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 September 30, 2000
OR
[X} 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 Small Business Issuer as Specified in Its Charter)
Delaware 92-2601764
------------------------------ ------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
1700 Corporate Circle, Petaluma, California 94954
------------------------------------------- --------
(Address of Principal Executive Offices) (Zip Code)
(707) 778-2280
--------------------------------------------------
(Registrant's telephone number, including area code)
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 November 10, 2000, there were issued and outstanding 3,840,584 shares
of common stock of the registrant (exclusive of 31,335 shares of voting Series
D Preferred Stock convertible into 31,335 shares of common stock).
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
Page 1 of 12
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INDEX
HEALTHY PLANET PRODUCTS, INC.
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of September 30, 2000 (unaudited) 3
Statements of Operations for the three-months ended and
nine-months ended September 30, 2000 and 1999 (unaudited) 4
Statement of Cash Flows for the nine-months ended
September 30, 2000 (unaudited) 5
Notes to the Financial Statements 6
Item 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
Page 2 of 12
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HEALTHY PLANET PRODUCTS, INC.
BALANCE SHEET
(Unaudited)
September 30, 2000
------------------
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 172,437
Accounts receivable - net of allowances
for doubtful accounts and returns of $157,780 1,788,848
Inventories 595,623
Advance on royalties 4,000
Prepaid expenses 60,140
----------
Total current assets 2,621,048
----------
PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation and amortization 570,162
----------
OTHER ASSETS
Deferred income taxes 450,700
Security deposits 34,277
Publishing rights - net of accumulated
amortization of $230,511 140,648
Other 65,906
----------
Total other assets 691,531
----------
TOTAL ASSETS $ 3,882,741
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,013,518
Royalties payable 65,808
Commissions payable 111,144
Series B preferred stock redemption and
dividends payable 161,500
Accrued wages, bonuses and payroll taxes 98,306
Accrued liabilities 91,495
Current portion of obligations under capital leases 35,627
----------
Total current liabilities 1,577,398
----------
OTHER LIABILITIES
Obligations under capital leases, net of current portion 86,228
----------
1,663,626
----------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 12,000,000 shares
authorized, 3,840,584 shares issued and outstanding 38,406
Preferred stock, Series D, $.10 par value, with
aggregate liquidation preferences of $160,100,
371,009 shares authorized, 31,335 issued
and outstanding 3,134
Additional paid-in capital 14,670,188
Accumulated deficit <12,492,613>
----------
Total shareholders' equity 2,219,115
---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,882,741
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3 of 12
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<TABLE>
<CAPTION>
HEALTHY PLANET PRODUCTS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------ ------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $1,728,880 $1,182,026 $3,793,782 $2,517,262
COST OF GOODS SOLD 725,655 586,851 1,806,367 1,365,383
--------- --------- --------- ---------
GROSS PROFIT 1,003,225 595,175 1,987,415 1,151,879
--------- --------- --------- ---------
OPERATING EXPENSES
Selling, shipping and marketing 392,182 398,086 1,063,055 939,839
General and administrative 403,369 530,975 1,357,646 1,439,508
--------- --------- --------- ---------
795,551 929,061 2,420,701 2,379,347
--------- --------- --------- ---------
OPERATING INCOME/<LOSS> 207,674 <333,886> <433,286> <1,227,468>
--------- --------- --------- ---------
OTHER INCOME/<EXPENSE>
Interest expense <5,469> <1,471> <10,037> <4,089>
Interest income 3,138 23,753 19,372 74,439
Other income 0 6,650 3,975 53,386
--------- --------- --------- ---------
<2,331> 28,932 13,310 123,736
--------- --------- --------- ---------
INCOME/<LOSS> BEFORE TAXES 205,343 <304,954> <419,976> <1,103,732>
PROVISION FOR INCOME TAXES 0 0 800 800
--------- --------- --------- ---------
NET INCOME/<LOSS> $ 205,343 $ <304,954> $ <420,776> $<1,104,532>
========= ========= ========= =========
BASIC AND DILUTED INCOME/<LOSS> $0.05 <$0.08> <$0.11> <$0.32>
PER COMMON SHARE
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 3,840,584 3,834,584 3,840,584 3,489,647
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4 of 12
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<TABLE>
<CAPTION>
HEALTHY PLANET PRODUCTS, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss <$420,776> <$1,104,532>
Adjustments to reconcile net loss to net cash
from operating activities
Depreciation and amortization 252,853 260,408
Allowance for doubtful accounts and returns <100,549> <283,238>
Inventory reserve <350,588> <190,000>
Changes in:
Accounts receivable <1,144,803> 129,067
Inventories 275,470 <30,533>
Advance on royalties 17,221 <244,433>
Prepaid expenses 37,609 <28,375>
Accounts payable 496,099 110,149
Royalties payable 2,413 46,190
Commissions payable 76,779 <42,787>
Accrued wages, bonus & payroll taxes <66,294> 54,324
Accrued liabilities <15,475> 49,652
Accrued rent payable 0 <18,023>
--------- ---------
Net cash from operating activities <940,041> <1,292,131>
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of marketable securities 0 333
Purchase of property and equipment <126,258> <292,511>
Purchase of publishing rights <108,195> < 26,630>
Security deposits 4,860 <4,860>
Acquisition costs 0 <151,050>
Leasehold improvements <78,507> 0
--------- ---------
Net cash from investing activities <308,100> <474,718>
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from capital leases 121,855 0
Principal repayments on note payable 0 <95,604>
Net proceeds from Stock Rights offering 0 1,494,094
--------- ---------
Net cash from financing activities 121,855 1,398,490
--------- ---------
INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS <1,126,286> <368,539>
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,298,723 2,162,610
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 172,437 $1,794,251
========= =========
SUPPLEMENTARY CASH FLOW INFORMATION INCLUDES THE FOLLOWING:
Cash paid during the period for:
Interest $ 10,037 $ 4,089
Income taxes $ 0 $ 0
</TABLE>
The accompanying notes are an integral part of these statements.
Page 5 of 12
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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.
Certain reclassifications have been made to the financial statements as of
September 30, 1999 and for the three and nine months then ended to conform
with the current quarter presentation.
NOTE 2 - INVENTORIES
--------------------
Inventories consist of the following:
September 30,
2000
-------
Raw materials $ 2,151
Work-in-process 352,662
Finished goods 240,810
----------
$ 595,623
==========
NOTE 3 - PROPERTY AND EQUIPMENT
-------------------------------
Property and equipment consist of the following:
September 30,
2000
-------
Machinery, equipment and leasehold improvements $ 871,048
Molds 406,000
Color separations 350,467
Furniture and fixtures 105,314
Computer software 304,336
---------
2,037,165
Less accumulated depreciation and amortization <1,467,003>
---------
$ 570,162
=========
Page 6 of 12
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NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
NOTE 4. - CONTINGENCY
---------------------
In December 1999, the Company notified the Sierra Club that it would not be
continuing its license agreement with the Sierra Club beyond 1999. Following
this notification and certain preliminary litigation between the parties, the
Sierra Club commenced an arbitration against the Company before the American
Arbitration Association in San Francisco, California. The arbitration seeks
damages of approximately $412,000 arising out of the alleged breach of
contract by the Company, as well as declaration that the Sierra Club is
entitled to future payments under the contract. The Company has recently
interposed its answer to the arbitration claim, in which it denied the
allegations of the claim and set forth certain affirmative defenses. The
Company further set forth certain counterclaims against the Sierra Club
arising out of breaches by the Sierra Club of the same agreement. The Company
believes that it has good and meritorious defenses to the claim which, if
proven during the course of the arbitration, the Company should prevail upon.
The arbitration at the present time is only in its formative stages.
NOTE 5. - SUBSEQUENT EVENT
--------------------------
On October 12, 2000, the Company borrowed the sum of $500,000 from The
InterGroup Corporation ("InterGroup"). This loan was evidenced by a secured
promissory note and a security agreement granting a security interest in all
the Company's accounts receivable and proceeds thereof. The loan bears
interest at the rate of 13.875% per annum and is due on February 28, 2001, or
sooner from the proceeds from the collection of the Company's accounts
receivable. Mr. John V. Winfield, Chairman of the Board and a principal
shareholder of the Company, is also Chairman of the Board and a principal
shareholder of InterGroup. Prior to obtaining this loan from InterGroup, the
Company unsuccessfully sought secured or unsecured lending from bank or
institutional lenders and to otherwise factor or finance its accounts
receivable. In the absence of an alternative lender, the Company proposed the
lending transaction to InterGroup.
Page 7 of 12
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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 Item 6 "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").
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 From 10-QSB or hereafter
included in other publicly available documents filed with the Securities and
Exchange Commission, report 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 statements. 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, purchasing plans and programs of certain
large chain buyers relating to holiday product, net operating losses in each
of the three most recent fiscal years, general economic conditions for the
Company's product lines, competition generally and specifically relating to
greeting cards having environmental, nature or wildlife themes, the ability of
the Company to sustain consumer demand for the Company's principal card lines,
the ability of the Company to successfully market its line of handcrafted
sculptures, figurines and adoption kits, and the absence of long term supply
contracts which could make production costs unpredictable. 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.
Sales
-----
For the nine months ended September 30, 2000, the Company's net sales
amounted to $3,793,782 which reflected an increase of $1,276,520 or 50.7%
versus last year's nine month results of $2,517,262. Sales of the recently
acquired adoption kit line accounted for $740,081 of the increase with the
balance from a 60.7% increase in paper product sales offset by a 61.9%
decrease in collectible sales. Sales of the paper product lines increased
from $1,803,889 to $2,898,495 from the comparable nine month period. The
collectible line sales decreased from $407,365 to $155,206 for the same
period. These changes are a direct result of strategic business decisions to
enhance and enrich the Company's traditional paper and stationery product
lines and reposition certain less profitable product lines. In conjunction
with these strategies, the Company released two new greeting card lines, an
Extreme Sports line in March and a versed line, Nature's Inspirations, in
June, along with several product line extensions.
For the three months ended September 30, 2000, the Company's net sales
amounted to $1,728,880 which reflected an increase of $546,854 or 46.3% versus
last year's three month results of $1,182,026. Sales of the adoption kits
accounted for $318,463 of the increase with the balance from a 67.9% increase
in paper product sales offset by a 78.4% decrease in collectible sales. Sales
Page 8 of 12
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Sales (continued)
-----------------
of the paper product lines increased from $815,857 to $1,369,963 for the three
month period while collectible sales decreased from $187,421 to $40,454 for
the same period.
Gross Profit
------------
For the nine months ended September 30, 2000, gross profit amounted to
$1,987,415 or 52.4% of sales. For the comparable prior year period, gross
profit amounted to $1,151,879 or 45.8% of sales. For the three months ended
September 30, 2000, gross profit amounted to $1,003,225 or 58.0% of sales.
For the comparable prior year period, gross profit amounted to $595,175 or
50.4% of sales for the comparable year period. Increased sales of paper
products which have higher margins, a reduction of royalties and a reduction
in overhead costs contributed to the improvement at gross margin.
Operating Expenses
------------------
For the nine months ended September 30, 2000, selling, shipping and
marketing expenses amounted to $1,063,055 or 28.0% of sales versus $939,839 or
37.3% of sales for the comparable prior year period. For the three months
ended September 30, 2000, selling, shipping and marketing expenses amounted to
$392,182 or 22.7% of sales versus $398,086 or 33.7% of sales for the
comparable prior year period. The improvement in selling, shipping and
marketing expenses as a percentage of sales is due to the much higher
productivity of the Company's core in-house sales representatives, the
conversion of certain lower producing in-house sales representatives to
independent commissioned representatives and the replacement of unprofitable
in-house sales representatives with outside sales agencies. This was
partially offset by increased expenses relating to the hiring of marketing and
product development staff in the current year. The addition of the marketing
and product development staff has allowed the Company to reposition,
strengthen and broaden its product lines and distribution channels.
General and administrative expenses amounted to $1,357,646 for the nine
months ended September 30, 2000, reflecting a decrease of $81,862 or 5.6%
versus the prior year period of $1,439,508. This decrease was a result of the
reductions in rental, utility and operations expenses due to the elimination
of the Company's Southern California facility and the downsizing of the
Petaluma warehouse facility from 60,600 square feet to 26,500 square feet and
a reduction in warehouse and office staffing of 38 as December 1999 to 25 as
of September 30, 2000. These reductions were offset by the addition of the
Evergreen product lines in May of 1999 with their associated overhead
expenditures and one-time charges incurred during the early part of the
current year associated with consolidating the Southern California facility to
Northern California and the downsizing of the Petaluma facility.
Page 9 of 12
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Operating Expenses (continued)
------------------------------
General and administrative expenses amounted to $403,369 for the three
months ended September 30, 2000, reflecting a decrease of $127,606 or 24.0%
versus the prior year period of $530,975. The decrease was primarily due to a
reduction in rental, utility and operational expenses as a result of the
elimination of the Southern California facility and the downsizing of the
Petaluma facility and reductions made in warehouse and office staffing,
partially offset by increases in depreciation expenses, professional fees and
consulting fees relating to the new computer system.
Income
------
An operating loss of $433,286 was incurred for the nine months ended
September 30, 2000, an improvement of $794,182 compared to the prior period's
loss of $1,227,468. Interest and other income of $13,310 reduced the
operating loss to result in a net loss before income taxes of $419,976. For
the prior year period, the net loss before income taxes amounted to
$1,103,732. Net loss for the nine months ended September 30, 2000 amounted to
$420,776 or $.11 per share, compared to the prior year's net loss of
$1,104,532 or $.32 per share. All per share amounts are based on the weighted
average common shares outstanding for the period.
An operating income of $207,674 was incurred for the three months ended
September 30, 2000, an improvement of $541,560 compared to the prior period's
loss of $333,886. Interest expense net of interest and other income of $2,331
reduced operating income to result in a net income before income taxes of
$205,343. For the prior year period, the net loss before income taxes amounted
to $304,954. Net income for the three months ended September 30, 2000 amounted
to $205,343 or $.05 per share, compared to the prior year's net loss of
$304,954 or $.08 per share. All per share amounts are based on the weighted
average common shares outstanding for the period.
Balance Sheet
-------------
Total assets at September 30, 2000 amounted to $3,882,741 which reflected
an increase versus the December 31, 1999 level of $3,688,000 by $194,741. An
increase in receivables and fixed assets were offset by decreases in cash,
inventories, royalty advances and prepaid expenses. Total current liabilities
amounted to $1,577,398 as of September 30, 2000 which reflected an increase
versus the December 31, 1999 level of $1,048,200. The increase was a result
of increases in trade payables, royalties payable and commissions offset in
part by the paydown of accrued wages and liabilities.
Liquidity and Capital Resources
-------------------------------
At September 30, 2000, the Company's working capital was $1,043,650 with a
working capital ratio 1.7:1. Net cash used by operating activities during the
nine months ended September 30, 2000 amounted to $940,041. The net loss of
$420,776 and changes in non-cash items of $198,284 were offset in part by
$320,981 provided by changes in net receivables, inventory, and other assets
and liabilities.
Page 10 of 12
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
-------------------------------------------
Cash used by investing activities amounted to $308,100 consisting of $78,507
used in the construction of leasehold improvements as part of the warehouse
downsizing, $126,258 to purchase computer software and color separations and
$108,195 to purchase publishing rights. Cash provided by financing activities
consisted of $121,885 in cash as proceeds of capital leases.
The Company had anticipated that the primary source of its liquidity and
capital resources for the year 2000 was to have come from cash on hand and
from cash internally generated from sales. On October 13, 2000, the Company
secured a $500,000 loan from The InterGroup Corporation ("InterGroup") payable
February 28,2001. The loan is to provide working capital until all seasonal
receivables are collected. The Company believes that the current receivable
balance and cash internally generated from sales will be adequate and
sufficient for it to repay its short term loan and provide working capital for
the rest of the year 2000. Longer term, the Company's source of liquidity and
capital resources is expected to be primarily internally generated cash from
sales and the possible exercise of existing Common Stock Purchase Warrants,
which the Company believes should be adequate for its operations for the
foreseeable future. The Company will also continue to explore the acquisition
of new product lines as a means of augmenting sales. There is no assurance,
however, that cash from sales, exercise of the Common Stock Purchase Warrants
or from any new product line which may be acquired will be sufficient to
satisfy the Company's long term cash requirements. If they do not, the
Company would seek debt and/or equity financing in order to obtain the
additional capital that would be needed. There can also be no assurance,
however, that such debt or equity financing will be available to the Company
if, as and when needed or, if available, will be on terms favorable to the
Company.
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 12
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PART II.
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit 27 - The Financial Data Schedule is filed as an exhibit
to this report
(b) Reports on Form 8-K - During the quarter ended September 30,
2000, the following reports on Form 8-k were filed by the
Registrant:
Date of Report Item Reported Description
-------------- ------------- ------------
September 20, 2000 Item 6. Resignation Resignation of Robert W.
of Registrant's Sweitzer, Ph.D. as Class 3
Directors Director.
October 13, 2000 Item 5. Other Events Loan from the InterGroup
Corporation in the amount
$500,000 due February 28,
2001.
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: November 13, 2000 by: /s/ Gregory C. McPherson
-------------------------
Gregory C. McPherson,
Interim President
DATED: November 13, 2000 by: /s/ Antonio Santiago
-------------------------
Antonio Santiago,
Vice President of Finance
Page 12 of 12
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