Planet Polymer Technologies, Inc.
Table of Contents

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, 2003
         
    [   ]   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 incorporation or organization) (I.R.S. Employer Identification No.)
       
    9985 Businesspark Avenue, San Diego, California 92131
   
    (Address of principal executive offices) (Zip Code)
       
    (858) 549-5131  
   
 
    (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 June 30, 2003
   
 
    Common Stock, no par value   6,207,884

TABLE OF CONTENTS

CONDENSED BALANCE SHEET
CONDENSED STATEMENTS OF OPERATIONS
CONDENSED STATEMENTS OF CASH FLOWS
NOTES TO UNAUDITED FINANCIAL STATEMENTS
PART I — FINANCIAL INFORMATION
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3 — Controls and Procedures
PART II — OTHER INFORMATION
Item 1 — Legal Proceedings
Item 2 — Changes in Securities
Item 3 — Defaults upon Senior Securities
Item 4 — Submission of Matters to a Vote of Security Holders
Item 5 — Other Information
Item 6 — Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT 10.43
EXHIBIT 10.44
EXHIBIT 31.1
EXHIBIT 32.1

Table of Contents

Planet Polymer Technologies, Inc.
Form 10-QSB Quarterly Report
Quarter Ended June 30, 2003

INDEX

             
        Page No.
       
PART I - Financial Information
        
 
Item 1 Condensed Balance Sheet (Unaudited) June 30, 2003
     F-2  
   
Condensed Statements of Operations (Unaudited) Three Months Ended June 30, 2003 and 2002 Six Months Ended June 30, 2003 and 2002
     F-3  
   
Condensed Statements of Cash Flows (Unaudited) Six Months Ended June 30, 2003 and 2002
     F-4  
   
Notes to Unaudited Condensed Financial Statements
     F-5  
 
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations
     8  
 
Item 3 Controls and Procedures
     10  
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
     11  
SIGNATURES
     13  

Table of Contents

PLANET POLYMER TECHNOLOGIES, INC.

CONDENSED BALANCE SHEET (UNAUDITED)

               
          June 30,
          2003
         
ASSETS
        
Current assets:
        
 
Cash
   $ 49,581  
 
Accounts receivable
     26,519  
 
Note receivable
     114,610  
 
Prepaid expenses and other current assets
     6,141  
 
    
 
     
Total current assets
     196,851  
Property and equipment, net
     5,795  
Patents, trademarks and license agreements, net of accumulated amortization of $70,617
     160,719  
Note receivable
     122,182  
Other assets
     5,761  
 
    
 
     
Total assets
   $ 491,308  
 
    
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
        
Current liabilities - accounts payable
   $ 72,039  
 
    
 
Commitments and contingencies
        
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
        
   
6,207,884 shares issued and outstanding
     11,648,991  
   
Additional paid-in capital
     3,000,000  
 
Accumulated deficit
     (14,229,722 )
 
    
 
     
Total shareholders’ equity
     419,269  
 
    
 
     
Total liabilities and shareholders’ equity
   $ 491,308  
 
    
 

SEE NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

F-2

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PLANET POLYMER TECHNOLOGIES, INC.

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

                                     
        Three months ended June 30,   Six months ended June 30,
       
 
        2003   2002   2003   2002
       
 
 
 
Revenues
   $ 10,720     $ 43,238     $ 166,340     $ 77,769  
 
    
     
     
     
 
Operating expenses:
                                
 
Cost of revenues
     1,221       32,313       2,442       55,460  
 
General and administrative
     107,347       86,688       270,184       187,009  
 
Marketing
     —       30,342       —       49,552  
 
Research and development
     —       37,390       —       84,955  
 
Loss from impairment of intangible assets
     —       62,159       —       62,159  
 
    
     
     
     
 
   
Total operating expenses
     108,568       248,892       272,626       439,135  
 
    
     
     
     
 
Loss from operations
     (97,848 )     (205,654 )     (106,286 )     (361,366 )
Other income, net
     278,548       19,945       287,488       20,616  
 
    
     
     
     
 
Net income (loss) applicable to common shareholders
   $ 180,700     $ (185,709 )   $ 181,202     $ (340,750 )
 
    
     
     
     
 
Net income (loss) per share applicable to common shareholders (basic and diluted)
   $ 0.03     $ (0.02 )   $ 0.03     $ (0.04 )
 
    
     
     
     
 
Weighted average shares outstanding used in per share computations
     6,207,884       9,178,004       6,207,884       9,178,004  
 
    
     
     
     
 

SEE NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

F-3

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PLANET POLYMER TECHNOLOGIES, INC.

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

                       
          Six months ended June 30,
         
          2003   2002
         
 
Cash flows from operating activities:
                
 
Net income (loss)
   $ 181,202     $ (340,750 )
 
Adjustments to reconcile net income (loss) to net cash used in operating activities:
                
   
Depreciation and amortization
     9,768       15,543  
   
Loss from impairment of intangible assets
     —       62,159  
   
Gain on sale of property and equipment
     (1,300 )     (13,500 )
   
Gain on sale of long-lived assets
     (275,610 )     —  
   
Issuance of Common Stock for services
     —       6,340  
 
Changes in assets and liabilities:
                
   
Accounts receivable
     8,154       103,417  
   
Prepaid expenses and other assets
     4,071       39,530  
   
Accounts payable
     44,223       (87,831 )
   
Accrued expenses
     (21,942 )     —  
 
    
     
 
     
Net cash used in operating activities
     (51,434 )     (215,092 )
 
    
     
 
Cash flows from investing activities:
                
 
Proceeds from the sale of property and equipment
     1,300       13,500  
 
Proceeds from note receivable
     84,934       97,577  
 
    
     
 
     
Net cash provided by investing activities
     86,234       111,077  
 
    
     
 
Cash flows from financing activities:
                
 
Principal payments on borrowings and capital lease obligations
     —       (37,231 )
 
    
     
 
     
Net cash used in financing activities
     —       (37,231 )
 
    
     
 
     
Net increase (decrease) in cash
     34,800       (141,246 )
Cash at beginning of period
     14,781       291,479  
 
    
     
 
Cash at end of period
   $ 49,581     $ 150,233  
 
    
     
 

SEE NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

F-4

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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 six months ended June 30, 2003, are not necessarily indicative of results that may be expected for the year ending December 31, 2003. For additional information, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2002, contained in the Company’s Form 10-KSB for the fiscal year ended December 31, 2002.

     Certain prior period amounts have been reclassified to conform to the current period presentation.

2.   Liquidity and Capital Resources

     The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. Until the most recent period, the Company has incurred losses since inception. As of June 30, 2003, the Company had an accumulated deficit of approximately $14,229,722. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The Company does not believe that its existing sources of liquidity and anticipated revenue will be adequate to satisfy the Company’s projected working capital and other cash requirements through June 30, 2004, to continue as a public reporting company without raising additional capital. The Company has reduced staff and operating expenses, reduced or sold non-Agway or agricultural assets, while continuing to provide technical research and development for Agway’s FreshSeal and Optigen products activities through an independent consultant. The Company’s future capital requirements will be dependent upon many factors, including, but not limited to, costs associated with the continued support of licenses on the Company’s proprietary polymer materials, costs associated with the enforcement of the Company’s patents, and costs associated with the administration of the Company. Although possible, it is unlikely that the Company will be able to generate positive cash flow and maintain profitability through December 31, 2003. The Company is evaluating alternatives to raise additional equity and/or reduce the cost structure of the Company.

     During the six months ended June 30, 2003, the Company recovered certain assets previously sold to Ryer Industries, LLC (“Ryer”), due to non-payment by Ryer. In May 2003, the Company resold these assets to Ryer Enterprises, LLC, a newly created entity that intends to continue the commercial use of the related AQUAMIM assets. The sales price was $301,000, with $25,000 received in May and the remainder payable over two years. In addition, the Company has licensed to Ryer Enterprises, LLC, certain patent rights for future royalties payable monthly over an eight year period, after which the Company will transfer the patents to Ryer Enterprises, LLC.

3.   Earnings (Loss) Per Share

     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 net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income 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

F-5

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Planet Polymer Technologies, Inc.
NOTES TO UNAUDITED FINANCIAL STATEMENTS

potential common shares consist of the incremental common shares issuable upon conversion of the 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 and six months ended June 30, 2003 and June 30, 2002, because all such securities are either anti-dilutive for those periods or their impact was insignificant. Accordingly, diluted loss per share equals basic loss per share. The total number of potential common shares excluded from the calculation of diluted loss per share for the three and six months ended June 30, 2003 was 1,414,941.

4.   Income Taxes

     As the ultimate realization of the potential benefits of the Company’s net operating loss carryforwards is considered unlikely by management, the Company has offset the deferred tax assets attributable to those potential benefits through valuation allowances and, accordingly, the Company did not recognize any credits for income taxes in the accompanying condensed statements of operations to offset its pre-tax losses.

5.   Stock-Based Compensation

     As explained in Note 10 in the Form 10-KSB, the Company accounts for stock options granted to employees based on their intrinsic values under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees, and Related Interpretations,” and has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” and the provisions of Statement of Financial Accounting Standards No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure-an Amendment of FASB Statement No. 123.” Since the exercise price of all of the options granted by the Company to its employees has been equal to or greater than fair value, the Company has not recognized any earned or unearned compensation costs in its financial statements in connection with those options. The Company’s historical net income (loss) per share and pro forma net income (loss) per share for the three and six months ended June 30, 2003, and June 30, 2002, assuming compensation cost had been determined based on the fair value of all options at the respective dates of grant determined using a pricing model consistent with the provisions of SFAS 123 are set forth below:

                                 
    Three Months Ended June 30,   Six Months Ended June 30,
    2003   2002   2003   2002
Net income (loss), as reported
   $ 180,700     $ (185,709 )   $ 181,202     $ (340,750 )
Stock-based employee compensation expense assuming a fair value based method had been used for all awards
     (14,000 )     (22,000 )     (27,400 )     (43,300 )
     
     
     
     
 
Net loss, pro forma
   ( 166,700 )     (207,709 )     153,802 )     (384,050 )
     
     
     
     
 
Basic earnings (loss) per share, as reported
   $ 0.03     $ (0.02 )   $ 0.02     $ (0.04 )
     
     
     
     
 
Basic earnings (loss) per share,
pro forma
   $ 0.03     $ (0.02 )   $ 0.02     $ (0.04 )
     
     
     
     
 

F-6

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Planet Polymer Technologies, Inc.
NOTES TO UNAUDITED FINANCIAL STATEMENTS

6.   Agway Contract Amendments

     During the six months ended June 30, 2003, the Company restructured certain patent sale and license agreements with Agway resulting in the receipt of $130,000 in license revenue related to the FreshSeal and Optigen products. The amended agreements also call for the Company to receive future royalty payments based on varying percentages of future revenues generated by Agway from sales of related products. No royalties are expected to be received from the sales of the underlying products until the fourth quarter of 2003.

7.   Subsequent Events

     The Company experienced no significant events subsequent June 30, 2003.

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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, 2002.

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 and support the Company’s research and development of products, marketing, licensing of products to third parties and corporate administration.

     Until this most recent period Planet has incurred operating losses since inception and had an accumulated deficit as of June 30, 2003 of approximately 14.2 million. The Company’s only anticipated source of revenues is from royalties from Agway, Inc., and Ryer Enterprises, LLC, which are not expected to be sufficient to maintain profitability through December 31, 2003.

RESULT OF OPERATIONS

     The Company’s revenues decreased to approximately $33,000 for the three months ended June 30, 2003 from approximately $43,000 for the same period in 2002. However, year-to-date revenue has increased $89,000 from the same period in 2002. This increase is attributable to the receipt of $130,000 in license revenue from Agway, Inc., related to the restructuring of certain patent sale and licensing agreements with Agway, Inc., with respect to the FreshSeal and Optigen products. Additional royalty revenues from Agway, Inc. are not expected until the fourth quarter of 2003 or later. For the period ended June 30, 2003, no royalties were realized relating to AQUAMIM due to the default by Ryer Industries, LLC. However, the approximately $11,000 in revenue generated is primarily related to consulting services provided by the Company to Ryer Enterprises, LLC. In April 2003 the Company recovered the assets sold to Ryer Industries, LLC, and by agreement dated as of May 1, 2003, resold the assets to Ryer Enterprises, LLC, a newly formed entity which intends to continue the commercial employment of the AQUAMIM products. The sale price for the AQUAMIM assets is $301,000 with a down payment of $25,000 and twenty-four monthly installments payable in the amount of $11,500 commencing June 1, 2003. In addition, the Company has licensed to Ryer Enterprises, LLC, the patent rights relating to the AQUAMIM products for royalties which will be payable monthly forty-five days after the close of each month for 8 years after which Planet has agreed to transfer the patents to Ryer Enterprises, LLC, provided it is not in default.

     Cost of revenues decreased to approximately $1,000 for the three months ended June 30, 2003, from approximately $32,000 for the same period in 2002. This decrease was primarily due to the fact the Company no longer directly sells any products.

     Total operating expenses decreased to approximately $109,000 for the three months ended June 30, 2003, from approximately $249,000 for the same period in 2002. This decrease was primarily attributable to the reduction of the remaining staff which was offset in part by increased legal expenses

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PART I — FINANCIAL INFORMATION
Item 2 — Management’s Discussion and Analysis of Financial
Condition and Results of Operations

Planet Polymer Technologies, Inc.

due to the bankruptcy of Agway, Inc., the restructuring of agreements with Agway, and the default by Ryer Industries, LLC, in its remaining obligations to purchase the Company’s AQUAMIM assets.

     The Company incurred no research and development expenses in the second quarter of 2003 compared to approximately $37,000 for the three months ended June 30, 2003. The Company anticipates limited or no further research and development activities on new products.

     Other income, net increased from approximately $20,000 for the three months ended June 30, 2003, to approximately $279,000 for the same period in 2003. This increase was primarily attributable to the gain on sale of fixed assets and license revenue from Agway.

LIQUIDITY AND CAPITAL RESOURCES

     The Company used cash of approximately $51,000 for operations for the three months ended June 30, 2003. Such funds were used primarily for administrative support.

     The Company does not believe that its existing sources of liquidity and anticipated revenue will be adequate to satisfy the Company’s projected working capital and other cash requirements through March 2004 to continue operations as a public reporting company without raising additional capital. The Company is evaluating alternatives to raise additional equity and/or reduce the cost structure of the Company by de-registering under the Securities Exchange Act and continuing as a privately held Company. If the Company de-registers it is likely that no market will exist for the Company’s shares. As a privately held company with the Company’s activities limited to collecting royalties from third parties, the Company would endeavor to hold expenses to a minimum and dividend net royalty income to shareholders. Although Agway, Inc., presented the Company with revenue projections from the sale of the FreshSeal and Optigen products being commercialized by Agway, which indicate that significant royalties could be realized by Planet in as early as year 2004 and increasing significantly for a ten year period, the ability of Agway or its successor to realize such revenues is subject to material risks, including, without limitation, the ability to obtain a no objection position from the FDA relating to Optigen, market acceptance of the products, product production, and competition from competing products. Due to the continued material risks associated with the ultimate commercialization of these products, no assurance can be made that net royalty income will ever be adequate to pay significant dividends, if any. The Company understands that Agway is in the process of trying to sell the operating divisions of Agway responsible for both the FreshSeal product and the Optigen product. The effect any such sale will have on the timing and amount of royalties which may be received by the Company is uncertain. In addition to royalty revenues from FreshSeal, if Agway is successful in selling the FreshSeal business, the Company may receive from the purchase price up to $200,000 pursuant to the Company’s agreement with Agway.

     There can be no assurance that the Company’s efforts will result in additional funds or that additional financing will be available on acceptable terms, or at all.

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Item 3 — Controls and Procedures

Planet Polymer Technologies, Inc.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

     The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of June 30, 2003. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective for gathering, analyzing and disclosing the information the Company is required to disclose in the reports it files under the Securities and Exchange Act of 1934, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Such evaluation did not identify any change in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2003 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

CHANGES IN INTERNAL CONTROLS

     There were no significant changes in internal controls or other factors that could significantly affect our internal controls subsequent to the date of our evaluation.

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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:

     Effective April 24, 2003, 3.0 million shares of the common stock of the Company formerly owned by Agway, Inc., were transferred back to the Company and cancelled, resulting in a decrease of outstanding shares from 9,207,884 to 6,207,884. This transfer was made in consideration for a reduction in the Company’s future royalties percentage.

     On April 1, 2003, the Company made a grant to Richard C. Bernier of 25,000 option shares to purchase Common Stock of the Company at $0.05 per share, with an expiration date of April 1, 2013.

     On May 19, 2003, the Company made a grant to H. M. Busby of 50,000 option shares to purchase Common Stock of the Company at $0.06 per share, with an expiration date of May 19, 2013.

     On May 19, 2003, the Company made a grant to Robert Petcavich of 12,500 option shares to purchase Common Stock of the Company at $0.14 per share, with an expiration date of May 19, 2013, and another grant to Robert Petcavich of 50,000 option shares to purchase Common Stock of the Company at $0.06 per share, with an expiration date of May 19, 2013.

     On May 19, 2003, the Company made a grant to Ronald Sunderland of 50,000 option shares to purchase Common Stock of the Company at $0.06 per share, with an expiration date of May 19, 2013.

Item 6 — Exhibits and Reports on Form 8-K:

     (a)  Exhibits:

     
Exhibit Number   Description
 
10.43   Purchase, Sale and Licensing Agreement, Ryer Enterprises, LLC
     
10.44   Promissory Note by Ryer Enterprises, LLC, executed in favor of the Company, and accompanying Amortization Schedule
     
31.1   CEO and CFO certification pursuant to Section 302
32.1   CEO and CFO certification pursuant to Section 906

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PART II — OTHER INFORMATION

Planet Polymer Technologies, Inc.

     (b)  Reports on Form 8-K:

     News release describing the Company’s first ever profitable quarter attached to Form 8-K as Exhibit 99.1.

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SIGNATURES

Pursuant to with the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report on Form 10-QSB to be signed on its behalf by the undersigned, thereunto duly authorized.

         
Date: August 14, 2003   Planet Polymer Technologies, Inc.
         
    /s/ H. M. Busby    
   
   
    H. M. Busby    
    Chief Executive Officer    
    (On behalf of Registrant and as Registrant’s    
    Principal Financial and Accounting Officer)    

Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following on behalf of the Registrant and in the capacities and on the dates indicated.

         
Signature   Title   Date
 
 
/s/ H. M. Busby   Chief Executive Officer,   August 14, 2003
  Chief Financial Officer    
    (Principal Executive Officer and    
    Principal Financial Officer)    
         
/s/ H. M. Busby   Director   August 14, 2003
       

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