##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-KSB
 ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003
Commission File No. 0-26804   PLANET POLYMER TECHNOLOGIES, INC.
 (Name of small business issuer in its charter)
 CALIFORNIA
    
    33-0502606(State or other jurisdiction of
    
    (IRS Employer identification No.)incorporation of organization)6835 Flanders Drive, Suite 100 San Diego, California
    
    92121(Address of principal executive offices)
    
    (Zip Code)
 Issuers telephone number (619) 291-5694 Securities registered under Section 12(b) of the Exchange Act:
None Securities registered under Section 12(g) of the Exchange Act:
Common Stock, No Par Value Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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. o Yes x No Check if there is no disclosure of delinquent filers in response to Items
405 of Regulation S-B in this form, and no disclosure will be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. o The issuers revenues for the year ending December 31, 2003 were $175,082. The aggregate market value of the voting stock held by non-affiliates of
the Issuer as of March 22, 2004 was $372,473, based on the average of the 4:00
p.m. closing bid and ask prices of $0.06 as reported on the Over-the-Counter
Bulletin Board. As of March 22, 2004, 6,207,884 shares of the Companys Common Stock were
outstanding and no shares of the Companys Series A Preferred Stock were
outstanding. Transitional Small Business Disclosure Format (check one) o yes x no




---



PLANET POLYMER TECHNOLOGIES, INC. FORM-10KSB
Year Ended December 31, 2003 TABLE OF CONTENTS ItemNumber
    
    
    
    PagePART I.1.
    
    Description of Business
    
    
    22.
    
    Description of Property
    
    
    103.
    
    Legal Proceedings
    
    
    104.
    
    Submission of Matters to a Vote of Security Holders
    
    
    10PART II.5.
    
    Market for Common Equity and Related Stockholders Matters
    
    
    106.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    117.
    
    Financial Statements
    
    
    158.
    
    Changes in and Disagreements With Accountants on Accounting and Financial Disclosures
    
    
    158A.
    
    Controls and Procedures
    
    
    15PART III.9.
    
    Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act
    
    
    1510.
    
    Executive Compensation
    
    
    1511.
    
    Security Ownership of Certain Beneficial Owners and Management
    
    
    1512.
    
    Certain Relationships and Related Transactions
    
    
    1513.
    
    Exhibits and Reports on Form 8-K
    
    
    1614.
    
    Principal Accountant Fees and Services
    
    
    21Signatures
    
    
    22Power of Attorney
    
    
    22EXHIBIT 10.45EXHIBIT 23.1EXHIBIT 23.2EXHIBIT 31.1EXHIBIT 32.1
  1




---



##### Table of Contents



The letter to Shareholders and this Annual Report on Form 10-KSB
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. The Company intends that such statements shall be
protected by the safe harbors provided for in such sections. Such statements
are subject to risks and uncertainties that could cause the Companys actual
results to vary materially from those projected in such forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to those discussed in this section as well as those
sections entitled Risk Factors, and in Item 6  Managements Discussion and
Analysis of Financial Condition and Results of Operations. 
 PART I. 
 ITEM 1. DESCRIPTION OF BUSINESS Planet Polymer Technologies, Inc. Planet Polymer Technologies, Inc. is an advanced materials company that
developed and licensed unique hydro-soluble polymer and biodegradable
materials. In April 2003 the Company recovered in lieu of foreclosure the
AQUAMIM® Metal Injection Molding technology and manufacturing assets previously
sold to Ryer Industries, LLC, and by agreement dated 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. 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
(45) days after the close of each month for eight (8) years after which the
Company has agreed to transfer the patents to Ryer Enterprises, LLC, provided
it is not in default. Effective January 15, 2004 BASF acquired CPG Technologies, the Fresh Seal®
post harvest treatment business from Agway. Also, in January 2004 Agway sold
its rights to the agricultural feed products marketed under the trademark
Optigen® 1200 to Alltech. Management is hopeful that BASF and Alltech, which
have greater financial resources than Agway, will be better able to
successfully commercialize the FreshSeal® and Optigen® technologies in the
commercialization of the Companys EnviroPlastic CRT controlled-release
technologies developed by Planet for Agway. During 2003, Planets activities
were limited as the Company awaited and monitored the progress of Agway, Inc. Planets patented development technologies are listed below:  §
    
    EnviroPlastic CRT controlled-release technology  Polymer coating
technologies for use other than agriculture and produce products§
    
    EnviroPlastic Z  Biodegradable and compostable polymers§
    
    Aquadro  Hydrodegradable (water dispersible) polyvinyl alcohol resin§
    
    AQUAMIM® Metal Injection Molding  Moldable metal filled polymers Planet is currently not developing any new products. However, on March
18, 2004, Planet entered into an Asset Purchase Agreement with Allergy Free,
LLC, pursuant to which Planet has agreed to acquire substantially all of the
assets of Allergy Free, LLC. Allergy Free is engaged in the business of
designing, manufacturing, selling and distributing consumer products for use by
allergy sensitive persons. If the acquisition is approved by Planets
shareholders and completed as contemplated by the Agreement, Planet, through
personnel and facilities acquired from Allergy Free will continue Allergy
Frees business activities and seek to incorporate Planets polymer
technologies and know-how into developing new products for the Allergy Free
business. Investors are encouraged to review our report on Form 8K filed with
the Securities and Exchange Commission on March 23, 2004, which discusses more
thoroughly the terms of the proposed acquisition and which is available through
EDGAR at www.sec.gov, and when available, the Companys Proxy Statement which
will also be available through EDGAR. 2




---



##### Table of Contents



Planet was incorporated under the laws of California in August 1991.
Planets principal executive offices are located at 6835 Flanders Drive, Suite
100, San Diego, California 92121, and its telephone number is (619) 291-5694. Products and Technologies Planet used its polymer chemistry expertise to provide water soluble and
degradable technology-based solutions to the current and emerging needs of the
agricultural market principally through its arrangement with Agway. EnviroPlastic® Controlled-Release Technology. Planets patented
EnviroPlastic controlled-release technology is a proprietary polymer coating
product line with broad application. One use application of this technology
allows fertilizer to be controlled for release over 120 days. The Company has
sought to develop strategic alliances with potential partners and customers and
since 1995 Planet has had a license relationship with Agrium Inc. (Agrium) to
conduct development work in the use of coatings of fertilizer products. In June
1999, the Company entered into an Amending Agreement with Agrium to allow
Planet and Agway to pursue the development of certain technologies involving
controlled-released coatings. This coating technology is also utilized to control the release and
transfer rates of nitrogen and oxygen, to assist in controlling the ripening of
fruits and vegetables. Planet entered into a licensing agreement with Agway in
1999 to develop commercial coatings for use on fruits, vegetables, floral and
nursery applications that has resulted in the launch, in October 2000, of
FreshSeal® coating for use on fruits and vegetables. Agway is in the early
stages of the extended multi-year commercial rollout of this product family.
Agways product reception and success to date in the marketplace has been
encouraging and resulted in a very modest royalty-generating license in 2001.
Effective January 15, 2004, Agway sold its rights to FreshSeal® to BASF AG. The Company has also been highly engaged in development work with Agway
since 1999 on the use of its controlled-release technology for animal feed. It
is being evaluated as a specialty coating for urea to allow for more efficient,
controlled release of nitrogen for dairy cows. The product named Optigen®1200
by Agways Country Products Group, was in field testing while it petitioned the
FDA for product approval as a feed additive. Effective January 2004, Agway
sold its rights to Optigen® to Alltech. EnviroPlastic® Z Biodegradable and Compostable Plastics. The Companys
patented EnviroPlastic Z materials are biodegradable and compostable polymers
based on the polymer cellulose acetate. Product features include transparency,
fast molding cycles, outstanding processability and controlled degradation
rates from 3 months to 3 years. EnviroPlastic Z materials have been
successfully injection molded and extruded into sheet film. EnviroPlastic Z
materials are targeted for use in products in the packaging and the industrial
markets. Aquadro® Water Soluble Plastics. The Companys patented Aquadro materials
are a polyvinyl alcohol based compound family developed by Planet to provide
cost effective product solutions for the medical disposable, industrial
manufacturing and specialty packaging films markets. Aquadro can be
manufactured into blown film, extrusion cast film, and injection molded
products. Aquadro resins are highly versatile and can be engineered for
flexible or rigid applications. Aquadro can also be designed to dissolve in hot
or cold water environments. The development of Aquadro is an advancement of
Planets patented EnviroPlastic H technology. No applications have been
commercialized to date. AQUAMIM® Metal Injection Molding. AQUAMIM® is designed for the production
of precision metal components utilizing a water debinding process, which
eliminates the need for hazardous solvents or acids. AQUAMIM® feedstock is a
mixture of metal powders and the Companys proprietary water soluble polymer
binder. Various industrial and consumer products can be manufactured by the
AQUAMIM® technology. The Company currently offers stainless steel compounds,
316L, 17-4PH, and 420; iron-nickel; tool steels M2, and M4; and heavy metal
alloys, tungsten copper and tungsten carbide cobalt. The patents for AQUAMIM®
are No. 5,977,230 and No. 6,008,281. Although the AQUAMIM® technologies were
sold to Ryer Industries in 2001, in April 2003, Planet recovered these assets
as a result of Ryer Industries default under a Forbearance Agreement and
subsequently, on May 1, 2003, resold the AQUAMIM® technology to Ryer
Enterprises, LLC. 3




---



##### Table of Contents



Markets and Applications Agricultural Feed & Fruit/Vegetable Initiatives. On March 25, 2003, the
U.S. Bankruptcy Court gave its approval to Agway to enter into the two Sale and
Licensing Agreements with the Company with respect to the Companys
agricultural feed and fruit/produce technologies. Under the agricultural feed
agreement, Agways Country Products Group continued to market and develop the
Companys controlled-release technology for animal feed under the tradename
Optigen 1200. The technology was being utilized in a product under field
testing by Agway as a concentrated source of controlled release nitrogen for
dairy cows while it petitions the FDA for product approval. In January 2004,
Alltech purchased the rights to Optigen® from Agway. The global feed additive
market is larger and Alltech has a significant presence in the market. Under
the fruit/product agreement, Agway marketed FreshSeal in a niche of the global
market for fruit and vegetable coatings. In January 2004, Agway transferred
FreshSeal to BASF, who is already active in this market. Metal Injection Molded (MIM) Feedstocks. The Companys AQUAMIM®
technology had been offered to the metals design and molded products
communities by Ryer Industries, LLC, with whom the Company had a royalty
agreement for technology sold to Ryer Industries in 2001. In April 2003, the
Company recovered the technologies from Ryer Industries and on May 1, 2004
entered into a royalty agreement with Ryer Enterprises, LLC. AQUAMIM®
technology offers both product enhancements and environmental benefits to
alternative MIM formulations and traditional machining techniques of
manufacturing metal products. Primary markets pursued include metal forming,
die cutting tools, medical devices and recreational sports equipment. Strategic Alliances To facilitate the development and commercialization of Planets products,
Planet has pursued a strategy of aligning itself with a number of companies in
the areas of product development and marketing. Agrium Technology Development and License Agreement. In January 1995,
Planet entered into a ten year technology and license agreement with Cominco
Fertilizers Ltd., now named Agrium Inc., pursuant to which Agrium desired to
have Planet conduct further development work on the use of coatings to control
release of fertilizers and to protect products containing biological
inoculants. Planets controlled-release technology polymer for fertilizer was
developed for Agrium under this agreement. Under the terms of the agreement,
Agrium owns all technology developed under the agreement, including, among
other things, compositions of matter, new chemical complexes, association
compounds, blends, mixtures or compositions of coating materials, or new
products, or new processes relating thereto developed by Planet or by Agrium.
In addition, Agrium has the exclusive right to grant licenses and sublicenses
on the technology developed under the agreement to other parties. In return
for the rights granted to Agrium, Agrium is required to pay royalties to Planet
determined in accordance with the terms of the agreement. On June 23, 1999,
Planet entered into an Amending Agreement with Agrium, Inc. to amend the
Technology Development and License Agreement dated as of January 30, 1995. The
Amending Agreement allows Planet to enter into an arrangement or agreement with
Agway with respect to the development of technologies involving
controlled-released fertilizer coatings. If Planet enters into such
arrangements or agreements with Agway, then Planet will grant Agrium, among
other items, an option to acquire a license and a right to produce, market and
distribute such technologies on the same terms and conditions as those offered
to Agway. Agway (BASF and Alltech) Strategic Alliance. In November 1998, Planet
entered into a strategic investment agreement with Agway Inc. to assist in the
funding of Planet Polymer Technologies, Inc. Through stock purchases and
warrant exercises, Agway had accumulated more than 10% of the Companys Common
Stock. In May 2003, Agway assigned and transferred to the Company all of
Agways shares of Planet Common Stock and no longer holds any stock in the
Company. Contemporaneously with Agways investment, Planet and Agway entered into
an agreement relating to the funding by Agway of a feasibility study of
Planets polymer technology for use in agricultural products, other than
fertilizers and other biological products, and food products. Under the terms
of the feasibility study agreement, Planet was reimbursed for qualifying
research and development costs related to staffing, materials, equipment,
equipment time, outside testing and travel from Agway. Also in November 1998, Planet granted Agway an exclusive worldwide license
to all current and future products that utilize Planets polymer technology for
agricultural and food related purposes, other than products 4




---



##### Table of Contents



already covered by existing agreements. Agways field of business is
broadly related to agricultural products and food products, but does not
include fertilizers for purposes of the license. In March 2000, Planet and
Agway entered into a sub-agreement with respect to animal feed products
incorporating Planets patented/patent pending coatings and/or polymer systems.
Also in March 2000, Planet and Agway entered into another sub-agreement with
respect to Planets patented/patent pending coatings and/or polymer systems
sold for use on fruits, vegetables, floral and nursery items. In a letter agreement dated November 14, 2000 Planet agreed to sell,
assign and transfer to Agway the patent rights related to controlled release
technology for animal feed and fruit/produce initiatives, involving four (4)
patents and/or applications, for cash and the royalty payments equal to the
payments Planet would otherwise be entitled to receive pursuant to its existing
license agreements dated November 12, 1998 and Sub-Agreements dated March 1,
2000. Concurrently, Agway agreed to grant Planet an irrevocable, exclusive,
worldwide, royalty-free license to use and commercially exploit all rights
related to the patents for all uses other than food and agricultural
initiatives. The License term was to be for the life of the patents and any
patents derived from the patents. On October 1, 2002, Agway, Inc. filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code. The Sub
Agreement covering the FreshSeal technology and license provided for a minimum
royalty of $300,000 on or before October 31, 2002 to maintain exclusivity. This
payment was not received or accrued by Planet. Pursuant to the Sub-Agreement,
Planet notified Agway that the payment was not received. Under the terms of the
Sub-Agreement, Agway had sixty (60) days during which Agway could make the
necessary payment and retain market exclusivity for this technology. Agway did
not make payment of the minimum royalty as of December 31, 2002. As a result of
this failure by Agway to make payment, Planet had the right to issue additional
non-exclusive licenses for this technology to other interested parties in the
fruit, vegetable, nuts and flowers segments of the agricultural products
industry. To consummate the sale and assignment contemplated by the letter agreement
dated November 14, 2000, the Company and Agway agreed on the form of two
separate Sale and Licensing Agreements with respect to the agricultural feed
technologies and the fruit/produce technologies. On March 25, 2003 the U.S.
Bankruptcy Court gave its approval to Agway to enter into the two separate Sale
and Licensing Agreements with the Company. Under the Sale and Licensing
Agreements, the Company confirmed (i) the assignment of its agricultural feed
related patent rights and fruit/produce related patent rights and (ii) the
license of its technology related to the agricultural feed products and
fruit/produce products, to Agway. In return, the Company received an up-front
payment of $30,000 for its execution of the agricultural feed agreement and a
payment of $100,000 for its execution of the fruit/produce agreement. 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. During the year ended December 31, 2003, the Company
received royalties in the amount of approximately $1,400 from the sales of the
underlying products. Agway granted the Company exclusive, irrevocable,
worldwide, royalty-free limited licenses to use the assigned patents rights for
uses other than food and agricultural initiatives. In connection with the
agricultural feed agreement, Agway also agreed to assign and transfer to the
Company all of Agways shares of Planet capital stock (3,000,000 shares).
Effective January 15, 2004, Agway entered into an agreement to sell all of the
assets of its FreshSeal business, which include the fruit/produce patent rights
assigned by the Company, to BASF. Also, in January 2004, Agway sold all of its
right and interest to Optigen® to Alltech. Management cannot assure that the
Company will receive significant, if any, royalties and monies under these Sale
and Licensing Agreements. Ryer Industries LLC Strategic Alliance. On December 28, 2001, the Company
sold certain assets of the Company relating to its Metal Injection Molding
(MIM) business, including intellectual property, technology, manufacturing
equipment and raw material and finished goods to Ryer Industries LLC (Ryer
Industries). In consideration of these assets, Ryer Industries agreed to pay
to the Company cash in the amount of $328,157, plus a royalty of 6% on sales of
custom feedstocks sold during the period January 1, 2002 and December 31, 2009.
Additionally, Ryer Industries had agreed to pay the Company a royalty on all
tungsten carbide feedstock sales in the amount of $2.50 per net pound during
the period July 1, 2002 and June 30, 2010. Ryer Industries and the Company also
entered into a Consulting Agreement for consulting services related to the
business and technology sold to Ryer Industries. 5




---



##### Table of Contents



In August 2002, Ryer Industries defaulted on its required payments. In
October 2002, the Company and Ryer Industries entered into a Forbearance
Agreement which modified the payment schedule for the remaining obligations to
the Company with payments beginning in December 2002 and continuing through
April 2003. Royalty payments associated with sales from these technologies
were deferred and were scheduled to resume in December 2002. The Forbearance
Agreement provided that if Ryer Industries defaulted, the Company would be
allowed to enforce the Confession Judgment given by Ryer Industries to the
Company in connection with the Forbearance Agreement, which provided among
other things, for turnover to the Company of the assets sold by the Company to
Ryer Industries. In January 2003, Ryer Industries again requested a
refinancing of the monies due Planet under the Forbearance Agreement. Planet
accommodated Ryer Industries in this request by amending the Forbearance
Agreement and structuring a payment schedule beginning in February 2003 and
continuing through July 2003. After making the required payment in February
2003, Ryer Industries failed to make requisite payment for March 2003.
Pursuant to the Forbearance Agreement, Planet in April 2003, recovered all of
the assets previously sold to Ryer Industries under the December 28, 2001
agreement. Ryer Enterprises, LLC Strategic Alliance. By agreement dated May 1, 2003,
the Company resold certain assets relating to its MIM business to Ryer
Enterprises, LLC, a newly formed entity which intends to continue the
commercial employment of the AQUAMIM® products. 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 (45) days after
the close of each month for eight (8) years after which the Company has agreed
to transfer the patents to Ryer Enterprises, LLC, provided it is not in
default. Subsequent to December 31, 2003, the Company agreed to forbear the
February and March royalty payment from Ryer Enterprises in exchange for a two
(2) month extension to the eight (8) year royalty stream plus a royalty payment
equal to a one-half (1/2) month payment. Planet will continue to investigate and entertain developing other
strategic relationships that may help it promote its products or that might
extend the range of product solutions provided by Planets technologies. There
can be no assurance that any such agreements will result in any development and
license agreements or commercial relationships. There can be no assurance that
Planet will be able to negotiate acceptable customer relationships in the
future, or that its existing joint development and licensing agreements will be
successful. There can also be no assurance that Planet and its potential
strategic partners will be able to develop any products or that the new
products, if developed, and their pricing will be acceptable to customers. Sales and Marketing Planet now relies entirely on BASF and Alltech to market Planets products
and technologies with respect to the Companys EnviroPlastic CRT
controlled-released technologies for agricultural feed and produce, and upon
the strategic marketing alliance it has with Ryer Enterprises, LLC to market
the Companys products and technologies with respect to the Companys AQUAMIM®
technologies. Competition The amounts of royalties and monies Planet receives from its strategic
partners may depend on the competition faced by those strategic partners. In
the manufacture and marketing of controlled-release coatings there are a
variety of competitors and products. Planet believes that its EnviroPlastic
controlled-release technology marketed by its strategic partners can be a lower
cost and more effective alternative that can be targeted towards a broad
agricultural market. There are also numerous competitors and products in the market for
feedstocks for Metal Injection Molded products which compete with the AQUAMIM®
technology. There can be no assurance that the potentially competitive technologies
will not obtain a significant market share prior to the commercialization of
Planets products by Planets strategic partners. The development of a
competing or superior technology or the commercialization of such technology by
any one of the potential competitors of Planets strategic partners could have
a material adverse effect on the amount of royalties or monies, if any, Planet
receives. 6




---



##### Table of Contents



Manufacturing and Suppliers Planet has no in-house manufacturing activities. Research and Development The Company incurred no research and development expenses for the year
ended December 31, 2003. Unless and until the Allergy Free acquisition is
completed, the Company anticipates limited or no further research and
development activities on new products. Intellectual Property and Proprietary Technologies Planet believes that the Company has created an attractive portfolio of
unique, patented and potentially patentable intellectual property in the area
of environmentally sensitive polymers and advanced materials. Planet maintains
either ownership, licensing or strategic alliance relationships with various
partnering companies to commercialize and protect these valued intellectual
assets. Planet will continue to maintain patent and trademark protection for
such inventions, improvements and enhancements as appropriate. As previously discussed in this report, Planet has transferred the rights
to commercially exploit and market and sell products and intellectual property
rights to its principal technologies to third parties. In general, these third
parties own, or subject to certain conditions has the right to acquire
ownership of, the patents protecting Planets proprietary technologies and so
long as these third parties perform their obligations with their respective
agreements, Planets interest in the technologies is limited to the right to
receive certain royalty payments. There can be no assurance that Planets pending patent applications will
be approved, that Planet will develop additional proprietary materials or
processes that are patentable, that any patents issued to Planet or any of its
licenses will provide Planet with competitive advantages or will not be
successfully challenged by third parties or that the patents of others will not
have an adverse effect on the ability of Planet to conduct its business.
Furthermore, there can be no assurance that others will not independently
develop similar or superior technologies, duplicate any of Planets processes
or design around the patented materials developed by Planet. Planet believes
that its products, patents, trademarks and other proprietary rights do not
infringe the property rights of third parties. There can be no assurance,
however, that third parties will not assert infringement claims in the future.
It is possible that Planet may need to acquire licenses to, or to contest the
validity of, issued or pending patents of third parties relating to Planets
technology. There can be no assurance that licenses under such patents would be
made available to Planet on acceptable terms, if at all, or that Planet would
prevail in any such contest. In addition, Planet could incur substantial costs
defending itself in suits brought against the Company with respect to patents
or in bringing suits against other parties. Government Regulation Some end products into which Planets products are incorporated may be
subject to significant regulation and approval by federal, state and local
entities such as the Food and Drug Administration and the Environmental
Protection Agency. Similar regulatory agencies exist worldwide. Planet may be
required to provide its strategic partners with technical information on its
products to be used by their customers in the regulatory process. Planets
strategic partners and their customers will have primary responsibility for
obtaining any required governmental approvals. The approval process could be
costly and lengthy and potential sales of Planets products could be
significantly delayed and/or eliminated as to end products subject to such
regulatory approval. Employees During the year ended December 31, 2003, the Company had no employees.
Since January 1, 2003, four persons have provided consulting services to
Planet, one engaged in as-required research and development activities and
three in limited or part time administrative activities. 7




---



##### Table of Contents



Risk Factors History of Operating Losses. The year ended December 31, 2003 is the
first annual period in which the Company has shown net income. For the year
ended December 31, 2002, the Company had net losses of approximately $667,000.
For the year ended December 31, 2003, the Company had net income of
approximately $71,000 as a result of a gain from the sale of technology and
fixed assets. As of December 31, 2003, we had an accumulated deficit of
approximately $14.3 million. Since inception, Planet has generated minimal
revenues from product sales. Future Capital Needs; Uncertainty of Additional Funding. The Companys
future capital requirements will depend on when and if the Allergy Free
acquisition is completed and on many other factors, including  §
    
    the timing of market acceptance of Company products, including
products acquired from Allergy Free;§
    
    competing technological and market developments;§
    
    the costs involved in filing, prosecuting and enforcing patent claims, and§
    
    the receipt of note payments and earned royalties. We anticipate that our existing resources will be sufficient to maintain
our scaled back operations through at least May 31, 2004. We cannot guarantee
that changes in our plans or other events affecting our projected expenses will
not result in the expenditure of such resources before such time. We intend to seek additional funding through a private equity offering in
connection with the Allergy Free acquisition and may explore funding through
other public or private equity or debt financing. We cannot guarantee that
additional financing will be available on acceptable terms, or at all.
Insufficient funds may require the Company to file for bankruptcy protection
under Chapter 11 or Chapter 7 of the Bankruptcy laws. Allergy Free Acquisition Might Not be Completed.There are many
conditions to the completion of the Allergy Free acquisition, including,
without limitations, approval of the Company shareholders. If the transaction
is not completed, the costs and expenses incurred by Planet in connection with
pursuing the transaction will exceed Planets currently available funds to pay
such expenses, which will heighten the Companys need for additional funding. Continued Quotation On Over-the-Counter Bulletin Board. Planet stock was
delisted from the Nasdaq SmallCap Market effective July 19, 2001, and became
traded on the Over-the-Counter Bulletin Board on September 7, 2001, trading
under the symbol (POLY.OB). Penny Stock Regulations. With the delisting from Planets Common Stock
from the Nasdaq SmallCap Market and subsequent listing on Over-the-Counter
Bulletin Board, trading in our Common Stock is subject to the requirements of
Rule 15g-9 promulgated under the Securities Exchange Act of 1934, as amended
(the Exchange Act). Under such rule, broker/dealers who recommend such
low-priced securities to persons other than established customers and
accredited investors must satisfy special sales practice requirements,
including a requirement that they make an individualized written suitability
determination for the purchaser and receive the purchasers written consent
prior to the transaction. The Securities Enforcement Remedies and Penny Stock
Reform Act of 1990 also requires additional disclosure in connection with any
trades involving a stock defined as a penny stock (generally, according to
recent regulations adopted by the Commission, any equity security not traded on
an exchange or quoted on Nasdaq that has a market price of less than $5.00 per
share, subject to certain exceptions), including delivery, prior to any penny
stock transaction, of a disclosure schedule explaining the penny stock market
and the risks associated therewith. Such requirements could severely limit the
market liquidity of our Common Stock and the ability purchasers of our Common
Stock to sell such shares in the secondary market. Uncertainty of Market Acceptance. Our success prior to the Allergy Free
acquisition and thereafter if the acquisition is not completed will be largely
dependent upon the royalties and monies we receive from licensing agreements as
a result of the commercial acceptance of our technologies by the various
industries targeted by our 8




---



##### Table of Contents



products. There can be no certainty as to the amount of time required to
achieve full-scale commercialization, and the commercialization process of any
new product could take several years. We cannot guarantee that our products
will receive broad market acceptance as an economically acceptable alternative.
Broad market acceptance of our products will depend upon the ability of our
strategic partners to demonstrate to potential customers that our products can
compete favorably with alternative solutions. As in 2002, in 2003 the Company
focused on research and development and commercial support for Agways
FreshSeal commercial program and Agways Optigen 1200 development activities.
The Company no longer has a relationship with Agway. In 2004, the Company will
be focused on working with BASF to promote Fresh Seal® and Alltech to promote
Optigen®. In addition, beginning in 2003, the Company focused on research and
development, and commercial support for Ryer Enterprises AQUAMIM® Metal
Injection Molding commercialization. If the Allergy Free acquisition is
completed rights of the Company to receive royalties from existing technology
will be transferred to a trust for the benefit of Planet shareholders prior to
the acquisition and no longer available to Planet. Reliance on Strategic Relationships. Our technologies are designed to
serve multiple industries. An important part of our strategy is to promote
acceptance of our products through technology and product alliances with
certain strategic partners and their customers. Our dependence on these
customers raises certain risks with respect to the future success of our
business. Our success is dependent on the successful completion and commercial
deployment of our products and on the future commitment of these customers to
our products and technology. We cannot guarantee that our collaboration with
these partners and their customers will result in products that are accepted by
the customers or widely accepted in the marketplace. Uncertainty of Protection of Patents and Proprietary Rights. Planet
relies on a combination of patent and trade secret protection, non-disclosure
agreements and licensing arrangements to establish and protect our proprietary
rights. We have filed and intend to file applications as appropriate for
patents covering our products. We cannot guarantee that patents will issue from
any of the pending applications or, if patents do issue, that claims allowed
will be sufficiently broad to protect our technology. In addition, we cannot
guarantee that any issued patents will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide proprietary
protection to us. Since U.S. patent applications are maintained in secrecy
until patents issue, and since publication of inventions in the technical or
patent literature tend to lag behind such inventions by several months, we
cannot be certain that we were the first creator of inventions covered by our
issued patents or pending patent applications, that we were the first to file
patent applications for such inventions, or that we are not infringing on the
patents of others, which may subject us to claims of patent infringement.
Despite our efforts to safeguard and maintain our proprietary rights, we cannot
guarantee that we will be successful in doing so or that our competitors will
not independently develop or patent technologies that are substantially
equivalent or superior to our technologies. Shares Eligible for Future Sale. Sales of substantial amounts of our
Common Stock in the public market or the prospect of such sales by existing
shareholders could materially adversely affect the market price of our Common
Stock. As of December 31, 2003, we had outstanding 6,207,884 shares of Common
Stock. Virtually all of our outstanding shares of Common Stock are either
registered and therefore freely tradable or may be transferred pursuant to Rule
144(k) under the Securities Act, unless held by our affiliates as that term
is defined in Rule 144 under the Securities Act. Government Regulation. Certain end products into which our products are
expected to be incorporated are subject to extensive government regulation in
the United States by federal, state and local agencies including the EPA and
FDA. Similar regulatory agencies exist worldwide. Our customers who
incorporate our products into consumer products will bear primary
responsibility for obtaining any required regulatory approvals. The process of
obtaining and maintaining FDA and any other required regulatory approvals for
products is lengthy, expensive and uncertain, and regulatory authorities may
delay or prevent product introductions or require additional tests prior to
introduction. We cannot guarantee that changes in existing regulations or the
adoption of new regulations will not occur, which could prevent us or our
customers from obtaining approval or delay the approval of various products or
could adversely affect market demand for our products. Product Liability. Product liability claims may be asserted against us in
the event that the use of our products or products which incorporate our
products are alleged to have caused injury or other adverse effects, and such
claims may involve large amounts of alleged damages and significant defense
costs. We do not maintain product liability insurance. If we obtain product
liability insurance in the future, we cannot guarantee that the liability
limits or the 9




---



##### Table of Contents



scope of our insurance policy would be adequate to protect against such
potential claims. Additionally, we may not be able to obtain product liability
insurance. Whether or not we obtain such insurance, a successful claim against
us could have a material adverse effect on us. In addition, our business
reputation could be adversely affected by product liability claims, regardless
of their merit or eventual outcome. Absence of Dividends. We have not paid any cash dividends on our Common
Stock since our inception and do not anticipate paying cash dividends in the
foreseeable future. 
 ITEM 2. DESCRIPTION OF PROPERTY Our executive offices are located in approximately 5,000 square feet of
leased office space located at 635 Flanders Drive, Suite 100, San Diego,
California, 92121, subject to a month-to-month sublease. 
 ITEM 3. LEGAL PROCEEDINGS None 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 
 PART II. 
 ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Companys Common Stock trades on the OTC.BB under the symbol
POLY.OB. The following table sets forth the high and low sales prices of the
Companys Common Stock for the period from January 1, 2002 through December 31,
2003 as furnished by the OTC.BB. These prices reflect prices between dealers
without retail markups, markdowns or commissions, and may not necessarily
represent actual transactions: Trade PricesHigh
    
    LowFiscal year ended December 31, 2002First Quarter
    
    
    0.350
    
    
    
    0.110Second Quarter
    
    
    0.250
    
    
    
    0.130Third Quarter
    
    
    0.150
    
    
    
    0.130Fourth Quarter
    
    
    0.170
    
    
    
    0.030Fiscal year ended December 31, 2003First Quarter
    
    
    0.080
    
    
    
    0.010Second Quarter
    
    
    0.100
    
    
    
    0.050Third Quarter
    
    
    0.060
    
    
    
    0.050Fourth Quarter
    
    
    0.070
    
    
    
    0.030
 On March 22, 2004, the last reported sale price of the Companys Common
Stock on the Over-the-Counter Bulletin Board was $0.06. As of March 22, 2004,
there were approximately 177 holders of record of the Companys Common Stock
with 6,207,884 shares outstanding. The market price of shares of Common Stock,
like that of the common stock of many other emerging growth companies, has been
and is likely to continue to be highly volatile. The Company has never declared or paid a cash dividend. The Company has
not paid and does not intend to pay any Common Stock dividends to Common Stock
shareholders in the foreseeable future and intends to retain any future
earnings to fund the Companys operations. Any payment of dividends in the
future will depend upon the Companys earnings, capital requirements, financial
condition and such other factors as the Board of Directors may deem relevant. 10




---



##### Table of Contents



However, in connection with the Allergy Free acquisition, if it is
consummated, the Company intends to distribute to holders of record of the
Companys common stock as of the record date for the meeting called to vote on
approval of the acquisition, the right to receive royalties under the
agreements relating to the Companys AQUAMIM, Optigen, and FreshSeal product
technologies investors should read the Proxy Statement to be filed and
distributed in connection with soliciting proxies for approval of the
acquisition for a discussion of the tax consequences of this distribution. In May 2003, in connection with the agricultural feed agreement, Agway
assigned and transferred to the Company all of Agways shares of Planet Common
Stock, reducing the current outstanding Common Stock from 9,207,884 to
6,207,884 outstanding. Recent Sales of Unregistered Securities No shares were issued or sold by the Company during 2003. 
 ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview 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 in Item 1 -
Description of Business, including the section therein entitled Risk
Factors, this Item 6, and those discussed in any documents incorporated herein
by reference. Since the Company was founded in 1991, with the exception of resources
expended in connection with the purchase and ongoing operation of Deltco,
substantially all of the Companys resources have been devoted to the
development and commercialization of its technologies and products. This has
included the expenditure of funds to develop the Companys corporate
infrastructure, support the Companys marketing efforts and establish a pilot
production facility, in addition to research and development. In January 2000,
Planet sold its wholly-owned subsidiary, Deltco, a manufacturer and reprocessor
of plastic resins located in Ashland, Wisconsin. Planet incurred operating
losses since inception through December 31, 2002. For the year ended December
31, 2003, Planet showed a net income of approximately $71,000 and reduced its
accumulated deficit from approximately $14.4 million to approximately $14.3
million. On March 18, 2004, the Company and Allergy Free, LLC, a California limited
liability company (Allergy Free), entered into an Asset Purchase Agreement
(Agreement) in which the Company will acquire substantially all of the assets
of Allergy Free and assume certain of its liabilities for which the Company
will provide the following consideration; a subordinated note in the principal
amount not to exceed approximately $2.8 million for a term of 3 years and not
less than 28,193,900 shares of Common Stock in Planet. At March 18, 2004, the
market value of the Companys common stock was $.06 per share. Immediately prior to the Closing, the Company will distribute to a trustee
for the benefit of Company Shareholders of record as of April 15, 2004 (the
Trust), the right to receive all royalties payable to the Company pursuant to
those certain Sale and Licensing Agreements between the Company and Agway,
Inc., relating to Planets FreshSeal® and Optigen® technology and that certain
Purchase, Sale and License Agreement between the Company and Ryer Enterprises,
LLC, relating to Planets AQUAMIM® technology. The Agreement is subject to a number of conditions including without
limitation, approval of Planet shareholders, approval of Allergy Free members,
a 50 to 1 reverse stock split, the receipt of a No Action Letter from the SEC
relating to the distribution of the right to receive royalty payments to the
Trust, the hiring of Scott L. Glenn as President and Chief Executive Officer of
the Company, and an executed consulting agreement with Dr. Robert Petcavich. 11




---



##### Table of Contents



The Application of Critical Accounting Policies Use of Estimates  The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Revenue Recognition  Product sales revenue is recognized when all of the
following conditions are met: the product is shipped, Planet has the right to
invoice the customer at a fixed price, the collection of the receivable is
probable and there are no significant obligations remaining. Research and
development revenues from customers other than Agway and reimbursement of
research and development costs by Agway are not refundable if the research is
unsuccessful. The research and development revenues from customers other than
Agway are recognized when services have been rendered and any related products
have been shipped, at which time the customer is obligated to pay for those
services. The revenues for reimbursed research and development costs for Agway
are recognized when costs related to services performed and any related
products have been shipped, at which time Agway is obligated to reimburse these
costs. Royalties are recognized when the amounts are determinable and
collectibility is reasonably assured. Research and Development  Company sponsored research and development
costs related to future products and redesign of present products are expensed
as incurred. Patents, Trademarks and License Agreements  Costs incurred to obtain
patents, trademarks, and license agreements, principally legal fees, are
capitalized. The Company amortizes these costs on a straight-line basis over
fifteen years. Long-Lived Assets  Long-lived assets, such as property and equipment and
patents, trademarks, and license agreements, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Impairment losses are recognized when
events or changes in circumstances indicate that the undiscounted cash flows
estimated to be generated by such assets are less than their carrying value
and, accordingly, all or a portion of such carrying value may not be
recoverable. Impairment losses for assets to be held and used are then measured
based on the excess, if any, of the carrying amounts of the assets over their
fair values. Long-lived assets to be disposed of in a manner that meets certain
criteria are stated at the lower of their carrying amounts or fair values less
costs to sell and are no longer depreciated. Related Party Transactions On January 11, 1999, Agway became a beneficial owner of more than 10% of
the Companys Common Stock. Agway retained this interest until December 2003,
when, Agway assigned and transferred to the Company all of Agways shares of
Planet Common Stock. Currently, Agway holds no equity interest in the Company. In November 1998, the Company and Agway entered into an agreement relating
to the funding by Agway of a feasibility study (the Feasibility Agreement) of
the Companys polymer technology for use in agricultural products (other than
fertilizers and certain biological products) and food products. Under the terms
of the Feasibility Agreement, Planet will be reimbursed for certain qualifying
research and development costs relating to such applications. During 2002, the
Company recorded revenues for reimbursed research and development costs of
$102,839 from Agway under the Feasibility Agreement. Also in November 1998, the Company granted Agway an exclusive worldwide
license in connection with the Companys technology for time-release coatings
for a variety of agricultural and food products (the License Agreement). The
License Agreement outlines the general terms and conditions for the rights
granted Agway thereunder. The Company and Agway agreed to execute further
sub-agreements specifying the royalties to be paid to the Company for Agways
use of the Companys technology with certain products. In March 2000, the
Company and Agway entered into a Sub-Agreement with respect to animal feed
products incorporating Planets patented/patent pending coatings and/or polymer
systems. Also in March 2000, the Company and Agway entered into another
Sub-Agreement with respect to Planets patented/patent pending coatings and/or
polymer systems sold 12




---



##### Table of Contents



for use on fruits, vegetables, floral and nursery items. During 2001, the
Company received a $100,000 royalty payment from Agway. After receiving
proceeds from Agway, pursuant to its royalty payment in October 2001, the
Company was required to pay a $6,000 cash transaction fee to an advisor. This
payment was made on January 24, 2002 and shown in accounts payable at December
31, 2001. No royalties were received or accrued by the Company under the
agreement with Agway in 2002. On October 1, 2002, Agway, Inc. filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code. The Sub
Agreement covering the FreshSeal® technology and license provided for a minimum
royalty of $300,000 on or before October 31, 2002 to maintain exclusivity. This
payment was not received or accrued by Planet. Pursuant to the Sub-Agreement,
Planet notified Agway that the payment was not received. Under the terms of the
Sub-Agreement, Agway had sixty (60) days during which Agway could make the
necessary payment and retain market exclusivity for this technology. Agway did
not make payment of the minimum royalty as of December 31, 2002. As a result of
this failure by Agway to make payment, Planet had the right to issue additional
non-exclusive licenses for this technology to other interested parties in the
fruit, vegetable, nuts and flowers segments of the agricultural products
industry. To consummate the sale and assignment contemplated by the letter agreement
dated November 14, 2000, the Company and Agway agreed on the form of two
separate Sale and Licensing Agreements with respect to the agricultural feed
technologies and the fruit/produce technologies. On March 25, 2003, with the
approval of the U.S. Bankruptcy Court, the Company and Agway entered into the
two separate Sale and Licensing Agreements. Under the Sale and Licensing
Agreements, the Company confirmed (i) the assignment of its agricultural feed
related patent rights and fruit/produce related patent rights and (ii) the
license of its technology related to the agricultural feed products and
fruit/produce products, to Agway. In return, the Company will received an
up-front payment of $30,000 for its execution of the agricultural feed
agreement and a payment of $100,000 for its execution of the fruit/produce
agreement, and will also receive a sales royalty based on net revenues
generated from product sales. Agway also granted the Company exclusive,
irrevocable, worldwide, royalty-free limited licenses to use the assigned
patents rights for uses other than food and agricultural initiatives. In
connection with the agricultural feed agreement, Agway also agreed to assign
and transfer to the Company all of Agways shares of Planet common stock. Under
the fruit/produce agreement, Agway entered into an agreement to sell all of the
assets of its FreshSeal® business, which include the fruit/produce patent
rights assigned by the Company, to BASF. In January 2004, Agway also sold all
of its right and interest in Optigen® to Alltech. Management cannot assure that
the Company will receive significant, if any, royalties and monies under these
Sale and Licensing Agreements. New Accounting Pronouncements Recent Accounting Pronouncements.Statement of Financial Accounting
Standards SFAS No. 149, Amendment of Statement 133 on Derivative Instruments
and Hedging Activities, and SFAS No. 150 Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity Interpretation
No. 46 (FIN46), Consolidation of Variable Interest Entities and
Interpretation of ARB No. 51, and FIN46® which revised certain provisions of
FIN46, were recently issued. SFAS No.146, 149 and 150, FIN 45, 46 and FIN46®
have no current applicability to us or their effect on the financial statements
would not have been significant. The adoption of these new pronouncements did not have or is not expected
to have a material effect on the Companys financial position or results of
operations. Results of Operations The Companys revenues increased approximately $13,000 to approximately
$175,000 for the year ended December 31, 2003, from approximately $162,000 for
the year ended December 31, 2002. This increase is primarily due to the
restructuring of the Companys agreements with Agway, Inc., pursuant to which
Agway paid the Company certain royalty and other payments for 2003. Cost of revenues decreased approximately $105,000 to approximately $5,000
for the year ended December 31, 2003, from approximately $110,000 for the year
ended December 31, 2002. This decrease was primarily due to the fact the
Company no longer directly sells any products. 13




---



##### Table of Contents



General and administrative expenses decreased $78,000 to approximately
$390,000 for the year ended December 31, 2003, from approximately $468,000 for
the year ended December 31, 2002. This decrease was primarily attributable to
the reduction of all remaining staff which was offset in part by increased
legal expenses related to the restructuring of the agreements with Agway and
the recovery and sale of the AQUAMIM technology and assets. The Company incurred no marketing expenses for the year ended December 31,
2003, resulting in a decrease of approximately $100,000 for the same period
ended December 31, 2002. The Company anticipates limited or no further
marketing activities, until the Allergy Free acquisition is completed. The Company incurred no research and development expenses for the period
ended December 31, 2003, compared to approximately $118,000 for the year ended
December 31, 2002. The Company anticipates limited or no further research and
development activities on new products. Other income, net, increased approximately $262,000 to approximately
$291,000 for the year ended December 31, 2003, from approximately $29,000 for
the year ended December 31, 2002. This increase was primarily attributable to
the gain on sale of technology and fixed assets to Ryer Enterprises. The Companys net income increased to approximately $71,000 for the year
ended December 31, 2003, compared to a net loss of approximately $667,000
during the year ended December 31, 2002. As of December 31, 2003, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $12,600,000 and for California
state tax purposes of approximately $3,500,000. During the period from 1998
through 2000, certain ownership changes occurred. As a result, the Companys
annual utilization of net operating loss and tax credit carryforwards may be
limited as defined by Sections 382 and 383 of the Internal Revenue Code. Due to
the possible limitation under Sections 382 and 383 of the Internal Revenue Code
and Planets lack of historical taxable income, the Company has recorded a full
valuation allowance for deferred tax assets. Utilization of loss carryforwards
will be further limited by the change of control that will occur assuming the
completion of the Allergy Free acquisition. Liquidity and Capital Resources The Company used approximately $140,000 for continuing operations for the
year ended December 31, 2003. Such funds were used primarily for
administrative support. Net cash provided by investing activities of approximately $138,000 for
the year ended December 31, 2003 primarily resulted from payments on notes
receivable and the sale of assets. The Company incurred no expenses related to financing activities for the
year ended December 31, 2003. The Company does not believe that its existing sources of liquidity and
anticipated revenue will satisfy the Companys projected working capital and
other cash requirements through December 31, 2004. In connection with the
Allergy Free acquisition, the Company plans to raise approximately $2.0 million
in a private equity placement. The ability of the Company to raise this
additional capital will be dependent on many factors, including how investors
in the private equity markets evaluate the combination of the Company with
Allergy Free and the combined companies prospects going forward. Therefore
the Companys ability to raise $2.0 million of additional capital is uncertain
and the Company and Allergy Free may proceed with the acquisition whether or
not such additional capital is raised. If the Company is unable to complete
the Allergy Free acquisition and raise additional capital, legal and accounting
expenses incurred by the Company in connection with the transaction will exceed
the liquid assets of the Company to pay such expenses and the Company will need
to raise additional capital, explore alternative transactions, or reach
agreements with the service providers to provide for the payment of these
expenses. Management cannot provide any assurance that the Company will be
successful in satisfying future working capital and other cash requirements
past May 31, 2004. If it cannot, the Company may have to cease operations and
liquidate its assets and liabilities and prepare its financial statements on a
liquidation basis instead of a going concern basis. 14




---



##### Table of Contents



ITEM 7. FINANCIAL STATEMENTS The information required by this item is included in the Appendix attached
hereto and incorporated by reference. 
 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None 
 ITEM 8A. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES We maintain disclosure controls and procedures designed to provide
reasonable assurance that information required to be disclosed in the reports
we file with the SEC is recorded, processed, summarized and reported within the
time periods specified in the rules of the SEC. As of December 31, 2003, we
carried out an evaluation, under the supervision and the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the design and operation of these disclosure controls and procedures
pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective in timely alerting him to material
information relating to the Company required to be included in our periodic SEC
filings. 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. 
 PART III. 
 ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT The information required by this item is incorporated by reference from
Issuers Definitive Proxy Statement to be filed with the Commission pursuant to
Regulation 14A in connection with its 2004 Annual Meeting of Shareholders (the
Proxy Statement) under the headings Proposal 5  Election of Directors,
Compliance with Section 16(a) of the Securities Exchange Act of 1934, and
Additional Information  Management. 
 ITEM 10. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference from
the Proxy Statement under the heading Executive Compensation. 
 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference from
the Proxy Statement under the heading Security Ownership of Certain Beneficial
Owners and Management. 
 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference to the
Proxy Statement under the heading Certain Relationships and Related
Transactions. 15




---



##### Table of Contents



ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. (a) 1. Financial Statements. Financial statements are attached as the
Appendix to this report. The index to the financial statements is found on page
F-1 of the Appendix. 2. Financial Statement Schedules. All schedules are omitted since the
required information is not present or is not present in amounts sufficient to
require a submission of the schedules, or because the information required is
included in the financial statements and notes thereto. 3. Exhibits. See Exhibit Index in part (c), below. (b) Reports on Form 8-K: 1. On May 14, 2003, the Company filed a Current Report on Form 8-K to
report the issuance of a press release dated May 13, 2003, announcing the
Companys financial results for the first quarter of the 2003 fiscal year. 2. On August 22, 2003, the Company filed a Current Report on Form 8-K to
report the issuance of a press release dated August 22, 2003, announcing its
financial results for the second quarter of the 2003 fiscal year. 3. On November 14, 2003, the Company filed a Current Report on Form 8-K to
report the issuance of a press release dated November 19, 2003, announcing its
financial results for the second quarter of the 2003 fiscal year. 4. On March 23, 2004, the Company filed a Current Report on Form 8-K to
report the issuance of a press release dated March 22, 2004, announcing its
financial results for the 2003 fiscal year, the acquisition of the assets of
Allergy Free and related matters. (c)
    
    
    Exhibit Number
    
    Description.2.1
    (26)
    
    Asset Purchase Agreement dated March 18, 2004, between the Company and
Allergy Free.3.1
    (1)
    
    Restated Articles of Incorporation of the Registrant.3.2
    (1)
    
    Restated Bylaws of the Registrant.3.3
    (6)
    
    Amended and Restated Certificate of Determination of Preferences of
Series A Convertible Preferred Stock.4.1
    
    
    Reference is made to Exhibits 3.1, 3.2 and 3.3.4.2
    (1)
    
    Form of warrant issued to Underwriters.4.3
    (1)
    
    Form of Class B Warrant, with related schedule of warrantholders.4.4
    (1)
    
    Warrant issued to Reynolds Kendrick Stratton.4.5
    (1)
    
    Form of warrant issued to advisors, with related schedule of
warrantholders.4.6
    (1)
    
    Specimen Stock Certificate.4.7
    (2)
    
    Non-statutory Stock Options granted in September 1994 to Dr. Petcavich
and Messrs. Wright and To.4.8
    (1)
    
    Warrant issued to Am-Re Services, Inc.5.1
    (16)
    
    Opinion of Blanchard Krasner & French, APC.
 16




---



##### Table of Contents



(c)
    
    
    Exhibit Number
    
    Description.10.1
    (1)
    
    Form of Indemnity Agreement entered into between the Registrant and
each of its executive officers and directors.10.2
    (1)
    
    Registrants 1995 Stock Option Plan (the 1995 Option Plan).10.3
    (1)
    
    Form of Incentive Stock Option Grant under the 1995 Option Plan.10.4
    (1)
    
    Form of Non-statutory Stock Option Grant under the 1995 Option Plan.10.5
    (1)
    
    Standard Industrial Gross Lease, dated June 1, 1992, between the
Registrant and The Trustees Under the Will and of the Estate of James
Campbell, Deceased, as amended August 13, 1992 and May 3, 1994.10.6
    (1)
    
    Agreement to Assign Proprietary Rights between the Registrant and Dr.
Robert J. Petcavich.10.7
    (1)
    
    Form of Confidential Information Agreement entered into between the
Registrant and its employees.10.8
    (3)
    
    Purchase and Sale Agreement dated as of January 1, 1996, by and among
the Registrant, Deltco of Wisconsin, Inc., and Jack G. Martinsen.10.9
    (4)
    
    Executive Employment Agreement dated January 1, 1996, between the
Registrant and Dr. Robert J. Petcavich.10.10
    (10)
    
    Executive Employment Agreement dated November 18, 1998 and effective
January 1, 1999, between the Registrant and Dr. Robert J. Petcavich.10.11(5
    )(9)
    
    Technology Development and License Agreement, dated January 30, 1995,
between the Registrant and Cominco Fertilizers, Ltd.10.12
    (5)
    
    Fourth Amendment to Lease, dated August 1, 1997 between the Registrant
and The Trustees Under the Will and of the Estate of James Campbell.10.13
    (6)
    
    Securities Purchase Agreement, dated September 19, 1997, between the
Registrant and Special Situations Private Equity Fund, L.P.10.14
    (6)
    
    Warrant to Purchase Common Stock, dated September 24, 1997, issued by
the Registrant to Special Situations Private Equity Fund, L.P.10.15
    (8)
    
    Stock Purchase Agreement, dated November 12, 1998 between the
Registrant and Agway Inc.10.16
    (8)
    
    Warrant to Purchase Common Stock, dated January 11, 1999, issued by the
Registrant to Agway Inc.10.17
    (10)
    
    Registration Rights Agreement, dated January 11, 1999, between the
Registrant and Agway Inc.10.18
    (10)
    
    Product Feasibility Agreement dated as of November 12, 1998 between the
Registrant and Agway Consumer Products, Inc.10.19
    (10)
    
    License Agreement dated as of November 12, 1998 between the Registrant
and Agway Consumer Products, Inc.
 17




---



##### Table of Contents



(c)
    
    
    Exhibit Number
    
    Description.10.20
    (11)
    
    Amendment No.1 dated as of February 25, 1999 to the Form of the Warrant
dated January 11, 1999 issued by the Registrant to Agway Inc.10.21
    (13)
    
    Warrant to Purchase Common Stock, dated March 29, 1999, issued by the
Registrant to LBC Capital Resources, Inc.10.22
    (12)
    
    Amended Technology Development and License Agreement, dated June 23,
1999, between the Registrant and Agrium Inc. (formerly known as Cominco
Fertilizers Ltd.).10.23
    (13)
    
    Sub-Agreement to License Agreement (Animal Feed) effective as of March
1, 2000 between the Registrant and Agway Inc.10.24
    (13)
    
    Sub-Agreement to License Agreement (Fruits, Vegetables, Etc.) effective
as of March 1, 2000 between the Registrant and Agway Inc.10.25
    (13)
    
    Warrant to Purchase Common Stock, dated March 9, 2000, issued by the
Registrant to LBC Capital Resources, Inc.10.26
    (14)
    
    Registrants 2000 Stock Incentive Plan (the 2000 Plan).10.27
    (14)
    
    Form of Incentive Stock Option Grant under the 2000 Plan.10.28
    (14)
    
    Form of Non-statutory Stock Option Grant under the 2000 Plan.10.29
    (16)
    
    Private Equity Line of Credit Agreement dated August 15, 2000 and
Exhibits.10.30
    (16)
    
    Letter dated September 11, 2000 amending the Private Equity Line of
Credit Agreement.10.31
    (17)
    
    Employment Agreement with Richard C. Bernier.10.32
    (17)
    
    Warrant to purchase Common Stock, dated March 20, 2001, issued by the
Registrant to LBC Capital Resources, Inc.10.33
    (18)
    
    Purchase and Sale Agreement dated as of December 21, 2001 between
Planet Polymer Technologies, Inc. and Ryer Industries LLC and
Consulting Agreement between Planet Polymer Technologies, Inc. and Ryer
Industries LLC dated as of December 21, 2001.10.34
    (18)
    
    First Amendment to Executive Agreement for Robert J. Petcavich, dated
December 17, 2001.10.35
    (18)
    
    First Amendment to Executive Agreement for Richard C. Bernier, dated
December 17, 2001.10.36
    (19)
    
    Forbearance and Stipulated Confession of Judgment Agreement between
Planet Polymer Technologies, Inc. and Ryer Industries LLC.10.37
    (20)
    
    Amendment to Forbearance and Stipulated Confession of Judgment
Agreement between Planet Polymer Technologies, Inc. and Ryer Industries
LLC.10.38
    (20)
    
    Form of Sale and License Agreement dated March 2003 with Agway, Inc.
(animal feed products).
 18




---



##### Table of Contents



(c)
    
    
    Exhibit Number
    
    Description.10.39
    (20)
    
    Form of Sale and License Agreement dated March 2003 with Agway, Inc.
(fruit and vegetable products).10.40
    (20)
    
    Form of First Amendment to License Agreement with Agway, Inc.10.41
    (20)
    
    Form of Consulting Agreement with Richard Bernier.10.42
    (20)
    
    Form of Consulting Agreement with Robert Petcavich.10.43(20
    )(21)
    
    Form of Purchase Sale and License Agreement dated May 1, 2003, with
Ryer Enterprises, LLC.10.44(20
    )(21)
    
    Form of Secured Promissory Note dated May 1, 2003, with Ryer
Enterprises, LLC.10.45
    
    
    Form of Amendment dated January 31, 2004, to Purchase, Sale and License
Agreement with Ryer Enterprises, LLC.11.1(13
    )(15)
    
    Statement of Computation of Common and Common Equivalent Shares.23.1
    
    
    Consent of Blanchard Krasner & French, APC.23.2
    
    
    Consent of J.H. Cohn LLP.24.1
    
    
    Power of Attorney (included on
signature page).31.1
    
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200299.1
    (23)
    
    Form of Press Release dated May 13, 2003, announcing Company first
quarter, 2003 results.99.2
    (24)
    
    Form of Press Release dated August 22, 2003, announcing Company second
quarter, 2003 results.99.3
    (25)
    
    Form of Press Release dated November 19, 2003, announcing Company third
quarter, 2003 results.99.4
    (26)
    
    Form of Press Release dated March 22, 2004, announcing Company 2003
yearend results and other matters.
 (1) Previously filed as an exhibit to the Registrants Registration
Statement on Form SB-2, as amended (No. 33-91984 LA) and
incorporated herein by reference. (2) Previously filed as an exhibit to the Registrants Registration
Statement on Form S-8 (No. 333-1042) filed on February 5, 1996 and
incorporated herein by reference. (3) Previously filed as an exhibit to the Registrants Current
Report on Form 8-K filed on January 11, 1996, as amended by the
Registrants Current Report on Form 8-K/A (Amendment No. 1) filed
on March 15, 1996 and incorporated herein by reference. (4) Previously filed as an exhibit to the Registrants Annual
Report on Form 10-KSB filed for the fiscal year ended December 31,
1995 and incorporated herein by reference. 19




---



##### Table of Contents



(5) Previously filed as an exhibit to the Registrants Quarterly
Report on Form 10-QSB for the quarter ended June 30, 1997 and
incorporated herein by reference. (6) Previously filed as an exhibit to the Registrants Registration
Statement on Form S-3 (No. 333-39845) filed on November 7, 1997,
amended on December 31, 1997 and incorporated herein by reference. (7) Previously filed as an exhibit to the Registrants Annual
Report on Form 10-KSB filed for the fiscal year ended December 31,
1997 and incorporated herein by reference. (8) Previously filed with the Registrants Definitive Proxy
Statement filed on December 14, 1998 and incorporated herein by
reference. (9) Confidential treatment has been requested with respect to
certain portions of this exhibit. Omitted portions will be filed
separately with the Securities and Exchange Commission. (10) Previously filed as an exhibit to the Registrants Annual
Report on Form 10-KSB filed for the fiscal year ended December 31,
1998 and incorporated herein by reference. (11) Previously filed as an exhibit to the Registrants Quarterly
Report on Form 10-QSB for the quarter ended March 31, 1999 and
incorporated herein by reference. (12) Previously filed as an exhibit to the Registrants Quarterly
Report on Form 10-QSB for the quarter ended June 30, 1999 and
incorporated herein by reference. (13) Previously filed as an exhibit to the Registrants Annual
Report on Form 10-KSB filed for the fiscal year ended December 31,
1999 and incorporated herein by reference. (14) Previously filed as an exhibit to the Registrants
Registration Statement on Form S-8 (No. 333-38500) filed on June 2,
2000 and incorporated herein by reference. (15) Previously filed as an exhibit to the Registrants Quarterly
Report on Form 10-QSB for the quarter ended June 30, 2000. (16) Previously filed as an exhibit to the Registrants
Registration Statement on Form SB-2 (No. 333-46474), as amended by
the Registrants Registration Statement on Form SB-2 (Amendment No.
2) and incorporated herein by reference. (17) Previously filed as an exhibit to the Registrants Quarterly
Report on Form 10-QSB for the quarter ended March 31, 2001. (18) Previously filed as an exhibit to the Registrants Current
Report on Form 8-K filed on January 10, 2002, and incorporated
herein by reference. (19) Previously filed as an exhibit to the Registrants Quarterly
Report on Form 10-QSB for the quarter ended September 30, 2002. (20) Previously filed as an exhibit to the Registrants Annual
Report on Form 10-KSB filed for the fiscal year ended December 31,
2002 and incorporated herein by reference. (21) Previously filed as an exhibit to the Registrants Quarterly
Report on Form 10-QSB for the quarter ended March 31, 2003. (22) Previously filed as an exhibit to the Registrants Quarterly
Report on Form 10-QSB for the quarter ended June 30, 2003. 20




---



##### Table of Contents



(23) Previously filed as an exhibit to the Registrants Form 8K
filed May 14, 2003 Report. (24) Previously filed as an exhibit to the Registrants Form 8K
filed August 22, 2003 Report. (25) Previously filed as an exhibit to the Registrants Form 8K
filed November 14, 2003 Report. (26) Previously filed as an exhibit to the Registrants Form 8K
filed March 23, 2004 Report. 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Audit Fees For professional services rendered by the principal accountant for the
audit of the Companys annual financial statements and review of financial
statements included in the Companys Form 10-QSB. The aggregate fees billed by
the Companys principal accountant, J.H. Cohn LLP, for 2003 and 2002 were
$21,850 and $18,255, respectively. Audit Related Fees The aggregate fees billed in 2003 and 2002 by the Companys principal
accountant for assurance and related services by the principal accountant that
are reasonably related to the performance of the audit or review of the
Companys financial statements are in the amount of $0 and $702, respectively. Tax Fees No fees were billed in 2003 and 2002 by the Companys principal accountant
for tax compliance, tax advice and tax planning. All Other Fees No fees were billed in 2003 and 2002 by the Companys principal accountant
for any other services, other than Audit Fees and Audit Related Fees. 21




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized. PLANET POLYMER TECHNOLOGIES, INC.Dated March 30, 2004
    
    By: /s/ H. M. BusbyH. M. BusbyChief Executive Officer
 
 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert J. Petcavich, his attorney-in-fact, each
with the power of substitution, for him, in any and all capacities, to sign any
amendments to this report, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and conforming all that each the attorney in-fact,
or his substitute may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ Robert J. Petcavich
    
    Chairman
    
    March 30, 2004Robert J. Petcavich/s/ H. M. Busby
    
    Director and Chief Executive Officer
    
    March 30, 2004(Principal Executive Officer)H. M. Busby
    
    (Principal financial Accounting Officer)/s/ Ronald B. Sunderland
    
    Director
    
    March 30, 2004Ronald B. Sunderland
 22




---



##### Table of Contents



INDEX TO FINANCIAL STATEMENTS - ITEM 7 OF FORM 10-KSB Report of Independent Public Accountants
    
    
    F-2Financial Statements and Notes:Balance Sheet as of December 31, 2003
    
    
    F-3Statements of Operations for the Years Ended December 31, 2003 and 2002
    
    
    F-4Statements of Shareholders Equity for the Years Ended December 31, 2003 and 2003
    
    
    F-5Statements of Cash Flows for the Years Ended December 31, 2003 and 2002
    
    
    F-6Notes to Financial Statements
    
    
    F-7
 F - 1




---



##### Table of Contents



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders
Planet Polymer Technologies, Inc. We have audited the accompanying balance sheet of Planet Polymer Technologies,
Inc. as of December 31, 2003, and the related statements of operations,
shareholders equity and cash flows for the years ended December 31, 2003 and
2002. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Planet Polymer Technologies,
Inc. as of December 31, 2003, and its results of operations and cash flows for
the years ended December 31, 2003 and 2002, in conformity with accounting
principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has an accumulated deficit at December 31,
2003 of $14,339,616. These matters, among others, raise substantial doubt about
the Companys ability to continue as a going concern. Managements plans in
regard to these matters are also described in Note 3. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty. /s/ J. H. Cohn LLP San Diego, California
March 18, 2004 F - 2




---



##### Table of Contents



PLANET POLYMER TECHNOLOGIES, INC. 
 BALANCE SHEET December 31,2003ASSETSCurrent assets:Cash
    
    $
    18,544Accounts receivable
    
    
    16,507Note receivable
    
    
    129,097Prepaid expenses
    
    
    3,880Total current assets
    
    
    168,028Patents, trademarks and license agreements, net of accumulated amortization of $77,996
    
    
    153,340Note receivable
    
    
    56,507Total assets
    
    $
    377,875LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities: Accounts payable
    
    $
    68,500Commitments and contingenciesShareholders equity:Preferred Stock, no par value4,250,000 shares authorizedNo shares issued or outstanding
    
    
    Series A Convertible Preferred Stock, no par value750,000 shares authorizedNo shares issued or outstanding
    
    
    Common Stock, no par value20,000,000 shares authorized6,207,884 shares issued and outstanding
    
    
    11,648,991Additional paid-in capital
    
    
    3,000,000Accumulated deficit
    
    
    (14,339,616
    )Total shareholders equity
    
    
    309,375Total liabilities and
shareholders equity
    
    $
    377,875
 F - 3




---



##### Table of Contents



PLANET POLYMER TECHNOLOGIES, INC. STATEMENTS OF OPERATIONS Years ended December 31,2003
    
    
    
    2002Revenues
    
    $
    175,082
    
    
    $
    162,073Operating expenses:Cost of revenues
    
    
    4,707
    
    
    
    110,213General and administrative
    
    
    390,549
    
    
    
    468,024Marketing
    
    
    
    
    
    
    99,572Research and development
    
    
    
    
    
    
    117,594Loss from impairment of assets
    
    
    
    
    
    
    62,159Total operating expenses
    
    
    395,256
    
    
    
    857,562Loss from operations
    
    
    (220,174
    )
    
    
    (695,489
    )Other income, net
    
    
    291,482
    
    
    
    28,839Net income (loss)
    
    $
    71,308
    
    
    $
    (666,650
    )Net income (loss) per share (basic and
diluted)
    
    $
    0.01
    
    
    $
    (0.07
    )Weighted average shares outstanding used in per share computations
    
    
    6,947,610
    
    
    
    9,205,452
 F - 4




---



##### Table of Contents



PLANET POLYMER TECHNOLOGIES, INC. 
 STATEMENTS OF SHAREHOLDERS EQUITY Common Stock
    
    Additional
    
    AccumulatedShares
    
    Amount
    
    Paid-in Capital
    
    Deficit
    
    TOTALBeginning at January 1, 2002
    
    
    9,165,618
    
    
    $
    14,575,783
    
    
    
    
    
    
    $
    (13,744,274
    )
    
    $
    831,509Issuance of Common Stock for services
    
    
    42,266
    
    
    
    6,340
    
    
    
    
    
    
    
    
    
    
    
    6,340Write-off of equity issuance costs
    
    
    
    
    
    
    66,868
    
    
    
    
    
    
    
    
    
    
    
    66,868Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (666,650
    )
    
    
    (666,650
    )Balance at December 31, 2002
    
    
    9,207,884
    
    
    
    14,648,991
    
    
    
    
    
    
    
    (14,410,924
    )
    
    
    238,067Common Stock received in Agway
contract amendment and retired
    
    
    (3,000,000
    )
    
    
    (3,000,000
    )
    
    $
    3,000,000
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,308
    
    
    
    71,308Balance at December 31, 2003
    
    
    6,207,884
    
    
    $
    11,648,991
    
    
    $
    3,000,000
    
    
    $
    (14,339,616
    )
    
    $
    309,375
 F - 5




---



##### Table of Contents



PLANET POLYMER TECHNOLOGIES, INC. 
 STATEMENTS OF CASH FLOWS Years ended December 31,2003
    
    2002Cash flows from operating activities:Net income (loss)
    
    $
    71,308
    
    
    $
    (666,650
    )Adjustments to reconcile net income (loss) to net cash
used in operating activities:Depreciation and amortization
    
    
    18,997
    
    
    
    28,258Bad debts
    
    
    10,012
    
    
    
    80,000Loss from impairment of assets
    
    
    
    
    
    
    62,159Loss(gain) on sale of property and equipment
    
    
    2,170
    
    
    
    (13,500
    )Gain on sale of long lived assets
    
    
    (275,610
    )
    
    
    Effect of write off of Common Stock offering costs
    
    
    
    
    
    
    66,868Issuance of Common Stock for services
    
    
    
    
    
    
    6,340Changes in assets and liabilities:Accounts receivable
    
    
    8,154
    
    
    
    76,263Prepaid expenses and other assets
    
    
    12,093
    
    
    
    48,461Accounts payable
    
    
    40,684
    
    
    
    (13,101
    )Accrued expenses
    
    
    (21,942
    )
    
    
    (70,324
    )Net cash used in operating activities
    
    
    (134,134
    )
    
    
    (395,226
    )Cash flows from investing activities:Proceeds from the sale of property and equipment
    
    
    1,775
    
    
    
    13,500Proceeds from notes receivable
    
    
    136,122
    
    
    
    145,254Net cash provided by investing activities
    
    
    137,897
    
    
    
    158,754Cash flows from financing activities:Principal payments on borrowings and capital lease obligations
    
    
    
    
    
    
    (40,226
    )Net cash used in financing activities
    
    
    
    
    
    
    (40,226
    )Net increase (decrease) in cash
    
    
    3,763
    
    
    
    (276,698
    )Cash at beginning of year
    
    
    14,781
    
    
    
    291,479Cash at end of year
    
    $
    18,544
    
    
    $
    14,781Supplemental cash flow disclosure:Cash paid during the year for:Interest
    
    
    
    
    
    $
    1,724Non-cash investing and financing activities:Note receivable accepted as part of consideration for sale of AQUAMIM® assets
    
    $
    256,854Issuance of Common Stock for services
    
    
    
    
    
    
    6,340
 F - 6




---



##### Table of Contents



PLANET POLYMER TECHNOLOGIES, INC. 
 NOTES TO FINANCIAL STATEMENTS 1. The Company Planet Polymer Technologies, Inc. (Planet or the Company) was
incorporated in August, 1991 in the State of California for the purpose of
engaging in the design, development, manufacture and marketing of degradable
and recycled polymer materials. The Companys proprietary polymer materials are
marketed under the trademarks EnviroPlastic® and Aquadro®. EnviroPlastic and
Aquadro can be used to produce films, coatings and injection molded parts that
serve as environmentally-compatible alternatives to conventional plastics.
Planet also developed polymer technologies for Agway Inc. (Agway), a major
shareholder of the Company, in 1999 that are being marketed under the
trademarks Optigen® 1200 and FreshSeal®. The Company sold all of the assets
related to its AQUAMIM® business in March 2003. With the sale and disposition
of the Companys AQUAMIM® Metal Injection Molding technology and manufacturing
assets in March 2003 to Ryer Enterprises, LLC, (Ryer Enterprises) and the
sale and licensing of the Companys EnviroPlastic CRT controlled-released
technologies for agricultural feed and produce products to Agway, the resulting
restructuring of assets and activities has narrowed the Companys focus to the
royalty rights it holds from specific polymer technologies Planet developed and
sold or licensed to third parties. The agricultural feed and fruit and
vegetable products are marketed under the trademarks Optigen ® 1200 and
FreshSeal ®, respectively. The Companys operations are comprised of one
segment, the Research and Development business segment. 2. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates. Revenue Recognition Product sales revenue is recognized when all of the following conditions are
met: the product is shipped, Planet has the right to invoice the customer at a
fixed price, the collection of the receivable is probable and there are no
significant obligations remaining. Research and development revenues from
customers other than Agway and reimbursement of research and development costs
by Agway are not refundable if the research is unsuccessful. The research and
development revenues from customers other than Agway are recognized when
services have been rendered and any related products have been shipped, at
which time the customer is obligated to pay for those services. The revenues
for reimbursed research and development costs for Agway are recognized when
costs related to services performed and any related products have been shipped,
at which time Agway is obligated to reimburse these costs. Royalties are
recognized when the amounts are determinable and collectibility is assured. The
components of revenues and cost of revenues are as follows: 2003
    
    2002Agway Development Income
    
    $
    148,620Product sales revenue
    
    
    
    
    
    $
    2,600Research and development revenues
    
    
    
    
    
    
    102,839Consulting revenue
    
    
    25,068
    
    
    
    38,030Royalties, net
    
    
    1,394
    
    
    
    18,604Revenues
    
    $
    175,082
    
    
    $
    162,073Products sold
    
    
    
    
    
    $
    7,374Services
    
    $
    4,707
    
    
    
    102,839Cost of revenues
    
    $
    4,707
    
    
    $
    110,213
 F - 7




---



##### Table of Contents



PLANET POLYMER TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS 2. Summary of Significant Accounting Policies (Continued) Research and Development The Company expenses research and development costs as incurred. The
Company did not engage in research and development of future products or
redesign of present products in the year ended December 31, 2003. Research and
development costs totaled $117,594 in 2002. Fair Value of Financial Instruments The carrying amounts shown for the Companys financial instruments,
including accounts receivable and accounts payable, approximate their fair
values at December 31, 2003 due to the short-term nature of these financial
instruments. The carrying value of the note receivable approximates its fair
value as the rate of interest approximates market rates of interest for similar
instruments. Patents, Trademarks and License Agreements Costs incurred to obtain patents, trademarks and license agreements,
principally legal fees, are capitalized. The Company amortizes these costs on a
straight-line basis over fifteen years. Long-Lived Assets Long-lived assets, such as property and equipment, are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Impairment losses are
recognized when events or changes in circumstances indicate that the
undiscounted cash flows estimated to be generated by such assets are less than
their carrying value and, accordingly, all or a portion of such carrying value
may not be recoverable. Impairment losses for assets to be held and used are
then measured based on the excess, if any, of the carrying amounts of the
assets over their fair values. Long-lived assets to be disposed of in a manner
that meets certain criteria are stated at the lower of their carrying amounts
or fair values less costs to sell and are no longer depreciated. Income Taxes The Company accounts for income taxes using the liability method. Current
income tax expense is the amount of income taxes expected to be payable for the
current year. Deferred income taxes are recognized for the tax consequences in
future years for differences between the tax basis of assets and liabilities
and their financial reporting amounts at each year-end (temporary
differences) based on enacted tax laws and statutory rates applicable to the
periods in which the temporary differences are expected to affect taxable
income. Valuation allowances are established when necessary to reduce deferred
tax assets to the amount that is considered more likely than not to be
realized. Stock-Based Compensation Pursuant to SFAS 123, the Company recognizes compensation expense for
stock options, common stock and other equity instruments issued to
non-employees, based upon the fair value of the equity instruments issued, as
the services are provided and the options earned. Pro forma net income (loss) was $7,446 and $(744,826), basic pro forma net
income (loss) per share was $.001 and $(.08) per share and diluted pro forma net
income (loss) per share was $.001 and $(.08) per share in 2003 and 2002,
respectively. F - 8




---



##### Table of Contents



PLANET POLYMER TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS 2. Summary of Significant Accounting Policies (Continued) 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) 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 net 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 income (loss) per
share for the years ended December 31, 2003 and 2002 because all such
securities are anti-dilutive for these periods. Accordingly, diluted income
(loss) per share equals basic income (loss) per share. The total number of
potential common shares excluded from the calculation of diluted income (loss)
per share for the years ended December 31, 2003 and 2002 was 1,366,625 and
1,227,411, respectively. 401 (K) Plan The Company provides a defined contribution 401(k) savings plan (the
401(k) Plan) in which all full-time employees of the Company are eligible to
participate. Eligible employees may contribute up to 15% of their pre-tax
salary to the 401(k) Plan subject to Internal Revenue Code limitations. Company
contributions to the 401(k) Plan are at the discretion of the Board of
Directors. There were no Company contributions charged to operations related to
the 401(k) Plan in 2003 and 2002. Reclassifications Certain prior year amounts have been reclassified to conform to the
current year presentation. 3. 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 and not on a liquidation basis.
The year ended December 31, 2003, is the first annual period in which the
Company has shown net income resulting from gain on sale of technology and
fixed assets. For the year ended December 31, 2002, the Company had net losses
of approximately $667,000. For the year ended December 31, 2003, the Company
had net income of approximately $71,000. As of December 31, 2003, the Company
had an accumulated deficit of approximately $14,339,616. In January 2004, Agway sold its rights to FreshSeal® to BASF and also sold
its rights to Optigen® to Alltech (see Notes 4, 9 and 10). It is uncertain
how actively either company will pursue the development and marketing of
FreshSeal® and Optigen®, respectively. Also, in 2004 the Company agreed to
forebear certain royalty payments from Ryer Enterprises due to Ryer Enterprises
present financial condition. These matters raise substantial doubt about the
ability of the Company to continue as a going concern. 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 May 31,
2004. The Companys future working capital and other cash requirements will be
dependent upon many factors, including, but not limited to, costs associated
with the Allergy Free acquisition and costs associated with the filing and
enforcement of the Companys patents, if any. F - 9




---



##### Table of Contents



PLANET POLYMER TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS 3. Liquidity and Capital Resources (Continued) The Company intends to seek additional funding through strategic
partnership arrangements or the extension of existing arrangements or through
public or private equity or debt financing. There can be no assurance that any
additional financing will be available to the Company on acceptable terms, or
at all. Insufficient funds may require the Company to file for bankruptcy
protection under Chapter 11 or Chapter 7 of the Bankruptcy laws. Further, there
can be no assurance that the Company will be able to generate positive cash
flows or profitability in the future. The accompanying financial statements do
not include any adjustments related to the recoverability and classification of
assets or the amount and classification of liabilities that might result from
this uncertainty. 4. Disposition of Assets On December 28, 2001, the Company sold all of the assets (AQUAMIM
assets) relating to its Metal Injection Molding (MIM) business, including
intellectual property, technology, manufacturing equipment and raw material and
finished goods, to Ryer Industries LLC (Ryer Industries) and recorded a gain
of $135,796. As consideration of these assets, Ryer Industries agreed to pay to
the Company cash in the amount of $328,157, plus a royalty of 6% on its sales
of custom feedstocks during the period from January 1, 2002 through December
31, 2009. Through December 31, 2002, the Company received $194,912 in principal
payments and $30,745 in interest and fees. Further, the Company recorded a
valuation allowance against this note of $73,500 during 2002. In August 2002, Ryer Industries defaulted on its required payments. In
October 2002, the Company and Ryer Industries entered into a Forbearance
Agreement which modified the payment schedule for the remaining obligations to
the Company with payments beginning in December 2002 and continuing through
April 2003. Royalty payments associated with sales from these technologies were
deferred and were scheduled to resume in December 2002. The Forbearance
Agreement provided that if Ryer Industries defaulted, the Company would be
allowed to enforce the Confession Judgment given by Ryer to the Company in
connection with the Forbearance Agreement, which provided among other things,
for turnover to the Company of the assets sold by the Company to Ryer
Industries. As a result of Ryer Industries default in March 2003, the Company
in April 2003, recovered the AQUAMIM® Metal Injection Molding technology and
manufacturing assets from Ryer Industries. By agreement dated May 1, 2003, the Company resold the AQUAMIM® Metal
Injection Molding technology and manufacturing assets to Ryer Enterprises, a
newly formed entity which intends to continue the commercial employment of the
AQUAMIM® products. Pursuant to the terms of the agreement, Ryer Enterprises
agreed to pay to Planet $301,000 (Principal Payment) ($25,000 paid on May 1,
2003, followed by 24 equal payments of $11,500 payable on or before the first
day of each month for the period beginning June 1, 2003, through May 31, 2005)
plus royalties based upon qualifying sales by Ryer Enterprises to third parties
for the period May 1, 2003, through April 30, 2011 (Eight Year Term). In
addition, the Company has licensed to Ryer Enterprises the patent rights
relating to the AQUAMIM® products for royalties which will be payable monthly
forty-five (45) days after the close of each month for eight (8) years after
which the Company has agreed to transfer the patents to Ryer Enterprises,
provided it is not in default. The Company recognized royalty fees and consulting fees from Ryer
Industries in 2003. The Company further recognized royalty fees from Ryer
Enterprises in 2003; however, the Company no longer has a relationship with
Ryer Industries, and currently, due to Ryer Enterprises financial condition,
the Company has agreed to forbear the February and March installment payments
from Ryer Enterprises in consideration for a two (2) month extension of the
installment payments plus an additional payment of $4,600 due and payable on
August 1, 2005. F - 10




---



##### Table of Contents



PLANET POLYMER TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS 5. Concentrations of Credit Risk Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash, trade accounts
receivable and the installment obligations due from Ryer Enterprises. The
Company performs ongoing credit evaluations of its customers and adjusts its
allowance for doubtful accounts based on its history of past write-offs and
collections and current credit conditions. The Company maintains cash with financial institutions, which from time to
time, may exceed federally insured limits. The Company periodically assesses
the financial condition of the institutions and believes that the risk of any
loss is minimal. As of December 31, 2003, no cash balance with financial
institutions exceeded federally insured limits. The Companys largest customer, Agway, Inc., accounted for approximately
86% and 60% of the Companys revenues and 100% and 75% of accounts receivable
balances in fiscal 2003 and 2002, respectively. In January 2004, Agway, Inc.,
under the Sale and Licensing Agreements, sold its rights to FreshSeal® to BASF
and its rights to Optigen® to Alltech. It is uncertain how this will affect the
Companys revenues and accounts receivables in the future. 6. Commitments The Company leases its facility and certain office equipment under
non-cancelable operating leases, which expire on various dates through October
9, 2004 and provide for renewal options in one-year increments. In the normal
course of business, it is expected that these leases will be renewed or
replaced by leases on other properties. Rent expense charged to operations in
2003 and 2002 was $26,925 and $65,394, respectively. As of December 31, 2003 the Company entered into a month-to-month lease at
a monthly rate of $6,245. 7. Income Taxes The differences between income tax (expense) benefit provided at the
Companys effective rate and the federal statutory rate (34%) are as follows: 2003
    
    2002Income tax expense (benefit) at statutory rate
    
    $
    34,795
    
    
    $
    (227,314
    )Permanent differences
    
    
    _______
    
    
    
    106Valuation allowance
    
    
    (34,795
    )
    
    
    227,208Total
    
    $
    
    
    
    $
    
 Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Companys deferred tax assets at December 31, 2003 are as follows: 2003Net operating loss carryforwards
    
    $
    4,603,975Tax credit carryforwards
    
    
    126,560Reserves, accrued expenses and other
    
    
    56,501Less: Valuation allowances
    
    
    (4,787,036
    )Net deferred tax asset
    
    $
    
 F - 11




---



##### Table of Contents



PLANET POLYMER TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS 7. Income Taxes (Continued) 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 in 2003 and 2002 and, accordingly, the Company did
not recognize any benefit from income taxes in the accompanying statements of
operations to offset its pre-tax loss. The valuation allowance increased
(decreased) by $(14,211) and $228,530 in 2003 and 2002, respectively. At December 31, 2003, the Company had net operating loss carryforwards for
Federal income tax purposes of approximately $12,600,000 and for California
state tax purposes of approximately $3,500,000. The Companys California loss
carryforwards expire in 2004 through 2007 and Federal loss carryforwards begin
to expire in 2006. The Company also has available tax credit carryforwards for
Federal and California tax purposes that aggregate approximately $126,560 that
begin to expire in 2007. 8. Shareholders Equity Warrants At December 31, 2003, the following warrants to purchase the Companys
Common Stock were outstanding: Underlying
    
    ExerciseShares
    
    Price
    
    Expiration DateInvestor warrants
    
    
    125,000
    
    
    $
    2.578
    
    
    
    2004Other warrants
    
    
    159,243
    
    
    $
    3.513-4.163
    
    
    
    2004-2006284,243
 All of the warrants outstanding are exercisable. All per share rights and
benefits are subject to anti-dilution and other adjustments upon the occurrence
of certain events. Options As of December 31, 2003, the Company had two stock option plans, a 2000
Stock Option Plan (the 2000 Option Plan) and a 1995 Stock Option Plan (the
1995 Option Plan). The 2000 Option Plan provides for 500,000 shares of Common Stock for
issuance under the Plan, together with 500,000 additional shares of Common
Stock for issuance to the extent that outstanding options previously granted
under the 1995 Stock Option Plan expire unexercised. The Plan provides for the
discretionary grant of options, stock appreciation rights (SARs), and stock
bonuses to employees and directors of and consultants to the Company. Options
granted under the Plan may be either incentive stock options, as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the Code), or
non-statutory stock options. The 1995 Option Plan under which incentive stock options and non-statutory
stock options to acquire an aggregate of 500,000 shares of Common Stock may be
granted to employees, non-employee directors and consultants to the Company.
Incentive stock options may be granted only to employees of the Company whereas
non-statutory options may be granted to employees, directors and consultants. At December 31, 2003, there were 9,300 shares of the Companys Common
Stock available for future grant under the option plans. F - 12




---



##### Table of Contents



PLANET POLYMER TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS 8. Shareholders Equity (Continued) Under both stock option plans, the terms of stock options granted are
determined by the Board of Directors. Stock options may be granted for periods
of up to ten years at a price per share not less than the fair market value of
the Companys Common Stock at the date of grant for incentive stock options and
not less than 85% of the fair market value of the Companys Common Stock at the
date of grant for non-statutory stock options. In the case of stock options
granted to employees, directors or consultants who, at the time of grant of
such options, own stock possessing more than 10% of the voting power of all
classes of stock of the Company, the exercise price shall be no less than 110%
of the fair market value of the Companys Common Stock at the date of grant.
Additionally, the term of stock option grants is limited to five years if the
grantee owns in excess of 10% of the voting power of all classes of stock of
the Company at the time of grant. The vesting provisions of individual options
may vary but in each case will provide for vesting of at least 20% per year of
the total number of shares subject to the option. The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method and provides pro forma
disclosures of net income (loss) as if the fair value method had been applied
in measuring compensation expense. Had compensation cost for the Companys
stock-based compensation plans been determined based on the fair value method
at the grant dates for awards under the Companys plans, the Companys net
income and loss per share for 2003 and 2002 would have been increased to the
pro forma amounts indicated below: 2003
    
    2002Income perNet Income/Loss
    
    Share
    
    Net Loss
    
    Loss per ShareAs reported
    
    $
    71,308
    
    
    $
    0.01
    
    
    $
    (666,650
    )
    
    $
    (0.07
    )Stock based compensation
expense assuming a fair value
based method had been used for
all awards
    
    
    (63,862
    )
    
    
    
    
    
    
    (78,176
    )Pro forma
    
    $
    7,446
    
    
    $
    
    
    
    $
    (744,826
    )
    
    $
    (0.08
    )
 The fair value of each stock option is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions for 2003 and 2002: an expected life of 4 years,
expected volatility of 222.84% and 177.37%, no dividend yield and a risk-free
interest rate of 4.65% and 2.26%, respectively, represented by the interest
rate on U.S. Treasury securities with a term of maturity equal to the options
expected time to exercise on the dates of grant. The weighted average fair
value of options granted during 2003 and 2002 was approximately $0.05 and $0.13
per option, respectively. A summary of stock option activity during 2003 and 2002 follows: 2000 Stock Option Plan
    
    1995 Stock Option PlanUnderlying
    
    Weighted Avg.
    
    Underlying
    
    Weighted Avg.Shares
    
    Exercise Price
    
    Shares
    
    Exercise PriceOutstanding at December 31, 2001
    
    
    509,000
    
    
    $
    1.268
    
    
    
    241,439
    
    
    $
    2.171Granted
    
    
    100,000
    
    
    $
    0.140
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited/expired
    
    
    (13,000
    )
    
    $
    2.375
    
    
    
    (81,239
    )
    
    $
    3.025Outstanding at December 31, 2002
    
    
    596,000
    
    
    $
    1.055
    
    
    
    160,200
    
    
    $
    1.739Granted
    
    
    187,500
    
    
    $
    0.057ExercisedForfeited/expiredOutstanding at December 31, 2003
    
    $
    783,500
    
    
    $
    0.816
    
    
    $
    160,200
    
    
    $
    1.739
 F - 13




---



##### Table of Contents



PLANET POLYMER TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS Other OptionsWeighted Avg.Underlying Shares
    
    Exercise PriceOutstanding at December 31, 2001
    
    
    138,682
    
    
    $
    5.058Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited/expired
    
    
    
    
    
    
    Outstanding at December 31, 2002
    
    
    138,682
    
    
    $
    5.058Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited/granted
    
    
    
    
    
    
    Outstanding at December 31, 2003
    
    
    138,682
    
    
    $
    5.058
 Other Options listed above include non-statutory stock options issued to
key personnel prior to the adoption of the 1995 Stock Option Plan and a grant
to a former director of the Company during 2000. The following table summarizes information about stock options outstanding
and exercisable at December 31, 2003: Options Outstanding
    
    Options ExercisableWeighted AverageRemaining
    
    Weighted
    
    
    
    
    
    WeightedRange of Exercise
    
    Number of
    
    Contractual Live
    
    Average
    
    Number of
    
    AveragePrices
    
    Shares
    
    (years)
    
    Exercise Price
    
    Shares
    
    Exercise Price$0.050 to $0.060
    
    
    187,500
    
    
    
    3.36
    
    
    
    0.057
    
    
    
    187,500
    
    
    
    0.067$0.050 to 1.000
    
    
    308,000
    
    
    
    8.03
    
    
    
    0.220
    
    
    
    308,000
    
    
    
    0.220$1.250 to $2.400
    
    
    317,000
    
    
    
    5.70
    
    
    
    1.590
    
    
    
    277,000
    
    
    
    1.590$2.500 to $5.000
    
    
    175,882
    
    
    
    5.02
    
    
    
    2.820
    
    
    
    175,882
    
    
    
    2.820$5.100 to $6.000
    
    
    94,000
    
    
    
    0.08
    
    
    
    5.730
    
    
    
    94,003
    
    
    
    5.7301,082,382
    
    
    
    5.36
    
    
    $
    1.42
    
    
    
    1,042,382
    
    
    $
    1.37
 9. Related Party Transactions On January 11, 1999, Agway became a beneficial owner of more than 10% of
the Companys Common Stock. Agway retained this interest until December 2003,
when, Agway assigned and transferred to the Company all of Agways shares of
Planet Common Stock. Currently, Agway holds no equity interest in the Company. On November 14, 2000, Planet agreed to sell, assign and transfer patent
rights (the Patent Transaction) to Planets animal feed additives, fruit and
vegetable coatings, and controlled-release fertilizer (the Patents), to Agway
for a cash price of $250,000 and continuation of royalty payments equal to the
payments Planet would otherwise be entitled to receive pursuant to its existing
license agreement with Agway and the sublicense agreements related thereto.
Planet, in turn, agreed to pay Agway $150,000 in return for an exclusive
worldwide royalty-free license to use and commercially exploit all rights
related to the Patents for all uses other than food and agricultural
initiatives. F - 14




---



##### Table of Contents



PLANET POLYMER TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS 9. Related Party Transactions (Continued) In November 1998, the Company and Agway entered into an agreement relating
to the funding by Agway of a feasibility study (the Feasibility Agreement) of
the Companys polymer technology for use in agricultural products (other than
fertilizers and certain biological products) and food products. Under the terms
of the Feasibility Agreement, Planet will be reimbursed for certain qualifying
research and development costs relating to such applications. During 2002, the
Company recorded revenues for reimbursed research and development costs of
$102,839 from Agway under the Feasibility Agreement. Also in November 1998, the Company granted Agway an exclusive worldwide
license in connection with the Companys technology for time-release coatings
for a variety of agricultural and food products (the License Agreement). The
License Agreement outlines the general terms and conditions for the rights
granted Agway thereunder. The Company and Agway agreed to execute further
sub-agreements specifying the royalties to be paid to the Company for Agways
use of the Companys technology with certain products. In March 2000, the
Company and Agway entered into a Sub-Agreement with respect to animal feed
products incorporating Planets patented/patent pending coatings and/or polymer
systems. Also in March 2000, the Company and Agway entered into another
Sub-Agreement with respect to Planets patented/patent pending coatings and/or
polymer systems sold for use on fruits, vegetables, floral and nursery items.
During 2001, the Company received a $100,000 royalty payment from Agway. After
receiving proceeds from Agway, pursuant to its royalty payment in October 2001,
the Company was required to pay a $6,000 cash transaction fee to an advisor.
This payment was made January 24, 2002 and shown in accounts payable at
December 31, 2001. No royalties were received or accrued by the Company under
the agreement with Agway in 2003 or 2002. On October 1, 2002, Agway, Inc. filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code. The
Sub-Agreement covering the FreshSeal technology and license provided for a
minimum royalty of $300,000 on or before October 31, 2002 to maintain
exclusivity. This payment was not received or accrued by Planet. Pursuant to
the Sub-Agreement, Planet notified Agway that the payment was not received.
Under the terms of the Sub-Agreement, Agway had 60 days during which Agway
could make the necessary payment and retain market exclusivity for this
technology. Agway did not make payment of the minimum royalty as of December
31, 2002. As a result of this failure by Agway to make payment, Planet had the
right to issue additional non-exclusive licenses for this technology to other
interested parties in the fruit, vegetable, nuts and flowers segments of the
agricultural products industry. To consummate the sale and assignment contemplated by the letter agreement
dated November 14, 2000, the Company and Agway agreed on the form of two
separate Sale and Licensing Agreements with respect to the agricultural feed
technologies and the fruit/produce technologies. On March 25, 2003, the U.S.
Bankruptcy Court gave its approval to Agway to enter into the two separate Sale
and Licensing Agreements with the Company. Under the Sale and Licensing
Agreements, the Company confirmed (i) the assignment of its agricultural feed
related patent rights and fruit/produce related patent rights and (ii) the
license of its technology related to the agricultural feed products and
fruit/produce products, to Agway. In return, the Company received an up-front
payment of $30,000 for its execution of the agricultural feed agreement and a
payment of $100,000 for its execution of the fruit/produce agreement. 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. During the year ended December 31, 2003, the Company
received royalties in the amount of approximately $1,400 from the sales of the
underlying products. Agway granted the Company exclusive, irrevocable,
worldwide, royalty-free limited licenses to use the assigned patents rights for
uses other than food and agricultural initiatives. In connection with the
agricultural feed agreement, Agway also agreed to assign and transfer to the
Company all of Agways shares of Planet common stock (3,000,000 shares).
Effective January 15, 2004, Agway entered into an agreement to sell all of the
assets of its FreshSeal® business, which include the fruit/produce patent
rights assigned by the Company, to BASF. Also in January 2004, Agway sold all
of its rights to Optigen® to Alltech (see Note 10). Management cannot assure
that the Company will receive significant, if any, royalties and monies under
these Sale and Licensing Agreements. F - 15




---



##### Table of Contents



PLANET POLYMER TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS 9. Related Party Transactions (Continued) As of December 31, 2003, Agway had no equity interest in the Company. 10. Subsequent Events Allergy Free Acquisition. On March 18, 2004, the Company and Allergy Free, LLC, a California limited
liability company (Allergy Free), entered into an Asset Purchase Agreement
(Agreement) in which the Company plans to acquire substantially all assets
and assume certain of the liabilities of Allergy Free, for which the Company
will provide the following consideration; a subordinated note in the principal
amount not to exceed approximately $2.8 million for a term of 3 years and not
less than 28,193,900 shares of Common Stock in Planet. Immediately prior to the Closing, the Company will distribute to a trustee
for the benefit of Company Shareholders of record as of April 15, 2004
(Trust), the right to receive all royalties payable to the Company pursuant
to those certain Sale and Licensing Agreements between the Company and Agway,
Inc., relating to Planets FreshSeal® and Optigen® technology and that certain
Purchase, Sale and License Agreement between the Company and Ryer Enterprises,
LLC, relating to Planets AQUAMIM® technology. The transfer of these assets to the Trust will be treated as a dividend at
the date of transfer. The Agreement is subject to a number of conditions set forth in the
Agreement including without limitation, approval of Planet shareholders,
approval of Allergy Free members, a 50 to 1 reverse stock split, the receipt of
a No Action Letter from the SEC relating to the distribution of the right to
receive royalty payments to the Trust, the hiring of Scott L. Glenn as
President and Chief Executive Officer of the Company, and an executed
consulting agreement with Dr. Robert Petcavich. Agway, Inc. Effective January 15, 2004, Agway sold all of its right and interest in
Fresh Seal® to BASF. Also in January 2004, Agway sold all of its right and
interest in Optigen® to Alltech. Management cannot assure that the Company
will receive significant, if any, royalties and monies from BASF or Alltech. Ryer Enterprises, LLC In January 2004, pursuant to the First Amendment to Purchase, Sale and
License Agreement, the Company agreed to forebear the Ryer Enterprises February
and March royalty payments in consideration for a two (2) month extension of
the agreed upon eight (8) year royalty stream plus an additional amount equal
to a one-half (1/2) month royalty payment. Management cannot assure that the
Company will receive significant, if any, royalties and monies from its Ryer
Enterprises agreements. F - 16