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                                  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, 1998
                           COMMISSION FILE NO. 0-26804
                             ----------------------
                        PLANET POLYMER TECHNOLOGIES, INC.
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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<S>                                                  <C>       
                   CALIFORNIA                                   33-0502606
         STATE OR OTHER JURISDICTION OF              (IRS EMPLOYER IDENTIFICATION NO.)
          INCORPORATION OF ORGANIZATION

9985 BUSINESSPARK AVENUE, SUITE A, SAN DIEGO, CA                   92131
    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                     (ZIP CODE)
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                    ISSUER'S TELEPHONE NUMBER (619) 549-5130

         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. [X] Yes [ ]
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. [ ]

   The issuer's revenues for the year ending December 31, 1998 were $1,615,124.

   The aggregate market value of the voting stock held by non-affiliates of the
Issuer as of February 25, 1999 was $5,685,463, based on the average of the
closing bid and ask prices of $1.6875 as reported on the Nasdaq SmallCap Market.

   As of February 25, 1999, 6,341,062 shares of the Company's Common Stock were
outstanding and 500,000 shares of the Company's Series A Preferred Stock were
outstanding.

--------------------------------------------------------------------------------
                       DOCUMENTS INCORPORATED BY REFERENCE

   Issuer's Definitive Proxy Statement to be filed with the Commission pursuant
to Regulation 14A in connection with 1999 Annual Meeting is incorporated herein
by reference into Part III of this report.

--------------------------------------------------------------------------------

    Transitional Small Business Disclosure Format (check one) [ ] yes [X] no

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                        PLANET POLYMER TECHNOLOGIES, INC.

                                   FORM-10KSB
                          YEAR ENDED DECEMBER 31, 1998

                                TABLE OF CONTENTS
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ITEM
NUMBER                                                                      PAGE
------                                                                      ----
                                     PART I.

<S>                                                                         <C>
1.      Description of Business................................................2

2.      Description of Property...............................................14

3.      Legal Proceedings.....................................................15

4.      Submission of Matters to a Vote of Security Holders...................15

                                    PART II.

5.      Market for Common Equity and Related Stockholders Matters.............16

6.      Management's Discussion and Analysis of Financial
        Condition and Results of Operations...................................17

7.      Financial Statements..................................................20

8.      Changes in and Disagreements With Accountants on
        Accounting and Financial Disclosures..................................20

                                    PART III.

9.      Directors, Executive Officers, Promoters and Control Persons;
        Compliance with Section 16(a) of the Exchange Act.....................20

10.     Executive Compensation................................................20

11.     Security Ownership of Certain Beneficial Owners and Management........20

12.     Certain Relationships and Related Transactions........................20

                                    PART IV.

13.     Exhibits and Reports on Form 8-K......................................21

        Signatures............................................................23

        Power of Attorney.....................................................23
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      This Annual Report on Form 10-KSB contains 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

OVERVIEW

   Planet Polymer Technologies, Inc. ("Planet" or the "Company") is a specialty
chemical company that designs, develops, manufactures and markets degradable and
recycled polymer materials. The Company's proprietary polymer materials are
marketed under the trademarks EnviroPlastic(R), Aquadro(TM) and AQUAMIM(TM).
EnviroPlastic(R) and Aquadro(TM) can be used to produce films, coatings and
injection molded parts that serve as environmentally-compatible alternatives to
conventional plastics. AQUAMIM(TM), developed by the Company in 1998, can be
used to manufacture complex metal parts using conventional plastics molding
equipment.

   The Company's primary focus is on the technologies listed below:

   -  AQUAMIM(TM) Metal Injection Molding - moldable metal filled polymers.

   -  EnviroPlastic(R) CRT (controlled-release technology) - a polymer coating.

   -  Aquadro(TM) - a hydrodegradable (water dispersible) polyvinyl alcohol
      ("PVOH") resin.

   -  Technologies for use in agricultural and food products.

   To date, the Company has not fully commercialized nor received any
significant revenues from the sale of any products but has sold pilot production
quantities of AQUAMIM(TM), EnviroPlastic(R) and Aquadro(TM) products.

   Since April 1998, the Company began to explore other industrial
opportunities. In particular, the Company is focusing on water soluble materials
in the Metal Injection Molding ("MIM") marketplace. The Company has developed
AQUAMIM(TM), which is designed for the production of precision metal components
using a novel water debinding process, which eliminates the need for hazardous
solvents or acids. To date, the Company has completed pilot production trials
with several companies.

   In November 1998, the Company entered into a Stock Purchase Agreement with a
subsidiary of Agway Inc. ("Agway") whereby Agway would purchase 1,000,000 shares
of Planet's Common Stock for $1,000,000 and receive a warrant to purchase up to
2,000,000 shares of Common Stock at a price of $1.00 per share. The stock
purchase transaction was completed in January 1999 with the Company's
shareholders' approval. Contemporaneously with the execution of the agreement,
Planet and Agway entered into an agreement relating to the funding by Agway of a
feasibility study (the "Feasibility Agreement") of Planet's polymer technology
for use in agricultural products (other than fertilizers and certain biological
products) and food products and an exclusive worldwide license (the "License
Agreement") to all current and future products that utilize Planet's polymer
technology for agricultural and food related purposes (other than products
already covered by existing agreements). Under the terms of the License
Agreement, Agway has the exclusive right to grant licenses and sublicenses on
the technology developed under the License Agreement to other parties. In return
for the rights granted to Agway, Agway is required to pay royalties to the
Company determined in accordance with the terms of the License Agreement. In
addition, in February 1999, the Company received a commitment from Agway whereby
Agway agreed to exercise its warrant to acquire up to 500,000 shares of the
Company's Common Stock as early as July 1, 1999 at the Company's request, in the
event that the Company's cash flows are less than currently projected and/or
insufficient to fund its operating requirements.

   In addition to the Agway alliance, the Company has sought to develop
strategic alliances with other potential customers. Since 1995, the Company has
had a relationship with Agrium Inc. ("Agrium") to conduct development work in
the use of coatings of fertilizer products using the Company's EnviroPlastic(R)
CRT technology. These

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strategic alliances are intended to define product specifications and promote
market acceptance of the Company's products and technologies.

   In addition to Planet's research and development and pilot production
facility in San Diego, California, the Company also has a wholly-owned
subsidiary, Deltco, in Ashland, Wisconsin. Acquired by Planet in January 1996,
Deltco is a manufacturer and reprocessor of thermoplastic scrap resins that can
be used in a wide variety of applications, either blended with other polymer
materials or alone.

   Planet was incorporated under the laws of California in August 1991. The
Company's principal executive offices are located at 9985 Businesspark Avenue,
Suite A, San Diego, CA 92131, and its telephone number is (619) 549-5130.

PLANET POLYMER'S PRODUCTS AND TECHNOLOGIES

   Planet is using its polymer chemistry expertise to provide degradable
technology-based solutions to the current and emerging needs of the industrial
and agricultural markets.

   The Company operates in two segments: (1) research and development of polymer
technologies and materials in San Diego, California and (2) manufacturing and
reprocessing of thermoplastic scrap resins by Deltco in Ashland, Wisconsin. The
Company is currently focusing on application, market development and sales of
AQUAMIM(TM), EnviroPlastic(R) CRT and Aquadro(TM). For EnviroPlastic(R) H and
EnviroPlastic(R) Z, the Company has not allocated any significant research,
development, sales and marketing resources to these technologies.

   AQUAMIM(TM) Metal Injection Molding. AQUAMIM(TM) is based on Planet's
Aquadro(TM) technology and extends it into the industrial manufacturing
marketplace. Manufacturers are constantly looking to lower their cost of doing
business by evaluating alternative innovative fabrication techniques.
AQUAMIM(TM) makes it possible to manufacture complex metal parts using
conventional plastics molding equipment. Planet has learned through its
marketing efforts that products made by MIM using water soluble polymers can
potentially reduce the cost of manufacturing certain metal parts.

   AQUAMIM(TM) is designed for the production of precision metal components
utilizing a novel water debinding process, which eliminates the need for
hazardous solvents or acids. AQUAMIM(TM) feedstock is a granular mixture of
metal powders and the Company's proprietary water soluble polymer binder. This
feedstock is capable of producing complex shaped components from a variety of
steels and other alloys at high volumes for a lower cost than its competing
feedstock formulations. Preliminary tests by potential customers have
demonstrated that watchcases, microelectronics, aerospace parts, automotive
parts, computer components, firearm components, cutlery, battery housings,
tensile bars, trigger mechanisms, set screws and various industrial and consumer
products can be manufactured by the AQUAMIM(TM) technology. The Company plans to
begin its feedstock commercialization with two stainless steel compounds, 316L
and 17-4PH, and continues to develop nickel-iron and tungsten metal compounds.
In May 1998, the Company retained Dr. Randall German, an authority on MIM, as a
scientific advisor to the Company. To date, the Company has not received
significant revenue from the sale of products based on its AQUAMIM(TM)
technology. The patent for AQUAMIM(TM) is pending.

   EnviroPlastic(R) CRT. The Company's EnviroPlastic(R) CRT (controlled-release
technology) polymer product line (see "Strategic Alliances: Agrium Technology
Development and License Agreement"), is a proprietary polymer coating derived
from monomers such as urethane, acrylics, styrene and natural vegetable oils.
This product line is different from the Company's other products; it is not a
polymer alloy or blend. The product line is targeted for fertilizer
controlled-release coating applications including, in particular, urea granules.
By coating urea granules with the Company's materials, it is possible to control
the release of the fertilizer over a period of up to 120 days. Initial field
test results of EnviroPlastic(R) CRT have shown an average increase of 20% in
crop yields. Numerous tests have occurred in the United States, Canada, China
and Australia with positive results. The patent for EnviroPlastic(R) CRT is No.
5,803,946.

    Aquadro(TM). Aquadro(TM) is a polyvinyl alcohol based compound developed by
Planet to provide cost effective product solutions for the medical disposable,
industrial manufacturing and personal hygiene markets. Aquadro(TM) can be
manufactured into blown film, extrusion cast film, and injection molded
products. Aquadro(TM) resins are highly versatile and can be engineered for
elastomeric or rigid applications. Aquadro(TM) can be disposed of through 

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<PAGE>   5

the municipal sewage system by dissolving the material in hot or cold water. The
patent for Aquadro(TM) is No. 5,658,977.

   EnviroPlastic(R) H. The Company's EnviroPlastic(R) H line of materials is
based on polyethylene oxide polymers and is manufactured into films using a
patented proprietary process. EnviroPlastic(R) H materials are engineered to
disperse or dissolve on contact with water. The dissolution time of
EnviroPlastic(R) H can be engineered to occur over a period ranging from seconds
to days depending on the requirements of the ultimate application. These polymer
blends are targeted for use in the personal hygiene market. The patent for
EnviroPlastic(R) H is No. 5,367,003.

   EnviroPlastic(R) Z. The Company's patented EnviroPlastic(R) Z materials are
biodegradable and compostable polymers based on the polymer cellulose acetate
derived from trees, a natural renewable resource. EnviroPlastic(R) Z materials
are subjected to a high energy physical process that enhances their
biodegradability and compostability. Product features include transparency, fast
molding cycles, outstanding processability and degradation rates from 1 to 3
years. EnviroPlastic(R) Z materials have been successfully injection molded and
extruded into sheet film. EnviroPlastic(R) Z materials are targeted for use in
products in the packaging and the industrial markets. The patent for
EnviroPlastic(R) Z is No. 5,505,830.

   The Company's EnviroPlastic(R) and Aquadro(TM) products are designed to offer
water solubility, water dispensability, and other engineering benefits which
conventionally produced plastics do not have. Planet has also developed polymer
materials that can be fabricated into films, coatings, and plastic parts that
degrade when exposed to water, light or soil without reducing product efficacy.
This degradation, which can be engineered to occur over a period of a few
seconds to hundreds of days, converts the polymer into a combination of
environmentally-safe water, carbon dioxide and biomass. In addition,
EnviroPlastic(R) and Aquadro(TM) materials can be custom-engineered to replicate
the product and manufacturing characteristics of non-degradable plastic
materials. To date, the Company has not received any significant revenues from
the sale of products based on its EnviroPlastic(R) and Aquadro(TM) technologies.

   Deltco Technology. Deltco reprocesses thermoplastic polypropylene resins that
are known as "wide spec" materials. These materials are offered in flake or
pellet form and are available in white, natural and mixed colors. The
performance characteristics of these post-industrial recycled materials compete
with virgin polypropylene for injection molded products. Supplementing the
Company's degradable products, Deltco's recycled materials may offer an
attractive alternative to customers who are required or desire to incorporate
recycled materials into their end products at a cost advantage over virgin
materials.

PRODUCT TESTING

   In 1998, the Company conducted injection molding trials using the AQUAMIM(TM)
technology with potential customers. Preliminary testings have demonstrated
favorable results. Metal parts for various industrial and consumer products can
be manufactured by the AQUAMIM(TM) technology with cost saving potential.

   In 1996, the Company commenced testing for its EnviroPlastic(R) CRT
technology testing in North America, Australia and China. Field testing
continues and results to date indicate an average 20% increase in crop yields.

   Testing focused on the Company's Aquadro(TM) technology commenced in 1996. To
date, Aquadro(TM) testing has been designed to assess film properties, melting
point, water vapor transmission and oxygen permeability. Degradation testing on
Aquadro(TM) formulations has also been conducted and confirmed by independent
research laboratories. Product testing on the Aquadro(TM) technology has
included injection molding trials, environmental and humidity testing,
antibacterial cidal properties and controlled dispersion analysis.

   Acceptance and degradation testing for EnviroPlastic(R) alloys have been
conducted by several independent testing organizations and governmental
agencies. Comprehensive studies completed by the U.S. Department of the Interior
on polyethylene oxide, the base material for the Company's EnviroPlastic(R) H
product line, have determined that it is non-toxic (acceptable volume of five
parts per million) to marine life such as bacteria, algae and fish. The findings
also indicate that in laboratory tests, sewage effluent containing these
polymers have an above normal flow rate through the sewer. Tests have also
confirmed the compostable or biodegradable capabilities of the Company's
EnviroPlastic(R) Z materials as being similar to that of yard waste, cardboard
and magazines. 


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<PAGE>   6

Additional tests, such as cytotoxicity screening and sea water degradation, have
been performed on EnviroPlastic(R) materials by the Company's customers with
favorable results.

   Product testing for new and existing technologies will continue as
appropriate. However, there can be no assurance that results from testing will
continue to be favorable, or that products which produce initial positive test
results will be engineered to meet the specifications necessary to commercialize
such product.

MARKETS AND APPLICATIONS

   The Company is focusing on specific market opportunities where the Company
believes that its polymer chemistry expertise, AQUAMIM(TM), EnviroPlastic(R),
Aquadro(TM) and EnviroPlastic(R) CRT technologies, may address current or
emerging market requirements. However, there can be no assurance that the
Company's products or that new products, if developed, will be able to capture
market share or be profitable.

   The Company is currently targeting the following markets:

   Industrial Manufacturing. The Company believes that potential users of
AQUAMIM(TM) include commercial custom MIM parts producers, internal MIM parts
producers and new entrants including diversifying plastic injection molders.
Some of the current MIM products being produced today include aerospace parts,
medical devices, firearm components, business machine and camera parts, jewelry,
cutting tools, microelectronics, wear components, surgical tools, computer disk
drives, locks, hand tools, sporting goods, thermocouples, connectors, and
various industrial components and automotive parts. The Company believes that
its AQUAMIM(TM) feedstock can be used to produce similar MIM products at a lower
cost because the debinding process uses water as compared to the traditional MIM
process which requires hazardous solvents or acids. The Company believes that
its AQUAMIM(TM) technology provides a simple, safe and cost effective solution
for producing metal injection molded parts.

   Agrotechnology. The Company believes that EnviroPlastic(R) CRT materials
provide a potential solution to the problem of soil and water contamination in
the fertilizer industry. The use of controlled-release technology decreases the
water contamination caused by unacceptably high levels of nitrates being
dissolved in the water table and provides a cost effective method of
dissemination of the fertilizer product. Additionally, rain does not wash away
controlled-release fertilizers using EnviroPlastic(R) CRT materials.

   Personal Hygiene and Medical Disposables. The Company's EnviroPlastic(R) and
Aquadro(TM) technologies offer both product enhancements and environmental
benefits in both film and injection molded applications in the personal hygiene
market. Prototype samples of these products, manufactured with Planet's
EnviroPlastic(R) H polymer blends, have demonstrated that they can be disposed
of in the toilet and jettisoned into the sewage system. The Company believes
that consumers will consider this method of disposal to be more convenient and
environmentally sound. Planet believes that its injection molded Aquadro(TM)
product, as well as Aquadro(TM) modified to be antibacterial, are
well-positioned to capitalize on the increasing concern for safe, efficient and
environmentally-compatible disposable medical supplies. Although the Company has
not allocated any significant marketing resources to the EnviroPlastic(R) H and
EnviroPlastic(R) Z products, these products have received ongoing interest from
potential customers.

   In addition to its degradable plastic products, the Company, through Deltco,
offers recycled polymer products sold to the following industries: Automotive,
Construction, Gardening, Household Products, Medical, Packaging, Catering,
Agriculture and Furniture. Deltco has marketed its products as a price
performance alternative to virgin polypropylene. Over the last twelve years,
Deltco has built a customer base covering a variety of applications. These
applications include automotive heater/AC duct work, flower pots, hanging plant
baskets, decorative lawn furniture, garment hangers, fencing, continuous roof
vents, cafeteria food trays, paint roller trays and other related products.

STRATEGIC ALLIANCES

   To facilitate the development and commercialization of the Company's
products, Planet has pursued a strategy of aligning itself with a number of
companies in the areas of product development and marketing. To date, however,
the Company has not commercialized or sold in commercial quantities products
based on its technologies.


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<PAGE>   7
 Agway Product Feasibility Agreement, License Agreement and Stock Purchase
Agreement. In November 1998, the Company entered into a Stock Purchase Agreement
with a subsidiary of Agway Inc. ("Agway") whereby Agway would purchase 1,000,000
shares of Planet's Common Stock for $1,000,000 and receive a warrant to purchase
up to 2,000,000 shares of Common Stock at a price of $1.00 per share. The stock
purchase transaction was completed in January 1999 with the Company's
shareholders' approval. Contemporaneously with the execution of the agreement,
Planet and Agway entered into an agreement relating to the funding by Agway of a
feasibility study (the "Feasibility Agreement") of Planet's polymer technology
for use in agricultural products (other than fertilizers and certain biological
products) and food products and an exclusive worldwide license (the "License
Agreement") to all current and future products that utilize Planet's polymer
technology for agricultural and food related purposes (other than products
already covered by existing agreements). Under the terms of the License
Agreement, Agway has the exclusive right to grant licenses and sublicenses on
the technology developed under the License Agreement to other parties. In return
for the rights granted to Agway, Agway is required to pay royalties to the
Company determined in accordance with the terms of the License Agreement. In
addition, in February 1999, the Company received a commitment from Agway whereby
Agway agreed to exercise its warrant to acquire up to 500,000 shares of the
Company's Common Stock as early as July 1, 1999 at the Company's request, in the
event that the Company's cash flows are less than currently projected and/or
insufficient to fund its operating requirements.

   During the term of the License Agreement, the Company may not conduct any
development work of the same nature or type as that performed under the
agreement for any third party on any subject if the intended use falls within,
or could reasonably be expected to fall within, Agway's Field of Business (as
defined in the License Agreement). Moreover, the Company may not enter into any
arrangements or agreements with any third party for a license under any of the
Company's technology used during performance of this agreement if the intended
place of use falls within, or could reasonably be expected to fall within,
Agway's Field of Business (as defined in the License Agreement) without first
offering such arrangement to Agway and at the terms no less favorable to Agway
than those offered to a third party. Agway's Field of Business is broadly
related to agricultural products and food products, but does not include
fertilizers for purposes of the License Agreement. As a result, the Company's
ability to develop or license its technology to third parties for agricultural
and food applications is significantly restricted by the License Agreement.

   Agrium Technology Development and License Agreement. In January 1995, the
Company entered into a ten year technology and license agreement with Cominco
Fertilizers Ltd. (now named Agrium Inc.), pursuant to which Agrium desired to
have the Company conduct further development work including, but not limited to,
the use of coatings to control release of fertilizers and to protect products
containing biological inoculants. The Company's EnviroPlastic(R) CRT polymer 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 the Company 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 the Company
determined in accordance with the terms of the agreement.

   During the term of the agreement, the Company may not conduct any development
work of the same nature or type as that performed under the agreement for any
third party on any subject if the intended use falls within, or could reasonably
be expected to fall within, Agrium's Field of Business as defined in the
agreement. Moreover, the Company may not enter into any arrangements or
agreements with any third party for a license under any of the Company's
technology used during performance of this agreement if the intended place of
use falls within, or could reasonably be expected to fall within, Agrium's Field
of Business, as defined in the agreement, without first offering such
arrangement to Agrium and at the terms no less favorable to Agrium than those
offered to a third party. Agrium's Field of Business is broadly related to
agriculture and, in particular, fertilizers. As a result, the Company's ability
to develop or license its technology to third parties for agricultural
applications is significantly restricted by the Agrium Agreement.

   The Company intends to continue developing other strategic relationships that
may help it promote its products or that might extend the range of product
solutions provided by the Company's technologies. The Company has entered into
non-disclosure agreements providing for the confidential exchange of information
and discussion with potential strategic partners and customers. 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 the
Company will 


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<PAGE>   8

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 the Company 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

   The Company primarily relies on direct sales efforts and strategic marketing
alliances to market the Company's products and technologies. Many of these
direct sales efforts are based on the initiatives of the Company's senior
management. The Company believes that these efforts have provided the Company
with significant market exposure and have continued the educational process
required to commercialize its technologies. In order to leverage its sales and
marketing efforts, Planet has also developed strategic alliances with Agway and
Agrium. See "Strategic Alliances."

   Most of the Company's technologies are designed to be specially engineered to
enhance, and become incorporated into, customers' products. Due to this high
degree of product specialization, the Company expects the average sales cycle
for its products to be approximately 24 to 48 months. This average sales cycle
includes initial customer contacts, specification writing, engineering design,
prototype construction, pilot testing, regulatory approval (if any), sales and
marketing and commercial manufacture. A significant amount of time and energy is
required by the Company's staff to educate the customer, understand the
customer's unique application requirements and recommend and develop the
appropriate solution.

COMPETITION

   The Company considers its competition for its AQUAMIM(TM) product to be from
competing technologies rather than from direct competitors. The competing
technologies include: solvent debinding technologies based on a wax binder by
Advanced Forming Technology, catalytic debinding based on a polyacetal binder by
BASF Corporation, air dry debinding based on a water-based binder by
AlliedSignal Inc. and thermal debinding based on an acrylic binder by Rohm &
Haas Company.

   In the manufacture and marketing of controlled-release urea, the Company
competes indirectly with Pursell Inc. and The Scotts Company in the United
States and Haifa Chemical Company in Israel. The Company believes that its
EnviroPlastic(R) CRT technology is a lower cost alternative that can be targeted
towards the broader agricultural market rather than the turf nursery and
ornamental market segment being served today.

   The primary source of competition for the Company's EnviroPlastic(R) and
Aquadro(TM) products currently comes from suppliers of conventional
non-degradable plastic products. The use of non-degradable products and current
methods of solid waste disposal are well established and accepted by both
consumers and the industry, many of whom may be indifferent to the benefits
offered by Planet's technologies. Many of the Company's competitors, who provide
these non-degradable products, have significantly greater financial, technical
and human resources than the Company. Direct competition with respect to
degradable polymer materials is limited. Technologies which the Company believes
to be potentially competitive include polyvinyl alcohol, starch-based polymers
and polylactic acid. A lessening of political or consumer concern for
environmental aspects of waste disposal could significantly harm the Company's
competitive position.

   There can be no assurance that any one of these potentially competitive
technologies will not obtain a significant market share prior to the
commercialization of the Company's products. The development of a competing or
superior technology or the commercialization of such technology by any one of
the Company's potential competitors could have a material adverse effect on the
Company's sales or operating profits.

   The degradable plastics market is currently highly fragmented, with no single
manufacturer commanding significant market share. However, the natural
consolidation associated with industry maturity could result in increased
competition, leading to price reduction, reduced margins and a loss of market
share. The Company believes that its technologies compete favorably with respect
to the principal competition factors of the Company's markets, i.e., price,
processability, quality, environmental impact and convenience.


                                       7

<PAGE>   9

MANUFACTURING AND SUPPLIERS

   The Company manufactures AQUAMIM(TM) feedstock compound at its facility in
San Diego, California. The Company believes that it currently has equipment and
space enabling it to make commercial quantities of feedstock but anticipates
needs for equipment upgrade. The components for AQUAMIM(TM) feedstock are metal
powder and polymers available from numerous suppliers. To date, Planet has
manufactured only limited quantities for product testing purposes.

   Planet manufactures polymer materials in pellet form from base raw materials
purchased from third party vendors. The Company has manufactured only limited
production quantities of its products at its facility in San Diego, California,
and continues to use contract manufacturers to produce larger quantities of
materials when required. The components for Planet's polymer blends, alloys and
coating products are available from several suppliers such as Union Carbide
Corporation, The Dow Chemical Company, Eastman Chemical Company and Air Products
and Chemicals, Inc. as well as other sources. The Company has not executed
long-term supply agreements with any of its vendors.

   To date, the Company has obtained adequate quantities of raw materials on
acceptable terms to meet its requirements and with volume purchase orders on
some items in order to obtain quantity discounts. The Company does not
anticipate significant difficulties in obtaining raw materials in sufficient
quantities to meet its anticipated needs. Should supply problems arise, however,
the Company's inability to develop alternative cost-effective sources could
materially impair the Company's ability to manufacture and deliver products.
Additionally, an interruption or reduction in the source of supply of any of the
component materials, or an unanticipated increase in vendor prices, could
materially and adversely affect the Company's operating results and damage
customer relationships.

   Deltco purchases the majority of its scrap resins from Minnesota Mining and
Manufacturing Company ("3M") and its affiliates. A formal supply agreement has
been executed with 3M. The agreement has an indefinite term and may be
terminated by either party upon thirty-days prior written notice. There can be
no assurance, however, that the supply of raw materials from 3M or other sources
will not be interrupted. In addition, although the Company has identified
potential alternative sources of raw material for Deltco, there can be no
assurance that such alternative sources will be able to provide raw materials
meeting the Company's quality control standards, if at all.

RESEARCH AND DEVELOPMENT

   Research and development expenditures during the years ended December 31,
1998 and 1997 were approximately $634,000 and $491,000 respectively, of which
approximately $122,000 and $144,000 respectively, were customer funded. Planet
believes that its long-term success depends on the continued development and
commercialization of cost-effective solutions consisting of engineered
environmentally compatible polymer materials. The Company currently has three
Ph.D. polymer scientists, one research scientist and one process technician
engaged in product development programs, which include polymer synthesis,
polymer blending, process development, pilot and full scale manufacturing and
testing. The Company aims to design and develop new products internally and,
where appropriate, acquire existing technologies for commercialization, although
the Company currently has no plans for any such acquisitions. The Company
anticipates that some of the 1999 research and development expenditures in the
agrotechnology area will be reimbursed by Agway under its Feasibility Agreement.
From October 1998 to December 1998, the Company recorded a revenue of
approximately $62,000 from Agway.

   Historically, Planet's research and development efforts have been focused
primarily on hydrodegradable polymers (EnviroPlastic(R) H and Aquadro(TM)),
controlled-release degradable fertilizer coatings (EnviroPlastic(R) CRT), and
manufacturing methodologies relating to all of the Company's proprietary
technologies. In 1998, the Company commenced and continued several new research
and development projects including AQUAMIM(TM). The Company expects to continue
these projects in 1999. These research and development projects are in trial
phases, however, and there can be no assurance that the Company will be
successful in completing the development or commercial implementation of any
technologies or products that are the subject of such projects.


                                       8
<PAGE>   10



INTELLECTUAL PROPERTY AND PROPRIETARY TECHNOLOGIES

   The Company believes that, although the ownership of patents is a significant
competitive advantage in its business, its success also depends on the
innovative skills, technical competence, and marketing ability of its
scientific, engineering, and sales and marketing personnel. The Company intends
to continue to design and develop proprietary engineered environmentally
compatible polymer blends and alloys, as well as enhancements and improvements
on existing products, and will seek patent and trademark protection for such
inventions, improvements and enhancements as appropriate.

   In 1998, the Company expanded its existing patent portfolio with the issuance
of a patent for the Company's EnviroPlastic(R) CRT technology which was
developed for Agrium. All other technologies of the Company are considered trade
secrets and patent protection will be pursued as appropriate.

   While the Company believes that a competitor with substantial financial
resources and technical expertise could develop polymer materials equivalent to
Planet's, the Company believes that its lead times, continued research and
development efforts and relationship driven strategic alliances with customers
provide it with a competitive advantage. The Company relies on trade secrets,
proprietary know-how and process technology, which it seeks to protect, in part,
by confidentiality agreements with its employees, consultants and customers.
There can be no assurance that these agreements will not be breached, that the
Company would have adequate remedies for any breach or that the Company's trade
secrets and proprietary know-how will not otherwise become known or be
independently discovered by others.

   In addition, there can be no assurance that the Company's pending patent
applications will be approved, that the Company will develop additional
proprietary materials or processes that are patentable, that any patents issued
to the Company or any of its licenses will provide the Company 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 the Company
to conduct its business. Furthermore, there can be no assurance that others will
not independently develop similar or superior technologies, duplicate any of the
Company's processes or design around the patented materials developed by the
Company. The Company 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 the Company may need to acquire
licenses to, or to contest the validity of, issued or pending patents of third
parties relating to the Company's technology. There can be no assurance that
licenses under such patents would be made available to the Company on acceptable
terms, if at all, or that the Company would prevail in any such contest. In
addition, the Company 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

   Certain end products into which the Company'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 (the "FDA") and the
Environmental Protection Agency (the "EPA"). Similar regulatory agencies exist
worldwide. The Company may be required to provide its customers with technical
information on its products to be used by the customer in the regulatory
process. The Company's customers will have primary responsibility for obtaining
any required governmental approvals. The approval process could be costly and
lengthy and potential sales of the Company's products could be significantly
delayed and/or eliminated as to end products subject to such regulatory
approval.

EMPLOYEES

   The Company currently has eight full-time employees and one part-time
employee at its corporate headquarters in San Diego, California, three of whom
hold doctoral degrees. Five employees are engaged in research and development
activities, one is involved in sales and marketing, and three are in
administrative, business development, operations and research support positions.



                                       9

<PAGE>   11


   Deltco currently has twenty-five full-time employees at its facility in
Ashland, Wisconsin. Three employees are in administrative, business development
and support positions and the remaining twenty-two are in production and
material handling positions.

   Competition for employees in the Company's industry is intense. The Company
believes that its future success will depend in part on its ability to recruit,
retain and motivate qualified management, marketing, technical and
administrative employees. The Company has an employment agreement with one key
employee. None of the Company's employees are covered by collective bargaining
agreements, and management considers relations with employees to be good.

FINANCIAL INFORMATION

   For financial information about the Company's two business segments, see Note
12 "Segment Information" to the Company's Consolidated Financial Statements in
the Appendix attached hereto and incorporated by reference.

RISK FACTORS

   Our History of Operating Losses. Our revenues to date have consisted
primarily of revenues generated by Deltco and contract research and development
revenues. We have incurred losses since inception. For the years ended December
31, 1998 and 1997, we had net losses of approximately $1,629,000 and $975,000,
respectively. As of December 31, 1998, we had an accumulated deficit of
approximately $9.9 million. Planet's product shipments to date have related
primarily to the research and development efforts and customer pilot trials.
Planet has generated minimal revenues from product sales. Due to lengthy
customer evaluation and acceptance periods, we expect that negative cash flow
from operations will continue for the foreseeable future. Other than the
Feasibility Agreement with Agway, we have not received significant commitments
beyond the research, development and testing stage from any customer regarding
purchases of our products or technologies. Full-scale commercial use of any of
our products will require additional development and testing. We cannot
guarantee the timing of the commercial deployment of our products or that our
products and technology will ever receive widespread market acceptance.

   Seasonality and Fluctuations in Quarterly Results. Deltco has experienced
seasonal fluctuations in quarterly revenues and operating results and we cannot
guarantee that Deltco will be profitable in any particular period. Seasonal
fluctuations at Deltco may cause volatility in the price of our Common Stock.
Deltco's sales and income have historically been lower in the first and fourth
quarters and higher in the second and third quarters of the years reflecting the
general pattern associated with much of the manufacturing industry. Furthermore,
announcements by us or our competitors of new products and technologies could
cause customers to defer or cancel purchases of Deltco's products, which could
adversely affect our business, financial condition and results of operations.
Additional factors that may cause our revenues, gross margins and results of
operations to vary significantly from period to period include:

   -  mix of products sold;

   -  availability of inventory;

   -  costs;

   -  price discounts;

   -  market acceptance and the time and availability of new products by us or
      our customers;

   -  usage of different distribution and sales channels;

   -  customization of products;

   -  general economic and political conditions.

   We cannot guarantee that we will realize positive operating results in the
future, and even if so realized, we cannot guarantee the level of operating
results. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

   Future Capital Needs; Uncertainty of Additional Funding. Our future capital
requirements will depend on many factors, including:

   -  the cost of manufacturing scale-up;


                                       10

<PAGE>   12

   -  the timing of market acceptance of our products;

   -  competing technological and market developments and the costs involved in
      filing;

   -  prosecuting and enforcing patent claims.

   We anticipate that our existing resources will enable us to maintain our
current and planned operations through at least the next twelve months. We
cannot guarantee that changes in our plans or other events affecting our
operating expenses will not result in the expenditure of such resources before
such time.

   We intend to seek additional funding through partnership arrangements or the
extension of existing arrangements or through 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 us to delay, scale
back or eliminate some or all of our activities or to obtain funds through
arrangements with third parties that may require us to relinquish rights to
certain of our technologies, product candidates or products that we would
otherwise seek to develop or commercialize ourselves.

   Continued Quotation On The Nasdaq SmallCap Market. Our ability to raise
capital may be dependent upon the stock being quoted on the Nasdaq SmallCap
Market. Our Common Stock is quoted on the Nasdaq SmallCap Market. We cannot
guarantee that we will be able to satisfy the criteria for continued quotation
on the Nasdaq SmallCap Market. For example, one of the criteria for continued
quotation is that we will maintain net tangible assets of $2 million. As of
December 31, 1998, our net tangible assets were approximately $1.4 million.
Failure to meet the maintenance criteria in the future may result in our Common
Stock not being eligible for quotation. In such event, an investor may find it
more difficult to dispose of, or to obtain accurate quotations as to the market
value of, our Common Stock.

   If our Common Stock is delisted from the Nasdaq SmallCap Market, trading, if
any, in our Common Stock would thereafter have to be conducted in the
over-the-counter market in the so-called "pink sheets" or, if available, Nasdaq
OTC Bulletin Board. As a result, an investor would find it more difficult to
dispose of, and to obtain accurate quotations as to the value of, our Common
Stock. In addition, our ability to raise additional funding may be impeded
should we not maintain the continued listing requirements at the Nasdaq SmallCap
Market.

   Penny Stock Regulations. If our Common Stock is delisted from the Nasdaq
SmallCap Market and the trading price of our Common Stock is less than $5.00 per
share, trading in our Common Stock would also be 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. We cannot guarantee that our Common
Stock will not be delisted from the Nasdaq SmallCap Market or treated as a penny
stock.

   Availability of Raw Materials; Dependence upon Key Supplier. Although certain
raw materials used in the our products are available from several sources,
should supply problems arise, our inability to develop alternative sources of
supply quickly and on a cost-effective basis could materially impair our ability
to manufacture and deliver our products. Deltco purchases the majority of its
scrap resins from 3M. A formal supply agreement has been executed with 3M. The
agreement has an indefinite term and may be terminated by either party upon
thirty-days prior written notice. Should demand for our products substantially
exceed current expectations, or if supply problems should arise with current
vendors, we cannot guarantee that we would be able to obtain sufficient
quantities of raw materials from our current sources, or that alternate sources
could be found without disrupting the manufacturing process.

   Cyclicality of Recycled Plastic Industry. Deltco's recycled polypropylene
generally replaces higher priced virgin polypropylene in its customer's end
products to reduce costs. Deltco's business depends substantially upon 

                                       11


<PAGE>   13

the availability and price of this virgin polypropylene as well as the price of
oil. If the virgin polypropylene supply becomes imbalanced due to excess
polypropylene capacity, the price of the virgin material will decrease creating
a lessened demand for Deltco's recycled material. Price downturns in the virgin
polypropylene market will have a material adverse effect on our business,
financial condition and results of operations.

   Uncertainty of Market Acceptance. Our success is dependent on the commercial
acceptance of our technologies by the various industries targeted by our
products. Although our products have undergone numerous product trials with
customers, to date no customer has made a significant commitment to purchase any
of our 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 any customer will
adopt our technology or that our products will receive broad market acceptance
as an economically acceptable alternative. Broad market acceptance of our
products will depend upon our ability to demonstrate to potential customers that
our products can compete favorably with alternative solutions. We cannot
guarantee that any of our targeted markets will result in a significant
commercial opportunity, that unforeseen problems will not develop with respect
to our technology or products or that we will be successful in completing the
commercial implementation of our technology. A significant risk remains as to
the timing of commercial implementation and the prospects of commercial success
for our technology and products. In addition, we will need to achieve further
product cost reductions to compete successfully in the future. Although we
intend to achieve such reductions through a combination of engineering and
process improvements and economies of scale, we cannot guarantee that we will
achieve our cost objectives.

   Technological Uncertainty. We are developing an innovative approach to
address problems and concerns of many industries. We cannot guarantee that
unforeseen problems will not develop with respect to our technology or products
or that we will be successful in completing the development or the commercial
implementation of our technology. In order to be successful, we must be able to
provide our products with a price-value relationship that is competitive with
alternative solutions. A significant risk remains as to the technological
performance, the implementation schedule and the prospects of commercial success
of our technology and products.

   Limited Manufacturing Experience and Capability. Our facility in San Diego,
California is a pilot production facility with limited manufacturing capability.
Deltco's facility is in Ashland, Wisconsin. In the event that production at
either facility were interrupted by fire, earthquakes, floods or other acts of
God, regulatory actions or other causes, we would be unable to continue to
develop and manufacture our products. Such an interruption would materially and
adversely affect our business and results of operations. To date we have
manufactured and sold only small quantities of our products for commercial use.
Our San Diego facility has limited capacity to handle higher commercial volume
manufacturing. To increase production capability, we will need to either expand
the production capabilities of the San Diego facility and or Deltco facility or
seek additional facilities, either of which would require significant
expenditures and additional personnel. Although we plan to establish
manufacturing relationships with contract manufacturers, no manufacturer has
produced significant volumes of our products to date. To be successful, our
products must be manufactured in commercial quantities at competitive costs. If
we are unable to develop or contract for manufacturing capabilities on
acceptable terms, our competitive position and our ability to achieve
profitability could be materially impaired.

   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 customers.
Our dependence on these customers raises certain risks with respect to the
future success of our business. We have focused our product development efforts
by working in close collaboration with our customers. Certain of our customers
are concurrently engaged in similar development and testing programs with other
companies involving competing products and technologies. Our success is
dependent on the successful completion and commercial deployment of our products
and on the future commitment of our customers to our products and technology. We
cannot guarantee that our collaboration with our customers will result in
products that are accepted by our customers or widely accepted in the
marketplace. In addition, our reliance on collaborations with third parties may
require us to relinquish rights to certain of our technologies, product
candidates or products that we would otherwise seek to develop or commercialize
ourselves. For example, pursuant to our License Agreement with Agway, Agway has
certain rights to our technologies. In addition, the Agway agreement places
certain limitations on us with respect to the use of our technologies in certain
areas of business. We cannot guarantee that we will not enter into similar
collaborations in the future.


                                       12

<PAGE>   14

   Management of Growth. Future company growth may challenge our management,
operational and financial resources. We may experience problems associated with
the design, engineering and manufacturing scale-up of our products. Our ability
to manage growth effectively will require us to continue to implement and
improve our management, operational and financial systems and to expand, train
and manage our employees.

   Management of growth is especially challenging for a company with a short
operating history and limited financial resources, and the failure to
effectively manage growth could have a material adverse effect on our results of
operations. In addition, Planet has no experience in the operation of a
large-scale production facility and we can not guarantee that we will not
encounter unforeseen difficulties in the operation of a production facility that
would adversely affect our results of operations in future periods. Failure to
upgrade operating and financial control systems or difficulties encountered
during such upgrades could adversely affect our business and results of
operations. Although we believe that our systems and controls are adequate to
address our current needs, we cannot guarantee that such systems and controls
will be adequate to address future changes in our business.

   Competition. We consider our competition for our AQUAMIM(TM) product to be
from competing technologies rather than from direct competitors. The competing
technologies include: solvent debinding technologies based on a wax binder by
Advanced Forming Technology, catalytic debinding based on a polyacetal binder by
BASF Corporation, air dry debinding based on a water-based binder by
AlliedSignal Inc. and thermal debinding based on an acrylic binder by Rohm &
Haas Company. In the manufacture and marketing of controlled-release urea, the
Company competes indirectly with Pursell Inc. and The Scotts Company in the
United States and Haifa Chemical Company in Israel. Many of our competitors have
significantly greater financial, technical and human resources than we do.

   The primary source of competition for our EnviroPlastic(R) and Aquadro(TM)
products currently comes from suppliers of conventional non-degradable plastic
products. The use of non-degradable products is well-established and accepted by
both consumers and the industry, many of whom may be indifferent to the benefits
offered by our products. Many of our competitors who provide these
non-degradable products have significantly greater financial, technical and
human resources than we do. Changes in political and consumer emphasis on
environmental factors in waste disposal could significantly harm our competitive
position relative to these established solutions with respect to certain of our
products whose principal advantage is degradability. Such changes may be
imminent in light of the current political climate, the unlikelihood of
increased environmental regulation and the possibility of a reduction in
environmental regulation. In addition, we are subject to competition from other
specialty chemical companies offering alternative solutions.

   We cannot guarantee that our competitors will not succeed in developing
products or technologies that are more effective than any which have been or are
being developed by us or which would render our technology and products obsolete
and noncompetitive. Accordingly, our competitors may succeed in obtaining market
acceptance for products more rapidly than we do. Furthermore, if we obtain
market acceptance of our products, we will also be competing with respect to
volume manufacturing efficiency and marketing capabilities, areas in which we
have limited or no experience.

   Dependence on Key Personnel. Our success depends to a significant extent upon
the continued service of Robert J. Petcavich, our Chairman, Chief Executive
Officer and President, and the loss of such key executive could have a material
adverse effect on our business or results of operations. We are also dependent
on other key personnel, and on our ability to continue to attract, retain and
motivate highly skilled personnel. The competition for such employees is
intense, and we cannot guarantee that we will be successful in attracting,
retaining or motivating key personnel. We maintain "key-person" life insurance
policies with respect to such persons to compensate us in the event of their
deaths.

   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 

                                       13


<PAGE>   15

we were the first creator of inventions covered by our issued patents or pending
patent applications or that we were the first to file patent applications for
such inventions. 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 and warrant holders could materially adversely affect the market
price of our Common Stock. As of December 31, 1998, we had outstanding 5,841,062
shares of Common Stock (assuming the conversion of all outstanding shares of
Preferred Stock into shares of Common Stock). In addition, on January 11, 1999,
we issued 1,000,000 shares of our Common Stock to Agway. Other than those
1,000,000 shares issued to Agway which are unregistered, 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. We have also filed a Registration Statement on Form S-8 under
the Securities Act covering 500,000 shares of Common Stock reserved for issuance
under our 1995 Stock Plan. Upon issuance, shares registered under such
Registration Statement will be, subject to Rule 144 volume limitations
applicable to our affiliates, available for sale in the open market.

   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
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

   The Company's executive offices, as well as research laboratories and a
limited production facility, are located in approximately 6,080 square feet of
leased office and manufacturing space in San Diego, California. The lease on
this space will expire in July 1999 and the monthly rental payment is $4,364
until expiration. The Company is currently negotiating for an extension on its
current office space in San Diego. There can be no assurance that the Company
will be able to successfully negotiate such extension or that the Company would
be able to find comparable space for a comparable price. Deltco currently leases
approximately 35,000 square feet of space in Ashland, Wisconsin. The leases on
Deltco's space will expire in 2003 and the monthly rental payment is $9,481. The
Company may expand its manufacturing capabilities as demand increases for the
Company's products. Additional debt or equity financing will be required prior
to obtaining significant manufacturing facilities.


                                       14
<PAGE>   16



ITEM 3. LEGAL PROCEEDINGS

   In November 1998, the Company initiated litigation against Brian To, a former
director of the Company, and Tarrenz Management Consultants, Inc., an entity
owned by Brian To, in the Superior Court of the State of California for the
County of San Diego. The complaint alleges breach of contract, breach of
fiduciary duty and other tort claims arising from services the defendants
performed for or on behalf of the Company. The Company is seeking recovery of
compensation, stock, stock options and expense reimbursements. It is too early
to determine the impact, if any, of this proceeding on the Company, its
financial condition or the results of the Company's operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   A Special Meeting of Shareholders of Planet Polymer Technologies, Inc. was
held on January 6, 1999 in San Diego, California. A description of the proposal
at the Special Meeting is more fully described in the Company's proxy statement
dated as of December 14, 1998.

        Proposal 1 - To approve the issuances of securities of the Company
        exceeding twenty percent of the outstanding Common Stock of the Company
        as described in the Proxy Statement dated as of December 14, 1998.
<TABLE>
<CAPTION>

                      Votes For             Votes Against        Votes Abstained
                      ---------             -------------        ---------------

<S>                                         <C>                  <C>  
                      3,071,243                1,319,562                  8,765
</TABLE>


                                       15
<PAGE>   17



                                    PART II.

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

   The Company's Common Stock has been traded on the Nasdaq SmallCap tier of the
Nasdaq Stock Market ("Nasdaq") under the symbol "POLY," since the Company's
initial public offering on September 21, 1995. The following table sets forth
the high and low sales prices of the Company's Common Stock for the period from
January 1, 1997 through December 31, 1998 as furnished by Nasdaq. These prices
reflect prices between dealers without retail markups, markdowns or commissions,
and may not necessarily represent actual transactions:
<TABLE>
<CAPTION>

                                     Trade Prices
                                    --------------
                                    High       Low
                                    ----       ---
<S>                                 <C>       <C>
Fiscal year ended December 31, 1997
   First Quarter                     4 1/4    2
   Second Quarter                    4 1/8    1 3/4
   Third Quarter                     4 5/8    2
   Fourth Quarter                    3 1/2    1
Fiscal year ended December 31, 1998
   First Quarter                     2 1/4    1 5/16
   Second Quarter                    2 5/8    1 3/16
   Third Quarter                     1 5/8      7/8
   Fourth Quarter                    2 1/8      5/8
</TABLE>


   On February 25, 1999, the last reported sale price of the Company's Common
Stock on the Nasdaq SmallCap market was $1.625. As of February 25, 1999, there
were approximately 129 holders of record of the Company's Common Stock with
6,341,062 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.

   Under the terms of the Securities Purchase Agreement between the Company and
the investor of the Series A Preferred (the "Investor") dated as of September
19, 1997, the Investor is entitled to receive, quarterly, such number of shares
of Common Stock (or, if the Company is unable to distribute shares of Common
Stock, cash) equal to (a) one and one-half percent (1.5%) multiplied by the
liquidation preference of the Series A Preferred, divided by (b) the average
closing price of the Company's Common Stock on the Nasdaq SmallCap Market over a
period of 5 consecutive trading days prior to the dividend distribution date.
Accordingly, during each of 1998 and 1997, the Company has issued to the
Investor dividends of 40,918 shares and 7,337 shares of Common Stock,
respectively, valued at approximately $60,000 and $13,665, respectively.

   No cash dividends have been declared or paid on the Company's Common Stock
and the Company does not expect to pay any cash dividends in the foreseeable
future.

RECENT SALES OF UNREGISTERED SECURITIES

   In November 1998, the Company entered into a Stock Purchase Agreement with a
subsidiary of Agway, Inc. ("Agway") whereby Agway would purchase 1,000,000
shares of Planet's Common Stock for $1,000,000 and receive a warrant to purchase
up to 2,000,000 shares of Common Stock at a price of $1.00 per share. The
transaction was completed in January 1999 with the Company's shareholders'
approval. The 1,000,000 shares of Common Stock issued to Agway in January 1999
were issued in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D under the Securities Act of 1933, as amended.


                                       16
<PAGE>   18



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 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 1996, Planet acquired Deltco, a
manufacturer and reprocessor of plastic resins located in Ashland, Wisconsin.
Planet maintains Deltco as a wholly-owned subsidiary. Prior to the acquisition
of Deltco, essentially all revenue recognized was from customer-funded research
and development activities, which included service and product sales for
customer pilot trials. Planet has incurred operating losses since inception and
had an accumulated deficit as of December 31, 1998 of approximately $9.9
million. Pending commercial deployment of and related volume orders for the
Company's products, the Company expects to incur additional losses.

   In November 1998, the Company entered into a Stock Purchase Agreement with a
subsidiary of Agway Inc. ("Agway") whereby Agway would purchase 1,000,000 shares
of Planet's Common Stock for $1,000,000 and receive a warrant to purchase up to
2,000,000 shares of Common Stock at a price of $1.00 per share. The stock
purchase transaction was completed in January 1999 with the Company's
shareholders' approval. Contemporaneously with the execution of the agreement,
Planet and Agway entered into an agreement relating to the funding by Agway of a
feasibility study (the "Feasibility Agreement") of Planet's polymer technology
for use in agricultural products (other than fertilizers and certain biological
products) and food products and an exclusive worldwide license (the "License
Agreement") to all current and future products that utilize Planet's polymer
technology for agricultural and food related purposes (other than products
already covered by existing agreements). Under the terms of the License
Agreement, Agway has the exclusive right to grant licenses and sublicenses on
the technology developed under the License Agreement to other parties. In return
for the rights granted to Agway, Agway is required to pay royalties to the
Company determined in accordance with the terms of the License Agreement. In
addition, in February 1999, the Company received a commitment from Agway whereby
Agway agreed to exercise its warrant to acquire up to 500,000 shares of the
Company's Common Stock as early as July 1, 1999 at the Company's request, in the
event that the Company's cash flows are less than currently projected and/or
insufficient to fund its operating requirements.

RESULTS OF OPERATIONS

   The Company operates in two segments: (1) research and development of polymer
technologies and materials in San Diego, California and (2) manufacturing and
reprocessing of thermoplastic scrap resins by Deltco in Ashland, Wisconsin. The
technologies and products developed in California are currently in a research
and development stage; and therefore, no revenues and cost of sales were
reported under this segment in 1998 and 1997.

   The Company's revenues, which were all related to Deltco, decreased from
approximately $3,020,000 for the year ended December 31, 1997 to approximately
$1,615,000 for the year ended December 31, 1998. This decrease was primarily
attributed to declines in both sales volume and sales price of approximately 19%
and 26%, respectively, for Deltco's recycled polypropylene due to price
decreases in virgin polypropylene. Since Deltco's recycled polypropylene is
generally a lower cost substitute for virgin polypropylene, such price decreases
lessened demand for Deltco's recycled material. The price decreases in virgin
polypropylene were substantially related to the low cost of oil, a decrease in
demand for polypropylene in Asia and the General Motors strike. The Company has
noted a slight increase in sales volume in early 1999; however, it expects
prices to continue to be low for the foreseeable future.


                                       17

<PAGE>   19

   Cost of sales, which were all related to Deltco, decreased from approximately
$2,259,000 for the year ended December 31, 1997 to approximately $1,734,000 for
the year ended December 31, 1998. This decrease was primarily attributable to
lower sales volume at Deltco, offset by write-down of certain inventory to
market of approximately $102,000.

   General and administrative expenses decreased $146,000 from approximately
$962,000 for the year ended December 31, 1997 to approximately $816,000 for the
year ended December 31, 1998. Expenses for the San Diego research and
development segment decreased approximately $103,000 in 1998, which was
primarily due to decreased costs of outside services. Also, in June 1998,
Deltco's president resigned to pursue other career opportunities. Due to his
departure and decreased costs of outside services, Deltco's general and
administrative expenses decreased approximately $43,000 in 1998.

   Marketing expenses decreased $196,000 from approximately $434,000 for the
year ended December 31, 1997 to approximately $238,000 for the year ended
December 31, 1998. Marketing expenses for the San Diego research and development
segment and the Deltco segment decreased approximately $128,000 and $68,000,
respectively, in 1998. Both decreases were primarily attributable to reductions
in outside services and sales and marketing personnel.

   The Company's net research and development expenses increased from
approximately $347,000 for the year ended December 31, 1997 to approximately
$512,000 for the year ended December 31, 1998. This increase was primarily due
to the addition of research and development personnel and increased costs
associated with advancing AQUAMIM(TM) technology, including customer production
trials and efficacy and safety testing. Additionally, offsetting research and
development revenue decreased from approximately $144,000 from the year ended
December 31, 1997 to approximately $122,000 for the year ended December 31,
1998.

   The Company's net loss increased from approximately $975,000 during the year
ended December 31, 1997 to approximately $1,629,000 during the year ended
December 31, 1998 as a result of the aforementioned contributing factors.

   As of December 31, 1998, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $8.6 million, and for California
and Wisconsin state tax purposes of approximately $3.8 million and $0.2 million,
respectively. The Company's annual utilization of net operating loss and tax
credit carryforwards may be limited if the Company's ownership were to change in
the future, as defined by Sections 382 and 383 of the Internal Revenue Code.

   The Company's quarterly results of operations have and continue to fluctuate
materially depending on, among other things the mix of products sold,
availability of inventory, costs, price discounts, market acceptance and the
timing and availability of new products by the Company or its customers,
customization of products, and general economic and political conditions.

   Deltco's sales and income are also subject to seasonal fluctuations and have
been historically lower in the first and fourth quarters of the years reflecting
the general pattern associated with much of the manufacturing industry. Because
of these fluctuations in net sales and net income, the results of operations of
any quarter are not necessarily indicative of the results that may be achieved
for a full fiscal year or any future quarter. See "Risk Factors - Seasonality
and Fluctuations in Quarterly Results."

LIQUIDITY AND CAPITAL RESOURCES

   Since inception, Planet has financed its operations primarily through the
sale of equity securities and revenue from customer development agreements. The
Company has raised approximately $4 million (net of issuance costs) from the
private sale of Common Stock and exercise of warrants to purchase Common Stock.
In September 1995 the Company completed its initial public offering in which it
sold an aggregate of 1,150,000 shares of Common Stock to the public and received
net proceeds of approximately $5.6 million.

   In January 1996, the Company used $1,125,000 in cash and issued 96,775 shares
of restricted Common Stock valued at approximately $508,000 to acquire Deltco in
a purchase transaction. In connection with the purchase, the Company had one
outstanding debt agreement related to a Small Business Administration loan
collateralized by a 

                                       18



<PAGE>   20

certificate of deposit and inventory at Deltco. As of December 31, 1998, the
loan balance was approximately $95,000. In January 1999, the loan was paid in
full with cash obtained from the redemption of the certificate of deposit.

   In September 1997, the Company issued 500,000 shares of Series A Convertible
Preferred Stock and warrants to purchase Common Stock for an aggregate purchase
price of approximately $882,000, net of issuance costs.

   In January 1999, with the Company's shareholders' approval, the Company
issued 1,000,000 shares of Common Stock to Agway and received proceeds of
$1,000,000 before any issuance costs. In addition, from October 1998 to December
1998, the Company recorded a research and development revenue of approximately
$62,000 from Agway under the Feasibility Agreement. The Company anticipates that
some of the 1999 research and development expenditures in the agrotechnology
area will be reimbursed by Agway under the Feasibility Agreement. In addition,
in February 1999, the Company received a commitment from Agway whereby Agway
agreed to exercise its warrant to acquire up to 500,000 shares of the Company's
Common Stock as early as July 1, 1999 at the Company's request, in the event
that the Company's cash flows are less than currently projected and/or
insufficient to fund its operating requirements.

   The Company has no material commitments for capital expenditures but
anticipates expenditures in 1999 of approximately $40,000 to update its computer
hardware and software as discussed below.

   The Company used approximately $1,110,000 for operations for the year ended
December 31, 1998. Such funds were used for research and development activities,
marketing efforts and administrative support.

   The Company used approximately $74,000 for investing activities for the year
ended December 31, 1998. Such funds were used for the preparation and filing of
patents and for the purchase of equipment.

   The Company used approximately $183,000 for financing activities for the year
ended December 31, 1998. Such funds were used for the repayment of debt and
payment for costs related to the Common Stock issuance to Agway.

   The Company believes that its existing sources of liquidity and anticipated
revenue, including revenues generated from Deltco, proceeds from the January
1999 issuance of Common Stock to Agway and Agway's commitment to exercise its
warrants to acquire up to 500,000 shares of Common Stock as early as July 1,
1999 at the Company's request, in the event that the Company's cash flows are
less than currently projected and/or insufficient to fund its operating
requirements will satisfy the Company's projected working capital and other cash
requirements through at least the next twelve months. There can be no assurance,
however, that future revenue decreases or changes in the Company's plans or
other events affecting the Company's operating expenses will not result in the
expenditure of the Company's resources. The Company expects that it will need to
raise substantial additional funds to continue its current and planned
operations. The Company intends to seek additional funding from existing and
potential customers or through public or private equity or debt financing. There
can be no assurance that additional financing will be available on acceptable
terms, or at all. The Company's ability to raise additional capital may be
dependent upon the stock being quoted on the Nasdaq SmallCap Market. There can
be no assurance that the Company will be able to satisfy the criteria for
continued quotations on the Nasdaq SmallCap Market.

YEAR 2000

   The Company recognizes the need to ensure that its operations will not be
impacted by the year 2000 issue that results from computer applications being
written along two digits rather than four to define the application year. As a
result of the year 2000 issue, computer applications may recognize a date using
"00" as the year 1900 rather than the year 2000, resulting in system failures or
miscalculations causing disruption of operations. The Company has reviewed its
material computer applications for year 2000 compliance and is working with
vendors and suppliers to make its computer applications year 2000 compliant.
Thus, the Company has developed a plan to modify its information technology in
recognition of the year 2000 issue. The plan calls for updating existing
software and hardware to newer versions that incorporate corrections to
eliminate the problem. The Company has estimated that the total cost of updating
the Company's accounting system in order to be year 2000 compliant will be
approximately $30,000 and the cost of improving the Company's computers and
network will be approximately $10,000. The Company does not expect the year 2000
issue and the plan to resolve it to have a significant impact on its operations.
However, if such plans cannot be completed on a timely basis, the year 2000
issue could have a material adverse impact on the Company's business, financial
condition and results of operations. Because of the many uncertainties
associated with year 2000 compliance issues, and because the Company's
assessment is necessarily based on information from third party vendors and
suppliers, there can be no assurance as to whether 

                                       19


<PAGE>   21

such assessment is correct or as to the materiality or effect if such assessment
is not correct. For example, to the extent that customers would be unable to
order products or pay invoices or suppliers would be unable to manufacture or
deliver product, the Company's operations would be affected.

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.

                                    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 1999 Annual Meeting of Shareholders (the
"Proxy Statement") under the headings "Proposal 2 - 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."

                                       20
<PAGE>   22



                                    PART IV.

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)  The Company did not file any reports on Form 8-K during the quarter
        ended December 31, 1998.
<TABLE>
<CAPTION>

   (c)  Exhibit Number    Description
        --------------    -----------

<S>                     <C>
            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(6)      Opinion of Cooley Godward LLP.

            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 "Option Plan").

            10.3(1)     Form of Incentive Stock Option Grant under the Option
                        Plan.

            10.4(1)     Form of Non-statutory Stock Option Grant under the
                        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 Company and Cominco
                        Fertilizers, Ltd.

            10.12(5)    Fourth Amendment to Lease, dated August 1, 1997 between
                        the Company 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(7)(9) Scrap Purchase Agreement, dated June 28, 1996, between
                        Deltco and 3M.
</TABLE>


                                       21


<PAGE>   23

<TABLE>
<S>                     <C>
            10.16(8)    Stock Purchase Agreement, dated November 12, 1998
                        between the Company and Agway Holdings Inc.

            10.17(8)    Warrant to Purchase Common Stock, dated January 11,
                        1999, issued by the Company to Agway Holdings Inc.

            10.18(10)   Registration Rights Agreement, dated January 11, 1999,
                        between the Company and Agway Holdings Inc.

            10.19(10)   Product Feasibility Agreement dated as of November 12,
                        1998 between the Company and Agway Consumer Products,
                        Inc.

            10.20(10)   License Agreement dated as of November 12, 1998 between
                        the Company and Agway Consumer Products, Inc.

            11.1(10)    Statement of Computation of Common and Common Equivalent
                        Shares.

            23.1(10)    Consent of PricewaterhouseCoopers LLP.

            24.1        Power of Attorney. Reference is made to page 23.

            27.1(10)    Financial Data Schedule.
</TABLE>


(1)   Previously filed as an exhibit to the 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 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 current report on Form 8K filed on
      January 11, 1996, as amended by the current report on Form 8-K/A
      (Amendment No. 1) filed by the Company on March 15, 1996 and incorporated
      herein by reference.

(4)   Previously filed as an Exhibit to Registrant's Annual Report on Form
      10-KSB filed for the fiscal year ended December 31, 1995 and incorporated
      herein by reference.

(5)   Previously filed as an Exhibit to 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 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 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)  Filed as an Exhibit to this annual report on Form 10-KSB.

                                       22
<PAGE>   24



                                   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 8, 1999                 By: /s/ ROBERT J. PETCAVICH         
                                             ----------------------------------
                                             Robert J. Petcavich
                                             President, Chief Executive Officer
                                             and Director



                                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.
<TABLE>
<CAPTION>

Signature                    Title                                               Date
---------                    -----                                               ----

<S>                          <C>                                                 <C>
/s/ Robert J. Petcavich      President,                                          March 8, 1999
---------------------------  Chief Executive Officer and Director
Robert J. Petcavich          (Principal Executive Officer)
                             (Principal Financial and Accounting Officer)


/s/ Michael M. Coleman        Director                                           March 8, 1999
---------------------------
Michael M. Coleman


/s/ Thomas M. Connelly        Director                                           March 8, 1999
---------------------------
Thomas M. Connelly


/s/ H. M. Busby               Director                                           March 8, 1999
---------------------------
H.M. Busby


/s/ Thomas A. Landshof        Director                                           March 8, 1999
---------------------------
Thomas A. Landshof

</TABLE>

                                       23
<PAGE>   25
                                    APPENDIX

                              FINANCIAL STATEMENTS



<PAGE>   26



<TABLE>


                    INDEX TO FINANCIAL STATEMENTS -- ITEM 7 OF FORM 10-KSB

<S>                                                                                           <C>
   Report of Independent Accountants..........................................................F-2

   Consolidated Financial Statements and Notes:

   Balance Sheet as of December 31, 1998......................................................F-3

   Statements of Operations for the Years Ended December 31, 1998 and 1997....................F-4

   Statements of Shareholders' Equity for the Years Ended December 31, 1998 and 1997..........F-5

   Statements of Cash Flows for the Years Ended December 31, 1998 and 1997....................F-6

   Notes to Consolidated Financial Statements.................................................F-7
</TABLE>



                                      F-1



<PAGE>   27



                        REPORT OF INDEPENDENT ACCOUNTANTS







To the Board of Directors and Shareholders
of Planet Polymer Technologies, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Planet
Polymer Technologies, Inc. and its subsidiary at December 31, 1998, and the
results of their operations and their cash flows for each of the two years in
the period then ended in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.


PricewaterhouseCoopers LLP

San Diego, California
March 2, 1999



                                      F-2

<PAGE>   28
                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEET
                                 ---------------

<TABLE>
<CAPTION>

                                                                                       DECEMBER 31,
                                                                                           1998
                                                                                       -------------
<S>                                                                                    <C>         
ASSETS
Current assets:
     Cash and cash equivalents                                                         $    149,117
     Restricted cash                                                                        114,880
     Accounts receivable, net of allowance for doubtful accounts of $10,000                 292,914
     Inventories, net                                                                       300,236
     Prepaid expenses                                                                        49,919
     Income tax receivable                                                                   30,168
                                                                                       ------------
           Total current assets                                                             937,234

Property and equipment, net of accumulated depreciation of $895,014                         729,597
Goodwill, net of accumulated amortization of $96,003                                        544,019
Patents and trademarks, net of accumulated amortization of $115,370                         319,452
Other assets                                                                                 86,260
Deferred income taxes, net                                                                   32,424
                                                                                       ------------
           Total assets                                                                $  2,648,986
                                                                                       ============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                                  $    189,894
     Accrued payroll and vacation                                                            40,061
     Other accrued expenses                                                                  48,479
     Current portion of capital lease obligations                                            11,904
     Loan Payable                                                                            94,947
                                                                                       ------------
           Total current liabilities                                                        385,285

Capital lease obligations, less current portion                                              31,128
Other liabilities                                                                           265,842
                                                                                       ------------
           Total liabilities                                                                682,255
                                                                                       ------------

Commitments (Notes 7, 13)                                                                        --

Shareholders' equity:
     Preferred Stock, no par value
        4,250,000 shares authorized
        No shares issued or outstanding                                                          --
     Series A Convertible Preferred Stock, no par value
        750,000 shares authorized
        500,000 shares issued and outstanding
        Liquidation preference $1,000,000                                                   804,435
     Common Stock, no par value
        20,000,000 shares authorized
        5,341,062 shares issued and outstanding                                          11,009,208
     Accumulated deficit                                                                 (9,846,912)
                                                                                       ------------
           Total shareholders' equity                                                     1,966,731
                                                                                       ------------
           Total liabilities and shareholders' equity                                  $  2,648,986
                                                                                       ============
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-3

<PAGE>   29
                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                 ---------------

<TABLE>
<CAPTION>

                                                                YEARS ENDED DECEMBER 31,
                                                          -----------------------------------
                                                             1998                    1997
                                                          -----------             -----------
<S>                                                       <C>                     <C>        
 Sales                                                    $ 1,615,124             $ 3,020,081
 Cost of sales                                              1,734,230               2,258,760
                                                          -----------             -----------
         Gross profit                                        (119,106)                761,321
                                                          -----------             -----------
 Operating expenses:
      General and administrative                              816,296                 962,361
      Marketing                                               237,599                 433,658
      Research and development, net                           511,804                 346,823
                                                          -----------             -----------
         Total operating expenses                           1,565,699               1,742,842
                                                          -----------             -----------
         Loss from operations                              (1,684,805)               (981,521)
 Other income, net                                             33,224                  36,803
                                                          -----------             -----------
         Loss before income taxes                          (1,651,581)               (944,718)
 Income tax benefit (expense)                                  23,038                 (30,286)
                                                          -----------             -----------
         Net loss                                         $(1,628,543)            $  (975,004)
                                                          ===========             ===========
         Loss per share (basic and diluted)               $     (0.31)            $     (0.18)
                                                          ===========             ===========
         Shares used in per share computations              5,317,297               5,271,635
                                                          ===========             ===========
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-4

<PAGE>   30




                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                    SERIES A PREFERRED STOCK       COMMON STOCK      
                                                    ------------------------   -------------------    ACCUMULATED
                                                        SHARES    AMOUNT       SHARES         AMOUNT     DEFICIT        TOTAL
                                                       -------   --------   ---------   -----------   -----------    -----------

<S>                                                 <C>          <C>        <C>         <C>           <C>            <C> 
 Balance at December 31, 1996                               --   $     --   5,271,269   $10,774,079   $(7,169,700)   $ 3,604,379
 Issuance of Common Stock as incentive
    compensation                                            --         --      21,538        24,129            --         24,129
 Issuance of warrants                                       --         --          --        77,500            --         77,500
 Fair market value of stock options granted to
    non-employees                                           --         --          --        51,594            --         51,594
 Issuance of Series A Convertible Preferred
    Stock, net                                         500,000    804,435          --            --            --        804,435
 Issuance of Common Stock as a dividend on
    Convertible Preferred Stock on December 15, 1997        --         --       7,337        13,665       (13,665)            --
 Net loss for year                                          --         --          --            --      (975,004)      (975,004)
                                                       -------   --------   ---------   -----------   -----------    -----------
Balance at December 31, 1997                           500,000   $804,435   5,300,144   $10,940,967   $(8,158,369)   $ 3,587,033
Issuance of Common Stock as a dividend on
   Convertible Preferred Stock on March 15, 1998            --         --      10,169        15,000       (15,000)            --
Issuance of Common Stock as a dividend on
   Convertible Preferred Stock on June 15, 1998             --         --       8,695        15,000       (15,000)            --
Issuance of Common Stock as a dividend on
   Convertible Preferred Stock on September 15, 1998        --         --      13,483        15,000       (15,000)            --
Fair market value of stock options granted to
   non-employees                                            --         --          --         8,241            --          8,241
Issuance of Common Stock as a dividend on
   Convertible Preferred Stock on December 15, 1998         --         --       8,571        15,000       (15,000)            --
Net loss for year                                           --         --          --            --    (1,628,543)    (1,628,543)
                                                       -------   --------   ---------   -----------   -----------    -----------
Balance at December 31, 1998                           500,000   $804,435   5,341,062   $11,009,208   $(9,846,912)   $ 1,966,731
                                                       =======   ========   =========   ===========   ===========    ===========
</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-5

<PAGE>   31

                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 ---------------

<TABLE>
<CAPTION>

                                                                                   YEARS ENDED DECEMBER 31,
                                                                               -----------------------------------
                                                                                   1998                   1997
                                                                               -----------             -----------

<S>                                                                            <C>                     <C>         
Cash flows from operating activities:
     Net loss                                                                  $(1,628,543)            $  (975,004)
     Adjustments to reconcile net loss to net cash used
        by operating activities:
        Depreciation and amortization                                              214,565                 203,789
        Non-cash compensation expense                                                8,241                  75,723
        Loss on disposal of assets                                                      --                  23,106
        Deferred income taxes                                                      (23,838)                 (6,714)
     Changes in assets and liabilities:
        Accounts receivable                                                         93,143                 285,709
        Inventories, net                                                           142,197                 (72,858)
        Prepaid expenses and other                                                  38,629                 (24,410)
        Income tax receivable                                                      (30,168)                     --
        Accounts payable and accrued expenses                                       75,373                (152,778)
        Other liabilities                                                               --                 (41,928)
                                                                               -----------             -----------
           Net cash used by operating activities                                (1,110,401)               (685,365)
                                                                               -----------             -----------
Cash flows from investing activities:
     Purchases of property and equipment                                           (45,219)                (39,478)
     Proceeds from the sale of property and equipment                                   --                   4,335
     Cost of patents and other                                                     (28,425)                (19,886)
                                                                               -----------             -----------
           Net cash used by investing activities                                   (73,644)                (55,029)
                                                                               -----------             -----------
Cash flows from financing activities:
     Proceeds from issuance of Series A Preferred Stock                                 --                 925,000
     Proceeds from issuance of warrants                                                 --                  77,500
     Payment of equity issuance costs                                              (80,988)               (120,565)
     Principal payments on borrowings and capital lease obligations                (95,652)               (157,251)
     Restricted cash in connection with borrowings                                  (6,603)               (108,277)
                                                                               -----------             -----------
           Net cash (used) provided by financing activities                       (183,243)                616,407
                                                                               -----------             -----------
           Net decrease in cash and cash equivalents                            (1,367,288)               (123,987)
Cash and cash equivalents at beginning of year                                   1,516,405               1,640,392
                                                                               -----------             -----------
Cash and cash equivalents at end of year                                       $   149,117             $ 1,516,405
                                                                               ===========             ===========

Supplemental disclosure of non-cash activity:

  Cash paid during the year for:
     Interest paid                                                             $    18,768             $    29,822
     Income taxes paid                                                              30,968                  74,825

  Non-cash activities:
     Equipment purchased under capital lease obligations                       $    18,035             $    34,950
     Fair market value of stock options granted to non-employees                     8,241                  51,594
     Issuance of Common Stock as incentive compensation                                 --                  24,129
     Issuance of Common Stock dividends on Preferred Stock                          60,000                  13,665

</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-6

<PAGE>   32



                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY

   Planet Polymer Technologies, Inc. (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(R), Aquadro(TM) and AQUAMIM(TM). EnviroPlastic(R) and
Aquadro(TM) can be used to produce films, coatings and injection molded parts
that serve as environmentally-compatible alternatives to conventional plastics.
AQUAMIM(TM), developed by the Company in 1998, can be used to manufacture
complex metal parts using conventional plastics molding equipment.

   The Company emerged from the development stage as a result of its acquisition
of Deltco of Wisconsin, Inc., a Wisconsin corporation ("Deltco"), effective
January 1, 1996. Prior to this acquisition, substantially all of the Company's
resources had been devoted to the development and commercialization of its
polymer technologies and products. Deltco was incorporated in 1984 in the State
of Wisconsin. Deltco is a manufacturer and reprocessor of thermoplastic scrap
resins located in Ashland, Wisconsin. The Company has continued to use Deltco's
plant, equipment and other physical property in the manner in which it was used
prior to the acquisition.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

   The accompanying consolidated financial statements include accounts of the
Company and its wholly-owned subsidiary, Deltco. All intercompany balances and
transactions have been eliminated in consolidation. Certain prior year amounts
have been reclassified to conform with the current year presentation.

Use of Estimates

    The preparation of financial statements in conformity with generally
accepted accounting principles 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

   Reprocessed thermoplastic sales revenue is recognized upon shipment of goods
to customers.

Research and Development

   Company-sponsored research and development costs related to future products
and re-design of present products are expensed as incurred. Research and
development revenues from customers for research and development projects
partially offset those incurred costs. Those revenues are recognized when
services have been rendered or products have been shipped. The components of
research and development, net are as follows:
<TABLE>
<CAPTION>

                                                      1998               1997
                                                   ---------          ---------
<S>                                                <C>                <C>      
Research and development expenses                  $ 633,520          $ 491,077
Research and development revenues                   (121,716)          (144,254)
                                                   ---------          ---------
  Research and development, net                    $ 511,804          $ 346,823
                                                   =========          =========
</TABLE>

Cash and Cash Equivalents

   Cash and cash equivalents include time deposits and U.S. Treasury bills with
original maturities of three months or less. Restricted cash relates to a
certain certificate of deposit which serves as collateral on a loan balance
(Note 8).

                                      F-7
<PAGE>   33


                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fair Value of Financial Instruments

   The carrying amounts shown for the Company's financial instruments
approximate their fair values at December 31, 1998.

Inventories

   Inventories, which consist primarily of raw materials and finished goods, are
stated at the lower of cost or market. Cost is determined using the average cost
method.

Property and Equipment

   Property and equipment is stated at cost and depreciated using the
straight-line method over the estimated useful lives ranging from three to ten
years. When assets are sold or retired, the cost and associated accumulated
depreciation are removed from the accounts and any gain or loss is reflected in
operations.

Goodwill

   Goodwill, representing the excess of the purchase price of Deltco over the
fair value of the net assets acquired, is being amortized on a straight-line
basis over the estimated benefit period of twenty years.

Patents

   Costs incurred to obtain patents, principally legal fees, are capitalized.
The Company amortizes these costs on a straight-line basis over the estimated
benefit period, not to exceed eighteen years.

Long-Lived Assets

    The Company assesses potential impairments to its long-lived assets when
there is evidence that events or changes in circumstances have made recovery of
the asset's carrying value unlikely. An impairment loss would be recognized when
the sum of the expected future net cash flows is less than the carrying amount
of the asset. No such impairment losses have been identified by the Company
during 1998 or 1997.

Income Taxes

   The Company accounts for income taxes using the liability method. Under this
method, 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 expected to be realized.

Stock-Based Compensation

   The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method and provides pro forma
disclosures of net loss as if the fair value method had been applied in
measuring compensation expense. Compensation charges for non-employee
stock-based compensation is measured using fair value-based methods.



                                      F-8
<PAGE>   34

                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Per Share Information

   The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128, Earnings Per Shares ("SFAS 128") in 1997. SFAS 128 requires
the presentation of basic and diluted earnings per share ("EPS"). Basic EPS is
computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period, without
consideration for common stock equivalents. Diluted EPS is computed giving
effect to all dilutive potential common shares that are outstanding during the
period. 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 for all periods.

   The Company reported a net loss during each of 1998 and 1997. As a result,
the common stock equivalents (inclusive of shares issuable upon the conversion
of the Series A Preferred Stock and upon exercise of outstanding stock options
and warrants) at December 31, 1998 and 1997 of 1,733,386 and 1,569,886,
respectively, were determined to be antidilutive. Therefore, there was no
difference between the weighted average number of shares used to calculate basic
EPS and the number used to calculate diluted EPS for 1998 and 1997.

New Accounting Pronouncement

   In 1998, the Company adopted Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information ("SFAS
131"). SFAS 131 supersedes Statement of Financial Accounting Standards No. 14,
Financial Reporting for Segments of a Business Enterprise, replacing the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS 131 also requires disclosures about products
and services, geographic areas, and major customers. The adoption of SFAS 131
did not affect results of operations or financial position but did affect the
disclosure of segment information. For products and services, the Company has
determined that it has two reportable segments. Related segment information is
summarized in Note 12. The Company does not have any non-U.S. revenues;
accordingly, no separate disclosure of geographic information is provided. Major
customer information is provided in Note 4.

3. LIQUIDITY AND CAPITAL RESOURCES

   The Company has incurred losses since inception. For the years ended December
31, 1998 and 1997, the Company had net losses of approximately $1,629,000 and
$975,000, respectively. As of December 31, 1998, the Company had an accumulated
deficit of approximately $9,847,000. The Company believes that its existing
sources of liquidity and anticipated revenue, including revenues generated from
Deltco, proceeds from the January 1999 issuance of Common Stock to a subsidiary
of Agway Inc. ("Agway") and Agway's commitment to exercise its warrants to
acquire up to 500,000 shares of Common Stock as early as July 1, 1999 at the
Company's request, in the event that the Company's cash flows are less than
currently projected and/or insufficient to fund its operating requirements (Note
14) will satisfy the Company's projected working capital and other cash
requirements through at least the next twelve months. Thereafter, the Company's
future capital requirements will be dependent upon many factors, including, but
not limited to, costs associated with the continued research and development of
the Company's proprietary polymer materials, costs associated with the filing
and enforcement of the Company's patents, costs associated with manufacturing
scale-up, and the timing of market acceptance of the Company's products. The
Company will likely need to secure additional financing through partnership
arrangements or through the issuance of additional equity and/or debt securities
or through other means. There can be no assurance that additional financing will
be available to the Company on acceptable terms, or at all. Further, there can
be no assurance that the Company will be able to generate positive cash flows or
profitability in the future.


                                      F-9
<PAGE>   35

                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. CONCENTRATIONS OF CREDIT RISK

   Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of cash and cash equivalents and trade
accounts receivable. The Company invests its excess cash in interest bearing
deposits with major banks, United States government securities and money market
funds. The Company limits the amount of credit exposure to any one entity. The
Company performs ongoing credit evaluations of its customers and maintains
allowances for doubtful accounts based on factors surrounding the credit risk of
specific customers, historical trends and other information. Credit losses were
not significant to the Company during 1998 or 1997.

   The Company purchased approximately 87% of its thermoplastic scrap resins
from one supplier and its affiliates in both 1998 and 1997. The Company has
executed a formal agreement with the supplier. The Company has had a long-term
relationship with this supplier and has obtained adequate quantities of raw
materials on acceptable terms to meet its requirements. However, there can be no
assurance that the quality and quantity of raw materials from this supplier will
be adequate to meet future operating needs. Management believes that other
suppliers could provide similar scrap resins on comparable terms. A change in
suppliers, however, could cause delays in production and possible loss of sales,
which could adversely affect operating results.

   During 1998 and 1997, approximately 37% and 33% of the Company's revenues
were derived from three customers, respectively. At December 31, 1998,
approximately 16% of the Company's accounts receivable balance was due from
these three customers.

5. INVENTORIES

   Inventories at December 31, 1998 consist of the following:
<TABLE>


<S>                  <C>      
Raw materials        $ 134,035
Finished goods         271,455
Supplies                17,951
                     ---------
                       423,441
Less: Allowance       (123,205)
                     ---------
                     $ 300,236
                     =========
</TABLE>

6. PROPERTY AND EQUIPMENT

   Property and equipment is comprised of the following at December 31, 1998:
<TABLE>

<S>                            <C>        
Machinery and equipment        $ 1,471,047
Building and improvements           88,441
Furniture and fixtures              24,359
Vehicles and trailers               40,764
                               -----------
                                 1,624,611
Less: Accumulated                 (895,014)
                               -----------
                               $   729,597
                               ===========
</TABLE>

   Depreciation expense charged to operations in 1998 and 1997 was $151,968 and
$151,473, respectively.

                                      F-10
<PAGE>   36

                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. COMMITMENTS

   The Company leases certain office facilities under non-cancelable operating
leases which expire on various dates through January 1, 2003. The Company also
leases certain equipment under capital leases that mature on various dates
through October 1, 2002 and have interest rates ranging from 4.6% to 15.8%. As
of December 31, 1998 and 1997, $52,985 and $34,950, respectively, of such leased
equipment is included in property and equipment ($44,060 and $27,378 net of
accumulated depreciation, respectively).

   Future minimum payments under non-cancelable leases are as follows:
<TABLE>
<CAPTION>

                                         Capital       Operating
                                          Leases         Leases
                                          ------         ------
<S>                                      <C>            <C>     
                    1999                 $ 16,566       $151,725
                    2000                   16,567        118,431
                    2001                   12,267        117,317
                    2002                    8,149        113,772
                                         --------       --------
Total minimum lease payments               53,549       $501,245
                                                        ========
Less: Interest portion                    (10,517)
                                         --------
Present value of net minimum
      lease payments                       43,032
Less: Current portion of capital
      lease obligations                   (11,904)
                                         --------
Long-term capital lease obligations      $ 31,128
                                         ========
</TABLE>


   Rent expense charged to operations in 1998 and 1997 was $175,990 and
$188,690, respectively.

   In November 1998, the Company entered into a five-year employment agreement,
effective January 1, 1999, with the Company's Chief Executive Officer. The
employment agreement stipulates an annual salary of $210,000 and provides that,
if the officer were to be terminated for any reason other than for cause during
the term of employment (as defined), the Company would engage the officer to
perform services to the Company pursuant to a separate consulting agreement.

8. LOAN PAYABLE

   As of December 31, 1998, the Company had a loan balance of $94,947 with First
Star of Manitowac. The loan, bearing interest at 8.75%, was collaterized by a
$114,880 certificate of deposit, bearing interest at the rate of 5.92%, and
substantially all of Deltco's inventory. In January 1999, the loan was paid off
in full with cash obtained from the redemption of the certificate of deposit.

                                      F-11
<PAGE>   37

                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. INCOME TAXES

    The components of income tax benefit (expense) are as follows:

<TABLE>
<CAPTION>

                                              1998                       1997
                                              ----                       ----
Federal
<S>                                         <C>                        <C>   
    Current                                 $   --                     $   --
    Deferred                                    --                         --
State                      
    Current                                     (800)                   (37,000)
    Deferred                                  23,838                      6,714
                                            --------                   --------
    Total                                   $ 23,038                   $(30,286)
                                            ========                   ========
</TABLE>

    The differences between income tax benefit (expense) provided at the
Company's effective rate and the federal statutory rate (34%) are as follows:
<TABLE>
<CAPTION>

                                                    1998              1997
                                                 ---------         ---------
<S>                                              <C>               <C>      
Federal benefit at statutory rate                $ 561,810         $ 331,501
State taxes, net of federal benefit                 15,206           (19,989)
Nondeductible expenses                             (13,966)          (15,388)
Valuation allowance                               (540,012)         (326,410)
                                                 ---------         ---------
    Total                                        $  23,038         $ (30,286)
                                                 =========         =========
</TABLE>

    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 and liabilities at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>

                                                              1998
                                                          -----------
<S>                                                       <C>        
Net operating loss carryforwards                          $ 3,285,643
Tax credit carryforwards                                       75,031
Reserves, accrued expenses and other                          369,599
Property and equipment and intangible assets                 (157,830)
                                                          -----------
                                                            3,572,443
Less: Valuation allowance                                  (3,540,019)
                                                          -----------
    Net deferred tax asset                                $    32,424
                                                          ===========
</TABLE>

    The Company has determined that a full valuation allowance for Federal and
California tax purposes is necessary due to the Company's lack of historical
earnings. The net deferred tax asset balance reflected above relates to deferred
taxes associated with the state of Wisconsin where Deltco has historically
generated income despite its loss in 1998 (Note 12). The Company believes that
it is "more likely than not" that Deltco will in the future generate positive
taxable income and that it will be able to realize the benefit of such deferred
tax assets.

    At December 31, 1998, the Company had net operating loss carryforwards for
Federal income tax purposes of approximately $8,634,000 and for California and
Wisconsin state tax purposes of approximately $3,767,000 and $214,000,
respectively. The Company's California loss carryforwards began to expire in
1997 and Federal loss carryforwards begin to expire in 2006. Loss carryforwards
related to Wisconsin expire in 2014. The Company also has available tax credit
carryforwards for Federal, California and Wisconsin tax purposes of
approximately $39,000, $30,000 and $6,000, respectively. Some of these tax
credit carryforwards will begin to expire in 2007.

    The Company's annual utilization of net operating loss and tax credit
carryforwards may be limited if the Company's ownership were to change in the
future, as defined by Sections 382 and 383 of the Internal Revenue Code.


                                      F-12

<PAGE>   38

                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. SHAREHOLDERS' EQUITY

Preferred Stock

    On September 19, 1997, the Company issued to one investor (the "Investor")
500,000 shares of its Series A Convertible Preferred Stock ("Series A
Preferred") at $1.85 per share. The holder of the Series A Preferred is entitled
to receive quarterly dividends at an annual rate of 6% payable in shares of the
Company's Common Stock. Each share of Series A Preferred is convertible at the
option of the holder into shares of Common Stock of the Company. As of December
31, 1998, the conversion rate of the Series A Preferred into shares of the
Company's Common Stock was one-to-one. Due to certain anti-dilution adjustments
as a result of the private equity transaction consummated on January 11, 1999
(Note 14), the conversion rate of the Series A Preferred into shares of Common
Stock was adjusted to approximately 1 to 1.17647. The Series A Preferred will
automatically convert if the average market price of the Company's Common Stock
for a certain number of consecutive days is $6.00 or above. At the option of the
Company, the Series A Preferred can be redeemed at any time if the average
market price of the Company's Common Stock for a certain number of consecutive
days is $5.00 or above. The holder of the Series A Preferred is entitled to one
vote for each share of Common Stock issuable upon conversion. Upon liquidation
or dissolution of the Company, the Series A Preferred has a liquidation
preference of $2.00 per share. All per share rights and benefits are subject to
adjustment upon the occurrence of certain events.

Warrants

   On September 24, 1997, the Company issued to the Investor of the Series A
Preferred, for $75,000, a warrant to purchase up to 375,000 shares of the
Company's Common Stock at an exercise price of $2.75 per share. In addition, as
partial consideration for services rendered in connection with the issuance of
the Series A Preferred and the Warrant to the Investor, the Company issued to
the finder, for $2,500, a five-year warrant to purchase up to 50,000 shares of
the Company's Common Stock at an exercise price of $4.16 per share. No warrants
were issued during 1998.

   At December 31, 1998, the following exercisable warrants to purchase the
Company's Common Stock were outstanding:
<TABLE>
<CAPTION>

                          Underlying
                           Shares    Exercise Price      Expiration Date
                           ------    --------------      ---------------
<S>                       <C>        <C>                 <C> 
  Advisor warrants         47,153    $3.00 - $3.875        2000 - 2003
  Underwriter warrants    115,000         $7.20               2000
  Investor warrants       375,000         $2.75               2002
  Other warrants           50,000         $4.16               2002
                          -------
                          587,153
                          =======
</TABLE>

    All per share rights and benefits are subject to adjustment upon the
occurrence of certain events. As a result of the private equity transaction
consummated on January 11, 1999, the Company would be required to issue
additional shares of Common Stock upon the exercise of certain of its
outstanding warrants (Note 14).

                                      F-13

<PAGE>   39

                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. SHAREHOLDERS' EQUITY (CONTINUED)

Options

   The Company has a 1995 Stock Option Plan (the "Plan") under which incentive
stock options (within the meaning of Section 422A of the Internal Revenue Code)
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. The terms of stock options granted under the Plan 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 under the
Plan 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 under the Plan 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 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 this plan, the Company's net loss and loss per
share for 1998 and 1997 would have been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>

                                1998                              1997
                   -------------------------------   --------------------------------
                     Net Loss       Loss per Share      Net Loss       Loss per Share
                   -----------      --------------   ------------      --------------
<S>                <C>                 <C>           <C>                 <C>      
As reported        $(1,628,543)        $  (0.31)     $  (975,004)        $  (0.18)
Pro forma          $(1,720,645)        $  (0.32)     $  (995,259)        $  (0.19)

</TABLE>


   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 1998 and 1997: an expected life of 3.7 and 2.1 years, expected
volatility of 82.49% and 65.48%, no dividend yield and a risk-free interest rate
of 4.96% and 5.75%, 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 1998 and 1997 was approximately $0.96 and $1.07 per option,
respectively.

   On February 13, 1998, the Company's Board of Directors granted incentive
stock options to purchase 5,000 shares of Common Stock at an exercise price of
$1.875 per share to an employee under the Plan. These options were fully vested
as of the date of grant and expire on February 12, 2008. As of December 31,
1998, none of these options have been exercised.

                                      F-14



<PAGE>   40

                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. SHAREHOLDERS' EQUITY (CONTINUED)

   On April 29, 1998, the Company's Board of Directors granted non-statutory
stock options to purchase 10,000 shares of Common Stock at an exercise price of
$1.75 per share to a scientific advisor of the Company under the Plan. These
options vest ratably over one year and expire on April 28, 2008. In connection
with this transaction, the Company recorded a charge to income of $8,241 based
upon application of the Black-Scholes option pricing model. As of December 31,
1998, none of these options have been exercised.

   On May 21, 1998, the Company's Board of Directors granted non-statutory stock
options to purchase 36,000 shares of Common Stock at an exercise price of $2.00
per share to non-employee directors under the Plan. These options were fully
vested at the date of grant and expire on May 20, 2008. As of December 31, 1998,
none of these options have been exercised.

   On July 1, 1998, the Company's Board of Directors granted incentive stock
options to purchase 12,500 shares of Common Stock at an exercise price of $1.625
per share to an employee under the Plan. These options became fully vested on
December 31, 1998 and expire on June 30, 2008. As of December 31, 1998, none of
these options have been exercised.

   On November 18, 1998, the Company's Board of Directors granted incentive
stock options to purchase 125,000 shares of Common Stock at an exercise price of
$1.65 per share to the Company's Chief Executive Officer who is also a
significant shareholder of the Company under the Plan. These options were
granted in connection with a certain employment agreement between the officer
and the Company (Note 7). Of such options, 25,000 were immediately vested at the
grant date whereas the remaining options vest ratably over a three-year period.
All of such options expire on November 17, 2003. As of December 31, 1998, none
of these options have been exercised.

   On April 11, 1997, the Company's Board of Directors granted incentive stock
options to purchase 10,000 shares of Common Stock at an exercise price of $2.50
per share to employees under the Plan. These options were fully vested as of the
date of the grant and expire on April 10, 2007. As of December 31, 1998, none of
these options have been exercised.

   On May 22, 1997, the Company's Board of Directors granted non-statutory stock
options to purchase 10,000 shares of Common Stock at an exercise price of $3.00
per share to an outside consultant of the Company under the Plan. These options
vest monthly over one-year and expire on May 22, 2007. In connection with this
transaction, the Company recorded a charge to income of $8,367 based upon
application of the Black-Scholes option pricing model. As of December 31, 1998,
none of these options have been exercised.

   On September 26, 1997, the Company's Board of Directors granted non-statutory
stock options to purchase an aggregate of 9,600 shares of Common Stock at an
exercise of $4.125 per share to non-employee directors under the Plan. These
options vest monthly over eight months and expire on September 25, 2007. As of
December 31, 1998, none of these options have been exercised.

   On October 30, 1997, the Company's Board of Directors cancelled previously
issued, fully vested, non-statutory stock options to purchase an aggregate of
242,000 shares of Common Stock at an exercise price of $8.938 per share under
the Plan. Upon cancellation, the Company's Board of Directors reissued
non-statutory stock options to purchase an aggregate of 101,239 shares of Common
Stock under the Plan to the original recipients of the stock options. The terms
of reissued stock options include annual vesting over two years, an exercise
price of $3.025 per share, and expire on October 29, 2002. In connection with
this transaction, the Company recorded a charge to income of $43,227 based upon
application of the Black-Scholes option pricing model. As of December 31, 1998,
none of these options have been exercised.

                                      F-15
<PAGE>   41

                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. SHAREHOLDERS' EQUITY (CONTINUED)

   A summary of stock option activity during 1998 and 1997 follows:
<TABLE>
<CAPTION>

                                             1995 Stock Option Plan                    Other Options
                                           ----------------------------            ------------------------
                                                             Weighted                             Weighted
                                           Underlying      Avg. Exercise         Underlying     Avg. Exercise
                                             Shares            Price               Shares           Price
                                           ----------      -------------         ----------     -------------
<S>                                        <C>             <C>                   <C>            <C>   
Outstanding at December 31, 1996             427,620             $7.442            226,274            $4.591
    Granted / reissued                       130,839              3.064                 --                --
    Exercised                                     --                 --                 --                --
    Forfeited / expired                      (60,000)             3.875                 --                --
    Cancelled                               (242,000)             8.938                 --                --
                                            --------             ------            -------            ------
Outstanding at December 31, 1997             256,459             $4.631            226,274            $4.591
    Granted                                  188,500              1.726                 --                --
    Exercised                                     --                 --                 --                --
    Forfeited / expired                      (25,000)             3.875                 --                --
                                            --------             ------            -------            ------
Outstanding at December 31, 1998             419,959             $3.373            226,274            $4.591
                                            ========             ======            =======            ======
</TABLE>

   The following table summarizes information about stock options outstanding
and exercisable at December 31, 1998:
<TABLE>
<CAPTION>

                                       Weighted-
                    Outstanding          Average          Exercisable
 Range of              as of            Remaining            as of
 Exercise           December 31,       Contractual        December 31,
  Prices                1998           Life (years)          1998
-------------      -------------       -----------       ------------
<S>                <C>                 <C>                <C>   
$1.625 to $2.500        198,500          9.2                95,167
$3.000 to $4.125        283,113          3.3               232,493
$5.100 to $8.125        164,620          5.1               164,620
                      ---------                            -------
                        646,233                            492,280
                      =========                            =======
</TABLE>

11. RELATED PARTY TRANSACTIONS

   During the period October 1998 to December 1998, the Company recorded
research and development revenue of $61,635 from Agway under a feasibility
agreement. In January 1999, Agway became a significant shareholder of the
Company (Note 14).

   During 1998, a director of the Company provided consulting services to the
Company and received $1,725.

   The Company leases primarily all of Deltco's operating facilities from the
brother of Deltco's former president and from a partnership owned 50% by
Deltco's former president. Rents of $56,886 and $113,772 were paid in 1998 and
1997, respectively, prior to the former President's resignation in June 1998.
During 1997, the Company, through Deltco, also sold materials of $11,072 to a
customer in which the former President of Deltco is a shareholder.

   During 1997, each director of the Company was paid a monthly fee of $1,000
from January to September 1997. This resulted in an aggregate compensation of
$32,000. Beginning in September 1997, non-employee directors have been granted
with stock options as compensation in lieu of cash payments (Note 10).

                                      F-16
<PAGE>   42

                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. RELATED PARTY TRANSACTIONS (CONTINUED)

   In May 1997, the Company and a director, prior to his appointment to the
Company's Board, entered into a one-year general business consulting agreement
whereby he received an option to purchase 10,000 shares of the Company's Common
Stock in exchange for consulting services to be rendered to the Company (Note
10).

   During 1993, the Company retained the services of a consultant who is now a
significant shareholder and was a member of the Board of Directors until April
1997. In January 1996, the Company formalized this consulting relationship and
entered into a three year consulting agreement. The services furnished under the
terms of this agreement included organizational development, strategic
marketing, and general management of the Company. This agreement provided that
the Company would reimburse the consultant for certain business expenses,
inclusive of travel and entertainment costs. In addition to the consulting fees
of $46,750, reimbursable expenses of $24,746 were paid during 1997 in connection
with this consulting agreement. As allowed by its provisions, the consultant
terminated the agreement in April 1997. In 1997, consulting fees and
reimbursable expenses of $20,255 were also paid in connection with services
provided by a relative of that consultant.

12. SEGMENT INFORMATION

   In 1998, the Company adopted SFAS 131. The 1998 and 1997 segment information
presented below reflects the Company's two reportable segments - (1) research
and development of polymer technologies and materials in San Diego, California
and (2) manufacturing and reprocessing of thermoplastic scrap resins by Deltco
in Ashland, Wisconsin. The accounting policies of the segments are the same as
those described in Note 2. The technologies and products developed in California
are currently in a research and development stage; and therefore, no revenues
were reported under this segment during 1998 or 1997.

   The Company evaluates the performance of its segments based on income or loss
before depreciation and amortization. The table below presents information about
reported segments for 1998 and 1997.
<TABLE>
<CAPTION>

                                                                                    Manufacturing
                                                             Research and                and
1998                                                          Development            Reprocessing                Total
                                                              -----------            ------------             -----------

<S>                                                           <C>                     <C>                     <C>        
Revenues                                                      $        --             $ 1,615,124             $ 1,615,124
                                                              -----------             -----------             ===========

Loss before depreciation and amortization                     $(1,232,695)            $  (181,283)            $(1,413,978)
                                                              -----------             -----------
Depreciation and amortization                                                                                    (214,565)
                                                                                                              -----------
  Net loss                                                                                                    $(1,628,543)
                                                                                                              ===========

Total assets                                                  $ 1,594,438             $ 1,054,548             $ 2,648,986
                                                              -----------             -----------             ===========

1997

Revenues                                                      $        --             $ 3,020,081             $ 3,020,081
                                                              -----------             -----------             ===========

(Loss) income before depreciation and amortization            $(1,319,253)            $   548,038             $  (771,215)
                                                              -----------             -----------
Depreciation and amortization                                                                                    (203,789)
                                                                                                              -----------
  Net loss                                                                                                    $  (975,004)
                                                                                                              ===========

Total assets                                                  $ 2,702,742             $ 1,578,512             $ 4,281,254
                                                              -----------             -----------             ===========
</TABLE>




                                      F-17
<PAGE>   43

                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. LEGAL PROCEEDINGS


   In November 1998, the Company initiated litigation against Brian To, a former
director of the Company, and Tarrenz Management Consultants, Inc., an entity
owned by Brian To, in the Superior Court of the State of California for the
County of San Diego. The complaint alleges breach of contract, breach of
fiduciary duty and other tort claims arising from services the defendants
performed for or on behalf of the Company. The Company is seeking recovery of
compensation, stock, stock options and expense reimbursements. It is too early
to determine the impact, if any, of this proceeding on the Company, its
financial condition or the results of the Company's operations.

14. SUBSEQUENT EVENTS

   In November 1998, the Company entered into a Stock Purchase Agreement with
Agway whereby Agway would purchase 1,000,000 shares of Planet's Common Stock for
$1,000,000 and receive a warrant to purchase up to 2,000,000 shares of Common
Stock at a price of $1.00 per share. The Company's shareholders approved the
transaction on January 6, 1999. The transaction was completed on January 11,
1999 and the Company received proceeds of $1,000,000 from Agway before any
issuance costs. Contemporaneously with the execution of the agreement, 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 certain biological products) and food
products and 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 already covered by existing agreements). Under the
terms of the agreement, Agway 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 Agway, Agway is required to pay royalties to
the Company determined in accordance with the terms of the agreement.

   In connection with the transaction, the Company was required to make
anti-dilution adjustments to certain of its outstanding warrants and the Series
A Preferred. Such anti-dilution adjustments included reducing the exercise price
or the conversion price, as applicable, of the outstanding warrants and the
Series A Preferred, respectively. As a result, upon the exercise of certain of
its outstanding warrants, the Company would be required to issue approximately
114,649 additional shares of Common Stock and upon the conversion of the Series
A Preferred, the Company would be required to issue approximately 88,235
additional shares of Common Stock.

   After receiving the $1,000,000 proceeds from the Common Stock issuance, the
Company was required to pay approximately $60,000 of fees to the finder and
issue the finder, for $2,500, a five-year warrant to purchase up to 50,000
shares of the Company's Common Stock. If the Agway warrant is exercised in full,
the Company will be required to pay approximately $120,000 of additional fees to
the finder and issue another warrant to the finder to purchase up to 100,000
shares of the Company's Common Stock subject to certain maximum limits.

   In February 1999, the Company received a commitment from Agway whereby Agway
agreed to exercise its warrant to purchase up to 500,000 shares of the Company's
Common Stock as early as July 1, 1999 at the Company's request, in the event
that the Company's cash flows are less than currently projected and/or
insufficient to fund its operating requirements.


                                      F-18