SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

                                   (Mark One)

                 [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934.

                   For the fiscal year ended December 31, 1999

                                       OR

               [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934.

             For the transition period from __________ to _________

                         Commission file number 1-13048

                          HEALTHY PLANET PRODUCTS, INC.
                 ----------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

                     Delaware                                   94-2601764
   -------------------------------------------            ----------------------
          (State or Other Jurisdiction of                    (I.R.S. Employer
          Incorporation or Organization)                    Identification No.)

   1700 Corporate Circle, Petaluma, California                     94954
   -------------------------------------------            ----------------------
     (Address of Principal Executive Offices)                   (Zip Code)

                                 (707) 778-2280
                                 --------------
                (Issuer's Telephone Number, Including Area Code)

         Securities registered under Section 12(b) of the Exchange Act:

  Common Stock, $.01 par value                American Stock Exchange
  ----------------------------                -----------------------
     (Title of Each Class)           (Name of Each Exchange on Which Registered)

         Securities registered under Section 12(g) of the Exchange Act:

                          Common Stock, $.01 par value
                          ----------------------------
                                (Title of Class)


                            -------------------------
                                (Title of Class)


<PAGE>


         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 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   /_/

         Check if  disclosure  of  delinquent  filers in response to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. /x/

         The Issuer's  revenues for its most recent  fiscal year ended  December
31, 1999 were $3,689,600.

         On March 20, 2000,  the  aggregate  market value of the voting stock of
Healthy Planet Products,  Inc.  (consisting of common stock, $.01 par value (the
"Common  Stock")) held by  non-affiliates  of the Registrant  was  approximately
$2,351,739  based on the  closing  price for such  Common  Stock on said date as
reported by the American Stock Exchange.

         In  making  the  foregoing   calculation,   the  Registrant   has,  for
calculation  purposes only, included all presently  outstanding 31,335 shares of
its  Series D  Preferred  Stock  convertible  into  shares of Common  Stock on a
share-for-share basis.

         On March 20, 2000,  there were 3,840,584  shares of Common Stock,  $.01
par value, issued and outstanding (exclusive of 31,335 shares of voting Series D
Preferred Stock convertible into 31,335 shares of Common Stock).


                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None


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                                     PART I

Item 1.  Business

Incorporation

         Healthy  Planet  Products,   Inc.   (hereinafter  referred  to  as  the
"Registrant"  or the "Company") was originally  organized  under the laws of the
State of California on July 12, 1979 under the name of Carolyn Bean  Publishing,
Ltd. On April 12,  1985,  the  Company  effected a  domiciliary  reincorporation
pursuant to which the Company was reincorporated  under the laws of the State of
Delaware,  and the  California  corporate  entity was merged into a new Delaware
corporation of the same name. On August 2, 1993, the Company changed its name to
Healthy  Planet  Products,  Inc. The Company's  executive  offices and warehouse
facilities are located at 1700 Corporate Circle, Petaluma, California 94954, and
its telephone number is (707) 778-2280, fax number (707) 778-0307. The Company's
website is located at http://www.healthyplanet.com

Principal Industry in Which the Company is Engaged

         The Company  designs,  publishes  and  markets,  throughout  the United
States and Canada,  a  diversified  line of cause  related,  nature and wildlife
greeting cards, note cards, holiday cards,  adoption kits, gifts and stationery.
In response to environmental  considerations,  the Company has associated itself
through its licensing agreements with various non-profit  organizations and has,
since  inception,  paid over  $3,000,000 in royalties to these groups to further
their efforts on behalf of the environment and its inhabitants.

         All of  the  Company's  paper  products  are  produced  on  elementally
chlorine-free  or recycled paper using soy-based ink. The Company  publishes and
markets over 600 everyday, occasional and seasonal cards. The Company's products
are   predominantly   marketed  through   approximately  130  independent  sales
representatives  to over 5,800  retail  sales  outlets  comprised of card shops,
stationery  stores,  gift, notion and variety shops,  drug stores,  book stores,
department stores and miscellaneous chain and retail sales outlets.

         In  December  1997,  the  Company  acquired  certain  assets of Corlett
Collectibles,  Inc., a privately owned company which  specialized in the design,
manufacture  and  sale  of a  line  of  handcrafted  sculptures,  figurines  and
collectibles  of domestic and wild animals.  This line,  which was introduced by
the Company under the name Healthy Planet  Collectibles  in the first quarter of
1998, currently consists of approximately 850 animal and wildlife sculptures.

         In May 1999, the Company acquired The Evergreen Group(TM) product lines
from KT Holdings,  Inc., a privately held company. The primary product is a line
of endangered animal adoption kits marketed under the trademarks  Friends of the
Forest(TM)  and Friends of the  Ocean(TM).  These adoption kits are sold through
multiple channels  including  specialty retail and gift stores,  print catalogs,
the  internet,  and  directly to  consumers  via direct  mail.  A portion of the
proceeds  of each kit sold is paid as a royalty  to a  conservation  group  that
assists in the development of the adoption kits.

                                       3

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General Business Developments During Most Recent Fiscal Year

         The Company made a stock rights  offering to  shareholders of record on
January 11,  1999.  Each  shareholder  on the rights  record date was issued two
rights for each common share owned by such shareholder.  Each right entitled the
shareholder  to purchase one share of the Company's  Common Stock at $1.0625 per
share.  Shareholders were accorded certain  oversubscription  rights conditioned
upon their exercising  their basic rights.  The rights offering expired on March
16, 1999. As a result of the rights offering, the Company issued an aggregate of
1,582,216  shares of Common Stock and  received an  aggregate  of  approximately
$1,649,230  in gross  proceeds  from the rights  offering.  The  Chairman of the
Company and two  companies  controlled  by him agreed to  exercise  all of their
respective  basic rights resulting in their purchase of 927,000 shares of Common
Stock and, in addition,  exercised  over  subscription  rights to acquire 43,200
shares of Common Stock,  resulting in their  purchase of an aggregate of 970,200
shares of Common Stock.

          On May 4, 1999, the Company completed the acquisition of The Evergreen
Group  product  lines from KT Holdings,  Inc.,  a privately  held  company.  The
product lines, which include adoption kits, educational games, activity kits and
gift items, are based on pro-active consumer education about the conservation of
endangered  animals.  These  product  lines  are  associated  with,  and help to
support,   various  conservation  groups  such  as  the  Caribbean  Conservation
Corporation,  the Earth Island Institute,  the Hornocker Wildlife Institute, the
Institute  of  Range  and  the  American  Mustang,  the  International  Wildlife
Coalition, The Raptor Center and The Wolf Education and Research Center.

         In August 1999, the Company  entered into a license  agreement with the
National Wildlife Federation ("NWF"),  granting the Company the exclusive use of
NWF's name and  trademarks  in  connection  with the  manufacture  and worldwide
marketing and sale of photography based notecards, stationery,  postcards, blank
journals  and magnets.  NWF is a leading  conservation  organization  reaching 4
million people annually,  including 1 million subscribers to their publications.
The NWF's  mission is to  inspire,  educate and assist  individuals  to conserve
wildlife and other natural  resources.  NWF was started in 1936 and has grown to
be the nation's largest private, non-profit conservation education organization.

         Since 1980,  the Company had been the exclusive  licensee of the Sierra
Club, a nationally known environmental and conservationist organization, for the
use of the  Sierra  Club  name  on a line  of  wilderness  and  wildlife  cards,
journals,  stationery,  tablets and magnets.  The Sierra Club line accounted for
approximately  44.7% of the Company's net sales for the year ended  December 31,
1999 and for  approximately  65.5% of the Company's net sales for the year ended
December 31, 1998.  Prior to December 31, 1999, the Company  notified the Sierra
Club that it had  elected  not to  continue  as a licensee  of the  Sierra  Club
commencing in the year 2000. The Sierra Club has initiated  legal action against
the Company as a result of the Company's decision not to continue as a licensee.
See "Item 3 - Legal Proceedings" for further  information  concerning this legal
action.

         On  December 8, 1999,  the  Company,  in an effort to reduce  operating
expenses,  entered into an  amendment  to its lease to  surrender  approximately
34,181 square feet of its 60,512 square foot facility,  resulting in a reduction
of rental expense of $234,896 on an annualized basis effective beginning June 1,
2000 (see "Item 2. Properties").

         After 12 years of service,  Mr.  Bruce A. Wilson,  President  and Chief
Executive Officer of the Company,  retired from  participation in the day to day
operations of the Company  effective,  December 31, 1999.  Mr. Wilson  remains a
member  of the  Board of  Directors  and  provides  consulting  services  to the
Company.

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         On January 6, 2000,  Mr.  Donald L.  Beckman  joined the Company as its
Vice-President  of  Marketing.  Mr.  Beckman  brings  with him  thirty  years of
experience  in the social  expression  industry,  having held various  executive
positions with American Greetings.  In addition, and effective January 14, 2000,
Mr. Richard M. Widney was appointed as Vice-President and General Manager of the
Company. Mr. Widney was previously President of KT Holdings and was instrumental
in the development of the adoption kit product lines.

Products

Source of Product and Arrangement with Photographers and Others

         Published Product and Collectibles

         While the overall  concept  and design of its  published  products  are
developed  by the  Company  in-house,  it  principally  relies  on  independent,
unaffiliated  photographers  to create images for its product lines.  Agreements
between the Company and its photographers  apply to specific images submitted by
a photographer and accepted by the Company. These agreements are exclusive as to
those  images,  and do not normally  cover all of a  photographer's  works.  The
Company  utilizes an available pool of 600-700  photographers.  It  additionally
receives unsolicited  submissions from time to time from various  photographers.
When  utilizing  the work of a particular  photographer,  the Company  generally
makes a one time payment of approximately $300-$400,  which entitles the Company
to utilize the particular  work for three to five years without  further royalty
payments.  The  Company's  collectible  line of figurines  are designed and hand
sculpted by independent  artists and craftsmen who generally  receive a one time
fee of  approximately  $400 or a royalty of  approximately  4%. Master molds are
designed and created in  California,  and final product is cast and hand painted
by a non-affiliated manufacturer located in the Far East. No single photographer
or artist  (sculptor)  with  whom the  Company  has  entered  into a license  or
purchase of rights agreement has created products which have accounted for 4% or
more of the Company's sales in any year.

         License Agreements

         The Company has entered  into  licensing  agreements  with the National
Wildlife  Foundation,  The Wilderness  Society,  The Marine Mammal  Center,  The
Zoological  Society of San Diego,  The  Rainforest  Action  Network and the SEVA
Foundation,  expiring at various dates through  August 31, 2002.  The agreements
call  for  royalty  payments  of 2% - 10%  of  net  sales,  as  defined  in  the
agreements,  subject to minimum cumulative royalties of $175,000,  over the life
of these agreements. All agreements are cancelable with 30 to 60 days notice, as
defined  in the  agreements.  Options  exist to  extend  the  terms  of  certain
agreements.

Manufacture of Product

         The Company does not  manufacture  its  products,  nor does it have the
equipment to do so.  Rather,  it contracts  for the physical  production  of its
products with independent  contractors,  using different suppliers at each stage
of  production,  so as not to rely on any one  specific  supplier to satisfy its
needs.  The  Company  believes  that there are ample  suppliers  and  production
facilities available to it at competitive costs.

         During the year ended  December 31, 1999 the Company made 23.6%,  13.2%
and 7.3% of its purchases from three  manufacturers or suppliers.  Each of these
suppliers is unaffiliated with the Company.  The Company does not have any short
or long term supply agreements or exclusive agreements with these suppliers. The
Company  believes  that  the  loss of any of these  suppliers  would  not have a
material  impact

                                       5

<PAGE>


upon the Company's business, since it believes that multiple alternate suppliers
are available to the Company at competitive prices.

Marketing and Sales

         The Company's  products are marketed to over 5,800 retail sales outlets
which are  comprised  of card shops,  stationery  stores,  gift and book stores,
notions and variety shops, drug stores, department stores, and miscellaneous and
multiple retail  outlets.  With the exception of Barnes & Noble  Superstores,  a
national  chain of bookstores  which  accounted for  approximately  17.6% of the
Company's  net sales,  for the year ended  December  31,  1999,  no other single
customer of the Company accounted for 10% or more of the Company's net sales.

         In addition to its sales staff, the Company utilizes  approximately 130
independent  sales  representatives  who also  represent  the  products of other
companies.  Independent sales representatives  accounted for approximately 56.4%
of  Company  sales for the year  ended  December  31,  1999 with the  balance of
Company sales being generated via direct  customer  contact.  Independent  sales
representatives  are paid a fixed  sales  commission  ranging  from 5% to 25% of
sales.  For the year ended December 31, 1999, a total of $287,194 in commissions
were  paid  to  the  sales  representatives.   During  this  period,  no  single
independent  sales  representative  accounted for more than 10% of the Company's
sales.

         The Company has developed various  merchandising  programs,  which have
been  designed to provide  increasing  levels of benefits  to its  customers  as
customers'  commitment to the Company's  product lines  increase.  The Company's
product  line has been  segmented  and is targeted to  specific  markets.  Sales
literature,  point of sale advertising and catalogs/flyers explain and highlight
the Company's  programs and products,  and are used by sales  representatives in
presentations to customers.  The Company provides a range of options, from small
"promotional" displays to larger "departmental" displays.

Advertising and Sales Promotion

         The Company uses various  methods to promote its products.  It exhibits
at certain trade and gift shows,  and provides point of sale materials and a web
site  presence.  In addition,  it produces  sales  materials  which  feature new
products and merchandising  programs.  One of the Company's most effective forms
of retail  advertising is the visual display of its products in display space in
retail outlets. The Company believes that its cause related, nature and wildlife
card and other product lines will be the indirect  beneficiary  of the promotion
of each particular  cause, and consumer  concerns for the environment and nature
preservation.

Competition

         The  greeting  card,  social  stationery  and gift  industry  is highly
competitive.  The Company only marginally  competes with major  traditional card
companies,  such  as  Hallmark  Cards,  Inc.,  American  Greetings  Corporation,
Recycled  Paper  Products and Gibson  Greetings,  Inc. The major  greeting  card
companies have greater financial  resources,  market  penetration and experience
than the Company.  The Company primarily  competes with the smaller  alternative
card companies,  several of whom have sales and resources  greater than those of
the Company;  i.e.,  Paramount and Sunrise  Publications (now part of Hallmark),
among others.

         The primary  basis upon which the Company  competes is the marketing of
its cause related products.  This factor is a positive aspect to the business of
the  Company so long as there  continues  to be public  awareness,  support  and
identification  with a particular  cause or  environmental  issues.  Conversely,
should

                                       6

<PAGE>


a cause or organization fall out of vogue with the public, the attractiveness of
a line may  diminish.  The Company  does not view itself as being a  significant
competitive  factor in the greeting card or gift industries,  though the Company
does believe that growth and opportunity does present itself within the niche of
cause related and associated card and other product lines.

Employees

         The Company  currently has 34 full-time  employees,  including its four
executive officers. Of the 34 employees,  22 are in administrative,  managerial,
and sales positions,  and 12 are warehouse persons. In peak seasons, the Company
may employ up to 12 temporary employees for its warehouse operation. None of the
Company's  employees are represented by a labor union, and the Company considers
its relationship with its employees to be good.

Trademarks and Copyrights

         In most cases,  the  Company  either  owns or shares  ownership  of the
copyright  with the  photographers  and  artists  who  create  products  for the
Company,  although  there  are  some  photographers  and  artists  who  have the
exclusive  ownership of the copyright for the works published by the Company, in
which  case,  the right to market and  exploit  the  product is  licensed to the
Company in return  for a royalty  fee or one time  payment  for  rights.  To the
extent that any single product enjoys substantial consumer acceptance or demand,
the Company is dependent upon the validity of the copyright of such  photograph.
The loss or invalidity of a copyright will not have a material adverse effect on
the Company since no single  product,  either  published or  distributed  by the
Company, accounts for a material portion of the Company's sales.

         The Company has registered  HEALTHY PLANET  PRODUCTS  (Registered) as a
trademark in association with its environmentally  cause-related  product lines,
and has completed  registration  of the name,  logo and design of HEALTHY PLANET
PRODUCTS with the United  States  Patent and  Trademark  Office and the European
Community.

         The  Company  has also  registered  the "Sea  Dreams",  "Nature  Baby",
"Healthy Planet Collectibles", "Show the World you Care", "The Evergreen Group",
"Friends  of  the   Forest",   "Friends  of  the  Ocean"  and  "Friends  of  the
Environment",  names,  logos,  and designs as trademarks used in connection with
its various product lines.


Item 2. Properties

         The Company's offices and business facilities are located in a building
located in Petaluma, California.

         On December 8, 1999,  the Company  entered into a lease  agreement with
RNM Lakeville LP, the landlord of its existing  facility,  pursuant to which the
Company surrendered  approximately  34,181 square feet of its approximate 60,512
square  feet of  leased  facility.  The  surrender  of a portion  of its  leased
premises  was in  furtherance  of the  Company's  desire to reduce  its  monthly
general  operating  expenses.  The new lease now  relates to 26,472  square feet
located at 1700 Corporate Circle, Petaluma,  California.  The lease term extends
through April 14, 2002 and provides for a monthly base rent of $15,833 effective
beginning  June 1, 2000. In addition to the base rent, the Company is to pay, as
additional  rent, its share of operating  expenses and real property taxes.  The
Company  believes that its present  facilities are now adequate and suitable for
its present and anticipated future needs.

                                       7

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Item 3.  Legal Proceedings

         In December,  1999, the Company  notified the Sierra Club that it would
not be  continuing  its license with the Sierra Club beyond  1999.  On March 14,
2000,  the Sierra Club filed a summons and  complaint  for breach of contract in
the Superior  Court of  California,  County of San  Francisco,  in support of an
application with the court seeking a provisional order of attachment against the
Company pending determination of an arbitration proceeding which the Sierra Club
is expected  to commence  against  the  Company  concerning  termination  of the
license. The Company believes that the proceedings  initiated by the Sierra Club
are without merit and intend to defend them vigorously.

         Other than as set forth in the preceding paragraph,  the Company is not
a party to any material pending legal  proceedings,  other than ordinary routine
litigation incidental to the business.


Item 4.  Submission of Matters to a Vote of Security Holders

         Not Applicable.




                   [BALANCE OF PAGE INTENTIONALLY LEFT BLANK]


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                                     PART II

Item 5.  Market for and Dividends on the Registrant's
         Common Equity and Related Stockholder Matters

A.       Principal Market

         The American Stock  Exchange is the principal  market for the Company's
Common Stock, where its shares are traded under the symbol "HPP."

B.       Market Information

         American Stock Exchange

         The  following  are  the  high  and low  closing  sale  prices  for the
Company's Common Stock for the periods indicated:

                  Year              High            Low
                  ----              ----            ---
                  1999

              1st Quarter           1 3/8           1/2

              2nd Quarter           1 7/8           1/2

              3rd Quarter             3/4           1/2

              4th Quarter             5/8          5/16


                  Year              High            Low
                  ----              ----            ---

                  1998

              1st Quarter          3 3/4         2 7/16

              2nd Quarter          2 7/16        1 5/16

              3rd Quarter           1 1/2          3/4

              4th Quarter           1              1/2


C.       Dividends

         The Company has never paid a dividend, whether cash or property, on its
shares  of  Common  Stock  and has no  present  expectation  of  doing so in the
foreseeable future.

D.       Approximate Number of Equity Security Holders

         The approximate  number of record holders of the Company's Common Stock
as of March 20, 2000 was 115. Such number of record owners was  determined  from
the Company's shareholder records, and does not include beneficial owners of the
Company's  Common Stock whose  shares are held in the names of various  security
holders,  dealers and clearing agencies. The Company believes that the number of
beneficial  owners of its Common Stock held by others in nominee  names  exceeds
1,000 in number.

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Item 6.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

Special Note Regarding Forward-Looking Statements

         Certain statements in this Form 10-KSB, 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 Form 10-KSB 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  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.

Results of Operations

1999 Compared to 1998

         Sales for the year ended December 31, 1999 were $3,689,600,  reflecting
a slight  increase  of 1.5%  versus the prior year  level of  $3,633,900.  Paper
product  sales  declined  19.8% due  primarily to a decline in card and bookmark
sales, which were down collectively by 27.7%. This was offset by increased sales
from adoption kits, Henna Kits and  collectibles.  Included in the 1999 year end
results was a  provision  for future  returns of  approximately  $109,000.  This
provision recognizes and provides for the return of unsold seasonal product from
customers who have qualified for a return privilege.

         During 1999,  sales of the Company's  largest  product line, the Sierra
Club line,  accounted for 44.7% of total revenues compared to 65.5% for 1998 and
showed a year to year  decline of revenues  of 30.8%.  A  continuing  decline in
holiday  boxed  card  sales  combined  with a drop off of  everyday  card  sales
resulted in the overall  Sierra Club  revenue  decline.  Sales of the  Company's
other product lines sold in both 1998 and 1999,  excluding Sierra Club, finished
the year even with the prior year results.

         The Company  reported an operating loss of $2,727,900 or $.76 per share
versus the prior  year level of  $2,905,500  or $1.28 per  share.  Gross  margin
increased by $818,300 to  $1,077,400  versus the prior year level of $259,100 or
by  315.8%.  The gain in gross  margin  was  offset  in part by an  increase  in
operating expenses of $640,700.  Costs associated with the acquisition of the KT
Holdings, Inc. product lines, the write-off of phased out computer equipment and
increased selling expenses contributed to the increase in operating expenses.

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<PAGE>


         Cost of sales  amounted to $2,612,200  for the year ended  December 31,
1999 representing  70.8% of sales.  Included in this year's costs was a $300,000
write-off of collectible  product molds.  For the comparable  prior year period,
cost of sales  amounted to $3,374,800  or 92.9% of sales.  Included in the prior
year's costs were costs related to a close-out sale and a provision for obsolete
inventory totaling  $1,045,000.  The Company's  inventory reserve decreased from
$995,000 to $828,000.

         Selling, shipping and marketing expenses of $1,691,100 were $131,900 or
8.5% higher than the previous  year,  primarily  due to the hiring of additional
sales personnel to market the Company's products.

         General and administrative  expenses amounted to $2,114,200  reflecting
an increase of $508,800 or 31.7% versus the prior year level of $1,605,400.  The
year to year  increase  was a result of the  acquisition  and addition of the KT
Holdings, Inc. product lines and the write-off of phased out computer equipment.

         The  Company's  net loss  for the  year  ended  December  31,  1999 was
$2,741,700 or $.76 per share,  reflecting an  improvement  over the prior year's
loss of $3,154,800  or $1.39 per share.  The reduction in net loss resulted from
an  improvement  in gross  margins,  which was partially  offset by increases in
operating  expenses and one-time charges associated with the disposal of certain
assets acquired from KT Holdings, Inc.

Liquidity and Capital Resources

         Total  assets at  December  31,  1999  amounted  to  $3,688,000,  which
reflected a decrease  versus the prior year level of  $4,639,800  by $951,800 or
20.5%. A decline in cash and cash equivalents,  accounts receivable and property
and equipment resulted in the overall decline.

         At December 31, 1999,  the Company's  working  capital was  $1,433,300.
This  compared  to the 1998  working  capital of  $2,571,100  for a year to year
decline  of  $1,137,800.  The year to year  decline  was due to  lower  cash and
marketable  securities and  receivables  combined with higher trade payables and
accruals.

         The primary source of the Company's  liquidity  during the past several
years has been sales of the Company's securities. In September 1997, the Company
sold Common Stock and Common Stock Purchase Warrants to an investor (and certain
of his  affiliates),  who has since become Chairman of the Board of the Company,
for  an  aggregate  of  $975,000.  A  rights  offering  made  to  the  Company's
stockholders  in 1999,  in which the Company  issued an  aggregate  of 1,582,216
shares of Common Stock (including  970,200 shares to the Chairman and certain of
his  affiliates),  resulted  in the receipt by the  Company of an  aggregate  of
approximately $1,649,230 in gross proceeds.

         Net  cash  used  by  operating   activities  during  1999  amounted  to
$1,638,200.  Net loss of $2,741,700  was offset in part by $583,300  provided by
changes in non-cash items and $520,200  provided by changes in net  receivables,
inventory and other assets and  liabilities.  Cash used by investing  activities
amounted to $606,500 consisting  principally of $285,000 used in the acquisition
of The Evergreen  Group product lines and the balance used to purchase  computer
equipment and new information systems,  color separations and publishing rights.
Cash  provided by financing  activities  consisted of  $1,476,400 in cash as net
proceeds from the rights offering completed in March of 1999 and $95,600 used to
repay a note associated with the 1997  acquisition of the  Collectibles  product
lines.

         The Company  believes and  anticipates  that the primary  source of its
liquidity and capital resources for the year 2000 will primarily be cash on hand
and 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 or elimination of product lines that generate

                                       11

<PAGE>

insufficient profit margins,  (iv) the increased revenues that will be generated
by a full year of sales of the Evergreen product lines and (v) revenues expected
to be generated from the introduction during the year of new product lines, such
as regional and "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 to have a material
effect upon its business. Increases in material and labor costs have been offset
by  increases  in the  price  of  the  Company's  products  and  through  higher
production  runs which have  reduced  the unit cost of the  Company's  products.
While the Company has in the past increased its prices to its customers,  it has
maintained its relative competitive price position.

Year 2000

         The Company has not experienced any Year 2000 related problems.  During
the year ended December 31, 1999, the Company expended approximately $224,000 to
ensure that its computers would be Year 2000 compliant.


Item 7.  Financial Statements and Supplementary Data

         See Index to Financial Statements attached hereto.


Item 8.  Changes in and Disagreements with Accountants on Accounting and

         Financial Disclosure

         Not Applicable.




                   [BALANCE OF PAGE INTENTIONALLY LEFT BLANK]

                                       12

<PAGE>


                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
         with Section 16(a) of the Exchange Act

         The Directors and Executive Officers of the Company are as follows:

Name                          Age     Position
----                          ---     --------
Gregory C. McPherson           41     Interim President
Donald L. Beckman              55     Vice President - Marketing
M. Scott Foster                48     Vice President - Sales
Richard  M.Widney              55     Vice President and General Manager
Ricky Williams                 43     Vice President - Operations
Antonio H. Santiago            43     Director of Finance, Assistant Secretary
Daniel R. Coleman              43     Director
William J. Nance               56     Treasurer, Director
Robert W. Sweitzer             55     Director
Bruce A. Wilson                48     Director
John V. Winfield               53     Chairman of the Board of Directors
Michael G. Zybala              47     Secretary, Director


         The Company's  Certificate  of  Incorporation  provides for a staggered
Board of Directors.  The following  persons are Directors of the Company for the
classes and terms as follows:

Director                           Class    Term Expires
--------                           -----    ------------
Bruce A. Wilson                      1           2001
William J. Nance                     1           2001
Michael G. Zybala                    2           2000
Daniel R. Coleman                    2           2000
John V. Winfield                     3           2002
Robert W. Sweitzer                   3           2002


         All Officers serve at the discretion of the Board of Directors. None of
the Officers or Directors are related to each other.  Set forth below is certain
biographical information for each Director and Officer.

         Gregory C. McPherson was appointed as Interim  President of the Company
effective  March 23,  2000.  Mr.  McPherson  is  Executive  Vice  President  and
Assistant  Secretary of The InterGroup  Corporation,  where he has been employed
since 1993. Prior to joining  InterGroup,  Mr. McPherson was a private financial
and strategic  advisor,  served as Vice President in the Investment  Banking and
Corporate  Finance  Department  of  Kemper  Securities  Group,  Inc.,  was  with
Prudential Bache Capital Funding in their Mergers and Acquisitions and Financial
Restructuring  Group  and  was a  manager  at  the  public  accounting  firm  of
PricewaterhouseCoopers LLP.

                                       13

<PAGE>


         Donald L.  Beckman  joined  the  Company on January 6, 2000 as its Vice
President of Marketing.  Mr. Beckman was formerly  employed as Vice President of
Marketing for Plusmark, a subsidiary of American Greetings Company, for the past
10 years.

         M. Scott  Foster  joined the  Company  as  Vice-President  of Sales and
Marketing in 1993. He is currently  employed by the Company on an at will basis.
Mr. Foster was formerly  employed by Russ Berrie and Company from June,  1980 to
April, 1993, where he served in various positions in sales management,  the most
recent of which was  Regional  Vice  President of Sales,  in which  capacity Mr.
Foster served from January, 1990 through April, 1993.

         Richard M. Widney joined the Company  effective with the acquisition of
KT  Holdings in May 1999 and was  appointed  as its  Vice-President  and General
Manager on January 14, 2000.  Mr.  Widney  served as President of The  Evergreen
Group from July 1998 until the  acquisition  by the Company of its adoption kits
product line in May 1999.  Prior to his employment with the Evergreen Group, Mr.
Widney  served,  from June 1997 to April 1998, as Vice President of Marketing of
Konexx, a manufacturer and marketer of computer telephone devices.  From January
1993 through May 1997,  Mr.  Widney  served as Vice  President of Marketing  for
Telcom  Technologies,  a developer  and  marketer of computer  based call center
management systems.

         Ricky Williams  joined the Company in 1985 as a systems analyst and has
served as the Company's Vice President of Operations since 1991.

         Antonio  H.  Santiago  joined  the  Company  in 1988 and has  served in
various financial  capacities since that date. He was appointed as the Company's
Director of Finance on January 14, 2000.

         Daniel R.  Coleman  was first  elected as a Director  of the Company on
August 29,  1996.  He has,  for the last five years,  been a general  partner in
three limited  partnerships that invest in United States equity  securities.  He
also serves as President of Clyde Hill Research, a consulting firm to investment
managers.

         William J. Nance was elected as a Class I Director in August, 1998. Mr.
Nance is Founder  and has been,  for the past five years,  President  of Century
Plaza Printers, Inc. He is a certified public accountant and private consultant.
Mr. Nance is also  Treasurer and Director of The  InterGroup  Corporation  and a
Director of Santa Fe Financial  Corporation and Portsmouth Square,  Inc, each of
which is a public company.

         Robert W.  Sweitzer,  Ph.D. was elected a Class 3 Director on August 5,
1998.  He has,  for the last five  years,  been on the  faculty  of the Peter F.
Drucker  Graduate  Management  Center  at  the  Claremont  Graduate  School.  In
addition, he has served as a consultant to business and industry in the areas of
strategic planning, marketing and franchise distribution.

         Bruce A. Wilson joined the Company as  Vice-President  of Operations on
October 15, 1987,  and has served as President of the Company,  Chief  Financial
and Chief  Operating  Officer  since January 28, 1988,  and as a Director  since
January 28, 1988.  In August,  1994,  Mr. Wilson  assumed the added  position of
Chief Executive  Officer.  Mr. Wilson served as Chairman from 1987 through 1998.
Effective December 31, 1999, Mr. Wilson retired from active operations to pursue
other interests. He remains a Director of the Company.

         John V. Winfield,  elected Chairman of the Board on August 5, 1998, was
first  elected a Class 3 Director on  September  29, 1997 in  connection  with a
private  transaction  in  which he and a  company  with  which he is  affiliated
purchased  an  aggregate  of 300,000  shares of the  Company's  Common Stock and
300,000  Common  Stock  Purchase  Warrants  for an  aggregate  of  $975,000.  In
connection with this transaction, the Company has agreed to use its best efforts
to cause Mr.  Winfield to be elected as a Director  through  the year 2000.  Mr.
Winfield is the Chairman of the Board,  President and Chief Executive Officer of
the  InterGroup  Corporation,  having  first  been  appointed  as such in  1987.
InterGroup is a public  company  traded on the NASDAQ Stock Market  (INTG).  Mr.
Winfield also presently serves as Chairman and Chief

                                       14

<PAGE>


Executive  Officer  of Santa Fe  Financial  Corporation  (SFEF)  and  Portsmouth
Square,  Inc.  (PRSI),  and  Chairman  of Etz Lavud  Limited  (ETZ),  all public
companies.

         Michael G. Zybala, Esq. was elected as a Class 2 Director in June 1998.
Since  1993,  Mr.  Zybala  has been  General  Counsel  for  Santa  Fe  Financial
Corporation and Portsmouth Square, Inc. He has also served as Vice President and
Secretary of those  entities since February 1998. Mr. Zybala also serves as Vice
President of Operations of The InterGroup  Corporation  having been appointed to
that position in January 1999.

Certain Reports; Compliance with Section 16(a) of the Exchange Act

         No person who,  during the fiscal year ended  December 31, 1999,  was a
Director,  Officer or beneficial owner of more than ten percent of the Company's
Common Stock (which is the only class of  securities  of the Company  registered
under  Section  12 of  the  Securities  Exchange  Act of  1934  (the  "Act")  (a
"Reporting  Person"),  failed to file on a timely  basis,  reports  required  by
Section 16 of the Act during the most  recent  fiscal year or prior  years.  The
foregoing  is based  solely upon a review by the Company of Forms 3 and 4 during
the most recent  fiscal year as  furnished  to the Company  under Rule  16a-3(d)
under the Act, and Forms 5 and amendments  thereto furnished to the Company with
respect to its most recent fiscal year, and any  representation  received by the
Company from any reporting person that no Form 5 is required.

Item 10.  Executive Compensation

Summary Compensation

         The following  provides  certain  information  concerning  all Plan and
Non-Plan (as defined in Item 402 (a)(ii) of Regulation S-B) compensation awarded
to,  earned by, paid or accrued by the Company  during the years ended  December
31, 1999,  1998 and 1997, to the Chief  Executive  Officer and each other person
who was an executive  officer of the Company in the year ended December 31, 1999
(collectively, the "Named Executive Officers"):

                                       15

<PAGE>


<TABLE>

                                                     SUMMARY COMPENSATION TABLE
<CAPTION>

                                                                     Annual Compensation             Long Term Compensation Awards
                                                                  --------------------------        --------------------------------
                                                                                                                   No. of Securities
                                                                                                     Restricted       Underlying
                                                                                 Other Annual          Stock         Options/SARs
Name and Principal Position           Year        Salary          Bonus             Comp.             Award(s)         Granted
---------------------------           ----        ------          -----             -----             --------         -------
<S>                                  <C>         <C>             <C>             <C>                <C>                   <C>
Bruce A. Wilson (1)                  1999        $150,000        $   --          $ 16,566(2)        $  1,500(3)           --
President, Chief Executive,          1998        $150,000        $   --          $ 17,676(2)        $  2,750(3)           --
Chief Operating and                  1997        $150,000            --          $ 23,526(2)        $ 14,500(3)           --
Chief Financial Officer

Ricky Williams                       1999        $ 90,000        $   --          $  9,805(4)            --                --
Vice President of                    1998        $ 90,000            --          $  9,738(4)            --                --
Operations                           1997        $ 90,000            --          $  9,670(4)            --                --


M. Scott Foster                      1999        $100,000        $ 15,626        $ 24,825(5)            --                --
Vice-President of                    1998        $100,000            --          $ 24,825(5)            --                --
Sales and Marketing                  1997        $100,000            --          $ 24,825(5)            --                --


<FN>
(1)  Mr. Wilson commenced serving as Chief Executive Officer in August, 1994 and
     continued  to serve in such  capacity  through  his  resignation  effective
     December 31, 1999.

(2)  Includes:  (i) for 1999, an automobile allowance of $12,000, the payment of
     premiums on a term life and disability  insurance  policy of $4,566 and the
     payment of taxes on 4,000 shares of restricted Common Stock which vested on
     December  31, 1999 of $1,500 ; (ii) for 1998,  an  automobile  allowance of
     $12,000,  the payment of premiums on a term life insurance policy of $4,026
     and the payment of taxes on 4,000 shares of  restricted  Common Stock which
     vested on December 31, 1998 of $1,650;  and (iii) for 1997,  an  automobile
     allowance  of $12,000,  the  payment of  premiums on a term life  insurance
     policy of $2,826  and the  payment of taxes on 4,000  shares of  restricted
     Common Stock which vested on December 31, 1997 of $8,700.

(3)  In April,  1991, Mr. Wilson was granted 60,000 restricted shares vesting at
     the rate of 4,000  shares per year on December  31 of each year,  over a 15
     year period subject to certain  accelerations.  As of December 31, 1999, an
     aggregate of 36,000  shares have vested.  The remaining  24,000  restricted
     shares became forfeited  effective upon Mr. Wilson's  resignation.  Amounts
     reported under this column represent the fair market value,  without giving
     effect to the diminution in value  attributable  to the restriction of such
     stock, of 4,000 shares of the Company's Common Stock which have vested each
     year,   as  valued  on  December  31  of  each  year.   See  "Other  Annual
     Compensation",  with respect to the cash payment for taxes  attributable to
     these  shares.  As of December 31, 1999,  the  aggregate  restricted  stock
     holdings of Mr. Wilson  consisted of 28,000  shares valued at $17,500,  the
     market value of these shares as of December 31, 1999, without giving effect
     to the diminution in value attributable to the restriction of such stock.

(4)  Includes:  (i) for 1999, an automobile  allowance of $9,000 and the payment
     of  premiums on a term life  insurance  policy of $805;  (ii) for 1998,  an
     automobile  allowance  of $9,000 and the payment of premiums on a term life
     insurance  policy of $738;  and (iii) for 1997, an automobile  allowance of
     $9,000 and the payment of premiums on a term life insurance policy of $670.

(5)  Mr.  Foster  has  served  as  Vice-President  of Sales  since  1993.  He is
     currently  employed by the Company on an at will basis. The information set
     forth above includes:  (i) for 1999, an expense  allowance of $24,000,  the
     payment of a bonus based on sales of $15,626 and the payment of premiums on
     a term life insurance  policy of $825; (ii) for 1998, an expense  allowance
     of $24,000 and the payment of premiums on a term life  insurance  policy of
     $825;  and (iii) for 1997, an expense  allowance of $24,000 and the payment
     of premiums on a term life insurance policy of $825.
</FN>
</TABLE>


STOCK OPTIONS/SAR GRANTS

         No stock option grants or Stock Appreciation  Rights ("SARs") were made
during the year ended December 31, 1999 to any of the Named  Executive  Officers
of the Company.

                                       16

<PAGE>


               AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                      AND FISCAL YEAR END OPTION/SAR VALUES

<TABLE>
         The  following  table  contains  information  with respect to the Named
Executive  Officers  concerning  options  held  as of the  year  ended  December
31,1999.

<CAPTION>
                                                           Number of Securities
                                                          Underlying Unexercised           Value of Unexercised
                                                            Options/SARs as of           In-the-Money Options/SARs
                                                            December  31, 1999            at December 31, 1999(1)
                        Shares Acquired       Value      -------------------------     -----------------------------
        Name            on Exercise (#)   Realized ($)    Exercisable/Unexercisable      Exercisable/Unexercisable
        ----            ---------------   ------------    -------------------------      -------------------------
<S>                          <C>          <C>               <C>                                <C>

Bruce A. Wilson               --          $   -             102,500 (2) /   --                 $ -- /  --
Ricky Williams                --          $   -              55,000     /   --                 $ -- /  --
M. Scott Foster               --          $   -             102,500 (2) /   --                 $ -- /  --

<FN>
(1)  Based upon the average closing bid and asked prices of the Company's Common
     Stock on December 31, 1999 ($.625 per share),  less the exercise  price for
     the  aggregate  number  of  shares  subject  to the  options,  none  of the
     Options/SARs are in-the-money.

(2)  These options expired on December 31, 1999 without being exercised.
</FN>
</TABLE>


Employment Agreements

         Effective December 31, 1999, the employment agreement between Mr. Bruce
A. Wilson and the Company  entered into in 1995 expired  according to its terms.
Mr. Wilson had been employed as the Company's President,  Chief Executive, Chief
Operating  and Chief  Financial  Officer.  At the  expiration of the term of his
employment agreement, and after 12 years of service with the Company, Mr. Wilson
withdrew from active day to day  operations of the Company,  though he continues
to serve as a member of the Company's Board of Directors. Upon the expiration of
his employment agreement,  Mr. Wilson was granted a severance package consisting
of $30,000 in severance compensation paid in six monthly installments, a $15,000
payment for reasonable  executive  search fees, and the continuation of existing
health and life insurance through June 30, 2000.

         On September 8, 1997, the Company  extended and modified the Employment
Agreement of Mr. Ricky  Williams,  Vice President of Operations.  Mr.  Williams'
Employment Agreement was extended through December 31, 2000. During the extended
term,  Mr.  Williams' base salary of $90,000 is increased by $5,000 in each year
of the extended term provided that the Company has achieved a net pre-tax profit
for the immediately preceding year. Mr. Williams is entitled to elect to receive
up to 10% of each year's base salary in January in each year, with the remainder
being paid to him over the course of the year pursuant to the Company's  regular
payroll policies. During the continuation of his employment,  Mr. Williams is to
receive an  automobile  allowance  of $750 per month and is to be provided  with
life  insurance  in the amount of  $250,000.  In  connection  with his  original
Employment Agreement, Mr. Williams was granted options to purchase 30,000 shares
of the Company's  Common Stock at an exercise  price of $4.75 per share.  All of
such  options are vested and are  exercisable  through  December  31,  2000.  On
November 4, 1993, Mr.  Williams was granted options to purchase 30,000 shares of
the Company's Common Stock at an exercise price of $6.625 per share, exercisable
through  December 31, 2000, and vesting in equal  increments on December 31st of
each year of the term of his  Agreement,  as extended,  commencing  December 31,
1994.

                                       17

<PAGE>


1999 Incentive Compensation Plan

         The Company's 1999 Incentive  Compensation Plan (sometimes  referred to
as the "Plan" or the "1999 Incentive  Plan"),  as adopted by the shareholders of
the Company at the Company's 1999 Annual Meeting of  Shareholders,  provides for
the issuance of up to 400,000 shares of the Company's Common Stock in connection
with the issuance of stock options and other stock purchase  rights to executive
officers,  key employees,  consultants and directors of the Company. The Plan is
administered  by the  Stock  Option  Committee  of the Board of  Directors  (the
"Committee").

         The  1999  Incentive  Plan  provides  several  types of  awards:  stock
options,   stock  appreciation  rights  (including  limited  stock  appreciation
rights),  restricted  stock,  restricted stock units,  bonus stock and awards in
lieu of  obligations,  dividend  equivalents,  annual  incentive and performance
awards, and other stock-based  awards.  During the year ended December 31, 1999,
the only awards granted under the Plan were stock  options.  For a more detailed
description of the Plan, see the Company's  proxy  statement  dated June 8, 1999
relating to the Company's 1999 Annual Meeting of Shareholders.

         It is the  intent of the  Company  that the  grant of any  awards to or
other  transaction  by a holder who is subject to Section 16 of the Exchange Act
shall be exempt from Section 16 pursuant to an applicable  exemption (except for
transactions   acknowledged  in  writing  to  be  non-exempt  by  such  holder).
Accordingly,  if any provision of the 1999 Incentive Plan or any award agreement
does not comply with the  requirements  of Rule 16b-3 as then  applicable to any
such  transaction,  such  provision  shall be construed or deemed amended to the
extent necessary to conform to the applicable requirements of Rule 16b-3 so that
such holder shall avoid liability under Section 16(b).

         No award or other right or interest  granted  under the 1999  Incentive
Plan shall be pledged,  hypothecated  or otherwise  encumbered or subject to any
lien, obligation or liability of the holder thereof to any party (other than the
Company or a subsidiary),  or assigned or  transferred by such holder  otherwise
than by will or the laws of descent and  distribution  or to a beneficiary  upon
the death of a holder,  and such awards or rights that may be exercisable  shall
be exercised  during the lifetime of the holder only by the holder or his or her
guardian or legal  representative,  except that awards and other  rights  (other
than  ISOs and  SARs in  tandem  therewith)  may be  transferred  to one or more
beneficiaries or other transferees during the lifetime of the holder, and may be
exercised by such  transferees,  in accordance with the terms of such award, but
only if and to the extent such transfers are permitted by the Committee pursuant
to the express terms of an award agreement  (subject to any terms and conditions
which the Committee may impose  thereon).  A beneficiary,  transferee,  or other
person  claiming  any right sunder the 1999  Incentive  Plan from or through any
holder shall be subject to all terms and  conditions of the 1999  Incentive Plan
and  any  award  agreement  applicable  to  such  holder,  except  as  otherwise
determined by the Committee,  and to any additional terms and conditions  deemed
necessary or appropriate by the Committee.

                                       18

<PAGE>


         Automatic Option Grants to Non-Employee  Directors.  The 1999 Incentive
Plan provides for the automatic  grant of options to  non-employee  directors on
the  last  trading  day of  July of each  year.  The  Plan  provides  that  each
non-employee  director will automatically be granted an option to purchase 5,000
shares of the Company's  Common Stock each year.  The exercise price for options
granted  shall be 100% of the fair market  value of the Common Stock on the date
of grant.  The term of each  option is ten (10)  years from the date of grant or
three months following the date that a participant ceases to serve as a director
and each option vests in three annual  increments  commencing one year after the
date of grant.  Pursuant  to this  automatic  grant  provision,  options  for an
aggregate of 25,000 shares were granted on July 31, 1999 to five directors, each
at an exercise price of $.625 per share.

Employee 401(k) Plan

         The Company  established a 401(k) Profit Sharing Plan and Trust through
the adoption of the Dun & Bradstreet  Pension  Services,  Inc.  Non-Standardized
401(k) Profit Sharing Plan and Trust (the "Plan"). The Plan is effective January
1, 1996 and covers all  employees of the Company.  Each present  employee or new
hire is eligible  to  participate  in the Plan after one year of  service.  Each
eligible  employee  may  elect  to  voluntarily  contribute  out  of  his or her
compensation amount ranging from 1% to 15% of compensation.  The Company, though
not required, may elect to make a matching contribution equal to a discretionary
percentage,   to  be  determined  by  the  Company,  of  the  employees'  salary
contributions.  Vesting of a participant's interest in the Plan is in accordance
with a schedule of vesting  ranging  from 20% after two years of service to 100%
after six years of service.


Item 11.   Security Ownership of Certain
           Beneficial Owners and Management

<TABLE>

         The following table sets forth certain information as of March 20, 2000
with respect to the ownership of Common Stock by (i) the persons  (including any
"group" as that term is used in Section 13(d)(3) of the Securities  Exchange Act
of 1934, as amended),  known by the Company to be the  beneficial  owner of more
than five percent of any class of the  Company's  voting  securities,  (ii) each
Director and each Named Executive Officer identified in the Summary Compensation
Table, and (iii) Directors and Executive Officers as a group:

<CAPTION>
                                                                   Amount and Nature
                                                                  Beneficial Ownership
                                                                     And Percentage
                                                   ----------------------------------------------
                Name and Address of                       Number of
                  Beneficial Owner                          Shares                  Percentage
   -----------------------------------------------      -----------------        ----------------
<S>                                                       <C>                         <C>
   John V. Winfield............................           2,190,145 (1)               48.3%
   820 Moraga Drive
   Los Angeles, CA 90049

   The InterGroup Corporation..................           1,235,024 (2)               29.3%
   820 Moraga Drive
   Los Angeles, CA 90049

   Grace & White Inc...........................             238,700 (3)                6.2%
   515 Madison Avenue
   New York, NY 10022

   Linda Jesselson ............................             273,106 (3)                7.1%
   450 Park Avenue
   New York, NY 10022

                                                19

<PAGE>


                                                                   Amount and Nature
                                                                  Beneficial Ownership
                                                                     And Percentage
                                                   ----------------------------------------------
                Name and Address of                       Number of
                  Beneficial Owner                          Shares                  Percentage
   -----------------------------------------------      -----------------        ----------------
   Phyllis Jesselson ..........................             273,106 (4)                7.1%
   450 Park Avenue
   New York, NY 10022

   Paul Bluhdorn...............................             181,256 (5)                4.7%
   P.O. Box 7854
   Burbank, CA 91510

   Yvette Bluhdorn.............................              71,738 (6)                1.9%
   P.O. Box 7854
   Burbank, CA 91510

   Mark S. Siegel..............................              70,062 (7)                1.8%
   P.O. Box 7854
   Burbank, CA 91510

   M. Scott Foster.............................                 -                        -
   1700 Corporate Circle
   Petaluma, CA 94954

   Ricky Williams..............................              55,000 (8)                1.4%
   1700 Corporate Circle
   Petaluma, CA 94954

   Bruce A. Wilson.............................              28,100                     *
   2401 Marilyn Circle
   Petaluma, CA 94952

   Daniel R. Coleman...........................              20,000 (9)                 *
   500 108th Avenue, NE
   Bellevue, WA 98004

   Michael G. Zybala...........................             10,000 (10)                 *
   11315 Rancho Bernardo Road,
   Suite 129
   San Diego, CA 92127

   William J. Nance............................             10,000 (10)                 *
   ABC Entertainment Center
   2040 Avenue of the Stars
   Los Angeles, CA 90067

   Robert W. Sweitzer, Ph.D....................             10,000 (10)                 *
   The Claremont Graduate School
   925 N. Dartmouth Avenue
   Claremont, CA 91711

   All Directors and Executive Officers as a
   Group (8 persons in number).................          2,323,245 (11)               50.1%


<FN>
*    Less than one percent (1%)

(1)  Based  upon  information  contained  in a Form  4 for  December  1999  (the
     "Winfield Form 4"), on behalf of Mr. Winfield,  the InterGroup  Corporation
     ("InterGroup")  and  Santa  Fe  Financial  Corporation  ("Santa  Fe"),  and
     corporate  records of the Company.  Includes  (i) 540,100  shares of Common
     Stock and warrants to purchase

                                       20

<PAGE>


     304,972 shares of Common Stock owned by Mr.  Winfield;  (ii) 871,800 shares
     of Common  Stock and  warrants to purchase  363,224  shares of Common Stock
     owned by  InterGroup  and as to which Mr.  Winfield  has shared  voting and
     dispositive  power;  (iii)  89,100  shares of Common  Stock and warrants to
     purchase  10,949  shares of Common  Stock owned by Santa Fe and as to which
     Mr. Winfield has shared voting and dispositive  power;  and (iv) options to
     purchase 15,000 shares of Common Stock granted to Mr. Winfield  pursuant to
     the Company's  Non-Employee  Director  Plan.  As of December 13, 1999,  Mr.
     Winfield  owned 49.5% of  InterGroup,  per a proxy  statement of InterGroup
     dated  December 16, 1999.  As of December 31, 1999,  InterGroup  controlled
     53.2% of Santa Fe. Mr.  Winfield is the  Chairman  and CEO of both Santa Fe
     and InterGroup.

(2)  Based upon  information  contained  in the  Winfield  Form 4 and  corporate
     records of the  Company.  Includes  (i) 871,800  shares of Common Stock and
     363,224 warrants owned by InterGroup and (ii) 89,100 shares of Common Stock
     and 10,949 warrants owned by Santa Fe.

(3)  Based upon  information  contained  in an amendment to a Schedule 13G dated
     February  9,  1999,  filed  on  behalf  of  Grace & White  Inc.  ("Grace").
     According to the amended  Schedule  13G,  Grace is a registered  investment
     advisor  with  voting  power and sole  dispositive  power  over  12,900 and
     238,700 shares, respectively.

(4)  Based upon  information  contained  in an amendment to a Schedule 13G dated
     December 22, 1999 filed by Linda Jesselson,  Phyllis  Henderson and certain
     other  persons,  all of whom disclaim that they are acting as a group.  The
     number of shares set forth  above  does not  include  an  additional  2,500
     shares owned by the other reporting persons in such Schedule 13G.

(5)  Based on  information  contained  in an  amendment  to a Schedule 13D dated
     January 27, 1993 (the  "Bluhdorn  13D"),  filed on behalf of Paul Bluhdorn,
     Yvette Bluhdorn and Mark Siegel. It includes 31,250 shares of the Company's
     Common  Stock owned by Mr.  Bluhdorn,  and 150,006  shares of Common  Stock
     issued in  February,  1998 upon  conversion  of 150,006  shares of series D
     preferred stock owned by Mr. Bluhdorn. It does not include shares of Common
     Stock owned by Ms.  Bluhdorn or Mr.  Siegel,  as to which  shares of Common
     Stock Mr. Bluhdorn disclaims beneficial ownership.

(6)  Based on information contained in the Bluhdorn 13D and corporate records of
     the Company.  Does not include shares of Common Stock owned by Mr. Bluhdorn
     and Mr.  Siegel as to which shares of Common Stock Ms.  Bluhdorn  disclaims
     beneficial ownership.

(7)  Based on information contained in the Bluhdorn 13D and corporate records of
     the Company.

(8)  Includes 55,000 vested and presently exercisable options.

(9)  Includes 20,000 vested and presently exercisable options.

(10) Includes 10,000 vested and presently exercisable options.

(11) Includes an aggregate of 799,145  shares  subject to warrants and presently
     exercisable options.
</FN>
</TABLE>


Item 12.  Certain Relationships and Related Transactions

         For  information  concerning  the  employment  agreements  of  Bruce A.
Wilson,   Ricky   Williams  and  M.  Scott   Foster,   see  Item  10  "Executive
Compensation".

         For information  concerning the issuance of 60,000 restricted shares to
Mr. Bruce A. Wilson and the reversion to the Company of 24,000 shares,  see Item
10 "Executive Compensation".

         On September 29, 1997,  the Company  completed a transaction  with John
Winfield  and  InterGroup  Corporation  ("InterGroup"),   an  affiliate  of  Mr.
Winfield.  Pursuant to the  transaction,  the Company sold 150,000 shares of its
Common  Stock to Mr.  Winfield  for an  aggregate  of $487,500  and

                                       21

<PAGE>


sold  150,000  shares of its Common  Stock to  InterGroup  for an  aggregate  of
$487,500.  As part of the  transaction,  Mr.  Winfield and InterGroup  were each
issued warrants to purchase  150,000 shares each of the Company's  Common Stock,
of  which  one-third  of such  warrants  are  exercisable  at $4.00  per  share,
one-third  at $4.25 per share,  and  one-third  at $4.50 per  share,  subject to
adjustment under certain circumstances.  The warrants are exercisable commencing
September 29, 1997 and may be exercised through September 29, 2002. Mr. Winfield
and  InterGroup  were each accorded  certain  demand and piggyback  registration
rights.  In connection with the transaction,  Mr. Winfield was elected a Class 3
Director and the Company agreed to use its best efforts to cause Mr. Winfield to
be elected as a Director  through  September 29, 2000. As of August 5, 1998, Mr.
Winfield has served as the Chairman of the Board of Directors of the Company.

         On March 16,  1999,  the  Company  completed  a rights  offering  which
commenced on February 22, 1999. Mr. Winfield,  InterGroup and Santa Fe Financial
Corporation ("Santa Fe"), a subsidiary of InterGroup,  agreed to exercise all of
their  respective  basic  rights in the rights  offering.  In exchange  for this
commitment,  the  Company  issued  to Mr.  Winfield,  InterGroup  and  Santa  Fe
additional  warrants to purchase an aggregate of 250,000  shares of Common Stock
at an exercise  price of $1.1875 per share,  distributed  pro rata  according to
their ownership percentage before the rights offering, as follows: 90,399 to Mr.
Winfield,  148,652  to  InterGroup  and  10,949 to Santa Fe.  The  warrants  are
exercisable  commencing  February 22, 1999 and may be exercised through February
22, 2004.  Mr.  Winfield,  InterGroup  and Santa Fe were each  accorded  certain
demand and piggyback  registration rights. The Company did not offer warrants to
any other stockholders in connection with the rights offering.

         In connection  with the  acquisition of the The Evergreen Group product
lines from KT Holdings,  Inc. in May 1999, the Company issued to the seller,  as
part of the  purchase  price,  five year  warrants to purchase an  aggregate  of
292,260  shares,  one half of which are  exercisable  at $2.00 per share and the
remaining  one half of which are  exercisable  at $2.50 per  share.  Richard  M.
Widney,  who was appointed as Vice President and General  Manager of the Company
in  January  2000,  was a  shareholder  of KT  Holdings.  Prior to Mr.  Widney's
appointment  as an officer of the Company,  KT Holdings  assigned to Mr.  Widney
warrants to purchase 14,613 shares at the $2.00 exercise price and 14,613 shares
at the $2.50 exercise price.


Item 13.  Exhibits, List and Reports on Form 8-K

(A)      1.  Financial Statements

         See Index to Financial Statements Attached hereto.

         2.  Financial Statement Schedules

         See Index to Financial Statements attached hereto.

         3.  Exhibits:

         Incorporated  by  reference  to the  Exhibit  Index  at the end of this
         Report.

(B)      Reports on Form 8-K

         During  the last  quarter of the period  covered  by this  Report,  the
following report on Form 8-K was filed by the Registrant:

                                       22

<PAGE>


         Date of Filing: December 6, 1999

         Item Reported:  Item 5 (reporting resignation of  Company's President
         and Chief Executive Officer)

                                       23

<PAGE>


                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
Registrant  caused  this  Report to be signed on its behalf by the  undersigned,
thereunto duly authorized.



                                   HEALTHY PLANET PRODUCTS, INC.


                                   By: /s/ Gregory C. McPherson
                                       -----------------------------------
                                   Gregory C. McPherson
                                   Interim President
                                   (principal executive officer)


                                   By: /s/ Antonio H.  Santiago
                                       -----------------------------------
                                   Antonio H.  Santiago
                                   Director of Finance
                                   (principal financial and accounting officer)


Dated:   March 29, 2000

         In accordance  with the Exchange Act, this Report has been signed below
by the following  persons on behalf of the  Registrant and in the capacities and
on the dates indicated.

/s/ Bruce A. Wilson                                           March 29, 2000
-------------------------------
Bruce A. Wilson
Director


 /s/ John Winfield                                            March 29, 2000
-------------------------------
John Winfield
Director


 /s/ Daniel Coleman                                           March 29, 2000
-------------------------------
Daniel Coleman
Director


/s/ William J. Nance                                          March 29, 2000
-------------------------------
William J. Nance
Director


/s/ Robert W. Sweitzer                                        March 29, 2000
-------------------------------
Robert W. Sweitzer
Director


/s/ Michael G. Zybala                                         March 29, 2000
-------------------------------
Michael G. Zybala
Director

                                       24

<PAGE>


                                  EXHIBIT INDEX

         The exhibits designated with an asterisk (*) have previously been filed
with the Commission and, pursuant to 17 C.F.R. Secs. 201.24 and 240.12b-32,  are
incorporated by reference to the document  referenced in brackets  following the
descriptions of such exhibits.

Exhibit

No.          Description
---          -----------

2.1*    Certificate of Merger of Carolyn Bean Publishing,  Ltd. (California) and
        Carolyn Bean Publishing,  Ltd.  (Delaware)  [Exhibit 2.l to Registration
        Statement on Form S-18, File No. 2-97768]

3.l*    Amended and Restated Certificate of Incorporation of Registrant [Exhibit
        3 to Quarterly  Report on Form 10-Q for the quarterly  period ended June
        30, 1990]

3.2*    Certificate of Amendment of Certificate of Incorporation filed on August
        2,  1993  effecting  change  in  Registrant's  name  to  Healthy  Planet
        Products, Inc. [Exhibit 3.2 to Annual Report on Form 10-KSB for the year
        ended December 31, 1993]

3.3*    By-Laws  [Exhibit 3.2 to  Registration  Statement on Form S-18, File No.
        2-97768]

4.l*    Form of Common Stock Certificate  [Exhibit 4 to Quarterly Report on Form
        10-Q for the quarterly period ended June 30, 1990]

4.3*    Form of Rights,  Designation and Preferences of Series D Preferred Stock
        [Exhibit 4 to Current Report on Form 8-K dated January 8, 1993]

10.1*   Extension and Modification  Agreement dated September 10, 1993 extending
        Employment  Agreement of Ricky Williams  [Exhibit 10.1 to Current Report
        on Form 8-K dated September 24, 1993]

10.2*   License Agreement between  Registrant and Sierra Club dated December 30,
        1994 [Exhibit 10.1 to Current Report on Form 8-K dated January 24, 1995]

10.3*   License  Agreement between  Registrant and The Wilderness  Society dated
        June 24, 1994 [Exhibit 10.1 to Current  Report on Form 8-K dated July 1,
        1994]

10.4*   License Agreement between  Registrant and The Marine Mammal Center dated
        July 28, 1994 [Exhibit  10.10 to Form 10-KSB for year ended December 31,
        1995]

10.5*   Lease for premises  1694-1736  Corporate  Circle,  Petaluma,  California
        94954  [Exhibit  10.1 to Current  Report on Form 8-K dated  February 15,
        1996]

10.6*   License  Agreement between  Registrant and Twin Oaks Publishing  Limited
        dated  December  18, 1995  [Exhibit  10.1 to Current  Report on Form 8-K
        dated December 18, 1995]

10.7*   License  Agreement  with  the  Zoological  Society  of San  Diego  dated
        September  30, 1996  [Exhibit  10.1 to Current  Report on Form 8-K dated
        November 5, 1996]

10.8    Lease dated December 8, 1999 between the Registrant,  as lessee, and RNM
        Lakeville, L.P., as lessor

11      Computation of Earnings per Common Share



<PAGE>


23.1    Consent of Moss Adams,  Independent  Auditors,  to the  incorporation by
        reference in the Registration Statement of Healthy Planet Products, Inc.
        on Form S-8 (File No. 33-84740) of their report dated February 10, 2000

27      Financial Data Schedule

28.l*   Registrant's 1999 Incentive  Compensation Plan [Appendix A to Definitive
        Proxy Statement dated June 8, 1999]


<PAGE>


================================================================================





                          HEALTHY PLANET PRODUCTS, INC.

                          INDEPENDENT AUDITOR'S REPORT

                                       AND

                              FINANCIAL STATEMENTS

                                DECEMBER 31, 1999





================================================================================


<PAGE>


================================================================================


                                    CONTENTS

                                                                            PAGE
INDEPENDENT AUDITOR'S REPORT .....................................         F-1

FINANCIAL STATEMENTS

     Balance sheet - December 31, 1999 ...........................         F-2

     Statements of Operations -

         Years Ended December 31, 1999 and 1998 ..................         F-3

     Statements of Shareholders' Equity -

         Years Ended December 31, 1999 and 1998 ..................         F-4

     Statements of Cash Flows -

         Years Ended December 31, 1999 and 1998 ..................         F-5

     Notes to Financial Statements ...............................         F-6


================================================================================

<PAGE>


INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Healthy Planet Products, Inc.

We have audited the accompanying balance sheet of Healthy Planet Products, Inc.,
as of December 31, 1999, and the related statements of operations, shareholders'
equity and cash flows for each of the two years in the period ended December 31,
1999.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Healthy Planet Products,  Inc.,
as of December 31, 1999,  and the results of its  operations  and its cash flows
for each of the two years in the period ended  December 31, 1999,  in conformity
with generally accepted accounting principles.


                                               /s/ Moss Adams LLP

Santa Rosa, California
February 10, 2000, except for Note 18,
which is as of March 14, 2000

                                                                       Page F-1

<PAGE>


<TABLE>
                                                                                                       HEALTHY PLANET PRODUCTS, INC.
<CAPTION>
                                                                                                                       BALANCE SHEET
                                                                                                                   December 31, 1999
------------------------------------------------------------------------------------------------------------------------------------


                                                               ASSETS

<S>                                                                                                                    <C>
CURRENT ASSETS
      Cash and cash equivalents                                                                                        $  1,298,700
      Accounts receivable                                                                                                   543,300
      Inventories                                                                                                           520,500
      Prepaid expenses                                                                                                      119,000
                                                                                                                       ------------
              Total current assets                                                                                        2,481,500
                                                                                                                       ------------

PROPERTY AND EQUIPMENT                                                                                                      538,700
                                                                                                                       ------------

OTHER ASSETS
      Deferred income taxes                                                                                                 450,700
      Customer list                                                                                                          89,500
      Publishing rights                                                                                                      88,500
      Other                                                                                                                  39,100
                                                                                                                       ------------
                                                                                                                            667,800
                                                                                                                       ------------
              Total assets                                                                                             $  3,688,000
                                                                                                                       ============


                                                LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
      Accounts payable                                                                                                 $    517,400
      Royalties payable                                                                                                      63,400
      Commissions payable                                                                                                    34,300
      Series B preferred stock redemption and dividends payable                                                             161,500
      Accrued wages, bonuses and payroll taxes                                                                              164,600
      Accrued liabilities                                                                                                   107,000
                                                                                                                       ------------
              Total current liabilities                                                                                   1,048,200
                                                                                                                       ------------

SHAREHOLDERS' EQUITY
      Common stock, $.01 par value, 12,000,000 shares
          authorized; 3,840,584 shares issued and outstanding                                                                38,400
      Series D preferred stock, $.10 par value, with aggregate
          liquidation preference of $160,100; 371,009
          shares authorized; 31,335  shares issued and outstanding                                                            3,100
      Additional paid-in capital                                                                                         14,670,200
      Accumulated deficit                                                                                               (12,071,900)
                                                                                                                       ------------
              Total shareholders' equity                                                                                  2,639,800
                                                                                                                       ------------
              Total liabilities and shareholders' equity                                                               $  3,688,000
                                                                                                                       ============


<FN>
The accompanying notes are an integral part of these financial statements.
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                            Page F-2
</FN>
</TABLE>

<PAGE>


                                                   HEALTHY PLANET PRODUCTS, INC.
                                                        STATEMENTS OF OPERATIONS
                                          Years Ended December 31, 1999 and 1998
--------------------------------------------------------------------------------

                                                      1999              1998
                                                   -----------      -----------
NET SALES                                          $ 3,689,600      $ 3,633,900

COST OF GOODS SOLD                                   2,612,200        3,374,800
                                                   -----------      -----------

GROSS PROFIT                                         1,077,400          259,100
                                                   -----------      -----------

OPERATING EXPENSES
      Selling, shipping and marketing                1,691,100        1,559,200
      General and administrative                     2,114,200        1,605,400
                                                   -----------      -----------

                                                     3,805,300        3,164,600
                                                   -----------      -----------

OPERATING LOSS                                      (2,727,900)      (2,905,500)
                                                   -----------      -----------

OTHER INCOME (EXPENSE)
      Interest income                                   91,400          130,400
      Other income                                      55,100          135,400
      Interest expense                                  (4,200)         (14,300)
      Loss on disposal of assets                      (155,300)            --
                                                   -----------      -----------

                                                       (13,000)         251,500
                                                   -----------      -----------

LOSS BEFORE INCOME TAXES                            (2,740,900)      (2,654,000)

PROVISION FOR INCOME TAXES                                 800          500,800
                                                   -----------      -----------

NET LOSS                                           $(2,741,700)     $(3,154,800)
                                                   ===========      ===========


LOSS PER COMMON SHARE                              $     (0.76)     $     (1.39)
                                                   ===========      ===========

LOSS PER COMMON SHARE-ASSUMING DILUTION            $     (0.76)     $     (1.39)
                                                   ===========      ===========


The accompanying notes are an integral part of these financial statements.
--------------------------------------------------------------------------------
                                                                        Page F-3

<PAGE>


<TABLE>
                                                                                                       HEALTHY PLANET PRODUCTS, INC.
                                                                                                  STATEMENTS OF SHAREHOLDERS' EQUITY
                                                                                              Years Ended December 31, 1999 and 1998
------------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
                                                                                SERIES D
                                                                        ----------------------------
                                                 COMMON STOCK                PREFERRED STOCK             ADDITIONAL
                                        ----------------------------    ----------------------------      PAID-IN      ACCUMULATED
                                          SHARES          AMOUNT          SHARES         AMOUNT           CAPITAL        DEFICIT
                                        ------------    ------------    ------------    ------------    ------------   ------------
<S>                                        <C>          <C>                  <C>        <C>             <C>            <C>
Balance, December 31, 1997                 2,132,362    $     21,300         181,341    $     18,100    $ 13,127,100   $ (6,164,900)
   Net loss for the year ended
     December 31, 1998                          --              --              --              --              --       (3,154,800)
   Net unrealized gain on marketable
     securities                                 --              --              --              --              --          (10,500)
   Conversion of Series D preferred
     stock to common stock                   150,006           1,500        (150,006)        (15,000)         13,500           --
   Vesting of 4,000 restricted shares
     of common stock                            --              --              --              --            22,400           --
                                        ------------    ------------    ------------    ------------    ------------   ------------

Balance, December 31, 1998                 2,282,368          22,800          31,335           3,100      13,163,000     (9,330,200)
   Net loss for the year ended
     December 31, 1999                          --              --              --              --              --       (2,741,700)
   Stock rights offering, net of
     issuance costs of $189,100            1,582,216          15,800            --              --         1,460,600           --
   Stock warrants issued as part
     of asset purchase                          --              --              --              --            23,900           --
   Vesting of 4,000 restricted shares
     of common stock                            --              --              --              --            22,500           --
   Surrender of restricted shares
     of common stock                         (24,000)           (200)           --              --               200           --
                                        ------------    ------------    ------------    ------------    ------------   ------------

Balance, December 31, 1999                 3,840,584    $     38,400          31,335    $      3,100    $ 14,670,200   $(12,071,900)
                                        ============    ============    ============    ============    ============   ============

<FN>
The accompanying notes are an integral part of these financial statements.
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                            Page F-4
</FN>
</TABLE>


<PAGE>


<TABLE>
                                                                                                       HEALTHY PLANET PRODUCTS, INC.
                                                                                                            STATEMENTS OF CASH FLOWS
                                                                                              Years Ended December 31, 1999 and 1998
------------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
                                                                                                    1999                    1998
                                                                                                 -----------            -----------
<S>                                                                                              <C>                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES
      Net loss                                                                                   $(2,741,700)           $(3,154,800)
      Adjustments to reconcile net loss to net
          cash used by operating activities:
              Depreciation and amortization                                                          643,700                300,100
              Loss on disposal of assets                                                             155,300                   --
              Loss on prepaid rent                                                                   100,300                   --
              Vesting of restricted shares                                                            22,500                 22,400
              Allowance for doubtful accounts and returns                                           (205,000)               140,400
              Inventory reserve                                                                     (133,500)               665,000
              Deferred income taxes                                                                     --                  500,000
              Net change in unrealized gains on cash equivalents
                  and marketable securities                                                             --                  (10,500)
          Changes in:
              Accounts receivable                                                                    288,500                (56,200)
              Inventories                                                                             (8,000)               497,000
              Prepaid expenses                                                                       (60,600)                57,300
              Other assets                                                                            (4,900)                  --
              Accounts payable                                                                       281,100               (139,700)
              Royalties payable                                                                       52,500                  6,300
              Commissions payable                                                                    (46,500)               (13,400)
              Income taxes payable                                                                      --                     (800)
              Accrued wages, bonuses and payroll taxes                                               115,700                  1,900
              Accrued liabilities                                                                     27,800                  1,400
              Accrued rent payable                                                                  (125,400)                39,800
                                                                                                 -----------            -----------
                  Net cash used by operating activities                                           (1,638,200)            (1,143,800)
                                                                                                 -----------            -----------

CASH FLOWS FROM INVESTING ACTIVITIES
      Purchases of property and equipment                                                           (393,800)              (107,500)
      Purchase of intangible assets                                                                 (146,400)                  --
      Purchase of publishing rights                                                                  (66,300)               (31,200)
      Maturity of marketable securities                                                                 --                  250,000
      Other                                                                                             --                   14,500
                                                                                                 -----------            -----------
                  Net cash provided (used) by investing activities                                  (606,500)               125,800
                                                                                                 -----------            -----------

CASH FLOWS FROM FINANCING ACTIVITIES
      Net proceeds from sale of common stock                                                       1,476,400                   --
      Principal repayments on note payable                                                           (95,600)              (105,500)
                                                                                                 -----------            -----------
                  Net cash provided (used) by financing activities                                 1,380,800               (105,500)
                                                                                                 -----------            -----------

DECREASE IN CASH AND
      CASH EQUIVALENTS                                                                              (863,900)            (1,123,500)

CASH AND CASH EQUIVALENTS
      Beginning of year                                                                            2,162,600              3,286,100
                                                                                                 -----------            -----------
      End of year                                                                                $ 1,298,700            $ 2,162,600
                                                                                                 ===========            ===========

<FN>
The accompanying notes are an integral part of these financial statements.
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                            Page F-5
</FN>
</TABLE>

<PAGE>


                                                   HEALTHY PLANET PRODUCTS, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1 -  DESCRIPTION  OF  OPERATIONS  AND  SUMMARY  OF  SIGNIFICANT  ACCOUNTING
          POLICIES

Description of operations - Healthy Planet Products,  Inc., designs,  publishes,
markets and  distributes  greeting cards,  stationery and other gift items.  The
Company's products are marketed to over 5,200 retail sales outlets. The majority
of the Company's sales are blank notes and holiday greeting cards.

Cash  and  cash  equivalents  -  The  Company  considers  all  investments  with
maturities  at the  time  of  acquisition  of  three  months  or less to be cash
equivalents.

Inventory  -  Inventory  consists  of  unprinted  paper,  unbatched  and batched
greeting cards,  stationary,  and other gift items and is stated at the lower of
cost (first-in, first-out method) or market.

Property  and  equipment  - Property  and  equipment  are stated at cost and are
depreciated  and  amortized  using the  straight-line  method over the estimated
useful  lives of the  assets  or over the  period  of the  lease.  Additions  or
improvements  to  property  and  equipment  are   capitalized  at  cost,   while
maintenance and repair expenditures are charged to operations.  Estimated useful
lives are as follows:


    Machinery, equipment and leasehold improvements               3 - 10 years
    Molds                                                              3 years
    Color separations                                                  3 years
    Furniture and fixtures                                             5 years
    Computer software                                                  5 years


Royalties - The Company pays royalties to licensers and artists for use of their
names, logos and artwork based on actual volume of products sold.

Income  taxes - The  provision  for income  taxes is based on  pre-tax  earnings
reported in the financial  statements,  adjusted for requirements of current tax
law, plus the change in deferred taxes.  Deferred tax assets and liabilities are
recognized  using  enacted  tax  rates  and  reflect  the  expected  future  tax
consequences of temporary differences between the recorded amounts of assets and
liabilities  for financial  reporting  purposes and tax basis of such assets and
liabilities and future benefits from net operating loss  carryforwards and other
expenses previously recorded for financial reporting purposes.  Income taxes are
described further in Note 6.

Publishing rights - Publishing rights consist of costs incurred to obtain images
for use on the Company's products. Such costs are capitalized and amortized over
three years.

Customer list - The Company  acquired a customer list as part of the acquisition
of a new product line. The customer list is being amortized over three years.

Concentrations  of  risk -  Financial  instruments  potentially  subjecting  the
Company to  concentrations  of credit  risk  consist  primarily  of bank  demand
deposits in excess of FDIC insurance thresholds and trade receivable balances of
the Company's  largest  customers.  Cash equivalents  consist of money funds and
United States  government and Federal  agency  securities.  Receivables  are not
collateralized,  but the Company  conducts  frequent  credit checks on customers
with material balances.

Use of estimates - The  preparation of financial  statements in conformity  with
generally accepted accounting principles requires the Company make estimates and
assumptions affecting the reported amounts of assets, liabilities,  revenues and
expenses,  and  disclosure of  contingent  assets and  liabilities.  Significant
estimates  include the reserves for product  returns and slow-moving or obsolete
inventory. The amounts estimated could differ from actual results.

--------------------------------------------------------------------------------
                                                                        Page F-6

<PAGE>


                                                   HEALTHY PLANET PRODUCTS, INC.
                                       NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------------------------------------


NOTE 1 -  DESCRIPTION  OF  OPERATIONS  AND  SUMMARY  OF  SIGNIFICANT  ACCOUNTING
          POLICIES (Continued)

Advertising - Costs  associated  with the production of catalogs are capitalized
and amortized  over the expected life of the catalog of one to two years.  Total
capitalized  catalog  costs at  December  31,  1999,  were  $52,400.  All  other
advertising costs are expensed as incurred.  Advertising expense totaled $42,400
and $68,300 for the years ended December 31, 1999 and 1998.

Fair value of financial instruments - The following methods and assumptions were
used by the  Company in  estimating  its fair value  disclosures  for  financial
instruments:

Cash, money funds, and United States  government and Federal agency  securities:
The carrying amount  approximates  fair value because of the short maturities of
these instruments.

Loss per share - Loss per common share was computed  using the weighted  average
number of common shares outstanding. Loss per common share assuming dilution was
computed  using the  weighted  average  number of common  shares  and the common
equivalent shares outstanding. Common stock equivalents associated with warrants
and  stock  options  have  been  excluded  from  the  weighted   average  shares
outstanding since the effect of these potentially  dilutive  securities would be
antidilutive.

New accounting  pronouncements  - The Financial  Accounting  Standards Board has
issued  SFAS  No.  133  "Accounting  for  Derivative   Instruments  and  Hedging
Activities." It requires companies to record derivatives on the balance sheet as
assets or liabilities,  measured at fair market value. Gains or losses resulting
from changes in the value of those  derivatives  are  accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. The key
criterion for hedge accounting is that the hedging  relationship  must be highly
effective in achieving the offsetting  changes in fair value or cash flows.  The
effective  date for SFAS No. 133 has been  extended  to all fiscal  quarters  of
fiscal  years  beginning  after  June 15,  2000.  Management  believes  that the
adoption  of  SFAS  No.  133  will  have no  material  effect  on its  financial
statements.


NOTE 2 - MANAGEMENT'S PLANS

The Company has  experienced  recurring  losses from  operations and use of cash
from operations.  Management of the Company has developed plans that it believes
will  generate  sufficient  cash flow from  operations to meet its expected cash
requirements 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 or 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  Evergreen  product  lines
and (v) revenues expected to be generated from the introduction  during the year
of new product lines, such as regional and "versed" greeting cards.

NOTE  3 -     ACCOUNTS RECEIVABLE


Accounts receivable                                                   $ 801,800
Less allowances for doubtful accounts and returns                      (258,500)
                                                                      ---------
                                                                      $ 543,300
                                                                      =========

--------------------------------------------------------------------------------
                                                                        Page F-7

<PAGE>


                                                   HEALTHY PLANET PRODUCTS, INC.
                                       NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------------------------------------


NOTE 4 - INVENTORIES

Raw materials                                                           $ 17,700
Work-in-process                                                          208,800
Finished goods                                                           294,000
                                                                        --------
                                                                        $520,500
                                                                        ========


Due to efforts to reduce overall  inventory levels in 1999,  management placed a
significant  reserve on  inventories  at December  31,  1998.  The change in the
reserve  increased cost of goods sold and decreased gross profit by $665,000 for
the year ended  December  31,  1998.  Inventory  reserves  totaled  $828,000 and
$995,000 at December 31, 1999 and 1998.


NOTE 5 - PROPERTY AND EQUIPMENT

Machinery, equipment and leasehold improvements                     $   790,800
Molds                                                                   406,000
Color separations                                                       309,800
Furniture and fixtures                                                  100,800
Computer software                                                       225,000
                                                                    -----------
                                                                      1,832,400
Less accumulated depreciation and amortization                       (1,293,700)
                                                                    -----------
                                                                    $   538,700
                                                                    ===========


NOTE 6 - PUBLISHING RIGHTS

Publishing rights                                                     $ 263,000
Less accumulated amortization                                          (174,500)
                                                                      ---------
                                                                      $  88,500
                                                                      =========


NOTE 7 - CUSTOMER LIST

Customer list                                                         $ 109,400
Less accumulated amortization                                           (19,900)
                                                                      ---------
                                                                      $  89,500
                                                                      =========

--------------------------------------------------------------------------------
                                                                        Page F-8

<PAGE>


                                                   HEALTHY PLANET PRODUCTS, INC.
                                       NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------------------------------------


NOTE 8 - INCOME TAXES

                                                         1999             1998
                                                       --------         --------
Provision for income taxes
      Federal                                          $   --           $   --
      State                                                 800              800
                                                       --------         --------
                                                            800              800
                                                       --------         --------
Deferred
      Current                                              --            264,900
      Non-current                                          --            235,100
                                                       --------         --------
                                                           --            500,000
                                                       --------         --------
                                                       $    800         $500,800
                                                       ========         ========


The  difference  between the actual  income tax  provision and the tax provision
computed by applying the  statutory  federal  income tax rate to the loss before
taxes is attributable to the following:


                                                         1999             1998
                                                       --------         --------
Income tax benefit                                     (34.0)%           (34.0)%
State tax benefit                                       (4.4)             (4.4)
Change in deferred tax asset valuation allowance        39.4              43.9
Change in inventory reserve                             (2.7)             10.7
Change in allowance for doubtful accounts and returns   (3.3)              2.3
Other                                                    5.0               0.4
                                                       --------         --------
                                                          --%             18.9%
                                                       ========         ========


At December 31, 1999, the Company had available net operating loss carryovers of
approximately $10,483,000,  to be applied against future federal taxable income.
Due to changes in  ownership  during  1988,  1997 and 1999,  these  amounts  are
subject to an IRS Code Section 382  limitation.  The Company has not  calculated
the effect of the limitation. If the Company does not 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
                                                                ------------
                                                                $ 10,483,000
                                                                ============


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.

--------------------------------------------------------------------------------
                                                                        Page F-9

<PAGE>


                                                   HEALTHY PLANET PRODUCTS, INC.
                                       NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------------------------------------


NOTE 8 - INCOME TAXES (Continued)

The Company has available  approximately  $2,462,000 of California net operating
losses which can be carried  forward and offset against  future taxable  income.
These  loss  carryforwards  expire  through  2004 and may be subject to the same
limitations as the federal net operating losses.

Gross  deferred  tax  assets  and  liabilities  are  $4,363,0000  and  $102,000,
respectively.

The  significant  temporary  differences  and  carryforwards  that  give rise to
deferred tax assets at December 31, 1999, are as follows:

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                         3,781,700
Valuation allowance                                                  (3,363,500)
Other                                                                   (55,000)
                                                                    -----------
Non-current deferred tax asset                                      $   450,700
                                                                    ===========


During 1999 and 1998, the valuation allowance increased $836,200 and $1,474,300,
respectively, due to a continuing assessment of the Company's ability to realize
its deferred tax assets.  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.

<TABLE>
NOTE 9 - LOSS PER SHARE

<CAPTION>
                                                                                      Year Ended December 31, 1999
                                                                      ----------------------------------------------------------
                                                                                                                     Per-Share
                                                                          Loss                   Shares                Amount
                                                                      -----------             -----------            -----------
<S>                                                                   <C>                       <C>                  <C>
Net loss                                                              $(2,741,700)
                                                                      ===========

Basic loss per share:
      Loss available to common shareholders                           $(2,741,700)              3,598,881            $  (0.76)
                                                                                                                     ===========

Effect of dilutive securities                                                --                      --
                                                                      -----------             -----------

Diluted loss per share:
      Loss available to common shareholders
          plus assumed conversions                                    $(2,741,700)              3,598,881            $     (0.76)
                                                                      ===========             ===========            ===========

------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                           Page F-10
</TABLE>

<PAGE>


                                                   HEALTHY PLANET PRODUCTS, INC.
                                       NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------------------------------------


NOTE 9 - LOSS PER SHARE (Continued)

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 December 31,
1999, but were not included in the  computation of diluted loss per share as the
exercise prices were greater than the average market price of the common shares.

<TABLE>
Preferred stock  convertible into 31,335 shares of common stock were outstanding
at December 31, 1999,  but were not included in the  computation of diluted loss
per share as the effect would be antidilutive.

<CAPTION>
                                                                                      Year Ended December 31, 1998
                                                                      ----------------------------------------------------------
                                                                                                                     Per-Share
                                                                          Loss                   Shares                Amount
                                                                      -----------             -----------            -----------
<S>                                                                   <C>                       <C>                  <C>
Net loss                                                              $(3,154,800)
                                                                      ===========

Basic loss per share:
      Income available to common shareholders                          $(3,154,800)              2,269,868            $  (1.36)
                                                                                                                     ===========

Effect of dilutive securities                                                --                      --
                                                                      -----------             -----------

Diluted earnings per share:
      Income available to common shareholders
          plus assumed conversions                                    $(3,154,800)              2,269,868            $  (1.36)
                                                                      ===========             ===========            ===========
</TABLE>


Warrants to purchase  360,000 shares of common stock at a weighted average price
per share of $4.39 and options to purchase  350,000  shares of common stock at a
weighted average price per share of $5.88 were outstanding at December 31, 1998,
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  December  31,  1998,  but were not  included in the  computation  of diluted
earnings per share as the effect would be antidilutive.


NOTE 10 - COMMITMENTS

Leases - The Company leases office and warehouse  space under an operating lease
expiring  April  2002,  for $15,900 per month.  The Company is  responsible  for
substantially  all  costs  associated  with  repairs,  maintenance,  taxes,  and
insurance. Future minimum lease payments are as follows:

                       Year Ending December 31,
                       ------------------------
                               2000                              $   202,800
                               2001                                  190,600
                               2002                                   55,600
                                                                ------------
                                                                $    449,000
                                                                ============


Rent expense totaled $402,800 and $397,000 for the years ended December 31, 1999
and 1998.

--------------------------------------------------------------------------------
                                                                       Page F-11

<PAGE>


                                                   HEALTHY PLANET PRODUCTS, INC.
                                       NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------------------------------------


NOTE 10 - COMMITMENTS (Continued)

Employment  agreements  - The Company  has an  employment  agreement  with a key
employee expiring on December 31, 2000.  Compensation  related to this agreement
was $95,000 for the year ended December 31, 1999.

License agreements - The Company has entered into licensing  agreements with the
National Wildlife Foundation,  The Wilderness Society, The Marine Mammal Center,
The Zoological Society of San Diego and the Rainforest Action Network,  expiring
through August 31, 2002. The agreements call for royalty payments of 2% - 10% of
net sales, as defined in the agreements, subject to minimum cumulative royalties
of $175,000,  over the life of these  agreements.  All agreements are cancelable
with 30 to 60 days notice, as defined in the agreements. Options exist to extend
the terms of certain agreements.  The Sierra Club license agreement was canceled
in December 1999.  Sales under the Sierra Club  agreement  accounted for 45% and
66% of total sales for the years ended December 31, 1999 and 1998.


NOTE 11 - MAJOR SUPPLIERS

During the years ended December 31, 1999 and 1998, the Company made 36% and 39%,
respectively,  of its  purchases  from two  suppliers.  Amounts due to suppliers
included in accounts payable totaled $163,900 at December 31, 1999.


NOTE 12 - CAPITAL STOCK

Series B preferred  stock  carried a  cumulative  annual  dividend of $10.80 per
share and  allowed  the  Company to redeem the stock upon 60 days  notice,  plus
cumulative but unpaid dividends. During 1997, the Company exercised its right to
redeem all  outstanding  shares and  suspended  the  accumulation  of dividends.
Redemption  and  cumulative  dividends  payable of $161,500  is accrued  pending
location of the shareholder.

Series D  preferred  stock  has full  voting  rights at the rate of one vote per
share and is  convertible  into common  stock at the rate of one share of common
stock  for each  share of  preferred.  The  preferred  stock  has a  liquidating
preference of $5.11 per share and carries no dividend.

In 1999, the Company  granted its holders of common stock and Series D preferred
stock two common stock purchase  rights for each share of stock held. Each right
entitled  the holder to purchase one share of common stock at $1.0625 per share.
As a result of the offering,  1,582,216  shares or common stock were issued with
net proceeds of $1,476,400.


NOTE 13 - STOCK OPTIONS AND WARRANTS

In 1999,  the Company  adopted a new stock option plan,  which  provides for the
granting of qualified and non-qualified stock options,  incentive stock options,
stock  appreciation  rights,  restricted  stock,  restricted  stock  units,  and
dividend equivalents to employees,  consultants and non-employee directors up to
an  aggregate  of 400,000  shares of common  stock,  plus any stock  reserved or
unreserved  under the  pre-existing  plans.  This plan  supercedes  pre-existing
plans.  Awards under superceded plans are included in the new plan. During 1999,
25,000  options were granted,  no options were  exercised,  and 220,000  options
expired.  At December 31, 1999, 160,000 common stock options were exercisable at
a  weighted-average  exercise price of $4.36. The exercise prices of the options
range from $.63 to $10.50. Options have a remaining life of one to five years.

--------------------------------------------------------------------------------
                                                                       Page F-12

<PAGE>


                                                   HEALTHY PLANET PRODUCTS, INC.
                                       NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------------------------------------


NOTE 13 - STOCK OPTIONS AND WARRANTS (Continued)

In 1991, 60,000 shares of restricted  shares were issued to an officer,  vesting
at 4,000 shares per year. Each year a cash bonus of 60% of the fair-market value
of the vested  shares  was paid to the  officer  for his  income  tax  liability
related to the income  attributable to vesting of shares. The officer retired on
December  31, 1999,  and  unvested  restricted  shares were  surrendered  to the
Company.

In September 1997, the Company issued 300,000 common stock warrants  exercisable
as follows:  100,000 warrants at $4.00 per share,  100,000 warrants at $4.25 per
share,  and 100,000  warrants  at $4.50 per share.  Due to the  Company's  stock
rights offering in March 1999 and the  anti-dilution  provisions  carried by the
above  warrants,  these warrants were reissued as follows:  141,806  warrants at
$2.04 per share,  143,088  warrants at $2.13 per share and  144,240  warrants at
$2.21 per share.

In March 1999, the Company  issued 250,000 common stock warrants  exercisable at
$1.1875 per share to certain  stockholders  as an  inducement to exercise all of
their stock rights in the stock rights offering.

In April 1999, the Company  issued 292,260 common stock warrants  exercisable as
follows:  146,130  warrants  at $2.00 per share and 146,130  warrants  issued at
$2.50 per  share.  These  warrants,  which were  valued  $23.9,  were  issued in
connection with the purchase of assets.

The Company applies Accounting  Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related  interpretations in accounting for stock
options and warrants.  Accordingly,  no compensation expense has been recognized
for stock  options and warrants  issued during 1999 and 1998.  Had  compensation
cost for the Company's  options and warrants been  determined  based on the fair
value  at the  grant  date for  awards  in 1999  and  1998  consistent  with the
provisions of Statement of Financial  Accounting  Standards No. 123, "Accounting
for Stock-Based  Compensation,"  the Company's net loss and loss per share would
have changed to the pro forma amounts indicated below:

                                                  1999                 1998
                                             -------------        -------------
Net loss - as reported                       $  (2,741,700)       $  (3,154,800)
Net loss - pro forma                         $  (2,817,400)       $  (3,176,200)

Loss per share - as reported                 $       (0.76)       $       (1.39)
Loss per share - pro forma                   $       (0.78)       $       (1.40)


The fair value of warrants  issued for the  purchase  of assets  equals the fair
value of those assets on the date of purchase.  The fair value of other  options
and   warrants  is   estimated   on  date  of  grant  using  the   Black-Scholes
option-pricing  model with the following  weighted-average  assumptions used for
grants in:

                                                 1999                    1998
                                             ------------           ------------
Dividends                                             None                  None
Expected volatility                          106.2%-147.5%           38.5%-64.4%
Risk free interest rate                          5.0%-5.7%             5.7%-6.7%
Expected life                                      5 years               5 years

--------------------------------------------------------------------------------
                                                                       Page F-13

<PAGE>


                                                   HEALTHY PLANET PRODUCTS, INC.
                                       NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------------------------------------


NOTE 13 - STOCK OPTIONS AND WARRANTS (Continued)

Options  issued  during 1999 and 1998 have an  estimated  weighted  average fair
value of $0.57 and $0.85,  respectively.  Warrants  issued  during  1999 have an
estimated weighted average fair value of $0.25.

<TABLE>
The activity of the stock option plan and warrants is as follows:

<CAPTION>
                                                                          Weighted-                         Weighted-
                                                      Shares               Average         Shares            Average
                                                       Under              Exercise          Under            Exercise    Restricted
                                                     Warrants              Price           Options            Price        Shares
                                                     --------              -----           -------            -----        ------
<S>                                                    <C>             <C>                  <C>             <C>              <C>
Balance, December 31, 1997                             368,117         $        4.45        325,000         $   6.19         32,000
Granted                                                   --                                 30,000             1.79           --
Exercised                                                 --                                   --                              --
Forfeited                                               (8,117)                 7.20           --                              --
Vested                                                    --                                   --                            (4,000)
                                                    ----------                           ----------                      ----------

Balance, December 31, 1998                             360,000                  4.39        355,000             5.82         28,000
Granted                                                971,394                  1.92         25,000             0.63           --
Exercised                                                 --                                   --                              --
Forfeited                                             (300,000)                 4.25       (220,000)            6.29        (24,000)
Vested                                                    --                                   --                            (4,000)
                                                    ----------                           ----------                      ----------

Balance, December 31, 1999                           1,031,394         $        2.10        160,000         $   4.36           --
                                                    ==========                           ==========                      ==========
</TABLE>


NOTE 14 - STATEMENTS OF CASH FLOWS

                                                          1999             1998
                                                         -------         -------
Cash paid during the year for:
      Interest                                           $ 4,200         $14,300
      Income taxes                                       $   800         $   800


Non-cash  investing and  financing  activities  for the year ended  December 31,
1999, consisted of:

     o   Surrender of 24,000 shares of restricted common stock

     o   Issuance  of 30,000  shares of common  stock to a related  company  for
         consulting  fees  with a fair  value of  $26,300  related  to the stock
         rights offering

     o   Issuance of common stock  purchase  warrants for equipment  with a fair
         value of $23,900

     o   Assumption  of $57,500  of  liabilities  subject  to an asset  purchase
         agreement

Non-cash  investing and  financing  activities  for the year ended  December 31,
1998,  consisted of  converting  150,006  shares of Series D preferred  stock to
150,006  shares of common stock and  offsetting  $43,300 of officer  receivables
against the note payable to officer.

--------------------------------------------------------------------------------
                                                                       Page F-14

<PAGE>


                                                   HEALTHY PLANET PRODUCTS, INC.
                                       NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------------------------------------


NOTE 15 - MAJOR CUSTOMER

Sales to a major customer were  approximately  $649,000 and $376,000  during the
years ended  December 31, 1999 and 1998,  representing  17.6% and 10.3% of total
sales,  respectively.  At December  31,  1999,  amounts  due from this  customer
included in accounts receivable was $70,400.


NOTE 16 - EMPLOYEE BENEFIT PLAN

The Company has a 401(k)  profit  sharing plan  covering all  employees  meeting
minimum service requirements.  Plan contributions are discretionary.  There were
no employer contributions for the years ended December 31, 1999 and 1998.


NOTE 17 - YEAR 2000

Because of the unprecedented nature of the Year 2000 Issue, its effects, if any,
may not be  identified  until a future date.  Management  cannot ensure that the
Company has  identified  all Year 2000 Issues,  that the  Company's  remediation
efforts have been  successful in whole or in part, or that parties with whom the
Company does business will not be significantly impacted by Year 2000 Issues.


NOTE 18 - CONTINGENCY

In  December,  1999,  the Company  notified the Sierra Club that it would not be
continuing  its license with the Sierra Club beyond 1999. On March 14, 2000, the
Sierra Club filed a summons and complaint for breach of contract in the Superior
Court of California,  County of San Francisco, in support of an application with
the Court seeking a provisional order of attachment  against the Company pending
determination of an arbitration  proceeding which the Sierra Club is expected to
commence against the Company concerning  termination of the license. The Company
believes that the proceedings initiated by the Sierra Club are without merit and
intend to defend them vigorously.

--------------------------------------------------------------------------------
                                                                       Page F-15