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 June 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 July 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 at June 30, 2000 (unaudited) 3
Statements of Operations (unaudited) for the three-months
ended and six-months ended June 30, 2000 and 1999 4
Statement of Cash Flows (unaudited) for the six-months
ended June 30, 2000 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 3. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
Page 2 of 12
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
BALANCE SHEET
(Unaudited)
June 30, 2000
-------------
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 564,270
Accounts receivable - net of allowances
for doubtful accounts and returns of $91,780 850,849
Inventories 538,149
Advance on royalties 8,400
Prepaid expenses 51,584
----------
Total current assets 2,013,252
----------
PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation and amortization 593,326
----------
OTHER ASSETS
Deferred income taxes 450,700
Security deposits 34,277
Publishing rights - net of accumulated
amortization of $209,648 145,761
Other 73,758
----------
Total other assets 704,496
----------
TOTAL ASSETS $ 3,311,074
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 659,904
Royalties payable 74,142
Commissions payable 13,763
Series B preferred stock redemption and
dividends payable 161,500
Accrued wages, bonuses and payroll taxes 65,191
Accrued liabilities 189,305
Current portion of obligations under capital leases 35,627
----------
Total current liabilities 1,199,432
----------
OTHER LIABILITIES
Obligations under capital leases, net of current portion 97,869
----------
1,297,301
----------
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 <12,697,955>
----------
Total shareholders' equity 2,013,773
---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,311,074
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3 of 12
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HEALTHY PLANET PRODUCTS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $1,111,092 $ 784,753 $2,064,899 $1,335,236
COST OF GOODS SOLD 570,571 453,599 1,080,706 778,532
--------- --------- --------- ---------
GROSS PROFIT 540,521 331,154 984,193 556,704
--------- --------- --------- ---------
OPERATING EXPENSES
Selling, shipping and marketing 332,422 305,889 670,873 541,753
General and administrative 471,710 488,196 954,277 908,533
--------- --------- --------- ---------
804,132 794,085 1,625,150 1,450,286
--------- --------- --------- ---------
OPERATING LOSS <263,611> <462,931> <640,957> <893,582>
--------- --------- --------- ---------
OTHER INCOME/<EXPENSE>
Interest expense <1,471> <2,925> <4,568> <5,560>
Interest income 7,121 31,878 17,233 50,686
Other income 34 9,774 2,974 46,736
--------- --------- --------- ---------
5,684 38,727 15,639 91,862
--------- --------- --------- ---------
LOSS BEFORE TAXES <257,927> <424,204> <625,318> <801,720>
PROVISION FOR INCOME TAXES 0 0 800 800
--------- --------- --------- ---------
NET LOSS $ <257,927> $ <424,204> $ <626,118> $ <802,520>
========= ========= ========= =========
BASIC AND DILUTED LOSS PER
COMMON SHARE <$0.07> <$0.11> <$0.16> <$0.24>
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 3,840,584 3,834,584 3,840,584 3,317,179
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4 of 12
<PAGE>
<TABLE>
<CAPTION>
HEALTHY PLANET PRODUCTS, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss <$626,118> <$802,520>
Adjustments to reconcile net loss to net cash
from operating activities
Depreciation and amortization 161,240 160,776
Allowance for doubtful accounts and returns <166,548> <323,983>
Inventory reserve <187,647> <170,000>
Changes in:
Accounts receivable <140,804> 552,788
Inventories 169,998 46,822
Advance on royalties 12,821 <12,774>
Prepaid expenses 46,198 <80,317>
Accounts payable 142,485 37,253
Royalties payable 10,747 54,704
Commissions payable <20,602> <50,102>
Accrued wages, bonus & payroll taxes <99,409> 7,961
Accrued liabilities 82,305 115,907
Accrued rent payable 0 <3,169>
--------- ---------
Net cash from operating activities <615,334> <466,654>
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of marketable securities 0 333
Purchase of property and equipment <86,523> <162,871>
Purchase of publishing rights <92,445> <24,559>
Security deposits 4,860 <4,860>
Acquisition costs 0 <151,050>
Leasehold improvements <78,507> 0
--------- ---------
Net cash from investing activities <252,615> <343,007>
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from capital leases 133,496 0
Principal repayments on note payable 0 <72,553>
Net proceeds from Stock Rights offering 0 1,494,094
--------- ---------
Net cash from financing activities 133,496 1,421,541
--------- ---------
INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS <734,453> 611,880
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,298,723 2,162,610
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 564,270 $2,774,490
========= =========
SUPPLEMENTARY CASH FLOW INFORMATION INCLUDES THE FOLLOWING:
Cash paid during the period for:
Interest $ 4,568 $ 2,635
Income taxes $ 800 $ 0
</TABLE>
The accompanying notes are an integral part of these statements.
Page 5 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, 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
June 30, 1999 and for the three and six months then ended to conform with the
current quarter presentation.
NOTE 2 - INVENTORIES
--------------------
Inventories consist of the following:
June 30,
2000
-------
Raw materials $ 6,517
Work-in-process 350,786
Finished goods 180,846
----------
$ 538,149
==========
NOTE 3 - PROPERTY AND EQUIPMENT
-------------------------------
Property and equipment consist of the following:
June 30,
2000
-------
Machinery, equipment and leasehold improvements $ 871,048
Molds 406,000
Color separations 331,445
Furniture and fixtures 105,314
Computer software 283,624
1,997,431
Less accumulated depreciation and amortization <1,404,105>
---------
$ 593,326
=========
Page 6 of 12
<PAGE>
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.
Page 7 of 12
<PAGE>
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 six months ended June 30, 2000, the Company's net sales amounted to
$2,064,899 which reflected an increase of $729,663 or 54.7% versus last year's
six month results of $1,335,236. Sales of the recently acquired adoption kit
line accounted for $421,618 of the increase with the balance from a 54.7%
increase in paper product sales offset by a 47.8% decrease in collectible sales.
Sales of the paper product lines increased from $988,344 to $1,528,528 for the
comparable six month period. The collectible line sales decreased from
$219,944 to $114,752 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 June 30, 2000, the Company's net sales amounted
to $1,111,092 which reflected an increase of $326,339 or 41.6% versus last
year's three month results of $784,753. Sales of the adoption kits accounted
for $122,490 of the increase with the balance from a 73.9% increase in paper
product sales offset by a 46.4% decrease in collectible sales. Sales of the
Page 8 of 12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Sales (continued)
-----------------
paper product lines increased from $535,909 to $932,175 for the three month
period while collectible sales decreased from $121,586 to $56,427 for the same
period.
Gross Profit
------------
For the six months ended June 30, 2000, gross profit amounted to $984,193
or 47.7% of sales. For the comparable prior year period, gross profit
amounted to $556,704 or 41.7% of sales. For the three months ended June 30,
2000, gross profit amounted to $540,521 or 48.7% of sales. For the comparable
prior year period, gross profit amounted to $331,154 or 42.2% 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 six months ended June 30, 2000, selling, shipping and marketing
expenses amounted to $670,873 or 32.5% of sales versus $541,753 or 40.6% of
sales for the comparable prior year period. For the three months ended June
30, 2000, selling, shipping and marketing expenses amounted to $332,422 or
29.9% of sales versus $305,889 or 39.0% 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 $954,277 for the six months
ended June 30, 2000, reflecting an increase of $45,744 or 5.0% versus the
prior year period of $908,533. The year to year increase was a result of the
May 1, 1999 acquisition of the adoption kit product line, which had the
adverse effect of adding four months of expenses to this year's six month
results, one-time charges associated with consolidating those operations from
Southern California to Northern California in the first quarter of 2000, one-
time expenses relating to the downsizing of the Company's warehouse facility
from 60,600 square feet to 26,500 square feet and budgeted increases in
manpower to implement a new IT system which was custom designed to increase
efficiencies in all areas of the Company's operations.
Page 9 of 12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Operating Expenses (continued)
------------------------------
These expenses were offset by reductions in rental, utility and operations
expenses as a result of the elimination of the Southern California facility
and the downsizing of the Petaluma facility and a reduction in warehouse and
office staffing of 38 as of December 1999 to 25 by June 30, 2000.
General and administrative expenses amounted to $471,710 for the three
months ended June 30, 2000, reflecting a decrease of $16,486 or 3.3% versus
the prior year period of $488,196. Increases in depreciation expenses,
medical and property liability insurance, professional fees, postage and
office supplies were offset by 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.
Income
------
An operating loss of $640,957 was incurred for the six months ended June
30, 2000. Interest and other income of $15,639 reduced the operating loss to
result in a net loss before income taxes of $625,318. For the prior year
period, the net loss before income taxes amounted to $801,720. Net loss for
the six months ended June 30, 2000 amounted to $626,118 or $.16 per share,
compared to the prior year's net loss of $802,520 or $.24 per share. All per
share amounts are based on the weighted average common shares outstanding for
the period.
An operating loss of $263,611 was incurred for the three months ended June
30, 2000. Interest and other income of $5,684 reduced the operating loss to
result in a net loss of $257,927 or $.07 per share. For the prior year
period, the net loss amounted to $424,204 or $.11 per share. All per share
amounts are based on the weighted average common shares outstanding for the
period.
Balance Sheet
-------------
Total assets at June 30, 2000 amounted to $3,311,074 which reflected a
decrease versus the December 31, 1999 level of $3,688,000 by $376,926. An
increase in receivables, inventories, royalty advances, and fixed assets were
offset by decreases in cash and prepaid expenses. Total current liabilities
amounted to $1,199,432 as of June 30, 2000 which reflected an increase versus
the December 31, 1999 level of $1,048,200 or by $151,232. The increase was a
result of increases in trade payables, royalties payable and accruals, offset
in part by the paydown of commissions and accrued wages.
Liquidity and Capital Resources
-------------------------------
At June 30, 2000, the Company's working capital was $813,820 with a working
capital ratio 1.7:1. Net cash used by operating activities during the six
months ended June 30, 2000 amounted to $615,334. Net loss of $626,118 and
changes in non-cash items of $192,955 were offset in part by $203,739 provided
by changes in net receivables, inventory, and other assets and liabilities.
Page 10 of 12
<PAGE>
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 $252,615 consisting principally
of $78,507 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 $133,496 in cash as proceeds of capital leases.
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, (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 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 debt and/or equity financing in order to obtain the
additional capital that would be needed. There can 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
<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. 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 a 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.
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 - Registrant filed no reports on Form 8-K
during the period covered by this report.
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: August 14, 2000 by: /s/ Gregory C. McPherson
-----------------------------
Gregory C. McPherson,
Interim President
DATED: August 14, 2000 by: /s/ Antonio Santiago
-------------------------
Antonio Santiago,
Vice President of Finance
Page 12 of 12
