-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OfQZxAr6E+RNbC5IrVp7yFM6JmyWaxP85MORF9WxUbY3DxLR+wH67d0IcfQQaKT0 EVNKgq2FRc5TDy84n0olRQ== 0000936392-99-001308.txt : 19991115 0000936392-99-001308.hdr.sgml : 19991115 ACCESSION NUMBER: 0000936392-99-001308 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLANET POLYMER TECHNOLOGIES INC CENTRAL INDEX KEY: 0000896861 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS, MATERIALS, SYNTH RESINS & NONVULCAN ELASTOMERS [2821] IRS NUMBER: 330502606 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-26804 FILM NUMBER: 99749392 BUSINESS ADDRESS: STREET 1: 9985 BUSINESS PARK WAY STE A CITY: SAN DIEGO STATE: CA ZIP: 92131 BUSINESS PHONE: 6195495130 MAIL ADDRESS: STREET 1: 9985 BUSINESSPARK AVE STREET 2: STE A CITY: SAN DIEGO STATE: CA ZIP: 92131 FORMER COMPANY: FORMER CONFORMED NAME: PLANET POLYMER TECHNOLOGY INC DATE OF NAME CHANGE: 19950511 10QSB 1 FORM 10-QSB 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, 1999 [ ] 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 charter) CALIFORNIA 33-0502606 ------------------------------------------------------------------------ (State or other jurisdiction of I.R.S. Employer incorporation or organization) Identification No. 9985 Businesspark Ave., Suite A, 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, 1999 ----- --------------------------------- Common Stock, no par value 6,370,522
2 PLANET POLYMER TECHNOLOGIES, INC. FORM 10-QSB QUARTERLY REPORT QUARTER ENDED SEPTEMBER 30, 1999 INDEX
PAGE NO. -------- PART I - FINANCIAL INFORMATION Item 1 Consolidated Balance Sheet (Unaudited) September 30, 1999 2 Consolidated Statements of Operations (Unaudited) Three Months Ended September 30, 1999 and 1998 3 Consolidated Statements of Operations (Unaudited) Nine Months Ended September 30, 1999 and 1998 4 Consolidated Statement of Shareholders' Equity (Unaudited) Nine Months Ended September 30, 1999 5 Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 1999 and 1998 6 Notes to Unaudited Consolidated 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. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET (UNAUDITED) ---------------
SEPTEMBER 30, ASSETS 1999 ------------ Current assets: Cash and cash equivalents $ 375,206 Accounts receivable, net of allowance for doubtful accounts of $10,000 332,515 Inventories, net 200,518 Prepaid expenses 60,582 ------------ Total current assets 968,821 Property and equipment, net of accumulated depreciation of $959,174 721,289 Goodwill, net of accumulated amortization of $120,044 520,018 Patents and trademarks, net of accumulated amortization of $134,080 321,058 Other assets 39,906 ------------ Total assets $ 2,571,092 ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 76,312 Advances from related party 115,749 Accrued expenses 68,164 Current portion of capital lease obligations 12,860 ------------ Total current liabilities 273,085 Capital lease obligations, less current portion 21,359 Other liabilities 152,886 ------------ Total liabilities 447,330 ------------ 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 500,000 shares issued and outstanding Liquidation preference $1,000,000 804,435 Common Stock, no par value 20,000,000 shares authorized 6,370,522 shares issued and outstanding 11,911,143 Accumulated deficit (10,591,816) ------------ Total shareholders' equity 2,123,762 ------------ Total liabilities and shareholders' equity $ 2,571,092 ============
The accompanying notes are an integral part of the consolidated financial statements. 2 4 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) ---------------
THREE MONTHS ENDED SEPTEMBER 30, ----------------------------- 1999 1998 ----------- ----------- Sales $ 442,385 $ 204,367 Cost of sales 361,855 216,990 ----------- ----------- Gross profit (loss) 80,530 (12,623) ----------- ----------- Operating expenses: General and administrative 176,781 187,962 Marketing 48,728 57,107 Research and development, net 77,653 136,086 ----------- ----------- Total operating expenses 303,162 381,155 ----------- ----------- Loss from operations (222,632) (393,778) Other income, net 118,342 8,291 ----------- ----------- Loss before income taxes (104,290) (385,487) Income tax expense (4,025) -- ----------- ----------- Net loss $ (108,315) $ (385,487) =========== =========== Loss per share (basic and diluted) $ (0.02) $ (0.07) =========== =========== Shares used in per share computations 6,366,249 5,321,206 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 3 5 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) ---------------
NINE MONTHS ENDED SEPTEMBER 30, ----------------------------- 1999 1998 ----------- ----------- Sales $ 1,440,779 $ 1,256,551 Cost of sales 1,241,395 1,210,930 ----------- ----------- Gross profit 199,384 45,621 ----------- ----------- Operating expenses: General and administrative 694,242 629,877 Marketing 157,550 184,887 Research and development, net 159,442 410,627 ----------- ----------- Total operating expenses 1,011,234 1,225,391 ----------- ----------- Loss from operations (811,850) (1,179,770) Other income, net 121,353 27,458 ----------- ----------- Loss before income taxes (690,497) (1,152,312) Income tax expense (9,407) (1,915) ----------- ----------- Net loss $ (699,904) $(1,154,227) =========== =========== Loss per share (basic and diluted) $ (0.11) $ (0.22) =========== =========== Shares used in per share computations 6,315,267 5,311,705 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 4 6 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) ---------------
SERIES A PREFERRED STOCK COMMON STOCK ---------------------------- ---------------------------- ACCUMULATED SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL ------------ ------------ ------------ ------------ ------------ ------------ Balance at December 31, 1998 500,000 $ 804,435 5,341,062 $ 11,009,208 $ (9,846,912) $ 1,966,731 Issuance of Common Stock and related Warrants to Agway, net of issuance costs -- -- 1,000,000 845,060 -- 845,060 Issuance of Warrants to finder for cash -- -- -- 2,500 -- 2,500 Stock Options exercised for cash -- -- 5,000 9,375 -- 9,375 Issuance of Common Stock as a dividend on Convertible Preferred Stock on March 15, 1999 -- -- 9,677 15,000 (15,000) -- Issuance of Common Stock as a dividend on Convertible Preferred Stock on June 15, 1999 -- -- 9,677 15,000 (15,000) -- Issuance of Common Stock as a dividend on Convertible Preferred Stock on September 15, 1999 -- -- 5,106 15,000 (15,000) -- Net loss for the nine months ended September 30, 1999 -- -- -- -- (699,904) (699,904) ------------ ------------ ------------ ------------ ------------ ------------ Balance at September 30, 1999 500,000 $ 804,435 6,370,522 $ 11,911,143 $(10,591,816) $ 2,123,762 ============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 5 7 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) ---------------
NINE MONTHS ENDED SEPTEMBER 30, ----------------------------- 1999 1998 ----------- ----------- Cash flows from operating activities: Net loss $ (699,904) $(1,154,227) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 157,142 157,054 Compensation expense -- non-cash 2,443 8,241 Loss on disposal of assets 8,730 -- Changes in assets and liabilities: Accounts receivable, net (39,601) 216,261 Inventories, net 99,718 (56,122) Prepaid expenses and other assets (12,874) 1,133 Income tax receivable 30,168 -- Accounts payable and accrued expenses (133,958) (58,426) Advances from related party 115,749 -- Other liabilities (112,956) -- ----------- ----------- Net cash used by operating activities (585,343) (886,086) ----------- ----------- Cash flows from investing activities: Purchases of property and equipment (128,797) (34,063) Proceeds from the sale of property and equipment 14,000 -- Cost of patents and trademarks (22,814) (15,852) ----------- ----------- Net cash used by investing activities (137,611) (49,915) ----------- ----------- Cash flows from financing activities: Proceeds from issuance of Common Stock 1,000,000 -- Payment of equity issuance costs (73,952) -- Proceeds from issuance of warrants 2,500 -- Proceeds from stock options exercised 9,375 -- Principal payments on borrowings and capital lease obligations (103,760) (70,154) Proceeds from conversion of restricted cash to cash and cash equivalents 114,880 -- ----------- ----------- Net cash provided (used) by financing activities 949,043 (70,154) ----------- ----------- Net increase (decrease) in cash and cash equivalents 226,089 (1,006,155) Cash and cash equivalents at beginning of year 149,117 1,516,405 ----------- ----------- Cash and cash equivalents at end of year $ 375,206 $ 510,250 =========== =========== Supplemental disclosure of non-cash activity: Issuance of Common Stock dividends on Preferred Stock $ 45,000 $ 45,000 Stock options granted to a scientific advisor -- 8,241
The accompanying notes are an integral part of the consolidated financial statements. 6 8 PLANET POLYMER TECHNOLOGIES, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The accompanying unaudited consolidated 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. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine month period ended September 30, 1999 are not necessarily indicative of results that may be expected for the year ending December 31, 1999. For additional information, refer to the Company's consolidated financial statements and notes thereto for the year ended December 31, 1998 contained in the Company's Form 10-KSB for the fiscal year ended December 31, 1998. Certain items shown in the consolidated financial statements for the nine months ended September 30, 1998 and for the nine months ended September 30, 1999 have been reclassified to conform to the current period presentation. 2. Line of Credit On March 10, 1999, the Company's wholly-owned subsidiary Deltco obtained a $100,000 line of credit with a financial institution under which Deltco may make borrowings for working capital and other general purposes throughout the term of the line of credit agreement which expires on March 10, 2000. Through September 30, 1999, no borrowings had been made against this line of credit. Borrowings under the line of credit are collateralized by substantially all of Deltco's assets. 3. Segment Information The segment information presented below reflects the Company's two reportable segments -- (1) research and development of polymer technologies and materials in San Diego, California and (2) manufacturing and reprocessing of thermoplastic scrap resins by Deltco of Wisconsin, Inc. ("Deltco") in Ashland, Wisconsin. The technologies and products developed in California are currently in a research and development stage; and therefore, no revenues were reported under this segment during the three and nine months ended September 30, 1999 and 1998. The Company evaluates the performance of its segments based on income or loss before depreciation and amortization. The table below presents information about reported segments for the three and nine months ended September 30, 1999 and 1998. 7 9 PLANET POLYMER TECHNOLOGIES, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Manufacturing Research and and Three months ended September 30, 1999 Development Reprocessing Total - ------------------------------------- ------------ ------------- ----------- Revenues $ -- $ 442,385 $ 442,385 ----------- ----------- =========== (Loss) income before depreciation and amortization $ (120,750) $ 65,664 $ (55,086) ----------- ----------- Depreciation and amortization (53,229) ----------- Net loss $ (108,315) =========== Total assets at September 30, 1999 $ 1,601,978 $ 969,114 $ 2,571,092 ----------- ----------- =========== Three months ended September 30, 1998 - ------------------------------------- Revenues $ -- $ 204,367 $ 204,367 ----------- ----------- =========== (Loss) income before depreciation and amortization $ (309,182) $ (23,982) $ (333,164) ----------- ----------- Depreciation and amortization (52,323) ----------- Net loss $ (385,487) =========== Total assets at September 30, 1998 $ 1,741,887 $ 1,282,840 $ 3,024,727 ----------- ----------- ===========
Manufacturing Research and and Nine months ended September 30, 1999 Development Reprocessing Total - ------------------------------------ ------------- --------------- ----------- Revenues $ -- $ 1,440,779 $ 1,440,779 ----------- ----------- =========== (Loss) income before depreciation and amortization $ (698,712) $ 155,950 $ (542,762) ----------- ----------- Depreciation and amortization (157,142) ----------- Net loss $ (699,904) =========== Nine months ended September 30, 1998 - ------------------------------------ Revenues $ -- $ 1,256,551 $ 1,256,551 ----------- ----------- =========== (Loss) income before depreciation and amortization $ (989,446) $ (7,727) $ (997,173) ----------- ----------- Depreciation and amortization (157,054) ----------- Net loss $(1,154,227) ===========
8 10 PLANET POLYMER TECHNOLOGIES, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 4. Subsequent Events In February 1999, the Company received a commitment from Agway whereby Agway agreed to exercise its warrant to acquire up to 500,000 shares of the Company's Common Stock after July 1, 1999 at the Company's request, in the event that the Company's cash flows are less than currently projected and are insufficient to fund its operating requirements. On November 5, 1999, at the Company's request, Agway exercised the Warrant with respect to 500,000 shares of the Company's Common Stock on the terms, and subject to conditions, set forth in the Warrant and the Company received $500,000 in connection with such exercise. While not absolutely necessary to fund the Company's operating requirements, the Company and Agway believe the exercise of the Warrant is in the best interest of the Company by allowing the Company to maintain the Nasdaq SmallCap listing of the Company's Common Stock. In connection with such exercise, the Company agreed to extend the exercise period relating to 500,000 of the remaining shares available under the Warrant from January 11, 2000 to March 18, 2000. 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, 1998. OVERVIEW Since Planet Polymer Technologies, Inc. ("Planet" or the "Company") was founded in 1991, with the exception of resources expended in connection with the purchase and ongoing operation of Deltco of Wisconsin, Inc. ("Deltco"), 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. In January 1996, Planet acquired Deltco, a manufacturer and reprocessor of plastic resins located in Ashland, Wisconsin. Planet maintains Deltco as a wholly-owned subsidiary. Prior to the acquisition of Deltco, essentially all revenue recognized was from customer-funded research and development activities, which included service and product sales for customer pilot trials. Planet has incurred operating losses since inception and had an accumulated deficit as of September 30, 1999 of approximately $10.6 million. Pending commercial deployment of and related volume orders for the Company's products, the Company expects to incur additional losses. In November 1998, the Company entered into a Stock Purchase Agreement with a subsidiary of Agway Inc. ("Agway") whereby Agway would purchase 1,000,000 shares of Planet's Common Stock for $1,000,000 and receive a warrant to purchase up to 2,000,000 shares of Common Stock at a price of $1.00 per share (the "Warrant"). The stock purchase transaction was completed in January 1999 with the Company's shareholders' approval. Contemporaneously with the execution of the Stock Purchase Agreement, Planet and Agway entered into an agreement relating to the funding by Agway of a feasibility study (the "Feasibility Agreement") of Planet's polymer technology for use in agricultural products (other than fertilizers and certain biological products) and food products and an exclusive worldwide license (the "License Agreement") to all current and future products that utilize Planet's polymer technology for agricultural and food related purposes (other than products already covered by existing agreements). Under the terms of the Feasibility Agreement, Planet will be reimbursed for certain qualifying research and development costs relating to such applications. Under the terms of the License Agreement, Agway has the exclusive right to grant licenses and sublicenses on the technology developed under the License Agreement to other parties. In return for the rights granted to Agway, Agway is required to pay royalties to the Company determined in accordance with the terms of the License Agreement. 10 12 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) PLANET POLYMER TECHNOLOGIES, INC. OVERVIEW, CONTINUED Under the terms of the License Agreement, when Agway decides to market a particular product developed as a result of the Feasibility Agreement, the Company and Agway would enter into a sub-agreement on commercially reasonable terms mutually acceptable to the parties covering such product and market area in the form of the sub-agreement set forth as an exhibit to the License Agreement. On September 22, 1999, the Company entered into a Sub-Agreement to the License Agreement (the "Sub-Agreement") with Agway consistent with the form of sub-agreement attached as an exhibit to the License Agreement. Under the terms of the Sub-Agreement, Agway is required to pay performance payments to the Company on products sold by Agway, based on an amount of Gross Margin (as such term is defined in the Sub-Agreement). The timing and amount of performance payments, if any, the Company may receive under the terms of the Sub-Agreement are highly speculative and uncertain. In addition, the performance payment is entirely dependent on the performance of Agway, its sales to third parties and the degree of market acceptance for the product sold by Agway. Accordingly, no assurance can be given as to the timing or amount of any performance payments that may be paid by Agway under the Sub-Agreement. RESULTS OF OPERATIONS Revenue The Company's revenues, which were all related to Deltco, increased from approximately $204,000 for the three months ended September 30, 1998 to approximately $442,000 for the same period in 1999 and from approximately $1,257,000 for the nine months ended September 30, 1998 to approximately $1,441,000 for the same period in 1999. These increases were primarily attributable to a shift in customer demand to the Company's recycled polypropylene product in response to recent price increases in the virgin polypropylene market. Cost of Sales Cost of sales increased from approximately $217,000 for the three months ended September 30, 1998 to approximately $362,000 for the same period in 1999 and from approximately $1,211,000 for the nine months ended September 30, 1998 to approximately $1,241,000 for the same period in 1999. These increases were primarily attributable to increased sales volume at Deltco. At the same time, the Company has experienced a reduction in the purchase price of raw materials due to price fluctuations in the polypropylene market. General and Administrative Expenses General and administrative expenses decreased from approximately $188,000 for the three months ended September 30, 1998 to approximately $177,000 for the same period in 1999. This decrease was primarily attributable to a decrease in legal fees as the Company awaits arbitration of its current litigation. In addition, a portion of remaining legal costs related to current legal proceedings are being reimbursed under the Company's general liability insurance policy. 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 General and administrative expenses increased from approximately $630,000 for the nine months ended September 30, 1998 to approximately $694,000 for the same period in 1999. This increase was primarily attributable to increased legal fees related to current litigation and temporary personnel costs. No such personnel costs were incurred in the nine months ended September 30, 1998. Marketing Expenses Marketing expenses decreased from approximately $57,000 for the three months ended September 30, 1998 to approximately $49,000 for the same period in 1999 and from approximately $185,000 for the nine months ended September 30, 1998 to approximately $158,000 for the same period in 1999. These decreases were primarily attributable to the reduction in sales and marketing personnel. Research and Development Expenses, Net The Company's net research and development expenses decreased from approximately $136,000 for the three months ended September 30, 1998 to approximately $78,000 for the same period in 1999 and from approximately $411,000 for the nine months ended September 30, 1998 to approximately $159,000 for the same period in 1999. These decreases were primarily due to the Feasibility Agreement entered into with Agway. Planet has allocated research and development resources to projects that are reimbursable by Agway and other customers. Reimbursable research and development costs increased from approximately $12,000 for the three months ended September 30, 1998 to approximately $70,000 for the same period in 1999 and from approximately $55,000 for the nine months ended September 30, 1998 to approximately $380,000 for the same period in 1999. Approximately $51,000 of the reimbursable research and development costs for the three months ended September 30, 1999 and approximately $301,000 of the reimbursable research and development costs for the nine months ended September 30, 1999 relate to research and development costs borne by Agway. A net advance of funds of approximately $116,000 existed as of September 30, 1999. Other Income, Net The Company had recorded an obligation in 1996 in the amount of $113,000. The Company has subsequently determined that such obligation is no longer payable. As a result, the obligation has been reversed and other income has been recognized in the three months ended September 30, 1999 in the amount of $113,000. 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 In January 1999, with the Company's shareholders' approval, the Company issued 1,000,000 shares of Common Stock to Agway and received proceeds of $845,000, net of issuance costs totaling approximately $155,000 (approximately $81,000 of which was paid during the three months ended December 31, 1998). In addition, from January 1999 to September 1999, the Company recorded reimbursable research and development costs of approximately $301,000 from Agway under the Feasibility Agreement. The Company anticipates that additional research and development expenditures in the agrotechnology area may be reimbursable by Agway under the Feasibility Agreement during the remainder of 1999. In February 1999, the Company received a commitment from Agway whereby Agway agreed to exercise its warrant to acquire up to 500,000 shares of the Company's Common Stock after July 1, 1999 at the Company's request, in the event that the Company's cash flows are less than currently projected and are insufficient to fund its operating requirements. On November 5, 1999, at the Company's request, Agway exercised the Warrant with respect to 500,000 shares of the Company's Common Stock on the terms, and subject to conditions, set forth in the Warrant and the Company received $500,000 in connection with such exercise. While not absolutely necessary to fund the Company's operating requirements, the Company and Agway believe the exercise of the Warrant is in the best interest of the Company by allowing the Company to maintain the Nasdaq SmallCap listing of the Company's Common Stock. In connection with such exercise the Company agreed to extend the exercise period relating to 500,000 of the remaining shares available under the Warrant from January 11, 2000 to March 18, 2000. The Company used approximately $585,000 for operations for the nine months ended September 30, 1999. Such funds were used primarily for research and development activities, marketing efforts and administrative support. The Company used approximately $138,000 for investing activities for the nine months ended September 30, 1999. Such funds were used for the purchase of equipment and for the preparation and filing of patents, offset by proceeds from the sale of equipment. Net cash provided by financing activities of approximately $949,000 for the nine months ended September 30, 1999 resulted from net proceeds of approximately $929,000 from the issuance of Common Stock and warrants, $9,000 from the exercise of a stock option and $115,000 from the conversion of restricted cash to cash and cash equivalents, offset by approximately $104,000 used for the repayment of debt and capital lease obligations. 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 sources of liquidity and anticipated revenues, including revenues generated from Deltco, anticipated cost reimbursements from Agway, Deltco's line of credit and the cash received upon Agway's election to exercise 500,000 shares of the Company's Common Stock at a price of $1.00 per share subject to the Warrant, will satisfy the Company's projected working capital and other cash requirements through July 2000. There can be no assurance, however, that future revenue decreases or changes in the Company's plans or other events affecting the Company's operating expenses will not result in the expenditure of the Company's resources. The Company expects that it will need to raise substantial additional funds to continue its current and planned operations. The Company intends to seek additional funding from existing and potential customers or through public or private equity or debt financing. There can be no assurance that additional financing will be available on acceptable terms, or at all. 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. As of September 30, 1999, the Company's net tangible assets were approximately $1.6 million. As noted above, the Company received $500,000 from Agway in connection with Agway's purchase of 500,000 shares of Common Stock under the Warrant, which the parties believe was necessary to satisfy the Nasdaq SmallCap listing criteria with respect to the Company's Common Stock. Failure to meet the maintenance criteria in the future may result in the Company's Common Stock not being eligible for quotation. In such event, 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. YEAR 2000 The Company recognizes the need to ensure that its operations will not be impacted by the year 2000 issue that results from computer applications being written along two digits rather than four to define the application year. As a result of the year 2000 issue, computer applications may recognize a date using "00" as the year 1900 rather than the year 2000, resulting in system failures or miscalculations causing disruption of operations. The Company has reviewed its material computer applications for year 2000 compliance and is working with vendors and suppliers to make its computer applications year 2000 compliant. Thus, the Company has developed a plan to modify its information technology in recognition of the year 2000 issue. The plan calls for updating existing software and hardware to newer versions that incorporate corrections to eliminate the problem. The Company believes that substantially all of its material computer applications are year 2000 compliant as of September 30, 1999, and that future costs, if any, will not be significant. The Company does not expect the year 2000 issue and the plan to resolve it to have a significant impact on its operations. However, if such plans cannot be completed on a timely basis, the year 2000 issue could have a material adverse impact on the Company's business, financial condition and results of operations. Because of the many uncertainties associated with year 2000 compliance issues, and because the Company's assessment is necessarily based on information from third party vendors and suppliers, there can be no assurance as to whether such assessment is correct or as to the materiality or effect if such assessment is not correct. For example, to the extent that customers would be unable to order products or pay invoices or suppliers would be unable to manufacture or deliver product, the Company's operations would be affected. The Company is currently evaluating its potential contingency plan options relating to these uncertainties. 14 16 PART II - OTHER INFORMATION PLANET POLYMER TECHNOLOGIES, INC. Item 1 - Legal Proceedings: In November 1998, the Company initiated litigation against Brian To, a former director, officer and consultant of the Company, Tarrenz Inc. and Tarrenz Management Consultants, Inc., entities owned by Brian To ("Tarrenz"), 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 the Company. The Company is seeking recovery of compensation, stock, stock options and expense reimbursements. In response to the Complaint, the defendants filed a Motion to Compel Arbitration. The Court issued an order compelling the case to arbitration on Friday, March 12, 1999. The arbitration will be conducted in San Diego commencing on February 28, 2000 pursuant to the rules of the American Arbitration Association. On April 26, 1999, the defendants answered and denied the allegations of the complaint and filed a cross-complaint against the Company alleging breach of contract, misrepresentation, slander, intentional infliction of emotional distress and fraud. It is too early to determine the impact, if any, of this proceeding on the Company, its financial condition or the results of the Company's operations. 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: None Item 6 - Exhibits and Reports on Form 8-K: (a) Exhibits:
Exhibit Number Description -------------- ----------- 10.1* Sub-Agreement to the License Agreement, dated September 22, 1999, between Agway Consumer Products, Inc. and Planet Polymer Technologies, Inc. 11.1 Statement of Computation of Common and Common Equivalent Shares 27.1 Financial Data Schedule * Confidential Treatment Requested
(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 12, 1999 Planet Polymer Technologies, Inc. /s/ Robert J. Petcavich ----------------------------------------------- Robert J. Petcavich President, Chief Executive Officer and Director (On behalf of Registrant and as Registrant's Principal Financial and Accounting Officer) 16 EX-10.1 2 EXHIBIT 10.1 1 EXHIBIT 10.1 -------------------------------------------- ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4), 200.83 AND 240.24b-2 -------------------------------------------- SUB-AGREEMENT TO LICENSE AGREEMENT This Sub-Agreement is made effective as of the 22nd day of September 1999 (the "Effective Date") by and between Agway, Inc., successor by merger to Agway Consumer Products, Inc. ("Agway") and Planet Polymer Technologies, Inc. ("Planet"). RECITALS: A. Agway and Planet entered into a License Agreement ("License Agreement") effective November 12, 1998, pursuant to which Planet granted to Agway an exclusive worldwide license in connection with time-release coatings for a variety of Agricultural Products and Food Products as defined in the License Agreement. B. Pursuant to paragraph 4 of the License Agreement, Agway and Planet are entering into this Sub-Agreement for the Agricultural Product, controlled release nitrogen for animal feed use, (hereinafter, the "Product") marketed by Agway utilizing the technology granted to Agway under the License Agreement. C. Terms that are not otherwise defined in this Sub-Agreement shall have the meaning set forth in the License Agreement. For good and valuable consideration, the parties, intending to be legally bound, agree as follows: 1. This Agreement covers the following Product and Market Areas: Product: Controlled Release Nitrogen for animal feed use Market Area: USA - Massachusetts, Vermont, Maine, Connecticut, Rhode Island, New York, Pennsylvania, Maryland, New Jersey, and Delaware. Canada - Ontario and Quebec. Together, the "Product" and the "Market Area" shall be referred to in this Agreement as the "Nitrogen Unit I." 2 1.1 NITROGEN UNIT I DEFINITIONS: Net Sales- Agway's Division, CPG Nutrients, or any of its successors' gross sales of Planet Polymer's technology (the "Product") less adjustments for: returns and allowances, sales discounts. Costs of Goods Sold- The cost of manufacturing the Product for sale including: raw materials, packaging, in-bound freight, inventory adjustments for damage, spoilage, shrinkage and obsolescence, Direct Labor Expense, Direct Utility Cost, bad debt expense, out-bound freight and sales commissions, less purchase discounts on raw materials. Direct Labor Expense The cost of direct labor (wages and benefits) associated with the manufacture and packaging of the Product. This does not include general and administrative and marketing expenses. Direct Utility Cost The energy cost of producing the Product. Gross Margin- Net Sales minus Cost of Goods Sold. Equipment Cost- Depreciation expense using straight-line over the estimated useful life of the equipment and interest expense using Agway's Division, CPG Nutrients, or any of its successors' average rate and/or the cost of leasing equipment used to manufacture the Product. Direct Animal Research- Research trials, relating only to Planet Polymer's technology, conducted with livestock to demonstrate the efficacy and utility of the Product. Direct Product Research & Development- Research, relating only to Planet Polymer's technology, conducted with or without animals to determine the function, safety, formulation, or regulatory status of the above Product or enhancements to the Product, including but not limited to professional fees. 2 3 Direct Marketing and Advertising- The cost of direct promotion of the Product to distributors, decision influencers, and potential users of the Product. Pre-Tax Earnings/(Loss) before Profit Sharing- Gross Margin less all operating expenses including interest but is prior to Profit Sharing and a provision for income tax liability. Operating Profitability- The same as Pre-Tax Earnings/(Loss) before Profit Sharing but represents positive earnings. Net Operating Loss- The same as Pre-Tax Earnings/(Loss) before Profit Sharing but represents negative earnings. Pre-Tax Net Income- The same as Pre-Tax Earnings/(Loss) before Profit Sharing less payments (if any) to Planet Polymer for profit sharing. 2.a) Agway shall pay to Planet a profit sharing payment on Product sold by Agway's Division, CPG Nutrients, or any of its successors which incorporate either Planet Technology or New Technology, or both, during the term of this Agreement, such profit sharing payment being payable for a period of 15 years beginning with Agway's first fiscal year of Nitrogen Unit I Operating Profitability from the sale of the Product, and thereafter only for as long as the manufacture, use or sale of such Product is covered by a claim of an unexpired licensed patent which has not been held to be either invalid or unenforceable by a final decision from which no appeal is, or can be taken. 2.b) The profit sharing payment to be paid under sub-paragraph 2.a) above shall be calculated as follows: (i) First, apply the following percentages based on amount of Gross Margin: [...***...] of the first [...***...] of Gross Margin [...***...] of the second [...***...] of Gross Margin [...***...] of all the Gross Margin in excess of [...***...] (ii) Second, subtract one-half of each of the following costs incurred in such fiscal year up to a maximum of [...***...]: (a) [...***...], (b) [...***...], * Confidential Treatment Requested 3 4 (c) [...***...], and (d) [...***...], (iii) Third, add back [...***...] for each incremental increase in Product annual sales volumes of [...***...] pounds, above and beyond a base of [...***...] pounds, up to the total amount subtracted in sub-paragraph 2.b)(ii) above. Any and all profit sharing payments calculated under this paragraph 2.b) are and shall be subject to the further provisions of paragraphs 2.c) and 2.d). 2.c) Notwithstanding the calculation of profit sharing payments set forth in paragraph 2.b): (i) at the end of each Agway fiscal quarter, a year-to-date calculation will be performed to determine Nitrogen Unit I Operating Profitability. If year-to-date results indicate a Net Operating Loss for Nitrogen Unit I, then no profit sharing payment shall be due or payable for that quarter. (ii) if payment of a profit sharing payment to Planet Polymer would result in Planet Polymer receiving an amount that is greater than Nitrogen Unit I's Pre-Tax Net Income, then the profit sharing payment shall be equal to one-half of the Nitrogen Unit I Pre-Tax Earnings Before Profit Sharing (before taking into account any profit sharing payment). (iii) in the event that the quarterly payment of the profit sharing payment to Planet Polymer as calculated in paragraph 2.b), would, if made, result in an Agway's Division, CPG Nutrients, or any of its successors Net Operating Loss for that quarter, then the profit sharing payment shall be equal to one-half of the Pre-Tax Earnings Before Profit Sharing (before taking into account any profit sharing payment) of Agway's Division, CPG Nutrients, or any of its successors. Any and all profit sharing payments calculated under this paragraph 2.c) are and shall be subject to the further provisions of 2.d). 2.d) The profit sharing payment calculations set forth in each of paragraphs 2.b) and 2.c) above, are subject to and shall be reduced by [...***...], which is [...***...] of the fiscal year 1999 Nitrogen Unit I adjusted Net Operating Loss (less CPG Nutrients' Agrium expenditures), provided that such reductions shall not exceed [...***...] (based on Agway's fiscal year: July 1 - June 30). * CONFIDENTIAL TREATMENT REQUESTED 4 5 3. If Product profit sharing payments do not equal at least [...***...] for the second full fiscal year, and at least [...***...] for the third full fiscal year following market introduction of the Product in the Market Area, Planet may, at its option, give written notice to Agway, within 60 days following the end of the respective fiscal year, that it may elect to terminate the licenses to Agway covering this particular Product in this particular Market Area, if Agway does not reach the aforesaid minimum for the immediately following fiscal year. If profit sharing payments for this Product in this Market Area do not equal at least the aforesaid minimum during such following fiscal year and Agway's Division, CPG Nutrients, or any of it's successors, shall not have made up any deficiency, Planet shall have the option of terminating the licenses to Agway for this Product in this Market Area upon 60 days prior written notice. 4. The profit sharing payment of paragraph 2 above shall be calculated and become due as of the end of each fiscal quarter, and payable within 30 days thereafter. With each such payment, Agway's Division, CPG Nutrients, or any of its successors shall furnish Planet a report in sufficient detail to permit confirmation of the accuracy of the profit sharing payment made, including without limitation, the sales of this Product in this Market Area during the fiscal quarter being reported, the profit sharing payment in United States dollars, the method used to calculate the profit sharing payment and the exchange rate used. 5. In the event that any payment, including profit sharing payments, due hereunder is not made when due, the payment shall accrue interest from that date due at the rate of 1.5% per month; provided however, that in no event shall such rate exceed the maximum legal annual interest rate. The payment of such interest shall not limit Planet from exercising any other rights it may have as a consequence of the lateness of any payment. 6. All payments due Planet under this sub-agreement shall be paid in United States dollars, free of taxes payable in any foreign country, except for such taxes as result in, and to the extent that the same do result in foreign tax credit applicable to the United States taxes payable by Planet. 7. With respect to each quarter, for countries other than the United States, whenever conversion of payments from any foreign currency shall be required, such conversion shall be made at the rate of exchange reported in The Wall Street Journal on the last business day of the applicable reporting period. All payments owed under this Agreement shall be made by wire transfer to a bank account designated by Planet, unless otherwise specified in writing by Planet. 8 Agway and its affiliates shall keep accurate books and records as reasonably needed for determination of profit sharing payments due under paragraph 2 above. Such books and records shall be maintained for a period of at least three years from the expiration of the profit sharing payment period being reported on. * CONFIDENTIAL TREATMENT REQUESTED 5 6 9. Not more than once in each fiscal year, Planet may have the books and records of Agway's Division, CPG Nutrients, or any of its successors audited by an independent CPA reasonably acceptable to Agway, to the extent necessary to verify the correctness of any profit sharing payment report furnished under this Agreement. Such independent CPA shall keep all information received in connection with any such audit confidential, and shall report to Planet and Agway only the accuracy of and/or any deficiencies in any such profit sharing payment report. The fee for such independent CPA shall be paid by Planet, unless such audit results in an upward adjustment of profit sharing payments due Planet by more than 5% of the amount due under this Agreement. In such case, Agway shall pay the full cost of such audit. In any event, Agway shall pay any underpayment with interest in accordance with paragraph 5 above. 10. This Sub-agreement shall be part of the License Agreement entered into between Agway and Planet effective the 12th day of November, 1998, and incorporates all the terms thereof to the extent they are not inconsistent herewith. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above mentioned. AGWAY, INC. By:________________________________ As:________________________________ PLANET POLYMER TECHNOLOGIES, INC. By:________________________________ As:________________________________ 6 EX-11.1 3 EXHIBIT 11.1 1 PLANET POLYMER TECHNOLOGIES, INC. EXHIBIT 11.1 STATEMENT OF COMPUTATION OF COMMON AND COMMON EQUIVALENT SHARES AS OF SEPTEMBER 30, 1999
Three months ended Nine months ended September 30, September 30, ------------------------ ------------------------ 1999 1998 1999 1998 --------- --------- --------- --------- Shares outstanding at beginning of period 5,300,144 5,300,144 5,300,144 5,300,144 10,169 shares issued on March 15, 1998 10,169 10,169 10,169 7,413 8,695 shares issued on June 15, 1998 8,695 8,695 8,695 3,408 13,483 shares issued on September 15, 1998 13,483 2,198 13,483 740 8,571 shares issued on December 15, 1998 8,571 -- 8,571 -- --------- --------- --------- --------- Weighted average number of shares 5,341,062 5,321,206 5,341,062 5,311,705 ========= ========= 1,000,000 shares issued on January 11, 1999 1,000,000 959,707 9,677 shares issued on March 15, 1999 9,677 7,054 5,000 shares issued on March 30, 1999 5,000 3,370 9,677 shares issued on June 15, 1999 9,677 3,793 5,106 shares issued on September 15, 1999 833 281 --------- --------- Weighted average number of shares 6,366,249 6,315,267 ========= =========
EX-27.1 4 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S UNAUDITED SEPTEMBER 30, 1999 BALANCE SHEET AND STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS AS FILED IN THE COMPANY'S FORM 10-QSB FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999. 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 375,206 0 342,515 (10,000) 200,518 968,821 1,680,463 (959,174) 2,571,092 273,085 0 0 0 11,911,143 (10,591,816) 2,571,092 1,440,779 1,440,779 1,241,395 1,241,395 1,011,234 0 4,185 (690,497) (9,407) (699,904) 0 0 0 (699,904) (0.11) (0.11)
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