeting cards. The license agreement is to continue
through December 31, 1996 and may be extended by either party for one additional
two-year period. In consideration for the grant of the license, the Company is
to pay the Humane Society a license fee of 5% of the wholesale price for the
first $100,000 of net sales of licensed product during the term of the
agreement, increasing to 7% of net sales in excess of $100,000. The license
agreement may be terminated by the Humane Society in the event of the failure of
the Company to make any license payment or furnish any required statement, and
which default continues for a period of 30 days after written notice, or in the
event the Company fails to cure any other breach of the license agreement after
30 days written notice. The Company has completed the initial design of its
Humane Society card line which consists of archival photographs of pets and
their owners, and has introduced this new line in the fourth quarter of 1993.
The Humane Society line is available in 5x7 blank note cards, 4x5 boxed note
cards, and boxed holiday cards. For the year ended December 31, 1994 and the six
months ended June 30, 1995, sales of this line represented approximately 6.8%
and 4.7% of the Company's net sales, respectively.

<PAGE> 25

THE WILDERNESS SOCIETY

On June 24, 1994, the Company entered into a License Agreement with The
Wilderness Society, a nonprofit corporation headquartered in Washington, D.C.
Pursuant to the License Agreement, the Company is granted an exclusive worldwide
license to use The Wilderness Society name, logo and artwork in connection with
the manufacture, sale and distribution of everyday, Christmas and/or special
occasion bookmarks and refrigerator magnets produced using recycled paper and
recycled plastic materials. The license is for a three year term through June
31, 1997 with the right to extend for one additional three year period. The
Company is to pay to The Wilderness Society a royalty of 5% of the wholesale
price of net sales for the licensed products with a minimum annual royalty of
$10,000. The Company has been granted the right to promote the licensed products
in two issues per year of The Wilderness Society Magazine. All licensed products
are subject to prior approval of the licensor. The License Agreement is subject
to early termination in the event of the failure of the Company to make royalty
payments, the uncured breach of the Agreement by the Company, or the filing by
the Company for protection under federal bankruptcy laws. For the year ended
December 31, 1994 and the six months ended June 30, 1995, sales of this line
represented approximately 2.3% and 1.7% of the Company's net sales,
respectively.

AMERICAN LUNG ASSOCIATION

On June 27, 1994, the Company entered into a License Agreement with the
American Lung Association, a nonprofit corporation headquartered in New York
City. Pursuant to the License Agreement, the Company is granted an exclusive
worldwide license to use the American Lung Association name, logo and artwork in
connection with the manufacture, sale and distribution of greeting cards,
stationery products, journals and magnets. The license is for a four year term
through June 31, 1998 with the right to extend for one additional three year
period. The Company is to pay to the American Lung Association a royalty of 5%
of the wholesale price of net sales of the licensed products. The licensor has
agreed to test market 1995 holiday cards to 25,000 of its members. All licensed
products are subject to prior approval of the licensor. The License Agreement is
subject to early termination in the event of the failure of the Company to make
royalty payments, the uncured breach of the Agreement by the Company, or the
filing by the Company for protection under federal bankruptcy laws. For the year
ended December 31, 1994 and the six months ended June 30, 1995, sales of this
line were not material.

THE MARINE MAMMAL CENTER

On July 28, 1994, the Company entered into a License Agreement with The
Marine Mammal Center, a not for profit organization headquartered in The Golden
Gate National Recreational Area, Sausalito, California, and whose principal
activities relate to the preservation of marine mammals and related research.
Pursuant to the License Agreement, the Company was granted the exclusive
worldwide license to use The Marine Mammal Center name and logo in connection
with greeting cards, stationery, journals, tablets, bookmarks, magnets, blank
books, kites and puzzles. The license is for an initial term commencing August
1, 1994 through

<PAGE> 26

December 31, 1995 and is renewable for an additional two years thereafter. The
Company is to pay a guaranteed minimum royalty of $2,500 for the year 1994 and a
guaranteed minimum royalty of $5,000 for the year 1995 against a royalty of 3%
of net sales of licensed products. All licensed products are subject to prior
approval of the licensor. For the year ended December 31, 1994 and the six
months ended June 30, 1995, sales of this line were not material.

MANUFACTURE OF CARDS

The Company does not manufacture its cards, nor does it have the
equipment to do so. Rather, it contracts for the physical production of the
cards with independent contractors, using different suppliers at each stage of
production of a card, so as not to rely on any one specific supplier to satisfy
its needs. The Company believes that there are ample suppliers and production
facilities available to it at competitive costs.

PROPOSED AND NEW PRODUCT LINES

Given the Company's particular identification with the Sierra Club and
environmental and other causes, the Company intends to create new non-card
product lines which will be marketed under the name "Healthy Planet Products".
The Company has made application for trademark registration of the name and an
associated mark with the United States Patent and Trademark Office.

As part of its proposed Healthy Planet Products line, the Company
intends to design, develop and market diverse paper and gift products, including
stationery and other gift items. The Company may, but has not yet determined to,
license the rights to others to use its Healthy Planet trademarks for certain
product categories. While the proposed new product line has yet to be designed,
it is the present intention of the Company to incorporate within this line
products that evoke environmental consciousness and nature and wildlife themes.
No assurance can be given that the new proposed product lines will be
successfully developed, or if developed, will be successfully marketed or
profitable.

The Company currently markets its Sierra Club card line under the
HEALTHY PLANET PRODUCTS(R) trademark. In addition, the Company's SEA DREAMS(TM)
and WILD WORLD(TM) card lines were introduced in the fourth quarter of 1993 and
are also marketed under the Company's HEALTHY PLANET PRODUCTS(R) trademark. The
Company has developed and has introduced a line of social stationery comprising
everyday boxed notes, stationery and tablets which feature various nature and
wildlife themes. The themes utilized are images which are the most popular
images in the Company's Sierra Club line. Social stationery is sold in boxes of
twenty sheets and coordinated envelopes with a suggested retail price of $12.00
per box. Magnetized note pads incorporate similar nature and wildlife themes and
are sold in packages of two 50-sheet pads with a suggested retail price of
$4.95. Journals have a suggested retail price of $9.95 each and consist of
approximately 100 blank sheets of recycled paper, enclosed between two extra
heavyweight sheets of recycled "chip" board. The covers feature six of the
photographic images utilized for the social stationery products.

<PAGE> 27

As a licensee of The Wilderness Society, the Company, during the second
half of 1994, developed a line of magnets which feature nature and wildlife
themes. Consistent with environmental considerations, the magnets are made from
100% recycled plastic. The Company also utilizes images from its Sea Dreams(R)
line for a separate magnet line which is marketed utilizing The Marine Mammal
Center trademark. Magnets are priced at a $3.50 retail price and are sold in
units of 48 on a cylindrical display.

MARKETING AND SALES

The Company's cards are marketed to over 4,400 retail sales outlets
which are comprised of card shops; stationery stores; gift, book stores, notions
and variety shops; drug stores, and department stores; and miscellaneous and
multiple retail outlets. With the exception of Barnes & Noble, Inc., a national
chain of bookstores which accounted for approximately 26.5% and 15.7% of the
Company's net sales for the year ended December 31, 1994 and the six months
ended June 30, 1995, respectively, no single customer of the Company accounted
for 10% or more of the Company's net sales. The Company does not have an
on-going contract or agreement with Barnes & Noble with respect to future
purchase commitments. The Company views its relations with Barnes & Noble to be
good. No assurance may be given as to future purchases, if any, which may be
effected to this account. The Company does not consider that the loss of this
account or an overall reduction in its purchasing volume would have an overall
material adverse effect on the Company.

The Company utilizes approximately 125 independent sales agents who
also represent the products of other card publishers. Independent sales
representatives accounted for approximately 54% of Company sales for the year
ended December 31, 1994 (with the balance of Company sales being generated via
direct customer contact). Independent sales representatives are paid a fixed
sales commission ranging from 5% to 20% of sales. For the year ended December
31, 1994 and the six months ended June 30, 1995, a total of $411,000 and
$191,000, respectively, in commissions were paid to the sales representatives.
During these periods, no single sales representative accounted for more than 10%
of the Company's sales.

The Company has developed various merchandising programs which have
been designed to provide increasing levels of benefits to its customers as
customers' commitments to the Company's card lines increase. The Company's
product line has been segmented and is targeted to specific markets. Sales
literature, trade advertising and catalogs explain and highlight the Company's
programs and products, and is used by sales representatives in presentations to
customers. The Company provides a range of options, from small "promotional"
displays to larger "departmental" displays.

SEASONAL ASPECTS OF THE COMPANY'S BUSINESS

The greeting card and social stationery industry in which the Company
is engaged has historically experienced seasonal sales effects, primarily due to
the emphasis on Christmas and holiday card product. These effects generally
include peak seasonal production costs in the second and third quarters of the
year, and a seasonal buildup of accounts receivable in the third

<PAGE> 28
and fourth quarters, thereby resulting in an increase in capital carrying costs
during these periods. During 1994, seasonal effects on the Company's business
resulted in approximately 73% of the Company's sales being made in the third and
fourth quarters. Approximately 26% of total annual sales remain in accounts
receivable during the third and fourth quarter, and are not collectible until
the first quarter of the following year. Approximately 58% of the cost of
manufacturing inventory is incurred in the second and third quarters of the
year. Such factors require the application of working capital to either carry
accounts receivable during the last two quarters of the year or to cover
production costs during peak production periods.

ADVERTISING AND SALES PROMOTION

The Company uses various methods to promote its products. It advertises
in certain trade and gift publications, and exhibits at several of the
significant industry trade shows. In addition, it produces sales materials at
the beginning of each season which feature new products and merchandising
programs. One of the Company's most effective forms of retail advertising is the
visual display of its products in display space in retail outlets. The Company
believes that its focus on cause related, nature and wildlife card and other
product lines will be the indirect beneficiary of the promotion of each
particular cause and consumer concerns for the environment and nature
preservation. As consumers become more aware of each cause, and are supportive
of the particular cause, or become more supportive of nature preservation, the
Company believes that the market and demand for its associated card and other
product lines will increase.

COMPETITION

The greeting card and social stationery industry is highly competitive.
The Company only marginally competes with major traditional card companies, such
as Hallmark Cards, Inc., American Greetings Corporation, and Gibson Greetings,
Inc. The major greeting card companies have greater financial resources, market
penetration and experience than the Company. The Company primarily competes with
the smaller alternative card companies, several of whom have sales and resources
greater than those of the Company; i.e., Recycled Paper Products, Paramount and
Sunrise Publications, among others.

The primary basis upon which the Company competes is the marketing of
its nature, wildlife and wilderness image products. The Company does not view
itself as being a significant competitive factor in the greeting card industry,
though the Company does believe that growth and opportunity does present itself
with the niche of nature, wildlife and wilderness products, and cause related
and associated card and other product lines.

EMPLOYEES

The Company currently has 19 full-time employees, including its four
executive officers, five in administrative, managerial, and sales positions, and
10 warehouse persons. In peak seasons, the Company may employ up to 15 temporary
employees for its warehouse operation. None of the Company's employees are
represented by a labor union, and the Company considers its relationship with
its employees to be good.

<PAGE> 29

TRADEMARKS AND COPYRIGHTS

In most cases, the Company either owns or shares ownership of the
copyright with the photographers who create photographs for the Company,
although there are some photographers who have the exclusive ownership of the
copyright for the works published by the Company, in which case, the right to
market and exploit the product is licensed to the Company in return for a
royalty fee or one time payment for rights. To the extent that any single
product enjoys substantial consumer acceptance or demand, the Company is
dependent upon the validity of the copyright of such photograph. The loss or
invalidity of a copyright will not have a material adverse effect on the Company
since no single product, either published or distributed by the Company,
accounts for a material portion of the Company's sales.

The Company has commenced to utilize HEALTHY PLANET PRODUCTS(R) as a
trademark in association with its environmentally cause- related product lines,
and has filed an application for the registration of the name, logo and design
of HEALTHY PLANET PRODUCTS with the United States Patent and Trademark Office.

The Company has recently applied for registration of "Wild World" and
logo and design as a trademark used in connection with its wildlife card line of
reproductions of limited edition art prints by noted wildlife artists. The
Company has also applied for registration of "Sea Dreams" and logo and design as
a trademark used in connection with its card line featuring underwater
photographs.

PROPERTIES

The Company's offices and business facilities are located in Petaluma,
California where it rents approximately 24,854 square feet of space in an
industrial park located at 1129 North McDowell Boulevard, Petaluma, California
94954. This facility, which is a concrete warehouse type building, accommodates
the Company's executive and administrative offices and warehouse.

The Company occupies its premises under a lease extending through March
31, 1999. The current base rent under the lease is $13,910 per month and will
increase on April 1st in each succeeding lease year by $750 per month. In
addition to the base rent, the Company is to pay, as additional rent, taxes
relating to the premises, insurance premiums relating to the premises, and all
utility charges relating to the use of the premises. Given the rate of growth of
the Company and management's anticipated further rate of growth, the Company
does not consider its present facilities to be adequate for its anticipated
future needs. The Company anticipates leasing additional office and warehouse
space under short term leases to be co-terminus with its present lease, and upon
the expiration of its present lease, the Company will seek to obtain a facility
under one roof of 50,000-60,000 square feet. The Company believes that a
suitable facility will be readily available to it at competitive rentals. In the
event that the Company is able to turn back its present facility prior to its
present lease expiration date, or in the event that the Company can sub-lese
such facility at no loss, the Company would seek to relocate to a new facility
at an earlier time.

LEGAL PROCEEDINGS

The Company is not a party to any pending legal proceedings.

<PAGE> 30

MANAGEMENT

The Directors and Executive Officers of the Company are as follows:

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Lawrence M. Barnett 46 Chairman of the Board of Directors and
Treasurer

Bruce A. Wilson* 43 Director, President, Chief Executive,
Chief Operating and Chief Financial
Officer

Robert Fagenson*+ 46 Director

Michael G. Jesselson*+ 43 Director

M. Scott Foster 43 Vice President - Sales and Marketing

Ricky Williams 38 Vice President - Operations
</TABLE>
----------------------------------------
* Member of the Audit Committee
+ Member of the Compensation Committee

The number of directors comprising the entire Board of Directors is
such number as determined in accordance with the By- Laws of the Company. The
Company's By-Laws provide for the number of directors to be not less than three
or more than eleven in number. The Company's Certificate of Incorporation
provides for a classified or "staggered" Board of Directors. The classified or
"staggered" Board of Directors is comprised of three classes of directors
elected for initial terms expiring at the 1996, 1997 and 1998 Annual Meeting of
Stockholders. Thereafter, each class is elected for a term of three years. By
reason of the classified Board of Directors, one class of the Board comes up for
re-election each year. Any further amendment to the Company's Certificate of
Incorporation affecting the classified Board may only be adopted upon the
affirmative vote of not less than 65% of the issued and outstanding shares
entitled to vote thereon.

At the Annual Meeting of Stockholders held on August 11, 1995, Messrs.
Wilson and Foster were each elected as Class 1 Directors to serve for a term of
three years until the 1998 Annual Meeting of Stockholders; Messrs. Fagenson and
Jesselson were each elected as Class 2 Directors to serve for a term of two
years until the 1997 Annual Meeting of Stockholders; and Mr. Lawrence M. Barnett
was elected as a Class 3 Director to serve for a term of one year until the
Company's 1996 Annual Meeting of Stockholders. Thereafter, each class of
directors standing for re-election shall be elected for a term of three years.

<PAGE> 31

Lawrence M. Barnett, founder of the Company, has been a member of the
Board of Directors since the Company's formation in 1979. Until approximately
April, 1990, Mr. Barnett was a full time employee of the Company, at which time
Mr. Barnett commenced part-time status. In addition to his employment with the
Company, Mr. Barnett and his wife are the owners and operators of the Thistle
Dew Inn in Sonoma, California, which may be considered his principal occupation.

Bruce A. Wilson joined the Company as Vice-President of Operations on
October 15, 1987, and has been a Director and President, Chief Financial and
Chief Operating Officer of the Company since January 28, 1988. In March 1994,
Mr. Wilson assumed the position and responsibilities of Chief Executive Officer
of the Company.

Robert Fagenson was first elected a Director of the Company in
November, 1986 and continued to serve in such capacity until his resignation for
health reasons in January, 1990. Mr. Fagenson was re-elected as a Director in
March, 1991. Mr. Fagenson has, for more than the past five years, been President
and a Director of Fagenson & Co., Inc., a registered broker-dealer, and Vice-
President and Director of Starr Securities, Inc., a registered broker-dealer.
Mr. Fagenson is a Director of the New York Stock Exchange. He is also a Director
of The Microtel Franchise and Development Company, a developer of economy
lodging facilities, Autoinfo, Inc., a dealer in computerized products and
services for after-market motor vehicle parts, and Rent-Way, Inc., a multi store
retail chain in the rent-to-own industry.

M. Scott Foster joined the Company in April, 1993 as its Vice President
of Sales and Marketing, and was elected a Director of the Company in April,
1995. Prior to joining the Company, Mr. Foster was employed by Russ Berrie and
Company from June, 1980 to April, 1993, where he served in various positions in
sales management, the most recent of which was Regional Vice President of Sales,
in which capacity Mr. Foster served from January, 1990 through April, 1993.

Michael G. Jesselson was elected a Director of the Company in April,
1995. Mr. Jesselson is, and for in excess of five years has been, an independent
investor. Mr. Jesselson's principal business activities for the past five years
relate to various businesses and entities owned by himself and his family. Mr.
Jesselson is an officer and director of Jesselson Capital Corp.

Ricky Williams joined the Company in 1985 as a systems analyst and,
since 1988, served as the Company's Data Processing Manager. In November, 1990,
Mr. Williams was appointed Vice President of Operations effective as of January
1, 1991.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

The General Corporation Law of Delaware provides generally that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, or investigative in nature,
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the

28
<PAGE> 32

corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) and, in a proceeding not by or in the right of the
corporation, judgments, fines and amounts paid in settlement, actually and
reasonably incurred by him in connection with such suit or proceeding, if he
acted in good faith and in a manner believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reason to believe his conduct was unlawful. Delaware law
further provides that a corporation will not indemnify any person against
expenses incurred in connection with an action by or in the right of the
corporation if such person shall have been adjudged to be liable for negligence
or misconduct in the performance of his duty to the corporation unless and only
to the extent that the court in which such action or suit was brought shall
determine that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for the expenses which such court shall deem proper.

The By-Laws of the Company provide for indemnification of officers and
directors of the Company to the greatest extent permitted by Delaware law for
any and all fees, costs and expenses incurred in connection with any action or
proceeding, civil or criminal, commenced or threatened, arising out of services
by or on behalf of the Company, providing such officer's or director's acts were
not committed in bad faith. The By-Laws also provide for advancing funds to pay
for anticipated costs and authorizes the Board to enter into an indemnification
agreement with each officer or director.

In accordance with Delaware law, the Company's Certificate of
Incorporation contains provisions eliminating the personal liability of
directors, except for (i) breaches of a director's fiduciary duty of loyalty to
the Company or to its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law, and
(iii) any transaction in which a director receives an improper personal benefit.
These provisions only pertain to breaches of duty by directors as such, and not
in any other corporate capacity, e.g., as an officer. As a result of the
inclusion of such provisions, neither the Company nor its stockholders may be
able to recover monetary damages against directors for actions taken by them
which are ultimately found to have constituted negligence or gross negligence,
or which are ultimately found to have been in violation of their fiduciary
duties, although it may be possible to obtain injunctive or equitable relief
with respect to such actions. If equitable remedies are found not to be
available to stockholders in any particular case, stockholders may not have an
effective remedy against the challenged conduct.

The Company has entered into Indemnification Agreements with each of
its directors and officers (the "Indemnitees") pursuant to which it has agreed
to provide for indemnification, to the fullest extent permitted by law and the
Company's By-Laws, against any and all expenses, judgments, fines, penalties and
amounts paid in settlement arising out of any claim in connection with any
event, occurrence or circumstance related to such individual serving as a
director or officer of the Company. Such indemnification includes the advance of
expenses to the Indemnitees (including the payment of funds in trust therefor
under certain circumstances) and is subject to there not having been determined
that the Indemnitee would not be permitted to be indemnified under applicable
law. The rights of indemnification are in addition to any other

<PAGE> 33

rights which the Indemnitees may have under the Company's Certificate of
Incorporation, By-Laws, the Delaware General Corporation Law or otherwise.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and therefore is
unenforceable.

EXECUTIVE COMPENSATION

The following provides certain information concerning all Plan and
Non-Plan (as defined in Item 402 (a)(ii) of Regulation S-B) compensation awarded
to, earned by, paid or accrued by the Company during the years ended December
31, 1994, 1993 and 1992 to the Chief Executive Officer and each of the named
executive officers of the Company.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Annual Compensation Long term Compensation
------------------- ----------------------
Awards
------------------
No. of
Securities
Underlying
Name and Other Restricted Options/
Principal Annual Stock SARs
Position Year Salary Bonus(1) Comp. Award(s) Granted(2)
--------- ---- ------ -------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Lawrence M. Barnett 1994 $ 36,000 $10,018 $ 4,100(4) - (5)
Chairman and Treasurer- 1993 $ 37,246 $ 5,897 $ 3,595(4) - (5) 15,000
Chief Executive Officer 1992 $ 36,000 $ 3,232 $ 3,616(4) - (5)
for a portion of 1994(3)

Bruce A. Wilson 1994 $125,000 $30,359 $31,794(6) $32,750(7)
President, Chief Exec- 1993 $113,654 $17,870 $30,579(6) $30,500(7) 80,000
utive, Chief Operating 1992 $100,000 $ 9,720 $24,993(6) $22,000(7)
and Chief Financial
Officer

Ricky Williams 1994 $ 73,205 $10,000 $ 5,510(8) -
Vice President of 1993 $ 68,854 $ 8,000 $ 5,637(8) 30,000
Operations 1992 $ 60,500 $ 5,000 $ 5,040(8) -

M. Scott Foster 1994 $ 80,000 $59,347 $24,665(10) -
Vice-President of 1993(9) $ 46,055 $29,285 $16,525(10) - 125,000(11)
Sales and Marketing
</TABLE>
-----------------------------

(1) Mr. Wilson commenced serving as Chief Executive Officer in August,
1994. Mr. Wilson receives an incentive bonus based upon the Company's
net pre-tax profit before interest expense for each calendar year
during the term. The amount of incentive bonus ranges from 8% of the
first $100,000 of net pre-tax profit to 2% of the net pre-tax profit in
excess of $750,000. Mr. Barnett, commencing with the year ending
December 31, 1993,receives an incentive bonus equal to 33% of that
earned by Mr. Wilson. Mr. Foster receives an incentive bonus paid
quarterly and adjusted annually which is calculated to include (i) 1%
of the Company's net shipments on initial orders by new accounts opened
by Mr. Foster; (ii) 5% of all net shipments exceeding the prior years
shipments by 10% and (iii) a percentage of the Company's profits before
taxes. See "Employment Agreements."

30
<PAGE> 34

(footnotes continued from previous page)

(2) On November 4, 1993, the Company's board of directors authorized the
granting of options to purchase shares of Common Stock to Messrs.
Barnett, Wilson, Williams and Foster in the amounts of 15,000, 80,000,
30,000 and 65,000 shares, respectively, at an exercise price of $6.625
per share. All the options as granted are ISOs except those granted to
Mr. Wilson and Mr. Foster, which options are Non-Isos. All of these
options are exercisable through December 31, 1996. See "Option/Sar
Grants in Last Fiscal Year."

(3) Mr. Barnett served as Chief Executive Officer for a portion of 1994.
Mr. Barnett serves on a less than full time basis, devoting
approximately 20 hours per week to the business of the Company or such
greater amount of time as determined by him.

(4) Includes: (i) for 1994, an automobile allowance of $1,560 and the
payment of premiums on a term life insurance policy of $2,540; (ii) for
1993, an automobile allowance of $1,620 and the payment of premiums on
a term life insurance policy of $1,975; and (iii) For 1992, an
automobile allowance of $1,560 and the payment of premiums on a term
life insurance policy of $2,056.

(5) Though Mr. Barnett has not received any restricted stock grants, the
Barbell Family Trust holds 6,885 restricted shares of the Company's
Common Stock, of which Mr. Lawrence M. Barnett is both a trustee and a
beneficiary. As of December 31, 1994, the market value of such shares
was $56,370 without giving effect to the diminution in value
attributable to the restriction of such stock.

(6) Includes: (i) for 1994, an automobile allowance of $9,900, the payment
of premiums on a term life insurance policy of $2,244 and the payment
of taxes on 4,000 shares of restricted Common Stock which vested on
December 31, 1994 of $19,650; (ii) for 1993, an automobile allowance of
$10,281, the payment of premiums on a term life insurance policy of
$1,998 and the payment of taxes on 4,000 shares of restricted Common
Stock which vested on December 31, 1993 of $18,300; and (iii) for 1992,
an automobile allowance of $9,720, the payment of premiums on a term
life insurance policy of $2,073 and the payment of taxes on 4,000
shares of restricted Common Stock which vested on December 31, 1992 of
$13,200.

(7) In April, 1991, Mr. Wilson was granted 60,000 restricted shares vesting
at the rate of 4,000 shares per year on December 31 of each year, over
a 15 year period subject to certain accelerations. As of December 31,
1994, an aggregate of 16,000 shares have vested. Amounts reported under
this column represent the fair market value, without giving effect to
the diminution in value attributable to the restriction of such stock,
of 4,000 shares of the Company's Common Stock which have vested each
year, as valued on December 31 of each year. See "Other Annual
Compensation", with respect to the cash payment for taxes attributable
to these shares. As of December 31, 1994, the aggregate restricted
stock holdings of Mr. Wilson consisted of 8,000 shares valued at
$65,500, the market value of these shares as of December 31, 1994,
without giving effect to the diminution in value attributable to the
restriction of such stock.

(8) Includes: (i) for 1994, an automobile allowance of $5,040 and the
payment of premiums on a term life insurance policy of $470; (ii) for
1993, an automobile allowance of $5,254; and (iii) For 1992, an
automobile allowance of $5,040.

(9) Mr. Foster commenced employment with the Company in May, 1993, the
information reported in this column represents the compensation
received during the portion of the year from May 1st to December 31st.

(10) Includes: (i) for 1994, an expense allowance of $24,000 and the payment
of premiums on a term life insurance policy of $665; and (ii) for 1993,
an expense allowance of $16,000 and the payment of premiums on a term
life insurance policy of $525.

(11) In connection with his employment agreement, Mr. Foster was granted, on
April 9, 1993, options to purchase 60,000 shares of Common Stock at an
exercise price of $5.25 per share. These options are exercisable
through April 30, 1996. Of the options granted to Mr. Foster, 10,000
options vested and became exercisable on April 30, 1994, 20,000 options
vested and became exercisable on April 30, 1995 and 30,000 options will
vest and become exercisable on April 30, 1996.

<PAGE> 35

STOCK OPTIONS/SAR GRANTS

No stock option grants or Stock Appreciation Rights ("SARs") were made
during the year ended December 31, 1994 to any of the named executive officers
of the Company.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES

The following table contains information with respect to the named
executive officers concerning options held as of the year ended December 31,
1994.

<TABLE>
<CAPTION>
Value of
Shares Number of Unexercised
Acquired Unexercised In-the-Money
on Value Options as of Options at
Name Exercise Realized December 31,1994 December 31,1994(1)
---- -------- -------- ---------------- -------------------
Exercisable/Unexercisable Exercisable/Unexercisable
<S> <C> <C> <C> <C>
Lawrence M. Barnett - - 20,000 / 10,000 $ 59,375 / $ 15,625
Bruce A. Wilson - - 65,000 / 60,000 $185,938 / $ 93,750
Ricky Williams - - 40,000 / 20,000 $118,750 / $ 19,993
M. Scott Foster - - 45,000 / 80,000 $ 84,063 / $193,750
</TABLE>

------------------------

(1) Based upon the average closing bid and asked prices of the Company's
Common Stock on December 31, 1994 ($8.187 per share), less the exercise
price for the aggregate number of shares subject to the options.

EMPLOYMENT AGREEMENTS

On May 15, 1995, the Company entered into Amended and Restated
Employment Agreements with its President, Chief Executive, Chief Operating and
Chief Financial Officer, Mr. Bruce A. Wilson, and with Mr. M. Scott Foster, its
Vice President of Sales and Marketing.

Mr. Wilson's Employment Agreement, as amended and restated, extends the
term of Mr. Wilson's employment through December 31, 1999. Mr. Wilson continues
to be employed as President, Chief Executive, Chief Operating and Chief
Financial Officer of the Company, and is to receive a base salary (the "Base
Salary") for the calendar year commencing January 1, 1995 of $125,000 per annum,
of which $20,000 is to be paid in a single lump sum on the 15th day of January,
1995 and the remainder of $105,000 is to be paid over the course of the year
pursuant to the Company's regular payroll periods; for the calendar years 1996
and 1997, the amount of Base Salary is increased to $150,000 per annum, of which
$30,000 is to be paid in a single lump sum on January 15th of each year and the
remainder of $120,000 is to be paid over the course of the year pursuant to the
Company's regular payroll periods; for the calendar years 1998 and 1999, the
amount of Base Salary is increased to $160,000 per annum, of

<PAGE> 36

which $40,000 is to be paid in a single lump sum on January 15th of each year
and the remainder of $120,000 is to be paid over the course of the year pursuant
to the Company's regular payroll periods. Mr. Wilson is to further receive, for
each year of the term, an incentive bonus based upon the Company's net pre-tax
profit before interest expense for each calendar year, which incentive bonus
ranges from 8% of the first $100,000 of net pre-tax profit to 3% of the net
pre-tax profit in excess of $250,000. Mr. Wilson is to receive an automobile
allowance of $1,000 per month, a policy of term life insurance in the amount of
$500,000 payable to a beneficiary designated by him, and long-term disability
insurance. In the event Mr. Wilson is terminated without cause, he is to receive
a severance benefit of 24 months Base Salary if terminated after December 31,
1997, or the remaining amount of base Salary if terminated prior to December 31,
1997. In the event of a Change in Control in the Company (as defined) and,
following such Change in Control, there is a change in the composition of a
majority of the Directors comprising the entire Board of Directors immediately
prior to the Change in Control, Mr. Wilson may elect, within six months
following the change in the composition of the Board of Directors following the
Change in Control, to terminate his employment with the Company and, in such
case, he is to receive a special severance payment in the form of the Company
paying to Mr. Wilson, with respect to all options granted to him prior to May
15, 1995, the differential between the strike price of Mr. Wilson's options plus
$3.20 and the average of the closing price of the Company's Common Stock for the
10 days preceding the effective date of termination.

In connection with the amendment and restatement of his Employment
Agreement, all options granted to Mr. Wilson prior to December 31, 1999 have
been re-designated as non-incentive stock options and, to the extent such
options become vested and are presently exercisable, may be exercised through
December 31, 1999. Options granted to Mr. Wilson in accordance with an option
grant dated November 4, 1993 continue to be subject to the vesting schedule
contained in the original grant, of which 30,000 options become vested on
December 31, 1996. Such vesting is subject to an acceleration of vesting in the
event of a Change in Control of the Company, as defined.

In April, 1991, Mr. Wilson was granted 60,000 restricted shares under
the Company's 1991 Senior Management Incentive Plan. These restricted shares are
to vest at the rate of 4,000 shares per year over a 15 year period, subject to
acceleration of vesting in certain circumstances. Except in the event of
acceleration, each year, upon the vesting of each 4,000 shares, the Company is
to pay to Mr. Wilson a cash bonus equal to 60% of the market value of the vested
shares, for the principal purpose of offsetting taxes attributable to the
vesting of the shares. The grant of restricted shares to Mr. Wilson was in
furtherance of the desire of the Board of Directors to have Mr. Wilson have a
significant stock interest in the Company which would recognize his past
performance and incentivize his continued efforts to maximize the value of the
Company for all stockholders. As of December 31, 1994, an aggregate of 16,000
restricted shares were vested. In the event of certain Change in Control
transactions, all then unvested restricted shares become immediately vested.

Mr. Foster's Employment Agreement, as amended and restated, extends the
term of Mr. Foster's employment through December 31, 1998. Mr. Foster continues
to be employed as Vice President of Sales and Marketing of the Company and is to
receive a base salary (the "Base Salary") for the calendar year commencing
January 1, 1995 of $80,000 per annum, payable over

<PAGE> 37

the course of the year pursuant to the Company's regular payroll periods. For
each of the calendar years 1996, 1997 and 1998, the amount of Base Salary is
increased to $100,000 per annum, of which $20,000 is to be paid in a single lump
sum on January 15th of each of said years, and the remainder of $80,000 is to be
paid over the course of the year pursuant to the Company's regular payroll
periods. Mr. Foster is to further receive, for each year of the term, an
incentive bonus as follows: (i) 1% on net shipments on initial orders to
personal sales accounts, as defined, (ii) a commission of 5% of the amount on
all Company net shipments exceeding the preceding year's net shipments by 10%
but not to exceed the sum of $75,000, and (iii) an additional amount of 4% of
the Company's net pre-tax profits in excess of $100,000 and up to $250,000, 2%
of net pre-tax profits in excess of $250,000 up to $750,000 and 1% of net
pre-tax profits in excess of $750,000. Mr. Foster is to receive reimbursement
for all travel outside of Northern California, a policy of term life insurance
in the amount of $500,000 payable to a beneficiary designated by him, health and
long term disability insurance. In the event Mr. Foster is terminated without
cause, he is to receive a severance benefit of 24 months Base Salary if
terminated after December 31, 1997, or 24 months Base Salary plus the amount of
Base Salary from the date of termination to December 31, 1997 if terminated
prior to December 31, 1997. In the event of a Change in Control in the Company,
as defined, and, following such Change in Control, there is a change in the
composition of a majority of the Directors comprising the entire Board of
Directors immediately prior to the Change in Control, Mr. Foster may elect,
within six months following the change in the composition of the Board of
Directors following the Change in Control, to terminate his employment with the
Company and, in such case, he is to receive a special severance payment in the
form of the Company purchasing from Mr. Foster all of his vested and then
presently exercisable options as of the date of his termination and which may
have been granted to him prior to May 15, 1995. Such repurchase is to be at a
price of $3.20 per option to the extent that the average closing price for the
Company's Common Stock for the 10 days preceding the effective date of
termination is less than $3.20 above the strike price of his respective options.

In connection with the amendment and restatement of his Employment
Agreement, all options granted to Mr. Foster prior to December 31, 1999 have
been redesignated as non-incentive stock options and, to the extent such options
become vested and are presently exercisable, may be exercised through December
31, 1999. Options granted to Mr. Foster in accordance with an option grant dated
November 4, 1993 continue to be subject to the vesting schedule contained in the
original grant, of which 30,000 options become vested on December 31, 1996. Such
vesting is subject to an acceleration of vesting in the event of a Change in
Control of the Company, as defined.

Lawrence M. Barnett is employed as the Company's Chairman on a less
than full time basis pursuant to an Agreement expiring December 31, 1996. Mr.
Barnett receives a salary at the rate of $36,000 per year and an incentive bonus
equal to 33% of that earned by Mr. Wilson. He receives an automobile allowance,
a policy of term life insurance in the amount of $500,000 payable to a
beneficiary designated by him, and health and long term disability insurance.

On September 10, 1993, the Company extended and modified the Employment
Agreement of Mr. Ricky Williams, Vice President of Operations. Mr. Williams'
Employment Agreement was extended through December 31, 1996. During the extended
term, Mr. Williams is to receive a salary of $73,200 for the year 1994, $80,500
for the year 1995, and $88,600 for

<PAGE> 38

the year 1996. Mr. Williams is entitled to elect to receive up to 10% of each
year's base salary in January in each year, with the remainder being paid to him
over the course of the year pursuant to the Company's regular payroll policies.
During the continuation of his employment, Mr. Williams is to receive an
automobile allowance of $420 per month and is to be provided with life insurance
in the amount of $250,000. In connection with his original Employment Agreement,
Mr. Williams was granted options to purchase 30,000 shares of the Company's
Common Stock at an exercise price of $4.75 per share. All of such options are
vested and are exercisable through December 31, 1996, and vesting in equal
increments on December 31st of each year of the term of his Agreement, as
extended, commencing December 31, 1994.

COMPENSATION OF DIRECTORS

Directors who are employees of the Company do not receive any fee in
addition to their regular salary for serving on the Board of Directors.
Directors who are not employees of the Company will receive a directors fee of
$6,000 per annum, paid quarterly. In addition, Directors are also eligible for
an initial and annual grant of stock options under the Company's Non-Employee
Director Stock Option Plan (see "Non-Employee Director Stock Option Plan"
below).

SENIOR MANAGEMENT INCENTIVE PLAN

The Company's 1991 Senior Management Incentive Plan (sometimes referred
to as the "Plan" or the "Management Plan") currently provides for the issuance
of up to 450,000 shares of the Company's Common Stock in connection with the
issuance of stock options and other stock purchase rights to executive officers,
key employees and consultants. To date, options to acquire a total of 390,000
shares and an additional 60,000 restricted shares have been issued under the
Plan.

The Management Plan is intended to attract and retain key executive
management personnel whose performance is expected to have a substantial impact
on the Company's long-term profit and growth potential by encouraging and
assisting those persons to acquire equity in the Company. It is contemplated
that only those executive management employees (generally the Chairman of the
Board, Vice-Chairman, Chief Executive Officer, Chief Operating Officer,
President and Vice-Presidents of the Company) who perform services of special
importance to the Company will be eligible to participate under the Management
Plan, although other full time employees of the Company are eligible to
participate under the Plan. A total of 450,000 shares of Common Stock are
currently reserved for issuance under the Management Plan. It is anticipated
that awards made under the Management Plan will be subject to three-year vesting
periods, although the vesting periods are subject to the discretion of the
Administrator of the Board. The Management Plan permits awards to be made
thereunder through November, 1996.

Directors who are not otherwise employed by the Company will not be
eligible for participation in the Management Plan.

The Management Plan provides for four types of awards: stock options,
incentive stock rights, stock appreciation rights (including limited stock
appreciation rights) and restricted stock purchase agreements, as described
below.

<PAGE> 39

STOCK OPTIONS. Options granted under the Management Plan may be either
incentive stock options ("ISOs") or options which do not qualify as ISOs
("non-ISOs"). ISOs may be granted at an option price of not less than 100% of
the fair market value of the Common Stock on the date of grant, except that an
ISO granted to any person who owns capital stock representing more than 10% of
the total combined voting power of all classes of Common Stock of the Company
("10% stockholder") must be granted at an exercise price of at least 110% of the
fair market value of the Common Stock on the date of the grant. The exercise
price of the non-ISOs may not be less than 65% of the fair market value of the
Common Stock on the date of grant. ISOs granted to persons other than 10%
stockholders may be exercisable for a period of up to ten years from the date of
grant; ISOs granted to 10% stockholders may be exercisable for a period of up to
five years from the date of grant. No individual may be granted ISOs that become
exercisable in any calendar year for Common Stock having a fair market value at
the time of grant in excess of $100,000. Non-ISOs may be exercisable for a
period of up to 13 years from the date of grant.

Upon termination of employment or consulting services, an optionee will
be entitled to exercise the vested portion of an option for a period of up to
three months after the date of termination, except that if the reason for
termination was a discharge for cause, the option shall expire immediately, and
if the reason for termination was for death or permanent disability of the
optionee, the vested portion of the option shall remain exercisable for a period
of twelve months thereafter.

INCENTIVE STOCK RIGHTS. Incentive stock rights consist of incentive
stock units equivalent to one share of Common Stock in consideration for
services performed for the Company. If the employment or consulting services of
the holder with the Company terminate prior to the end of the incentive period
relating to the units awarded, the rights shall thereupon be null and void,
except that if termination is caused by death or permanent disability, the
holder or his/her heirs, as the case may be, shall be entitled to receive a pro
rata portion of the shares represented by the units, based upon that portion of
the incentive period which shall have elapsed prior to the death or disability.

STOCK APPRECIATION RIGHTS (SARS). SARs may be granted to recipients of
options under the Management Plan. SARs may be granted simultaneously with, or
subsequent to, the grant of a related option and may be exercised to the extent
that the related option is exercisable, except that no general SAR (as
hereinafter defined) may be exercised within a period of six months of the date
of grant of such SAR and no SAR granted with respect to an ISO may be exercised
unless the fair market value of the Common Stock on the date of exercise exceeds
the exercise price of the ISO. A holder may be granted general SARs ("general
SARs") or limited SARs ("limited SARs"), or both. General SARs permit the holder
thereof to receive an amount (in cash, shares of Common Stock or a combination
of both) equal to the number of SARs exercised multiplied by the excess of the
fair market value of the Common Stock on the exercise date over the exercise
price of the related option. Limited SARs are similar to general SARs, except
that, unless the Administrator determines otherwise, they may be exercised only
during a prescribed period following the occurrence of one or more of the
following "Change of Control" transactions: (i) the approval of the Board of
Directors of a consolidation or merger

<PAGE> 40

in which the Company is not the surviving corporation, the sale of all or
substantially all the assets of the Company, or the liquidation or dissolution
of the Company; (ii) the commencement of a tender or exchange offer for the
Company's Common Stock (or securities convertible into Common Stock) without the
prior consent of the Board; (iii) the acquisition of beneficial ownership by any
person or other entity (other than the Company or any employee benefit plan
sponsored by the Company) of securities of the Company representing 25% or more
of the voting power of the Company's outstanding securities; or (iv) if during
any period of two years or less, individuals who at the beginning of such period
constitute the entire Board cease to constitute a majority of the Board, unless
the election, or the nomination for election, of each new director is approved
by at least a majority of the directors then still in office.

The exercise of any portion of either the related option or the tandem
SARs will cause a corresponding reduction in the number of shares remaining
subject to the option or the tandem SARs, thus maintaining a balance between
outstanding options and SARs.

RESTRICTED STOCK PURCHASE AGREEMENTS. Restricted stock purchase
agreements provide for the sale by the Company of shares of Common Stock at
prices to be determined by the Board, which shares shall be subject to
restrictions on disposition for a stated period during which the purchaser must
continue employment with the Company in order to retain the shares. Payment can
be made in cash,a promissory note or a combination of both. If termination of
employment occurs for any reason within six months after the date of purchase,
or for any reason other than death or by retirement with the consent of the
Company after the six-month period but prior to the time that the restrictions
on disposition lapse, the Company shall have the option to reacquire the shares
at the original purchase price.

Upon expiration of the applicable restricted period and the
satisfaction of any other applicable conditions, all or part of the restricted
shares and any dividends or other distributions not distributed to the holder
(the "retained distributions") thereon will become vested. Any restricted shares
and any retained distributions thereon which do not so vest will be forfeited to
the Company. If prior to the expiration of the restricted period a holder is
terminated without cause or because of a total disability (in each case as
defined in the Management Plan), or dies, then, unless otherwise determined by
the Administrator at the time of the grant, the restricted period applicable to
each award of restricted shares will thereupon be deemed to have expired. Unless
the Administrator determines otherwise, if a holder's employment terminates
prior to the expiration of the applicable restricted period for any reason other
than as set forth above, all restricted shares and any retained distributions
thereon will be forfeited.

Accelerating of the vesting of the awards made under the provisions of
the Management Plan shall occur on the first day following the occurrence of any
of the following: (a) the approval by the stockholders of the Company of an
Approved Transaction; (b) a Control Purchase; or (c) a Board Change. An
"Approved Transaction" is defined as (A) any consolidation or merger of the
Company in which the Company is not the continuing or surviving corporation or
pursuant to which shares of Common Stock would be converted into cash,
securities or other property other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger have the same
proportionate ownership of

<PAGE> 41

common stock of the surviving corporation immediately after the merger, or (B)
any sale, lease, exchange, or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, of the assets of the
Company, or (C) the adoption of any plan or proposal for the liquidation or
dissolution of the Company. In addition, vesting will accelerate in the event
the Company fails to renew Mr. Wilson's employment agreement at the conclusion
of the term thereon on December 31, 1993 on terms identical to those in his
present employment agreement.

A "Control Purchase" is defined as circumstances in which any person
(as such term is defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act),
corporation or other entity (other than the Company or any employee benefit plan
sponsored by the Company) (A) shall purchase any Common Stock of the Company (or
securities convertible into the Company's Common Stock) for cash, securities or
any other consideration pursuant to a tender offer or exchange offer, without
the prior consent of the Board of Directors, or (B) shall become the "beneficial
owner" (as such term is defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing twenty-five percent
(25%) or more of the combined voting power of the then outstanding securities of
the Company ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of directors (calculated
as provided in paragraph (d) of such Rule 13d-3 in the case of rights to acquire
the Company's securities).

A "Board Change" is defined as circumstances in which, during any
period of two consecutive years or less, individuals who at the beginning of
such period constitute the entire Board shall cease for any reason to constitute
a majority thereof unless the election, or the nomination for election by the
Company's stockholders, of each new director was approved by a vote of at least
a majority of the directors then still in office.

NON-EMPLOYEE DIRECTOR PLAN

The Board of Directors has adopted the Non-Employee Director Stock
Option Plan (the "Director Plan"), which was approved by the Company's
stockholders at the Company's Annual Meeting of Stockholders held on August 11,
1995. The Director Plan provides for issuance of a maximum of 75,000 shares of
Common Stock upon the exercise of stock options granted under the Director Plan.
Options may be granted under the Director Plan until August 11, 2005 to (i)
non-employee Directors as defined and (ii) members of any advisory board
established by the Company who are not full time employees of the Company or any
of its subsidiaries. The Director Plan provides that each non-employee Director
will automatically be granted an option to purchase 5,000 shares of the
Company's Common Stock upon joining the Board of Directors (or, for those
persons who were directors on the date of approval of the Director Plan by the
stockholders, on such date), and options to purchase 3,000 shares on each
anniversary of the initial date of service or date of approval, as the case may
be.

Under the terms of the Director Plan, the sum of the number of shares
to be received upon any grant multiplied by the fair market value of each share
at the time of grant may not exceed $75,000. All awards shall be reduced to the
extent that they exceed such amount. The exercise price for options granted
under the Director Plan shall be 100% of the fair market value

<PAGE> 42

of the Common Stock on the date of grant (or if there is no closing price for
such date of grant, then the last preceding business day on which there was a
closing price). The "fair market value" shall mean (i) the closing bid price of
a share of Common Stock on the American Stock Exchange ("AMEX") or other
national securities exchange, or (ii) if the Company's Common Stock is not
listed for trading on the AMEX or other national securities exchange, then the
closing bid price of a share of Common Stock on the Nasdaq National Market
System or Nasdaq SmallCap Market (together referred to as "Nasdaq"); or (iii) in
the event the Common Stock is not traded on either the AMEX or Nasdaq, the fair
market value shall be the price of the Common Stock as reported by the National
Quotation Bureau, Inc., or a market maker of the Company's Common Stock; or (iv)
if the Common Stock is not quoted by any of the above, by the Board of Directors
acting in good faith. Until otherwise provided in the Director Plan, the
exercise price of options granted under the Director Plan must be paid at the
time of exercise, either in cash, by delivery of shares of Common Stock of the
Company or by a combination of each. The term of each option is five (5) years
from the date of grant, unless terminated sooner as provided in the Director
Plan. The Director Plan is administered by a committee of the Board of Directors
composed of not fewer than two persons who are officers of the Company (the
"Committee"). The Committee has no discretion to determine which non-employee
director will receive options or the number of shares subject to the option, the
term of the option or the exercisability of the option. However, the Committee
will make all determinations of the interpretation of the Director Plan. Options
granted under the Director Plan do not qualify for incentive stock option
treatment.

<PAGE> 43

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information as of August 16,
1995 with respect to the ownership of Common Stock by (i) the persons (including
any "group" as that term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended), known by the Company to be the beneficial owner of
more than five percent of any class of the Company's voting securities, (ii)
each director and each officer identified in the Summary Compensation Table, and
(iii) directors and executive officers as a group. Except to the extent
indicated in the footnotes to the following table, each of the individuals
listed below possesses sole voting power with respect to the shares listed
opposite such individual's name.

<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENTAGE
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
------------------- -------------------- ----------
<S> <C> <C>
Lawrence M. Barnett . . . . . . . . . . . . . . . . . . . 26,885(1)(2) 1.4%
1129 N. McDowell Blvd.
Petaluma, CA 94954

Bruce A. Wilson . . . . . . . . . . . . . . . . . . . . . 94,600(3)(4) 5.2%
1129 N. McDowell Blvd.
Petaluma, CA 94954

Robert Fagenson . . . . . . . . . . . . . . . . . . . . . 23,125(5) 1.3%
19 Rector Street
New York, NY 10006

Paul Bluhdorn . . . . . . . . . . . . . . . . . . . . . . 181,256(6) 10.2%
P.O. Box 7854
Burbank, CA 91510

Mark S. Siegel . . . . . . . . . . . . . . . . . . . . . 70,062(7) 3.7%
P.O. Box 7854
Burbank, CA 91510

Yvette Bluhdorn . . . . . . . . . . . . . . . . . . . . . 71,738(7)(8) 4.0%
P.O. Box 7854
Burbank, CA 91515

Estate of Ludwig Jesselson . . . . . . . . . . . . . . . 279,821(9)(10) 15.7%
1301 Avenue of the Americas
New York, NY 10019

Michael Jesselson . . . . . . . . . . . . . . . . . . . . 97,062(9)(10)(11) 5.4%
1301 Avenue of the Americas
New York, NY 10019

M. Scott Foster . . . . . . . . . . . . . . . . . . . . . 42,500(13) 2.3%
1129 N. McDowell Blvd.
Petaluma, CA 94954

Ricky Williams . . . . . . . . . . . . . . . . . . . . . 35,000(12) 1.9%
1129 N. McDowell Blvd.
Petaluma, CA 94954

All Officers and Directors as a Group
(5 persons in number)(1)(2)(3)(4)(5)(15) . . . . . . . . 588,993 30.5%
</TABLE>

----------------------------------

<PAGE> 44

(1) Includes 6,885 shares held of record by the Barbell Family Trust, of
which Mr. Lawrence M. Barnett is both a trustee and a beneficiary.

(2) Includes 20,000 vested and presently exercisable options and excludes
options to purchase 10,000 shares of Common Stock not presently vested.

(3) Includes 42,500 vested and presently exercisable options and excludes
options to purchase 60,000 shares of Common Stock not presently vested.

(4) Includes 52,000 restricted shares subject to vesting at the rate of
4,000 shares per year on December 31st in each year.

(5) Includes options to purchase 20,000 shares of the Company's Common
Stock.

(6) Based on information contained in an amendment to a Schedule 13D dated
January 27, 1993 (the "Bluhdorn 13D"), filed on behalf of Paul
Bluhdorn, Yvette Bluhdorn and Mark Siegel. Includes 31,250 shares of
the Company's Common Stock owned by Mr. Bluhdorn, and 150,006 shares of
Common Stock issuable upon conversion of 150,006 shares of Series D
Preferred Stock owned by Mr. Bluhdorn. Does not include shares of
Common Stock owned by Mrs. Bluhdorn or Mr. Siegel, as to which shares
of Common Stock Mr. Bluhdorn disclaims beneficial ownership.

(7) Based on information contained in the Bluhdorn 13D and the corporate
records of the Company.

(8) Based on information contained in the Bluhdorn 13D and the corporate
records of the Company. Does not include shares of Common Stock owned
by Mr. Bluhdorn and Mr. Siegel as to which shares of Common Stock Mrs.
Bluhdorn disclaims beneficial ownership.

(9) Ludwig Jesselson dies on April 3, 1993. Mr. Michael Jesselson is the
Executor of the estate of Mr. Jesselson. The beneficial owner of all
shares registered in the name of Ludwig Jesselson may therefore be
deemed to be Mr. Jesselson's estate. As Executor, Mr. Michael Jesselson
retains the authority with regard to the disposition of the shares.

(10) Based on information contained in an amendment to a Schedule 13D dated
January 6, 1994 (the "Jesselson 13D") on behalf of Ludwig Jesselson,
Michael Jesselson, and the Estate of Ludwig Jesselson. Includes 279,821
shares of the Company's Common Stock owned by the Estate of Ludwig
Jesselson and does not include (i) 92,062 shares of Common Stock owned
by Michael Jesselson, as to which shares of Common Stock the Estate of
Ludwig Jesselson disclaims beneficial ownership and (ii) options to
purchase 5,000 shares of Common Stock.

(11) Based on information contained in the Jesselson 13D. Does not include
279,821 shares of Common Stock beneficially owned by the Estate of
Ludwig Jesselson. To the extent Michael Jesselson may be a beneficiary
under the Estate of Ludwig Jesselson, Michael Jesselson may be
considered an indirect beneficial owner of these shares.

(12) Includes 35,000 vested and presently exercisable options, and excludes
options to purchase 20,000 shares of Common Stock not presently vested.

(13) Includes 42,500 vested and presently exercisable options, and excludes
options to purchase 60,000 shares of Common Stock not presently vested.

(14) Includes shares of Common Stock owned directly by Michael Jesselson and
shares of Common Stock owned by the Estate of Ludwig Jesselson, as with
respect to which Michael Jesselson is an executor and has the power to
direct the voting of the shares owned by the Estate.

<PAGE> 45

SELLING STOCKHOLDERS

The following table sets forth information with respect to the number
of shares to be sold by each Selling Shareholder. The shares to be sold by each
Selling Shareholder will be acquired from the Company upon the exercise of
Common Stock Purchase Warrants issued by the Company on December 31, 1989,
November 15, 1990 and June 23, 1993. Accordingly, information contained in the
table below as to shares beneficially owned before offering gives effect to the
exercise by the Selling Shareholders of their respective Common Stock Purchase
Warrants.

<TABLE>
<CAPTION>
SHARES BENEFI- PERCENTAGE OF
CIALLY OWNED BEFORE SHARES SHARES OWNED SHARES OWNED
NAME OF SHAREHOLDER OFFERING OFFERED AFTER OFFERING AFTER OFFERING
------------------- ------------------- ------- -------------- --------------
<S> <C> <C> <C> <C>
Starr Securities, Inc. 30,920 19,420 11,500 *

William Baquet 8,117 8,117 -0- -

Thomas C. Souran 7,007 7,007 -0- -

Miriam Meshel 6,207 6,207 -0- -

Phyllis Henderson 4,777 4,777 -0- -

Berkeley Securities 3,167 3,167 -0- -
Corporation

John Lane 14,900 2,400 12,500 *
</TABLE>
----------------------------------
* Less than 1%

CERTAIN TRANSACTIONS

For information concerning the employment agreements of Bruce A.
Wilson, Lawrence M. Barnett, Rick Williams and M. Scott Foster, see "Executive
Compensation".

For information concerning the issuance of 60,000 restricted shares to
Mr. Bruce A. Wilson, see "Executive Compensation".

On August 19, 1994, there was granted to Mr. Robert Fagenson, a
Director of the Company, options to purchase 15,000 shares of the Company's
Common Stock through August 19, 1999 at an exercise price of $8 per share. Of
these options, 10,000 options are presently vested, and 5,000 options vest on
August 19, 1995. The grant of these options was for past service by Mr. Fagenson
as a non-employee Director. Mr. Fagenson additionally receives an annual
director's fee of $6,000.

<PAGE> 46

DESCRIPTION OF CAPITAL STOCK

The Company is authorized to issue 12,000,000 shares of Common Stock,
$.01 par value, and 750,000 shares of Preferred Stock, $.10 par value. As of the
date hereof, the Company has 1,692,716 issued and outstanding shares of Common
Stock, 1,250 issued and outstanding shares of Series B Preferred Stock
(presently convertible into 5,500 shares of Common Stock), and 254,675 issued
and outstanding shares of Series D Preferred Stock (presently convertible into
254,675 shares of Common Stock). There remain 336,406 authorized shares of
Preferred Stock which have not been designated.

COMMON STOCK

The holders of shares of Common Stock are entitled to dividends when
and as declared by the Board of Directors from funds legally available therefor,
and, upon liquidation are entitled to share pro rata in any distribution to
shareholders. Such shareholders have one non-cumulative vote for each share
held. There are no pre-emptive, conversion or redemption privileges, nor sinking
fund provisions with respect to the Common Stock.

PREFERRED STOCK

The Board of Directors has authority to issue the authorized Preferred
Stock in one or more series, each series to have such designation and number of
shares as the Board of Directors may fix prior to the issuance of any shares of
such series. Each series may have such preferences and relative participating,
optional or special rights which such qualifications, limitations or
restrictions as stated in the resolution or resolutions providing for the
issuance of such series as may be adopted from time to time by the Board of
Directors prior to the issuance of any such series.

Series B Preferred Stock

The Board of Directors has designated 14,249.982 shares of Preferred
Stock as Series B Preferred Stock, of which 1,250 are currently issued and
outstanding; all other authorized Series B Preferred Stock has been returned to
treasury. The shares of Series B Preferred Stock are non-voting and are entitled
to the same rights, privileges and limitations as the Common Stock, except that
in liquidation, each share of Series B Preferred Stock is entitled to a
liquidating preference of $120 per share plus any cumulative but unpaid dividend
prior to the payment of any liquidating amount to the holders of Common Stock.
The Series B Preferred Stock carry a cumulative annual dividend of $10.80 per
share, payable semi-annually commencing January 1, 1990. The Series B Preferred
Stock may be converted at any time, at the option of the holder thereof, at the
rate of 4.4 shares of Common Stock for each one share of Series B Preferred
Stock being converted, subject to adjustment by reason of anti-dilution
provisions. The Company may redeem the Series B Preferred Stock at any time upon
60 days notice to the holders at $120 per share together with any cumulative but
unpaid dividends, subject to the right of the holders to convert prior to the
fixed date of redemption.

<PAGE> 47

Series D Preferred Stock

The Company has designated 399,344 shares of preferred stock as Series
D Preferred Stock, of which 254,675 are currently outstanding. The Series D
Preferred Stock are not entitled to receive any dividend, are redeemable at the
option of the Company at its liquidation preference, are entitled to a
preference in liquidation of $5.11 per share and vote as a single class with the
Common Stock on an as converted basis on all matters on which the holders of the
Common Stock are entitled to vote.

SHAREHOLDER REPORTS

The Company makes an annual report on its business, including financial
statements, examined and reported on by independent public accountants,
available to its shareholders and provides such other reports as management may
deem necessary or appropriate to keep them informed of the Company's operations.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Company's Common Stock is
American Stock Transfer and Trust Company, 40 Wall Street, New York, New York
10005.

PLAN OF DISTRIBUTION

The Shares offered by this Prospectus may be sold from time to time by
the Selling Stockholders, or by their transferees. No underwriting arrangements
have been entered into by the Selling Stockholders. The distribution of the
shares by the Selling Stockholders may be effected in one or more transactions
that may take place on the American Stock Exchange, including ordinary broker's
transactions, third market transactions, privately negotiated transactions or
through sales to one or more dealers for resale of the Shares as principals, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commission may be paid by the Selling
Stockholders in connection with such sales. The Selling Stockholders and
intermediaries through whom such securities are sold may be deemed
"underwriters" within the meaning of the securities Act of 1933, as amended (the
"1933 Act"), with respect to securities offered.

LEGAL MATTERS

The legality of the shares of Common Stock offered hereby will be
passed upon for the Company by Goldstein, Axelrod & DiGioia, 369 Lexington
Avenue, New York, New York 10017.

<PAGE> 48

EXPERTS

The financial statements of the Company as of December 31, 1994 and
each of the two years then ended, included herein and elsewhere in the
Registration Statement, have been examined by Moss Adams, certified public
accountants, as indicated in their report with respect thereto, and are included
herein and in the Registration Statement in reliance upon the authority of said
firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed a Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information, reference is hereby made to the Registration Statement. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made to
the copy of such document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. Copies of
the Registration Statement may be inspected without charge at the principal
office of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, or
at its New York Regional Office at 7 World Trade Center, Ne York, Nw York 10048,
and copies of all or any part thereof may be obtained from the Commission at
prescribed rates.

<PAGE> 49

HEALTHY PLANET PRODUCTS, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report F-1

Balance Sheets -
December 31, 1994 and June 30, 1995 (unaudited) F-2

Statements of Income -
Years ended December 31, 1994 and 1993, and six months
ended June 30, 1995 and 1994 (unaudited) F-3

Statements of Shareholders' Equity -
Years ended December 31, 1994 and 1993, and six months
ended June 30, 1995 (unaudited) F-4

Statements of Cash Flows -
Years ended December 31, 1994 and 1993, and six months
ended June 30, 1995 and 1994 (unaudited) F-5 to F-6

Notes to Financial Statements F-7 to F-14
</TABLE>

<PAGE> 50
[MOSS ADAMS LETTERHEAD]

INDEPENDENT AUDITOR'S REPORT

To the Shareholders and Board of Directors
Healthy Planet Products, Inc.

We have audited the accompanying balance sheet of Healthy Planet Products, Inc.,
as of December 31, 1994, and the related statements of income, shareholders'
equity and cash flows for the years ended December 31, 1994 and 1993. 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 audits 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 that our audits provide 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 Healthy Planet Products, Inc.,
as of December 31, 1994, and the results of its operations and its cash flows
for the years ended December 31, 1994 and 1993, in conformity with generally
accepted accounting principles.

MOSS ADAMS

Santa Rosa, California
February 10, 1995

F - 1
<PAGE> 51
HEALTHY PLANET PRODUCTS, INC.

BALANCE SHEET

<TABLE>
<CAPTION>
December 31, June 30,
------------ -----------
1994 1995
------------ -----------
(Unaudited)

<S> <C> <C>
ASSETS

CURRENT ASSETS
Cash $ 2,547,537 $ 2,430,012
Accounts receivable (Notes 2, 6 and 12) 1,009,830 810,124
Inventories (Notes 3 and 6) 694,626 1,103,305
Advances on royalties - 270,679
Prepaid expenses 26,027 108,386
Deferred income taxes (Note 5) 450,000 450,000
----------- -----------

Total current assets 4,728,020 5,172,506
----------- -----------

PROPERTY AND EQUIPMENT (Notes 4 and 6) 228,295 463,821
----------- -----------

OTHER ASSETS
Deferred income taxes (Note 5) 560,000 699,250
Publishing rights, net of accumulated amortization
of $203,897 and $231,911, respectively 105,337 97,478
Other 102,829 16,025
----------- -----------

768,166 812,753
----------- -----------

Total assets $ 5,724,481 $ 6,449,080
=========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable (Note 8) $ 226,264 $ 470,138
Royalties payable 80,224 73,467
Commissions payable 123,874 40,820
Accrued wages, bonuses and payroll taxes 126,272 91,219
Accrued liabilities 30,907 12,534
----------- -----------

Total current liabilities 587,541 688,178
----------- -----------

ACCRUED RENT PAYABLE (Note 7) 86,815 90,498
----------- -----------

COMMITMENTS (Note 7) - -

SHAREHOLDERS' EQUITY (Notes 9 and 10)
Common stock, $.01 par value, 12,000,000 shares
authorized, 1,522,216 and 1,682,716 shares
issued and outstanding, respectively 15,221 16,827
Preferred stock, with aggregate liquidation
preference totaling $2,016,164 and $1,451,509,
respectively 36,643 25,593
Additional paid-in capital 11,665,399 11,923,593
Accumulated deficit (6,667,138) (6,295,609)
----------- -----------

Total shareholders' equity 5,050,125 5,670,404
----------- -----------

Total liabilities and stockholders' equity $ 5,724,481 $ 6,449,080
=========== ===========
</TABLE>

The accompanying notes are an integral
part of these financial statements.

F - 2

<PAGE> 52
HEALTHY PLANET PRODUCTS, INC.

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------- -----------------------------
1993 1994 1994 1995
---------------------------- ---------- ----------
(Unaudited)
(Unaudited)

<S> <C> <C> <C> <C>
Net sales $3,546,174 $4,736,401 $1,291,193 $2,036,865

Cost of goods sold 1,342,010 1,782,428 378,261 690,526
---------- ---------- ---------- ----------

Gross profit 2,204,164 2,953,973 912,932 1,346,339
---------- ---------- ---------- ----------

Operating expenses
Selling, shipping and marketing 714,738 847,395 289,876 395,280
General and administrative 1,176,213 1,398,902 578,872 770,758
---------- ---------- ---------- ----------

1,890,951 2,246,297 868,748 1,166,038
---------- ---------- ---------- ----------

Operating income 313,213 707,676 44,184 180,301
---------- ---------- ---------- ----------

Other income (expense)
Interest income 30,270 49,528 38,736 69,274
Other income 1,279 1,294 597 254
Interest expense ( 130) - - -
---------- ---------- ---------- ----------

31,419 50,822 39,333 69,528
---------- ---------- ---------- ----------

Income before income taxes 344,632 758,498 83,517 249,829

Provision for (benefit from)
income taxes (Note 5) (119,200) (349,200) 800 (121,700)
---------- ---------- ---------- ----------

Net income 463,832 1,107,698 82,717 371,529

Dividends paid and/or accumulated
on preferred stock (19,050) (13,500) (6,755) (6,755)
---------- ---------- ---------- ----------

Income applicable to common stock $ 444,782 $1,094,198 $ 75,962 $ 364,774
========== ========== ========== ==========

Earnings per share $ .25 $ .56 $ .04 $ .18
========== ========== ========== ==========

Weighted average common shares
outstanding 1,791,364 1,952,509 1,945,041 2,022,858
========== ========== ========== ==========
</TABLE>

The accompanying notes are an integral
part of these financial statements.

F - 3

<PAGE> 53

HEALTHY PLANET PRODUCTS, INC.

STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK
---------------------
COMMON STOCK SERIES B
------------------------ ---------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ ------ ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 1,154,372 $ 11,023 1,417 $ 142

Net income for the year ended December 31, 1993 -- -- -- --
Interest paid with common stock 50 -- -- --
Par value of non-vested restricted shares -- 520 -- --
Conversion of Series B Preferred to common stock 732 8 (166) (16)
Dividends paid on conversion of Series B Preferred -- -- -- --
Secondary public offering of common stock 347,513 3,475 -- --
Conversion of debt to equity 1,215 12 -- --
Vesting of 4,000 restricted shares of common stock -- -- -- --
Offering costs on conversion of Preferred D -- -- -- --
Exercise of warrants 12,500 125 -- --
--------- ------------ ----- ------------

Balance, December 31, 1993 1,516,382 15,163 1,251 126

Net income for the year ended December 31, 1994 -- -- -- --
Conversion of Series D Preferred stock to common stock 5,834 58 -- --
Vesting of 4,000 restricted shares of common stock -- -- -- --
--------- ------------ ----- ------------

Balance, December 31, 1994 1,522,216 15,221 1,251 126

Net income for the six months ended June 30, 1995 (unaudited) -- -- -- --

Conversion of Series D Preferred Stock to Common Stock
(unaudited) 110,500 1,106 -- --

Exercise of stock options 50,000 500 -- --
--------- ------------ ----- ------------

Balance, June 30, 1995 (unaudited) 1,682,716 $ 16,827 1,251 $ 126
========= ============ ===== ============

</TABLE>

<TABLE>
<CAPTION>
PREFERRED STOCK
-----------------------
SERIES D ADDITIONAL
----------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1992 371,009 $ 37,101 $ 10,029,307 $ (8,238,668)

Net income for the year ended December 31, 1993 -- -- -- 463,832
Interest paid with common stock -- -- 260 --
Par value of non-vested restricted shares -- -- -- --
Conversion of Series B Preferred to common stock -- -- 8 --
Dividends paid on conversion of Series B Preferred -- -- (5,550) --
Secondary public offering of common stock -- -- 1,569,970 --
Conversion of debt to equity -- -- 3,238 --
Vesting of 4,000 restricted shares of common stock -- -- 30,500 --
Offering costs on conversion of Preferred D -- -- (5,195) --
Exercise of warrants -- -- 19,875 --
------- ------------ ------------ ------------

Balance, December 31, 1993 371,009 37,101 11,642,413 (7,774,836)

Net income for the year ended December 31, 1994 -- -- -- 1,107,698
Conversion of Series D Preferred stock to common stock (5,834) (584) 526 --
Vesting of 4,000 restricted shares of common stock -- -- 22,460 --
------- ------------ ------------ ------------

Balance, December 31, 1994 365,175 36,517 11,665,399 (6,667,138)

Net income for the six months ended June 30, 1995 (unaudited) -- -- -- 371,529

Conversion of Series D Preferred Stock to Common Stock
(unaudited) (110,500) (11,050) 9,944 --

Exercise of stock options -- -- 248,250 --
------- ------------ ------------ ------------

Balance, June 30, 1995 (unaudited) 254,675 $ 25,467 $ 11,923,593 $ (6,295,609)
======= ============ ============ ============

</TABLE>

The accompanying notes are an integral
part of these financial statements.

F-4
<PAGE> 54

HEALTHY PLANET PRODUCTS, INC.

STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------- --------------------------
1993 1994 1994 1995
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 463,832 $ 1,107,698 $ 82,717 $ 371,529
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization 91,636 111,458 52,427 70,118
Interest paid with common
stock 260 -- -- --
Change in allowance for doubt-
ful accounts and returns 18,000 51,218 (83,772) (53,626)
Change in inventory reserves (77,669) 55,797 (25,000) (80,797)
Grant of restricted shares 31,020 22,460 -- --
Deferred income taxes (120,000) (350,000) -- (139,250)
Changes in:
Accounts receivable (47,302) (677,067) 24,110 253,332
Inventories (86,182) (126,580) (390,989) (327,882)
Advance on royalties (6,491) 8,400 (94,018) (270,679)
Prepaid expenses (40,369) 50,375 (37,405) (82,359)
Accounts payable 137,487 (91,103) 140,158 243,874
Royalties payable 42,515 (31,609) (109,829) (6,757)
Commissions payable 28,421 (4,924) (86,030) (83,054)
Accrued wages, bonuses and
payroll taxes 23,754 35,087 (48,492) (35,053)
Accrued liabilities 18,675 (5,005) (23,415) (18,373)
Accrued rent payable 14,973 18,617 10,255 3,683
----------- ----------- ----------- -----------
Net cash provided (used)
by operating activities 492,560 174,822 (589,283) (155,294)
----------- ----------- ----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (112,522) (161,443) (106,396) (277,025)
Increase in publishing rights (55,497) (77,940) (28,168) (20,156)
Other (6,040) (86,793) -- 86,200
----------- ----------- ----------- -----------
Net cash used by investing
activities (174,059) (326,176) (134,564) (210,981)
----------- ----------- ----------- -----------
</TABLE>

The accompanying notes are an integral
part of these financial statements.

F-5
<PAGE> 55

HEALTHY PLANET PRODUCTS, INC.

STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------- --------------------------
1993 1994 1994 1995
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid on conversion of
Series B Preferred (5,550) -- -- --
Costs of conversion of Series A-1,
B and C Preferred to Series D
Preferred (5,195) -- -- --
Proceeds from exercise of stock
options -- -- -- 248,750
Proceeds from exercise of warrants 20,000 --
Net proceeds from secondary
offering of common stock 1,573,445 -- -- --
----------- ----------- ----------- -----------
Net cash provided by
financing activities 1,582,700 -- -- 248,750
----------- ----------- ----------- -----------

INCREASE (DECREASE) IN CASH 1,901,201 (151,354) (723,847) (117,525)

CASH, BEGINNING OF PERIOD 797,690 2,698,891 2,698,891 2,547,537
----------- ----------- ----------- -----------

CASH, END OF PERIOD $ 2,698,891 $ 2,547,537 $ 1,975,044 $ 2,430,012
=========== =========== =========== ===========
</TABLE>

The accompanying notes are an integral
part of these financial statements.

F-6

<PAGE> 56

HEALTHY PLANET PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Nature of business - Healthy Planet Products designs,
publishes, markets and distributes greeting cards, stationery and other gift
items throughout the United States and Canada. The majority of the Company's
sales are in the Sierra Club's line of blank notes and holiday greeting cards.

(b) Inventory - Inventory is stated at the lower of cost
(first-in, first-out method) or market.

(c) Property and equipment - Property and equipment are stated at
cost and depreciated and amortized using the straight-line method over the
estimated useful lives of the assets or over the period of the lease. Additions
or improvements to property and equipment are capitalized at cost, while
maintenance and repair expenditures are charged to operations. Estimated useful
lives are as follows:

<TABLE>
<S> <C>
Machinery, equipment and leasehold
improvements 3 to 7 years
Color separations 3 years
Furniture and fixtures 5 years
Computer software 5 years
</TABLE>

(d) Royalties - The Company pays royalties to licensors and
artists for use of their names, logos and card designs based on actual volume of
cards sold.

(e) Income taxes - In 1992, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting For Income Taxes", which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under FAS 109, the Company is allowed to recognize
currently the future benefit of its net operating loss carryforwards and future
tax deductions of expenses previously recorded for financial reporting purposes.

(f) Other assets - Publishing rights are being amortized over
three years.

(g) Earnings per share - Earnings per share have been computed by
dividing net earnings, after reduction for paid and accumulated preferred stock
dividends, by the weighted average number of common shares and equivalents
outstanding. Common share equivalents included in the computation represent
shares issuable upon the assumed conversion of convertible preferred stock or
exercise of stock options and stock warrants which would have a dilutive effect
in years where there are earnings. Net earnings were reduced for preferred stock
dividends paid and/or accumulated for the years ended December 31, 1994 and
1993, by $13,500 and $19,050, respectively, and $6,755 for each of the six
months ended June 30, 1995 and 1994.

(h) Concentrations of risk - Financial instruments potentially
subjecting the Company to concentrations of credit risk consist primarily of
bank demand deposits in excess of FDIC insurance thresholds and the accounts
receivable balance of the Company's largest customer.

F-7

<PAGE> 57

HEALTHY PLANET PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 2 - ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1994 1995
------------ -----------
(Unaudited)
<S> <C> <C>
Accounts receivable $ 1,214,048 $ 960,716
Less allowances for doubtful accounts
and returns (204,218) (150,592)
----------- ---------
$ 1,009,830 $ 810,124
=========== =========
</TABLE>

NOTE 3 - INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1994 1995
----------- ----------
(Unaudited)

<S> <C> <C>
Raw materials $ 6,330 $ 82,911
Work-in-process 508,068 654,784
Finished goods 180,228 365,610
----------- ----------
$ 694,626 $1,103,305
=========== ==========
</TABLE>

NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1994 1995
------------ -----------
(Unaudited)
<S> <C> <C>
Machinery, equipment and leasehold improvements $ 479,096 $ 744,419
Color separations 280,753 292,456
Furniture and fixtures 72,665 72,665
Computer software 38,171 38,171
----------- -----------
870,685 1,147,711
Less accumulated depreciation and amortization (642,390) (683,890)
----------- -----------
$ 228,295 $ 463,821
=========== ===========
</TABLE>

F - 8

<PAGE> 58

HEALTHY PLANET PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 5 - INCOME TAXES

Income taxes consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------- --------------------------
1993 1994 1994 1995
--------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Current
Federal $ 99,600 $ 300,000 $ 16,600 $ 81,000
State 26,700 82,000 7,800 23,000
Benefit due to net
operating loss
carryforward (125,500) (381,200) (23,600) (86,450)
--------- --------- --------- ---------
800 800 800 17,550
--------- --------- --------- ---------
Deferred
Current (45,000) (390,000) -- --
Non-current (75,000) 40,000 -- (139,250)
--------- --------- --------- ---------
(120,000) (350,000) -- (139,250)
--------- --------- --------- ---------
$(119,200) $(349,200) $ 800 $(121,700)
========= ========= ========= =========
</TABLE>

The difference between the actual income tax provision (benefit)
and the tax provision (benefit) computed by applying the statutory federal
income tax rate to earnings before taxes is attributable to the following:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------- --------------------------
1993 1994 1994 1995
--------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Income tax provision
at 34% $ 101,400 $ 300,000 $ 28,400 $ 85,000
State taxes 26,700 82,000 7,800 23,000
Adjustment due to lower
federal rates (1,800) -- (11,800) (4,000)
Recognition of net operat-
ing loss carryforward (245,500) (731,200) (23,600) (225,700)
--------- --------- --------- ---------
$(119,200) $(349,200) $ 800 $(121,700)
========= ========= ========= =========
</TABLE>

At December 31, 1994, the Company had available net operating
loss and investment tax credit carryovers of approximately $7,014,000 and
$15,600, respectively, to be applied against future federal taxable income. Due
to a change in ownership during 1988, $4,474,000 of these amounts is subject to
a Section 382 limitation of a maximum of $476,950 per year. The remaining amount
is available to be used without yearly limitation. Net operating losses expire
as follows:

F - 9

<PAGE> 59

HEALTHY PLANET PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 5 - INCOME TAXES (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
FEDERAL
<S> <C>
1999 $ 60,000
2000 920,000
2001 745,000
2002 2,755,000
2003 817,000
2004 1,300,000
2005 385,000
2006 32,000
----------

$7,014,000
==========
</TABLE>

The Company has available approximately $1,075,000 of California
net operating losses which can be carried forward and offset against future
taxable income. These loss carryforwards expire through 1999. Also available are
$16,750 of alternative minimum tax credit carryforwards to reduce future federal
and California regular income taxes over an indefinite period.

Management of the Company believes it is more likely than not
that a portion of the net operating loss carryforwards will be utilized prior to
expiration. A valuation allowance has been established against the remaining net
operating loss carryforwards. Deferred tax assets have been derived as follows:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1994 1995
----------- -----------
(Unaudited)
<S> <C> <C>
Deferred tax asset $ 2,625,000 $ 2,641,750
Valuation allowance (1,615,000) (1,492,500)
----------- -----------
Net deferred income taxes 1,010,000 1,149,250
Deferred income taxes expected to be
utilized in 1995 (450,000) (450,000)
----------- -----------
Deferred income taxes $ 560,000 $ 699,250
=========== ===========
</TABLE>

NOTE 6 - LINE OF CREDIT

The Company has available a revolving line of credit for
$500,000, with interest at the bank's Index Rate plus 1.25%, collateralized by
receivables, inventory, contract rights, equipment, and intangibles. This line
matures May 31, 1996, and requires the Company meet restrictions relating to key
financial ratios. At December 31, 1994, and June 30, 1995, the Company had no
outstanding draws under this line-of-credit agreement.

F - 10

<PAGE> 60

HEALTHY PLANET PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 7 - COMMITMENTS

The Company leases office and warehouse space under an operating
lease expiring March 1999, which includes scheduled base rent increases over the
term of the lease. The total amount of the base rent payments is being charged
to expense on the straight-line method over the term of the lease. Since the
inception of the lease, the Company has recorded a deferred credit to reflect
excess of rent expense over cash payments. Future minimum lease payments are as
follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1995 $193,206
1996 208,206
1997 223,206
1998 238,206
1999 60,489
--------

$923,313
========
</TABLE>

Rent expense totaled $196,823, $148,583, $100,211, and $97,483
for the years ended December 31, 1994 and 1993, and the six months ended June
30, 1995 and 1994, respectively.

The Company entered into employment agreements expiring through
December 31, 1996, with four key employees. Commitments related to these
agreements amount to $362,000 for the year ending December 31, 1995. The
aggregate remaining amount of these employment agreements is $732,100.

On May 15, 1995, the Company extended the employment contracts of
two of these key employees--one through December 31, 1998, and one through
December 31, 1999. The aggregate amount of these extensions through 1999 is
$670,000.

The Company has entered into licensing agreements with the Sierra
Club, the Wilderness Society, the Marine Mammal Center and the Humane Society of
the United States expiring through December 31, 2005. The aggregate amount of
future minimum royalties due over the life of these commitments is $4,608,738.
Options exist to extend the terms of certain agreements.

NOTE 8 - MAJOR SUPPLIERS

The Company made 48.1%, 16.8% and 10.7%, and 42.8%, 23.9% and
8.1% of its purchases from three suppliers for the years ended December 31,
1994, and the six months ended June 30, 1995, respectively. Amounts due to
suppliers included in accounts payable totaled $230,979 and $224,849 at December
31, 1994, and June 30, 1995, respectively.

F - 11

<PAGE> 61

HEALTHY PLANET PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 9 - CAPITAL STOCK

Common Stock

During June 1993, the Company sold, in a public offering, 347,513
additional shares of common stock. Gross proceeds for the offering were
$2,085,078. The excess of proceeds over the par value, less offering costs of
$515,108, was credited to additional paid-in capital.

Preferred Stock

Preferred stock consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------ -----------
1994 1995
------------ -----------
(Unaudited)
<S> <C> <C>
Series B, $.10 par value, with aggregate liquidation preference
of $150,120, 14,250 shares authorized, 1,251 shares
issued and outstanding $ 126 $ 126

Series D, $.10 par value, with aggregate liquidation preference
of $1,866,044 and $1,301,389, respectively, 371,009 shares
authorized, 365,175 and 254,675 shares
issued and outstanding, respectively 36,517 25,467
------- -------

$36,643 $25,593
======= =======
</TABLE>

Series B Preferred stock is non-voting and convertible into
common stock at the rate of 4.40 shares of common stock for each share of
preferred stock. It has a liquidating preference of $120 per share plus any
cumulative but unpaid dividends over the holders of common stock. The stock
carries a cumulative annual dividend of $10.80 per share, which is declared
semi-annually. The Company may redeem stock upon 60 days' notice, plus
cumulative but unpaid dividends, subject to the right of the stockholders to
convert prior to the fixed date of redemption at $120 per share. During 1993,
166 shares of Series B Preferred stock were converted to 732 shares of common
stock. The 1993 conversion resulted in cumulative dividends of $5,550 becoming
payable. Cumulative dividends totaled $65,250 and $72,005 at December 31, 1994,
and June 30, 1995, respectively.

Series D Preferred stock has full voting rights at the rate of
one vote per share and is convertible into common stock at the rate of one share
of common stock for each share of preferred. The preferred stock has a
liquidating preference of $5.11 per share and carries no dividend. During the
year ended December 31, 1994, and the six months ended June 30, 1995, 5,834 and
110,500 shares, respectively, of Series D Preferred stock were converted to
common stock.

F - 12

<PAGE> 62

HEALTHY PLANET PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 10 - STOCK OPTIONS AND WARRANTS

The Company has a stock option plan that provides for the
granting of qualified and non-qualified stock options, incentive stock rights,
stock appreciation rights and restricted shares to officers, key employees and
its public relations firm to purchase up to an aggregate of 450,000 shares of
common stock at December 31, 1994. No options shall be granted under the Plan
after 2001. At December 31, 1994, 212,000 shares of common stock were
exercisable. In addition, 92,000 shares become exercisable in 1995 and 86,000
shares become exercisable in 1996. In 1991, 60,000 shares of restricted shares
were issued to an officer, vesting at 4,000 shares per year. Each year, a cash
bonus of 60% of the fair-market value of the vested shares is paid to the
officer for his income tax liability.

The Company has issued common stock warrants which entitle the
holder to purchase up to 51,095 shares of common stock as follows: 12,500 shares
exercisable at $5.20 per share through 1997, 6,920 shares exercisable at $1.60
per share through 1995, and 31,675 shares exercisable at $7.20 per share through
1998.

The activity of the stock option plan and warrants is as follows:

<TABLE>
<CAPTION>
SHARES SHARES
UNDER UNDER RESTRICTED
WARRANTS OPTION SHARES
-------- ------- ----------
<S> <C> <C> <C>
Balance, December 31, 1992 31,920 97,500 52,000
Granted 31,675 285,000 --
Exercised/vested (12,500) -- (4,000)
Terminated -- (7,500) --
------ ------- ------

Balance, December 31, 1993 51,095 375,000 48,000
Granted -- 15,000 --
Exercised/vested -- -- (4,000)
Terminated -- -- --
------ ------- ------

Balance, December 31, 1994 51,095 390,000 44,000
Granted (unaudited) -- -- --
Exercised/vested (unaudited) -- (50,000) --
Terminated (unaudited) -- -- --
------ ------- ------

Balance, June 30, 1995 (unaudited) 51,095 340,000 44,000
====== ======= ======
</TABLE>

F - 13

<PAGE> 63

HEALTHY PLANET PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 11 - STATEMENTS OF CASH FLOWS

Supplementary cash-flow information includes the following:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------- -----------------
1993 1994 1994 1995
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Cash paid during the year for:
Interest $1,985 $2,422 $ -- $ --
Income taxes 800 800 800 17,550
</TABLE>

Non-cash investing and financing activities for the year ended
December 31, 1993, consisted of converting 166 shares of Series D Preferred
stock to 732 shares of common stock and converting convertible subordinated
notes payable of $3,250, plus accrued interest of $260 for common stock.

Non-cash investing and financing activities for the year ended
December 31, 1994, consisted of converting 5,834 shares of Series D Preferred
stock to 5,834 shares of common stock.

Non-cash investing and financing activities for the six months
ended June 30, 1995, consisted of converting 110,500 shares of Series D
Preferred stock to 110,500 shares of common stock.

NOTE 12 - MAJOR CUSTOMER

Sales to a major customer were approximately $1,255,000 and
$283,000 during the year ended December 31, 1994, and the six months ended June
30, 1995, representing 26% and 144% of total sales, respectively. Amounts due
from this customer included in accounts receivable are $536,930 and $144,656 at
December 31, 1994, and June 30, 1995, respectively.

F - 14

<PAGE> 64

COMPUTATION OF EARNINGS PER SHARE

EXHIBIT 11

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ ------------------------------
1993 1994 1994 1995
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Primary earnings per share
Net income $ 463,832 $ 1,107,698 $ 82,717 $ 371,529
Dividends paid on preferred
stock -- -- -- (5,550)
Cumulative dividends on
preferred stock (13,500) (13,500) (6,755) (6,755)
----------- ----------- ----------- -----------

Income applicable to common stock $ 444,782 $ 1,094,198 $ 75,962 $ 364,774
=========== =========== =========== ===========

Shares
Weighted average number of
common shares outstanding 1,362,185 1,522,077 1,521,938 1,587,550
Add dilutive effect of
conversion of preferred stock
and outstanding options and
warrants (as determined
by the application of the
treasury stock method) 429,179 430,432 423,103 435,308
----------- ----------- ----------- -----------

1,791,364 1,952,509 1,945,041 2,022,858
=========== =========== =========== ===========

Primary earnings per share $ .25 $ .56 $ .04 $ .18
=========== =========== =========== ===========
</TABLE>

<PAGE> 65

================================================================================

-----------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary ........................................................ 3
The Company ............................................................... 6
Risk Factors .............................................................. 6
Use of Proceeds ........................................................... 9
Price Range of Common Stock an Certain Market Information ................. 9
Dividend Policy ........................................................... 10
Capitalization ............................................................ 10
Selected Financial Data ................................................... 11
Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................................ 12
Business .................................................................. 18
Management ................................................................ 27
Principal Stockholders .................................................... 40
Selling Stockholders ...................................................... 42
Certain Transactions ...................................................... 42
Description of Capital Stock .............................................. 43
Plan of Distribution ...................................................... 44
Legal Matters ............................................................. 44
Experts ................................................................... 45
Additional Information .................................................... 45
Index to Financial Statements ............................................. 46
</TABLE>

-----------

NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR BY THE UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THESE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH
JURISDICTION.

================================================================================

================================================================================
51,095 SHARES

HEALTHY PLANET
PRODUCTS, INC.

COMMON STOCK

-----------

P R O S P E C T U S

-----------

, 1995
------------

================================================================================

<PAGE> 66
HEALTHY PLANET PRODUCTS, INC.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's By-Laws require the Company to indemnify, to the full
extent authorized by Section 145 of the Delaware Corporation Law, any person
with respect to any civil, criminal, administrative or investigative action or
proceeding instituted or threatened by reason of the fact that he, his testator
or intestate is or was a director, officer or employee of the Company or any
predecessor of the Company is or was serving at the request of the Company or a
predecessor of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise.

Section 145 of the General Corporation Law of the State of Delaware
authorized the indemnification of directors and officers against liability
incurred by reason of being a director or officer and against expenses
(including attorneys fees) in connection with defending any action seeking to
establish such liability, in the case of third-party claims, if the officer or
director acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and if such officer or
director shall not have been adjudged liable for negligence or misconduct,
unless a court otherwise determines. Indemnification is also authorized with
respect to any criminal action or proceeding where the officer or director had
no reasonable cause to believe his conduct was unlawful.

In accordance with Section 102(a)(7) of the Delaware General
Corporation Law, the Company's Amended Certificate of Incorporation eliminates
the personal liability of directors to the Company and to stockholders for
monetary damage for violation of a director's fiduciary duty of care.

The Company has entered into Indemnification Agreements with each of
its directors and officers (the "Indemnitees") pursuant to which it has agreed
to provide for indemnification, to the fullest extent permitted by law, against
any and all expenses, judgments, fines, penalties and amounts paid in settlement
arising out of any claim in connection with any event, occurrence or
circumstance related to such individual serving as a director or officer of the
Company. Such indemnification includes the advance of expenses to the
Indemnitees (including the payment of funds in trust therefor under certain
circumstances) and is subject to it not having been determined that the
Indemnitee would not be permitted to be indemnified under applicable law. The
rights of indemnification are in addition to any other rights which the
Indemnitees may have under the Company's Articles of Incorporation, By-Laws, the
Delaware General Corporation Law or otherwise.

II-1

<PAGE> 67

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in such Act and is therefore unenforceable.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (1)

<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission registration fee . . . . . . . . . . . . . . . . . . $ 250
Printing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000
Accountants' fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750
--------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 46,000
</TABLE>
------------------------------------

(1) Estimated.

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

On December 31, 1992, the Company completed an Exchange Offer (the
"Exchange Offer") with one holder of its then outstanding Series A-1 Preferred
Stock, 21 holders of its then outstanding Series B Preferred Stock and two
holders of its then outstanding Series C Preferred Stock (collectively the
"Preferred Stock"). Pursuant to the Exchange Offer, an aggregate of 60,853
shares of a newly created Series D Preferred Stock were issued in exchange for
an aggregate of 93,332 shares of Series A-1 Preferred Stock; an aggregate of
116,670 shares of Series D Preferred Stock were issued in exchange for an
aggregate of 5,833 shares of Series B Preferred stock, and an aggregate of
193,486 shares of Series D Preferred Stock were issued in exchange for an
aggregate of 89,000 shares of Series C Preferred Stock.

As a result of the Exchange Offer, the Company issued an aggregate of
371,009 shares of Series D Preferred Stock. Between January 1, 1993 and March
23, 1995, three holders of Series D Preferred Stock converted 116,334 shares of
Series D Preferred Stock into 116,334 shares of Common Stock.

The above-described transaction was exempt from the registration
provisions of the Securities Act of 1933, as amended, pursuant to Section 3(9),
Section 4(2) and Regulation D thereof.

II-2

<PAGE> 68

ITEM 27. EXHIBITS

(a) EXHIBITS.

The exhibits designated with an asterisk (*) have previously been filed
with the Commission and, pursuant to 17 C.F.R. Secs. 201.24 and 240.12b-32, are
incorporated by reference to the document referenced in brackets following the
descriptions of such exhibits. Those exhibits not so designated are filed
herewith.

<TABLE>

<S> <C>
Exhibit
No. Description
------- -----------

3.1 Amended and Restated Certificate of Incorporation of
Registrant

3.2* Amended and Restated By-Laws of Registrant [Exhibit 3(ii)
to Current Report on Form 8-K dated March 30, 1995]

4.1* Form of Common Stock Certificate of Registrant
[Exhibit 4 to Current Report on Form 8-K dated May 10,
1995]

4.3* Rights, Designation and Preferences of Series B
Preferred Stock (included in Exhibit 3.1)

4.4* Form of Rights, Designation and Preferences of Series D
Preferred Stock (included in Exhibit 3.1)

5.1 Opinion and Consent of Goldstein, Axelrod & DiGioia,
counsel for Registrant

10.1* Amended and Restated Employment Agreement between
Registrant and Bruce A. Wilson dated May 15, 1995
[Exhibit 10.1 to Current Report on Form 8-K dated
May 19, 1995]

10.2* Amended and Restated Employment Agreement between
Registrant and M. Scott Foster dated May 15, 1995
[Exhibit 10.2 to Current Report on Form 8-K dated
May 19, 1995]

10.3* Employment Agreement between Registrant and Lawrence
M. Barnett [Exhibit 10.2 to Current Report on Form 8-K
dated December 21, 1990]

10.4* Extension Agreement dated February 24, 1993 between
Registrant and Lawrence M. Barnett extending
Employment Agreement [Exhibit 10.3 to Annual Report on
Form 10-KSB dated March 22, 1993]

10.5* Extension and Modification Agreement dated September
10, 1993 extending Employment Agreement of Ricky
Williams [Exhibit 10.1 to Current Report on Form 8-K
dated September 24, 1993]

</TABLE>

II-3

<PAGE> 69

10.6* License Agreement between Registrant and The Sierra
Club dated January 19, 1995 [Exhibit 10.1 to Current
Report on Form 8-K dated January 24, 1995]

10.7* License Agreement between Registrant and The Marine
Mammal Center dated July 28, 1994 [Exhibit 10.10 to
Annual Report on Form 10-KSB dated March 3, 1995]

10.8* License Agreement between Registrant and The
Wilderness Society dated June 24, 1994 [Exhibit 10.1
to Current Report on Form 8-K dated July 1, 1994]

10.9* License Agreement between Registrant and The American
Lung Association dated June 27, 1994 [Exhibit 10.2 to
Current Report on Form 8-K dated July 1, 1994]

10.10* Lease for premises 1129 North McDowell Boulevard,
Petaluma, California 94954 [Exhibit 10 to Current
Report on Form 8-K dated December 26, 1991]

11.0* Computation of Earnings per Common Share [Exhibit 11.0
to Annual Report on Form 10-KSB dated March 3, 1995]

23.1 Consent of Moss Adams, Independent Auditors is
contained in Part II of the Registration Statement

23.2 Consent of Goldstein, Axelrod & DiGioia is contained
in their opinion included in Exhibit 5.1 to this
Registration Statement

24 Power of Attorney contained in signature page at Part
II of the Registration Statement

99.1* Registrant's 1991 Senior Management Incentive Plan
[Exhibit 28 to Form 8-K dated June 27, 1991]

99.2* Non-Employee Director Stock Option Plan of Registrant
adopted by Shareholders on August 11, 1995 [Exhibit
99.2 to Current Report on Form 8-K dated March 30,
1995]

99.3* Form of Indemnification Agreement between Registrant
and each of Registrant's Officers and Directors
[Exhibit 99.1 to Current Report on Form 8-K dated
March 30, 1995]

II-4

<PAGE> 70

ITEM 28. UNDERTAKINGS

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:

(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;

(ii) To reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;

(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
Registration Statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offerings of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.

(4) That for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(i) or (4) of
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective; and

(5) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions of its By-Laws, of the Delaware
Corporation Law, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the issuer of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

II-5

<PAGE> 71

SIGNATURE

In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorizes this Registration
Statement to be signed on its behalf by the undersigned in the City of New York,
State of New York, on the 17th day of August, 1995.

HEALTHY PLANET PRODUCTS, INC.

By: /s/ Bruce A. Wilson
--------------------------
Bruce A. Wilson, President

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below under the heading "Signature" constitutes and appoints Bruce A.
Wilson and Lawrence M. Barnett, or either of them his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities to sign any
or all amendments to this Registration Statement, and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, each acting alone, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.

IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>

/s/ Lawrence M. Barnett Chairman of the Board of August 17, 1995
----------------------- Directors and Treasurer
(Lawrence M. Barnett)

/s/ Bruce A. Wilson President, Chief Executive August 17, 1995
----------------------- Officer, Chief Operating
(Bruce A. Wilson) Officer and Chief Financial
Officer and Director

/s/ Robert Fagenson Director August 17, 1995
-----------------------
(Robert Fagenson)

/s/ M. Scott Foster Vice-President of Sales and August 17, 1995
----------------------- Marketing and Director
(M. Scott Foster)

Director August , 1995
-----------------------
(Michael G. Jesselson)
</TABLE>

II-6

<PAGE> 72

EXHIBIT 23.1

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We consent to the use of our report dated February 10, 1995, on our audit of the
financial statements of Healthy Planet Products, Inc., included in the
registration statement on Form SB-2 under the Securities Act of 1933 in
connection with the offering of common stock of Healthy Planet Products, Inc. We
also consent to the reference to our firm under the caption "Experts".

S/MOSS ADAMS

Santa Rosa, California
August 17, 1995

II-7

<PAGE> 73
EXHIBIT INDEX

THE FOLLOWING EXHIBITS ARE FILED HEREWITH AND IMMEDIATELY FOLLOW THE INDEX.

EXHIBIT NO. DESCRIPTION
----------- -----------

3.1 Amended and Restated Certificate of
Incorporation of Registrant

5.1 Consent of Goldstein, Axelrod & DiGioia

<PAGE> 1
EXHIBIT 3.1

<PAGE> 2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
HEALTHY PLANET PRODUCTS, INC.

The undersigned Corporation, in order to amend and restate its
Certificate of Incorporation, hereby certifies as follows:

FIRST: The name of the Corporation is

HEALTHY PLANET PRODUCTS, INC.

SECOND: The Corporation was originally incorporated in Delaware on
April 11, 1985 under the name Carolyn Bean Publishing, Ltd., which name was
changed by the filing of an amendment to the Certificate of Incorporation on
August 2, 1993.

THIRD: The Certificate of Incorporation is hereby amended to effect the
following:

Article SIXTH of the Certificate of Incorporation, as amended,
is hereby amended to (i) classify the Board of Directors in three
classes; (ii) increase the percentage of the combined voting power of
the Corporation's outstanding capital stock needed to amend paragraphs
B, C or F of Article Sixth to 65%; and (iii) set forth certain other
related matters concerning the Board of Directors of the Corporation.

The text of the Certificate of Incorporation, as amended, is hereby
restated as follows:

"FIRST: The name of the Corporation is

HEALTHY PLANET PRODUCTS, INC.

SECOND: The address of the registered office and registered
agent in this state is c/o United Corporate Services, Inc., 15 East
North Street, in the City of Dover, County of Kent, State of Delaware
19901 and the name of the registered agent at said address is United
Corporate Services, Inc.

THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under
the corporation laws of the State of Delaware.

Without limiting the scope and generality of the foregoing, the
Corporation may engage in the following activities:

<PAGE> 3

To create, publish, market, buy, sell, lease, exchange, trade
or deal in or with, export, import, manufacture or otherwise produce or
acquire and generally to deal in and with (as contractor,
subcontractor, principal, agent commission merchant, broker, factor or
any combination of the foregoing, and at wholesale or retain or both)
any and all kinds of greeting cards, stationery, paper products,
giftware, novelties and related merchandize of every type, kind and
description.

To purchase, manufacture, produce assemble, receive, lease or
in any manner acquire, hold, own, use, operate, install, maintain,
service, repair, process, alter, improve, import, export, sell, lease,
assign, transfer and generally to trade and deal in and with, raw
materials, natural or manufactured articles or products, machinery,
equipment, devices, systems, parts, supplies, apparatus and personal
property of every kind, nature or description, tangible or intangible,
used or capable of being used for any purpose whatsoever and to engage
and participate in any mercantile, manufacturing or trading business of
any kind or character.

To improve, manage, develop, sell, assign, transfer, lease,
mortgage, pledge or otherwise dispose of or turn to account or deal
with all or any party of the property of the Corporation and from time
to time vary any investment or employment of capital of the
Corporation.

To borrow money, and to make and issue notes, bonds,
debentures, obligations and evidences of indebtedness of all kinds,
whether secured by mortgage, pledge or otherwise, without limit as to
amount, and to secure the same by mortgage, pledge or otherwise; and
generally to make and perform agreements and contracts of every kind
and description, including contracts of guaranty or suretyship.

To lend money for its corporate purposes, invest and reinvest
its funds, and take, hold and deal with real and personal property as
security for the payment of funds so loaned or invested.

To the same extent as natural persons might or could do, to
purchase or otherwise acquire, and to hold, own, maintain, work,
develop, sell, lease, exchange, hire, convey, mortgage or otherwise
dispose of and deal in land and leaseholds, and any interest, estate
and rights in real property, and any personal or mixed property, and
any franchises, rights, licenses or privileges necessary, convenient or
appropriate for any of the purposes herein expressed.

To apply for, obtain, register, purchase,s lease or otherwise
acquire and to hold, own, use, develop, operate and introduce and to
sell, assign, grant licenses or territorial rights in respect to, or
otherwise to turn to account or dispose of, any copyrights, trade
marks, trade names, brands, labels, patent rights, letters patent of
the United States or of any other country or government, inventions,
improvements and processes, whether used in connection with or secured
under letters patent otherwise.

<PAGE> 4

To participate with others in any corporation, partnership,
limited partnership, joint venture, or other association of any kind,
or in any transaction, undertaking or arrangement which the
participating corporation would have power to conduct by itself,
whether or not such participation involves sharing or delegation of
control with or to others; and to be an incorporator, promotor or
manager of other corporations of any type or kind.

To pay pensions and establish a carry out pension, profit
sharing, stock option, stock purchase, stock bonus, retirement,
benefit, incentive and commission plans, trusts and provisions for any
or all of its directors, officers and employees of its subsidiaries;
and to provide insurance for its benefits on the life of any of its
directors, officers or employees, or on the life of any stockholders
for the purpose of acquiring at his death shares of its stock owned by
such stockholders.

To acquire by purchase, subscription or otherwise, and to hold
for investment or otherwise, and to use, sell, assign, transfer,
mortgage, pledge or otherwise deal with or dispose of stocks, bonds or
any other obligations or securities of any corporation or corporations;
to merge or consolidate with any corporation in such manner as may be
permitted by law; to aid in any manner any corporation whose stocks,
bonds or other obligations are held or in any manner guaranteed by this
Corporation, or in which this Corporation is in any way interested; and
to do any other acts or things for the preservation of, protection,
improvement or enhancement of the value of any such stock, bonds or
other obligations; and while owner of any stock, bonds or other
obligations to exercise all the rights, powers and privileges of
ownership thereof, and to exercise any and all voting powers thereon;
and to guarantee the payment dividends upon any stock, the principal or
interest or both, of any bonds or other obligations, and the
performance of any contracts.

To do all and everything necessary, suitable and proper for the
accomplishment of any of the purposes or the attainment of any of the
objects or the furtherance of any of the powers hereinbefore set forth,
either alone or in associations with other corporations, firms or
individuals, and to do every other act or acts, thing or things
incidental or appurtenant to or growing out of or connected with the
aforesaid business or powers of any part or parts thereof, provided the
same be not inconsistent with the laws under which this Corporation is
organized.

The enumeration hereon of the objects and purposes of the
Corporation shall be construed as powers as well as objects and
purposes and shall not be deemed to exclude by inference any powers,
objects or purposes which the Corporation is empowered to exercise,
whether expressly by force of the laws of the State of Delaware now or
hereafter in effect, or implied by the reasonable construction of the
said laws.

<PAGE> 5

FOURTH: Capital Stock

A. Authorized Capital Stock. The total number of shares of all
classes of stock which this Corporation shall have authority to issue
is Twelve Million Seven Hundred Fifty Thousand (12,750,000) shares,
consisting of Twelve Million (12,000,000) shares of Common Stock, par
value $.01 per share (hereinafter, the "Common Stock"), and Seven
Hundred Fifty Thousand (750,000) shares of Preferred Stock, par value
$.10 per share (hereinafter, the "Preferred Stock"), of which SIXTEEN
THOUSAND SIX HUNDRED SIXTY SEVEN (16,667) shares have been designated
Series B Preferred Stock (the "Series B Preferred Stock"), the relative
rights, preferences and limitations of which are set forth in
sub-paragraph B of this Article FOURTH, and THREE HUNDRED NINETY-NINE
THOUSAND THREE HUNDRED FORTY-FOUR (399,344) shares have been designated
Series D Preferred Stock (the "Series D Preferred Stock"), the relative
rights, preferences and limitations of which are set forth in
sub-paragraph C of this Article FOURTH.

B. Designated Series B Preferred Stock.

(a) Designation.

The designation of this class of preferred shares shall be
"Series B Preferred Stock", $.10 par value.

(b) Dividends.

(i) Holders of the shares of Series B Preferred Stock
shall not be entitled to earn or receive any dividends prior to
January 1, 1990. Commencing, on January 1, 1990, holders of
shares of the Series B Preferred Stock shall be entitled to
receive, if and when declared payable from time to time by the
Board of Directors from funds legally available therefor,
dividends in cash at the rate of $10.80 per share per annum
(computed on the basis of a 360 day year for the actual number
of days elapsed), and no more, payable semi-annually on the
15th day of May and November in each year (unless such day is
not a business day, in which event on the next business day),
to holders of record as they appear on the register for the
Series B Preferred Stock on May 1 or November 1 immediately
preceding the dividend payment date. A semi-annual dividend
period shall begin on the day following each dividend payment
date set forth above and end on the next succeeding dividend
payment date. If dividends shall not have been paid, or
declared and set apart for payment, upon each outstanding share
of the Series B Preferred Stock at the aforesaid rates, such
deficiency shall be cumulative in full (and thereby
accumulate).

(ii) Dividends on the Series B Preferred Stock shall not
be payable unless any and all accrued dividends payable upon
the outstanding shares

<PAGE> 6

of Series A-l, Series B and Series C Preferred Stock with
respect to all current and preceding dividend periods shall be
paid simultaneously therewith. Such dividends shall be payable
before any cash dividends shall be declared or paid upon or set
apart for the common stock, par value $.01 per share, or such
other stock into which said common stock may be converted,
issued and outstanding of the Corporation (the "Common Stock"),
so that if at any time any dividends upon the outstanding
shares of Series B Preferred Stock at the rate of $10.80 per
annum shall not have been paid thereon or declared and set
apart therefor with respect to all preceding dividend periods,
the amount of the deficiency shall be fully paid or declared
and set apart for payment, but without interest, before any
distribution, whether by way of dividend or otherwise, but
excluding stock dividends payable in Common Stock, shall be
declared or paid upon, or set apart for, the Common Stock.

(i) Optional Redemption: The Corporation may, at the
option of the Board of Directors, redeem the whole or any part
of the shares of Series B Preferred Stock of stockholders of
record on a record date not more than ninety nor less than
sixty days preceding such time fixed for the purpose by the
Board of Directors.

(ii) Redemption Price: The Series B Preferred Stock
shall be redeemed at a price of $120 per share plus, in each
case, an amount equal to all unpaid dividends on the shares so
to be redeemed to and including the date fixed for redemption
(the total sum so payable per share on any such redemption
being herein referred to as the "Redemption Price" and the date
fixed for redemption being herein referred to as the
"Redemption Date"). If fewer than all the outstanding shares of
Preferred Stock are to be redeemed, the shares to be redeemed
shall be chosen pro rata among the then record holders.

(iii) Notice and Effect of Deposit of Redemption Funds:
Notice of every such redemption shall be mailed to the
stockholders of record of the shares of Series B Preferred
Stock so to be redeemed at their respective addresses as the
same shall appear on the books of the Corporation. Such notice
shall be mailed not less than thirty or more than sixty days in
advance of the Redemption Date to the holders of record of
shares so to be redeemed.

If, on the Redemption Date, the funds necessary for such
redemption shall have been set aside by the Corporation
separate and apart from its other funds, in trust for the pro
rata benefit of the holders of the shares so called for
redemption, then, notwithstanding that any certificates for
shares of Series B Preferred Stock so called for redemption
shall not have been surrendered for cancellation, after the
Redemption Date the right to receive dividends thereon

<PAGE> 7

shall cease and all rights of the holders of the shares of
Preferred Stock so called for redemption shall forthwith, after
the Redemption Date, cease and terminate, excepting only the
right of such holders to receive the Redemption Price for such
shares but without interest, and such shares shall no longer be
deemed outstanding. Any funds so set aside by the Corporation
and unclaimed at the end of six years from the Redemption Date
shall revert to the general funds of the Corporation, after
which reversion the holders of such shares so called for
redemption shall look only to the CorporatIon for payment of
the Redemption Price.

(iv) Status of Reacquired Shares: Shares of Series B
Preferred Stock which have been redeemed or purchased by the
Corporation shall be returned to the status of authorized and
designated Series B Preferred Stock.

(d) Liquidation.

In the event of any voluntary or involuntary dissolution,
liquidation, or winding up of the affairs of the corporation,
after payment or provision for payment of the debts and other
liabilities of the Corporation, the holders of the Series B
Preferred Stock shall be entitled to receive, after the holders
of Series A-1 and Series C Preferred Stock shall have been paid
all sums such holders shall be entitled to receive upon
liquidation, from the net assets of the Corporation, $120 per
share plus an amount equal to all dividends unpaid on such
share up to and including the date fixed for distribution, and
no more, before any distribution shall be made to the holders
of junior stock.

Neither the merger nor consolidation of the Corporation, nor
the sale lease or conveyance of all or a part of its assets,
shall be deemed to be a voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation
within the meaning of this Paragraph (d).

(e) Conversion.

Each holder of Series B Preferred Stock may at any time
after the date of issuance but not later than the third
business day prior to the date, if any, which may have been
fixed for the redemption given pursuant to any provisions
hereof, upon surrender of the certificates therefor, convert
any or all of his Series B Preferred Stock, or fractions
thereof, into fully paid and nonassessable Common Stock of the
Corporation, at a conversion rate of forty shares of Common
Stock for each one full share of Series B Preferred Stock being
converted. At the time of conversion all cumulated but unpaid
dividends shall be paid in cash to the converting Preferred
Shareholder.

<PAGE> 8

Such option to convert shall be exercised by surrendering
for such purpose to the Corporation or its agent, as provided
above, certificates representing the shares to be converted,
duly endorsed in blank or accompanied by proper instruments of
transfer, and at the time of such surrender, the person
exercising such option to convert shall be deemed to be the
holder of record of the Common Stock issuable on such
conversion, notwithstanding that the certificates representing
such Common Stock shall not then be actually delivered to him.

No fractional shares of Common Stock shall be issued upon
conversion of Series B Preferred Stock but, in lieu of any
fraction of a share of Common Stock which would otherwise be
issuable in respect of the aggregate number of shares of this
Series surrendered for conversion at one time by the same
holder, the Corporation shall pay in such case an amount equal
to the sum of the current market price of the Corporation's
Common Stock multiplied by a number equal to the fraction of a
share.

For the purposes of any computation pursuant to this
Paragraph (e), the current market price of the Corporation's
Common Stock shall be deemed to be the average daily closing
prices of the Corporation's Common Stock for the thirty (30)
consecutive days immediately preceding the date on which such
shares are duly surrendered for conversion. For purposes of
this Paragraph (f), the closing price for each day shall be the
last sales price regular way or, in case no sales takes place
on such day, the average of the closing bid and asked prices
regular way, in either case on the New York Stock Exchange, or
if the Corporation's Common Stock is not listed or admitted to
trading on such Exchange, on the Principal national securities
exchange on which the Common Stock is listed or admitted to
trading, or if not listed or admitted to trading on any
national securities exchange, the average of the high bid and
low asked price for such day as reported by the National
Association of Securities Dealers, Inc. through NASDAQ, or if
the National Association of Securities Dealers, Inc. through
NASDAQ shall not have reported any bid and asked prices for the
Common Stock for such day, the average of the bid and asked
prices for such day reported by the National Quotation Bureau,
Inc., or if no such bid and asked prices can be obtained from
any such firm, the fair market value of one share of the Common
Stock on such day as determined in good faith by the Board of
Directors of the Corporation.

(f) Anti-Dilution Provisions

The rate of conversion provided for in subparagraph (e)
hereof of forty shares of Common Stock for each one share of
Series B Preferred Stock being converted is based upon a price
of the Series B Preferred Shares of $120 for each Preferred
Share and on a price of Common Stock of $3.00 for each Common
Share.

<PAGE> 9

The rate of conversion and the number and kind of securities
into which the Series B Preferred Shares are convertible shall
be subject to adjustment from time to time upon the happening
of certain events as hereinafter provided. The rate of
conversion in effect at any time and the number and kind of
securities into which the Series B Preferred Shares are
convertible shall be subject to adjustment as follows:

(1) In case the Corporation shall (i) pay a dividend or
make a distribution on its shares of Common Stock in shares of
Common Stock, (ii) subdivide or reclassify its outstanding
Common Stock into a greater number of shares, or (iii) combine
or reclassify its outstanding Common Stock into a smaller
number of shares, the rate of conversion in effect at the time
of the record date for such dividend or distribution or of the
effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the
Series B Preferred Shareholder after such date shall be
entitled to receive the aggregate number and kind of shares
which, if the Series B Preferred Stock had been converted by
such Shareholder immediately prior to such date, he would have
owned upon such conversion and been entitled to receive upon
such dividend, subdivision, combination or reclassification.
For example, if the Corporation declares a 2 for 1 stock
dividend or stock split and the rate of conversion immediately
prior to such event was $3 per share, the adjusted rate of
conversion immediately after such event would be $1.50 per
share. Such adjustment shall be made successively whenever any
event listed above shall occur

(2) In case the Corporation shall hereafter issue rights
or warrants to all holders of its Common Stock entitling them
to subscribe for or purchase shares of Common Stock (or
securities convertible into Common Stock) at a price (or having
a conversion price per share) less than the current market
price of the Common Stock (as defined in Subsection (e) above)
on the record date mentioned below, the rate of conversion
shall be adjusted so that the same shall be equal to the price
determined by multiplying the rate of conversion in effect
immediately prior to the date of such issuance by a fraction,
the numerator of which shall be the sum of the number of shares
of Common Stock outstanding on the record date mentioned below
and the number of additional shares of Common Stock which the
aggregate offering price of the total number of shares of
Common Stock so offered (or the aggregate conversion price of
the convertible securities so offered) would purchase at such
current market price per share of the Common Stock, and the
denominator of which shall be the sum of the number of shares
of Common Stock outstanding on such record date and the number
of additional shares of Common Stock offered for subscription
or purchase (or into which the convertible securities so
offered are convertible). Such adjustment shall be made
successively whenever such rights or warrants are issued and
shall become effective immediately after the record date for
the determination of shareholders entitled to receive such
rights or warrants; and to the extent that

<PAGE> 10

shares of Common Stock are not delivered (or securities
convertible into Common Stock are not delivered) after the
expiration of such rights or warrants the rate of conversion
shall be readjusted to the rate of conversion which would then
be in effect had the adjustments made upon the issuance of such
rights or warrants been made upon the basis of delivery of only
the number of shares of Common Stock (or securities convertible
into Common Stock) actually delivered.

(3) In case the Corporation shall hereafter distribute
to the holders of its Common Stock evidences of its
indebtedness or assets (excluding cash dividends or
distributions and dividends or distributions referred to in
Paragraph (1) above) or subscription rights or warrants
(excluding those referred to in Paragraph (2) above), then in
each such case the rate of conversion in effect thereafter
shall be determined by multiplying the rate of conversion in
effect immediately prior thereto by a fraction, the numerator
of which shall be the total number of shares of Common Stock
outstanding multiplied by the current market price per share of
Common Stock (as defined in Subsection (e) above), less the
fair market value (as determined by the Corporation's Board of
Directors) of said assets or evidences of indebtedness so
distributed or of such rights or warrants, and the denominator
of which shall be the total number of shares of Common Stock
outstanding multiplied by such current market price per share
of Common Stock. Such adjustment shall be made successively
whenever such a record date is fixed. Such adjustment shall be
made whenever any such distribution is made and shall become
effective immediately after the record date for the
determination of shareholders entitled to receive such
distribution.

(4) In case the Corporation shall issue shares of its
Common Stock [excluding shares issued (i) in any of the
transactions described in Paragraph (1) above; (ii) upon
exercise of options granted to the Corporation's employees,
directors or consultants under a plan or plans adopted by the
Corporation's Board of Directors and approved by its
shareholders, if such shares would otherwise be included in
this Paragraph (4), (but only to the extent that the aggregate
number of shares excluded hereby and issued after the date
hereof, shall not exceed 5% of the Corporation's Common Stock
outstanding at the time of any issuance); (iii) upon exercise
of options and warrants outstanding at April 1, 1988, or
conversion of Series A-1 or the Series B Preferred Stock; (iv)
to shareholders of any corporation which merges into the
Corporation in proportion to their stock holdings of such
corporation immediately prior to such merger, upon such merger,
or issued in a bona fide public offering, but only if no
adjustment is required pursuant to any other specific
subsection of this Subsection (f) (without regard to Paragraph
(9) below) with respect to the transaction giving rise to such
rights; (v) shares sold from treasury; (vi) Preferred Stock and
shares issued upon conversion thereof, if such Preferred Stock
was issued in exchange for any indebtedness existing as of
April 1, 1988; and (vii) up to 2,000,000 shares of Common Stock
in excess of the 3,291,748 shares currently outstanding] for a

<PAGE> 11

consideration per share less than the current market price per
share [as defined in Subsection (e) above] on the date the
Corporation fixes the offering price of such additional shares,
the rate of conversion shall be adjusted immediately thereafter
so that it shall equal the price determined by multiplying the
rate of conversion in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of the number
of shares of Common Stock outstanding immediately prior to the
issuance of such additional shares and the number of shares of
Common Stock which the aggregate consideration received
[determined as provided in Paragraph (7) below] for the
issuance of such additional shares would purchase at such
current market price per share of Common Stock, and the
denominator of which shall be the number of shares of Common
Stock outstanding immediately after the issuance of such
additional shares. Such adjustment shall be made successively
whenever such an issuance is made.

(5) In case the Corporation shall issue any securities
convertible into or exchangeable for its Common Stock
[excluding securities issued in transactions described in
Paragraphs (2) and (3) above] for a consideration per share of
Common Stock initially deliverable upon conversion or exchange
of such securities [determined as provided in paragraph (7)
below] less than the conversion price per share of the Series B
Preferred Stock in effect immediately prior to the issuance of
such securities, the rate of conversion shall be adjusted
immediately thereafter so that it shall equal the price
determined by multiplying the rate of conversion in effect
immediately prior thereto by a fraction, the numerator of which
shall be the sum of the number of shares of Common Stock
outstanding immediately prior to the issuance of such
securities and the number of shares of Common Stock which the
aggregate consideration received [determined as provided in
Paragraph (7) below] for such securities would purchase at the
conversion price per share of the Series B Preferred Stock, and
the denominator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to such
issuance and the maximum number of shares of Common Stock of
the Corporation deliverable upon conversion of or in exchange
for such securities at the initial conversion or exchange price
or rate. Such adjustment shall be made successively whenever
such an issuance is made.

(6) Whenever the rate of conversion of the Series B
Preferred Stock is adjusted pursuant to Paragraphs (1), (2),
(3), (4) and (5) above, the number of Shares issuable upon
conversion of the Series B Preferred Stock shall simultaneously
be adjusted by multiplying the number of Shares initially
issuable upon conversion of the Series B Preferred Stock by the
rate of conversion in effect on the date hereof and dividing
the product so obtained by the rate of conversion, as adjusted.

(7) For purposes of any computation respecting
consideration received pursuant to Paragraphs (4) and (5)
above, the following shall apply:

<PAGE> 12

(A) in the case of the issuance of shares of Common
Stock for cash, the consideration shall be the amount of such
cash, provided that in no case shall any deduction be made for
any commissions, discounts or other expenses incurred by the
Corporation for any underwriting of the issue or otherwise in
connection therewith;

(B) in the case of the issuance of shares of Common
Stock for a consideration in whole or in part other than cash,
the consideration other than cash shall be deemed to be the
fair market value thereof as determined in good faith by the
Board of Directors of the Corporation (irrespective of the
accounting treatment thereof), whose determination shall be
conclusive; and

(C) in the case of the issuance of securities
convertible into or exchangeable for shares of Common Stock,
the aggregate consideration received therefor shall be deemed
to be the consideration received by the Corporation for the
issuance of such securities plus the additional minimum
consideration, if any, to be received by the Corporation upon
the conversion or exchange thereof [the consideration in each
case to be determined in the same manner as provided in clauses
(A) and (B) of this Paragraph (7)].

(8) No adjustment in the rate of conversion shall be
required unless such adjustment would require an increase or
decrease of at least ten cents ($0.10) in such price; provided,
however, that any adjustments which by reason of this
Subsection (f) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment
required tb be made hereunder. All calculations under this
Subsection (f) shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything
in this Subsection (f) to the contrary notwithstanding, the
Corporation shall be entitled, but shall not be required, to
make such changes in the rate of conversion, in addition to
those required by this Subsection (f), as it, in its sole
discretion, shall determine to be advisable in order that any
dividend or distribution in shares of Common Stock,
subdivision, reclassification or combination of Common Stock,
issuance of warrants to purchase Common Stock or distribution
of evidences of indebtedness or other assets (excluding cash
dividends) referred to hereinabove in this Subsection (f)
hereafter made by the Corporation to the holders of its Common
Stock shall not result in any tax to the holders of its Common
Stock or securities convertible into Common Stock.

(9) Whenever the rate of conversion is adjusted, as
herein provided, the Corporation shall promptly cause a notice
setting forth the adjusted rate of conversion and adjusted
number of Shares issuable upon conversion of each share of
Series B Preferred Stock to be mailed to the holders of the
Series B Preferred Stock, at their last addresses. The
Corporation may retain a firm of independent certified public
accountants selected by the Board of Directors (who

<PAGE> 13

may be the regular accountants employed by the Corporation) to
make any computation required by this Subsection (f), and a
certificate signed by such firm shall be conclusive evidence of
the correctness of such adjustment.

(10) Whenever the rate of conversion shall be adjusted
as required by the provisions of this Subsection (f), the
Corporation shall forthwith file in the custody of its
Secretary or an Assistant Secretary at its principal office, an
officer's certificate showing the adjusted rate of conversion
determined as herein provided, setting forth in reasonable
detail the facts requiring such adjustment, including a
statement of the number of additional shares of Common Stock,
if any, and such other facts as shall be necessary to show the
reason for the manner of computing such adjustment. Each such
officer's certificate shall be made available at all reasonable
times for inspection by any Series B Preferred Shareholder, and
the Corporation shall, forthwith after each such adjustment,
mail a copy by certified mail of such certificate to each
Series B Preferred Shareholder.

C. Designated Series D Preferred Stock.

(a) Designation.

The designation of this class of preferred shares shall be
"Series D Preferred Stock," $.10 par value.

(1) Certain Definitions.

Unless the context otherwise requires, the terms defined in
this paragraph 1 shall have, for all purposes of this
resolution, the meanings herein specified.

Common Stock. The term "Common Stock" shall mean all shares
now or hereafter authorized of any class of Common Stock of the
corporation and any other stock of the corporation, howsoever
designated, authorized after the Issue Date, which has the
right (subject always to prior rights of any class or series of
preferred stock) to participate in the distribution of the
assets and earnings of the corporation without limit as to per
share amount.

Conversion Date. The term "Conversion Date" shall have the
meaning set forth in subparagraph 4(d) below.

Conversion Price. The term "Conversion Price" shall mean the
price per share of Common Stock used to determine the number of
shares of Common Stock deliverable upon conversion of a share
of the Series D Preferred Stock, which price shall initially be
$5.11 per share, subject to adjustment in accordance with the
provisions of paragraph 4 below.

<PAGE> 14

Current Market Price. The term "Current Market Price" shall
have the meaning set forth in subparagraph 4(g) below.

Issue Date. The term "Issue Date" shall mean the date that
shares of Series D Preferred Stock are first issued by the
corporation.

Purchase Price. The term "Purchase Price" shall mean $5.11
per share.

Senior Stock. The term "Senior Stock" shall mean any class
or series of stock of the corporation issued after the Issue
Date ranking senior to the Series D Preferred Stock in respect
of the right to receive dividends, and, for the purposes of
paragraph 3 below, any class or series of stock of the
corporation issued after the Issue Date ranking senior to the
Series D Preferred Stock in respect of the right to receive
assets upon the liquidation, dissolution or winding up of the
affairs of the corporation.

Subsidiary. The term "Subsidiary" shall mean any corporation
of which shares of stock possessing at least a majority of the
general voting power in electing the board of directors are, at
the time as of which any determination is being made, owned by
the corporation, whether directly or indirectly through one or
more Subsidiaries.

(2) Dividends.

Permitted Dividends. The corporation shall be permitted to
pay or make (i) the payment of any dividend on Common Stock
payable in shares of Common Stock, convertible securities or
warrants or other rights to subscribe for or purchase any
Common Stock or convertible securities, and (ii) any
distribution on Common Stock made in connection with the
liquidation, dissolution or winding up of the corporation made
after the holders of Series D Preferred Stock have received the
distributions specified in paragraph 3 hereof.

(3) Distributions Upon Liquidation, Dissolution or Winding
Up.

In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the corporation,
subject to the prior preferences and other rights of any Senior
Stock, but before any distribution or payment shall be made to
the holders of Junior Stock, the holders of the Series D
Preferred Stock shall be entitled to be paid the Purchase Price
of all outstanding shares of Series D Preferred Stock as of the
date of such liquidation or dissolution or such other winding
up, and no more, in cash or in property taken at its fair value
as determined by the Board of Directors, or both, at the
election of the Board of Directors. If such payment shall have
been made in full to the holders of the

<PAGE> 15

Series D Preferred Stock, and if payment shall have been made
in full to the holders of any Senior Stock of all amounts to
which such holders shall be entitled, the remaining assets and
funds of the corporation shall be distributed among the holders
of Junior Stock, according to their respective shares and
priorities. If, upon any such liquidation, dissolution or other
winding up of the affairs of the corporation, the net assets of
the corporation distributable among the holders of all
outstanding shares of the Series D Preferred Stock shall be
insufficient to permit the payment in full to such holders of
the preferential amounts to which they are entitled, then the
entire net assets of the corporation remaining after the
distributions to holders of any Senior Stock of the full
amounts to which they may be entitled shall be distributed
among the holders of the Series D Preferred Stock ratably in
proportion to the full amounts to which they would otherwise be
respectively entitled. The consolidation or merger of the
corporation into or with another corporation, corporations,
entity or other entities (other than a corporation or other
entity in which the stockholders of the corporation own (or
will own) fifty percent (50%) or more of the voting power on
completion of the transaction), and the sale of all or
substantially all of the assets of the corporation (other than
to a corporation or other entity in which the stockholders of
the corporation own (or will own) fifty percent (50%) or more
of the voting power on completion of the transaction) shall be
deemed a liquidation, dissolution or winding up of the affairs
of the corporation within the meaning of this paragraph 3.

(4) Conversion Rights.

The Series D Preferred Stock shall be convertible into
Common Stock as follows:

(a) Optional Conversion. Subject to and upon compliance with
the provisions of this paragraph 4, the holder of any shares of
Series D Preferred Stock shall have the right at such holder's
option, at any time or from time to time, to convert any of
such shares of Series D Preferred Stock into fully paid and
nonassessable shares of Common Stock at the Conversion Price
(as hereinafter defined) in effect on the Conversion Date (as
hereinafter defined) upon the terms hereinafter set forth.

(b) Number of Shares. Each share of Series D Preferred Stock
shall be converted into a number of shares of Common Stock
determined by dividing (i) the Purchase Price by (ii) the
Conversion Price in effect on the Conversion Date. Each share
of Series D Preferred Stock shall be initially convertible into
one (1) share of Common Stock. The Conversion Price shall be
subject to adjustment as set forth in subparagraph 4(e).

<PAGE> 16

(c) Mechanics of Conversion. The holder of any shares of
Series D Preferred Stock may exercise the conversion right
specified in subparagraph 4(a) by surrendering to the
corporation or any transfer agent of the corporation the
certificate or certificates for the shares to be converted,
accompanied by written notice specifying the number of shares
to be converted; provided that the corporation shall not be
obligated to issue to any such holder certificates evidencing
the shares of Common Stock issuable upon such conversion unless
certificates evidencing the shares of Series D Preferred Stock
are either delivered to the corporation or any transfer agent
of the corporation. Conversion shall be deemed to have been
effected on the date when delivery of notice of an election to
convert and certificates for shares and such date is referred
to herein as the "Conversion Date". Subject to the provisions
of subparagraph 4(e)(vii), as promptly as practicable
thereafter, the corporation shall issue and deliver to or upon
the written order of such holder a certificate or certificates
for the number of full shares of Common Stock to which such
holder is entitled and a check or cash with respect to any
fractional interest in a share of Common stock as provided in
subparagraph 4(d). Subject to the provisions of subparagraph
4(e)(vii), the person in whose name the certificate or
certificates for Common Stock are to be issued shall be deemed
to have become a holder of record of such Common Stock on the
applicable Conversion Date. Upon conversion of only a portion
of the number of shares covered by a certificate representing
shares of Series D Preferred Stock surrendered for conversion
(in the case of conversion pursuant to subparagraph 4(a), the
corporation shall issue and deliver to or upon the written
order of the holder of the certificate so surrendered for
conversion, at the expense of the corporation, a new
certificate covering the number of shares of Series D Preferred
Stock representing the unconverted portion of the certificate
so surrendered.

(d) Fractional Shares. No fractional shares of Common Stock
or scrip shall be issued upon conversion of shares of Series D
Preferred Stock. If more than one share of Series D Preferred
Stock shall be surrendered for conversion at any one time by
the same holder, the number of full shares of Common stock
issuable upon conversion thereof shall be computed on the basis
of the aggregate number of shares of Series D Preferred Stock
so surrendered. Instead of any fractional shares of Common
Stock which would otherwise be issuable upon conversion of any
shares of Series D Preferred Stock, the corporation shall pay a
cash adjustment in respect of such fractional interest in an
amount equal to that fractional interest of the then Current
Market Price.

(e) Conversion Price Adjustments. The Conversion Price shall
be subject to adjustment from time to time as follows:

(i) Common Stock Issued at Less Than the Conversion Price.
If the corporation shall issue any Common Stock other than
Excluded Stock (as

<PAGE> 17

hereinafter defined) without consideration or for a
consideration per share less than $5.11, the Conversion Price
in effect immediately prior to such issuance, the Conversion
Price in effect immediately prior to each such issuance shall
immediately (except as provided below) be reduced to the price
determined by dividing (1) an amount equal to the sum of (A)
the number of shares of Common Stock outstanding immediately
prior to such issuance multiplied by the Conversion Price in
effect immediately prior to such issuance and (B) the
consideration, if any, received by the corporation upon such
issuance, by (2) the total number of shares of Common Stock
outstanding immediately after such issuance.

For the purposes of any adjustment of the Conversion
Price pursuant to clause (i), the following provisions shall be
applicable:

(A) Cash. In the case of the issuance of Common Stock
for cash, the amount of the consideration received by the
corporation shall be deemed to be the amount of the cash
proceeds received by the corporation for such Common stock
before deducting therefrom any discounts, commissions, taxes or
other expenses allowed, paid or incurred by the corporation for
any underwriting or otherwise in connection with the issuance
and sale thereof.

(B) Consideration Other Than Cash. In the case of the
issuance of Common Stock (otherwise than upon conversion of
shares of capital stock or other securities of the corporation)
for a consideration in whole or in part other than cash,
including securities acquired in exchange therefor (other than
securities by their terms so exchangeable), the consideration
other than cash shall be deemed to be the fair value thereof as
determined by the Board of Directors, irrespective of any
accounting treatment; provided that such fair value as
determined by the Board of Directors shall not exceed the
aggregate Current Market Price of the shares of Common Stock
being issued as of the date the Board of Directors authorizes
the issuance of such shares.

(C) Options and Convertible Securities. In the case
of the issuance of (i) options, warrants or other rights to
purchase or acquire Common Stock (whether or not at the time
exercisable), (ii) securities by their terms convertible into
or exchangeable for Common Stock (whether or not at the time so
convertible or exchangeable) or options, warrants or rights to
purchase such convertible or exchangeable securities (whether
or not at the time exercisable):

(1) the aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options,
warrants or other rights to purchase or acquire Common Stock
shall be deemed to have been issued at the time such options,
warrants or rights were issued and for a consideration equal

<PAGE> 18

to the consideration (determined in the manner provided in
subclauses (A) and (B) above), if any, received by the
corporation upon the issuance of such options, warrants or
rights plus the minimum purchase price provided in such
options, warrants or rights for the Common Stock covered
thereby;

(2) the aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange for
any such convertible or exchange securities, or upon the
exercise of options, warrants or other rights to purchase or
acquire such convertible or exchangeable securities and the
subsequent conversion or exchange thereof, shall be deemed to
have been issued at the time such securities were issued or
such options, warrants, or rights were issued and for a
consideration equal to the consideration, if any, received by
the corporation for any such securities and related options,
warrants or rights (excluding any cash received on account of
accrued interest or accrued dividends), plus the additional
consideration (determined in the manner provided in subclauses
(A) and (B) above), if any, to be received by the corporation
upon the conversion or exchange of such securities, or upon the
exercise of any related options, warrants or rights to purchase
or acquire such convertible or exchangeable securities and the
subsequent conversion or exchange thereof;

(3) on any change in the number of shares of
Common Stock deliverable upon exercise of any such options,
warrants or rights or conversion or exchange of such
convertible or exchangeable securities or any change in the
consideration to be received by the corporation upon such
exercise, conversion or exchange, including, but not limited
to, a change resulting from the anti-dilution provisions
thereof, the Conversion Price as then in effect shall forthwith
be readjusted to such Conversion Price as would have been
obtained had an adjustment been made upon the issuance of such
options, warrants or rights not exercised prior to such change,
or of such convertible or exchangeable securities not converted
or exchanged prior to such change, upon the basis of such
change;

(4) on the expiration or cancellation of any such
options, warrants or rights, the termination of the right to
convert or exchange such convertible or exchangeable
securities, if the Conversion Price shall have been adjusted
upon the issuance thereof, the Conversion Price shall forthwith
be readjusted to such Conversion Price as would have been
obtained had an adjustment been made upon the issuance of such
options, warrants, rights or such convertible or exchangeable
securities on the basis of the issuance of only the number of
shares of Common Stock actually issued upon the exercise of
such options, warrants or rights, or upon the conversion or
exchange of such convertible or exchangeable securities; and

<PAGE> 19

(5) if the Conversion Price shall have been
adjusted upon the issuance of any such options, warrants,
rights or convertible or exchangeable securities, no further
adjustment of the Conversion Price shall be made for the actual
issuance of Common Stock upon the exercise, conversion or
exchange thereof;

(ii) Excluded Stock. "Excluded Stock" shall mean (A)
shares of Common Stock issued or reserved for issuance by the
corporation as a stock dividend payable in shares of Common
Stock, or upon any subdivision or split-up of the outstanding
shares of Common Stock, or any outstanding shares of any class
or series of Preferred Stock, or upon conversion of shares of
any class or series of Preferred Stock; (B) shares of Common
Stock issued upon exercise of options or warrants of the
Corporation which have been granted, issued or are outstanding
as of November 9, 1992; (C) 250,000 shares of Common Stock to
be issued to employees, consultants and advisors of the
corporation together with any such shares that are repurchased
by the corporation and reissued to any such employee,
consultant or advisor pursuant to existing option plans; and
(D) any equity securities of the Corporation or any security
convertible into an equity security of the Corporation and any
option, right or warrant representing the right to acquire any
equity security of the Corporation issued by the Corporation
pursuant to a registration statement filed by the Corporation
with the Securities and Exchange Commission.

(iii) Stock Dividends, Subdivisions, Reclassifications or
Combinations. If the corporation shall (i) declare a dividend
or make a distribution on its Common Stock in shares of its
Common Stock, (ii) subdivide or reclassify the outstanding
shares of Common Stock into a greater number of shares, or
(iii) combine or reclassify the outstanding Common Stock into a
smaller number of shares, the Conversion Price in effect at the
time of the record date for such dividend or distribution or
the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the
holder of any shares of Series D Preferred Stock surrendered
for conversion after such date shall be entitled to receive the
number of shares of Common Stock which he would have owned or
been entitled to receive had such Series D Preferred Stock been
converted immediately prior to such date. Successive
adjustments in the Conversion Price shall be made whenever any
event specified above shall occur.

(iv) Other Distributions. In case the corporation shall
fix a record date for the making of a distribution to all
holders of shares of its Common Stock (i) of shares of any
class other than its Common Stock or (ii) of evidence of
indebtedness of the corporation or any Subsidiary or (iii) of
assets (excluding cash dividends or distributions, and
dividends or distributions referred to in subparagraph
4(f)(iii) above), or (iv) of rights or warrants (excluding
those referred to in subparagraph 4(f)(i) above), each holder
of a share of Series D

<PAGE> 20

Preferred Stock shall, upon the exercise of his right to
convert after such record date, receive, in addition to the
shares of Common Stock to which he is entitled, the amount of
such shares, indebtedness or assets (or, at the option of the
corporation, the sum equal to the value thereof at the time of
distribution as determined by the Board of Directors in its
sole discretion) that would have been distributed to such
holder if he had exercised his right to convert immediately
prior to the record date for such determination.

(v) Consolidation, Merger, Sale, Lease or Conveyance.
In case of any consolidation with or merger of the corporation
with or into another corporation, or in case of any sale, lease
or conveyance to another corporation of the assets of the
corporation as an entirety or substantially as an entirety,
each share of Series D Preferred Stock shall after the date of
such consolidation, merger, sale, lease or conveyance be
convertible into the number of shares of stock or other
securities or property (including cash) to which the Common
Stock issuable (at the time of such consolidation, merger,
sale, lease or conveyance) upon conversion of such share of
Series D Preferred Stock would have been entitled upon such
consolidation, merger, sale, lease or conveyance; and in any
such case, if necessary, the provisions set forth herein with
respect to the rights and interests thereafter of the holders
of the shares of Series D Preferred Stock shall be
appropriately adjusted so as to be applicable, as nearly as may
reasonably be, to any shares of stock or other securities or
property thereafter deliverable on the conversion of the shares
of Series D Preferred Stock.

(vi) Rounding of Calculations: Minimum Adjustment. All
calculations under the provisions of subparagraph (e) shall be
made to the nearest cent or to the nearest one hundredth
(1/100th) of a share, as the case may be. Any provision of this
paragraph 4 to the contrary notwithstanding, no adjustment in
the Conversion Price shall be made if the amount of such
adjustment would be less than $0.01 until the end of three
years after such adjustment would other vise have been
required, but any such amount shall be carried forward and an
adjustment with respect thereto shall be made at the time of
and together with any subsequent adjustment which, together
with such amount any other amount or amounts so carried
forward, shall aggregate $0.01 or more.

(vii) Timing of Issuance of Additional Common Stock Upon
Certain Adjustments. In any case in which the provisions of
this subparagraph (f) shall require that any adjustment shall
become effective immediately after a record date for an event,
the corporation may defer until the occurrence of such event
(A) issuing to the holder of any share of Series D Preferred
Stock converted after such record date and before the
occurrence of such event the additional shares of Common Stock
issuable upon such conversion by reason of the adjustment
required by such event over and above the shares of Common
Stock issuable upon such conversion before giving effect to
such adjustment and (B)

<PAGE> 21

paying to such holder any amount of cash in lieu of a
fractional share of Common Stock pursuant to subparagraph (e)
of this paragraph 4, provided that the corporation upon request
shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such
additional shares, and such cash, upon the occurrence of the
event requiring such adjustment.

(f) Current Market Price. The Current Market Price at any
date shall mean, in the event the Common Stock is publicly
traded, the average of the daily closing prices per share of
Common Stock for 30 consecutive trading days ending no more
than 15 business days before such date (as adjusted for any
stock dividend, split, combination or reclassification that
took effect during such 30 business day period). The closing
price for each day shall be the last reported sale price
regular way or, in case no such reported sale takes place on
such day, the average of the last closing bid and asked prices
regular way, in either case on the principal national
securities exchange on which the Common Stock is listed or
admitted to trading, or if not listed or admitted to trading on
any national securities exchange, the closing sale price for
such day reported by NASDAQ, if the Common Stock is traded
over-the-counter and quoted in the National Market System, or
if the Common Stock is so traded, but not so quoted, the
average of the closing reported bid and asked prices of the
Common Stock as reported by NASDAQ or any comparable system or,
if the Common Stock is not listed on NASDAQ or any comparable
system, the average of the closing bid and asked prices as
furnished by two members of the National Association of
Securities Dealers, Inc. selected from time to time by the
corporation for that purpose. If the Common Stock is not traded
in such manner that the quotations referred to above are
available for the period required hereunder, Current Market
Price per share of Common Stock shall be deemed to be the fair
value as determined by the Board of Directors, irrespective of
any accounting treatment.

(g) Statement Regarding Adjustments. Whenever the
Conversion Price shall be adjusted as provided in subparagraph
4(e), the corporation shall forthwith file, at the office of
any transfer agent for the Series D Preferred Stock and at the
principal office of the corporation, a statement showing in
detail the facts requiring such adjustment and the Conversion
Price that shall be in effect after such adjustment, and the
corporation shall also cause a copy of such statement to be
sent by registered or certified mail, return receipt requested,
postage prepaid, to each holder of shares of Series D Preferred
Stock at its address appearing on the corporation's records.
Each such statement shall be signed by the corporation's
independent public accountants, if applicable. Where
appropriate, such copy may be given in advance and may be
included as part of a notice required to be mailed under the
provisions of subparagraph 4(h).

<PAGE> 22

(h) Notice to Holders. In the event the corporation shall
propose to take any action of the type described in clause (i)
(but only if the action of the type described in clause (i)
would result in an adjustment in the Conversion Price), (iii),
(iv) or (v) of subparagraph 4(e), the corporation shall give
notice to each holder of shares of Series D Preferred Stock, in
the manner set forth in subparagraph 4(g), which notice shall
specify the record date, if any, with respect to any such
action and the approximate date on which such action is to take
place. Such notice shall also set forth such facts with respect
thereto as shall be reasonably necessary to indicate the effect
of such action (to the extent such effect may be known at the
date of such notice) on the Conversion Price and the number,
kind or class of shares or other securities or property which
shall be deliverable upon conversion of shares of Series D
Preferred Stock. In the case of any action which would require
the fixing of a record date, such notice shall be given at
least 10 days prior to the date so fixed, and in case of all
other action, such notice shall be given at least 15 days prior
to the taking of such proposed action. Failure to give such
notice, or any defect therein, shall not affect the legality or
validity of any such action.

(i) Treasury Stock. For the purposes of this paragraph 4,
the sale or other disposition of any Common Stock theretofore
held in the corporation's treasury shall be deemed to be an
issue thereof.

(j) Costs. The corporation shall pay all documentary,
stamp, transfer or other transactional taxes attributable to
the issuance or delivery of shares of Common Stock upon
conversion of any shares of Series D Preferred Stock; provided
that the corporation shall not be required to pay any taxes
which may be payable in respect of any transfer involved In the
issuance or delivery of any certificate for such shares in a
name other than that of the holder of the shares of Series D
Preferred Stock in respect of which such shares are being
issued.

(k) Reservation of Shares. The corporation shall reserve
at all times so long as any shares of Series D Preferred Stock
remain outstanding, free from preemptive rights, out of its
treasury stock (if applicable) or its authorized but unissued
shares of Common Stock, or both, solely for the purpose of
effecting the conversion of the shares of Series D Preferred
Stock, sufficient shares of Common Stock to provide for the
conversion of all outstanding shares of Series D Preferred
Stock.

(l) Valid Issuance. All shares of Common Stock which may
be issued upon conversion of the shares of Series D Preferred
Stock will upon issuance by the corporation be duly and validly
issued, fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issuance thereof, and the
corporation shall take no action which will cause a contrary
result (including,

<PAGE> 23

without limitation, any action which would cause the Conversion
Price to be less than the par value, if any, of the Common
Stock).

(5) Voting Rights.

In addition to any other rights provided in the
corporation's Bylaws or by law, each share of Series D
Preferred Stock shall entitle the holder thereof to such number
of votes per share as shall equal the whole number of shares of
Common Stock into which each share of Series D Preferred Stock
is then convertible, and each share of Series D Preferred Stock
shall be entitled to vote on all matters as to which holders of
Common Stock shall be entitled to vote, in the same manner and
with the same effect as such holders of Common Stock, voting
together with the holders of Common Stock as one class.

(6) Optional Redemption Right of the Corporation.

The Corporation may, at its sole option, at any time upon
resolution adopted by its Board of Directors, redeem the whole
or any part of the shares of Series D Preferred Stock owned by
Series D Preferred Stockholders on a record date not more than
sixty nor less than ten days preceding such time fixed by the
Board of Directors. Any Series D Preferred Shares redeemed by
the Corporation pursuant to this Section 6 shall be redeemed at
a price of $5.11 per share or the then prevailing conversion
price as of the date fixed for redemption. If fewer than all
the outstanding Series D Preferred Shares are to be redeemed,
the shares to be redeemed shall be chosen pro rata among the
then record holders.

(7) Exclusion of Other Rights.

Except as may otherwise be required by law, the shares of
Series D Preferred Stock shall not have any preferences or
relative, participating, optional or other special rights,
other than those specifically set forth in this resolution (as
such resolution may be amended from time to time) and in the
corporation's Certificate of Incorporation.

(8) Headings of Subdivisions.

The headings of the various subdivisions hereof are for
convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.

(9) Severability of Provisions.

If any right, preference or limitation of the Series D
Preferred Stock set forth in this resolution (as such
resolution may be amended from time to time) is

<PAGE> 24

invalid, unlawful or incapable of being enforced by reason of
any rule of law or public policy, all other rights, preferences
and limitations set forth in this resolution (as so amended)
which can be given effect without the invalid, unlawful or
unenforceable right, preference or limitation shall,
nevertheless, remain in full force and effect, and no right,
preference or limitation herein set forth shall be deemed
dependent upon any other such right, preference or limitation
unless so expressed herein.

(10) Status of Reacquired Shares.

Shares of Series D Preferred Stock which have been issued
and reacquired in any manner or converted shall (upon
compliance with any applicable provisions of the laws of the
State of Delaware not be reissued as Series D Preferred Stock,
but shall have the status of authorized and unissued shares of
Preferred Stock issuable in series undesignated as to series
and may be redesignated and reissued.

D. Undesignated Preferred Stock. Shares of Preferred Stock may
be issued from time to time in one or more series as may from time to
time be determined by the Board of Directors. Each series shall be
distinctly designated. All shares of any one series of the Preferred
Stock shall be alike in every particular event except that there may be
different dates from which dividends thereon, if any, shall be
cumulative, if made cumulative. The powers, preferences and relative,
participating, optional and other rights of each series, and the
qualifications, limitations or restrictions thereof, if any, may differ
from those of any and all other series at any time outstanding. subject
to the provisions of subparagraph (4) of Paragraph (D) of this Article
4, the Board of Directors of this Corporation is hereby expressly
granted authority to fix by resolution or resolutions adopted prior to
the issuance of any shares of each particular series of Preferred
Stock, the designation, powers, preferences and relative,
participating, optional and other rights, and the qualifications,
limitations and restrictions thereof, if any, of such series,
including, but without limiting the generality of the foregoing, the
following:

(1) The distinctive designation of and the number of shares of
Preferred Stock which shall constitute the series, which number may be
increased (except as otherwise fixed by the Board of Directors) or
decrease but not below the number of shares thereof then outstanding)
from time to time by action of the Board of Directors;

(2) the rate and times at which, and the terms and conditions
upon which, dividends, if any, on shares shall be paid, the extent of
preferences or relation, if any, of such dividends to the dividends
payable on any other class or classes of stock of this Corporation, or
on any series of Preferred Stock or of any other class or classes of
stock of this Corporation, and whether such dividends shall be
cumulative or non-cumulative;

(3) the right, if any, of the holders of shares of the series
to convert the same into, or exchange the same for, shares of any other
class or classes of stock of this

<PAGE> 25

Corporation, or of any series of Preferred Stock of this Corporation,
and the terms and conditions of such conversion or exchange;

(4) whether shares of the series shall be subject to
redemption, and the redemption price or prices including, without
limitation, a redemption price or prices payable in shares of the
Common Stock and the time or times at which, and the terms and
conditions upon which, shares of the series may be redeemed;

(5) the rights, if any, of the holders of shares of the series
upon voluntary or involuntary liquidation, merger, consolidation,
distribution or sale of assets, dissolution or winding up of this
Corporation;

(6) the terms of the sinking fund or redemption or purchase
account, if any, to be provided for shares of the series; and

(7) the voting powers, if any, of the holders of shares of the
series which may, without limiting the generality of the foregoing,
include (i) the right to more or less than one vote per share on any or
all matters voted upon by the stockholders and (ii) the right to vote,
as a series by itself or together with other series of Preferred Stock
or together with all series of Preferred Stock as a class, upon such
matters, under such circumstances and upon such conditions as the Board
of Directors may fix, including, without limitation, the right, voting
as a series by itself or together with other series of Preferred Stock
or together with all series of Preferred Stock as a class, to elect one
or more directors of this Corporation, or to elect a majority of the
members of the Board, under such circumstances and upon such conditions
as the Board may determine.

E. Common Stock

(1) After the requirements with respect to preferential
dividends on Preferred Stock (fixed in accordance with provisions of
paragraph (B) of this Article 4), if any, shall have been met and after
this Corporation shall have complied with all the requirements, if any,
with respect to the setting aside of sums as sinking funds or
redemption or purchase accounts (fixed in accordance with the
provisions of paragraph (B) of this Article 4) and subject further to
any other conditions which may be fixed in accordance with the
provisions of paragraph (B) of this Article 4, then but not otherwise,
the holders of Common Stock shall be entitled to receive such
dividends, if any, as may be declared from time to time by the Board of
Directors.

(2) After distribution in full of the preferential amount
(fixed in accordance with the provisions of paragraph (B) of this
Article 4), if any, to be distributed to the holders of Preferred Stock
in the event of voluntary or involuntary liquidation, distribution or
sale of assets, dissolution or winding-up of this Corporation, the
holders of the Common Stock shall be entitled to receive all the
remaining assets of this Corporation, tangible and intangible, of
whatever kind available for distribution to

<PAGE> 26

stockholders, ratably in proportion to the number of shares of the
Common Stock held by each.

(3) Except as otherwise be required by law, this Certificate of
Incorporation or the provisions of the resolution or resolutions as may
be adopted by the Board of Directors pursuant to paragraph (B) of this
Article 4, each holder of Common Stock shall have one vote in respect
of each share of Common Stock held by such holder on each matter voted
upon by the stockholders.

F. Other Provisions.

(1) The relative powers, preferences and rights of each series
of Preferred Stock in relation to the powers, preferences and rights of
each other series of Preferred Stock shall, in each case, be as fixed
from time to time by the Board of Directors in the resolution or
resolutions adopted pursuant to authority granted in paragraph (B) of
this Article 4, and the consent, by class or series vote or otherwise,
of the holders of the Preferred Stock of such of the series of the
Preferred Stock as are from time to time outstanding shall not be
required for the issuance by the Board of Directors of any other series
of Preferred Stock whether the powers, preferences and rights of such
other series shall be fixed by the Board of Directors as senior to, or
on a parity with, the powers, preferences and rights of such
outstanding series, or any of them, provided, however, that the Board
of Directors may provide in such resolution or resolutions adopted with
respect to any series of Preferred Stock that the consent of the
holders of a majority (or such greater proportion as shall be therein
fixed) of the outstanding shares of such series voting thereon shall be
required for the issuance of any or all other shares of Preferred
Stock.

(2) Subject to the provisions of subparagraph (1) of this
paragraph, shares of any series of Preferred Stock may be issued from
time to time as the Board of Directors shall determine and on such
terms and for such consideration as shall be fixed by the Board of
Directors.

(3) Shares of the Common Stock may be issued from time to time
as the Board of Directors shall determine and on such terms and for
such consideration as shall be fixed by the Board of Directors.

(4) No holder of any of the shares of any class or series of
stock or of options, warrants or other rights to purchase shares of any
class or series of stock or of other securities of the Corporation
shall have any preemptive right to purchase or subscribe for any
unissued stock of any class or series of any additional shares of any
class or series to be issued by reason of any increase of the
authorized capital stock of the Corporation of any class or series, or
bonds, certificates of indebtedness, debentures or other securities
convertible into or exchangeable for stock of the Corporation of any
class or series, or carrying any right to purchase stock of any class
or series.

<PAGE> 27

FIFTH: The name and address of the incorporator are as follows:

<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Ray A. Barr 9 East 40th Street
New York, New York 10016
</TABLE>

SIXTH. The following provisions are inserted for the management
of the business and for the conduct of the affairs of the Corporation,
and for further definition, limitation and regulation of the powers of
the Corporation and of its directors and stockholders.

(1) The number of directors of the Corporation shall be such as
from time to time shall be fixed by, or in the manner provided in the
by-laws but shall not be less than three. The directors shall be
divided into three classes, designated Class 1, Class 2 and Class 3.
Each class shall consist, as nearly as may be possible, of one-third of
the total number of directors constituting the entire Board of
Directors, but in no event shall any class include less than one
director. At the 1995 Annual Meeting of Shareholders, Class 1 directors
shall be elected for a three-year term, Class 2 directors for a
two-year term and Class 3 directors for a one-year term. At each
succeeding annual meeting of shareholders beginning at the 1996 annual
meeting, successors to the class of directors whose term expires at the
annual meeting shall be elected for a three-year term. A director shall
hold office until the annual meeting for the year in which his term
expires and until his successor shall be elected and shall qualify. If
the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors
in each class as nearly equal as possible.

(2) Newly created directorship resulting from any increase in
the authorized number of directors constituting the entire Board of
Directors or vacancies on the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or any
other cause shall be filled only by the affirmative vote of a majority
of the remaining directors then in office, even if less than a quorum,
or by the sole remaining director. Directors elected to fill vacancies
shall hold office for the remainder of the full term of the class of
directors in which the vacancy occurred and until such director's
successor shall be elected and shall qualify. The directors of any
class of directors of the Corporation may be removed by the
shareholders only for cause by the affirmative vote of the holders of
at least 65% of the combined voting power of all outstanding voting
stock. For the purpose of this Article SIXTH, "cause" shall mean the
willful failure of a director to perform in any substantial respect
such director's duties to the Corporation (other than any such failure
resulting from incapacity due to physical or mental illness), willful
malfeasance by a director in the performance of his duties to the
Corporation which is materially and demonstrably injurious to the
Corporation, the commission by a director of an act of fraud in the
performance of his duties, the conviction of a director for a felony
punishable by confinement for a period of excess of

<PAGE> 28

one year, or the ineligibility of a director for continuation in office
under any applicable rules, regulations or orders of any federal or
state regulatory authority.

(3) Notwithstanding the foregoing, whenever the holders of any
one or more classes or series of preferred stock or preference shares
issued by the Corporation shall have the right to vote separately by
class or series to elect directors at an annual or special meeting of
shareholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of
this Certificate of Incorporation applicable thereto, and such
directors so elected shall not be divided into classes pursuant to this
Article SIXTH unless expressly provided by such terms.

(4) Where the term "Board of Directors" is used in this
Certificate of Incorporation, such term shall mean the Board of
Directors of the Corporation; provided, however, that to the extent any
committee of directors of the Corporation is lawfully entitled to
exercise the powers of the Board of Directors, such committee may
exercise any right or authority of the Board of Directors under this
Certificate of Incorporation.

(5) Notwithstanding any other provisions of this Certificate of
Incorporation or the By-Laws of this Corporation (and notwithstanding
the fact that a lesser percentage or separate class vote may be
specified by law, this Certificate of Incorporation, the By-Laws of the
Corporation or otherwise), the affirmative vote of the holders of at
least 65% of the combined voting power of all outstanding voting stock
shall be required to adopt any provisions inconsistent with, or to
amend or repeal, Paragraph 2, 3, 4 or 5 of this Article SIXTH.

SEVENTH. The Corporation shall, to the full extent permitted by
section 145 of the Delaware General Corporation Law, as amended, from
time to time, indemnify all persons whom it may indemnify pursuant
thereto.

EIGHTH. Whenever a compromise or arrangement is proposed
between this Corporation and its creditors or any class of them and/or
between this Corporation and its stockholders or any class of them, any
court of equitable jurisdiction within the State of Delaware, may, on
the application in a summary way of this Corporation or of any creditor
or stockholder thereof or on the application of any receiver or
receivers appointed for this Corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of
trustees in dissolution or of any receiver or receivers appointed for
this Corporation under the provisions of Section 279 Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this
Corporation, as they case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as
consequence of such compromise or arrangement, the said compromise or
arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or

<PAGE> 29

class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.

NINTH. The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this certificate of
incorporation in the manner now or hereafter prescribed by law, and all
rights and powers conferred herein on stockholders, directors and
officers are subject to this reserved power.

TENTH. A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law, as the same
exists or hereafter may be amended, or (iv) for any transaction from
which the director derived an improper personal benefit. If the
Delaware General Corporation Law hereafter is amended to authorize the
further elimination or limitation of the liability of directors
provided herein, then the liability of a director of the Corporation,
in addition to the limitation on personal liability provided herein,
shall be limited to the fullest extent permitted by the amended
Delaware General Corporation Law. Any repeal or modification of this
paragraph by the stockholders of the Corporation shall be prospective
only, and shall not adversely affect any limitation on the personal
liability of a director of the Corporation existing at the time of such
repeal or modification."

FOURTH: The amendment effected herein was authorized by a vote of the
holders of a majority of all of the outstanding shares entitled to vote therein
pursuant to Section 242 and 245 of the General Corporation Law of the State of
Delaware.

IN WITNESS WHEREOF, the undersigned hereby executes this document and
affirms the facts set forth herein are true under penalties of perjury this 11th
day of August, 1995.

/s/ Bruce A. Wilson
---------------------------
Bruce A. Wilson, President

/s/ Antonio Santiago
---------------------------
Antonio Santiago, Secretary

<PAGE> 1

EXHIBIT 5.1

<PAGE> 2

Letterhead of:
GOLDSTEIN, AXELROD & DIGIOIA
369 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
TELEPHONE (212) 599-3322
TELECOPIER (212) 557-0295

August 17, 1995

Healthy Planet Products, Inc.
1129 North McDowell Boulevard
Petaluma, California 94954

Re: Healthy Planet Products, Inc.
Registration Statement on Form SB-2

Gentlemen:

We have reviewed a Registration Statement on Form SB-2 (the
"Registration Statement") filed under the Securities Act of 1933, as amended
(the "Act") by Healthy Planet Products, Inc., a Delaware corporation (the
"Company"). The Registration Statement has been filed for the purpose of
registering the following securities of the Company for offer and sale under the
Act:

51,095 shares of Common Stock, $.01 par value issuable by the Company
upon the exercise of outstanding Common Stock Purchase Warrants (the "Shares")
and the sale of the Shares by the Selling Shareholders.

We have examined your Certificate of Incorporation as amended, By-Laws
and such documents, corporate records and questions of law as we have deemed
necessary solely for the purpose of enabling us to render this opinion. On the
basis of such examination, we are of the opinion that:

1. The Company is a corporation duly organized and validly existing
and in good standing under the laws of the State of Delaware, with corporate
power to conduct the business which it conducts as described in the Registration
Statement.

2. The Company has an authorized capitalization of 12,750,000 shares
of capital stock consisting of 12,000,000 shares of Common Stock, $.01 par value
and 750,000 shares of Preferred Stock, $.10 par value.

3. The Shares have been duly authorized and when issued, sold and paid
for upon the exercise of the Warrants as described in the Registration
Statement, will be validly issued, fully paid and non-assessable.

<PAGE> 3

Page 2 August 17, 1995

We hereby consent to the use of this opinion as an exhibit to
the Registration Statement and to the reference to our firm under the caption
"Legal Opinions" in the Prospectus forming a part of the Registration Statement.

Very truly yours,

/s/GOLDSTEIN, AXELROD & DIGIOIA
-------------------------------
GOLDSTEIN, AXELROD & DIGIOIA