<PAGE>   1

                                 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, 1999
                           COMMISSION FILE NO. 0-26804

                        PLANET POLYMER TECHNOLOGIES, INC.
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

                CALIFORNIA                               33-0502606
      (STATE OR OTHER JURISDICTION OF         (IRS EMPLOYER IDENTIFICATION NO.)
      INCORPORATION OF ORGANIZATION)

     9985 BUSINESSPARK AVENUE, SAN DIEGO, CA                92131
    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)              (ZIP CODE)

                    ISSUER'S TELEPHONE NUMBER (858) 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, 1999 were
$75,600.

        The aggregate market value of the voting stock held by non-affiliates of
the Issuer as of March 15, 2000 was $15,754,818, based on the average of the
4:00 p.m. closing bid and ask prices of $4.1405 as reported on the Nasdaq
SmallCap Market.

        As of March 15, 2000, 7,518,709 shares of the Company's Common Stock
were outstanding and 398,000 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 2000 Annual Meeting is
incorporated herein by reference into Part III of this report.

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

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


<PAGE>   2


                        PLANET POLYMER TECHNOLOGIES, INC.

                                   FORM-10KSB
                          YEAR ENDED DECEMBER 31, 1999

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
ITEM
NUMBER                                                                      PAGE
<S>                                                                         <C>
                                     PART I.
1.      Description of Business................................................2

2.      Description of Property...............................................12

3.      Legal Proceedings.....................................................12

4.      Submission of Matters to a Vote of Security Holders...................12

                                    PART II.

5.      Market for Common Equity and Related Stockholders Matters.............13

6.      Management's Discussion and Analysis of Financial
        Condition and Results of Operations...................................14

7.      Financial Statements..................................................17

8.      Changes in and Disagreements With Accountants on
        Accounting and Financial Disclosures..................................17

                                    PART III.

9.      Directors, Executive Officers, Promoters and Control Persons;
        Compliance with Section 16(a) of the Exchange Act.....................18

10.     Executive Compensation................................................18

11.     Security Ownership of Certain Beneficial Owners and Management........18

12.     Certain Relationships and Related Transactions........................18

                                    PART IV.

13.     Exhibits and Reports on Form 8-K......................................19



        Signatures............................................................21

        Power of Attorney.....................................................21
</TABLE>



<PAGE>   3


        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 an
advanced materials company that develops and licenses unique hydro-soluble
polymer and biodegradable materials. The Company's proprietary polymer materials
are marketed under the trademarks EnviroPlastic(R), Aquadro(TM) and AQUAMIM(R).
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(R) can be used to manufacture complex metal parts
using conventional plastics molding equipment. Planet has also developed polymer
technologies for Agway, Inc. ("Agway") in 1999 that are being marketed under the
trademarks Optigen(TM) 1200 and Fresh Seal(TM).

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

        -       EnviroPlastic(R) CRT (controlled-release technology) - Polymer
                coating technologies for use in agriculture and food products

        -       AQUAMIM(R) Metal Injection Molding - Moldable metal filled
                polymers

        -       EnviroPlastic(R) Z - Biodegradable and compostable polymers

        -       Aquadro(TM) - Hydrodegradable (water dispersible) polyvinyl
                alcohol ("PVOH") resin

        To date, the Company has commercialized EnviroPlastic(R) CRT
technologies with Agway, EnviroPlastic(R) Z with The Toro Company's Irrigation
Division and has sold pilot production quantities of AQUAMIM(R) and Aquadro(TM)
products.

        In November 1998, the Company entered into a Stock Purchase Agreement
with a subsidiary of Agway whereby Agway purchased 1,000,000 shares of Planet's
Common Stock for $1,000,000 and received a warrant to purchase up to 2,000,000
additional 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. To date, Agway has exercised warrants to purchase
1,000,000 shares of Common Stock and holds a warrant to purchase an additional
1,000,000 shares.

        Contemporaneously with the execution of the Stock Purchase 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. Under the terms of the Feasibility Agreement, the
Company is reimbursed for certain qualifying research and development costs from
Agway.

        Also in November 1998, the Company granted Agway 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 to other parties on the technology developed under the License
Agreement. The Company and Agway agreed to execute further sub-agreements (each
a "Sub-Agreement") to specify the royalties to be paid to the Company for
Agway's use of the Company's technology on certain specific products. In March
2000, the Company and Agway entered into a Sub-Agreement with respect to animal
feed products incorporating Planet's patented/patent pending coatings and/or
polymer systems. Also in March 2000, the Company and Agway entered into another
Sub-Agreement with respect to


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Planet's patented/patent pending coatings and/or polymer systems sold for use on
fruits, vegetables, floral and nursery items.

        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. On June 23, 1999, the Company
entered into an Amending Agreement (the "Amending Agreement") with Agrium to
amend that certain Technology Development and License Agreement dated as of
January 30, 1995. The Amending Agreement provides that if the Company enters
into an arrangement or agreement with Agway with respect to the development of
certain technologies involving controlled-released coatings of fertilizers, then
the Company will grant Agrium, among other items, an option to acquire a license
and a right to produce, market and distribute such technologies on the same
terms and conditions as those offered to Agway.

        Planet's research and development facility is in San Diego, California.
The Company sold its wholly owned subsidiary, Deltco of Wisconsin, Inc.
("Deltco") on January 7, 2000.

        Planet was incorporated under the laws of California in August 1991. The
Company's principal executive offices are located at 9985 Businesspark Avenue,
San Diego, CA 92131, and its telephone number is 858-549-5130.

PLANET POLYMER'S PRODUCTS AND TECHNOLOGIES

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

        EnviroPlastic(R) CRT. The Company's EnviroPlastic(R) CRT
(controlled-release technology) is a proprietary polymer coating product line.
This technology allows fertilizer to be controlled for release over 120 days
(see "Strategic Alliances: Agrium Technology Development and License
Agreement"). The patent for EnviroPlastic(R) CRT is No. 5,803,946.

        The controlled-released products for animal feed and fruit coating are
currently in production for Agway. The product line for the animal feed is time
released polymer coated nitrogen. The fruit coating technology allows controlled
ripening which extends the shelf life of the coated fruit. In March 2000, the
Company and Agway entered into a Sub-Agreement with respect to animal feed
products incorporating Planet's patented/patent pending coatings and/or polymer
systems. Also in March 2000, the Company and Agway entered into another
Sub-Agreement with respect to Planet's patented/patent pending coatings and/or
polymer systems sold for use on fruits, vegetables, floral and nursery items.

        AQUAMIM(R) Metal Injection Molding. AQUAMIM(R) is designed for the
production of precision metal components utilizing a water debinding process,
which eliminates the need for hazardous solvents or acids. AQUAMIM(R) feedstock
is a mixture of metal powders and the Company's proprietary water soluble
polymer binder. Various industrial and consumer products can be manufactured by
the AQUAMIM(R) technology. The Company currently offers stainless steel
compounds, 316L, 17-4PH, and 420; iron-nickel; tool steels M2, and M4; and heavy
metal alloys, tungsten copper and tungsten carbide cobalt. 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(R) technology. The
patents for AQUAMIM(R) are No. 5,977,230 and No. 6,008,281.

        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 and is currently in
commercial production for The Toro Company's Irrigation Division. The patent for
EnviroPlastic(R) Z is No. 5,505,830.


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        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 the
municipal sewage system by dissolving the material in hot or cold water. The
development of Aquadro(TM) is an advancement of the Company's EnviroPlastic(R) H
technology, patent No. 5,367,003. The patent for Aquadro(TM) is No. 5,658,977.

MARKETS AND APPLICATIONS

        The Company is focusing on specific market opportunities where the
Company believes that its polymer chemistry expertise, EnviroPlastic(R) CRT,
AQUAMIM(R), EnviroPlastic(R) Z and Aquadro(TM) 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:

        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.

        The Company's controlled-release technology is currently being utilized
in a product sold by Agway as a concentrated source of controlled release
nitrogen for dairy cows and is currently being developed for controlled ripening
of tropical fruits. The Company believes that Agway will continue to expand the
market areas for both of these technologies.

        Industrial Manufacturing. The Company believes that potential users of
AQUAMIM(R) include commercial custom MIM parts producers, internal MIM parts
producers and new entrants including diversifying plastic injection molders.
Some of the 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(R) technology provides a simple, safe and cost effective solution for
producing metal injection molded parts.

The Company's EnviroPlastic(R) Z is currently in use by The Toro Company's
Irrigation Division as a degradable component of their sprinkler system.

        Personal Hygiene and Medical Disposables. The Company's Aquadro(TM)
technology offers 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 is well
positioned to capitalize on the increasing concern for safe, efficient and
environmentally compatible disposable medical supplies.

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.

        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 whereby Agway purchased 1,000,000 shares of
Planet's Common Stock for $1,000,000 and received a warrant to purchase up to
2,000,000 additional 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. Additionally, in February 1999, the Company received a


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commitment from Agway whereby Agway agreed to exercise its warrant to acquire up
to 500,000 shares of the Company's Common Stock after July 1, 1999 at the
Company's request, in the event that the Company's cash flows were less than
currently projected or were insufficient to fund its operating requirements. On
November 5, 1999, at the Company's request, Agway exercised the warrant with
respect to 500,000 shares of the Company's Common Stock on the terms, and
subject to conditions, set forth in the warrant and the Company received
$500,000 in connection with such exercise. To date, Agway has exercised warrants
to purchase 1,000,000 shares of Common Stock and holds a warrant to purchase an
additional 1,000,000 shares.

        Contemporaneously with the execution of the Stock Purchase 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. Under the terms of the Feasibility Agreement, the
Company is reimbursed for certain qualifying research and development costs from
Agway.

        Also in November 1998, the Company granted Agway 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 to other parties on the technology developed under the License
Agreement. During the term of the License Agreement, however, the Company may
not conduct any development work of the same nature or type as that performed
under the License 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. The Company and Agway agreed to execute further sub-agreements (each
a "Sub-Agreement") to specify the royalties to be paid to the Company for
Agway's use of the Company's technology on certain specific products. In March
2000, the Company and Agway entered into a Sub-Agreement with respect to animal
feed products incorporating Planet's patented/patent pending coatings and/or
polymer systems. Also in March 2000, the Company and Agway entered into another
Sub-Agreement with respect to Planet's patented/patent pending coatings and/or
polymer systems sold for use on fruits, vegetables, floral and nursery items.

        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. On June
23, 1999, the Company entered into an Amending Agreement (the "Amending
Agreement") with Agrium, Inc. to amend that certain Technology Development and
License Agreement dated as of January 30, 1995. The Amending Agreement provides
that if the Company enters into an arrangement or agreement with Agway with
respect to the development of certain technologies involving controlled-released
coatings of fertilizers, then the Company will grant Agrium, among other items,
an option to acquire a license and a right to produce, market and distribute
such technologies on the same terms and conditions as those offered to Agway.

        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


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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 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(R) 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 Honeywell,
Inc. and thermal debinding based on an acrylic binder by Rohm & Haas Company.

        In the manufacture and marketing of controlled-release fertilizer, 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.

MANUFACTURING AND SUPPLIERS

        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


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suppliers such as Union Carbide Corporation, The Dow Chemical Company, Dupont,
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.

RESEARCH AND DEVELOPMENT

        Research and development expenditures during the years ended December
31, 1999 and 1998 were approximately $727,000 and $634,000 respectively, of
which approximately $497,000 and $122,000 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 MS 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 2000 research and development expenditures in the
agrotechnology area will be reimbursed by Agway under its Feasibility Agreement.
In 1999, the Company recorded reimbursable research and development costs of
approximately $355,000 from Agway.

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 1999, the Company expanded its existing patent portfolio with the
issuance of US name registration and patents for the Company's AQUAMIM(R)
technology, and US patent allowed on fresh produce coating technology. 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


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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 ten full-time employees 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 four are in administrative, business development,
operations and research support positions. 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

        On January 7, 2000, the Company sold all of its common stock shares of
Deltco. In accordance with the Stock Purchase Agreement, dated December 30,
1999, the Company received on January 7, 2000 total proceeds of $1,000,000 in
the form of $900,000 in cash and $100,000 in a secured promissory note in
consideration of the sale of its Deltco common stock. This note is
collateralized by all of the equipment, accounts, inventory, supplies and
personal property now held or hereafter acquired by Deltco. The accompanying
financial statements present the results of operations of Deltco as a
discontinued operation. Accordingly, the Company's continuing operations are now
comprised of one segment, the "Research and Development" business segment.

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, 1999 and 1998, we had net losses of approximately $1,561,000 and $1,629,000,
respectively. As of December 31, 1999, we had an accumulated deficit of
approximately $11.5 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.

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

        -       the cost of manufacturing scale-up;

        -       the timing of market acceptance of our products;

        -       competing technological and market developments; and

        -       the costs involved in filing, prosecuting and enforcing patent
                claims.


                                       8
<PAGE>   10


        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, 1999, our net tangible assets were approximately $1.8 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.

        Uncertainty of Market Acceptance. Our success is dependent upon the
commercial acceptance of our technologies by the various industries targeted by
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 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. 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.

        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


                                       9
<PAGE>   11


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 and we must rely upon them to produce, market
and distribute the technologies licensed to them. In addition, the Agway
agreement places certain limitations on us with respect to the use of our
technologies in certain areas of business. We may enter into similar
collaborations in the future.

        Management of Growth. Future company growth may challenge our
management, operational and financial resources. 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. 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(R) 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
Honeywell, Inc. and thermal debinding based on an acrylic binder by Rohm & Haas
Company. In the manufacture and marketing of controlled-release fertilizer, 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


                                       10
<PAGE>   12


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 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, 1999, we had outstanding 7,464,211
shares of Common Stock (assuming the conversion of all outstanding shares of
Preferred Stock into shares of Common Stock). Virtually all of our outstanding
shares of Common Stock are either registered and therefore freely tradable or
may be transferred pursuant to Rule 144(k) under the Securities Act, unless held
by our "affiliates" as that term is defined in Rule 144 under the Securities
Act. 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 and plan to file a Registration Statement on Form S-8
for the proposed 2000 Stock Incentive Plan. Upon issuance, shares registered
under such Registration Statements 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.


                                       11
<PAGE>   13


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 space in San Diego, California. On August 1, 1999, the Company
entered into a new three-year standard industrial lease. The lease will expire
on July 31, 2002 and the monthly rental payment is $5,168 for the first twelve
months, $5,349 for the second twelve months and $5,536 until expiration. The
Company believes its current facility is suitable for its present and future
needs.


ITEM 3. LEGAL PROCEEDINGS

        In November 1998, the Company initiated litigation against Brian To, a
former director, officer and consultant of the Company, Tarrenz Inc. and Tarrenz
Management Consultants, Inc., entities owned by Brian To ("collectively referred
to as the "defendants"), in the Superior Court of the State of California for
the County of San Diego. The complaint alleges breach of contract, breach of
fiduciary duty and other tort claims arising from services the defendants
performed for or on behalf of the Company. The Company is seeking recovery of
compensation, stock, stock options and expense reimbursements. In response to
the Complaint, the defendants filed a Motion to Compel Arbitration. The Court
issued an order compelling the case to arbitration on Friday, March 12, 1999. On
April 26, 1999, the defendants answered and denied the allegations of the
complaint and filed a cross-complaint against the Company alleging breach of
contract, misrepresentation, slander, intentional infliction of emotional
distress and fraud. The arbitration date, previously set for February 28, 2000,
will be rescheduled due to a potential conflict of interest which was discovered
with respect to defendants' counsel. In light of the limited discovery allowed
in arbitration, it is difficult to evaluate defendants' claims, however, in the
opinion of management, the ultimate resolution of this litigation is not
expected to have a material adverse effect on the Company's financial position
or results of operations.


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

        None.


                                       12
<PAGE>   14


                                    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, 1998 through December 31, 1999 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, 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
Fiscal year ended December 31, 1999
       First Quarter                              2 1/4       1 1/8
       Second Quarter                             2 3/8       1 3/8
       Third Quarter                              3 1/2       1 1/12
       Fourth Quarter                             3 1/8       2
</TABLE>


        On March 15, 2000, the last reported sale price of the Company's Common
Stock on the Nasdaq SmallCap market was $4.25. As of March 15, 2000, there were
approximately 139 holders of record of the Company's Common Stock with 7,518,709
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 dated as of
September 19, 1997, between the Company and Special Situations Private Equity
Fund, L.P., holder of the Company's Series A Preferred Shares (the "Investor")
and related Amended and Restated Certificate of Determination of the Company
filed with the California Secretary of State on September 19, 1997, the Investor
is entitled to receive, quarterly as a dividend, 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 Shares, divided by (b) the average
4:00 p.m. closing bid price of the Company's Common Stock on the Nasdaq SmallCap
Market over a period of five (5) consecutive trading days prior to the dividend
distribution date. Accordingly, in 1998, the Company issued to the Investor
dividends of 40,918 shares of Common Stock, valued at approximately $60,000 and
in 1999, issued 29,914 shares of Common Stock valued at approximately $60,000.

        Except to the Investor as set forth above, the Company has never
declared or paid a cash dividend. The Company has not paid and does not intend
to pay any Common Stock dividends to Common Stock shareholders in the
foreseeable future and intends to retain any future earnings for capital
expenditures and otherwise to fund the Company's operations. Any payment of
dividends in the future will depend upon the Company's earnings, capital
requirements, financial condition and such other factors as the Board of
Directors may deem relevant.

        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 after July 1, 1999 at the Company's request, in the event
that the Company's cash flows were less than currently projected or were
insufficient to fund its operating requirements. On November 5, 1999, at the
Company's request, Agway exercised the warrant with respect to 500,000 shares of
the Company's Common Stock on the terms, and subject to conditions, set forth in
the warrant and the Company received $500,000 in connection with such exercise.


                                       13
<PAGE>   15


RECENT SALES OF UNREGISTERED SECURITIES

        In 1999, the Company paid Common Stock dividends to the Investor. The
June 15, 1999, September 15, 1999 and December 15, 1999 dividend payments of
9,677 shares, 5,106 shares and 5,454 shares, respectively, were issued pursuant
to an exemption from registration for transactions not involving a public
offering. The March 15, 1999 dividend payment of 9,677 shares was registered
under the Form S-3 Registration Statement filed with the Securities and Exchange
Commission on March 30, 1999.

        After receiving the $1,000,000 proceeds from Agway pursuant to its
purchase of Common Stock on January 11, 1999, the Company was required to (i)
pay a $60,000 cash transaction fee to the finder, LBC Capital Resources, Inc.
("LBC"), and (ii) issue LBC five-year warrants to purchase 50,000 shares of
Common Stock with an exercise price of $4.125 per warrant, in exchange for
$2,500. These warrants were issued March 29, 1999, pursuant to an exemption from
registration for transactions not involving a public offering. In connection
with Agway's stock purchase transaction in January 1999 and pursuant to the
terms of the warrants issued to LBC, the Company was required to increase the
number of shares of Common Stock per the warrants to 59,243 and reduce the
exercise price to $3.5131 per warrant.

        Agway exercised warrants to purchase 500,000 shares of Common Stock on
November 5, 1999 and March 3, 2000. After receiving cumulative proceeds of
$1,000,000 from Agway, the Company was required to (i) pay a $60,000 cash
transaction fee to LBC, and (ii) issue LBC five-year warrants to purchase 50,000
shares of Common Stock with an exercise price of $4.1625 per warrant, in
exchange for $2,500. These warrants were issued March 9, 2000 pursuant to an
exemption from registration for transactions not involving a public offering. In
connection with Agway's stock purchase transaction in January 1999 and pursuant
to the terms of the warrants issued to LBC, the Company may be required to make
certain anti-dilution adjustments to the warrants issued to LBC. Accordingly,
the Company may issue additional shares of Common Stock and reduce the exercise
price of the outstanding warrants. It is too early to determine the
anti-dilution amount, if any.


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

OVERVIEW

        Except for the historical information contained herein, the discussion
in this report contains forward-looking statements that involve certain risks
and uncertainties. The Company's actual results could differ materially from
those discussed in this report. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "Item 1 -
Description of Business," including the section therein entitled "Risk Factors,"
this Item 6, and those discussed in any documents incorporated herein by
reference.

        Since the Company was founded in 1991, with the exception of resources
expended in connection with the purchase and ongoing operation of Deltco,
substantially all of the Company's resources have been devoted to the
development and commercialization of its technologies and products. This has
included the expenditure of funds to develop the Company's corporate
infrastructure, support the Company's marketing efforts and establish a pilot
production facility, in addition to research and development. In January 2000,
Planet sold its wholly owned subsidiary, Deltco, a manufacturer and reprocessor
of plastic resins located in Ashland, Wisconsin. Planet has incurred operating
losses since inception and had an accumulated deficit as of December 31, 1999 of
approximately $11.5 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 whereby Agway purchased 1,000,000 shares of Planet's
Common Stock for $1,000,000 and received a warrant to purchase up to 2,000,000
additional 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. Additionally, 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 the Company's cash flows were less than
projections and/or insufficient to fund its operating requirements. On November
5, 1999, at the Company's request, Agway exercised the warrant with respect to
500,000 shares of the


                                       14
<PAGE>   16


Company's Common Stock on the terms, and subject to conditions, set forth in the
warrant and the Company received $500,000 in connection with such exercise. To
date, Agway has exercised warrants to purchase 1,000,000 shares of Common Stock
and holds a warrant to purchase an additional 1,000,000 shares.

        Contemporaneously with the execution of the Stock Purchase 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. Under the terms of the Feasibility Agreement, the
Company is reimbursed for certain qualifying research and development costs from
Agway.

        Also in November 1998, the Company granted Agway 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 to other parties on the technology developed under the License
Agreement. During the term of the License Agreement, however, the Company may
not conduct any development work of the same nature or type as that performed
under the License 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. The Company and Agway agreed to execute further sub-agreements (each
a "Sub-Agreement") to specify the royalties to be paid to the Company for
Agway's use of the Company's technology on certain specific products. In March
2000, the Company and Agway entered into a Sub-Agreement with respect to animal
feed products incorporating Planet's patented/patent pending coatings and/or
polymer systems. Also in March 2000, the Company and Agway entered into another
Sub-Agreement with respect to Planet's patented/patent pending coatings and/or
polymer systems sold for use on fruits, vegetables, floral and nursery items.

RESULTS OF OPERATIONS

        On January 7, 2000, the Company sold all of its common stock shares of
Deltco. In accordance with the Stock Purchase Agreement, the Company received
total proceeds of $1,000,000 in the form of $900,000 in cash and $100,000 in a
secured promissory note in consideration of the sale of its Deltco common stock.
This note is collateralized by all of the equipment, accounts, inventory,
supplies and personal property now held or hereafter acquired by Deltco. The
accompanying financial statements present the results of operations of the
Company and Deltco as a discontinued operation. Accordingly, the Company's
continuing operations are now comprised of one segment, the "Research and
Development" business segment. The following discussion of results of operations
relates solely to the Company's continuing operations.

        The Company's revenues increased from approximately $0 for the year
ended December 31, 1998 to approximately $76,000 for the year ended December 31,
1999. This increase was primarily attributable to the successful commercial
deployment of EnviroPlastic(R) Z for The Toro's Company's Irrigation Division.

        Cost of sales increased from approximately $0 for the year ended
December 31, 1998 to approximately $54,000 for the year ended December 31, 1999.
This increase was primarily due to the costs associated with the
commercialization of EnviroPlastic(R) Z.

        General and administrative expenses increased $156,000 from
approximately $732,000 for the year ended December 31, 1998 to approximately
$888,000 for the year ended December 31, 1999. This increase was primarily
attributable to increased legal fees and an increase in outside services
relating to costs associated with becoming Year 2000 compliant.


                                       15
<PAGE>   17


        Marketing expenses increased $5,000 from approximately $178,000 for the
year ended December 31, 1998 to approximately $183,000 for the year ended
December 31, 1999.

        The Company's net research and development expenses decreased from
approximately $512,000 for the year ended December 31, 1998 to approximately
$230,000 for the year ended December 31, 1999. This decrease was primarily due
to the Feasibility Agreement entered into with Agway and a reduction in research
and development travel expenditures. Planet has allocated research and
development resources to projects that are reimbursable by Agway and other
customers. Offsetting research and development revenue from customers other than
Agway increased from approximately $60,000 for the year ended December 31, 1998
to approximately $142,000 for the same period in 1999. This increase was
primarily due to the advancement of AQUAMIM(R) and Aquadro(TM). Offsetting
reimbursable research and development costs from Agway increased from
approximately $62,000 for the year ended December 31, 1998 to approximately
$355,000 for the same period in 1999. This increase was due primarily to the
commercial scale up of animal feed and an increase in costs associated with
developing fruit coating. A net advance of funds of approximately $61,000
existed as of December 31, 1999.

        The Company had recorded an obligation in 1996 in the amount of
$113,000. The Company has subsequently determined that such obligation is no
longer payable. As a result, the obligation has been reversed and other income
was recognized in the three months ended September 30, 1999 in the amount of
$113,000.

        The Company's net loss decreased from approximately $1,629,000 during
the year ended December 31, 1998 to approximately $1,561,000 during the year
ended December 31, 1999 as a result of the aforementioned contributing factors,
offset by the loss on the sale of Deltco of approximately $561,000.

        As of December 31, 1999, the Company had net operating loss
carryforwards for federal income tax purposes of approximately $9,815,000, and
for California and Wisconsin state tax purposes of approximately $3,372,000 and
$141,000, 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.

LIQUIDITY AND CAPITAL RESOURCES

        Since inception, Planet has financed its operations primarily through
the sale of equity securities and revenue from customer development agreements.
During 1991 to 1994, the Company 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 certificate of deposit and inventory at Deltco. 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 January 1999 to December
1999, the Company recorded reimbursable research and development costs of
approximately $355,000 from Agway under the Feasibility Agreement. The Company
anticipates that some of the 2000 research and development expenditures in the
agrotechnology area will be reimbursed by Agway under the Feasibility Agreement.


                                       16
<PAGE>   18


        Additionally, 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 the Company's cash flows were less than projections and/or
insufficient to fund its operating requirements. On November 5, 1999, at the
Company's request, Agway exercised the warrant with respect to 500,000 shares of
the Company's Common Stock on the terms, and subject to conditions, set forth in
the warrant and the Company received $500,000 in connection with such exercise.
On March 3, 2000, Agway exercised a warrant to purchase an additional 500,000
shares of Common Stock. To date, Agway has exercised warrants to purchase
1,000,000 shares of Common Stock and holds a warrant to purchase an additional
1,000,000 shares.

        The Company used approximately $1,208,000 for continuing operations for
the year ended December 31, 1999. Such funds were used for research and
development activities, marketing efforts and administrative support. Net cash
provided by discontinued operations of approximately $55,000 for the year ended
December 31, 1999 resulted from Deltco's manufacturing and reprocessing
activities.

        The Company used approximately $148,000 for investing activities for the
year ended December 31, 1999. Such funds were used for the purchase of equipment
and for the preparation and filing of patents, offset by proceeds from the sale
of equipment.

        Net cash provided by financing activities of approximately $1,507,000
for the year ended December 31, 1999 resulted from net proceeds of approximately
$1,438,000 from the issuance of Common Stock and warrants, net advance of funds
of approximately $61,000 from Agway and $115,000 from the conversion of
restricted cash to cash and cash equivalents, offset by approximately $107,000
used for the repayment of debt and capital lease obligations.

        At December 31, 1999, the Company's cash and cash equivalents were
approximately $356,000. On January 7, 2000, the Company received $900,000 in
cash from the sale of Deltco. The Company believes that its existing sources of
liquidity and anticipated revenue, cash proceeds from the sale of Deltco and
proceeds from Agway's warrant exercise for 500,000 shares of Common Stock on
March 3, 2000, 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.


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.


                                       17
<PAGE>   19


                                    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 2000 Annual Meeting of Shareholders (the
"Proxy Statement") under the headings "Proposal 1 - 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."


                                       18
<PAGE>   20


                                    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, 1999.

<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 "1995 Option Plan").

        10.3(1)          Form of Incentive Stock Option Grant under the 1995 Option Plan.

        10.4(1)          Form of Non-statutory Stock Option Grant under the 1995 Option
                         Plan.

        10.5(1)          Standard Industrial Gross Lease, dated June 1, 1992, between the
                         Registrant and The Trustees Under the Will and of the Estate of
                         James Campbell, Deceased, as amended August 13, 1992 and May 3,
                         1994.

        10.6(1)          Agreement to Assign Proprietary Rights between the Registrant
                         and Dr. Robert J. Petcavich.

        10.7(1)          Form of Confidential Information Agreement entered into between
                         the Registrant and its employees.

        10.8(3)          Purchase and Sale Agreement dated as of January 1, 1996, by and
                         among the Registrant, Deltco of Wisconsin, Inc., and Jack G.
                         Martinsen.

        10.9(4)          Executive Employment Agreement dated January 1, 1996, between
                         the Registrant and Dr. Robert J. Petcavich.

        10.10(10)        Executive Employment Agreement dated November 18, 1998 and
                         effective January 1, 1999, between the Registrant and Dr. Robert
                         J. Petcavich.

        10.11(5)(9)      Technology Development and License Agreement, dated January
                         30, 1995, between the Registrant and Cominco Fertilizers, Ltd.

        10.12(5)         Fourth Amendment to Lease, dated August 1, 1997 between the
                         Registrant and The Trustees Under the Will and of the Estate of
                         James Campbell.

        10.13(6)         Securities Purchase Agreement, dated September 19, 1997,
                         between the Registrant and Special Situations Private Equity
                         Fund, L.P.

        10.14(6)         Warrant to Purchase Common Stock, dated September 24, 1997,
                         issued by the Registrant to Special Situations Private Equity
                         Fund, L.P.

        10.15(7)(9)      Scrap Purchase Agreement, dated June 28, 1996, between
                         Deltco and 3M.
</TABLE>


                                       19
<PAGE>   21


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

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

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

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

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

        10.21(11)        Amendment No.1 dated as of February 25, 1999 to the Form of
                         the Warrant dated January 11, 1999 issued by the Registrant to
                         Agway Holdings, Inc.

        10.22(13)        Warrant to Purchase Common Stock, dated March 29, 1999, issued
                         by the Registrant to LBC Capital Resources, Inc.

        10.23(12)        Amended Technology Development and License Agreement, dated
                         June 23, 1999, between the Registrant and Agrium Inc. (formerly
                         known as Cominco Fertilizers Ltd.).

        10.24(13)        Sub-Agreement to License Agreement (Animal Feed) effective as
                         of March 1, 2000 between the Registrant and Agway, Inc.

        10.25(13)        Sub-Agreement to License Agreement (Fruits, Vegetables, Etc.)
                         effective as of March 1, 2000 between the Registrant and Agway,
                         Inc.

        10.26(13)        Warrant to Purchase Common Stock, dated March 9, 2000, issued
                         by the Registrant to LBC Capital Resources, Inc.

        11.1(13)         Statement of Computation of Common and Common Equivalent
                         Shares.

        23.1(13)         Consent of PricewaterhouseCoopers LLP.

        24.1             Power of Attorney. Reference is made to page 21.

        27.1(13)         Financial Data Schedule.
</TABLE>


(1) Previously filed as an exhibit to the Registrant's Registration Statement on
    Form SB-2, as amended (No. 33-91984 LA) and incorporated herein by
    reference.

(2) Previously filed as an exhibit to the Registrant's Registration Statement on
    Form S-8 (No. 333-1042) filed on February 5, 1996 and incorporated herein by
    reference.

(3) Previously filed as an exhibit to the Registrant's Current Report on Form
    8-K filed on January 11, 1996, as amended by the Registrant's Current Report
    on Form 8-K/A (Amendment No. 1) filed on March 15, 1996 and incorporated
    herein by reference.

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

(5) Previously filed as an exhibit to the Registrant's Quarterly Report on Form
    10-QSB for the quarter ended June 30, 1997 and incorporated herein by
    reference.

(6) Previously filed as an exhibit to the Registrant's Registration Statement on
    Form S-3 (No. 333-39845) filed on November 7, 1997, amended on December 31,
    1997 and incorporated herein by reference.

(7) Previously filed as an exhibit to the Registrant's Annual Report on Form
    10-KSB filed for the fiscal year ended December 31, 1997 and incorporated
    herein by reference.

(8) Previously filed with the Registrant's Definitive Proxy Statement filed on
    December 14, 1998 and incorporated herein by reference.

(9) Confidential treatment has been requested with respect to certain portions
    of this exhibit. Omitted portions will be filed separately with the
    Securities and Exchange Commission.

(10) Previously filed as an exhibit to the Registrant's Annual Report on Form
     10-KSB filed for the fiscal year ended December 31, 1998 and incorporated
     herein by reference.

(11) Previously filed as an exhibit to the Registrant's Quarterly Report on Form
     10-QSB for the quarter ended March 31, 1999 and incorporated herein by
     reference.

(12) Previously filed as an exhibit to the Registrant's Quarterly Report on Form
     10-QSB for the quarter ended June 30, 1999 and incorporated herein by
     reference.

(13) Filed as an exhibit to this Annual Report on Form 10-KSB.


                                       20
<PAGE>   22


                                   SIGNATURES


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


                                        Planet Polymer Technologies, Inc.




Dated  March 30, 2000                   By: /s/ Robert J. Petcavich
                                           -------------------------------------
                                        Robert J. Petcavich
                                        Chairman and Chief Executive Officer


                                POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert J. Petcavich, his attorney-in-fact, each
with the power of substitution, for him, in any and all capacities, to sign any
amendments to this report, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and conforming all that each the attorney in-fact, or his
substitute may do or cause to be done by virtue hereof.

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

<TABLE>
<CAPTION>
Signature                    Title                                              Date
---------                    -----                                              ----
<S>                          <C>                                                <C>
/s/ Robert J. Petcavich      Chairman and Chief Executive Officer               March 30, 2000
-----------------------      (Principal Executive Officer)
Robert J. Petcavich          (Principal Financial and Accounting Officer)


/s/ H. M. Busby              Director                                           March 30, 2000
-----------------------
H. M. Busby


/s/ Michael M. Coleman       Director                                           March 30, 2000
-----------------------
Michael M. Coleman


/s/ Dennis J. LaHood         Director                                           March 30, 2000
-----------------------
Dennis J. LaHood


/s/ Thomas A. Landshof       Director                                           March 30, 2000
-----------------------
Thomas A. Landshof
</TABLE>


                                       21
<PAGE>   23



                                    APPENDIX

                              FINANCIAL STATEMENTS



<PAGE>   24


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

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

   Consolidated Financial Statements and Notes:

   Balance Sheet as of December 31, 1999......................................................F-3

   Statements of Operations for the Years Ended December 31, 1999 and 1998....................F-4

   Statements of Shareholders' Equity for the Years Ended December 31, 1999 and 1998..........F-5

   Statements of Cash Flows for the Years Ended December 31, 1999 and 1998....................F-6

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


                                      F-1
<PAGE>   25


                        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, 1999, and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. 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 auditing standards generally
accepted in the United States, 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 27, 2000


                                      F-2
<PAGE>   26


                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEET

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


<TABLE>
<CAPTION>
                                                                         DECEMBER 31,
                                                                             1999
                                                                         ------------
<S>                                                                      <C>
ASSETS

Current assets:
     Cash and cash equivalents                                           $    355,645
     Accounts receivable                                                      134,917
     Inventories, net                                                         153,435
     Prepaid expenses                                                          48,740
     Net assets of discontinued operations held for sale                      914,639
                                                                         ------------
             Total current assets                                           1,607,376

Property and equipment, net of accumulated depreciation of $214,302           205,757
Patents and trademarks, net of accumulated amortization of $127,912           325,897
Other assets                                                                    7,630
                                                                         ------------
             Total assets                                                $  2,146,660
                                                                         ============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                    $     73,269
     Accrued payroll and vacation                                              32,056
     Other accrued expenses                                                    41,053
     Advances from related party                                               61,484
     Current portion of capital lease obligations                               7,006
                                                                         ------------
             Total current liabilities                                        214,868

Capital lease obligations, less current portion                                15,798
Other liabilities                                                             152,886
                                                                         ------------
             Total liabilities                                                383,552
                                                                         ------------

Commitments (Notes 8, 12)                                                          --

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
         6,875,976 shares issued and outstanding                           12,426,143
     Accumulated deficit                                                  (11,467,470)
                                                                         ------------
             Total shareholders' equity                                     1,763,108
                                                                         ------------
             Total liabilities and shareholders' equity                  $  2,146,660
                                                                         ============
</TABLE>

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


                                      F-3
<PAGE>   27


                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

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


<TABLE>
<CAPTION>
                                                                                            YEARS ENDED DECEMBER 31,
                                                                                             1999                1998
                                                                                         -----------         -----------
<S>                                                                                      <C>                 <C>
Sales                                                                                    $    75,600         $        --
Cost of sales                                                                                 53,862                  --
                                                                                         -----------         -----------
         Gross profit                                                                         21,738                  --
                                                                                         -----------         -----------
Operating expenses:
     General and administrative                                                              888,256             731,846
     Marketing                                                                               183,001             178,484
     Research and development, net                                                           230,129             511,804
                                                                                         -----------         -----------
         Total operating expenses                                                          1,301,386           1,422,134
                                                                                         -----------         -----------
         Loss from operations                                                             (1,279,648)         (1,422,134)
Other income, net                                                                            116,777              23,834
                                                                                         -----------         -----------
         Loss from continuing operations before income taxes                              (1,162,871)         (1,398,300)
Income tax expense                                                                              (800)               (800)
                                                                                         -----------         -----------
         Loss from continuing operations                                                  (1,163,671)         (1,399,100)
Discontinued operations:
         Income (loss) from discontinued operations, net of tax expense (benefit)
              of $13,286 and ($23,838), respectively                                         164,390            (229,443)
         Loss on disposal of discontinued operations, net of tax expense of $0              (561,277)                 --
                                                                                         -----------         -----------
         Loss from discontinued operations                                                  (396,887)        $  (229,443)
                                                                                         -----------         ===========
         Net loss                                                                        $(1,560,558)        $(1,628,543)
                                                                                         ===========         ===========
         Loss per share from continuing operations (basic and diluted)                   $     (0.18)        $     (0.26)
                                                                                         ===========         ===========
         Loss per share from discontinued operations (basic and diluted)                 $     (0.06)        $     (0.05)
                                                                                         ===========         ===========
         Net loss per share (basic and diluted)                                          $     (0.24)        $     (0.31)
                                                                                         ===========         ===========
         Shares used in per share computations                                             6,406,145           5,317,297
                                                                                         ===========         ===========
</TABLE>

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

                                      F-4
<PAGE>   28


                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, 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
Issuance of Common Stock and related Warrants                --           --   1,000,000     1,000,000            --     1,000,000
Common Stock issuance costs                                  --           --          --      (154,940)           --      (154,940)
Issuance of Warrants to the finder                           --           --          --         2,500            --         2,500
Issuance of Common Stock as a dividend on
    Convertible Preferred Stock on March 15, 1999            --           --       9,677        15,000       (15,000)           --
Issuance of Common Stock as a dividend on
    Convertible Preferred Stock on June 15, 1999             --           --       9,677        15,000       (15,000)           --
Issuance of Common Stock as a dividend on
    Convertible Preferred Stock on September 15, 1999        --           --       5,106        15,000       (15,000)           --
Issuance of Common Stock as a dividend on
    Convertible Preferred Stock on December 15, 1999         --           --       5,454        15,000       (15,000)           --
Warrant exercised                                            --           --     500,000       500,000            --       500,000
Stock option exercised                                       --           --       5,000         9,375            --         9,375
Net loss for year                                            --           --          --            --    (1,560,558)   (1,560,558)
                                                       --------   ----------   ---------  ------------  ------------   -----------
Balance at December 31, 1999                            500,000   $  804,435   6,875,976  $ 12,426,143  $(11,467,470)  $ 1,763,108
                                                       ========   ==========   =========  ============  ============   ===========
</TABLE>

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

                                      F-5
<PAGE>   29


                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

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


<TABLE>
<CAPTION>
                                                                                YEARS ENDED DECEMBER 31,
                                                                            -------------------------------
                                                                                1999                1998
                                                                            -----------         -----------
<S>                                                                         <C>                 <C>
Cash flows from operating activities:
      Net loss                                                              $(1,560,558)        $(1,628,543)
      Adjustments to reconcile net loss to net cash used
          by operating activities:
          Depreciation and amortization                                         136,299             141,463
          Loss on disposal of assets                                              9,994                  --
          Deferred income taxes                                                      --             (22,649)
          Non-cash compensation expense                                              --               8,241
          (Income) loss from discontinued operations                           (164,390)            254,385
          Loss on sale of discontinued operations                               561,277                  --
      Changes in assets and liabilities:
          Accounts receivable                                                   (70,801)             (4,437)
          Inventories, net                                                     (116,635)             19,107
          Prepaid expenses and other assets                                     (10,473)             18,318
          Accounts payable and accrued expenses                                 (29,638)            112,732
          Other liabilities                                                      37,044                  --
                                                                            -----------         -----------
               Net cash used by continuing operations                        (1,207,881)         (1,101,383)
               Net cash provided (used) by discontinued operations               54,955              (9,018)
                                                                            -----------         -----------
               Net cash used by operating activities                         (1,152,926)         (1,110,401)
                                                                            -----------         -----------
Cash flows from investing activities:
      Purchases of property and equipment                                      (130,343)            (45,219)
      Proceeds from the sale of property and equipment                           14,000                  --
      Cost of patents and other                                                 (31,639)            (28,425)
                                                                            -----------         -----------
               Net cash used by investing activities                           (147,982)            (73,644)
                                                                            -----------         -----------
Cash flows from financing activities:
      Proceeds from issuance of Common Stock                                  1,509,375                  --
      Proceeds from issuance of warrants                                          2,500                  --
      Payment of equity issuance costs                                          (73,952)            (80,988)
      Principal payments on borrowings and capital lease obligations           (106,851)            (95,652)
      Advances from related party                                                61,484                  --
      Restricted cash in connection with borrowings                             114,880              (6,603)
                                                                            -----------         -----------
               Net cash provided (used) by financing activities               1,507,436            (183,243)
                                                                            -----------         -----------
               Net increase (decrease) in cash and cash equivalents             206,528          (1,367,288)
Cash and cash equivalents at beginning of year                                  149,117           1,516,405
                                                                            -----------         -----------
Cash and cash equivalents at end of year                                    $   355,645         $   149,117
                                                                            ===========         ===========

Supplemental disclosure of non-cash activity:

  Cash paid during the year for:
      Interest paid                                                         $     5,236         $    18,768
      Income taxes paid                                                          13,092              30,968

  Non-cash activities:
      Equipment purchased under capital lease obligations                   $        --         $    18,035
      Fair market value of stock options granted to non-employees                    --               8,241
      Issuance of Common Stock dividends on Preferred Stock                      60,000              60,000
</TABLE>

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

                                      F-6
<PAGE>   30

                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. THE COMPANY

        Planet Polymer Technologies, Inc. ("Planet" or the "Company") was
incorporated in August, 1991 in the State of California for the purpose of
engaging in the design, development, manufacture and marketing of degradable and
recycled polymer materials. The Company's proprietary polymer materials are
marketed under the trademarks EnviroPlastic(R), Aquadro(TM) and AQUAMIM(R).
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(R) can be used to manufacture complex metal parts
using conventional plastics molding equipment. Planet has also developed polymer
technologies for Agway, Inc. ("Agway") in 1999 that are being marketed under the
trademarks OptigenTM 1200 and Fresh SealTM.

        The Company sold its wholly owned subsidiary, Deltco of Wisconsin, Inc.
("Deltco") on January 7, 2000. The accompanying financial statements present the
results of operations of Deltco as a discontinued operation. Accordingly, the
Company's continuing operations are now comprised of one segment, the "Research
and Development" business segment.

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 accounting
principles generally accepted in the United States 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

        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 other than Agway and reimbursable
research and development costs from Agway partially offset those incurred costs.
The research and development revenues are recognized when services have been
rendered or products have been shipped. The reimbursable research and
development costs are recognized when services and/or products have been paid in
full. The components of research and development, net are as follows:

<TABLE>
<CAPTION>
                                                      1999              1998
                                                   ---------         ---------
<S>                                                <C>               <C>
Research and development expenses                  $ 727,151         $ 633,520
Research and development revenues                   (141,566)          (60,082)
Reimbursable research and development costs         (355,456)          (61,634)
                                                   ---------         ---------
      Research and development, net                $ 230,129         $ 511,804
                                                   =========         =========
</TABLE>

Cash and Cash Equivalents

        Cash and cash equivalents include U.S. Treasury bills with original
maturities of three months or less.


                                      F-7
<PAGE>   31

                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, 1999.

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
weighted 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.

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. The Company has identified no such impairment losses during 1999
or 1998.

Income Taxes

        The Company accounts for income taxes using the liability method.
Current income tax expense is the amount of income taxes expected to be payable
for the current year. Deferred income taxes are recognized for the tax
consequences in future years for differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year-end ("temporary
differences") based on enacted tax laws and statutory rates applicable to the
periods in which the temporary differences are expected to affect taxable
income. Valuation allowances are established when necessary to reduce deferred
tax assets to the amount 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>   32

                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Earnings (Loss) Per Share

        Earnings (loss) per share is computed using the weighted average number
of shares of common stock outstanding and is presented for basic and diluted
earnings (loss) per share. Basic earnings (loss) per share is computed by
dividing income (loss) available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted earnings (loss) per
share is computed by dividing income (loss) available to common shareholders by
the weighted average number of common shares outstanding during the period
increased to include, if dilutive, the number of additional common shares that
would have been outstanding if the potential common shares had been issued.
Dilutive potential common shares consist of the incremental common shares
issuable upon conversion of convertible preferred stock (using the "if
converted" method) and exercise of stock options and warrants (using the
treasury stock method) for all periods.

        The Company has excluded all convertible preferred stock and outstanding
stock options and warrants from the calculation of diluted loss per share for
the years ended December 31, 1999 and 1998 because all such securities are
anti-dilutive for these periods. The total number of potential common shares
excluded from the calculation of diluted loss per share for the years ended
December 31, 1999 and 1998 was 3,472,900 and 1,733,386, respectively.

401 (K) Plan

        The Company provides a defined contribution 401(k) savings plan (the
"401(k) Plan") in which all full-time employees of the Company are eligible to
participate. Eligible employees may contribute up to fifteen percent (15%) of
their pre-tax salary to the 401(k) Plan subject to IRS limitations. Company
contributions to the 401(k) Plan are at the discretion of the Board of
Directors. There were no Company contributions charged to operations related to
the 401(k) Plan in 1999.

3. DISCONTINUED OPERATIONS

        On December 30, 1999, the Company and its wholly owned subsidiary Deltco
entered into a Stock Purchase Agreement (the "Purchase Agreement") with Daniel
B. Mettler and Randy J. Larson (together, the "Buyers") whereby the Company
agreed to sell and the Buyers agreed to purchase all of the outstanding shares
of stock of Deltco for an aggregate purchase price of $1,000,000. The Buyers are
management employees of Deltco and the purchase price was determined during
arms-length negotiations between the parties.

        Deltco, which was previously reported as part of the "Manufacturing and
Reprocessing" business segment, is being reported as a discontinued operation as
of December 31, 1999. Deltco's net revenues for the year ended December 31, 1999
were approximately $2,032,000 and the Company recognized a net loss from
discontinued operations of approximately $397,000. The net assets held for sale
that are included in the accompanying financial statements consist primarily of
Deltco's accounts receivable of $405,000, inventories of $187,000, property and
equipment of $478,000 and accounts payable and other liabilities of $147,000.

        The sale of Deltco was finalized on January 7, 2000. The Company
received $900,000 in cash and a secured promissory note in the amount of
$100,000. This note is collateralized by all of the equipment, accounts,
inventory, supplies and personal property now held or hereafter acquired by
Deltco.


                                      F-9
<PAGE>   33

                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4. LIQUIDITY AND CAPITAL RESOURCES

        The Company has incurred losses since inception. For the years ended
December 31, 1999 and 1998, the Company had net losses of approximately
$1,561,000 and $1,629,000, respectively. As of December 31, 1999, the Company
had an accumulated deficit of approximately $11,467,000. The Company believes
that its existing sources of liquidity and anticipated revenue, cash proceeds
from the sale of Deltco (Note 3) and proceeds from Agway's warrant exercise for
500,000 shares of Common Stock on March 3, 2000 (Note 13), 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
market acceptance, and the timing thereof, 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.

5. 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 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 1999 or 1998.

        During 1999, 100% of the Company's revenues was derived from one
customer. At December 31, 1999, approximately 85% of the Company's accounts
receivable balance was due from this customer.

6. INVENTORIES

        Inventories at December 31, 1999 consist of the following:

<TABLE>
<S>                                              <C>
                   Raw materials                 $63,070
                   Finished goods                 90,365
                                                --------
                                                $153,435
                                                ========
</TABLE>

7. PROPERTY AND EQUIPMENT

        Property and equipment is comprised of the following at December 31,
1999:

<TABLE>
<S>                                                     <C>
                      Machinery and equipment           $ 384,477
                      Furniture and fixtures               26,274
                      Vehicles and trailers                 9,308
                                                        ---------
                                                          420,059
                      Less: Accumulated depreciation     (214,302)
                                                        ---------
                                                        $ 205,757
                                                        =========
</TABLE>

        Depreciation expense charged to continuing operations in 1999 and 1998
was $80,258 and $80,126, respectively. Depreciation expense charged to
discontinued operations in 1999 and 1998 was $71,433 and $71,842, respectively.


                                      F-10
<PAGE>   34

                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8. COMMITMENTS

        The Company leases its facility and certain office equipment under
non-cancelable operating leases which expire on various dates through October 9,
2004. The Company also leases certain equipment under a capital lease with a
maturity date of October 1, 2002 and interest rate of 15.8%. Machinery and
equipment under capital lease obligations totaled $34,950 and related
accumulated amortization totaled $14,563 as of December 31, 1999.

        Future minimum payments under non-cancelable leases are as follows:


<TABLE>
<CAPTION>
                                             Capital        Operating
                                             Leases          Leases
                                            --------        --------
<S>                                         <C>             <C>
                     2000                   $ 10,116        $ 69,176
                     2001                     10,116          70,590
                     2002                      8,149          41,029
                     2003                         --           2,277
                     2004                         --           1,708
                                            --------        --------
Total minimum lease payments                  28,381        $184,780
                                                            ========
 Less: Interest portion                       (5,577)
                                            --------
 Present value of net minimum
       lease payments                         22,804

 Less: Current portion of capital
       lease obligations                      (7,006)
                                            --------
 Long-term capital lease obligations        $ 15,798
                                            ========
</TABLE>


        Rent expense charged to continuing operations in 1999 and 1998 was
$63,655 and $61,563, respectively. Rent expense charged to discontinued
operations in 1999 and 1998 was $114,263 and $114,427, 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.

                                      F-11

<PAGE>   35

                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9. INCOME TAXES

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

<TABLE>
<CAPTION>
                                     1999             1998
                                  --------         --------
<S>                               <C>              <C>
            Federal
                  Current         $     --         $     --
                  Deferred              --               --
            State
                  Current             (800)            (800)
                  Deferred          23,838          (13,286)
                                  --------         --------
                  Total           $ 23,038         $(14,086)
                                  ========         ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                          1999              1998
                                                       ---------         ---------
<S>                                                    <C>               <C>
            Federal benefit at statutory rate          $ 525,492         $ 561,810
            State taxes, net of federal benefit           (9,297)           15,206
            Disallowed losses                           (190,525)               --
            Nondeductible expenses                       (14,976)          (13,966)
            Valuation allowance                         (324,780)         (540,012)
                                                       ---------         ---------
                  Total                                $ (14,086)        $  23,038
                                                       =========         =========
</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, 1999 are as
follows:

<TABLE>
<CAPTION>
                                                                    1999
                                                                -----------
<S>                                                             <C>
            Net operating loss carryforwards                    $ 3,646,352
            Tax credit carryforwards                                 99,641
            Reserves, accrued expenses and other                    310,367
            Property and equipment and intangible assets           (172,421)
                                                                -----------
                                                                  3,883,939
            Less: Valuation allowance                            (3,864,801)
                                                                -----------
                  Net deferred tax asset                        $    19,138
                                                                ===========
</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.

        At December 31, 1999, the Company had net operating loss carryforwards
for Federal income tax purposes of approximately $9,815,000 and for California
and Wisconsin state tax purposes of approximately $3,372,000 and $141,000,
respectively. The Company's California loss carryforwards expire in 2000 through
2004 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 $50,000, $42,000 and $8,000, 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>   36

                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. Due to certain anti-dilution adjustments as a result of the private
equity transaction consummated on January 11, 1999, the conversion rate of the
Series A Preferred into shares of Common Stock was adjusted from one-to-one 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. On January 20, 2000, the Investor converted
102,000 shares of Preferred Stock into 119,997 shares of Common Stock. 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.

Common Stock

        In November 1998, the Company entered into a Stock Purchase Agreement
with a subsidiary of Agway whereby Agway purchased 1,000,000 shares of Planet's
Common Stock for $1,000,000 and received a warrant to purchase up to 2,000,000
additional 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. Additionally, 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 after July 1, 1999 at the
Company's request, in the event that the Company's cash flows are less than
currently projected and are insufficient to fund its operating requirements. On
November 5, 1999, at the Company's request, Agway exercised the warrant with
respect to 500,000 shares of the Company's Common Stock on the terms, and
subject to conditions, set forth in the warrant and the Company received
$500,000 in connection with such exercise.

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. Upon
receiving the $1,000,000 proceeds from the Common Stock issuance to Agway on
January 11, 1999, the Company was required to make certain anti-dilution
adjustments to the warrant issued to the finder. The number of shares issuable
under the warrant and the exercise price per warrant were adjusted to 64,635
shares and an exercise price of $3.22 per warrant, respectively.

        After receiving the $1,000,000 proceeds from Agway pursuant to its
purchase of Common Stock on January 11, 1999, the Company was required to (i)
pay a $60,000 cash transaction fee to the finder, LBC Capital Resources, Inc.
("LBC"), and (ii) issue LBC five-year warrants to purchase 50,000 shares of
Common Stock with an exercise price of $4.125 per warrant, in exchange for
$2,500. These warrants were issued March 29, 1999, pursuant to an exemption from
registration for transactions not involving a public offering. In connection
with Agway's stock purchase transaction in January 1999 and pursuant to the
terms of the warrants issued to LBC, the Company was required to increase the
number of shares of Common Stock per the warrants to 59,243 and reduce the
exercise price to $3.5131 per warrant.


                                      F-13
<PAGE>   37

                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10. SHAREHOLDERS' EQUITY (CONTINUED)

        At December 31, 1999, 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               59,723        $2.23 - $3.88          2000 - 2003
            Underwriter warrants          115,000            $7.20                 2000
            Investor warrants           1,962,444        $1.00 - $2.23          2000 - 2002
            Other warrants                123,757        $3.22 - $3.51          2002 - 2004
                                        ---------
                                        2,260,924
                                        =========
</TABLE>

        All per share rights and benefits are subject to adjustment upon the
occurrence of certain events. All the numbers in the above table reflect the
anti-dilution adjustments due to the private equity transaction consummated on
January 11, 1999.

Options

        The Company has a 1995 Stock Option Plan (the "1995 Option Plan") under
which incentive stock options and non-statutory stock options to acquire an
aggregate of 500,000 shares of Common Stock may be granted to employees,
non-employee directors and consultants to the Company. Incentive stock options
may be granted only to employees of the Company whereas non-statutory options
may be granted to employees, directors and consultants. The terms of stock
options granted under the 1995 Option 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 1995
Option 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 1995 Option 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 1999 and 1998 would have been increased to the pro forma amounts
indicated below:

<TABLE>
<CAPTION>
                                1999                             1998
                   -------------------------------   -------------------------------
                    Net Loss        Loss per Share     Net Loss       Loss per Share
                   ------------     --------------   ------------     --------------
<S>                <C>                 <C>           <C>              <C>
As reported        $(1,560,558)        $(0.24)       $(1,628,543)        $(0.31)
Pro forma          $(1,683,226)        $(0.26)       $(1,720,645)        $(0.32)
</TABLE>


                                      F-14
<PAGE>   38

                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10. SHAREHOLDERS' EQUITY (CONTINUED)

        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 1999 and 1998: an expected life of 4 and 3.7 years, expected
volatility of 93.10% and 82.49%, no dividend yield and a risk-free interest rate
of 5.62% and 4.96%, 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 1999 and 1998 was approximately $1.20 and $0.96 per option,
respectively.

        On July 1, 1999, the Company's Board of Directors granted incentive
stock options to purchase 12,500 shares of Common Stock at an exercise price of
$1.50 per share to an employee under the 1995 Option Plan. Of such options,
4,166 shall vest on June 30, 2000, 4,167 shall vest on June 30, 2001 and 4,167
shall vest on June 30, 2002. All of such options expire on June 30, 2009. As of
December 31, 1999, none of these options have been exercised.

        On May 21, 1999, the Company's Board of Directors granted non-statutory
stock options to purchase 66,083 shares of Common Stock at an exercise price of
$1.813 per share to non-employee directors under the 1995 Option Plan. These
options were fully vested at the date of grant and expire on May 20, 2009. As of
December 31, 1999, none of these options have been exercised.

        On February 24, 1999, the Company's Board of Directors granted
non-statutory stock options to purchase 6,000 shares of Common Stock at an
exercise price of $1.563 per share to a non-employee director under the 1995
Option Plan. These options were fully vested at the date of grant and expire on
February 23, 2009. As of December 31, 1999, 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 1995 Option Plan. These options
were granted in connection with a certain employment agreement between the
officer and the Company (Note 8). Of such options, 25,000 were immediately
vested at the grant date, 35,000 shall vest on the first anniversary, 35,000 on
the second anniversary and 30,000 on the third anniversary. All of such options
expire on November 17, 2003. As of December 31, 1999, 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 1995 Option Plan. These options became
fully vested on December 31, 1998 and expire on June 30, 2008. As of December
31, 1999, 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 1995 Option Plan. These
options were fully vested at the date of grant and expire on May 20, 2008. As of
December 31, 1999, none of these options have been exercised.

        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 1995 Option 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, 1999, none of these options have been
exercised.

        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 1995 Option Plan. These options were
fully vested as of the date of grant and expire on February 12, 2008. On March
30, 1999, these options were exercised.


                                      F-15
<PAGE>   39

                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. SHAREHOLDERS' EQUITY (CONTINUED)

   A summary of stock option activity during 1999 and 1998 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, 1997         256,459         $4.631         226,274         $4.591
      Granted / reissued                 188,500          1.726              --             --
      Exercised                               --             --              --             --
      Forfeited / expired                (25,000)         3.875              --             --
                                       ----------                     ----------
Outstanding at December 31, 1998         419,959          3.373         226,274          4.591
      Granted                             84,583          1.749              --             --
      Exercised                           (5,000)         1.875              --             --
      Forfeited / expired                (75,620)         7.753         (26,455)         3.780
                                       ----------                     ----------
Outstanding at December 31, 1999         423,922          2.285         199,819          4.699
                                       ==========                     ==========
</TABLE>

        Other Options listed above include non-statutory stock options issued to
key personnel prior to the adoption of the 1995 Stock Option Plan.

        The following table summarizes information about stock options
outstanding and exercisable at December 31, 1999:

<TABLE>
<CAPTION>
                                                     Weighted-
                                 Outstanding          Average          Exercisable
            Range of                as of            Remaining            as of
            Exercise               December          Contractual        December
             Prices                31, 1999         Life (years)        31, 1999
            --------             -----------        ------------       -----------
<S>                              <C>                 <C>               <C>
        $1.500 to $2.500           273,083             8.91              195,583
        $2.750 to $4.125           256,658             2.61              256,658
        $5.100 to $6.000            94,000             4.08               94,000
                                 -----------                           -----------
                                   623,741             5.13              546,241
                                 ===========                           ===========
</TABLE>

11. RELATED PARTY TRANSACTIONS

        In November 1998, the Company and Agway entered into an agreement
relating to the funding by Agway of a feasibility study (the "Feasibility
Agreement") of the Company's polymer technology for use in agricultural products
(other than fertilizers and certain biological products) and food products.
Under the terms of the Feasibility Agreement, Planet will be reimbursed for
certain qualifying research and development costs relating to such applications.
During 1999 and 1998, the Company recorded reimbursable research and development
costs of $355,456 and $61,634, respectively from Agway under the Feasibility
Agreement.

        Also in November 1998, the Company granted Agway an exclusive worldwide
license in connection with the Company's technology for time-release coatings
for a variety of agricultural and food products (the "License Agreement"). The
License Agreement outlines the general terms and conditions for the rights
granted Agway thereunder. The Company and Agway agreed to execute further
sub-agreements specifying the royalties to be paid to the Company for Agway's
use of the Company's technology with certain products. During 1999 and 1998, the
Company received no royalties payments from Agway.

        Agway Holdings Inc., an indirect wholly owned subsidiary of Agway, is a
beneficial owner of more than 10% of the Company's Common Stock since January
11, 1999.


                                      F-16
<PAGE>   40

                PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11. RELATED PARTY TRANSACTIONS (CONTINUED)

        The Company leased 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 were paid in 1998, prior to the
former President's resignation in June 1998.

12. LEGAL PROCEEDINGS

        In November 1998, the Company initiated litigation against Brian To, a
former director, officer and consultant of the Company, Tarrenz Inc. and Tarrenz
Management Consultants, Inc., entities owned by Brian To (collectively referred
to as the "defendants"), in the Superior Court of the State of California for
the County of San Diego. The complaint alleges breach of contract, breach of
fiduciary duty and other tort claims arising from services the defendants
performed for or on behalf of the Company. The Company is seeking recovery of
compensation, stock, stock options and expense reimbursements. In response to
the Complaint, the defendants filed a Motion to Compel Arbitration. The Court
issued an order compelling the case to arbitration on Friday, March 12, 1999. On
April 26, 1999, the defendants answered and denied the allegations of the
complaint and filed a cross-complaint against the Company alleging breach of
contract, misrepresentation, slander, intentional infliction of emotional
distress and fraud. The arbitration date, previously set for February 28, 2000,
will be rescheduled due to a potential conflict of interest which was discovered
with respect to defendants' counsel. In light of the limited discovery allowed
in arbitration, it is difficult to evaluate defendants' claims, however, in the
opinion of management, the ultimate resolution of this litigation is not
expected to have a material adverse effect on the Company's financial position
or results of operations.

13. SUBSEQUENT EVENTS

        Agway exercised warrants to purchase 500,000 shares of Common Stock on
November 5, 1999 and March 3, 2000. After receiving cumulative proceeds of
$1,000,000 from Agway, the Company was required to (i) pay a $60,000 cash
transaction fee to LBC, and (ii) issue LBC five-year warrants to purchase 50,000
shares of Common Stock with an exercise price of $4.1625 per warrant, in
exchange for $2,500. These warrants were issued March 9, 2000 pursuant to an
exemption from registration for transactions not involving a public offering. In
connection with Agway's stock purchase transaction in January 1999 and pursuant
to the terms of the warrants issued to LBC, the Company may be required to make
certain anti-dilution adjustments to the warrants issued to LBC. Accordingly,
the Company may issue additional shares of Common Stock and reduce the exercise
price of the outstanding warrants. It is too early to determine the
anti-dilution amount, if any.

        Also in November 1998, the Company granted Agway 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 to other parties on the technology developed under the License
Agreement. The Company and Agway agreed to execute further sub-agreements
("Sub-Agreement") to specify the royalties to be paid to the Company for Agway's
use of the Company's technology on certain specific products. In March 2000, the
Company and Agway entered into a Sub-Agreement with respect to animal feed
products incorporating Planet's patented/patent pending coatings and/or polymer
systems. Also in March 2000, the Company and Agway entered into another
Sub-Agreement with respect to Planet's patented/patent pending coatings and/or
polymer systems sold for use on fruits, vegetables, floral and nursery items.

        The sale of Deltco (Note 3) was finalized on January 7, 2000. The
Company received $900,000 in cash and a secured promissory note in the amount of
$100,000. This note is collateralized by all of the equipment, accounts,
inventory, supplies and personal property now held or hereafter acquired by
Deltco.


                                      F-17