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