SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
------- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
-------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
- ------- SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission File No. 1-13048
HEALTHY PLANET PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2601764
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1700 Corporate Circle, Petaluma, California 94954
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (707) 778-2280
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
-------- -------
As of August 5, 1996, there were issued and outstanding 1,827,362
shares of common stock of the registrant (exclusive of 186,341 shares of voting
Series D Preferred Stock convertible into 186,341 shares of common stock).
Page 1 of 13
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
-----------------------------
INDEX
-----
Page
----
Form 10-QSB Cover Page 1
Index 2
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
Balance Sheet at June 30, 1996 3
Statements of Income for the three-months ended 5
and six months ended June 30, 1996 and 1995
Statements of Cash Flows for the three-months ended 6
and six months ended June 30, 1996 and 1995
Notes to the Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
- --------------------------
Item 6. Exhibits and Reports on Form 8-K, Signature 12 - 13
Page 2 of 13
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
HEALTHY PLANET PRODUCTS, INC.
-----------------------------
BALANCE SHEET
-------------
ASSETS
------
June 30,
1996
-----------
(Unaudited)
CURRENT ASSETS
Cash $3,185,591
Accounts receivable - net of allowances for doubtful
accounts and returns of $141,914 836,724
Inventories 1,431,820
Advance on royalties 215,895
Prepaid expenses 108,976
Deferred income taxes 740,000
-----------
Total current assets 6,519,006
-----------
PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation and amortization 453,030
-----------
OTHER ASSETS
Deferred income taxes 1,183,659
Security deposits 34,277
Publishing rights - net of accumulated
amortization of $294,651 105,140
Deferred rent 134,597
Other 2,517
-----------
Total other assets 1,460,190
-----------
TOTAL ASSETS $8,432,226
===========
The accompanying notes are an integral
part of these financial statements.
Page 3 of 13
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
-----------------------------
BALANCE SHEET (Continued)
-------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------
June 30,
1996
-----------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 339,115
Royalties payable 10,459
Commissions payable 54,731
Accrued wages, bonus' and payroll taxes 25,126
Accrued liabilities 28,568
------------
Total current liabilities 457,999
ACCRUED RENT PAYABLE 4,936
------------
TOTAL LIABILITIES 462,935
------------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 12,000,000 shares
authorized, 1,827,362 shares issued and outstanding 18,273
Preferred stock, Series B, $.10 par value, with
aggregate liquidation preferences of $100,080,
14,250 shares authorized, 834 shares issued
and outstanding 83
Preferred stock, Series D, $.10 par value, with
aggregate liquidation preferences of $952,203
371,009 shares authorized, 186,341 issued and
outstanding 18,634
Additional paid-in capital 12,285,611
Accumulated deficit (4,353,310)
------------
Total shareholders' equity 7,969,291
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,432,226
============
The accompanying notes are an integral
part of these financial statements.
Page 4 of 13
<PAGE>
<TABLE>
HEALTHY PLANET PRODUCTS, INC.
-----------------------------
STATEMENT OF INCOME
-------------------
(Unaudited)
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 979,702 $ 1,151,032 $ 1,820,396 $ 2,036,865
COST OF GOODS SOLD 357,155 432,506 640,807 690,526
----------- ----------- ----------- -----------
GROSS PROFIT 622,547 718,526 1,179,589 1,346,339
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling, shipping and marketing 235,199 219,247 382,811 395,280
General and administrative 372,763 415,304 732,402 770,758
----------- ----------- ----------- -----------
607,962 634,551 1,115,213 1,166,038
----------- ----------- ----------- -----------
OPERATING INCOME 14,585 83,975 64,376 180,301
----------- ----------- ----------- -----------
OTHER INCOME:
Interest income 34,750 33,879 81,917 69,274
Other income 94,691 54 135,009 254
----------- ----------- ----------- -----------
129,441 33,933 216,926 69,528
----------- ----------- ----------- -----------
INCOME BEFORE TAXES 144,026 117,908 281,302 249,829
PROVISION (BENEFIT) FOR
INCOME TAXES 57,611 (61,250) 112,521 (121,700)
----------- ----------- ----------- -----------
NET INCOME 86,415 179,158 168,781 371,529
DIVIDENDS ACCUMULATED
ON PREFERRED STOCK (4,504) (6,755) (4,504) (6,755)
INCOME APPLICABLE TO
COMMON STOCK $ 81,911 $ 172,403 $ 164,277 $ 364,774
----------- ----------- ----------- -----------
EARNINGS PER SHARE $ .04 $ .08 $ .08 $ .18
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 2,043,279 2,031,836 2,033,280 2,022,858
=========== =========== =========== ===========
<FN>
The accompanying notes are an integral
part of these financial statements.
</FN>
</TABLE>
Page 5 of 13
<PAGE>
<TABLE>
HEALTHY PLANET PRODUCTS, INC.
-----------------------------
STATEMENT OF CASH FLOWS
-----------------------
(Unaudited)
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- --------------------------
1996 1995 1996 1995
---- ----- ------ -----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 86,415 $ 179,158 $ 168,781 $ 371,529
Non-cash items included in net income
Depreciation and amortization 46,894 38,522 91,932 70,118
Increase/(decrease) in allowances for
doubtful accounts and returns 17,572 4,453 (365,086) (53,626)
Change in inventory reserves (25,000) (80,797) (25,000) (80,797)
Increase/decrease in deferred income taxes 52,611 (65,650) 99,341 (139,250)
Abandonment of leasehold improvements 12,493 -- 12,493 --
Changes in:
Accounts receivables (216,692) (301,824) 264,821 253,332
Inventories (255,683) (143,250) (501,546) (327,882)
Advances on royalties 58,821 22,851 (215,895) (270,679)
Prepaid expenses 37,796 15,757 (75,765) (82,359)
Accounts payable (31,959) 155,179 45,255 243,874
Royalties payable 141 (1,028) 1,853 (6,757)
Commissions payable 28,720 6,319 (101,224) (83,054)
Accrued wages, bonus and payroll taxes (17,870) 46,944 (105,185) (35,053)
Accrued liabilities 23,802 (995) (621) (18,373)
Accrued rent payable (85,529) (34) (85,496) 3,683
----------- ----------- ----------- -----------
Net cash used by operating activities (267,468) (124,395) (791,342) (155,294)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and color separations (54,190) (271,543) (77,281) (277,025)
Increase in publishing rights (4,300) (10,019) (22,953) (20,156)
Other 39,665 86,200 (20,367) 86,200
Deferred rent (134,597) -- (134,597) --
----------- ----------- ----------- -----------
Net cash used by investing activities (153,422) (195,362) (255,198) (210,981)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock options exercised 90,000 248,750 90,000 248,750
----------- ----------- ----------- -----------
Net cash from financing activities 90,000 248,750 90,000 248,750
----------- ----------- ----------- -----------
DECREASE IN CASH (330,890) (71,007) (956,540) (117,525)
CASH, BEGINNING OF PERIOD 3,516,481 2,501,019 4,142,131 2,547,537
----------- ----------- ----------- -----------
CASH, END OF PERIOD $ 3,185,591 $ 2,430,012 $ 3,185,591 $ 2,430,012
=========== =========== =========== ===========
SUPPLEMENTARY CASH FLOW INFORMATION INCLUDES THE FOLLOWING:
Cash paid during the period for:
Interest $ -- $ -- $ -- $ --
Income taxes $ 5,000 $ 4,400 $ 22,780 $ 17,550
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
Page 6 of 13
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations.
It is believed, however, that the disclosures are adequate to make the
information presented not misleading.
The financial statements, in the opinion of management, reflect all
adjustments necessary to fairly state the financial position and the results of
operations. These results are not necessarily to be considered indicative of the
results for the entire year.
NOTE 2 - INVENTORIES
Inventories consist of the following:
June 30,
1996
------------
Raw materials $ 144,329
Work-in-process 731,338
Finished goods 556,153
------------
$ 1,431,820
============
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
June 30,
1996
------------
Machinery, equipment and leasehold improvements $ 797,348
Color separations 323,124
Furniture and fixtures 72,664
Computer software 38,171
------------
1,231,307
Less accumulated depreciation and amortization (778,277)
------------
$ 453,030
============
Page 7 of 13
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
-----------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
-----------------------------------------
(Unaudited)
NOTE 4 - INCOME TAXES
As of January 1, 1996 the Company had available federal net operating loss and
investment tax credit carryforwards of approximately $5,090,000 and $15,600
respectively to be applied against future federal taxable income, of which
$3,339,000 of net operating losses are subject to a limitation under Section 382
of the Internal Revenue Code of $476,950 per year. Also available are
approximately $34,000 of alternative minimum tax credit carryforwards to reduce
future federal and California regular income taxes over an indefinite period. In
1992, when the Company adopted FAS 109, Accounting for Income Taxes, it reduced
the deferred income tax benefit of these loss carryforwards by establishing a
valuation allowance. For the quarter and the six months ended June 30, 1995, a
portion of the valuation allowance was eliminated, resulting in a net income tax
benefit of $61,250 and $121,700 respectively. Based on anticipated growth in
future years, the Company believes it will fully utilize available Federal net
operating losses prior to expiration.
The income tax provision of $112,521 in 1996 is approximately 40% of pre-tax
earnings. The Company has substantial net operating loss carryforwards and
credits available to offset future income tax liabilities. The expected tax
effect of these losses and credits are reflected as deferred tax assets on the
accompanying balance sheet. The income tax provision in 1996 will result in a
reduction of this asset, in lieu of payment of taxes. Accordingly, as of June
30, 1996, deferred tax assets have been reduced by $112,521. Deferred tax assets
consist of the following:
Net operating loss carryforwards $1,617,879
AMT carryforwards 34,000
Other 271,780
-----------
1,923,659
Deferred income taxes expected
to be utilized currently (740,000)
-----------
Deferred income taxes $1,183,659
===========
Page 8 of 13
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
----------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Sales
For the six months ended June 30, 1996, the Company's net sales were
$1,820,396. This reflected a decrease of $216,469 or 10.6% versus the prior
year's level of $2,036,865. Continued sluggishness at retail in general as well
as lower export sales contributed to the year to year decline.
For the three months ended June 30, 1996, net sales amounted to $979,702 which
reflected a decrease of $171,330 or 14.9% versus the prior year level of
$1,151,032. Continued sluggishness at retail in general as well as lower export
sales contributed to the year to year decline.
Gross Profit
For the six months ended June 30, 1996, gross profit amounted to $1,179,589 or
64.8% of sales. For the comparable prior year quarter, gross profit amounted to
$1,346,339 or 66.1% of sales. Lower overall sales combined with a higher mix of
lower margined products and returns contributed to the decline in gross margin.
For the three months ended June 30, 1996, gross profit amounted to $622,547 or
63.5% of sales. For the comparable prior year quarter, gross profit amounted to
$718,526 or 62.42% of sales. Lower export sales contributed to the slight
improvement in gross margin.
Operating Expenses
For the six months ended June 30, 1996, selling, shipping and marketing
expenses amounted to $382,811 reflecting a decrease of $12,469 versus the prior
year's level of $395,280. Lower commissions on lower net sales contributed to
the six month decrease.
For the three months ended June 30, 1996, selling, shipping and marketing
expenses amounted to $235,199 reflecting an increase of $15,952 versus last
year's level of $219,247. The quarter to quarter increase was due to increased
shipping expenses in support of promotional activity.
General and administrative expenses amounted to $732,402 for the six months
ended June 30, 1996, reflecting a decrease of $38,356 versus last year's level
of $770,758. Included in last year's general and administrative expenses were
non recurring charges associated with the Company's move to the American Stock
Exchange. Absence of these one time charges and lower bad debt costs offset
budgeted increases in staffing, increased rent, moving expenses and the
abandonment of leasehold improvements in the Company's former facility.
For the three months ended June 30, 1996, general and administrative expenses
amounted to $372,763 reflecting a decrease of $42,541 versus the prior year
level of $415,304. Included in last year's general and administrative expenses
were non recurring charges associated with the
Page 9 of 13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
---------------------------------------------------------
Operating Expenses (continued)
Company's move to the American Stock Exchange. Absence of these one time charges
and lower bad debt costs offset budgeted increases in staffing, increased rent,
moving expenses and the abandonment of leasehold improvements in the Company's
former facility.
Income
Operating income amounted to $64,376 for the six months ended June 30, 1996
reflecting a decrease versus the prior year level of $115,925. The decline at
gross margin offset in part by lower operating expenses accounted for the period
to period operating income decline. For the six months ended June 30, 1996, the
Company's operating income before taxes was $281,302 or $.14 per share. For the
comparable prior year period, the Company had net operating income before taxes
of $249,829 or $.12 per share. Income before taxes improved $31,473 on a period
to period basis. Included in the net income before taxes was approximately
$90,000 in accrued rent taken into other income. In accordance with FAS13,
Accounting For Leases, the Company was required to accrue rent on its old
facility based on the straight-line method versus accruing rent based on the
annually increasing base rent schedule. Excess of rent expense over cash
payments created a deferred credit. The new lease released the Company from all
liability under its former lease.
The income tax provision of $112,521 in 1996 is approximately 40% of pre-tax
earnings. The Company has substantial net operating loss carryforwards and
credits available to offset future income tax liabilities. The expected tax
effect of these losses and credits are reflected as deferred tax assets on the
accompanying balance sheet. The income tax provision in 1996 will result in a
reduction of this asset, in lieu of payment of taxes. Accordingly, as of June
30, 1996, deferred tax assets have been reduced by $112,521. For the comparable
quarter last year, net income finished at $371,529 or $.18 per share. Included
in last year's six month net income was a $121,700 tax credit due to the
adoption of FAS 109, Accounting for Income Taxes. The comparative per share data
is based on weighted average shares outstanding in each of the respective
periods.
Balance Sheet
Total assets amounted to $8,432,226 as of June 30, 1996 versus the December
31, 1995 level of $8,418,300, reflecting an increase of $13,926. The period to
period increase was caused by increases in royalty advances, inventory, prepaid
expenses, capital expenditures and deferred assets offset by decreases in cash,
receivables, and other assets. Total current liabilities amounted to $457,999 at
June 30, 1996 versus the December 31, 1995 level of $707,900. The decrease was
the result of the paydown of seasonal commissions and bonuses and the
elimination of deferred rent accrued on the Company's former facility offset by
increases in trade and royalties payable.
Page 10 of 13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
---------------------------------------------------------
Liquidity and Capital Resources
At June 30, 1996, the Company's working capital was $6,061,007 reflecting an
increase of $211,807 over working capital at December 31, 1995 of $5,849,200.
Cash of $791,342 was used during the period to support operating activities.
Cash of $255,198 was used during the period for capital expenditures. Major
capital expenditures for the period included a $137,500 contribution for the
construction of the Company's new facility. Cash of $90,000 was generated by the
exercise of employee stock options.
The present primary sources of the Company's liquidity has 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, 1996, there was no outstanding amount under this line of credit.
Effects of Inflation
The Company does not view the effects of inflation as having 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 card product. While the
Company has in the past increased its prices to its customers, it has maintained
its relative competitive price position within the general range of greeting
cards.
Page 11 of 13
<PAGE>
<TABLE>
HEALTHY PLANET PRODUCTS, INC.
-----------------------------
COMPUTATION OF EARNINGS PER SHARE
---------------------------------
EXHIBIT II
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 1996 June. 30, 1995 June. 30, 1996 June. 30,1995
--------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Primary earnings per share
Net income $ 86,415 $ 179,158 $ 168,781 $ 371,529
Dividends paid on preferred stock -- -- -- --
Cumulative dividends on preferred stock (4,504) (6,755) (4,504) (6,755)
----------- ----------- ----------- -----------
Income applicable to common stock $ 81,911 $ 172,403 $ 164,277 $ 364,774
=========== =========== =========== ===========
Shares
Weighted average number of common
shares outstanding 1,827,362 1,648,716 1,819,682 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 215,917 383,120 213,598 435,308
----------- ----------- ----------- -----------
2,043,279 2,031,836 2,033,280 2,022,858
=========== =========== =========== ===========
Primary earnings per share $ .04 $ .08 $ .08 $ .18
=========== =========== =========== ===========
</TABLE>
Page 12 of 13
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K
<TABLE>
During the quarter ended June 30, 1996, the following reports on Form
8-K were filed by the Registrant:
<CAPTION>
Date of Report Item Reported Description of Item
- -------------- ------------- -------------------
<S> <C> <C>
April 15, 1996 Item 5. Other Events Relocation of Executive and
Administrative Offices and
Warehouse Facility to 1700
Corporate Circle, Petaluma,
California 94954.
May 20, 1996 Item 5. Other Events Registrant's Intention to Reacquire
up to 100,000 shares of its
Common Stock in open market
transactions.
</TABLE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEALTHY PLANET PRODUCTS, INC.
(Registrant)
DATED: August 13, 1996 by: /s/ Bruce A. Wilson
-----------------------------
Bruce A. Wilson
President, Chief Executive, Chief Operating
and Chief Financial Officer.
Page 13 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,185,591
<SECURITIES> 0
<RECEIVABLES> 836,724
<ALLOWANCES> 141,914
<INVENTORY> 1,431,820
<CURRENT-ASSETS> 6,519,006
<PP&E> 1,231,307
<DEPRECIATION> (778,277)
<TOTAL-ASSETS> 8,432,226
<CURRENT-LIABILITIES> 457,999
<BONDS> 0
<COMMON> 18,634
0
18,356
<OTHER-SE> 7,932,301
<TOTAL-LIABILITY-AND-EQUITY> 8,432,226
<SALES> 1,820,396
<TOTAL-REVENUES> 1,820,396
<CGS> 640,807
<TOTAL-COSTS> 1,756,020
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 281,302
<INCOME-TAX> 112,521
<INCOME-CONTINUING> 168,781
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 168,781
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.00
</TABLE>
