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, 1997
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 8, 1997, there were issued and outstanding 1,827,362 shares
of common stock of the registrant (exclusive of 186,341 shares of voting Series
D Preferred Stock convertible into 186,341 shares of common stock).
Page 1 of 13
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<TABLE>
HEALTHY PLANET PRODUCTS, INC.
<CAPTION>
INDEX
Page
<S> <C>
Form 10-QSB Cover Page 1
Index 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet at March 31, 1997 3
Statements of Operations for the three-months ended 5
March 31, 1997 and 1996
Statements of Cash Flows for the three-months ended 6
March 31, 1997 and 1996
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 13
</TABLE>
Page 2 of 13
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
HEALTHY PLANET PRODUCTS, INC.
BALANCE SHEET
ASSETS
March 31,
1997
----------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 882,945
Marketable securities 2,014,833
Accounts receivable - net of allowances for doubtful
accounts and returns of $120,196 727,801
Inventories 1,801,483
Advance on royalties 311,444
Prepaid expenses 176,872
Deferred income taxes 377,000
----------
Total current assets 6,292,378
----------
PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation and amortization 452,949
----------
OTHER ASSETS
Deferred income taxes 1,506,000
Security deposits 36,352
Publishing rights - net of accumulated
amortization of $350,230 111,398
Other 125,896
----------
Total other assets 1,779,646
----------
TOTAL ASSETS $8,524,973
==========
The accompanying notes are an integral
part of these financial statements.
Page 3 of 13
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HEALTHY PLANET PRODUCTS, INC.
BALANCE SHEET (Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31,
1997
------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 408,462
Royalties payable 8,619
Commissions payable 39,806
Income taxes payable 4,700
Dividends payable 61,500
Accrued wages, bonus' and payroll taxes 43,304
Accrued liabilities 21,624
------------
Total current liabilities 588,015
ACCRUED RENT PAYABLE 55,122
------------
TOTAL LIABILITIES 643,137
------------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 12,000,000 shares
authorized, 1,827,362 shares issued and outstanding 18,273
Preferred stock, Series B, $.10 par value, with
aggregate liquidation preferences of $100,080,
14,250 shares authorized, 834 shares issued
and outstanding 83
Preferred stock, Series D, $.10 par value, with
aggregate liquidation preferences of $952,203
371,009 shares authorized, 186,341 issued and
outstanding 18,634
Additional paid-in capital 12,308,071
Accumulated deficit (4,463,225)
------------
Total shareholders' equity 7,881,836
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,524,973
============
The accompanying notes are an integral
part of these financial statements.
Page 4 of 13
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HEALTHY PLANET PRODUCTS, INC.
STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
----------------------------
1997 1996
----------- -----------
NET SALES $ 828,281 $ 840,694
COST OF GOODS SOLD 362,998 283,652
----------- -----------
GROSS PROFIT 465,282 557,042
----------- -----------
OPERATING EXPENSES:
Selling, shipping and marketing 227,417 147,612
General and administrative 417,128 359,639
----------- -----------
644,545 507,251
----------- -----------
OPERATING (LOSS) INCOME (179,263) 49,791
----------- -----------
OTHER INCOME:
Interest income 44,966 47,167
Other income 4,643 40,318
----------- -----------
49,609 87,485
----------- -----------
INCOME (LOSS) BEFORE TAXES (129,654) 137,276
PROVISION FOR INCOME TAXES -- 54,910
----------- -----------
NET (LOSS) INCOME $ (129,654) $ 82,366
=========== ===========
EARNINGS (LOSS) PER SHARE $ (.07) $ .04
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 1,827,362 2,055,166
=========== ===========
The accompanying notes are an integral part of these
financial statements.
Page 5 of 13
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<TABLE>
HEALTHY PLANET PRODUCTS, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended March 31,
------------------------------------
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income (Loss) $ (129,654) $ 82,366
Non-cash items included in net income (Loss)
Depreciation and amortization 50,668 45,038
Decrease in allowances for doubtful
accounts and returns (274,426) (382,658)
Increase/decrease in deferred income taxes -- 46,730
Changes in:
Accounts receivables 550,030 481,513
Inventories (383,543) (245,863)
Advance on royalties (311,444) (274,716)
Prepaid expenses (51,653) (113,561)
Accounts payable 13,679 77,214
Royalties payable 1,204 1,712
Commissions payable (78,174) (129,944)
Income taxes payable (16,300) --
Accrued wages, bonus & payroll taxes (27,269) (87,315)
Accrued liabilities (26,831) (24,423)
Accrued rent payable 14,610 33
----------- -----------
Net cash used by operating activities (669,103) (523,874)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (25,614) --
Purchase of equipment & color separations (30,124) (23,091)
Security deposits -- (60,032)
Other assets (42,925) (18,653)
----------- -----------
Net cash used by investing activities (98,663) (101,776)
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (767,766) (625,650)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,650,711 4,142,131
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 882,945 $ 3,516,481
=========== ===========
SUPPLEMENTARY CASH FLOW INFORMATION INCLUDES THE FOLLOWING:
Cash paid during the period for:
Interest $ -- $ --
Income taxes $ 16,300 $ 17,780
<FN>
The accompanying notes are an integral part of these
statements.
</FN>
</TABLE>
Page 6 of 13
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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, which are of a normal recurring nature, 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,
1997
----------
Raw materials $ 143,962
Work-in-process 1,215,521
Finished goods 442,000
----------
$1,801,483
==========
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
March 31,
1997
---------
Machinery, equipment and leasehold improvements $ 670,785
Color separations 212,557
Furniture and fixtures 72,664
Computer software 38,171
---------
994,177
Less accumulated depreciation and amortization (541,228)
---------
$ 452,949
=========
Page 7 of 13
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HEALTHY PLANET PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 4 - INCOME TAXES
As of January 1, 1997 the Company had available federal net operating loss
carryovers of approximately $4,664,000 to be applied against future federal
taxable income, of which $2,862,000 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 $25,500 of alternative minimum tax credit
carryforwards to reduce future federal and California regular income taxes over
an indefinite period. Based on anticipated growth in future years, the Company
believes it will fully utilize available Federal net operating losses prior to
expiration.
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. Deferred tax assets consist of the following:
Net operating loss carryforwards $ 1,645,800
AMT carryforwards 25,500
Other 211,700
-----------
1,883,000
Deferred income taxes expected
to be utilized currently (377,000)
-----------
Deferred income taxes $ 1,506,000
===========
Page 8 of 13
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Special Note Regarding Forward-Looking Statements
Certain statements in this Form 10-QSB, including information set forth under
this Item 2 "Management's Discussion and Analysis of Financial Condition and
Results of Operations" constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Act").
Healthy Planet Products, Inc. (the "Company") desires to avail itself of certain
"safe harbor" provisions of the Act and is therefore including this special note
to enable the Company to do so. Forward-looking statements included in this Form
10-QSB or hereafter included in other publicly available documents filed with
the Securities and Exchange Commission, reports to the Company's stockholders
and other publicly available statements issued or released by the Company
involve known and unknown risks, uncertainties, and other factors which could
cause the Company's actual results, performance (financial or operating) or
achievements to differ from the future results, performance (financial or
operating) achievements expressed or implied by such forward looking statement.
Such future results are based upon management's best estimates based upon
current conditions and the most recent results of operations. These include
management's forecasts for sales, the decrease in net sales for the three month
period ended March 31, 1997, purchasing plans and programs of certain large
chain buyers relating to holiday product recently experienced decline in gross
margin as well as marginal increases in general and administrative expenses, the
recent adverse trend in the general retail environment, general economic
conditions, competition generally and specifically relating to greeting cards
having environmental, nature or wildlife themes and the ability of the Company
to sustain consumer demand for the Company's principal Sierra Club card line. In
addition, the ability of the Company to enhance and expand its product mix and
to successfully introduce new products which will meet with consumer acceptance
may also affect future results. The Company to date has been materially
dependent upon the efforts of Messrs. Bruce Wilson and M. Scott Foster, who
constitute the Company's core senior management. The loss of either Mr. Wilson's
or Mr. Foster's services may have a materially adverse effect upon the business
or operations of the Company.
Sales
For the three months ended March 31, 1997, the Company's net sales amounted to
$828,281 which reflected a decrease of $12,413 or 1.5% versus the prior year
level of $840,694. An increase of $224,000 or 26.6% due to the introduction of
new products was offset by a 23.6% decline in base business and seasonal returns
exceeding estimates by $113,000 to result in the overall marginal decline.
Gross Profit
For the three months ended March 31, 1997, gross profit amounted to $465,282
or 56.1% of sales. For the comparable prior year quarter, gross profit amounted
to $557,042 or 66.3% of sales. One-time new product introductory allowances and
the one-time cost of fixtures associated with the new product launch eroded
gross profit by $128,000 or 11.0%.
Page 9 of 13
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Operating Expenses
For the three months ended March 31, 1997, selling, shipping and marketing
expenses amounted to $227,417 reflecting an increase versus the prior year's
level of $147,612 by $79,805 or 54.1%. Increased commissions, advertising and
travel costs associated with the new product launch accounted for the quarter to
quarter increase.
General and administrative expenses amounted to $417,128 for the three months
ended March 31, 1997, reflecting an increase of $57,489 or 16.0% versus the
prior year quarter of $359,639. Increased rent and insurance costs associated
with the new facility were offset in part by lower manpower costs to result in
the quarter to quarter increase.
Income
An operating loss of $179,263 or ($.10) per share was incurred for the three
months ended March 31, 1997. Interest and other income of $49,609 reduced the
operating loss to result in a net loss of $129,654 or ($.07) per share. For the
prior year quarter net income amounted to $82,366 or $.04 per share. The decline
at gross margin and increased operating costs resulted in the current year
quarters' loss.
Balance Sheet
Total assets amounted to $8,524,973 as of March 31, 1997 reflecting a decrease
versus the December 31, 1996 level of $8,773,900 by $248,927. The period to
period decrease was a result of decreased cash and accounts receivable offset in
part by increased inventories and royalty advances. Total current liabilities
amounted to $643,137 as of March 31, 1997 versus the December 31, 1996 level of
$762,300. The decrease was a result of the paydown of seasonal commissions
during the quarter.
Liquidity and Capital Resources
At March 31, 1997, the Company's working capital was $5,704,363 reflecting a
decrease of $137,337 versus working capital at December 31, 1996 of $5,841,700.
Cash of $669,103 was used during the period to support operating activities.
Cash of $98,663 was used during the period for capital expenditures. Major
capital expenditures for the period included the purchase of new product rights
and separations in support of the new product launch.
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, 1997, there was no outstanding amount under this line of credit.
Page 10 of 13
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Effects of Inflation
The Company does not view the effects of inflation as having a material effect
upon its business. Increases in paper and labor costs have been offset by
increases in the price of the Company's cards and through higher print runs,
which have reduced the unit cost of the Company's card product. While the
Company has in the past increased its prices to its customers, it has maintained
its relative competitive price position within the general range of greeting
cards.
Page 11 of 13
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HEALTHY PLANET PRODUCTS, INC.
COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 11
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
-------------- --------------
Primary earnings per share
<S> <C> <C>
Net (loss) income $ (129,654) $ 82,366
Dividends paid on preferred stock -- --
Cumulative dividends on preferred stock -- --
----------- ----------
(Loss)/Income applicable to common stock $ (129,654) $ 82,366
=========== ==========
Shares
Weighed average number of common
shares outstanding 1,827,362 1,812,362
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
----------- ----------
1,827,362 2,055,166
=========== ==========
Primary earnings per share $ (.07) $ .04
=========== ==========
</TABLE>
Page 12 of 13
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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, 1997, there were no reports on Form
8-K filed by the 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, 1997
by: s/ Bruce A. Wilson
-----------------------------------------
Bruce A. Wilson
President, Chief Executive, Chief
Operating and Chief Financial
Officer.
Page 13 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 882,945
<SECURITIES> 2,014,833
<RECEIVABLES> 847,997
<ALLOWANCES> 120,196
<INVENTORY> 1,801,483
<CURRENT-ASSETS> 6,292,378
<PP&E> 994,177
<DEPRECIATION> 541,228
<TOTAL-ASSETS> 452,949
<CURRENT-LIABILITIES> 588,015
<BONDS> 0
<COMMON> 18,273
0
18,717
<OTHER-SE> 7,844,846
<TOTAL-LIABILITY-AND-EQUITY> 7,881,836
<SALES> 828,281
<TOTAL-REVENUES> 877,890
<CGS> 362,998
<TOTAL-COSTS> 1,007,543
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (129,654)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (129,654)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (129,654)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> 0
</TABLE>
