U.S. 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, 2000
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 92-2601764
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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 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 Yes ___ No _X_
Page 1 of 13
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
INDEX
Page
----
Form 10-QSB Cover Page 1
Index 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet at March 31, 2000 3
Statements of Operations for the three-months ended 4
March 31, 2000 and 1999
Statements of Cash Flows for the three-months ended 5
March 31, 2000 and 1999
Notes to the Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 3. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
Page 2 of 13
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEET
(Unaudited)
ASSETS
<CAPTION>
March 31,
2000
------------
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,044,831
Accounts receivable - net of allowances for doubtful
accounts and returns of $134,283 637,296
Inventories 661,378
Advance on royalties 28,221
Prepaid expenses 85,498
------------
Total current assets 2,457,224
------------
PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation and amortization 588,449
------------
OTHER ASSETS
Deferred income taxes 450,700
Security deposits 34,277
Publishing rights - net of accumulated amortization of $190,000 87,937
Other 81,605
------------
Total other assets 654,519
------------
TOTAL ASSETS $ 3,700,192
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 816,288
Royalties payable 47,646
Commissions payable 20,774
Series B preferred stock redemption and dividends payable 161,500
Accrued wages, bonuses and payroll taxes 91,251
Accrued liabilities 165,365
Current portion of obligations under capital lease 35,627
------------
Total current liabilities 1,338,451
OTHER LIABILITIES
Obligations under capital lease, net of current portion 87,513
------------
1,425,964
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 (12,437,500)
------------
Total shareholders' equity 2,274,228
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,700,192
============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
Page 3 of 13
<PAGE>
<TABLE>
HEALTHY PLANET PRODUCTS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended March 31,
---------------------------------------
2000 1999
----------- -----------
<S> <C> <C>
NET SALES $ 953,807 $ 550,483
COST OF GOODS SOLD 510,135 324,933
----------- -----------
GROSS PROFIT 443,672 225,550
----------- -----------
OPERATING EXPENSES:
Selling, shipping and marketing 261,168 199,561
General and administrative 559,850 456,640
----------- -----------
821,018 656,201
----------- -----------
OPERATING LOSS (377,346) (430,651)
----------- -----------
OTHER INCOME/EXPENSE:
Interest expense (570) (2,635)
Interest income 10,112 18,808
Other income 2,940 36,962
----------- -----------
12,482 53,135
----------- -----------
LOSS BEFORE INCOME TAXES (364,864) (377,516)
PROVISION FOR INCOME TAXES 800 800
----------- -----------
NET LOSS $ (365,664) $ (378,316)
=========== ===========
LOSS PER COMMON SHARE $ (.10) $ (.14)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,840,584 2,799,773
=========== ===========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
Page 4 of 13
<PAGE>
<TABLE>
HEALTHY PLANET PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended March 31,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ($ 365,664) ($ 378,316)
Adjustments to reconcile net loss to net cash from operating activities
Depreciation and amortization 72,687 74,096
Allowance for doubtful accounts and returns (124,046) (249,292)
Inventory reserve (36,998) (107,000)
Changes in:
Accounts receivable 30,244 627,987
Inventories (103,879) 135,864
Advance on royalties (7,001) (16,594)
Prepaid expenses 12,274 (72,665)
Accounts payable 298,870 1,207
Royalties payable (15,748) 15,282
Commissions payable (13,590) (52,624)
Accrued wages, bonus & payroll taxes (73,349) 17,980
Accrued liabilities 58,365 75,045
Accrued rent payable 0 6,621
----------- -----------
Net cash from operating activities (267,835) 77,591
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales/Purchases of marketable securities 0 333
Purchase of property and equipment (41,299) (29,167)
Purchase of publishing rights (14,973) (4,647)
Security deposits 4,860 0
Leasehold improvements (57,785) 0
----------- -----------
Net cash from investing activities (109,197) (33,481)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from capital lease 123,140 0
Principal repayments on note payable 0 (45,525)
Net proceeds from Stock Rights offering 0 1,494,094
----------- -----------
Net cash from financing activities 123,140 1,448,569
----------- -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (253,892) 1,492,679
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,298,723 2,162,610
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,044,831 $ 3,655,289
=========== ===========
SUPPLEMENTARY CASH FLOW INFORMATION INCLUDES THE FOLLOWING:
Cash paid during the period for:
Interest $ 570 $ 2,635
Income taxes $ 800 $ 800
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
Page 5 of 13
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations.
It is believed, however, that the disclosures are adequate to make the
information presented not misleading.
The financial statements, in the opinion of management, reflect all adjustments
necessary, 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,
2000
--------
Raw materials $ 23,470
Work-in-process 316,861
Finished goods 321,047
--------
$661,378
========
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
March 31,
2000
-----------
Machinery, equipment and leasehold improvements $ 850,334
Molds 406,000
Color separations 320,209
Furniture and fixtures 105,314
Computer software 249,639
-----------
1,931,496
Less accumulated depreciation and amortization (1,343,047)
-----------
$ 588,449
===========
Page 6 of 13
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HEALTHY PLANET PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
NOTE 4 - INCOME TAXES
At March 31, 2000, the Company had available net operating loss carryovers of
approximately $10,848,000 to be applied against future federal taxable income.
Due to changes in ownership during 1999, 1998 and 1997, these amounts are
subject to a Section 382 limitation. The Company has not calculated the effect
of the limitation. If the Company does generate sufficient income to use the
maximum limitation, remaining amounts accumulate for use in future periods until
the operating loss expires. For federal tax purposes, net operating losses
expire as follows:
Year Ending December 31,
-----------------------
2002 $ 2,638,500
2003 1,222,000
2004 1,299,100
2005 383,500
2006 31,700
2012 570,700
2018 1,821,600
2019 2,515,900
2020 365,000
---- ------------
$10,848,000
===========
The Company has available approximately $25,500 of federal Alternative Minimum
Tax credits which can be carried forward indefinitely and offset against future
income taxes.
The Company has available approximately $2,644,000 of California net operating
losses which can be carried forward and offset against future taxable income.
These loss carryforwards expire through 2005 and may be subject to the same
limitations as the federal net operating losses.
Management of the Company believes it is more likely than not that a portion of
the federal net operating loss carryforwards will be utilized prior to
expiration. A valuation allowance has been established against remaining net
operating loss carryforwards.
Page 7 of 13
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
NOTE 4. INCOME TAXES (continued)
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. A valuation allowance has been established since the
realization of tax benefits of net operating loss carryforwards is not assured.
The amount of the valuation allowance will be reviewed on a quarterly basis.
Deferred tax assets consist of the following:
Accounts receivable allowances 110,700
Inventory reserve 354,700
Other (18,400)
Valuation allowance (447,000)
-----------
Current deferred tax asset $ --
===========
Depreciation and amortization $ 87,500
Benefits from net operating loss carryforward 3,922,200
Valuation allowance (3,954,700)
Other (55,000)
-----------
Non current deferred tax asset $ 450,700
===========
Page 8 of 13
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
NOTE 5. - EARNINGS PER SHARE
Warrants to purchase 1,031,394 shares of common stock at a weighted average
price per share of $2.10 and options to purchase 160,000 shares of common stock
at a weighted average price per share of $4.36 were outstanding at March 31,
1999, but were not included in the computation of diluted earnings per share as
the exercise prices were greater than the average market price of the common
shares.
Warrants to purchase 739,144 shares of common stock at a weighted average price
per share of $2.05 and options to purchase 355,000 shares of common stock at a
weighted average price per share of $5.77 were outstanding at March 31, 1999,
but were not included in the computation of diluted earnings per share as the
exercise prices were greater than the average market price of the common shares.
Preferred stock convertible into 31,335 shares of common stock were outstanding
at March 31, 2000 and 1999, but were not included in the computation of diluted
earnings per share as the effect would be anti-dilutive.
NOTE 6. - 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. That license
agreement has an arbitration clause. On March 14, 2000, the Sierra Club filed a
complaint for breach of contract in the Superior Court of the State of
California, County of San Francisco, Case No. 310683, in support of an
application for a provisional order of attachment against the Company pending
determination of arbitration proceeding that Sierra Club is expected to commence
against the Company concerning termination of the license. On April 27, 2000,
the Superior Court denied the Sierra Club's application for a writ of
attachment. It is expected that the civil action will be dismissed or stayed
since the dispute is governed by the arbitration clause. The Company believes
that the Sierra Club's claims are without merit and intends to defend them
vigorously if an arbitration proceeding is commenced.
Page 9 of 13
<PAGE>
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 three months ended March 31, 2000, the Company's net sales
amounted to $953,807 which reflected an increase of $403,324 or 73.3% versus
last year's three month results of $550,483. Sales of the adoption kits
accounted for $271,000 of the increase with the balance from a 38.0% increase in
paper product sales offset by a 40.7% decrease in collectible sales.
Gross Profit
For the three months ended March 31, 2000, gross profit amounted to
$443,672 or 46.5% of sales. For the comparable prior year period, gross profit
amounted to $225,550 or 41.0% of sales. Higher sales on fixed overhead costs and
the reduction of royalties contributed to the improvement at gross margin.
Operating Expenses
For the three months ended March 31, 2000, selling, shipping and
marketing expenses amounted to $261,168 reflecting an increase of $61,607 or
30.8% versus the prior year's level of $199,561. Higher commissions, shipping
and marketing expenses due to the higher sales accounted for the year to year
increase.
Page 10 of 13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Operating Expenses (continued)
General and administrative expenses amounted to $559,850 for the three
months ended March 31, 2000, reflecting an increase of $103,210 or 22.6% versus
the prior year period of $456,640. The year to year increase was a result of the
acquisition and addition of the adoption kit product line, one-time charges
associated with moving those operations from Southern California to Northern
California and one-time expenses relating to the downsizing of the Company's
warehouse facility.
Income
An operating loss of $377,436 or $.10 per share was incurred for the
three months ended March 31, 2000. Interest and other income of $12,482 reduced
the operating loss to result in a net loss before income taxes of $364,864 or
$.10 per share. For the prior year period, the net loss before income taxes
amounted to $377,516 or $.13 per share. Net loss for the three months ended
March 31, 2000 amounted to $365,664 or $.10 per share, compared to the prior
year's net loss of $378,316 or $.14 per share. All per share amounts are based
on the weighted average common shares outstanding for the period.
Balance Sheet
Total assets at March 31, 2000 amounted to $3,700,192 which reflected
an increase versus the December 31, 1999 level of $3,688,800 by $11,392.
Increased inventories, royalties, and fixed assets were offset in part by
decreases in cash, receivables and prepaid expenses. Total current liabilities
amounted to $1,338,451 as of March 31, 2000 versus the December 31, 1999 level
of $1,048,200 or $290,251 or 27.7%. The increase was a result of increases in
trade payables and accruals, offset in part by the paydown of commissions,
royalties and accrued wages.
Liquidity and Capital Resources
At March 31, 2000, the Company's working capital was $1,118,773 reflecting a
decrease of $314,527 versus the working capital at December 31, 1999 of
$1,433,300. Net cash used by operating activities during the three month ended
March 31, 2000 amounted to $267,835. Net loss of $365,664 and changes in
non-cash items of $88,357 were offset in part by $186,186 provided by changes in
net receivables, inventory, and other assets and liabilities. Cash used by
investing activities amounted to $109,197 consisting principally of $57,785 used
in the construction of leasehold improvements as part of the warehouse
downsizing and the balance used to purchase computer software, color separations
and publishing rights. Cash provided by financing activities consisted of
$123,140 in cash as proceeds from a capital lease.
The Company believes and anticipates that the primary source of its liquidity
and capital resources for the year 2000 will primarily be from cash on hand and
from cash internally generated from sales. The Company believes that such cash
will be adequate and sufficient for its operations for 2000, based on the
following factors: (i) the reduction in rent expense that will commence in June
2000, (ii) the decrease in minimum royalties that will be paid during the year,
(iii) the reduction of elimination of product lines that generate insufficient
profit margins, (iv) the increased revenues that will be generated by a full
year of sales of the adoption kit product line and (v) revenues expected to be
generated from the introduction
Page 11 of 13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
during the year of new product lines, such as "versed" greeting cards. 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 equity and/or debt
financing in order to obtain the additional capital that would be needed. There
can be no assurance, however, that such equity or debt 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 12 of 13
<PAGE>
PART II. OTHER INFORMATION
Item 3. Legal Proceedings
In December 1999, the Company notified the Sierra Club that it would
not be continuing its license agreement with the Sierra Club beyond 1999. That
license agreement has an arbitration clause. On March 14, 2000, the Sierra Club
filed a complaint for breach of contract in the Superior Court of the State of
California, County of San Francisco, Case No. 310683, in support of an
application for a provisional order of attachment against the Company pending
determination of an arbitration proceeding that Sierra Club is expected to
commence against the Company concerning termination of the license. On April 27,
2000, the Superior Court denied the Sierra Club's application for a writ of
attachment. It is expected that the civil action will be dismissed or stayed
since the dispute is governed by the arbitration clause. The Company believes
that the Sierra Club's claims are without merit and intends to defend them
vigorously if an arbitration proceeding is commenced.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
None
b) Reports on Form 8-K
During the quarter ended March 31, 2000, the following reports on Form
8-K were filed by the Registrant.
Date of Report Item Reported Description
- -------------- ------------- -----------
January 6, 2000 Item 5. Other Events Hiring of Donald R.
Beckman as Vice President
of Marketing. Appointment
of Richard M. Widney as
Vice President and General
Manager.
March 31, 2000 Item 5. Other Events Appointment of Gregory C.
McPherson as Interim
President.
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 12, 2000 by: /s/ Gregory C. McPherson
-----------------------------
Gregory C. McPherson, Interim
President
by: /s/ Antonio Santiago
-----------------------------
Antonio Santiago, Director of
Finance
Page 13 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,044,831
<SECURITIES> 0
<RECEIVABLES> 771,579
<ALLOWANCES> (134,283)
<INVENTORY> 661,378
<CURRENT-ASSETS> 2,457,224
<PP&E> 1,931,496
<DEPRECIATION> (1,343,047)
<TOTAL-ASSETS> 3,700,192
<CURRENT-LIABILITIES> 1,338,451
<BONDS> 0
0
3,134
<COMMON> 38,406
<OTHER-SE> 2,232,688
<TOTAL-LIABILITY-AND-EQUITY> 3,700,192
<SALES> 953,807
<TOTAL-REVENUES> 966,859
<CGS> 510,135
<TOTAL-COSTS> 1,331,153
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (364,864)
<INTEREST-EXPENSE> 570
<INCOME-PRETAX> (364,864)
<INCOME-TAX> 800
<INCOME-CONTINUING> (365,664)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (365,664)
<EPS-BASIC> (.10)
<EPS-DILUTED> (.10)
</TABLE>
