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, 2001 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 Commission File Number: 0-26804 PLANET POLYMER TECHNOLOGIES, INC. ------------------------------------------------------------------------ (Exact name of small business issuer as specified in its character) CALIFORNIA 33-0502606 ------------------------------------------------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 9985 Businesspark Avenue, San Diego, California 92131 ------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (858) 549-5130 ------------------------------------------------------------------------ (Issuer's telephone number, including area code) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] YES [ ] NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Class Outstanding at March 31, 2001 ----- ----------------------------- Common Stock, no par value 9,080,883 2 PLANET POLYMER TECHNOLOGIES, INC. FORM 10-QSB QUARTERLY REPORT QUARTER ENDED MARCH 31, 2001 INDEX PAGE NO. -------- PART I - FINANCIAL INFORMATION Item 1 Balance Sheet (Unaudited) March 31, 2001 2 Statements of Operations (Unaudited) Three Months Ended March 31, 2001 and 2000 3 Statement of Shareholders' Equity (Unaudited) Three Months Ended March 31, 2001 4 Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2001 and 2000 5 Notes to Unaudited Financial Statements 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 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. BALANCE SHEET (UNAUDITED) --------------- MARCH 31, 2001 ------------ ASSETS Current assets: Cash and cash equivalents $ 632,510 Accounts receivable 81,089 Inventories 102,651 Prepaid expenses 47,194 Current portion of note receivable 7,519 ------------ Total current assets 870,963 Property and equipment, net of accumulated depreciation of $278,730 180,321 Patents and trademarks, net of accumulated amortization of $128,498 386,212 Note receivable, less current portion 83,888 Other assets 6,613 ------------ Total assets $ 1,527,997 ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 49,962 Accrued payroll and vacation 44,587 Other accrued expenses 5,350 Current portion of capital lease obligations 10,746 ------------ Total current liabilities 110,645 Capital lease obligations, less current portion 5,573 ------------ Total liabilities 116,218 ------------ 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 No shares issued or outstanding -- Common Stock, no par value 20,000,000 shares authorized 9,080,883 shares issued and outstanding 14,542,902 Accumulated deficit (13,131,123) ------------ Total shareholders' equity 1,411,779 ------------ Total liabilities and shareholders' equity $ 1,527,997 ============ The accompanying notes are an integral part of the financial statements. 2 4 PLANET POLYMER TECHNOLOGIES, INC. STATEMENTS OF OPERATIONS (UNAUDITED) --------------- THREE MONTHS ENDED MARCH 31, ----------------------------- 2001 2000 ----------- ----------- Revenues $ 89,121 $ 233,372 Operating expenses: Cost of revenues 72,297 188,705 General and administrative 223,382 245,229 Marketing 80,460 42,154 Research and development 163,335 63,140 ----------- ----------- Total operating expenses 539,474 539,228 ----------- ----------- Loss from operations (450,353) (305,856) Other income (expense), net 13,049 14,938 ----------- ----------- Loss before income taxes (437,304) (290,918) Income tax expense (800) (800) ----------- ----------- Net loss (438,104) (291,718) Preferred Stock dividends (10,450) (11,936) ----------- ----------- Net loss applicable to common shareholders $ (448,554) $ (303,654) =========== =========== Net loss per share applicable to common shareholders (basic and diluted) $ (0.05) $ (0.04) ----------- ----------- Shares used in per share computations 8,722,651 7,135,026 =========== =========== The accompanying notes are an integral part of the financial statements. 3 5 PLANET POLYMER TECHNOLOGIES, INC. STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) --------------- SERIES A PREFERRED STOCK COMMON STOCK ------------------------ ------------------------ ACCUMULATED SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL -------- --------- --------- ----------- ------------ ----------- Balance at December 31, 2000 321,500 $ 517,251 8,680,494 $14,008,901 $(12,682,569) $ 1,843,583 Conversion of Series A Preferred Stock into Common Stock (321,500) (517,251) 378,235 517,251 -- -- Issuance of Common Stock for services -- -- 8,400 6,300 -- 6,300 Issuance of Common Stock as a dividend on Convertible Preferred Stock -- -- 13,754 10,450 (10,450) -- Net loss for the three months ended March 31, 2001 -- -- -- -- (438,104) (438,104) -------- --------- --------- ----------- ------------ ----------- Balance at March 31, 2001 -- $ -- 9,080,883 $14,542,902 $(13,131,123) $ 1,411,779 ======== ========= ========= =========== ============ =========== The accompanying notes are an integral part of the financial statements. 4 6 PLANET POLYMER TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS (UNAUDITED) --------------- THREE MONTHS ENDED MARCH 31, --------------------------- 2001 2000 ----------- ----------- Cash flows from operating activities: Net loss $ (438,104) $ (291,718) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 21,203 19,112 Gain on disposal of assets (25) -- Changes in assets and liabilities: Accounts receivable (23,981) 64,342 Inventories 16,094 (14,008) Prepaid expenses and other assets 7,285 9,318 Accounts payable and accrued expenses (24,796) (12,546) ----------- ----------- Net cash used by operating activities (442,324) (225,500) ----------- ----------- Cash flows from investing activities: Purchases of property and equipment (12,536) (2,898) Proceeds from the sale of property and equipment 25 -- Cost of patents and other (1,243) (16,949) Proceeds from the sale of subsidiary -- 814,639 Payments from note receivable 2,376 1,651 ----------- ----------- Net cash provided (used) by investing activities (11,378) 796,443 ----------- ----------- Cash flows from financing activities: Proceeds from issuance of Common Stock and exercise of warrants and stock options -- 500,500 Proceeds from issuance of warrants -- 2,500 Principal payments on borrowings and capital lease obligations (2,355) (1,650) Repayments to related party -- (53,916) ----------- ----------- Net cash provided (used) by financing activities (2,355) 447,434 ----------- ----------- Net increase (decrease) in cash and cash equivalents (456,057) 1,018,377 Cash and cash equivalents at beginning of period 1,088,567 355,645 ----------- ----------- Cash and cash equivalents at end of period $ 632,510 $ 1,374,022 =========== =========== Supplemental disclosure of non-cash activity: Issuance of Common Stock dividends on Preferred Stock $ 10,450 $ 11,936 Issuance of note receivable in connection with sale of subsidiary -- 100,000 Issuance of Common Stock for services 6,300 -- Conversion of Series A Preferred Stock into Common Stock 517,251 287,184 The accompanying notes are an integral part of the financial statements. 5 7 PLANET POLYMER TECHNOLOGIES, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS 1. Basis of Presentation In management's opinion, the accompanying unaudited financial statements of Planet Polymer Technologies, Inc. ("Planet" or the "Company") have been prepared in accordance with the interim reporting requirements of Form 10-QSB, pursuant to the rules and regulations of the Securities and Exchange Commission. However, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In management's opinion, all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2001 are not necessarily indicative of results that may be expected for the year ending December 31, 2001. For additional information, refer to the Company's consolidated financial statements and notes thereto for the year ended December 31, 2000 contained in the Company's Form 10-KSB for the fiscal year ended December 31, 2000. Earnings (loss) per share is computed using the weighted average number of shares of common stock outstanding and is presented for basic and diluted earnings (loss) per share. Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period increased to include, if dilutive, the number of additional common shares that would have been outstanding if the potential common shares had been issued. Dilutive potential common shares consist of the incremental common shares issuable upon conversion of convertible preferred stock (using the "if converted" method) and exercise of stock options and warrants (using the treasury stock method) for all periods. The Company has excluded all convertible preferred stock and outstanding stock options and warrants from the calculation of diluted loss per share for the three months ended March 31, 2001 and 2000 because all such securities are anti-dilutive for these periods. The total number of potential common shares excluded from the calculation of diluted loss per share for the three months ended March 31, 2001 and 2000 was 1,663,512 and 2,736,286, respectively. Certain prior period amounts have been reclassified to conform to the current period presentation. 2. Discontinued Operations On December 30, 1999, the Company and its wholly owned subsidiary, Deltco of Wisconsin, Inc. ("Deltco"), entered into a Stock Purchase Agreement (the "Purchase Agreement") with Daniel B. Mettler and Randy J. Larson (together, the "Buyers") whereby the Company agreed to sell and the Buyers agreed to purchase all of the outstanding shares of stock of Deltco for an aggregate purchase price of $1,000,000. The Buyers are management employees of Deltco. The sale of Deltco was finalized on January 7, 2000. The Company received $900,000 in cash and a secured promissory note in the amount of $100,000. This note is collateralized by all of the equipment, accounts, inventory, supplies and personal property now held or hereafter acquired by Deltco. 6 8 PLANET POLYMER TECHNOLOGIES, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS - (CONTINUED) 3. Shareholders' Equity The holder of the Series A Convertible Preferred Stock ("Series A Preferred") was entitled to receive quarterly dividends at an annual rate of 6% payable in shares of the Company's Common Stock. Each share of Series A Preferred was convertible at the option of the holder into shares of Common Stock of the Company. On March 22, 2001, 100,000 shares of Preferred Stock were converted into 117,647 shares of Common Stock. Additionally, on March 23, 2001, the remaining 221,500 shares of Preferred Stock were converted into 260,588 shares of Common Stock. On March 15, 2001, the Company issued a dividend of 11,690 shares of Common Stock valued at approximately $9,645. Additionally, on March 23, 2001, the Company issued a final dividend of 2,064 shares of Common Stock valued at approximately $805. 4. Commitments and Contingencies 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 ("collectively referred to as the "defendants"), 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. 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. In response to a motion filed by the Company, the arbitrator issued a ruling on May 1, 2000 disqualifying defendants' counsel based on a finding that said counsel had previously represented the Company in a related matter. As a result, the arbitration previously set for February 28, 2000 was rescheduled for September 11, 2000. However, the defendants filed a motion in San Diego Superior Court to vacate the arbitrator's order granting the Company's motion to disqualify defendants' counsel. On September 22, 2000, the Superior Court issued a telephonic ruling denying the defendants' motion to vacate. In response, the defendants requested oral argument. The Court held a hearing on October 27, 2000. On October 31, 2000, the Court issued its ruling denying defendants' motion to vacate. Defendants then appealed the Court's ruling to the Fourth District Court of Appeal. The Court subsequently dismissed the Defendants appeal. On March 16, 2001 the Court ordered the Defendant to obtain new counsel and proceed with arbitration. The Defendant recently complied with the Court's order and retained new counsel. On October 23, 2000, the Company filed a second action against Brian To, and his attorneys, for breach of an agreement between the parties, which would have resolved all issues. The Company is seeking to enforce the settlement agreement. Defendants responded to the complaint on February 5, 2001, with two motions to dismiss the complaint. The Company's opposition to these motions was filed on March 20, 2001. Defendants responded to the complaint on or about March 23, 2001. The motions have not yet been heard. The court has set a case management conference in this matter for June 8, 2001. In light of the limited discovery allowed in arbitration, it is difficult to evaluate defendants' claims. However, in the opinion of management, the ultimate resolution of the litigation is not expected to have a material effect on the Company's position or results of operations. 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 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, 2000. OVERVIEW Since Planet Polymer Technologies, Inc. ("Planet" or the "Company") was founded in 1991 substantially all of the Company's resources have been devoted to the development and commercialization of its technologies and products. This has included the expenditure of funds to develop the Company's corporate infrastructure, support the Company's marketing efforts and establish a pilot production facility, in addition to research and development. Planet has incurred operating losses since inception and had an accumulated deficit as of March 31, 2001 of approximately $13.1 million. Pending commercial deployment of and related volume orders for the Company's products, the Company expects to incur additional losses. RESULTS OF OPERATIONS On January 7, 2000, the Company sold all of its common stock shares of Deltco. In accordance with the Purchase Agreement, the Company received total proceeds of $1,000,000 in the form of $900,000 in cash and $100,000 in a secured promissory note in consideration of the sale of its Deltco common stock. This note is collateralized by all of the equipment, accounts, inventory, supplies and personal property now held or hereafter acquired by Deltco. The Company's revenues decreased from approximately $233,000 for the three months ended March 31, 2000 to approximately $89,000 for the same period in 2001. This decrease was attributable to lower EnviroPlastic(R) Z sales and lower Agway development income. Cost of revenues decreased from $189,000 for the three months ended March 31, 2000 to approximately $72,000 for the same period in 2001. This decrease was primarily due to decreased revenues. General and administrative expenses decreased from approximately $245,000 for the three months ended March 31, 2000 to approximately $223,000 for the same period in 2001. This decrease was primarily attributable to reduced use of outside services. This was partially offset by increased salaries resulting from the addition of a new Chief Executive Officer in October 2000 offset by fewer administrative staff and the reallocation of the former Chief Executive Officer's salary to research and development. Marketing expenses increased from approximately $42,000 for the three months ended March 31, 2000 to approximately $80,000 for the same period in 2001. This increase was primarily attributable to increased costs associated with the promotion of AQUAMIM(R), additional trade shows, the accrual of a bonus and the reallocation of the former Chief Executive Officer's salary to research and development. 8 10 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) PLANET POLYMER TECHNOLOGIES, INC. The Company's research and development expenses increased from approximately $63,000 for the three months ended March 31, 2000 to approximately $163,000 for the same period in 2001. This increase was primarily due to an increase in internal research and development, severance costs related to employee terminations, and the reallocation of the former Chief Executive Officer's salary. During 2000, the former Chief Executive Officer's salary was allocated equally between general and administrative expenses, marketing expenses and research and development expenses. Beginning in 2001, with the addition of the new Chief Executive Officer, his duties and salary are now entirely allocated to research and development. LIQUIDITY AND CAPITAL RESOURCES The Company used cash of approximately $442,000 for operations for the three months ended March 31, 2001. Such funds were used primarily for research and development activities, marketing efforts and administrative support. Net cash used for investing activities was approximately $11,000 for the three months ended March 31, 2001. Such funds were used primarily for the purchase of equipment. Net cash used for financing activities was approximately $2,000 for the three months ended March 31, 2001. Such funds were used for payments associated with capital lease obligations. The Company believes that its existing sources of liquidity and anticipated revenue will satisfy the Company's projected working capital and other cash requirements through at least September 2001. 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 complete 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 March 31, 2001, the Company's net tangible assets were approximately $1.41 million. 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 determine the market value of the Company's Common Stock and/or make future dispositions of the Company's Common Stock. 9 11 PART II - OTHER INFORMATION PLANET POLYMER TECHNOLOGIES, INC. Item 1 - Legal Proceedings: See "Note 4 - Commitments and Contingencies" in the Notes to Unaudited Financial Statements for a review of the Company's current litigation. Item 2 - Changes in Securities: None Item 3 - Defaults upon Senior Securities: None Item 4 - Submission of Matters to a Vote of Security Holders: None Item 5 - Other Information: None Item 6 - Exhibits and Reports on Form 8-K: (a) Exhibits: Exhibit Number Description -------------- ----------- 10.31 Warrant to purchase Common Stock, dated March 20, 2001, issued by the Registrant to LBC Capital Resources, Inc. (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 14, 2001 Planet Polymer Technologies, Inc. /s/ RICHARD C. BERNIER -------------------------------------------- Richard C. Bernier Chief Executive Officer (On behalf of Registrant and as Registrant's Principal Financial and Accounting Officer) 11