GOLDSTEIN, AXELROD & DIGIOIA, LLP
369 Lexington Avenue
New York, New York 10017
Telephone (212) 599-3322
Telecopier (212) 557-0295
May 14, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: EDGAR Filing
Name of Company : Healthy Planet Products, Inc.
Type of Report : Form 10-QSB for the quarter
ending March 31, 1996
SEC File No. : 1-13048
Gentlemen:
In accordance with the provisions of Regulation S-T and on behalf of
the above-referenced Registrant, we transmit to you the Registrant's EDGAR
filing of Registrant's quarterly report on Form 10-QSB for the quarter ended
March 31, 1996. We request both electronic and hard copy acceptance message.
A manually signed hard copy of the transmitted report has been retained
together with the Company's books and records.
Very truly yours,
\s\ Charles P. Axelrod
CHARLES P. AXELROD
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
-------
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
/_____/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission File No. 1-13048
HEALTHY PLANET PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2601764
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1700 Corporate Circle, Petaluma, California 94954
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (707) 778-2280
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
---------- -------
As of May 6, 1996, there were issued and outstanding 1,827,362 shares
of common stock of the registrant (exclusive of 186,341 shares of voting Series
D Preferred Stock convertible into 186,341 shares of common stock).
Page 1 of 12
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
INDEX
Page
Form 10-QSB Cover Page 1
Index 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet at March 31, 1996 3
Statements of Income for the three-months ended 5
and nine months ended March 31, 1996 and 1995
Statements of Cash Flows for the three-months ended 6
and nine months ended March 31, 1996 and 1995
Notes to the Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K, Signature 12
Page 2 of 12
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
HEALTHY PLANET PRODUCTS, INC.
BALANCE SHEET
ASSETS
March 31,
1996
----------
(Unaudited)
CURRENT ASSETS
Cash $3,516,481
Accounts receivable - net of allowances for doubtful
accounts and returns of $124,000 637,604
Inventories 1,151,137
Advance on royalties 274,716
Prepaid expenses 146,772
Deferred income taxes 740,000
------------
Total current assets 6,466,710
------------
PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation and amortization 440,106
------------
OTHER ASSETS
Deferred income taxes 1,236,270
Security deposits 73,338
Publishing rights - net of accumulated
amortization of $276,832 118,660
Other 2,820
------------
Total other assets 1,431,088
------------
TOTAL ASSETS $8,337,904
============
The accompanying notes are an integral
part of these financial statements.
Page 3 of 12
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
BALANCE SHEET (Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31,
1996
------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 371,074
Royalties payable 10,318
Commissions payable 24,299
Accrued wages, bonus' and payroll taxes 44,173
Accrued liabilities 4,766
Accrued rent payable 90,398
------------
Total current liabilities 545,028
TOTAL LIABILITIES 545,028
------------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 12,000,000 shares
authorized, 1,812,362 shares issued and outstanding 18,123
Preferred stock, Series B, $.10 par value, with
aggregate liquidation preferences of $100,080,
14,250 shares authorized, 834 shares issued
and outstanding 83
Preferred stock, Series D, $.10 par value, with
aggregate liquidation preferences of $952,203
371,009 shares authorized, 186,341 issued and
outstanding 18,634
Additional paid-in capital 12,195,761
Accumulated deficit (4,439,725)
------------
Total Shareholders' Equity 7,792,876
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $8,337,904
============
The accompanying notes are an integral
part of these financial statements.
Page 4 of 12
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
STATEMENT OF INCOME
(Unaudited)
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
NET SALES $840,694 $885,833
COST OF GOODS SOLD 283,652 258,020
---------- ----------
GROSS PROFIT 557,042 627,813
---------- ----------
OPERATING EXPENSES:
Selling, shipping and marketing 147,612 176,033
General and administrative 359,639 355,454
---------- ----------
507,251 531,487
---------- ----------
OPERATING INCOME 49,791 96,326
---------- ----------
OTHER INCOME:
Interest income 47,167 35,395
Other income 40,318 200
---------- ----------
87,485 35,595
---------- ----------
INCOME BEFORE TAXES 137,276 131,921
PROVISION (BENEFIT) FOR
INCOME TAXES 54,910 (60,450)
---------- ----------
NET INCOME $ 82,366 $192,371
========== ==========
EARNINGS PER SHARE $ .04 $ .10
========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 2,055,166 1,998,437
========== ==========
The accompanying notes are an integral part of these financial statements.
Page 5 of 12
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
(Unaudited)
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 82,366 $ 192,371
Non-cash items included in net income
Depreciation and amortization 45,038 31,596
Decrease in allowances for doubtful
accounts and returns (382,658) (58,079)
Increase/decrease in deferred income taxes 46,730 (73,600)
Changes in:
Accounts receivables 481,513 555,156
Inventories (245,863) (184,632)
Advances on royalties (274,716) (293,530)
Prepaid expenses (113,561) (98,116)
Accounts payable 77,214 88,695
Royalties payable 1,712 (5,729)
Commissions payable (129,944) (89,373)
Accrued wages, bonus' & payroll taxes (87,315) (81,997)
Accrued liabilities (24,423) (17,378)
Accrued rent payable 33 3,717
------------ ------------
Net cash used by operating activities (523,874) (30,899)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment & color separations (23,091) (5,482)
Security deposits (60,032) --
Other assets (18,653) (10,137)
------------ ------------
Net cash used by investing activities (101,776) (15,619)
------------ ------------
DECREASE IN CASH (625,650) (46,518)
CASH, BEGINNING OF PERIOD 4,142,131 2,547,537
------------ ------------
CASH, END OF PERIOD $3,516,481 $2,501,019
============ ============
SUPPLEMENTARY CASH FLOW INFORMATION INCLUDES THE FOLLOWING:
Cash paid during the period for:
Interest $ -- $ --
Income taxes $17,780 $13,150
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
Page 6 of 12
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations.
It is believed, however, that the disclosures are adequate to make the
information presented not misleading.
The financial statements, in the opinion of management, reflect all
adjustments necessary to fairly state the financial position and the results of
operations. These results are not necessarily to be considered indicative of the
results for the entire year.
NOTE 2 - INVENTORIES
Inventories consist of the following:
March 31,
1996
------------
Raw materials $ 52,774
Work-in-process 686,149
Finished goods 412,214
------------
$ 1,151,137
============
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
March 31,
1996
------------
Machinery, equipment and leasehold improvements $ 772,049
Color separations 317,428
Furniture and fixtures 72,664
Computer software 38,171
------------
1,200,312
Less accumulated depreciation and amortization (760,206)
------------
$ 440,106
============
Page 7 of 12
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 4 - INCOME TAXES
As of January 1, 1996 the Company had available federal net operating
loss and investment tax credit carryforwards of approximately $5,090,000 and
$15,600 to be applied against future federal taxable income, of which $3,339,000
of net operating losses are subject to a limitation under Section 382 of the
Internal Revenue Code of $476,950 per year. Also available are approximately
$29,000 of alternative minimum tax credit carryforwards to reduce future federal
and California regular income taxes over an indefinite period. In 1992, when the
Company adopted FAS 109, Accounting for Income Taxes, it reduced the deferred
income tax benefit of these loss carryforwards by establishing a valuation
allowance. For the quarter ended March 31, 1995, a portion of the valuation
allowance was eliminated, resulting in a net income tax benefit of $60,450.
However, as of September 30, 1995, due to the Company's profitability since 1992
and anticipated future results, management removed the remainder of the
valuation allowance. Based on anticipated growth in future years, the Company
believes it will fully utilize available Federal net operating losses prior to
expiration.
The income tax provision of $54,910 in 1996 is approximately 40% of
pre-tax earnings. The Company has substantial net operating loss carryforwards
and credits available to offset future income tax liabilities. The expected tax
effect of these losses and credits are reflected as deferred tax assets on the
accompanying balance sheet. The income tax provision in 1996 will result in a
reduction of this asset, in lieu of payment of taxes. Accordingly, as of March
31, 1996, defered tax assets have been reduced by $54,910. Deferred tax assets
consist of the following:
Net operating loss carryforwards $1,675,490
AMT carryforwards 29,000
Other 271,780
-----------
1,976,270
Deferred income taxes expected
to be utilized currently (740,000)
-----------
Deferred income taxes $1,236,270
===========
Page 8 of 12
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales
For the three months ended March 31, 1996, net sales amounted to
$840,694 which reflected a decrease of $45,139 or 5.1% versus the prior year
level of $885,833. Sales of the Sierra Club line remained at last year's level
offset by reduced sales in all other lines resulted in the quarter to quarter
5.1% decline.
Gross Profit
For the three months ended March 31, 1996, gross profit amounted to
$557,042 or 66.3% of sales. For the comparable prior year quarter, gross profit
amounted to $627,813 or 70.9% of sales. Increased sales of lower margined
products and returns contributed to the decline in gross margin.
Operating Expenses
For the three months ended March 31, 1996, selling, shipping and
marketing expenses amounted to $147,612 reflecting a decrease of $28,421 versus
last year's level of $176,033. Lower commissions and shipping expenses on lower
net sales contributed to the decrease.
General and administrative expenses amounted to $359,639 for the three
months ended March 31, 1996, reflecting an increase of $4,185 or 1.2% versus
last year's level of $355,454. Budgeted increases in staffing were offset by
lower bad debt costs to result in the marginal quarter to quarter increase.
Income
Operating income amounted to $49,791 for the three months ended March
31, 1996 reflecting a decrease versus the prior year's level of $96,326. The
decline of gross margin offset in part by lower operating expenses accounted for
the quarter to quarter operating income decline. For the three months ended
March 31, 1996, the Company's operating income before taxes was $137,276 or $.07
per share. For the comparable prior year period, the Company had net operating
income before taxes of $131,921 or $.07 per share. Income before taxes improved
$5,355 on a period to period basis. Net income amounted to $82,366 for the three
months ended March 31, 1996 representing $.04 per share. The income tax
provision of $54,910 in 1996 is approximately 40% of pre-tax earnings. The
Company has substantial net operating loss carryforwards and credits available
to offset future income tax liabilities. The expected tax effect of these losses
and credits are reflected as deferred tax assets on the accompanying balance
sheet. The income tax provision in 1996 will result in a reduction of this
asset, in lieu of payment of taxes. Accordingly, as of March 31, 1996, deferred
tax assets have been reduced by $54,910. For the comparable quarter last year
net income finished at $192,371 or $.10 per share. Included in last year's first
quarter net income was a $60,450 tax credit due to the adoption of FAS 109,
Accounting For Income Taxes. The comparative per share data is based on weighted
average shares outstanding in each of the respective periods.
Page 9 of 12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS (Continued)
Balance Sheet
Total assets amounted to $8,337,904 as of March 31, 1996 versus the
December 31, 1995 level of $8,418,300, reflecting a decrease of $80,396. The
period to period decrease was caused by decreases in cash, receivables, and
deferred taxes, offset by increases in royalty advances, inventory, prepaid
expenses, and capital expenditures. Total current liabilities amounted to
$545,028 at March 31, 1996 versus the December 31, 1995 level of $707,900. The
decrease was the result of the paydown of seasonal commissions and bonuses
offset by an increase in trade payables.
Liquidity and Capital Resources
At March 31, 1996, the Company's working capital was $5,921,682
reflecting an increase of $72,482 over working capital at December 31, 1995 of
$5,849,200. Cash of $523,874 was used during the period to support operating
activities. Cash of $101,776 was used during the period for capital
expenditures. Major capital expenditure for the quarter included the security
deposit paid to lease a new facility. The Company moved to this new facility on
April 15, 1996.
The present primary sources of the Company's liquidity has been cash
internally generated from operations, proceeds obtained by the Company through
the public sale of its securities, and the availability of a secured line of
credit. The Company has a $500,000 secured line of credit from Westamerica Bank.
The Company draws on this line from time to time on a short term basis. As of
March 31, 1996, there was no outstanding amount under this line of credit.
Effects of Inflation
The Company does not view the effects of inflation as having a material
effect upon its business. Increases in paper and labor costs have been offset by
increases in the price of the Company's cards and through higher print runs,
which have reduced the unit cost of the Company's card product. While the
Company has in the past increased its prices to its customers, it has maintained
its relative competitive price position within the general range of greeting
cards.
Page 10 of 12
<PAGE>
<TABLE>
HEALTHY PLANET PRODUCTS, INC.
COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 11
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1996 March 31, 1995
------------------ ------------------
<S> <C> <C>
Primary earnings per share
Net income $ 82,366 $ 192,371
Dividends paid on preferred stock -- --
Cumulative dividends on preferred stock -- --
----------- ------------
Income applicable to common stock $ 82,366 $ 192,371
=========== ============
Shares
Weighted average number of common
shares outstanding 1,812,362 1,526,383
Add dilutive effect of conversion of
preferred stock and outstanding
options and warrants, as determined
by the application of the treasury
stock method 242,804 472,054
----------- ------------
2,055,166 1,998,437
=========== ============
Primary earnings per share $ .04 $ .10
=========== ============
</TABLE>
Page 11 of 12
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K
During the quarter ended March 31, 1996, the following reports on Form
8-K were filed by the Registrant:
Date of Report Item Reported Description of Item
- -------------- ------------- --------------------
Jan. 11, 1996 Item 5. Other Events License Agreement between
Registrant and Twin Oaks
Publishing Limited
Feb. 15, 1996 Item 5. Other Events Lease for New Executive Offices
and Warehouse Facilities;
Adoption of 401(k) Profit Sharing
Plan and Trust
March 28, 1996 Item 6. Resignation Resignation of Mr. Lawrence
of Directors M. Barnett as an Employee
and Director of Registrant
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEALTHY PLANET PRODUCTS, INC.
(Registrant)
DATED: May 14, 1996 by: /s/ Bruce A. Wilson
-------------------------
Bruce A. Wilson
President, Chief Executive, Chief Operating
and Chief Financial Officer.
Page 12 of 12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,516,481
<SECURITIES> 0
<RECEIVABLES> 761,604
<ALLOWANCES> 124,000
<INVENTORY> 1,151,137
<CURRENT-ASSETS> 6,466,710
<PP&E> 1,200,312
<DEPRECIATION> (760,206)
<TOTAL-ASSETS> 8,337,904
<CURRENT-LIABILITIES> 545,028
<BONDS> 0
<COMMON> 18,817
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,337,904
<SALES> 840,694
<TOTAL-REVENUES> 840,694
<CGS> 283,652
<TOTAL-COSTS> 790,903
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 137,276
<INCOME-TAX> 54,910
<INCOME-CONTINUING> 82,366
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 82,366
<EPS-PRIMARY> .04
<EPS-DILUTED> .00
</TABLE>
