U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee required)
For the fiscal year ended December 31, 1995
[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required)
For the transition period from to
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Commission file number 1-13048
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HEALTHY PLANET PRODUCTS, INC.
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(Name of Small Business Issuer in Its Charter)
Delaware 94-2601764
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1129 N. McDowell Blvd., Petaluma, California 94954
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(Address of Principal Executive Offices) (Zip Code)
(707) 778-2280
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, $.01 par value American Stock Exchange
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
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(Title of Class)
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(Title of Class)
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Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The Issuer's revenues for its most recent fiscal ended December 31,
1995 were $5,892,300.
On March 6, 1996, the aggregate market value of the voting stock of
Healthy Planet Products, Inc. (consisting of Common Stock, $.01 par value) held
by non-affiliates of the Registrant was approximately $9,624,544 based on the
closing price for such Common Stock on said date as reported by the American
Stock Exchange.
In making the foregoing calculation, the Company has, for calculation
purposes only, (i) included all presently outstanding 186,341 shares of its
Series D Preferred Stock convertible into shares of Common Stock on a
share-for-share basis and (ii) assumed that any shareholder owning 10% or more
of its Common Stock (or Series D Preferred Stock) is an affiliate and has
excluded such shares in making the calculation.
On March 1, 1996, there were 1,812,362 shares of Common Stock, $.01 par
value, issued and outstanding (exclusive of 834 shares of non-voting Series B
Preferred Stock convertible into 3,667 shares of Common Stock, and exclusive of
186,341 shares of voting Series D Preferred Stock convertible into 186,341
shares of Common Stock).
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
Item l. Business
Incorporation
Healthy Planet Products, Inc. (hereinafter referred to as the
"Registrant" or the "Company") was originally organized under the laws of the
state of California on July 12, 1979 under the name of Carolyn Bean Publishing,
Ltd. On April 12, 1985, the Company effected a domiciliary reincorporation
pursuant to which the Company was reincorporated under the laws of the State of
Delaware, and the California corporate entity was merged into a new Delaware
corporation of the same name. On August 2, 1993, the Company changed its name to
Healthy Planet Products, Inc. The Company's executive offices and warehouse
facilities are located at 1129 North McDowell Boulevard, Petaluma, California
94954, and its telephone number is (707) 778-2280, fax number (707) 778-7518.
Principal Industry in Which the Company is Engaged
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 licenses the right to the use of the Healthy Planet Products name,
trademark and art work in connection with the manufacture, sale and distribution
of the Company's products in certain foreign countries. See "Business - General
Business Developments During Most Recent Fiscal Year".
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 400 everyday, occasional and seasonal cards,
including over 325 images which comprise the Company's principal Sierra Club
card line. The Company's products are predominantly marketed through
approximately 130 independent sales representatives to over 4,800 retail sales
outlets comprised of card shops,
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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 85.1% of the Company's net sales for the
year ended December 31, 1995 and for approximately 83.2% of the Company's net
sales for the year ended December 31, 1994.
In furtherance of its business strategy of directing its main focus to
the sale of cause-related, nature and wildlife product lines in the fourth
quarter of 1993, the Company obtained an exclusive license from The Humane
Society of the United States to use its name on a line of greeting cards. This
line is comprised of a series of 6 Holiday images. The Humane Society line
features domestic and wild animals in holiday like settings. For the year ended
December 31, 1995, this line accounted for approximately 5.1% of the Company's
net sales and for the year ended December 31, 1994 the Humane Society line
accounted for approximately 6.8% of the Company's net sales.
In the fourth quarter of 1993, the Company also introduced its SEA
DREAMS(R) line, which is presently comprised of 69 designs in a 5x7 blank
notecard format and 24 designs in a 4x5 boxed blank notecard format. SEA
DREAMS(R) is a collection of underwater photographs of the sea and its
creatures, and features corals, fish, sea-mammals and other inhabitants of the
sea. For the years ended December 31, 1995 and 1994, this line accounted for
approximately 4.7% and 2.9%, respectively, of the Company's net sales.
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
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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.
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 $.73 to $1.75 with most at the
$1.75 price 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 sentiment or, in the case of its Sierra Club(R), Sea Dreams(R) and
Humane Society(R) lines, high
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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. See "Item l. Business - Marketing and Sales".
Charitable/Environmental Contributions.
The Board of Directors and Management of the Company have adopted a
corporate policy whereby the Company has committed the Company to providing
desirable, high quality products to the ever increasing number of
environmentally conscious consumers. In furtherance of this commitment, the
Company has decided to contribute a portion of its wholesale proceeds from the
sale of its SEA DREAMS(R) product lines to scientific, research, environmental
and other charitable institutions. During fiscal year 1995, the Company
contributed approximately $21,000 to organizations such as the Marine Mammal
Center located in Sausalito, California, the Sonoma California Ecology Center
and the Petaluma California Boys & Girls Club. These contributions are made at
the discretion of the Company.
GENERAL BUSINESS DEVELOPMENTS DURING MOST RECENT FISCAL YEAR
Listing on the American Stock Exchange
On April 3, 1995, the Company's Common Stock, $.01 par value, was
admitted for trading on the American Stock Exchange and is traded thereon under
the trading symbol "HPP".
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Concurrent with its listing on the American Stock Exchange, the Company withdrew
the listing of its Common Stock on the Pacific Stock Exchange and the SmallCap
Market of The Nasdaq Stock Market.
New License Agreements with Twins Oaks Publishing
On December 18, 1995, the Company entered into a Licensing Agreement
with Twin Oaks Publishing Limited ("Twin Oaks"), a United Kingdom corporation,
pursuant to which the Company granted a license to use and utilize the Company's
registered mark "Healthy Planet Products" Logo Design and photographic images to
manufacture, market and sell the Company's greeting cards, gifts and stationery
products in the territory consisting of the United Kingdom, Northern Ireland,
Belgium, Luxembourg, Netherlands, France, Italy, Spain, Portugal, Germany,
Greece, Denmark, Eire, Finland, Austria, Sweden, Isle of Man, The Channel
Islands and Norway (the "Territory"). The license does not extend to the right
to use The Sierra Club name and logo or the name and logo of any other company
or entity from whom the Company has received a license.
The license granted to Twin Oaks is for a five-year term commencing
March 1, 1996 through February 28, 2001. The License Agreement provides for
quality control and prior approval by the Company of all licensed products. Twin
Oaks is to pay the Company a royalty equal to 7% of the gross sales price of
licensed articles, less deductions for returns and discounts, with minimum
royalties ranging from 12,285 (pound)) ($19,000 U.S. dollars based on current
exchange rates) for the first licensed year to 81,900 (pound)) (127,000 U.S.
dollars based on current exchange rates) for the last license year. The Company
may terminate the License Agreement in the event of a breach by the licensee,
which breach is not cured within 30 days after written notice.
Extension of Sierra Club License
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In January, 1995, the Company extended its principal Sierra Club
license for an additional 9 years through December 30, 2005.
PRODUCTS
Source of Product and Arrangement with Photographers and Others
Published Product.
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 4%
or more of the Company's sales.
License Agreements
The following are the principal license agreements to which the Company
is a party.
A. The Sierra Club.
Since June 4, 1980, the Company has been licensed 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 85.1% % and 83.2% of the Company's sales for the
years ended December 31, 1995 and 1994, respectively. The Sierra Club
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card line is comprised of over 250 everyday designs and over 70 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 received 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 year
2000, and 5% per year for each year through the year 2005. In addition to the
minimum annual guaranteed royalty, the Company paid Sierra Club a one time
additional royalty of $60,000 for the year 1995 and will pay an additional
$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, 1995, the
Company paid aggregate royalties of $385,000 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 line would have a
material adverse affect upon the Company's business unless and until such time
as other lines having an established substantial consumer acceptance are
developed. No assurance can be given that, in
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the event of the loss of the Sierra Club line, other lines can be developed that
would enable the Company to be profitable, if at all.
B. 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 Humane Society line is available in boxed holiday
cards. For the year ended December 31, 1995, sales of this line represented
approximately 5.1% of the Company's net sales.
C. 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
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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, 1995 sales of this line represented approximately 1.1% of the
Company's net sales.
D. 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. 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, 1995, sales of this line were not material.
E. 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
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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 was for an initial term commencing August 1, 1994 through
December 31, 1995. The Company has renewed the license for an additional
four-year term. The Company paid 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, 1995,
sales of this line represented approximately 4.7% of the Company's net sales.
Manufacture of Cards
The Company does not manufacture its products, nor does it have the
equipment to do so. Rather, it contracts for the physical production of its
products with independent contractors, using different suppliers at each stage
of production, 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 has created new non-card product
lines marketed under the name "Healthy Planet Products", which has been
registered with the United States Patent and Trademark Office.
As part of its proposed Healthy Planet Products line, the Company has
designed, developed and marketed diverse paper and gift products, including
stationery and other gift items. As previously described, the Company has
entered into an agreement with Twin Oaks
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Publishing pursuant to which it granted an exclusive license to Twin Oaks, a
licensee, to use the Healthy Planet Products name for certain products in
Europe. The Company may license the rights to others to use its Healthy Planet
trademarks for certain product categories.
The Company currently markets its Sierra Club card line under the
HEALTHY PLANET PRODUCTS(R) trademark. In addition, the Company's SEA DREAMS(R)
card line was introduced in the fourth quarter of 1993 and are also marketed
under the Company's HEALTHY PLANET PRODUCTS(R) trademark. The Company also
produces 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 most of the photographic images utilized for the
social stationery products.
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 products are marketed to over 4,800 retail sales outlets
which are comprised of card shops; stationery stores; gift, book stores, notions
and variety shops; drug
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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 19.5% of the Company's net sales for the year ended
December 31, 1995, no single customer of the Company accounted for 8% 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 long term effect
on the Company.
The Company utilizes approximately 130 independent sales
representatives who also represent the products of other companies. Independent
sales representatives accounted for approximately 52% of Company sales for the
year ended December 31, 1995 (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, 1995, a total of $495,000 in commissions were paid to the sales
representatives. During this period, 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 product 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 are 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
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The greeting card, social stationery and gift industry in which the
Company is engaged has historically experienced seasonal sales effects,
primarily due to the emphasis on Christmas and holiday 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
and fourth quarters, thereby resulting in an increase in capital carrying costs
during these periods. During 1995, seasonal effects on the Company's business
resulted in approximately 65% of the Company's sales being made in the third and
fourth quarters. During fiscal year 1995, approximately 19% of total annual
sales were in accounts receivable during the third and fourth quarter, and are
not collectible until the first quarter of the following fiscal year.
Approximately 66% of the cost of manufacturing inventory was incurred in the
second and third quarters of the 1995 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
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The greeting card, social stationery and gift 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 cause related card lines and associated nature and wildlife card lines,
which can only be obtained exclusively through the Company. This factor is a
positive aspect to the business of the Company so long as there continues to be
public awareness, support and identification with a particular cause or
environmental issues. Conversely, should a cause fall out of vogue with the
public, the attractiveness of a line may diminish. 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 cause related and associated card and other product lines.
Employees
The Company currently has 27 full-time employees, including its four
executive officers, 9 in administrative, managerial, and sales positions, and 14
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.
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
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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 completed registration of the name, logo and design of HEALTHY PLANET
PRODUCTS with the United States Patent and Trademark Office.
The Company has also registered the "Sea Dreams" name and logo and
design as a trademark used in connection with its product lines featuring
underwater photographs.
Item 2. 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 base rent under the lease is $13,910 per month with annual
increases on April 1st in each succeeding lease year by $750 per month. During
fiscal 1995, the Company paid $193,206 in lease payments. In addition to the
base rent, the Company paid, as additional rent, taxes relating
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to the premises, insurance premiums relating to the premises, and all utility
charges relating to the use of the premises which, during fiscal 1995,
approximated $29,905 in the aggregate.
On February 12, 1996, the Company entered into a Lease Agreement with
RNM Lakeville, L.P., as landlord, for premises 1700 Corporate Circle, Petaluma,
California, at which the Company's executive offices and warehouse facilities
will be relocated to. The premises are comprised of an entire self-contained
building of tilt-up concrete construction, fully sprinklered located in an
established business park consisting of approximately 52,000 square feet, of
which approximately 6,700 square feet is first floor office space and
approximately 45,300 square feet is warehouse space. Commencing the fourth year
of the lease term, the Company will occupy an additional 22,000 square feet
which will then comprise the entire building. The leased premises are being
newly constructed for occupation by the Company. The lease is for a term of 10
years commencing with the date when construction of the premises has been
substantially completed, which is estimated to be May 1, 1996, and may be
extended pursuant to three extension options for one period of 2 years and two
successive periods of 5 years each. The lease is on a "triple net basis"
pursuant to which the Company is to pay a monthly rent of $26,486 per month
during the first year of the lease term, $28,045 per month for the second and
third years of the lease term, $31,161 per month for the portion of the fourth
year of the lease term until the balance of the entire building is occupied, and
$45,677 per month for the remainder of the fourth year of the lease term through
the sixth year of the lease term, and $50,244 per month for the seventh through
tenth years of the lease term. In addition to the monthly rent provided, the
Company is to pay, as additional rent, all taxes, insurance premiums,
maintenance and repair costs relating to the Company's use and occupancy of the
premises.
Item 3. Legal Proceedings
The Company is not a party to any pending legal proceedings.
17
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
18
<PAGE>
PART II
Item 5. Market of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters
A. Principal Market
On April 3, 1995, the Common Stock of the Registrant was accepted for
listing on the American Stock Exchange and commenced trading under the symbol
"HPP". Prior to such time, the Common Stock was traded in the over-the-counter
market and was included in the Nasdaq Small-Cap Market of The Nasdaq Stock
Market ("Nasdaq") under the Nasdaq symbol "HPPI". Prior to August 2, 1993, when
the Company changed its name from Carolyn Bean Publishing, Ltd. to Healthy
Planet Products, Inc., the Company's Common Stock was traded under the symbol
"CBEN". From May 9, 1994 through April 3, 1995, the Common Stock of the Company
was admitted for trading on the Pacific Stock Exchange under the trading symbol
"HPP.P". Simultaneously with the acceptance of listing on the American Stock
Exchange, the Company withdrew from the Pacific Stock Exchange and Nasdaq.
B. Market Information
Nasdaq
The range of high and low bid for such Common Stock for the periods
indicated below is as follows:
Year High Low
---- ---- ----
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
Year High Low
---- ---- ----
1995
1st Quarter 10 7 1/2
2nd Quarter 10 5/8 9 1/2
19
<PAGE>
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.
American Stock Exchange
Since its admission for trading on the American Stock Exchange on April
3, 1995, the following are the high and low closing prices for the Company's
Common Stock:
Year High Low
---- ---- ----
1995
2nd Quarter 11 1/2 9 3/8
3rd Quarter 13 5/8 10 1/2
4th Quarter 12 1/2 8 1/8
C. Dividends
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.
D. Approximated Number of Equity Security Holders
The approximate number of record holders of the Company's Common Stock
as of March 1, 1996 was 175. 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 1,500 in number. In addition, and with respect to the Company's Series B
and Series D Preferred Stock (none of which are publicly traded), the number of
record holders of such classes of Preferred Stock were 1 and 16, respectively.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
20
<PAGE>
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:
Relationship to Total Revenues
------------------------------
Fiscal Year Ended
-----------------
December 3l,
------------
1993 1994 1995
---- ---- ----
Net Sales 100% 100% 100%
Operating Expenses:
Cost of Goods 37.8% 37.6% 38.8%
Selling, General and
Administrative 53.4% 47.4% 43.8%
Income From Operations 8.8% 14.9% 17.4%
Interest and Other
Income (Expense) 0.9% 1.1% 2.3%
Income Before
Income Taxes 9.7% 16.0% 19.7%
Net Income 13.1% 23.4% 36.4%
Year End Results - Applicability of FAS 109
At December 31, 1995, the Company had available net operating loss
carryforwards of approximately $5,090,000 to be applied against future federal
taxable income, of which $3,339,000 are subject to a limitation under Section
382 of the Internal Revenue Code of $478,950 per year. The Company recognizes
deferred tax liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax returns,
including the future benefit of its net operating loss carryforwards. Temporary
differences and carryforwards which give rise to deferred assets at December 31,
1995 are as follows:
21
<PAGE>
Benefits from net operating loss carryforward $1,730,400
Accounts receivable allowances 219,500
Inventory reserves 32,900
Depreciation and amortization 25,300
Other 14,900
----------
Net deferred income taxes 2,023,000
Deferred income taxes expected to be
utilized in 1996 740,000
----------
Deferred income taxes $1,283,000
==========
Management anticipates future taxable income will be sufficient to
utilize its net operations loss carryforwards. Management's belief is based on
the Company's actual profitable results in each of the years 1992, 1993, 1994
and 1995. In order to utilize the full benefit of the deferred income tax asset,
the Company needs to realize aggregate taxable income of approximately
$5,950,000, which it expects to generate during the years 1996 through 2002. The
Company has estimated its future taxable income based on its actual results for
the years 1992, 1993, 1994 and 1995. Management 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 in year 2002. 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:
22
<PAGE>
Year Ending December 31, Amount
------------------------ -------
2000 $ 502,000
2001 745,000
2002 2,092,000
2003 34,000
2004 1,300,000
2005 385,000
2006 32,000
----------
$5,090,000
==========
As of December 31, 1995, the Company had available approximately
$15,600 and $6,300 of Federal and California investment tax credits respectively
which can be carried forward and offset against future income taxes. California
credits expire in 2004. The Company also has $27,000 and $2,000 of Federal and
California alternative minimum tax credit carryforwards, respectively, to reduce
future regular income taxes over an indefinite period.
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 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 $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. The Company has
not contemplated the use of any new tax planning strategies in calculating the
deferred income tax asset.
1995 Compared to 1994
Sales for the year ended December 31, 1995 were $5,892,300 reflecting
an increase versus the prior year level of $4,736,400 of $1,155,900 or 24.4%.
Included in the year end
23
<PAGE>
results was a provision for future holiday returns of approximately $350,000.
The holiday return provision recognizes and provides for the return of unsold
seasonal merchandise from customers who have been given a return privilege in
exchange for varying levels of display of everyday merchandise year round.
During 1995, sales of the Company's largest product line, The Sierra
Club, accounted for 85.1% of total revenues and showed a year to year gain of
27.3%. The balance of 1995 revenues were comprised of the Company's other lines,
The Humane Society of the United States, Sea Dreams(R), The Wilderness Society
and others.
The Company reported operating income of $1,026,500 or $.50 per share.
This level of operating income represented a 45% increase versus the prior year
operating income of $707,700 or $.36 per share. Not included in operating income
was approximately $130,000 in interest income. Including interest income, income
before taxes amounted to $1,161,700 or $.57 per share versus the prior year
income before taxes of $758,500 or $.39 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 $2,286,700 for the year ended December 31,
1995 representing 38.8% of sales. This rate compares unfavorably to the prior
year rate of 37.6%. Increased sales of lower margin packaged goods combined with
an increased return provision resulted in the year to year percentage cost
increase.
Selling, shipping and marketing expenses of $998,300 were $150,900 or
17.8% above 1994 actual results. Higher shipping expenses, commissions and sales
incentives on higher Company sales accounted for this year to year increase.
General and administrative expenses amounted to $1,580,800 for 1995
reflecting an increase of $181,900 or 13.0%. Budgeted increases in staff to
support the sales increase accounted for the period to period increase. The
Company's net profit for the year ended
24
<PAGE>
December 31, 1995 was $2,144,900 representing $1.05 per share. This level
compares favorably to the 1994 net profit of $1,107,700 or $.57 per share.
Included in both 1995 and 1994 year end results is a provision for deferred
income taxes of $983,200 and $349,200, respectively. These provisions represent
the recognition of estimated future NOL uses.
Total assets at December 31, 1995 amounted to $8,418,300 which
reflected an increase of $2,693,800 when compared to the 1994 level of
$5,724,500. Increased cash and inventory in support of and as a result of
increased sales combined with an increase in deferred income taxes accounted for
the period to period increase. Liabilities amounted to $707,900 as of December
31, 1995 representing an increase versus the December 31, 1994 level of $674,400
of $33,500 or 5.0%. Higher accounts payable and accrued expenses accounted for
the period to period increase.
1994 Compared to 1993
Sales for the year ended December 31, 1994 were $4,736,400. 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 $707,700 or $.36 per share.
This level of operating income represented a 126% gain versus the prior year
operating income of $313,213 or
25
<PAGE>
$.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 $1,782,400 for the year ended December 31,
1994 representing 37.6% 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.
Selling, shipping and marketing expenses of $847,400 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 $1,398,900 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.
The Company's net profit for the year ended December 31, 1994 was
$1,107,700, representing $.57 per share. The Company's operating income amounted
to $707,700 or $.36 per share. Included in both 1994 and 1993 year end results
is a provision for deferred income taxes of $349,200 and $119,200 respectively.
These provisions represent the recognition of estimated future NOL uses.
Total assets at December 31, 1994 amounted to $5,724,500 which
reflected an increase of $1,051,240 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
26
<PAGE>
reserve accounted for the overall increase. Liabilities decreased from the 1993
level of $753,293 by $78,893 to finish 1994 at $674,400 and royalties accounted
for the year to year decline.
Liquidity and Capital Resources
At December 3l, 1995, the Company's working capital was $5,849,200.
This compared favorably to the 1994 working capital of $4,140,500 for a year to
year increase of $1,708,700. The year to year increase was primarily due to
increased cash, inventory and the deferred tax asset.
The primary source of the Company's liquidity is cash internally
generated from operations, the exercise of warrants and employee stock options,
the proceeds remaining on hand from the Company's June, 1993 public offering,
and the availability of a bank credit line. The Company has a secured line of
credit in the amount of $500,000 from Westamerica Bank. During the year ended
December 31, 1995, the Company did not draw under this line of credit, and as of
December 31, 1995, no amounts were outstanding under this line of credit. The
Company believes and anticipates that the primary source of its liquidity and
capital resources for its coming fiscal year will primarily be 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 will be 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 material and labor costs have been offset
by increases in the price of the Company's products and through higher
production runs which have reduced the unit cost of the Company's products.
While the Company has in the past increased its prices to its customers, it has
maintained its relative competitive price position.
27
<PAGE>
Item 7. Financial Statements and Supplementary Data
See Index to Financial Statements attached hereto.
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
Not Applicable
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
28
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act
<TABLE>
The Directors and Executive Officers of the Company are as follows:
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Lawrence M. Barnett 47 Chairman of the Board of Directors
and Treasurer
Bruce A. Wilson 44 Director, President, Chief Executive, Chief
Operating and Chief Financial Officer
Robert Fagenson 47 Director
Rick Williams 39 Vice President - Operations
M. Scott Foster 44 Director and Vice President - Sales
and Marketing
Michael Jesselson 43 Director
</TABLE>
At the Annual Meeting of Shareholders held on August 11, 1995, the
shareholders of the Company approved, among other things, an Amendment to the
Company's Certificate of Incorporation to provide for a staggered Board of
Directors. The Amendment classified the Board of Directors into three (3)
classes with staggered three-year terms. Class 3 Directors were elected to serve
for terms expiring at the 1996 Annual Meeting; Class 2 Directors were elected to
serve for terms expiring at the 1997 Annual Meeting; and Class 1 Directors were
elected to serve for terms expiring at the 1998 Annual Meeting. The following
persons were elected for the classes and terms as follows:
29
<PAGE>
Director Class Term Expires
-------- ----- ------------
Bruce A. Wilson 1 1998
M. Scott Foster 1 1998
Robert Fagenson 2 1997
Michael Jesselson 2 1997
Lawrence M. Barnett 3 1996
All Officers serve at the discretion of the Board of Directors. None of
the officers or directors are related to each other. Set forth below is certain
biographical information for each Director and Officer.
Lawrence M. Barnett, founder of the Company, has been a member of the
Board of Directors since the Company's formation in 1979. In October, 1982, Mr.
Barnett assumed the position and responsibilities of Chief Executive Officer of
the Company. Until approximately April, 1990, Mr. Barnett was a full time
employee of the Company. Commencing April, 1990, Mr. Barnett assumed the status
as a part time employee. 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 President of the Company, Chief Financial and
Chief Operating Officer since January 28, 1988, and a Director since January 28,
1988. In August, 1994, Mr. Wilson assumed the added position of Chief Executive
Officer. From 1985 to 1987, Mr. Wilson was employed by Russ Berrie and Company
Inc. as General Manager of its Russ West Division, a company whose business is
impulse gifts. Prior thereto, Mr. Wilson was employed by Richardson Vicks Inc.
in various capacities, the last of which was from 1983 to 1984 as Executive
Assistant to the Executive Vice-President at Vidal Sassoon Inc. Robert Fagenson
was first elected a Director of the Company in November, 1986 and continued to
serve in such capacity until his resignation for
30
<PAGE>
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 currently serves as a Director of the New York Stock
Exchange. Mr. Fagenson is also a Director of The Microtel Franchise and
Development Corporation, a developer of economy lodging facilities; Autoinfo,
Inc., a company engaged in the sub-prime autofinance industry; Nu-Tech Bio-Med,
Inc., a clinical laboratory company; and Rentway, Inc., which operates a chain
of rental/purchase stores.
Rick 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.
M. Scott Foster joined the Company in April, 1993 as Vice President of
Sales and Marketing. Mr. Foster was formerly 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 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.
Certain Reports; Compliance with Section 16(a) of the Exchange Act
No person who, during the fiscal year ended December 31, 1995, was a
director, officer or beneficial owner of more than ten percent of the Company's
Common Stock (which is the only
31
<PAGE>
class of securities of the Company registered under Section 12 of the Securities
Exchange Act of 1934 (the "Act") (a "Reporting Person") failed to file on a
timely basis, reports required by Section 16 of the Act during the most recent
fiscal year or prior years. The foregoing is based solely upon a review by the
Company of Forms 3 and 4 during the most recent fiscal year as furnished to the
Company under Rule 16a-3(d) under the Act, and Forms 5 and amendments thereto
furnished to the Company with respect to its most recent fiscal year, and any
representation received by the Company from any reporting person that no Form 5
is required.
Item 10. Executive Compensation
SUMMARY 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, 1995, 1994 and 1993 to the Chief Executive Officer and each of the named
executive officers of the Company.
32
<PAGE>
<TABLE>
SUMMARY COMPENSATION 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>
Bruce A. Wilson 1995 $125,000 $ 43,707 $32,460(3) $30,500(4)
President, Chief Exec- 1994 $125,000 $ 30,359 $31,794(3) $32,750(4)
utive, Chief Operating 1993 $113,654 $ 17,870 $30,579(3) $30,500(4) 80,000
and Chief Financial
Officer
Ricky Williams 1995 $ 80,500 $ 12,500 $ 5,575(5)
Vice President of 1994 $ 73,205 $ 10,000 $ 5,510(5) --
Operations 1993 $ 68,854 $ 8,000 $ 5,637(5) 30,000
M. Scott Foster 1995 $ 80,000 $ 57,595 $24,825(7)
Vice-President of 1994 $ 80,000 $ 59,347 $24,665(7) --
Sales and Marketing 1993(6) $ 46,055 $ 29,285 $16,525(7) -- 125,000(8)
<FN>
- --------------------------------------------------------------------------------
(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 3% of the net pre-tax profit in
excess of $250,000. 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."
(2) On November 4, 1993, the Company's board of directors authorized the
granting of options to purchase shares of Common Stock to Messrs.
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) Includes: (i) for 1995, an automobile allowance of $12,000 and the
payment of premiums
33
<PAGE>
on a term life insurance policy of $2,610 and the payment of taxes on
4,000 shares of restricted Common Stock which vested on December 31,
1995 of $18,300; (ii) 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; and (iii) 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.
(4) 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,
1995, an aggregate of 20,000 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, 1995, the aggregate restricted
stock holdings of Mr. Wilson consisted of 52,000 shares valued at
$425,750, the market value of these shares as of December 31, 1995,
without giving effect to the diminution in value attributable to the
restriction of such stock.
(5) Includes: (i) for 1995, an automobile allowance of $5,040 and the
payment of premiums on a term life insurance policy of $535; (ii) for
1994, an automobile allowance of $5,040 and the payment of premiums on
a term life insurance policy of $470; and (iii) for 1993, an automobile
allowance of $5,254.
(6) 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.
(7) Includes: (i) for 1995, an expense allowance of $24,000 and the payment
of premiums on a term life insurance policy of $825; (ii) for 1994, an
expense allowance of $24,000 and the payment of premiums on a term life
insurance policy of $665; and (iii) for 1993, an expense allowance of
$16,000 and the payment of premiums on a term life insurance policy of
$525.
(8) 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.
</FN>
</TABLE>
STOCK OPTIONS/SAR GRANTS
34
<PAGE>
No stock option grants or Stock Appreciation Rights ("SARs") were made
during the year ended December 31, 1995 to any of the named executive officers
of the Company.
<TABLE>
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,
1995.
<CAPTION>
Number of
Securities
Underlying Value of
Unexercised Unexercised
Options/SARS In-the-Money
Shares as of Options/SARs at
Name Acquired December 31,1995 December 31, 1995(1)
- ---- on Value Exercisable/ Exercisable/
Exercise Realized Unexercisable Unexercisable
--------- -------- ---------------- -------------------
<S> <C> <C> <C> <C>
Bruce A. Wilson 22,500 $120,938 72,500 / 30,000 $178,125 / $56,250
Ricky Williams 22,500 $ 28,750 45,000 / 10,000 $131,250 / $18,750
M. Scott Foster 50,000 $122,813 62,500 / 40,000 $127,500 / $116,250
<FN>
(1) Based upon the average closing bid and asked prices of the Company's
Common Stock on December 29, 1995 ($8.50 per share), less the exercise
price for the aggregate number of shares subject to the options.
</FN>
</TABLE>
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
35
<PAGE>
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 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
36
<PAGE>
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 24,000 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, 1995, an aggregate of 20,000
restricted shares were vested.
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<PAGE>
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 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 pretax 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 longterm 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
38
<PAGE>
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 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. 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.
On January 12, 1996, Lawrence M. Barnett and the Company entered into a
new employment agreement. Pursuant to this agreement, Mr. Barnett is employed as
the Company's Chairman on a less than full time basis until December 31, 1998.
Mr. Barnett receives a salary at the rate of $12,000 per year. For the fiscal
1996 year, the Company has agreed to pay the premium on a term life insurance in
the amount of $500,000 payable to a beneficiary designated
39
<PAGE>
by him. The exercise term of all unexercised options held by Mr. Barnett was
extended to December 31, 1998.
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 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. On November 4, 1993, Mr. Williams was granted options to purchase 30,000
shares of the Company's Common Stock at an exercise price of $6.625 per share,
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.
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
40
<PAGE>
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.
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.
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
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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
42
<PAGE>
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 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
43
<PAGE>
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.
44
<PAGE>
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 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"
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(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 STOCK OPTION PLAN
At the Annual Meeting held on August 11, 1995, the Board of Directors
presented for approval of the Stockholders the Non-Employee Director Stock
Option Plan (the "Director Plan"), which approval was granted. 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 are
directors on the date of approval of the Director Plan by the Stockholders, on
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<PAGE>
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 the 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 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 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 the 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 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
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treatment. As of March 1, 1996, there were outstanding options to purchase
15,000 and 10,000 shares under the Director Plan, at an exercise price of $8.00
and $10.50 per share, respectively.
EMPLOYEE 401(K) PLAN
The Company established a 401(k) Profit Sharing Plan and Trust through
the adoption of the Dun & Bradstreet Pension Services, Inc. Non-Standardized
401(k) Profit Sharing Plan and Trust (the "Plan"). The Plan is effective January
1, 1996 and covers all employees of the Company. Each present employee or new
hire is eligible to participate in the Plan after one year of service. Each
eligible employee may elect to voluntarily contribute out of his or her
compensation amount ranging from 1% to 15% of compensation. The Company, though
not required, may elect to make a matching contribution equal to a discretionary
percentage, to be determined by the Company, of the employees' salary
contributions. Vesting of a participant's interest in the Plan is in accordance
with a schedule of vesting ranging from 20% after two years of service to 100%
after six years of service.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 1, 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:
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
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Amount of
and Nature of
Name and Address of Beneficial Percentage
Beneficial Owner Ownership of Class
- ------------------- -------------- ------------
Lawrence M. Barnett 26,885(l)(2) 1.7%
1129 N.McDowell Blvd
Petaluma, CA 94954
Bruce A. Wilson 124,600(3)(4) 7.4%
1129 N.McDowell Blvd
Petaluma, CA 94954
Robert Fagenson 23,125(5) 1%
19 Rector Street
New York, NY 10006
Starr Securities, Inc. 111,048(6) 7.2%
19 Rector Street
New York, NY 10006
Paul Bluhdorn 181,256(7) 10.8%
P.O. Box 7854
Burbank, CA 91510
Mark S. Siegel 70,062(8) 4.6%
P.O. Box 7854
Burbank, CA 91510
Yvette Bluhdorn 71,738(8)(9) 4.7%
P.O. Box 7854
Burbank, CA 91510
Estate of
Ludwig Jesselson 182,071(10)(11) 10%
1301 Avenue of the
Americas
New York, NY 10019
Michael Jesselson 92,062(10)(11)(12) 6%
1301 Avenue of the
Americas
New York, NY 10019
Ricky Williams 45,000(13) 2.4%
1129 N. McDowell Blvd
Petaluma, CA 94954
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<PAGE>
Amount of
and Nature of
Name and Address of Beneficial Percentage
Beneficial Owner Ownership of Class
- ------------------- -------------- ------------
M. Scott Foster 62,500(14) 3.3%
1129 N. McDowell Blvd
Petaluma, CA 94954
All Officers and Directors
as a Group (5 persons in
number)(1)(2)(3)(4)(13)(14) 511,243 25.2%
- ---------
(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 15,000 vested and presently exercisable options and options to
purchase 5,000 shares of Common Stock not presently vested.
(3) Includes 72,000 vested and presently exercisable options and excludes
options to purchase 63,000 shares of Common Stock not presently vested.
(4) Includes 40,000 restricted shares subject to vesting at the rate of
4,000 shares per year on December 31st in each year.
(5) Includes vested options to purchase 15,000 shares of the Company's
Common Stock and excludes unvested options to purchase 5,000 shares.
(6) Based upon (i) information contained in an amendment to a Schedule 13D
dated March 3, 1992 filed on behalf of Starr Securities, Inc. ("Starr")
and its shareholders as members of a group (the "Starr 13D") and (ii)
records of the Company indicating a transfer by Starr of 12,500
Warrants included in the Starr 13D. Includes 91,628 shares of Common
Stock owned of record by Starr. According to the Starr 13D, Starr is a
registered broker-dealer and the share ownership reported therein does
not include shares held by Starr in its trading account.
(7) 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.
(8) Based on information contained in the Bluhdorn 13D and the corporate
records of the Company.
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(9) 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.
(10) Ludwig Jesselson died on April 3, 1993. Mr. Michael Jesselson is one of
four Executors of the estate of Mr. Jesselson. As Executor, Mr. Michael
Jesselson retains the authority with regard to the disposition of the
shares.
(11) Based on information contained in an amendment to a Schedule 13D dated
September 21, 1995 (the "Jesselson 13D") on behalf of Ludwig Jesselson,
Michael Jesselson, and the Estate of Ludwig Jesselson. Includes 175,488
shares of the Company's Common Stock owned by Ludwig Jesselson and
6,583 shares of the Common Stock owned by a trust created under the
will of Ludwig Jesselson, of which Michael Jesselson is the former
trustee. Does not include 92,062 shares of Common Stock owned by
Michael Jesselson, as to which shares of Common Stock Ludwig Jesselson
disclaims beneficial ownership.
(12) Based on information contained in the Jesselson 13D. Does not include
229,821 shares of Common Stock beneficially owned by Ludwig Jesselson,
as to which shares of Common Stock Michael Jesselson had disclaimed
beneficial ownership. 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.
(13) Includes 45,000 vested and presently exercisable options and excludes
options to purchase 10,000 shares of Common Stock not presently vested.
(14) Includes 62,500 vested and presently exercisable options, and excludes
options to purchase 40,000 shares of Common Stock not presently vested.
Item 12. Certain Relationships and Related Transactions
For information concerning the employment agreements of Bruce A.
Wilson, Lawrence M. Barnett, Rick Williams and M. Scott Foster, see Item 10
"Executive Compensation".
For information concerning the issuance of 60,000 restricted shares to
Mr. Bruce A. Wilson, see Item 10 "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. The
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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.
On August 11, 1995, upon adoption by the Company's shareholders of a
Non-Employee Director Stock Option Plan, Messrs. Fagenson and Jesselson were
each granted 5,000 options under the Director Plan. In addition, each will
receive automatic annual grants of 3,000 options as provided for in the Director
Plan.
ITEM 13. EXHIBITS, LIST AND
REPORTS ON FORM 8-K
(A) 1. Financial Statements
See Index to Financial Statements Attached hereto.
2. Financial Statement Schedules
See Index to Financial Statements attached hereto.
3. Exhibits:
Incorporated by reference to the Exhibit Index at the end of this
Report.
(B) Reports on Form 8-K
During the last quarter of the period covered by this Report, no
reports on Form 8-K were filed by the Registrant.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HEALTHY PLANET PRODUCTS, INC.
By \s\ Bruce A. Wilson
----------------------------
Bruce A. Wilson
President, Chief Executive, Chief
Operating and Chief Financial
Officer, and Principal Accounting
Officer
Dated: March 21, 1996
In accordance with the Exchange Act, this Report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
\s\ Lawrence M. Barnett March 21, 1996
- -----------------------------
Lawrence M. Barnett
Chairman of the Board
\s\ Bruce A. Wilson March 21, 1996
- -----------------------------
Bruce A. Wilson
President, Chief Executive,
Chief Operating and Chief
Financial Officer, and
Director
\s\ Robert Fagenson March 21, 1996
- -----------------------------
Robert Fagenson
Director
53
<PAGE>
\s\ M. Scott Foster March 21, 1996
- -----------------------------
M. Scott Foster
Director, Vice President-Sales
\s\ Michael Jesselson March 21, 1996
- -----------------------------
Michael Jesselson
Director
54
<PAGE>
EXHIBIT INDEX
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.
Exhibit
No. Description
- ------- -----------
2.1* Certificate of Merger of Carolyn Bean Publishing, Ltd. (California) and
Carolyn Bean Publishing, Ltd. (Delaware) [Exhibit 2.1 to Registration
Statement on Form S-18, File No. 2-97768]
3.1* Amended and Restated Certificate of Incorporation of Registrant
[Exhibit 3 to Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1990]
3.2* Certificate of Amendment of Certificate of Incorporation filed on
August 2, 1993 effecting change in Registrant's name to Healthy Planet
Products, Inc. [Exhibits 3.2 to Annual Report on Form 10-KSB for the
year ended December 31, 1993]
3.3* By-Laws [Exhibit 3.2 to Registration Statement on Form S-18, File No.
2-97768]
4.1* Form of Common Stock Certificate [Exhibit 4 to Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1990]
4.3* Rights, Designation and Preferences of Series B Preferred Stock
[Exhibit 4 Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1990]
4.4* Form of Rights, Designation and Preferences of Series D Preferred Stock
[Exhibit 4 to Current Report on Form 8-K dated January 8, 1993]
10.1* Form of Employment Agreement between Registrant and Bruce A. Wilson
[Exhibit 10.1 to Current Report on Form 8-K dated December 21, 1990]
10.2* Form of Employment Agreement between Registrant and Lawrence M. Barnett
[Exhibit 10.2 to Current Report on Form 8-K dated December 21, 1990]
10.3* Extension Agreements dated February 24, 1993 between Registrant and
Bruce Wilson and Lawrence Barnett extending Employment Agreements
[Exhibit 10.3 to Annual Report on Form 10-KSB dated March 22, 1993]
10.4* Extension and Modification Agreement dated September 10, 1993
<PAGE>
extending Employment Agreement of Rick Williams [Exhibit 10.1 to
Current Report on Form 8-K dated September 24, 1993]
10.5* Modification to Employment Agreement of M. Scott Foster [Exhibit 10.2
to Current Report on Form 8-K dated September 24, 1993]
10.6* Modification to Employment Agreement of Bruce A. Wilson [Exhibit 10 to
Current Report on Form 8-K dated November 3, 1993]
10.7* License Agreement between Registrant and Sierra Club dated December 30,
1995 [Exhibit 10.1 to Current Report on Form 8-K dated January 24,
1995]
10.8* License Agreement between Registrant and The Wilderness Society dated
June 24, 1995 [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 [Exibit 10.2 to Current Report on Form 8-K dated
July 1, 1994]
10.10* License Agreement between Registrant and The Marine Mammal Center dated
July 28, 1994
10.11* Lease for premises 1129 North McDowell Boulevard, Petaluma, California
94954 [Exhibit 10 to Current Report on Form 8-K dated December 26,
1991]
10.12* License Agreement between Registrant and Twin Oaks Publishing Limited
dated December 18, 1995 [Exhibit 10.1 to Current Report on Form 8-K
dated December 18, 1995]
11.0 Computation of Earnings per Common Share
23.0 Consent of Moss Adams, Independent Auditors, to the incorporation by
reference in the Registration Statement of Healthy Planet Products,
Inc. on Form S-8 (File No. 33-84740) of their report dated February
28, 1995
27. Financial Data Schedule
28.1* Registrant's 1991 Senior Management Incentive Plan [Exhibit 28 to Form
8-K dated June 27, 1991]
28.2* Registrant's Non-Employee Director Stock Option Plan
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
Independent Auditor's Report F - 1
Balance Sheets - December 31, 1994 and 1995 F - 2
Statements of Income -
Years ended December 31, 1994 and 1995 F - 3
Statements of Shareholders' Equity -
Years ended December 31, 1994 and 1995 F - 4
Statements of Cash Flows -
Years ended December 31, 1994 and 1995 F - 5
Notes to Financial Statements F - 6
to
F -13
<PAGE>
MOSS-ADAMS LLP
- --------------------------------------------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS 438 First Street, Suite 320
Santa Rosa, CA 95401-6339
Phone 707.527.0800
FAX 707.575.1712
Offices in Principal Cities of
Washington, Oregon and California
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors
Healthy Planet Products, Inc.
We have audited the accompanying balance sheets of Healthy Planet Products,
Inc., as of December 31, 1995 and 1994, and the related statements of income,
shareholders' equity and cash flows for the years then ended. 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 audits 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, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
/S/ MOSS ADAMS LLP
Santa Rosa, California
February 2, 1996
A member of
Moores
Rowland
International
An association of independent
accounting firms throughout the world.
F - 1
<PAGE>
<TABLE>
HEALTHY PLANET PRODUCTS, INC.
BALANCE SHEETS
<CAPTION>
December 31,
----------------------------------
1994 1995
----------- -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,547,500 $ 4,142,100
Accounts receivable 1,009,800 736,500
Inventories 694,700 905,300
Prepaid expenses 26,000 33,200
Deferred income taxes 450,000 740,000
----------- -----------
Total current assets 4,728,000 6,557,100
----------- -----------
PROPERTY AND EQUIPMENT 228,300 444,900
----------- -----------
OTHER ASSETS
Deferred income taxes 560,000 1,283,000
Intangible assets 105,400 116,900
Other 102,800 16,400
----------- -----------
768,200 1,416,300
----------- -----------
Total assets $ 5,724,500 $ 8,418,300
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 226,200 $ 293,900
Royalties payable 80,200 8,600
Commissions payable 123,900 156,000
Income taxes payable - 9,600
Accrued wages, bonuses and payroll taxes 126,300 131,500
Accrued liabilities 30,900 17,900
Accrued rent payable - 90,400
----------- -----------
Total current liabilities 587,500 707,900
----------- -----------
ACCRUED RENT PAYABLE 86,900 -
----------- -----------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 12,000,000 shares
authorized, 1,522,216 and 1,744,028 shares
issued and outstanding, respectively 15,200 17,400
Preferred stock, with aggregate liquidation
preference totaling $1,401,400 36,600 25,600
Additional paid-in capital 11,665,400 12,189,600
Accumulated deficit (6,667,100) (4,522,200)
----------- -----------
Total shareholders' equity 5,050,100 7,710,400
----------- -----------
Total liabilities and shareholders' equity $ 5,724,500 $ 8,418,300
=========== ===========
<FN>
The accompanying notes are an integral
part of these financial statements.
</FN>
</TABLE>
F - 2
<PAGE>
<TABLE>
HEALTHY PLANET PRODUCTS, INC.
STATEMENTS OF INCOME
<CAPTION>
Year Ended December 31,
----------------------------
1994 1995
---------- ----------
<S> <C> <C>
Net sales $4,736,400 $5,892,300
Cost of goods sold 1,782,400 2,286,700
---------- ----------
Gross profit 2,954,000 3,605,600
---------- ----------
Operating expenses
Selling, shipping and marketing 847,400 998,300
General and administrative 1,398,900 1,580,800
---------- ----------
2,246,300 2,579,100
---------- ----------
Operating income 707,700 1,026,500
---------- ----------
Other income (expense)
Interest income 49,500 129,700
Other income 1,300 5,500
---------- ----------
50,800 135,200
---------- ----------
Income before income taxes 758,500 1,161,700
Income tax benefit 349,200 983,200
---------- ----------
Net income 1,107,700 2,144,900
Dividends paid and accumulated on preferred stock (13,500) (9,000)
---------- ----------
Income applicable to common stock $1,094,200 $2,135,900
========== ==========
Earnings per share $ .56 $ 1.05
========== ==========
Weighted average common shares and equivalents outstanding 1,952,509 2,041,645
========== ==========
<FN>
The accompanying notes are an integral
part of these financial statements.
</FN>
</TABLE>
F - 3
<PAGE>
<TABLE>
HEALTHY PLANET PRODUCTS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
PREFERRED STOCK
-----------------------------------------------------------
COMMON STOCK SERIES B SERIES D
--------------------------- ---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1993 1,516,382 $ 15,100 1,251 $ 100 371,009 $ 37,100
Net income for the year
ended December 31, 1994 -- -- -- -- -- --
Conversion of Series D
Preferred stock to common stock 5,834 100 -- -- (5,834) (600)
Vesting of 4,000 restricted
shares of common stock -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance,
December 31, 1994 1,522,216 $ 15,200 1,251 $ 100 365,175 $ 36,500
------------ ------------ ------------ ------------ ------------ ------------
Net income for the year
ended December 31, 1995 -- -- -- -- -- --
Conversion of Series D
Preferred stock to common stock 110,500 1,100 -- -- (110,500) (11,000)
Conversion of Series B
Preferred stock to common stock 8,334 100 (417) -- -- --
Vesting of 4,000 restricted
shares of common stock -- -- -- -- -- --
Exercise of employee stock options 60,000 600 -- -- -- --
Exercise of warrants 42,978 400 -- -- -- --
Cost of registration of warrants -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 1,744,028 $ 17,400 834 $ 100 254,675 $ 25,500
============ ============ ============ ============ ============ ============
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE>
ADDITIONAL
PAID-IN ACCUMULATED
CAPITAL DEFICIT
------------ ------------
Balance,
December 31, 1993 $ 11,642,400 $ (7,774,800)
Net income for the year
ended December 31, 1994 -- 1,107,700
Conversion of Series D
Preferred stock to common stock 500 --
Vesting of 4,000 restricted
shares of common stock 22,500 --
------------ ------------
Balance,
December 31, 1994 $ 11,665,400 $ (6,667,100)
------------ ------------
Net income for the year
ended December 31, 1995 -- 2,144,900
Conversion of Series D
Preferred stock to common stock 9,900 --
Conversion of Series B
Preferred stock to common stock (100) --
Vesting of 4,000 restricted
shares of common stock 22,500 --
Exercise of employee stock options 295,600 --
Exercise of warrants 245,300 --
Cost of registration of warrants (49,000) --
------------ ------------
Balance, December 31, 1995 $ 12,189,600 $ (4,522,200)
============ ============
The accompanying notes are an integral
part of these financial statements.
F - 4
<PAGE>
<TABLE>
HEALTHY PLANET PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31,
---------------------------------
1994 1995
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,107,700 $ 2,144,900
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 111,400 145,900
Change in allowance for doubtful
accounts and returns 51,200 302,800
Grant of restricted shares 22,500 22,500
Deferred income taxes (350,000) (1,013,000)
Changes in:
Accounts receivable (677,100) (29,500)
Inventories (70,800) (210,600)
Advance on royalties 8,400 -
Prepaid expenses 50,400 (7,200)
Accounts payable (91,100) 67,700
Royalties payable (31,600) (71,600)
Commissions payable (4,900) 32,100
Income taxes payable - 9,600
Accrued wages, bonuses and payroll taxes 35,100 5,200
Accrued liabilities (5,000) (13,000)
Accrued rent payable 18,600 3,500
---------- -----------
Net cash provided by operating activities 174,800 1,389,300
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (161,400) (306,500)
Increase in publishing rights (78,000) (67,500)
Other (86,800) 86,400
---------- -----------
Net cash used by investing activities (326,200) (287,600)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Costs of registration of warrants - (49,000)
Proceeds from exercise of warrants - 245,700
Proceeds from exercise of employee stock options - 296,200
---------- -----------
Net cash provided by financing activities - 492,900
---------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (151,400) 1,594,600
CASH AND CASH EQUIVALENTS
Beginning of year 2,698,900 2,547,500
---------- -----------
End of year $2,547,500 $ 4,142,100
========== ===========
<FN>
The accompanying notes are an integral
part of these financial statements.
</FN>
</TABLE>
F - 5
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 and 1994
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 Company's products are marketed to
over 4,800 retail sales outlets. A small portion of Company sales are the result
of direct response catalog sales. 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 are 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:
Machinery, equipment and leasehold
improvements 3 to 7 years
Color separations 3 years
Furniture and fixtures 5 years
Computer software 5 years
(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 - The provision for income taxes is based on pre-tax
earnings reported in the financial statements, adjusted for requirements of
current tax law, plus the change in deferred taxes. Deferred tax assets and
liabilities are recognized using enacted tax rates and reflect the expected
future tax consequences of temporary differences between the recorded amounts of
assets and liabilities for financial reporting purposes and tax basis of such
assets and liabilities and future benefits from net operating loss carryforwards
and other expenses previously recorded for financial reporting purposes. Income
taxes are described further in Note 6.
(f) Other assets - Publishing rights consist of costs incurred to
obtain images for use on the Company's products. Such costs are capitalized and
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 and
exercise of stock options and warrants which would have a dilutive effect on
earnings. Net earnings were reduced for preferred stock dividends paid and/or
accumulated in 1995 and 1994, by $9,000 and $13,500, respectively.
F - 6
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1995 and 1994
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
(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 trade receivable
balances of the Company's largest customers. Cash equivalents consist of CD's at
various financial institutions and are within FDIC insurance thresholds.
Receivables are not collateralized, but the Company conducts frequent credit
checks on customers with material balances.
(i) Use of estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires the Company
make estimates and assumptions affecting the reported amounts of assets,
liabilities, revenues and expenses, and disclosure of contingent assets and
liabilities. The amounts estimated could differ from actual results.
(j) Advertising - Costs associated with the production of catalogs are
capitalized and amortized over the expected life of the catalog of 1-2 years.
All other advertising costs are expensed as incurred. Advertising expense
totaled $24,800 and $29,500 for the years ended December 31, 1995 and 1994,
respectively.
(k) Stock-based compensation - The Financial Accounting Standards Board
has recently issued Statement of Financial Accounting Standards No. 123 (SFAS
123), Accounting for Stock-Based Compensation. This standard will become
effective for the year ending December 31, 1996, although earlier application is
permitted. The Company has determined that it will implement the new standard in
1996. Under SFAS 123, a fair value method is used to determine compensation cost
for stock options or similar equity instruments. Compensation is measured at the
grant date and is recognized over the service or vesting period. Under the
current accounting standard, compensation cost is the excess, if any, of the
quoted market price of the stock at a measurement date over the amount that must
be paid to acquire the stock.
The new standard would allow the Company to continue to account for
stock-based compensation under the current standard, with disclosure of the
effects of the new standard, or adopt a fair value based method of accounting.
The Company has not yet decided which method will be utilized, nor has it
determined the impact, if any, that adoption of the new standard will have on
the financial condition and results of operations. However, management believes
the effect of the new accounting standard will not be significant.
NOTE 2 - ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
December 31,
------------------------------
1994 1995
---------- ----------
Accounts receivable $1,214,000 $1,243,500
Less allowances for doubtful
accounts and returns (204,200) (507,000)
---------- ----------
$1,009,800 $ 736,500
========== ==========
F - 7
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1995 and 1994
NOTE 3 - INVENTORIES
Inventories consist of the following:
December 31,
--------------------------
1994 1995
--------- ----------
Raw materials $ 6,300 $ 36,800
Work-in-process 508,100 539,200
Finished goods 180,300 329,300
---------- ----------
$ 694,700 $ 905,300
========== ==========
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
Machinery, equipment and
leasehold improvements $ 479,100 $ 748,900
Color separations 280,700 317,400
Furniture and fixtures 72,700 72,700
Computer software 38,200 38,200
---------- ----------
870,700 1,177,200
Less accumulated depreciation
and amortization (642,400) (732,300)
---------- ----------
$ 228,300 $ 444,900
========== ==========
NOTE 5 - INTANGIBLE ASSETS
Intangible assets consist of the following:
Publishing rights $ 309,300 $ 376,800
Less accumulated amortization (203,900) (259,900)
---------- ----------
$ 105,400 $ 116,900
========== ==========
NOTE 6 - INCOME TAXES
Income taxes consist of the following:
Year Ended December 31,
---------------------------
1994 1995
----------- ----------
Current
Federal $ - $ 29,000
State 800 800
---------- ----------
800 29,800
---------- ----------
F - 8
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1995 and 1994
NOTE 6 - INCOME TAXES (Continued)
Year Ended December 31,
------------------------------
1994 1995
--------- -----------
Deferred
Current $(390,000) $ (290,000)
Non-current 40,000 (723,000)
--------- -----------
(350,000) (1,013,000)
--------- -----------
$(349,200) $ (983,200)
========= ===========
The difference between the actual income tax benefit and the tax
benefit computed by applying the statutory federal income tax rate to earnings
before taxes is attributable to the following:
Year Ended December 31,
--------------------------
1994 1995
------ -------
Income tax provision 34.0 % 34.0 %
State taxes 9.3 9.3
Recognition of net operating
loss carryforward (43.3) -
Change in deferred tax asset
valuation allowance (46.8) (139.0)
Change in allowance for doubtful
accounts and returns 3.0 11.0
Other (2.2) (.3)
----- ------
(46.0)% (85.0)%
===== ======
At December 31, 1995, the Company had available net operating loss
carryovers of approximately $5,090,000 to be applied against future federal
taxable income. Due to a change in ownership during 1988, $3,339,000 of these
amounts are 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.
For federal tax purposes, net operating losses expire as follows:
Year Ending December 31,
------------------------
2000 $ 502,000
2001 745,000
2002 2,092,000
2003 34,000
2004 1,300,000
2005 385,000
2006 32,000
----------
$5,090,000
==========
F - 9
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1995 and 1994
NOTE 6 - INCOME TAXES (Continued)
The Company has available approximately $15,600 and $6,300 of federal
and California investment tax credits, respectively, which can be carried
forward and offset against future income taxes.
<TABLE>
Temporary differences and carryforwards which give rise to deferred tax
assets at December 31, are as follows:
<CAPTION>
December 31,
-------------------------------
1994 1995
---------- -----------
<S> <C> <C>
Accounts receivable allowances $ 88,400 $ 219,500
Inventory reserve 35,000 32,900
Benefits from net operating loss carryforward 316,200 497,300
Other 10,400 (9,700)
---------- -----------
Current deferred tax asset $ 450,000 $ 740,000
========== ===========
Depreciation and amortization $ 23,600 $ 25,300
Benefits from net operating loss carryforward 2,165,600 1,233,100
Other (14,200) 24,600
---------- -----------
Non current deferred tax asset 2,175,000 1,283,000
---------- -----------
Less valuation allowance (1,615,000) -
---------- -----------
$ 560,000 $ 1,283,000
========== ===========
</TABLE>
Management of the Company believes it is more likely than not that all net
operating loss carryforwards will be utilized prior to expiration. Accordingly,
the valuation allowance was eliminated in the third quarter of 1995.
NOTE 7 - LINE OF CREDIT
The Company has available a revolving line of credit for up to $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 that the Company meet restrictions relating
to key financial ratios. At December 31, 1995, the Company had no outstanding
draws under this line-of-credit agreement.
F - 10
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1995 and 1994
NOTE 8 - COMMITMENTS
Leases - 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:
Year Ending December 31,
------------------------
1996 $208,200
1997 223,200
1998 238,200
1999 60,500
--------
$730,100
========
Rent expense totaled $205,800 and $196,800 for the years ended December
31, 1995 and 1994, respectively.
Subsequent to year end the Company entered into a new lease for
warehouse and offices space. The lease term is for 10 years with annual minimum
lease payments ranging from $317,800 to $602,900. The new lease releases the
Company from all liability under the current lease.
Employment Agreements - The Company entered into employment agreements
expiring through December 31, 1999, with four key employees. Compensation
related to these agreements amount to $364,100 for the year ending December 31,
1995.
License Agreements - 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
agreements call for royalty payments of 2% - 10% of net sales, as defined in the
agreements, subject to minimum cumulative royalties of $4,374,700, over the life
of these agreements. Options exist to extend the terms of certain agreements.
Sales under the Sierra Club agreement accounted for 85% and 83% of total sales
for the years ended December 31, 1995 and 1994, respectively.
NOTE 9 - MAJOR SUPPLIERS
During the year ended December 31, 1995, the Company made 45.7%, 18.9%
and 12.4% of its purchases from three suppliers. Amounts due to suppliers
included in accounts payable totaled $174,200 at December 31, 1995.
F - 11
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1995 and 1994
NOTE 10-CAPITAL STOCK
Preferred Stock
<TABLE>
Preferred stock consists of the following:
<CAPTION>
December 31
--------------------
1994 1995
------- --------
<S> <C> <C>
Series B, $.10 par value, with aggregate liquidation preference
of $100,000, 14,250 shares authorized, 1,251 and 834
shares issued and outstanding, respectively $ 100 $ 100
Series D, $.10 par value, with aggregate liquidation preference
of $1,301,400, 371,009 shares authorized, 365,175 and 254,675
shares issued and outstanding,
respectively 36,500 25,500
------- -------
$36,600 $25,600
======= =======
</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. At December 31, 1995, cumulative
dividends totaled $52,500. During 1995, 417 shares of Series B Preferred Stock
were converted to common stock.
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 1995, 110,500
shares of Series D Preferred stock were converted to common stock.
NOTE 11-STOCK OPTIONS AND WARRANTS
The Company has a stock option plan which 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 465,000 shares of common
stock. No options shall be granted under the Plan after 2001. The Company also
has a stock option plan which provides for the granting of stock options to
non-employee directors and members of any advisory boards, as defined in the
agreement, to purchase up to an aggregate of 75,000 shares of common stock. No
options shall be granted under the plan after 2005. During 1995, 10,000 options
were granted and 60,000 options were exercised. At December 31, 1995, 249,000
common stock options were exercisable. In addition, 91,000 options become
exercisable in 1996.
F - 12
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1995 and 1994
NOTE 11-STOCK OPTIONS AND WARRANTS (Continued)
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 related to the income attributable to vesting of shares.
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. During 1995, 42,978 of these warrants were exercised.
<TABLE>
The activity of the stock option plan and warrants is as follows:
<CAPTION>
Shares Under Shares Under Restricted
Warrants Options Shares
------- ------- ------
<S> <C> <C> <C>
Balance, December 31, 1993 51,095 375,000 48,000
Granted - 15,000 -
Exercised - - -
Vested - - (4,000)
------- ------- ------
Balance, December 31, 1994 51,095 390,000 44,000
Granted - 10,000 -
Exercised (42,978) (60,000) -
Vested - - (4,000)
------- ------- ------
Balance, December 31, 1995 8,117 340,000 40,000
======= ======= ======
</TABLE>
NOTE 12 - STATEMENTS OF CASH FLOWS
Supplementary cash flow information includes the following:
December 31,
---------------
1994 1995
------ ------
Cash paid during the year for:
Interest $ 2,400 $ -
Income taxes 800 20,200
Non-cash investing and financing activities for the year ended December
31, 1995 consisted of converting 110,500 shares of Series D Preferred stock to
110,500 shares of common stock and converting 417 shares of Series B Preferred
Stock to 8,334 shares of common stock.
NOTE 13-MAJOR CUSTOMER
Sales to a major customer was approximately $1,148,700 during the year
ended December 31, 1995, representing 19.5% of total sales. At December 31,
1995, amounts due from this customer included in accounts receivable was
$351,100.
F - 13
<TABLE>
COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 11
<CAPTION>
Year Ended December 31,
-----------------------------
1994 1995
---------- ----------
<S> <C> <C>
Primary earnings per share
Net income $1,107,700 $2,144,900
Cumulative dividends on preferred stock (13,500) (9,000)
---------- ----------
Income applicable to common stock $1,094,200 $2,135,900
========== ==========
Shares
Weighted average number of common shares outstanding 1,522,077 1,645,005
Add dilutive effect of conversion of preferred stock
and outstanding options and warrants (as determined
by the application of the treasury stock method) 430,432 396,640
---------- ----------
1,952,509 2,041,645
========== ==========
Primary earnings per share (1) $ .56 $ 1.05
========== ==========
<FN>
(1) Fully diluted earnings per share does not differ from primary
earnings per share, because the effect would be antidilutive.
</FN>
</TABLE>
MOSS-ADAMS LLP
- --------------------------------------------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS 438 First Street, Suite 320
Santa Rosa, CA 95401-6339
Phone 707.527.0800
FAX 707.575.1712
Offices in Principal Cities of
Washington, Oregon and California
EXHIBIT 23.0
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders of
Healthy Planet Products, Inc.
We consent to the incorporation by reference in the Registration Statement of
Healthy Planet Products, Inc., on Form S-8 (File No. 33-84740) of our report
dated February 2, 1996, on our audits of the financial statements and financial
statement schedules of Healthy Planet Products, Inc., as of December 31, 1995
and 1994, and for each of the two fiscal years in the period ended December 31,
1995, which report is included in this Annual Report on Form 10-KSB.
/s/ MOSS ADAMS LLP
Santa Rosa, California
March 12, 1996
A member of
Moores
Rowland
International
An association of independent
accounting firms throughout the world.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,142,100
<SECURITIES> 0
<RECEIVABLES> 1,243,500
<ALLOWANCES> 507,000
<INVENTORY> 905,300
<CURRENT-ASSETS> 6,557,100
<PP&E> 1,177,200
<DEPRECIATION> 732,300
<TOTAL-ASSETS> 8,418,300
<CURRENT-LIABILITIES> 707,900
<BONDS> 0
<COMMON> 17,400
0
25,600
<OTHER-SE> 7,667,400
<TOTAL-LIABILITY-AND-EQUITY> 8,418,300
<SALES> 5,892,300
<TOTAL-REVENUES> 6,027,500
<CGS> 2,286,700
<TOTAL-COSTS> 4,865,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,161,700
<INCOME-TAX> (983,200)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,135,900
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
</TABLE>
