Planet Technologies, Inc.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 |
For Quarterly Period Ended September 30, 2005
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 |
Commission File Number: 0-26804
PLANET TECHNOLOGIES, INC.
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(Formerly Planet Polymer Technologies, Inc.) |
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(Exact name of small business issuer as specified in its character) |
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CALIFORNIA
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33-0502606 |
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
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6835 Flanders Drive, Suite 100, San Diego, California
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92121 |
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(Address of principal executive offices)
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(Zip Code) |
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(858) 457-4742 |
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(Issuers telephone number, including area code) |
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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.
þ YES o NO
Check whether the issuer is a shell company as defined in Regulation 12b-2 of the Exchange Act.
o YES þ NO
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date:
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Class |
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Outstanding at November 14, 2005 |
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Common Stock, no par value |
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3,986,368 |
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PART 1
FINANCIAL INFORMATION
PLANET TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
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September 30, 2005 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
671,130 |
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Accounts receivable, less allowance for doubtful accounts of $5,500 |
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82,862 |
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Inventory |
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694,891 |
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Other current assets |
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285,632 |
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Total current assets |
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1,734,515 |
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Equipment and improvements, net |
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133,538 |
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Deferred acquisition costs |
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26,190 |
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Unallocated excess purchase price (Note 6) |
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2,719,094 |
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Total |
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$ |
4,613,337 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current liabilities: |
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Current portion of convertible notes payable to shareholder |
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$ |
140,125 |
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Current portion of long-term debt |
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20,142 |
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Accounts payable |
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1,013,796 |
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Accrued expenses |
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185,177 |
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Total current liabilities |
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1,359,240 |
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Convertible notes payable to shareholder, net of current portion |
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12,471 |
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Long-term debt, net of current portion |
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984 |
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Total liabilities |
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1,372,695 |
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Shareholders equity: |
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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 |
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Common
stock, no par value, 20,000,000 shares authorized, 3,986,368 shares issued and outstanding |
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7,693,296 |
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Accumulated deficit |
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(4,452,654 |
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Total shareholders equity |
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3,240,642 |
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Total |
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$ |
4,613,337 |
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See notes to unaudited condensed consolidated financial statements
-2-
PLANET TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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Three months ended September 30, |
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Nine months ended September 30, |
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2005 |
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2004 |
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2005 |
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2004 |
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Sales |
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$ |
1,183,459 |
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$ |
258,033 |
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$ |
1,625,720 |
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$ |
978,471 |
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Cost of sales |
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670,278 |
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95,556 |
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831,365 |
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347,451 |
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Gross profit |
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513,181 |
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162,477 |
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794,355 |
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631,020 |
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Operating expenses: |
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Selling |
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388,122 |
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149,519 |
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716,040 |
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489,569 |
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General and administrative |
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402,245 |
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113,518 |
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812,256 |
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572,388 |
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Total operating expenses |
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790,367 |
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263,037 |
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1,528,296 |
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1,061,957 |
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Loss from operations |
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(277,186 |
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(100,560 |
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(733,941 |
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(430,937 |
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Other (expense) income |
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(765 |
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3,044 |
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(4,067 |
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(4,500 |
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Interest expense |
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(2,973 |
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(52,807 |
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(11,950 |
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(157,198 |
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Net loss |
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$ |
(280,924 |
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$ |
(150,323 |
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$ |
(749,958 |
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$ |
(592,635 |
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Net loss per share, basic and diluted |
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$ |
(0.09 |
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$ |
(0.09 |
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$ |
(0.30 |
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$ |
(0.36 |
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Weighted average shares used in
computing net loss per share basic and
diluted |
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3,226,078 |
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1,663,170 |
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2,537,394 |
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1,660,161 |
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See notes to unaudited condensed consolidated financial statements
-3-
PLANET TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED
STATEMENT OF SHAREHOLDERS EQUITY (DEFICIENCY)
(UNAUDITED)
Nine Months Ended September 30, 2005
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Common Stock |
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Accumulated |
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Shares |
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Amount |
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Deficit |
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Total |
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Balance at January 1, 2005 |
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2,068,361 |
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$ |
3,198,296 |
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$ |
(3,702,696 |
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$ |
(504,400 |
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Issuance of common stock for cash |
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1,318,007 |
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3,295,000 |
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3,295,000 |
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Issuance of common stock for
investment in Allergy Control
Products |
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600,000 |
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1,200,000 |
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1,200,000 |
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Net loss |
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(749,958 |
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(749,958 |
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Balance at September 30, 2005 |
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3,986,368 |
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$ |
7,693,296 |
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$ |
(4,452,654 |
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$ |
3,240,642 |
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See notes to unaudited condensed consolidated financial statements
-4-
PLANET TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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Nine Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2005 |
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2004 |
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Operating activities: |
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Net loss |
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$ |
(749,958 |
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$ |
(592,635 |
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Adjustments to reconcile net loss to net cash used in
operating activities: |
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Depreciation and amortization |
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57,817 |
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65,542 |
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Changes in operating assets and liabilities, net of
acquisition: |
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Accounts receivable |
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29,833 |
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53 |
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Inventory |
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(41,070 |
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62,537 |
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Other current assets |
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5,914 |
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3,869 |
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Interest payable |
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(8,543 |
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145,401 |
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Accounts payable |
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(91,502 |
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127,322 |
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Accrued expenses |
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(331,711 |
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100,710 |
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Net cash used in operating activities |
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(1,129,220 |
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(87,201 |
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Investing activities: |
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Proceeds from sale of equipment |
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2,364 |
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Purchase of Allergy Control Products, net of cash acquired |
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(1,431,490 |
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Deferred acquisition costs |
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(133,097 |
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(21,886 |
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Purchases of equipment and improvements |
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(18,787 |
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Net used in investing activities |
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(1,583,374 |
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(19,522 |
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Financing activities: |
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Advance from related party |
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120,000 |
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Repayments of advances from related party |
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(185,000 |
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Vendor promissory note |
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(1,038 |
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Principal payment on notes payable |
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(100,161 |
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(183,612 |
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Proceeds from issuance of common stock |
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3,295,000 |
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Proceeds from issuance of investors notes payable |
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75,000 |
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Net cash provided by financing activities |
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3,008,801 |
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11,388 |
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Net increase (decrease) in cash and cash equivalents |
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296,207 |
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(95,335 |
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Cash and cash equivalents, beginning of period |
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374,923 |
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128,005 |
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Cash and cash equivalents, end of period |
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$ |
671,130 |
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$ |
32,670 |
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Supplementary disclosure of cash flow data: |
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Cash paid for interest |
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$ |
20,340 |
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$ |
11,798 |
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See notes to unaudited condensed consolidated financial statements
-5-
PLANET TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Planet
Technologies, Inc. and subsidiary (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. All intercompany accounts and
transactions have been eliminated in consolidation. 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 managements opinion, all adjustments (consisting of only normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating results for the
three and nine months ended September 30, 2005, are not necessarily indicative of results
that may be expected for the year ending December 31, 2005. For additional information,
refer to the Companys financial statements and notes thereto for the year ended December
31, 2004, included in the Companys most recent annual report on Form 10-KSB for the fiscal
year ended December 31, 2004.
2. Liquidity and Capital Resources
The accompanying unaudited condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. This basis of accounting
contemplates the recovery of the Companys assets and the satisfaction of its liabilities
in the normal course of business. Successful transition to profitable operations is
dependent upon obtaining a level of sales adequate to support the Companys cost structure.
The Company has suffered recurring losses resulting in an accumulated deficit of $4,452,654
as of September 30, 2005. Management intends to continue to finance operations primarily
through its potential ability to generate cash flows from equity offerings. However, there
can be no assurance that the Company will be able to obtain such financing or internally
generate cash flows, which may impact the Companys ability to continue as a going concern.
The accompanying unaudited condensed consolidated financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that may result from the
potential inability of the Company to continue as a going concern.
On November 30, 2004, Planet acquired the business of Allergy Free, LLC (Allergy) for
approximately 1.65 million shares of Planet stock (after giving effect to a 50:1 reverse
stock split), a convertible note of $274,300 bearing interest at 5.5% per annum and due and
payable within three years, and assumption of debt. As a result, Allergy owned
approximately 92.7% of the voting shares of Planet. Since the stockholders of Allergy
received the majority of the voting shares of Planet, the former managing member of Allergy
continued on as the president of the Company, and representatives of Allergy hold three of
the five seats on the Companys Board of Directors, the merger was accounted for as a
recapitalization of Allergy, whereby Allergy was the accounting acquirer (legal acquiree)
and Planet was the accounting acquiree (legal acquirer). Since, at the closing, Planet was
a non-operating shell corporation no longer meeting the definition of a business as defined
in EITF Consensus 98-3, Determining Whether a Nonmonetary Transaction Involves Receipt of
Productive Assets or of a Business, the transaction was equivalent to Allergy issuing
stock for the net liabilities of Planet, accompanied by a recapitalization. The accounting
was identical to that resulting from a reverse acquisition, except that there were no
adjustments to the historic carrying values of the assets and liabilities. Accordingly, the
accompanying statements of operations and cash flows are the historical financial
statements of Allergy Free.
Immediately prior to the closing of the acquisition, Planet, formerly known as Planet
Polymer Technologies, (Planet Polymer) distributed to a trustee for the benefit of Planet
Polymer shareholders of record as of September 30, 2004, the right to receive all royalties
payable to Planet pursuant to those certain sale and licensing agreements between Planet
Polymer and Agway, Inc., related to Planet Polymers Fresh Seal® and Optigen® technology
and that certain purchase, sale and license agreement between Planet Polymer and Ryer
Enterprises, LLC, relating to Planets AQUAMIM® technology.
-6-
PLANET TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Prior to acquiring Allergy, Planet Polymer was an advanced materials company that developed
and licensed unique polymer materials. All operations related to Planet Polymer have been
discontinued.
On August 11, 2005, Planet acquired Allergy Control Products, Inc. (ACP). ACP merged into
a wholly-owned subsidiary of Planet (New ACP). The subsidiary will continue to use the
name Allergy Control Products. Effective August 11, 2005, Planet assigned all of the
Allergy assets to its wholly-owned subsidiary, New ACP. Pursuant to the terms of the
merger transaction the shareholder of ACP was issued 600,000 shares of Planet common stock.
In addition, ACPs debt to its shareholder in the amount of $1,500,000 was paid in full by
Planet (see Note 6 herein).
Investors are encouraged to review our report on Form 8-K filed with the Securities and
Exchange Commission on August 12, 2005 and our Registration Statement on Form SB-2 filed on
October 12, 2005, which discuss more thoroughly the terms of the merger and which is
available through EDGAR at www.sec.gov, and the Companys Proxy Statement which
also is available through EDGAR.
3. Loss Per Share
Net loss per share is computed using the weighted average number of shares of common stock
outstanding and is presented for basic and diluted loss per share. Basic loss per share is
computed by dividing net loss by the weighted average number of common shares outstanding
for the period.
The Company has excluded all convertible preferred stock and outstanding stock options and
warrants from the calculation of diluted loss per share because all such securities are
considered anti-dilutive. 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 nine months ended September 30, 2005 was 551,414, and for the
three and nine months ended September 30, 2004 was 4,090.
4. Stock-Based Compensation
As explained in Note 2 to the financial statements for the year ended December 31, 2004,
contained in the Form 10-KSB, Statement of Financial Accounting Standards No. 123 (SFAS
123), Accounting for Stock-Based Compensation, provides for the use of a fair value
based method of accounting for stock-based compensation. However, SFAS 123 allows an entity
to continue to measure compensation cost for stock options granted to employees using the
intrinsic value method of accounting prescribed by Accounting Principles Board Opinion No.
25 (APB 25), Accounting for Stock Issued to Employees, which only requires charges to
compensation expense for the excess, if any, of the fair value of the underlying stock at
the date a stock option is granted (or at an appropriate subsequent measurement date) over
the amount the employee must pay to acquire the stock. The Company has elected to account
for employee stock options using the intrinsic value method under APB 25. By making that
election, it is required by SFAS 123 and Statement of Financial Accounting Standards No.
148, Accounting for Stock-Based Compensation Transition and Disclosure to provide pro
forma disclosures of net loss as if a fair value based method of accounting had been
applied.
During the first quarter of 2005, the Company granted options to purchase 65,500 shares of
common stock to its employees and board of directors with a strike price equal to the fair
value of the common stock. The weighted-average fair value of these options using the
Black-Scholes option-pricing model was $3.00 per share, utilizing an expected life of 10
years, an expected volatility of 216%, no dividend yield and a risk free interest rate of
4.22%.
In January 2005, an individual became a member of the Companys board of directors and was
granted an option to purchase 500 shares of common stock at an exercise price of $3.00 per
share. The options vest one year from the date of grant and expire on January 18, 2015.
-7-
PLANET TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In January 2005, the members of the board of directors were granted options to purchase
40,000 shares of common stock at an exercise price of $3.00 per share. Two company officers
were also granted options to purchase 30,000 shares of common stock each at an exercise
price of $3.00 per share. All of these options vest 25% one year from date of grant, and
1/36th each month thereafter, and expire on January 25, 2015.
In January 2005, the Companys chairman of the board of directors was granted an option to
purchase 25,000 shares of common stock at an exercise price of $3.50 per share. The options
vest 25% one year from date of grant and 1/36th each month
thereafter, and expire on January 25, 2015.
In August 2005, the board of directors granted stock options to certain directors, officers
and employees of the Company to purchase 372,500 shares of Planet common stock at exercise
prices ranging from $2.70 to $3.00 per share as compensation for their service to the
Company. The options vest 25% one year from date of grant and 1/36 th
each month thereafter, and expire on August 10, 2015.
Had compensation cost for the Companys stock-based compensation plans been determined
based on the fair value method at the grant dates for awards under the Companys plans, the
Companys net loss and net loss per share for the three and nine months ended September 30,
2005 and 2004 would have been increased to the pro forma amounts indicated below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30 |
|
|
Nine Months Ended September 30 |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
Net loss, as reported |
|
$ |
(280,924 |
) |
|
$ |
(150,322 |
) |
|
$ |
(749,958 |
) |
|
$ |
(592,635 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based employee compensation
expense assuming a fair value based
method had been used for all awards, net
of tax |
|
|
(93,000 |
) |
|
|
(11,447 |
) |
|
|
(166,000 |
) |
|
|
(34,341 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss, pro forma |
|
$ |
(373,924 |
) |
|
$ |
(161,769 |
) |
|
$ |
(915,958 |
) |
|
$ |
(626,976 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per share, as reported |
|
$ |
(.09 |
) |
|
$ |
(0.09 |
) |
|
$ |
(0.30 |
) |
|
$ |
(0.36 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per share, pro forma |
|
$ |
(0.12 |
) |
|
$ |
(0.10 |
) |
|
$ |
(0.36 |
) |
|
$ |
(0.38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with the provisions of SFAS 123, all other issuances of common stock,
warrants, stock options or other equity instruments to non-employees as the consideration
for goods or services received by the Company are accounted for based on the fair value of
the equity instruments issued (unless the fair value of the consideration received can be
more reliably measured). Generally, the fair value of any options, warrants or similar
equity investments will be estimated based on the Black-Scholes option-pricing model.
There were no options which were forfeited, cancelled or expired since December 31, 2004.
Total options outstanding as of September 30, 2005 were 497,613.
5. Operating lease
The Company has extended its office sublease through December 31, 2005, for a base rent of
$7,267 per month, plus common area maintenance charges. The original sublease expired on
July 31, 2005. The sublease is from a related party.
-8-
PLANET TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6. Acquisition
On August 11, 2005, Planet acquired 100% of ACP. ACP has become a subsidiary of Planet and
Planet issued and delivered to the sole-shareholder of ACP 600,000 shares of Planet common
stock (or 300 shares of Planet common stock for each one share of ACP common stock
outstanding). As a result, the sole-shareholder of ACP owns approximately 22% of the voting
shares of Planet. As additional consideration, Planet paid $1,500,000 in cash to Jonathan
T. Dawson in full payment of all indebtedness of ACP.
Due to the nature of the transaction, the business combination was accounted for under the
purchase accounting method, with Planet as the accounting acquirer, as defined by SFAS 141
Business Combinations. In accordance with SFAS 141, Planet allocated the
purchase price to the assets acquired and liabilities assumed based on their estimated fair
values at the date of acquisition. In accordance with SFAS 141 and EITF
Consensuses 95-19 and 99-12, the value of the shares of Planets common stock issued totaling
$1,200,000 is based on the average market price of $2.00 over a reasonable period of time
before and after the two companies have reached agreement on the purchase price and the
proposed transaction is announced. The total purchase price was $2,810,434, comprising of
the $1,500,000 cash payment to Mr. Dawson, $1,200,000 of common stock issued and $110,434
in acquisition costs. For financial statement purposes, it is assumed that the fair value
of the assets and liabilities of ACP is equal to the respective carrying values based on
the current nature of the items involved as well as the overall respective dollar amounts.
A final allocation of the purchase price will be made that may result in a change from
these amounts.
The following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition.
|
|
|
|
|
|
|
August 11, 2005 |
|
Current assets |
|
$ |
1,225,825 |
|
Equipment and improvements |
|
|
71,498 |
|
Unallocated excess purchase price |
|
|
2,719,094 |
|
|
|
|
|
Total assets acquired |
|
|
4,016,417 |
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
(1,204,460 |
) |
|
|
|
|
|
Long-term debt |
|
|
(1,523 |
) |
|
|
|
|
|
|
|
|
|
Total liabilities assumed |
|
|
(1,205,983 |
) |
|
|
|
|
|
|
|
|
|
Net assets acquired |
|
$ |
2,810,434 |
|
|
|
|
|
As a result of the merger, included in this filing are the operating results of Planet
Technologies, Inc. as well as the combined operating results of Planet and ACP from August
12, 2005 through September 30, 2005. Below are the proforma operating results if the
merger had been completed at the beginning of the periods presented.
Included in the proforma operating results for the three months and nine months ended
September 30, 2005 are non-recurring expenses of $500,000 for termination benefits for a
former ACP officer as well as approximately $100,000 in legal and accounting fees related
to the merger.
-9-
PLANET TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The proforma information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
Sales |
|
$ |
2,010,749 |
|
|
$ |
2,172,693 |
|
|
$ |
6,373,909 |
|
|
$ |
6,765,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(943,275 |
) |
|
$ |
(317,878 |
) |
|
$ |
(1,553,117 |
) |
|
$ |
(872,709 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share,
basic and diluted |
|
$ |
(0.24 |
) |
|
$ |
(0.09 |
) |
|
$ |
(0.49 |
) |
|
$ |
(0.26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares used in
computing net loss
per share basic
and diluted |
|
|
3,986,361 |
|
|
|
3,369,170 |
|
|
|
3,179,986 |
|
|
|
3,366,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. Issuance of Common Stock for Cash
On or about August 1, 2005, the Company completed a private placement of 1,106,000 shares of
common
stock at a price of $2.50 per share, for a total cash amount of $2,765,000. Additionally, the
Company had
issued 202,007 shares at various dates for additional cash proceeds of $530,000.
-10-
PART 1 FINANCIAL INFORMATION
Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
Planet Technologies, Inc. and Subsidiary
Except for the historical information contained herein, the discussion in this report contains
forward-looking statements that involve certain risks and uncertainties. The Companys 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
Companys Form 10-KSB for the fiscal year ended December 31, 2004.
OVERVIEW
Planet Technologies, Inc. (Planet or the Company) formerly known as Planet Polymer
Technologies, Inc. (Planet Polymer) was incorporated in August, 1991, in the State of California,
and, since November 30, 2004, is engaged in the business of designing, manufacturing, selling and
distributing common products for use by allergy sensitive persons, including, without limitation,
air filters, bedding, room air cleaners, and related allergen avoidance products. The business
strategy is primarily based upon promotion of products directly to the consumer by telemarketing to
the Companys database of customers who have purchased the Allergy Free Electrostatic Filter.
On August 11, 2005, Planet completed the merger with Allergy Control Products, Inc. (ACP).
ACP merged into a wholly owned subsidiary of Planet (New ACP). The subsidiary will continue to
use the name Allergy Control Products. Effective August 11, 2005, Planet assigned all of the
Allergy assets to its wholly owned subsidiary, New ACP.
With the merger, Planet has added to its stable of allergen control products, and has
incorporated ACPs core business strategy to supply a complete range of high quality products to
physicians patients who are allergy sufferers, as well as to previous customers. Promotion is
executed through (a) distribution of catalogs to physicians offices, for subsequent
re-distribution to patients, (b) distribution of catalogs directly to previous customers and (c)
selective e-commerce marketing initiatives. Customer transactions are primarily handled through
ACPs in-bound call center and its website. In addition to this core business strategy, ACP also
sells selective products on a wholesale basis to domestic retailers as well as to international
distributors.
Products include ACPs own Allergy Control® branded bedding products, which are effective
barriers to the transmission of dust mite allergen and pet dander. ACP also markets other bedding
products, carpet cleaning and laundry products, vacuums, air cleaners and air filters, sinus and
breathing aids, respiratory products, dehumidifiers, mold prevention and house cleaning products,
pet allergy products and certain allergy-related skin and hair care products.
Market distribution channels (non-wholesale) for allergen avoidance products include:
physician-directed sales, direct to consumer sales, the Internet and retail. In the
physician-directed sales segment, ACPs primary competitors are National Allergy Supply, Asthma and
Allergies Technology, Allergy Solutions and Mission Allergy.
Planet has an accumulated deficit as of September 30, 2005, of $4,452,654.
-11-
PART 1 FINANCIAL INFORMATION
Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
RESULTS OF OPERATIONS
The inclusion of ACPs financial results for a portion of the three months and nine months
ended September 30, 2005 resulted in material year over year increases in sales, cost of sales and
operating expenses for each of those reporting periods. These increases are not necessarily
indicative of future year over year comparisons.
Resources currently are being committed to test marketing of a) ACPs non-filter product lines to
Allergys customer base, b) Allergys filter product lines to ACPs customer base and c) ACPs
consumer catalog to Allergys customer base. Future gross margins will reflect the results of
these test marketing efforts and their impact on the future blend of sales for product lines with
varying gross margins.
It is logical to expect that future gross margins could be somewhat lower than that experienced in
the three months ended September 30, 2005, which included ACPs lower margin financial results for
only a portion of the reporting period.
Three months ended September 30, 2005 compared to three months ended September 30, 2004
The net loss for the three months ended September 30, 2005, was $280,924 compared
to a net loss of $150,323 for the three-month period ended September 30, 2004. The Companys sales
increased by $925,426, from $258,033 for the three months ended September 30, 2004, to $1,183,459
for the same period in 2005. This increase was primarily due to sales of ACP from the date of the
merger on August 12 through September 30, 2005 which accounted for approximately 66% of sales for
the period.
Cost of sales increased to $670,278 for the three months ended September 30, 2005, from
$95,556 for the same period in 2004, reflecting the increase in revenues. Overall gross margin, as
a percentage of sales, decreased period over period from 62.97% for the three months ended
September 30, 2004 to 43.36% for the three months ended September 30, 2005. This decrease in gross
margin is due primarily to the inclusion of ACPs sales from August 12, 2005 through September 30,
2005 as ACPs products have a lower gross profit margin.
Operating expenses increased period over period, totaling $790,367 for the three months ended
September 30, 2005, and $263,037 for the same period in 2004. Of this $527,330 increase, $405,167
is related to ACPs operating costs for the period after the merger.
Other expenses decreased $46,025, from $49,763 for the three months ended September 30, 2004,
to $3,738 for the same period in 2005. Of this decrease, approximately $40,000 is due to a
reduction of interest expense related to former shareholder debt that was converted to stock when
the Company was purchased in November 2004.
Nine months ended September 30, 2005 compared to nine months ended September 30, 2004
The net loss for the nine months ended September 30, 2005, was $749,958 compared to a net loss
of $592,635 for the nine month period ended September 30, 2004. The Companys sales increased by
$647,249, from $978,471 for the nine months ended September 30, 2004, to $1,625,720 for the same
period in 2005. This increase is due to sales from ACP products from August 12 through September
30, 2005.
Cost of sales increased to $831,365 for the nine months ended September 30, 2005, from
$347,451 for the same period in 2004, reflecting the increase in sales. Overall gross margin, as a
percentage of sales, decreased period over period from 64.5% or $631,020 for the nine months ended
September 30, 2004 to 48.9% or $794,355 for the nine months ended September 30, 2005. This decrease
in gross margin is due to the inclusion of the ACP sales, which have a higher cost than Planet.
These sales accounted for 66% of the total sales for 2005.
-12-
PART 1 FINANCIAL INFORMATION
Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
Planet Technologies, Inc. and Subsidiary
Total operating expenses increased period over period, totaling $1,528,296 for the nine months
ended September 30, 2005, and $1,061,957 for the same period in 2004. Of the $466,339 increase,
$405,617 was in general and administrative expenses attributable to ACP.
Other expenses decreased $145,681, from $161,698 for the nine months ended September 30, 2004,
to $16,017 for the same period in 2005. Of the $145,681 decrease, approximately $130,000 is due to
a reduction of interest expense related to former shareholder debt that was converted to stock when
the Company was purchased in November 2004.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $671,130 at September 30, 2005. Although the Company used
cash totaling $1,129,219 for its operations during the nine-month period, the Company also repaid
$185,000 of advances from a related party and paid principal payments totaling $100,161 on notes
payable. During the period, shares were sold to investors through a private placement offering. Of
this amount $1,500,000 was used in the acquisition of ACP. Proceeds related to the sale of
1,318,007 shares of common stock totaled $3,295,000 for the nine months ended September 30, 2005.
The accompanying unaudited condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. This basis of accounting contemplates
the recovery of the Companys assets and the satisfaction of its liabilities in the normal course
of business. Successful transition to profitable operations is dependent upon obtaining a level of
sales adequate to support the Companys cost structure. The Company has suffered recurring losses
resulting in an accumulated deficit of $4,452,654 as of September 30, 2005. Management intends to
continue to finance operations primarily through its potential ability to generate cash flows from
equity offerings. However, there can be no assurance that the Company will be able to obtain such
financing or internally generate cash flows, which may impact the Companys ability to continue as
a going concern. The accompanying unaudited condensed consolidated financial statements do not
include any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that may result from the
potential inability of the Company to continue as a going concern.
Inventory levels increased $667,335 during the nine-month period, reflecting inventory
acquired in the ACP merger and the Company paid down routine accounts payable and accrued expenses.
On August 11, 2005, Planet acquired ACP. Pursuant to the terms of the merger transaction, the
shareholder of ACP was issued 600,000 shares of Planet common stock. In addition, ACP debt to its
shareholder in the amount of $1,500,000 was paid in full by Planet with proceeds from the Private
Placement Offering.
Investors are encouraged to review our report on Form 8-K filed with the Securities and
Exchange Commission on August 12, 2005 and our Registration Statement on Form SB-2 filed on October
12, 2005, which discuss more thoroughly the terms of the merger and which is available through
EDGAR at www.sec.gov, and the Companys Proxy Statement which also is available through
EDGAR.
ITEM 3. CONTROLS AND PROCEDURES
The Companys management, with the participation of the Companys Chief Executive Officer and
the Companys Chief Financial Officer, has evaluated the effectiveness of the Companys disclosure
controls and procedures as of September 30, 2005. Based upon this evaluation, the Companys Chief
Executive Officer and Chief Financial Officer concluded that the Companys 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 Commissions rules and forms.
From the date of the merger until September 30, 2005, ACPs internal control procedures were
evaluated and changed where necessary to meet the filing requirements under the Securities and
Exchange Act of 1934. During the nine months ended September 30, 2005, there were no significant
changes in the parent Companys internal control over financial reporting that materially affected,
or is reasonably likely to materially affect, the Companys internal control over financial
reporting.
-13-
PART
II OTHER INFORMATION
Planet Technologies, Inc. and Subsidiary
Item 2
Changes in Securities:
On or about August 1, 2005, Planet Technologies, Inc. (the Company) completed a private
placement in the total cash amount of $2,765,000, at $2.50 per share, for a total offering of
1,106,000 common stock shares. The proceeds were used as partial consideration for the merger of
Allergy Control Products, Inc. (ACP) as a wholly owned subsidiary of the Company, under that
Agreement and Plan of Merger between the Company and ACP and Jonathan T. Dawson (Mr. Dawson)
dated March 7, 2005 (the Merger), as payment of costs related to the Merger, and as working
capital for the Company.
Windamere III, LLC (Windamere) acquired 586,000 common stock shares in the Company which
increased its holding in the Company to 26.3% of the outstanding shares.
On the same day, Fog City Fund, LLC (Fog City) acquired 500,000 common stock shares in the
Company. With this acquisition, Fog City now owns 14.8% of the Companys common stock.
The remaining 20,000 common stock shares were acquired for cash by other accredited investors.
The Company relied upon an exemption from registration pursuant to Section 4(2) of, and Regulation
D, promulgated under, the Securities Act. All of the aforementioned transactions occurred without
any general solicitation or advertising, were offered only to a limited group of
accredited investors and each of the investors are accredited investors as defined in Rule 501 of
the Securities Act.
In addition, on August 11, 2005, the Company, as partial consideration for the Merger, issued
600,000 common stock shares at a value of $2.00 per share to Mr. Dawson, the sole-shareholder of
ACP.
The Company relied upon an exemption from registration pursuant to Section 4(2) of, and Regulation
D, promulgated under, the Securities Act.
Item 4
Submission of Matters to a Vote of Security Holders:
On August 10, 2005, the Company held its 2005 Annual Meeting of Shareholders (Meeting). As
of June 15, 2005, the record date of the Meeting, the number of shares of common stock of the
Company issued and outstanding and entitled to vote was 2,280,368. The total number of shares
represented and voted in person and by proxy was 1,636,475, or approximately 72% of the total
shares issued and outstanding, thereby constituting a quorum for purposes of the Meeting.
The following individuals were elected to serve on the Board of Directors until the 2006 Annual
Meeting of Shareholders:
|
|
|
|
|
|
|
Name |
|
For |
|
Against |
|
Scott L. Glenn |
|
1,633,738 |
|
|
171 |
|
H. Mac Busby |
|
1,633,738 |
|
|
171 |
|
Ellen Preston |
|
1,633,908 |
|
|
1 |
|
Michael Trinkle |
|
1,633,738 |
|
|
171 |
|
Eric B. Freedus |
|
1,633,908 |
|
|
1 |
|
-14-
PART
II OTHER INFORMATION
Planet Technologies, Inc. and Subsidiary
The following matters were voted upon, and approved, at the Meeting:
(a) The 2000 Stock Option Plan was amended to increase the number of shares reserved for issuance
under the Plan from 100,000 to 350,000 shares by the following vote:
FOR: 1,633,456 AGAINST: 3,013 ABSTAIN: 6
(b) J.H. Cohn LLP were ratified and selected as the registered independent public accounting firm
for the Company for the year ending December 31, 2005 by the following vote:
FOR: 1,636,405 AGAINST: 0 ABSTAIN: 70
(c) The Merger pursuant to which ACP became a wholly owned subsidiary if the Company was approved
by the following vote:
FOR: 1,636,475 AGAINST: 0 ABSTAIN: 0
No other matters were brought before the shareholders for vote at the Meeting.
Item 5
Other Information
On
August 12, 2005 the Company filed our report on Form 8-K
with the Securities and Exchange Commission, which discusses more
thoroughly the terms of the merger with Allergy Control Products that
occurred on August 11, 2005 and on October 12, 2005 the
Company filed the financial statements of Allergy Control Products
and pro forma financial information required to be filed within 71
days of the initial report on Form 8-K on the Companys
Registration Statement on Form SB-2, both of which are available
through EDGAR at www.sec.gov.
Item 6
Exhibits:
(a) Exhibits
Exhibit 31.1 Certification of Principal Executive Officer and Financial Officer pursuant to
Section 302 of the Sarbanes Oxley Act of 2002.
Exhibit 32.1 Certification of Principal Executive Officer and Financial Officer pursuant to
Section 906 of the Sarbanes Oxley Act of 2002.
-15-
Planet Technologies, Inc.
SIGNATURES
In accordance with the requirements of Exchange Act, the Registrant has duly caused this report on
Form 10-QSB to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
Date: November 21, 2005 |
Planet Technologies, Inc.
|
|
|
/s/ Scott L. Glenn
|
|
|
Scott L. Glenn |
|
|
Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
|
/s/ Francesca DiNota
|
|
|
Francesca DiNota |
|
|
Chief Financial Officer and
Chief Accounting Officer |
|
|