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 June 30, 1997 [ ] 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 Ave., Suite A, San Diego, California 92131 (Address of principal executive offices) (Zip Code) (619) 549-5130 (Issuer's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [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 August 1, 1997 ----- ----------------------------- Common Stock, no par value 5,271,270 2 PLANET POLYMER TECHNOLOGIES, INC. FORM 10-QSB QUARTERLY REPORT QUARTER ENDED JUNE 30, 1997 INDEX PAGE NO. -------- PART I - FINANCIAL INFORMATION Item 1 Consolidated Balance Sheet (Unaudited) June 30, 1997 2 Consolidated Statements of Operations (Unaudited) Three Months Ended June 30, 1997 and 1996 3 Consolidated Statements of Operations (Unaudited) Six Months Ended June 30, 1997 and 1996 4 Consolidated Statements of Cash Flows (Unaudited) Six Months Ended June 30, 1997 and 1996 5 Consolidated Statement of Shareholders' Equity (Unaudited) Six Months Ended June 30, 1997 6 Notes to Unaudited Consolidated Financial Statements 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II - OTHER INFORMATION Item 1 Legal Proceedings 11 Item 2 Changes in Securities 11 Item 3 Defaults upon Senior Securities 11 Item 4 Submission of Matters to a Vote of Security Holders 11 Item 5 Other Information 11 Item 6 Exhibits and Reports on Form 8K 12 SIGNATURES 13 3 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET JUNE 30, 1997 (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 1,276,236 Accounts receivable 568,050 Inventories 285,654 Prepaid expenses and other receivables 35,332 Deferred income taxes 13,913 ------------ Total current assets 2,179,185 Property and equipment, net 858,959 Goodwill, net 592,020 Patents and other, net 338,911 ------------ Total assets $ 3,969,075 ============ LIABILITIES & SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 261,801 Notes payable 285,059 ------------ Total current liabilities 546,860 Other liabilities 300,555 Deferred income taxes 14,334 ------------ Total liabilities 861,749 ------------ Shareholders' equity: Preferred Stock, no par value, 5,000,000 shares authorized, no shares outstanding -- Common Stock, no par value, 20,000,000 shares authorized, 5,271,270 shares issued & outstanding 10,711,412 Accumulated deficit (7,604,086) ------------ Total shareholders' equity 3,107,326 ------------ Total liabilities and shareholders' equity $ 3,969,075 ============ 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 June 30, ---------------------------- 1997 1996 ----------- ----------- Development revenue $ 64,199 $ 102,680 Product sales 868,402 851,398 ----------- ----------- Total revenue 932,601 954,078 Cost of sales 612,954 547,432 ----------- ----------- 319,647 406,646 ----------- ----------- Operating expenses: General and administrative 290,950 227,908 Marketing 7,765 307,728 Research and development 135,066 222,425 ----------- ----------- Total operating expenses 433,781 758,061 ----------- ----------- Loss from operations (114,134) (351,415) Other income, net 8,973 17,809 ----------- ----------- Loss before income taxes (105,161) (333,606) Income taxes 14,027 -- ----------- ----------- Net loss $ (119,188) $ (333,606) =========== =========== Net loss per share $ (0.02) $ (0.06) =========== =========== Shares used in per share computations 5,271,270 5,260,664 =========== =========== 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) Six Months Ended June 30, ---------------------------- 1997 1996 ----------- ----------- Development revenue $ 83,206 $ 125,950 Product sales 1,740,257 1,522,922 ----------- ----------- Total revenue 1,823,463 1,648,872 Cost of sales 1,235,992 971,134 ----------- ----------- 587,471 677,738 ----------- ----------- Operating expenses: General and administrative 568,870 1,159,628 Marketing 194,117 636,192 Research and development 260,425 438,261 ----------- ----------- Total operating expenses 1,023,412 2,234,081 ----------- ----------- Loss from operations (435,941) (1,556,343) Other income, net 30,649 49,649 ----------- ----------- Loss before income taxes (405,292) (1,506,694) Income taxes 29,094 -- ----------- ----------- Net loss $ (434,386) $(1,506,694) =========== =========== Net loss per share $ (0.08) $ (0.29) =========== =========== Shares used in per share computations 5,271,270 5,260,664 =========== =========== The accompanying notes are an integral part of the consolidated financial statements. 4 6 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended June 30, ---------------------------- 1997 1996 ----------- ----------- Cash flows from operating activities: Net loss $ (434,386) $(1,506,694) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 85,959 125,620 Compensation expense - non cash (62,667) 478,491 Gain on disposal of assets (375) -- Change in assets and liabilities, net of effects of acquisition: Accounts receivable 103,716 (212,902) Inventories 83,921 (5,512) Prepaid expenses and other assets 20,927 41,140 Accounts payable and accrued expenses (105,159) (395,268) ----------- ----------- Net cash used by operating activities (308,064) (1,475,125) ----------- ----------- Cash flow from investing activities: Purchases of property and equipment (621) (32,821) Proceeds from the sale of property and equipment 3,000 -- Cost of patents, licenses and trademarks (9,536) (12,597) Acquisition of subsidiary, net of cash acquired -- (803,945) Purchases of investments, net -- (173,328) ----------- ----------- Net cash used by investing activities (7,157) (1,022,691) ----------- ----------- Cash flow from financing activities: Payments on note payable -- (20,834) Payments on short-term borrowings (48,935) (40,918) ----------- ----------- Net cash used by financing activities (48,935) (61,752) ----------- ----------- Net decrease in cash and cash equivalents (364,156) (2,559,568) Cash and cash equivalents at beginning of period 1,640,392 3,257,471 ----------- ----------- Cash and cash equivalents at end of period $ 1,276,236 $ 697,903 =========== =========== Supplemental disclosure of non-cash activity: Stock options granted to a consultant $ 704 $ 478,491 Restricted Common Stock issued in connection with acquisition -- 508,069 The accompanying notes are an integral part of the consolidated financial statements. 5 7 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) Common Stock ----------------------------- Accumulated Shares Amount Deficit Total ------------ ------------ ------------ ------------ Balance at December 31, 1996 5,271,270 $ 10,774,783 $ (7,169,700) $ 3,605,083 Revision of Common Stock issuance estimate -- (63,371) -- (63,371) Net loss for the six months ended June 30, 1997 -- -- (434,386) (434,386) ------------ ------------ ------------ ------------ Balance at June 30, 1997 5,271,270 $ 10,711,412 $ (7,604,086) $ 3,107,326 ============ ============ ============ ============ 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 financial statements of Planet Polymer Technologies, Inc. (the "Company" or "Planet") 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 three and six month periods ended June 30, 1997 are not necessarily indicative of results that may be expected for the year ending December 31, 1997. For additional information, refer to the Company's financial statements and notes thereto for the year ended December 31, 1996 contained in the Company's Form 10-KSB for the fiscal year ended December 31, 1996. 2. Recent Accounting Pronouncements In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement Accounting Standards No. 128 "Earnings per Share" ("SFAS No. 128"). SFAS No. 128 requires dual presentation of newly defined basic and diluted earnings per share on the face of the income statement for all entities with complex capital structures. The accounting standard is effective for fiscal years ending after December 15, 1997, including interim periods. The Company does not believe that the adoption of SFAS No. 128 will have a material impact on the computation of its earnings per share in future periods. 3. Shareholders' Equity On February 5, 1997, a previously granted incentive stock option to purchase 5,000 shares of Common Stock was terminated in accordance with its terms. On February 6, 1997, a previously granted incentive stock option to purchase 5,000 shares of Common Stock was terminated in accordance with its terms. On May 1, 1997, a previously granted incentive stock option to purchase 25,000 shares of Common Stock was terminated in accordance with its terms. On April 11, 1997, the Company's Board of Directors granted incentive stock options to purchase 10,000 shares of Common Stock at an exercise price of $2.50 per share to employees under the 1995 Stock Option Plan. These options were fully vested as of the date of grant and expire on April 11, 2007. As of June 30, 1997, none of these options have been exercised. On May 22, 1997, the Company's Board of Directors granted non-statutory stock options to purchase 10,000 shares of Common Stock at an exercise price of $3.00 per share to an outside consultant of the Company. These options vest ratably over the one-year term of the agreement and expire on May 22, 2007. In connection with this transaction, the Company recorded a charge to income, for the six months ended June 30, 1997, of approximately $704, based on the Black Scholes option-pricing model. As of June 30, 1997, none of these options have been exercised. 7 9 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 discussions in this report contain 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, the development of new products, market acceptance of new products, general economic conditions and the availability of additional financing, as well as those discussed in the Company's Form 10-KSB for the fiscal year ended December 31, 1996 in "Item 1 Description of Business," including the section therein entitled "Risk Factors," and "Item 6 - Management's Discussion and Analysis of Financial Condition and Results of Operations." Overview Planet Polymer Technologies, Inc. (the "Company" or "Planet") emerged from the development stage as a result of its acquisition of Deltco of Wisconsin, Inc., a Wisconsin corporation ("Deltco"), effective January 1, 1996. Prior to this acquisition, substantially all of the Company's resources had been devoted to the development and commercialization of its seven Enviroplastic technologies and products. Deltco is a manufacturer and reprocessor of thermoplastic scrap resins located in Ashland, Wisconsin. The Company maintains Deltco as a wholly owned subsidiary, and uses its plant, equipment and other physical property in the manner in which it was used prior to the acquisition. The Company plans to leverage its Enviroplastic technologies and sales and marketing expertise with Deltco's manufacturing experience. The Company is actively seeking to reduce costs such that general and administrative and marketing expenses are not expected to increase in the next three months. Notwithstanding the decrease in research and development expenses experienced during the first six months of 1997, the Company expects that research and development expenses may increase significantly in the future as the Company's products are commercialized and continued efforts are focused on Deltco's resins. Planet has incurred operating losses since inception and had an accumulated deficit at June 30, 1997 of approximately $7.6 million. The Company expects to incur additional losses for the foreseeable future. Results of Operations The Company's revenues decreased from approximately $954,000 for the three months ended June 30, 1996 to approximately $933,000 for the three months ended June 30, 1997 and increased from approximately $1,649,000 for the six months ended June 30, 1996 to approximately $1,823,000 for the six months ended June 30, 1997. These were primarily attributable to increased sales volume at Deltco offset by decreased research and development revenue at Planet. In addition, Planet continued to focus on internally-funded, rather than customer-funded product development. The Company will continue to participate in customer-funded development when appropriate, but believes internally-funded development is advantageous as to certain technologies and applications. 8 10 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 increased from approximately $547,000 for the three months ended June 30, 1996 to approximately $613,000 for the three months ended June 30, 1997 and from approximately $971,000 for the six months ended June 30, 1996 to approximately $1,236,000 for the six months ended June 30, 1997. The increase was primarily attributable to higher sales at Deltco at lower margins resulting from increases in the cost of raw materials and increases in personnel costs. General and administrative expenses increased from approximately $228,000 for the three months ended June 30, 1996 to approximately $291,000 for the three months ended June 30, 1997 and decreased from approximately $1,160,000 for the six months ended June 30, 1996 to approximately $569,000 for the six months ended June 30, 1997. This was primarily attributable to a $592,000 one time, non-cash compensation expense for the fair value of options granted to an outside consultant during the three months ended March 31, 1996 which was revised downward by approximately $114,000 during the three months ended June 30, 1996. The Company also incurred certain costs associated with the acquisition of Deltco during 1996. In addition, the Company reduced the costs of outside services and general and administrative staff as a result of various cost reduction programs initiated by the Company during 1997. Marketing expenses decreased from approximately $308,000 for the three months ended June 30, 1996 to approximately $8,000 for the three months ended June 30, 1997 and from approximately $636,000 for the six months ended June 30, 1996 to approximately $194,000 for the six months ended June 30, 1997. These decreases were primarily due to reductions in sales and marketing personnel, the reduction of outside services and the reduction in international travel expenditures while increasing marketing efforts in North America. In addition, during the three months ended June 30, 1997 there was a downward revision of approximately $63,000 to the December 31, 1996 estimated non-cash incentive compensation expense for the fair value of stock granted to the president of Deltco. Research and development expenses decreased from approximately $222,000 for the three months ended June 30, 1996 to approximately $135,000 for the three months ended June 30, 1997 and from approximately $438,000 for the six months ended June 30, 1996 to approximately $260,000 for the six months ended June 30, 1997. These decreases were due primarily to lower research and development revenue at Planet, the decreased use of outside resin processors and a reduction in pilot plant operations staff offset by the addition of a scientist during the three months ended June 30, 1996. Deltco recently received a request for bid from its preferred supplier of scrap plastic. Although the Company doesn't expect any change in Deltco's supply of scrap plastic, such a change, if it occurs, could result in substantial short-term increases in costs resulting from the selection of a replacement supplier. Additional information can be found in the Company's Form 10-KSB for the fiscal year ended December 31, 1996, including sections therein entitled "Item 1 - Description of Business - Manufacturing and Suppliers" and " - Risk Factors - Availability of Raw Materials." 9 11 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) PLANET POLYMER TECHNOLOGIES, INC. Liquidity and Capital Resources Since its inception, Planet has financed its operations primarily through the sale of equity securities and revenue from customer development agreements. The Company has raised approximately $4 million (net of issuance costs) from the private sale of Common Stock. In September 1995, the Company completed its initial public offering in which it sold an aggregate of 1,150,000 shares of Common Stock and received net proceeds of approximately $5.6 million. In January 1996, the Company used $1,125,000 in cash and issued 96,775 shares of restricted Common Stock valued at approximately $508,000 to acquire Deltco in a purchase transaction. In connection with the purchase, the Company now has one outstanding debt agreement related to a Small Business Administration loan collateralized by Deltco. As of June 30, 1997 the loan balance was approximately $224,000. The Company has no material commitments for capital expenditures. The Company used approximately $308,000 for operations for the six months ended June 30, 1997. Such funds were used for research and development activities, marketing efforts and administrative support. The Company used approximately $7,000 for investing activities for the six months ended June 30, 1997. Such funds were used for the preparation and filing of patents offset by proceeds from the sale of property and equipment. The Company used approximately $49,000 for the repayment of debt for the six months ended June 30, 1997. The Company believes that its existing sources of liquidity and anticipated revenue, including revenues generated from Deltco, will satisfy the Company's projected working capital and other cash requirements through at least December, 1997. There can be no assurance, however, that changes in the Company's plans or other events affecting the Company's operating expenses will not result in the expenditure of such resources before such time. The Company expects that it will need to raise substantial additional funds to establish large-scale manufacturing capabilities. 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. 10 12 PART II - OTHER INFORMATION PLANET POLYMER TECHNOLOGIES, INC. Item 1 - Legal Proceedings: None Item 2 - Changes in Securities: None Item 3 - Defaults upon Senior Securities: None Item 4 - Submission of Matters to a Vote of Security Holders. The Annual Meeting of Shareholders of Planet Polymer Technologies, Inc. (the "Annual Meeting") was held on May 22, 1997 in San Diego, California. Proposal 1 - Election of Directors Each of the candidates listed below were duly elected to the Board of Directors at the Annual Meeting by the tally indicated. Candidate Votes in Favor Votes Witheld --------- -------------- ------------- Robert J. Petcavich, Ph.D. 4,192,051 102,078 Michael V. Pundeff 4,190,951 103,178 Michael M. Coleman, Ph.D. 4,191,651 102,478 Proposal 2 - Ratification of Selection of Independent Auditors Votes in Favor Votes Against Votes Abstained -------------- ------------- --------------- 4,277,767 8,850 7,325 Item 5 - Other Information: None 11 13 Item 6 - Exhibits and Reports on Form 8-K: (a) Exhibits. Exhibit Number Description -------------- ----------- 10.11(1) Technology Development and License Agreement, dated January 30, 1995 between the Company and Cominco Fertilizers, Ltd. 10.12 Fourth Amendment to Lease, dated August 1, 1997, between the Company and Trustees Under the Will and of the Estate of James Campbell 27.1 Financial Data Schedule (b) Reports on Form 8-K: None - --------------------- (1) Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions will be filed separately with the Securities and Exchange Commission. 12 14 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: August 11, 1997 Planet Polymer Technologies, Inc. /S/ ROBERT J. PETCAVICH ----------------------------------- President, Chief Executive Officer and Director (On behalf of Registrant and as Registrant's Principal Financial and Accounting Officer) 13