10QSB 1 a67266e10qsb.txt FORM 10QSB QUARTERLY PERIOD ENDED SEPT.30, 2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For Quarterly Period Ended September 30, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 Commission File Number: 0-26804 PLANET POLYMER TECHNOLOGIES, INC. ------------------------------------------------------------------------ (Exact name of small business issuer as specified in its character) CALIFORNIA 33-0502606 ------------------------------------------------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 9985 Businesspark Avenue, San Diego, California 92131 ------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (858) 549-5130 ------------------------------------------------------------------------ (Issuer's telephone number, including area code) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] YES [ ] NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
Class Outstanding at September 30, 2000 ----- --------------------------------- Common Stock, no par value 7,644,095
2 PLANET POLYMER TECHNOLOGIES, INC. FORM 10-QSB QUARTERLY REPORT QUARTER ENDED SEPTEMBER 30, 2000 INDEX
PAGE NO. -------- PART I - FINANCIAL INFORMATION Item 1 Balance Sheet (Unaudited) September 30, 2000 2 Statements of Operations (Unaudited) Three Months Ended September 30, 2000 and 1999 3 Statements of Operations (Unaudited) Nine Months Ended September 30, 2000 and 1999 4 Statement of Shareholders' Equity (Unaudited) Nine Months Ended September 30, 2000 5 Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 2000 and 1999 6 Notes to Unaudited Financial Statements 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II - OTHER INFORMATION Item 1 Legal Proceedings 15 Item 2 Changes in Securities 15 Item 3 Defaults upon Senior Securities 15 Item 4 Submission of Matters to a Vote of Security Holders 15 Item 5 Other Information 15 Item 6 Exhibits and Reports on Form 8K 15 SIGNATURES 16
3 PLANET POLYMER TECHNOLOGIES, INC. BALANCE SHEET (UNAUDITED) ---------------
PROFORMA SEPTEMBER 30, PRO FORMA SEPTEMBER 30, 2000 ADJUSTMENTS 2000 ------------ ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 665,067 $ 705,000(1) $ 1,370,067 Accounts receivable 108,814 108,814 Note receivable 7,225 7,225 Inventories, net 144,194 144,194 Prepaid expenses 58,760 58,760 ------------- ------------ Total current assets 984,060 1,689,060 Property and equipment, net of accumulated depreciation of $252,970 193,544 193,544 Patents and trademarks, net of accumulated amortization of $147,480 399,176 399,176 Note receivable, less current portion 87,723 87,723 Capitalized placement costs 95,451 95,451 Other assets 6,805 6,805 ------------- ------------ Total assets $ 1,766,759 $ 2,471,759 ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 137,900 $ 137,900 Accrued expenses 52,449 52,449 Current portion of capital lease obligations 9,683 9,683 ------------- ------------ Total current liabilities 200,032 200,032 Capital lease obligations, less current portion 11,229 11,229 ------------- ------------ Total liabilities 211,261 211,261 ------------- ------------ Shareholders' equity: Preferred Stock, no par value 4,250,000 shares authorized No shares issued or outstanding - - Series A Convertible Preferred Stock, no par value 750,000 shares authorized 321,500 shares issued and outstanding Liquidation preference $643,000 517,251 517,251 Common Stock, no par value 20,000,000 shares authorized 7,644,095 and 8,644,095 (pro forma) shares issued and outstanding 13,299,427 705,000(1) 14,004,427 Accumulated deficit (12,261,180) (12,261,180) ------------- ------------ Total shareholders' equity 1,555,498 2,260,498 ------------- ------------ Total liabilities and shareholders' equity $ 1,766,759 $ 2,471,759 ============= ============
(1) To reflect Agway's exercise of warrants for 1,000,000 common stock shares at $.75 per share and a $45,000 transaction fee paid to LBC Capital Resources, Inc. The accompanying notes are an integral part of the financial statements. 2 4 PLANET POLYMER TECHNOLOGIES, INC. STATEMENTS OF OPERATIONS (UNAUDITED) ---------------
THREE MONTHS ENDED SEPTEMBER 30, -------------------------------- 2000 1999 ----------- ----------- Sales $ -- $ -- Cost of sales -- -- ----------- ----------- Gross profit -- -- ----------- ----------- Operating expenses: General and administrative 207,283 156,260 Marketing 61,274 35,884 Research and development, net 65,120 77,653 ----------- ----------- Total operating expenses 333,677 269,797 ----------- ----------- Loss from operations (333,677) (269,797) Other income, net 164,931 114,557 ----------- ----------- Loss from continuing operations before income taxes (168,746) (155,240) Income tax expense -- -- ----------- ----------- Loss from continuing operations (168,746) (155,240) Discontinued operations: Income from discontinued operations, net of tax expense of $4,025 -- 46,925 ----------- ----------- Income from discontinued operations -- 46,925 ----------- ----------- Net loss (168,746) (108,315) Preferred stock dividends (9,644) (15,000) ----------- ----------- Net loss applicable to common shareholders $ (178,390) $ (123,315) =========== =========== Loss per share from continuing operations (basic and diluted) $ (0.02) $ (0.03) ----------- ----------- Income per share from discontinued operations (basic and diluted) $ -- $ 0.01 ----------- ----------- Net loss per share applicable to common shareholders (basic and diluted) $ (0.02) $ (0.02) =========== =========== Shares used in per share computations 7,637,743 6,366,249 =========== ===========
The accompanying notes are an integral part of the financial statements. 3 5 PLANET POLYMER TECHNOLOGIES, INC. STATEMENTS OF OPERATIONS (UNAUDITED) ---------------
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- 2000 1999 ----------- ----------- Sales $ 401,272 $ -- Cost of sales 273,629 -- ----------- ----------- Gross profit 127,643 -- ----------- ----------- Operating expenses: General and administrative 722,066 632,948 Marketing 169,144 120,168 Research and development, net 195,497 159,442 ----------- ----------- Total operating expenses 1,086,707 912,558 ----------- ----------- Loss from operations (959,064) (912,558) Other income, net 197,378 113,111 ----------- ----------- Loss from continuing operations before income taxes (761,686) (799,447) Income tax expense (800) (800) ----------- ----------- Loss from continuing operations (762,486) (800,247) Discontinued operations: Income from discontinued operations, net of tax expense of $8,607 -- 100,343 ----------- ----------- Income from discontinued operations -- 100,343 ----------- ----------- Net loss (762,486) (699,904) Preferred stock dividends (31,224) (45,000) ----------- ----------- Net loss applicable to common shareholders $ (793,710) $ (744,904) =========== =========== Loss per share from continuing operations (basic and diluted) $ (0.11) $ (0.14) ----------- ----------- Income per share from discontinued operations (basic and diluted) $ -- $ 0.02 ----------- ----------- Net loss per share applicable to common shareholders (basic and diluted) $ (0.11) $ (0.12) =========== =========== Shares used in per share computations 7,462,708 6,315,267 =========== ===========
The accompanying notes are an integral part of the financial statements. 4 6 PLANET POLYMER TECHNOLOGIES, INC. STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) ---------------
SERIES A PREFERRED STOCK COMMON STOCK ---------------------------- --------------------------- ACCUMULATED SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL ------------ ------------ ------------ ------------ ------------ ------------ Balance at December 31, 1999 500,000 $ 804,435 6,875,976 $ 12,426,143 $(11,467,470) $ 1,763,108 Issuance of Common Stock -- -- 5,000 10,313 -- 10,313 Issuance of Common Stock as a dividend on Convertible Preferred Stock -- -- 11,123 31,224 (31,224) -- Conversion of Series A Preferred Stock into Common Stock (178,500) (287,184) 209,996 287,184 -- -- Issuance of Warrants -- -- -- 2,500 -- 2,500 Warrants exercised -- -- 500,000 500,000 -- 500,000 Transaction fee to the finder -- -- -- (60,000) -- (60,000) Stock options exercised for cash -- -- 42,000 102,063 -- 102,063 Net loss for the nine months ended September 30, 2000 -- -- -- -- (762,486) (762,486) ------------ ------------ ------------ ------------ ------------ ------------ Balance at September 30, 2000 (unaudited) 321,500 $ 517,251 7,644,095 $ 13,299,427 $(12,261,180) $ 1,555,498 ============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of the financial statements. 5 7 PLANET POLYMER TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS (UNAUDITED) ---------------
NINE MONTHS ENDED SEPTEMBER 30, ----------------------------------- 2000 1999 ----------- ----------- Cash flows from operating activities: Net loss $ (762,486) $ (699,904) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 58,236 103,980 Loss on disposal of assets -- 9,994 Income from discontinued operations -- (100,343) Changes in assets and liabilities: Accounts receivable 26,103 46,176 Inventories, net 9,241 (13,814) Prepaid expenses and other assets (9,194) (21,333) Accounts payable and accrued expenses (1,524) (122,540) Advances from related party (61,484) 115,749 Other liabilities (152,886) (112,956) ----------- ----------- Net cash used by continuing operations (893,994) (794,991) Net cash provided by discontinued operations -- 209,648 ----------- ----------- Net cash used by operating activities (893,994) (585,343) ----------- ----------- Cash flows from investing activities: Purchases of property and equipment (22,643) (128,797) Proceeds from the sale of property and equipment -- 14,000 Cost of patents and other (92,848) (22,814) Proceeds from the sale of subsidiary 814,639 -- Payments from note receivable 5,053 -- ----------- ----------- Net cash provided (used) by investing activities 704,201 (137,611) ----------- ----------- Cash flows from financing activities: Proceeds from issuance of Common Stock -- 1,000,000 Proceeds from issuance of warrants 2,500 2,500 Proceeds from warrants exercised 500,000 -- Payment of equity issuance costs (99,643) (73,952) Proceeds from stock options exercised 102,063 9,375 Principal payments on borrowings and capital lease obligations (5,705) (103,760) Restricted cash in connection with borrowings -- 114,880 ----------- ----------- Net cash provided by financing activities 499,215 949,043 ----------- ----------- Net increase in cash and cash equivalents 309,422 226,089 Cash and cash equivalents at beginning of period 355,645 149,117 ----------- ----------- Cash and cash equivalents at end of period $ 665,067 $ 375,206 =========== =========== Supplemental disclosure of non-cash activity: Issuance of Common Stock dividends on Preferred Stock $ 31,224 $ 45,000 Issuance of Common Stock in connection with the Triton Stock Purchase Agreement 10,313 -- Issuance of note receivable in connection with sale of subsidiary 100,000 -- Equipment acquired under capital leases 3,813 -- Equity issuance costs incurred 45,495 --
The accompanying notes are an integral part of the financial statements. 6 8 PLANET POLYMER TECHNOLOGIES, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS 1. Basis of Presentation The accompanying unaudited financial statements of Planet Polymer Technologies, Inc. ("Planet" or the "Company") have been prepared in accordance with the interim reporting requirements of Form 10-QSB, pursuant to the rules and regulations of the Securities and Exchange Commission. However, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In management's opinion, all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2000 are not necessarily indicative of results that may be expected for the year ending December 31, 2000. For additional information, refer to the Company's consolidated financial statements and notes thereto for the year ended December 31, 1999 contained in the Company's Form 10-KSB for the fiscal year ended December 31, 1999. Earnings (loss) per share is computed using the weighted average number of shares of common stock outstanding and is presented for basic and diluted earnings (loss) per share. Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period increased to include, if dilutive, the number of additional common shares that would have been outstanding if the potential common shares had been issued. Dilutive potential common shares consist of the incremental common shares issuable upon conversion of convertible preferred stock (using the "if converted" method) and exercise of stock options and warrants (using the treasury stock method) for all periods. The Company has excluded all convertible preferred stock and outstanding stock options and warrants from the calculation of diluted loss per share for the three and nine months ended September 30, 2000 and 1999 because all such securities are anti-dilutive for these periods. The total number of potential common shares excluded from the calculation of diluted loss per share for the three and nine months ended September 30, 2000 and 1999 was 2,856,184 and 3,973,021, respectively. 2. Discontinued Operations On December 30, 1999, the Company and its wholly owned subsidiary, Deltco of Wisconsin, Inc. ("Deltco"), entered into a Stock Purchase Agreement (the "Purchase Agreement") with Daniel B. Mettler and Randy J. Larson (together, the "Buyers") whereby the Company agreed to sell and the Buyers agreed to purchase all of the outstanding shares of stock of Deltco for an aggregate purchase price of $1,000,000. The Buyers are management employees of Deltco. The sale of Deltco was finalized on January 7, 2000. The Company received $900,000 in cash and a secured promissory note in the amount of $100,000. This note is collateralized by all of the equipment, accounts, inventory, supplies and personal property now held or hereafter acquired by Deltco. As of September 30, 2000, the note receivable balance was approximately $95,000. The accompanying financial statements present the results of operations of Deltco as a discontinued operation for the three and nine months ended September 30, 1999. Accordingly, the Company's continuing operations are now comprised of one segment, the "Research and Development" business segment. 7 9 PLANET POLYMER TECHNOLOGIES, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS - (CONTINUED) 3. Capitalized Placement Costs As of September 30, 2000, specific incremental costs directly attributable to the Private Equity Line of Credit Agreement with Triton West Group, Inc. and the registration statement filed with the Securities and Exchange Commission on September 22, 2000, have been deferred. These deferred costs, totaling approximately $95,000, are included in non-current assets on the balance sheet. The registration statement became effective on November 13, 2000 and these costs will be reclassified to shareholders' equity in the fourth quarter of 2000. 4. Shareholders' Equity Warrants to purchase 500,000 shares of the Company's Common Stock were exercised on both November 5, 1999 and March 3, 2000. After receiving cumulative proceeds of $1,000,000 in connection with such exercises, the Company was required to pay a $60,000 cash transaction fee and issue five-year warrants to purchase 50,000 shares of Common Stock with an exercise price of $4.1625 per warrant to the finder in exchange for $2,500. These warrants were issued on March 9, 2000 and the shares were registered under the registration statement that was declared effective as of November 13, 2000. On August 15, 2000, Planet entered into a Private Equity Line of Credit Agreement ("Triton Stock Purchase Agreement") with Triton West Group, Inc. ("Triton") whereby Triton agreed to purchase up to $7,000,000 of Planet's Common Stock over a period of thirty-six (36) months under certain terms and conditions. In connection with the Triton Stock Purchase Agreement, Planet issued to Triton 5,000 shares of Planet's Common Stock and a warrant to purchase 125,000 shares of Planet's Common Stock at an exercise price of $2.5781. The Company subsequently filed a registration statement and amendments to the registration statement with the Securities and Exchange Commission to register shares of the Company's Common Stock that are issuable under the Triton Stock Purchase Agreement and the registration statement has been declared effective as of November 13, 2000. The Triton Stock Purchase Agreement limits the dollar amount of Planet's Common Stock, which Triton is obligated to purchase during any fifteen (15) day period, based upon Planet's stock price and the volume of trading in Planet's stock. The stock price and volume of trading restrict the drawdowns to a minimum of $10,000 and a maximum of $1,250,000 per request. As of September 30, 2000, Planet would be able to draw down $35,000 per request. The holder of the Series A Convertible Preferred Stock ("Series A Preferred") is entitled to receive quarterly dividends at an annual rate of 6% payable in shares of the Company's Common Stock. Each share of Series A Preferred is convertible at the option of the holder into shares of Common Stock of the Company. On September 15, 2000, the Company issued a dividend of 4,148 shares of Common Stock valued at approximately $9,644. 5. Commitments and Contingencies In November 1998, Planet initiated litigation against Brian To, a former director, officer and consultant of Planet, Tarrenz Inc. and Tarrenz Management Consultants, Inc., entities owned by Brian To, in the Superior Court of the State of California for the County of San Diego. The complaint alleges breach of contract, breach of fiduciary duty and other tort claims arising from services the defendants performed for or on behalf of Planet. Planet is seeking recovery of compensation, stock, stock options and expense reimbursements. In response to the complaint, the defendants filed a Motion to Compel Arbitration. 8 10 PLANET POLYMER TECHNOLOGIES, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS - (CONTINUED) 5. Commitments and Contingencies, Continued The Court issued an order compelling the case to arbitration on Friday, March 12, 1999. On April 26, 1999, the defendants answered and denied the allegations of the complaint and filed a cross-complaint against Planet alleging breach of contract, misrepresentation, slander, intentional infliction of emotional distress and fraud. In response to a motion filed by Planet, the arbitrator issued a ruling on May 1, 2000 disqualifying defendants' counsel based on a finding that said counsel had previously represented Planet in a related matter. As a result, the arbitration previously set for February 28, 2000 was rescheduled for September 11, 2000. However, the defendants filed a motion in San Diego Superior Court to vacate the arbitrator's order granting Planet's motion to disqualify defendants' counsel. On September 22, 2000, the Superior Court issued a telephonic ruling denying the defendants' motion to vacate. In response, the defendants requested oral arguments. The court held a hearing on October 27, 2000, and issued a final ruling on October 31, 2000 denying the motion to vacate and staying the arbitration for sixty days so defendants can obtain new counsel or exercise their appeal rights. In light of the limited discovery allowed in arbitration, it is difficult to evaluate defendants' claims. Although there can be no assurances that an unfavorable outcome of the dispute would not have a material adverse effect on Planet's financial position or results of operations, management believes the claims are without merit and will vigorously defend the action. 6. Subsequent Event Pursuant to an agreement dated November 14, 2000, in response to an offer by Planet to reduce the warrant exercise price from $1.00 per share to $0.75 per share, Agway agreed to exercise its warrant to purchase 1.0 million shares of Planet's common stock immediately. The transaction was consummated on November 14, 2000. After receiving proceeds of $750,000 in connection with such exercise, the Company was required to pay a $45,000 cash transaction fee to LBC Capital Resources, Inc. 7. Pro Forma Balance Sheet The unaudited pro forma balance sheet at September 30, 2000 reflects the adjustments for the receipt of the net proceeds from the exercise of the warrant and the sale of common stock of Planet Polymer to Agway which took place on November 14, 2000. If Agway had exercised the warrant as of September 30, 2000, Planet's net tangible assets, defined as total assets, excluding goodwill, minus total liabilities, on a pro forma basis, would have increased to $2.26 million, which would have exceeded the Nasdaq minimum net tangible asset requirement to continue quotation of Planet's common stock on the Nasdaq SmallCap Market. Planet believes that with this capital infusion and funds available under the Triton Stock Purchase Agreement, Planet will be able to continue to meet the Nasdaq net tangible asset requirement through the balance of the current fiscal year. 9 11 PART I - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PLANET POLYMER TECHNOLOGIES, INC. Except for the historical information contained herein, the discussion in this report contains forward-looking statements that involve certain risks and uncertainties. The Company's actual results could differ materially from those discussed in this report. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and in the Company's Form 10-KSB for the fiscal year ended December 31, 1999. OVERVIEW Since Planet Polymer Technologies, Inc. ("Planet" or the "Company") was founded in 1991 substantially all of the Company's resources have been devoted to the development and commercialization of its technologies and products. This has included the expenditure of funds to develop the Company's corporate infrastructure, support the Company's marketing efforts and establish a pilot production facility, in addition to research and development. Planet has incurred operating losses since inception and had an accumulated deficit as of September 30, 2000 of approximately $12.3 million. Pending commercial deployment of and related volume orders for the Company's products, the Company expects to incur additional losses. RESULTS OF OPERATIONS On January 7, 2000, the Company sold all of its common stock shares of Deltco. In accordance with the Purchase Agreement, the Company received total proceeds of $1,000,000 in the form of $900,000 in cash and $100,000 in a secured promissory note in consideration of the sale of its Deltco common stock. This note is collateralized by all of the equipment, accounts, inventory, supplies and personal property now held or hereafter acquired by Deltco. The accompanying financial statements present the results of operations of the Company and Deltco as a discontinued operation. Accordingly, the Company's continuing operations are now comprised of one segment, the "Research and Development" business segment. The following discussion of results of operations relates solely to the Company's continuing operations. Revenue There were no revenues for the three months ended September 30, 1999 and for the same period in 2000. EnviroPlastic(R) Z was commercialized in November 1999 for use as a degradable component of a sprinkler system. EnviroPlastic(R) Z is currently produced for The Toro Company's Irrigation Division, however, due to seasonal fluctuations in the lawn and garden industry, there were no revenues in the three months ended September 30, 2000. The Company's revenues increased from $0 for the nine months ended September 30, 1999 to approximately $401,000 for the same period in 2000. This increase was attributable to the commercial deployment of EnviroPlastic(R) Z. 10 12 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) PLANET POLYMER TECHNOLOGIES, INC. RESULTS OF OPERATIONS, CONTINUED Cost of Sales There were no cost of sales for the three months ended September 30, 1999 and for the same period in 2000. Cost of sales increased from $0 for the nine months ended September 30, 1999 to approximately $274,000 for the same period in 2000. This increase was due to the costs associated with the production of EnviroPlastic(R) Z. General and Administrative Expenses General and administrative expenses increased from approximately $156,000 for the three months ended September 30, 1999 to approximately $207,000 for the same period in 2000 and from approximately $633,000 for the nine months ended September 30, 1999 to approximately $722,000 for the same period in 2000. These increases were primarily attributable to professional fees paid to an independent consultant for developing a strategic business plan and professional fees paid to an independent consultant for providing investor relations services, offset by a reduction in legal expenses related to the Brian To matter. Most of the legal fees related to the To dispute in 2000 have been related to Planet's motion to disqualify To's counsel and To's appeal from the order granting Planet's motion. Marketing Expenses Marketing expenses increased from approximately $36,000 for the three months ended September 30, 1999 to approximately $61,000 for the same period in 2000 and from approximately $120,000 for the nine months ended September 30, 1999 to approximately $169,000 for the same period in 2000. These increases were primarily attributable to professional fees paid to an independent consultant for promoting AQUAMIM(R). Research and Development Expenses, Net The Company's net research and development expenses decreased from approximately $78,000 for the three months ended September 30, 1999 to approximately $65,000 for the same period in 2000. This decrease was primarily attributable to a reduction in reimbursable research and development costs. The Company's net research and development expenses increased from approximately $159,000 for the nine months ended September 30, 1999 to approximately $195,000 for the same period in 2000. This increase was primarily due to a reduction in allocated research and development resources to projects that are reimbursable projects under a feasibility study. Offsetting research and development revenue and reimbursable research and development costs increased from approximately $70,000 for the three months ended September 30, 1999 to approximately $77,000 for the same period in 2000. This increase was due to an increase in AQUAMIM(R) research and development pre-production trial sales. Offsetting research and development revenue and reimbursable research and development costs decreased from approximately $380,000 for the nine months ended September 30, 1999 to approximately $215,000 for the same period in 2000. This decrease was due to a reduction in the research and development labor rates charged to our customer under the feasibility study. 11 13 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) PLANET POLYMER TECHNOLOGIES, INC. RESULTS OF OPERATIONS, CONTINUED Other Income, Net In 1996, Planet recorded an obligation of $300,000 for outstanding employment tax issues. During 1997, Planet resolved a portion of the employment tax issues and reversed the original entry by approximately $34,000. The Company has subsequently determined that the remainder of such obligation of approximately $266,000 is no longer payable. As a result, the obligation has been reversed and other income was recognized in the three months ended September 30, 1999 and 2000, in the amount of $113,000 and $153,000, respectively. LIQUIDITY AND CAPITAL RESOURCES Warrants to purchase 500,000 shares of the Company's Common Stock were exercised on both November 5, 1999 and March 3, 2000. After receiving cumulative proceeds of $1,000,000 in connection with such exercises, the Company was required to pay a $60,000 cash transaction fee and issue five-year warrants to purchase 50,000 shares of Common Stock with an exercise price of $4.1625 per warrant to the finder in exchange for $2,500. These warrants were issued on March 9, 2000 and the shares were registered under the registration statement that was declared effective as of November 13, 2000. On August 15, 2000, Planet entered into a Private Equity Line of Credit Agreement ("Triton Stock Purchase Agreement") with Triton West Group, Inc. ("Triton") whereby Triton agreed to purchase up to $7,000,000 of Planet's Common Stock over a period of thirty-six (36) months under certain terms and conditions. In connection with the Triton Stock Purchase Agreement, Planet issued to Triton 5,000 shares of Planet's Common Stock and a warrant to purchase 125,000 shares of Planet's Common Stock at an exercise price of $2.5781. The Company subsequently filed a registration statement and amendments to the registration statement with the Securities and Exchange Commission to register shares of the Company's Common Stock that are issuable under the Triton Stock Purchase Agreement and the registration statement has been declared effective as of November 13, 2000. The Triton Stock Purchase Agreement limits the dollar amount of Planet's Common Stock, which Triton is obligated to purchase during any fifteen (15) day period, based upon Planet's stock price and the volume of trading in Planet's stock. The stock price and volume of trading restrict the drawdowns to a minimum of $10,000 and a maximum of $1,250,000 per request. As of September 30, 2000, Planet would be able to draw down $35,000 per request. The Company used cash of approximately $894,000 for continuing operations for the nine months ended September 30, 2000. Such funds were used primarily for research and development activities, marketing efforts and administrative support, including a net reduction in the advance of funds of approximately $61,000. Net cash provided by investing activities of approximately $704,000 for the nine months ended September 30, 2000 resulted from proceeds from the sale of Deltco of approximately $820,000, net of Deltco's cash, offset by approximately $116,000 used for the purchase of equipment and for the preparation and filing of patents. 12 14 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) PLANET POLYMER TECHNOLOGIES, INC. LIQUIDITY AND CAPITAL RESOURCES, CONTINUED Net cash provided by financing activities of approximately $499,000 for the nine months ended September 30, 2000 resulted from proceeds of approximately $500,000 from the exercise of warrants, $102,000 from the exercise of stock options and $3,000 from the issuance of warrants, offset by $6,000 used for repayment of capital lease obligations and equity issuance costs of approximately $100,000. The Company's ability to raise additional capital may be dependent upon the stock being quoted on the Nasdaq SmallCap Market. There can be no assurance that the Company will be able to satisfy the criteria for continued quotation on the Nasdaq SmallCap Market. For example, one of the criteria for continued quotation is that the Company will maintain net tangible assets of $2 million (net tangible assets means totals assets, excluding goodwill, minus total liabilities). As of September 30, 2000, the Company's net tangible assets on this basis were approximately $1.6 million. In a discussion with a representative from NASDAQ, the Company was given until November 15, 2000 to comply with the $2 million net tangible asset requirement, or appeal the Staff determination that Planet be removed from the quotation system for not meeting the net tangible asset requirement. If Planet is removed from the Nasdaq SmallCap Market quotation system, an investor may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, the Company's Common Stock, and Planet may find it more difficult to raise additional capital. Pursuant to an agreement dated November 14, 2000, in response to an offer by Planet to reduce the warrant exercise price from $1.00 per share to $0.75 per share, Agway agreed to exercise its warrant to purchase 1.0 million shares of Planet's common stock immediately. The transaction was consummated on November 14, 2000. If Agway had exercised its warrant at $0.75 per share by September 30, 2000 on a pro forma basis, Planet's net tangible assets, defined as total assets, excluding goodwill, minus total liabilities, would have increased to $2.26 million, which would have exceeded the Nasdaq minimum net tangible asset requirement to continue quotation of Planet's common stock on the Nasdaq SmallCap Market. Planet believes that with this capital infusion and funds available under the Triton Stock Purchase Agreement, Planet will be able to continue to meet the Nasdaq net tangible asset requirement through the balance of the current fiscal year. In addition, on November 14, 2000, Planet agreed to sell, assign and transfer patent rights to Planet's animal feed additives, fruit and vegetable coatings, and controlled-release fertilizer (the "Patents"), for a cash price of $250,000 and continuation of royalty payments equal to the payments Planet would otherwise be entitled to receive pursuant to its existing license agreement with Agway and the sublicense agreements related thereto, as such agreements may be amended from time to time by mutual agreement of the parties. Planet has, in turn, agreed to pay Agway $150,000 in return for an exclusive worldwide royalty-free license to use and commercially exploit all rights related to the Patents for all uses other than food and agricultural initiatives. 13 15 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) PLANET POLYMER TECHNOLOGIES, INC. LIQUIDITY AND CAPITAL RESOURCES, CONTINUED The Company believes that its existing resources combined with revenues and with the utilization of proceeds from sales under the Triton Stock Purchase Agreement will enable the Company to maintain its current and planned operations for the near term. However, changes in the Company's plans or other events affecting its operating expenses, such as increases in production costs, may cause the Company to expend its existing resources sooner than expected. The Triton Stock Purchase Agreement provides Planet with an additional source of capital. However, if Planet's stock price and trading volume stay at current levels, the Company will not be able to draw down all $7,000,000 from the line of credit since it could result in Triton's ownership of more than 9.9% of Planet's outstanding shares of Common Stock, which is prohibited under the terms of the Triton Stock Purchase Agreement. The Company expects that it will need to raise substantial additional funds to continue its current and planned operations. The Company intends to seek funding from the Triton Stock Purchase Agreement or seek additional funding from existing and potential customers or through public or private equity or debt financing. There can be no assurance that financing will be available on acceptable terms, or at all. NEW ACCOUNTING PRONOUNCEMENTS In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 entitled "Revenue Recognition in Financial Statements." The objective of this bulletin is to provide further guidance on revenue recognition issues in the absence of authoritative literature addressing a specific arrangement or a specific industry. Companies must follow the guidance in the bulletin no later than the fourth fiscal quarter of the fiscal year beginning after December 15, 1999. Planet believes that its current revenue recognition policy complies with the guidelines in the bulletin. Therefore, the adoption of SAB 101 will have no impact on Planet's recognition of revenue and reimbursable research and development costs. 14 16 PART II - OTHER INFORMATION PLANET POLYMER TECHNOLOGIES, INC. Item 1 - Legal Proceedings: See "Note 5 - Commitments and Contingencies" in the Notes to Unaudited Financial Statements for a review of the Company's current litigation. Item 2 - Changes in Securities: None Item 3 - Defaults upon Senior Securities: None Item 4 - Submission of Matters to a Vote of Security Holders: None Item 5 - Other Information: On October 17, 2000, Planet entered into a two-year employment agreement with Richard Bernier, who now serves as Planet's President and Chief Executive Officer. Planet may extend the employment term beyond the two-year for additional one-year terms. Planet must give at least 183 days notice before Bernier's employment may be terminated. Bernier's compensation consists of $205,000 as an annual salary, a signing bonus of 10,000 shares of Planet's Common Stock, a grant of a stock option under the 2000 Stock Incentive Plan to purchase 160,000 shares of Common Stock at an exercise price of $1.50 per share, and a year-end bonus of 2.5% for each dollar of improvement in Planet's net losses in the fiscal year ending December 31, 2001 compared to the fiscal year ending December 31, 2000 in the first year of the employment, and a year-end bonus of 2.5% of Planet's earnings before income tax for any following years. Bernier's agreement also provides that if Bernier is terminated for any reason other than for cause during the term of employment, then he shall be engaged to provide services to Planet pursuant to a consulting agreement. Item 6 - Exhibits and Reports on Form 8-K: (a) Exhibits:
Exhibit Number Description -------------- ----------- 11.1 Statement of Computation of Common and Common Equivalent Shares 27.1 Financial Data Schedule
(b) Reports on Form 8-K: None 15 17 PLANET POLYMER TECHNOLOGIES, INC. SIGNATURES In accordance with the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: November 14, 2000 Planet Polymer Technologies, Inc. /s/ Robert J. Petcavich ------------------------------------------ Robert J. Petcavich Chairman and Chief Technical Officer (On behalf of Registrant and as Registrant's Principal Financial and Accounting Officer) 16