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 March 31, 1998 [ ] 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 March 31, 1998 ----- ----------------------------- Common Stock, no par value 5,310,313 2 PLANET POLYMER TECHNOLOGIES, INC. FORM 10-QSB QUARTERLY REPORT QUARTER ENDED MARCH 31, 1998 INDEX PAGE NO. -------- PART I - FINANCIAL INFORMATION Item 1 Consolidated Balance Sheet (Unaudited) March 31, 1998 2 Consolidated Statements of Operations (Unaudited) Three Months Ended March 31, 1998 and 1997 3 Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 1998 and 1997 4 Consolidated Statement of Shareholders' Equity (Unaudited) Three Months Ended March 31, 1998 5 Notes to Unaudited Consolidated Financial Statements 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II - OTHER INFORMATION Item 1 Legal Proceedings 10 Item 2 Changes in Securities 10 Item 3 Defaults upon Senior Securities 10 Item 4 Submission of Matters to a Vote of Security Holders 10 Item 5 Other Information 10 Item 6 Exhibits and Reports on Form 8K 10 SIGNATURES 11 3 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET --------------- MARCH 31, ASSETS 1998 ------------ Current assets: Cash and cash equivalents $ 1,284,445 Accounts receivable, net of allowance for doubtful accounts of $10,000 355,431 Inventories, net 398,601 Prepaid expenses 72,301 Deferred income taxes 16,014 ------------ Total current assets 2,126,792 Restricted cash 108,277 Property, plant and equipment, net 805,408 Goodwill, net 568,020 Patents and other, net 327,140 ------------ Total assets $ 3,935,637 ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 192,819 Notes payable 94,077 ------------ Total current liabilities 286,896 Other liabilities 365,144 Deferred income taxes 9,721 ------------ Total liabilities 661,761 ------------ Shareholders' equity: Preferred Stock, no par value Authorized shares 4,250,000 No shares issued or outstanding -- Series A Convertible Preferred Stock, no par value Authorized shares 750,000 Issued and outstanding 500,000 804,435 Liquidation preference $2 per share Common Stock, no par value Authorized shares 20,000,000 Issued and outstanding 5,310,313 10,955,966 Accumulated deficit (8,486,525) ------------ Total shareholders' equity 3,273,876 ------------ Total liabilities and shareholders' equity $ 3,935,637 ============ The accompanying notes are an integral part of the consolidated financial statements. 2 4 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS --------------- THREE MONTHS ENDED MARCH 31, ------------------------------- 1998 1997 ----------- ----------- Sales $ 589,806 $ 871,855 Cost of sales 511,397 650,446 ----------- ----------- Gross profit 78,409 221,409 ----------- ----------- Operating expenses: General and administrative 227,839 250,512 Marketing 58,694 186,352 Research and development, net 112,364 106,352 ----------- ----------- Total operating expenses 398,897 543,216 ----------- ----------- Loss from operations (320,488) (321,807) Other income, net 10,899 21,676 ----------- ----------- Loss before income taxes (309,589) (300,131) Income taxes 3,568 15,067 ----------- ----------- Net loss $ (313,157) $ (315,198) =========== =========== Loss per share (Basic and Diluted) $ (0.06) $ (0.06) =========== =========== Shares used in per share computations 5,302,206 5,271,269 =========== =========== The accompanying notes are an integral part of the consolidated financial statements. 3 5 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS --------------- THREE MONTHS ENDED MARCH 31, ------------------------------- 1998 1997 ----------- ----------- Cash flows from operating activities: Net loss $ (313,157) $ (315,198) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 52,178 41,367 Gain on disposal of assets -- (375) Changes in assets and liabilities: Accounts receivable 30,626 (14,752) Inventories, net 43,832 46,877 Prepaid expenses 11,457 (784) Other assets 6,239 4,655 Accounts payable and accrued expenses (10,038) (117,939) ----------- ----------- Net cash used by operating activities (178,863) (356,149) ----------- ----------- Cash flows from investing activities: Purchases of property and equipment (25,134) (621) Proceeds from the sale of property and equipment -- 3,000 Cost of patents and other (5,542) (4,260) ----------- ----------- Net cash used by investing activities (30,676) (1,881) ----------- ----------- Cash flows from financing activities: Payments on short-term borrowings -- (26,229) Payments on long-term debt (22,421) -- ----------- ----------- Net cash used by financing activities (22,421) (26,229) ----------- ----------- Net decrease in cash and cash equivalents (231,960) (384,259) Cash and cash equivalents at beginning of period 1,516,405 1,640,392 ----------- ----------- Cash and cash equivalents at end of period $ 1,284,445 $ 1,256,133 =========== =========== Supplemental disclosure of non-cash activity: Issuance of Common Stock dividend on Preferred Stock $ 14,999 $ -- 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 --------------- SERIES A PREFERRED STOCK COMMON STOCK -------------------------- -------------------------- ACCUMULATED SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL ----------- ----------- ----------- ----------- ----------- ----------- Balance at December 31, 1997 500,000 $ 804,435 5,300,144 $10,940,967 $(8,158,369) $ 3,587,033 Issuance of Common Stock as a dividend on Convertible Preferred Stock -- -- 10,169 14,999 (14,999) -- Net loss for the three months ended March 31, 1998 -- -- -- -- (313,157) (313,157) ----------- ----------- ----------- ----------- ----------- ----------- Balance at March 31, 1998 500,000 $ 804,435 5,310,313 $10,955,966 $(8,486,525) $ 3,273,876 =========== =========== =========== =========== =========== =========== The accompanying notes are an integral part of the consolidated financial statements. 5 7 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 month period ended March 31, 1998 are not necessarily indicative of results that may be expected for the year ending December 31, 1998. For additional information, refer to the Company's financial statements and notes thereto for the year ended December 31, 1997 contained in the Company's Form 10-KSB for the fiscal year ended December 31, 1997. Certain items shown in the March 31, 1997 financial statements have been reclassified to conform with the current period presentation. 2. Shareholders' Equity On March 15, 1998 the Company issued to the holder of Series A Preferred Stock a dividend of 10,169 shares of Common Stock valued at approximately $14,999. 3. Stock Option Plan On February 13, 1998, the Company's Board of Directors granted incentive stock options to purchase 5,000 shares of Common Stock at an exercise price of $1.875 per share to an employee under the 1995 Stock Option Plan. These options were fully vested as of the date of grant and expire on February 12, 2008. As of March 31, 1998, none of these options have been exercised. 6 8 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 those discussed below and in the Company's Form 10-KSB for the fiscal year ended December 31, 1997. OVERVIEW Planet Polymer Technologies, Inc. (the "Company" or "Planet") is a specialty chemical Company that designs, develops, manufactures and markets degradable and recycled polymer materials. The Company's proprietary polymer materials, which are marketed under the trademarks EnviroPlastic(R) and Aquadro(TM), can be used to produce films, coatings and injection molded parts that serve as environmentally compatible alternatives to conventional plastics. The Company 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 EnviroPlastic(R) and Aquadro(TM) technologies and products. Deltco is a manufacturer and reprocessor of thermoplastic scrap resins and is 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 continues to focus on commercializing its EnviroPlastic(R) and Aquadro(TM) technologies and growing Deltco's manufacturing business. The Company expects that research and development and marketing expenses may increase significantly in the future as the Company's products are commercialized and continued efforts are focused on Deltco's resins. The Company does not expect that general and administrative expenses will increase significantly in the next three months. Planet has incurred operating losses since its inception and has an accumulated deficit of approximately $8.5 million as of March 31, 1998. The Company expects to incur additional losses for the foreseeable future. RESULTS OF OPERATIONS Revenue The Company's revenues decreased from approximately $872,000 for the three months ended March 31, 1997 to approximately $590,000 for the three months ended March 31, 1998. This decrease was primarily attributed to declines in both sales volume and sales price of approximately 14% and 13%, respectively, for Deltco's recycled polypropylene due to price decreases in virgin polypropylene. Since Deltco's recycled polypropylene is generally a lower cost substitute for virgin polypropylene such price decreases lessened demand for Deltco's recycled material. The price decreases in virgin polypropylene were substantially related to the low cost of oil and a decrease in demand for polypropylene in Asia. 7 9 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 Cost of sales decreased from approximately $650,000 for the three months ended March 31, 1997 to approximately $511,000 for the three months ended March 31, 1998. The decrease was primarily attributable to lower sales volume at Deltco offset by increased raw material costs. The increased cost of raw materials was primarily attributable to price increases from Deltco's preferred supplier of scrap plastic. The Company expects that such price increases will continue for the foreseeable future. General and Administrative Expenses General and administrative expenses decreased from approximately $251,000 for the three months ended March 31, 1997 to approximately $228,000 for the three months ended March 31, 1998. This decrease was primarily attributable to decreased costs of outside services and a reduction in personnel. Marketing Expenses Marketing expenses decreased from approximately $186,000 for the three months ended March 31, 1997 to approximately $59,000 for the three months ended March 31, 1998. This decrease was primarily attributable to the reduction of outside services, sales and marketing personnel and international travel expenditures offset by increased marketing efforts in North America. Research and Development Expenses, Net The Company's net research and development expenses increased from approximately $106,000 for the three months ended March 31, 1997 to approximately $112,000 for the three months ended March 31, 1998. This increase was primarily due to the increased use of outside resin processors and outside testing facilities, offset by higher research and development revenue at Planet. Additionally, 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. 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 ("IPO") 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 has one outstanding debt agreement related to a Small Business Administration loan collateralized by a certificate of deposit and inventory at Deltco. As of March 31, 1998 the loan balance was approximately $161,000. The Company has no material commitments for capital expenditures, but anticipates expenditures in the second quarter of 1998 of approximately $35,000 to update its computer software to enable it to operate in years subsequent to 1999. The Company used approximately $179,000 for operations for the three months ended March 31, 1998. Such funds were used for research and development activities, marketing efforts and administrative support. The Company used approximately $31,000 for investing activities for the three months ended March 31, 1998. Such funds were used for the preparation of patents and for the purchase of equipment. The Company used approximately $22,000 for the repayment of debt for the three months ended March 31, 1998. 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 April 1999. 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 continue its current and planned operations and 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. 9 11 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: None Item 5 -Other Information: None 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 10 12 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: May 6, 1998 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) 11