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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

Commission File Number 0-18583

POLYMER SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)

312 Otterson Dr. Suite H
Chico, California 95928
Telephone: (530) 894-3585
(Address of principal executive offices)

(530) 849-3585
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [ X ] No [   ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes [   ] No [ X ]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of September 30, 2003.

POLYMER SOLUTIONS, INC. and SUBSIDIARIES
Quarterly Report on Form 10-Q
For the Three and Six Months Ended September 30, 2003

TABLE OF CONTENTS

The accompanying interim consolidated financial statements and notes are unaudited: However, in the opinion of management, they reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the results for the interim periods presented. Results of operations for the periods ended September 30, 2003 are not necessarily indicative of results expected for an entire year.

Unless otherwise indicated, all dollar amounts in this report are U. S. dollars.

Polymer Solutions, Inc. and Subsidiaries

Consolidated Balance Sheets
(U.S. Dollars)

The accompanying notes are an integral part of these financial statements

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Polymer Solutions, Inc. and Subsidiaries

Consolidated Statements of Operations (Unaudited)
(U.S. Dollars)

The accompanying notes are an integral part of these financial statements.

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Polymer Solutions, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)
(U.S. Dollars)

The accompanying notes are an integral part of these financial statements.

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Polymer Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

1.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The consolidated financial statements include the accounts of the company and its wholly owned subsidiaries. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for this period are not necessarily indicative of the results to be expected for the whole year. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2003, as filed with the Securities and Exchange Commission.

2.

Disposition Agreement

On October 29, 2003 the Company entered into a Disposition Agreement (the “Disposition Agreement”) with Chemcraft Holdings Corporation (“Chemcraft”) whereby Chemcraft would acquire 100% of the issued and outstanding stock of Alternative Materials Technology (AMT), held by AMT Environmental Products, Inc., the Company’s wholly-owned subsidiary. AMT represents substantially all of the Company’s assets.

Pursuant to the Disposition Agreement, the Company would receive approximately US$7.5 million in cash proceeds net of transaction expenses, taxes or other liabilities. It is management’s intention to distribute these proceeds to the Company’s shareholders and optionholders and, following or in connection with such distribution, to dissolve and wind-up the business and affairs of the Company.

If the transaction closes, shareholders and optionholders, net of the option exercise price, are expected to receive approximately US$0.75 per share, subject to any indemnification claims or certain post-closing adjustments. Ninety (90) percent of the proceeds, or approximately US$0.675 per share, is expected to be disbursed to shareholders and optionholders shortly after closing. After a forty-five (45) day period for any indemnification claims or post-closing adjustments has elapsed, the balance of the proceeds of up to approximately US$0.075 in total per share would be disbursed. This period may be extended if an agreement to the adjustments has not been reached by the end of the forty-five (45) day period. The transaction is subject to certain conditions, including receipt of regulatory approval and approval from the Company’s shareholders.

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Polymer Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

The Company may terminate the Disposition Agreement in the event that it receives a proposal from a third party that has a value to the Company’s shareholders in excess of US$8 million, in which case the Company is to pay Chemcraft a fee of US$250,000. Chemcraft has a right to match a better offer within a limited time of their being informed of the offer. In certain circumstances, Chemcraft is to pay the Company a fee of US$200,000 if Chemcraft terminates the Disposition Agreement.

3.

Inventories

Inventories consist of the following:

4.

The Economic Value Added Compensation Program (The EVA Plan)

The Economic Value Added Compensation Program (the “EVA Plan”) is an annual and long-term incentive compensation program, first effective during the 1999 fiscal year, which provides all eligible officers, directors, consultants and employees of the Company with allocation of stock options based upon the achievement by the Company of specified financial performance goals.

In order to encourage a long-term commitment by executive officers and other key employees to the Company, the EVA Plan provides that annually one-third of the cumulative bonus earned under the EVA Plan is paid by allocating stock options to the plan participants. The remaining two-thirds bonus earned is deferred (Bonus Bank Balance) for the participant. A Bonus Bank Balance is 100% at risk in that if the Economic Value Added (EVA) performance for a given year results in a bonus calculation that is negative, the participant’s Bonus Bank Balance is reduced by the negative amount to an amount not less than zero.

The Bonus Bank Balance is paid to a participant in cash upon the occurrence of any of the following events: (1) retirement of a participant at the age of 55 or older; (2) the termination or suspension of the plan for a period of more than 90 days; or (3) upon the purchase of 45% or more by a person or group, as defined, of the voting stock of the Company. At September 30, 2003, the Bonus Bank Balance for all participants amounted to approximately $299,000. If the transactions contemplated by the Disposition Agreement described above in Note 2 are consummated, it is currently anticipated that the Bonus Bank

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Polymer Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Balance for all participants will be paid in full in cash at the closing of such transactions. Such payment will not impact the proceeds available for distribution to shareholders pursuant to the Disposition Agreement.

5.

Earnings Per Share (“EPS”)

The Company’s basic net (loss) income per share is computed by dividing net (loss) income by the weighted average number of outstanding common shares. The diluted EPS amounts are the same as the basic EPS for all periods presented due to rounding. At September 30, 2003, there were options for 580,021 shares that were dilutive and included in the diluted EPS. At September 30, 2003, there were options for 105,983 shares that could potentially dilute basic EPS in the future.

6.

Common Stock

During the six month period ended September 30, 2003, the Company issued 68,065 shares of its common stock on the exercise of stock options at an exercise price of $0.26 (Cdn $0.40) per share.

7.

Stock Options

The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees and its related interpretations and complies with the disclosure provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation. Under APB No. 25, compensation expense for fixed options is based on the difference, if any, on the date of the grant, between the fair value of the Company’s stock and the exercise price of the option. The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123.

On August 15, 2002, 2,137,499 outstanding stock options and warrants granted to employees, officers, consultants and directors, with exercise prices between $.78 and $.53 per share, were reissued and repriced into options to purchase 816,719 shares at an exercise price of $0.26 (Cdn$0.40) per share. The repriced options are being accounted for as variable from August 15, 2002 to the date the options are exercised, forfeited, or expire unexercised. During the six month period ended September 30, 2003, compensation expense of approximately $367,000 has been recorded in connection with these options.

For purposes of the pro forma disclosures required by SFAS No. 123, the estimated fair value of options and warrants is recognized as expense upon issuance as the options and warrants are immediately vested. The fair value of each option and warrant grant is estimated at the date of grant using the Black-Scholes option-pricing model. The Black-Scholes model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input

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Polymer Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

of highly sensitive assumptions, including the expected stock price volatility, which are subject to change from time to time. For this reason, the resulting pro forma compensation costs are not necessarily indicative of costs to be expected in future years.

Pro forma unaudited net (loss) income and pro forma basic and diluted unaudited net (loss) income per share in fiscal year 2003 would not have been significantly different than reported if the Company had accounted for its stock options and warrants using the fair value based method of accounting established by SFAS 123. The following weighted average assumptions were used in the option pricing model to determine the fair value of the options: dividend yield of 0%, expected volatility of 20%, risk-free interest rate ranging from 2.11% to 2.22% and expected lives of 1.5 to 3 years.

8.

Commitments and Contingencies

The Company is subject to various claims in the normal course of business. Management believes these liabilities, if any, will not materially affect the Company’s financial position, results of operations or cash flows.

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Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Six Months Ended September 30, 2003

OVERVIEW

Polymer Solutions, Inc. (the “Company”), develops, manufactures and distributes paints, coatings and adhesives to various industries, primarily in California. In 1998, PSI constructed a new production facility in Chico, California that allows the Company significant growth opportunities both internally and by way of acquisition. Presently, this facility has excess production capacity and with the addition of a minor amount of capital equipment and some additional labor, capacity can be increased significantly.

RESULTS OF OPERATIONS

Sales revenues increased 2% to $3,994,284 for the three months ended September 30, 2003, compared to the same prior year period. This net increase reflects a decrease in water-based product sales volume of 16% offset by an increase in solvent-based product of 12% together with a 3% decrease in average water-based product sales prices and a 2% increase in average solvent-based product sales prices. Changes in our product sales mix are normal and we expect such related revenue fluctuations. Overall, our shipment volume is increasing, despite a challenging economy. Similarly, sales revenues for the six months ended September 30, 2003 increased 2% to $7,772,511 compared to the same prior year period.

Gross profit for the second quarter decreased 3% to $1,119,695 from $1,156,805 for the comparable period last year due to the above mentioned sales volume, price, and mix changes. For the six months ended September 30, 2003 gross profit decreased 8% to $2,071,449 compared to $2,261,036 in the same prior year period due to an increase in raw material costs and shipping costs, and a decrease in price for water based product. Raw material costs for water-based products increased 4%, and for solvent based products increased 7%. Gross margin (gross profit as a percentage of sales revenue) for the second quarter decreased to 28% from 30% for the comparable period last year. For the six months ended September 30, 2003 gross margin decreased to 27% from 30% compared to the same prior year period.

Marketing and sales expense for the three months ended September 30, 2003 totaled $367,441, an increase of 28% from $286,656 in the comparable prior year period. For the six months ended September 30, 2003 marketing and sales expense totaled $670,841, an increase of 18% from $570,638 in the comparable prior year period. These increases are primarily due to the second quarter hiring of two new salesmen to further our sales expansion in Central California. Additionally, we incurred increased rent expense due to the replacement of our South El Monte customer service and satellite storage during the second quarter with a new, expanded facility in Ontario, California to better serve our customer needs in Southern California markets.

General and administrative expenses for the three months ended September 30, 2003 were $663,440 versus $452,915 for the same prior year period. For the six months ended September 30, 2003 general and administrative expenses were $1,232,020, versus $866,135 for the same

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prior year period. The increases are primarily due to variable option based compensation expenses of approximately $200,000 for the three months ended September 30, 2003, and approximately $367,000 for the six months ended September 30, 2003 being incurred, due to the Company’s increased share value. Such expenses have no impact on the Company’s cash flow.

Research and development expenses were $172,381 for the three months ended September 30, 2003, versus $138,658 for the same prior year period, reflecting a 24% increase. For the six months ended September 30, 2003 research and development costs were $338,897, versus $280,708 for the same prior year period, reflecting a 21% increase. These increases are equally due to additional lab employees and Volatile Organic Compound testing for the UNICOR government contract.

Interest expense totaled $1,477 for the three months ended September 30, 2003 compared to $6,510 in the same prior year period reflecting a 77% decrease resulting from the pay down of capital lease obligations. For the six months ended September 30, 2003 interest expense totaled $3,662 compared to $14,439 in the same prior year period reflecting a 75% decrease, also due to the pay down of capital lease obligations.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2003 the Company had $1,051,425 in cash compared to $1,165,031 at the end of fiscal 2003. Cash flow used in operating activities totaled $27,255 for the first half of fiscal year 2003, versus cash provided by operations of $426,419 in the comparable prior year period. This is primarily due to the net loss and an increase in accounts receivable, increase in prepaids, and a decrease in payroll related and commissions payable.

Capital expenditures were $65,937 in the six months ended September 30, 2003 compared to $126,533 for the same period a year ago. There were no cash payments for repurchase of stock during the second quarter versus $66,400 in the comparable prior year-end.

The Company had a positive working capital of $3,435,924 at September 30, 2003, versus $3,265,806 at March 31, 2003. The current ratio at September 30, 2003 was 3.4:1 compared with 3.5:1 for the fiscal 2003 year end ratio.

OUTLOOK

On October 29, 2003 the Company entered into a Disposition Agreement (the “Disposition Agreement”) with Chemcraft Holdings Corporation (“Chemcraft”) whereby Chemcraft would acquire 100% of the issued and outstanding stock of Alternative Materials Technology (AMT), held by AMT Environmental Products, Inc., the Company’s wholly-owned subsidiary. AMT represents substantially all of the Company’s assets.

Pursuant to the Disposition Agreement, the Company would receive approximately US$7.5 million in cash proceeds net of transaction expenses, taxes or other liabilities. It is management’s intention to distribute these proceeds to the Company’s shareholders and

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optionholders and, following or in connection with such distribution, to dissolve and wind-up the business and affairs of the Company.

If the transaction closes, shareholders and optionholders, net of the option exercise price, are expected to receive approximately US$0.75 per share, subject to any indemnification claims or certain post-closing adjustments. Ninety (90) percent of the proceeds, or approximately US$0.675 per share, is expected to be disbursed to shareholders and optionholders shortly after closing. After a forty-five (45) day period for any indemnification claims or post-closing adjustments has elapsed, the balance of the proceeds of up to approximately US$0.075 in total per share would be disbursed. This period may be extended if an agreement to the adjustments has not been reached by the end of the forty-five (45) day period. The transaction is subject to certain conditions, including receipt of regulatory approval and approval from the Company’s shareholders.

The Company may terminate the Disposition Agreement in the event that it receives a proposal from a third party that has a value to the Company’s shareholders in excess of US$8 million, in which case the Company is to pay Chemcraft a fee of US$250,000. Chemcraft has a right to match a better offer within a limited time of their being informed of the offer. In certain circumstances, Chemcraft is to pay the Company a fee of US$200,000 if Chemcraft terminates the Disposition Agreement.

SIGNIFICANT ACCOUNTING POLICIES

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. Our significant accounting policies are described in Note 2 to the financial statements included in Item 7 on Form 10-K filed with the Company’s Annual Report for the year ended March 31, 2003.

DESCRIPTION OF NEVADA LAW

Nevada’s “Combination with Interested Stockholders Statute,” Nevada Revised Statutes 78.411-78.444, which applies to Nevada corporations having at least 200 stockholders of record and a class of voting shares registered with the Securities and Exchange Commission under Section 12 of the Act (unless the corporation has otherwise effectively opted-out of the provisions of the statutes), prohibits an “interested stockholder” from entering into a “combination” with the corporation, unless certain conditions are met. A “combination” includes (a) any merger with an “interested stockholder,” or any other corporation which is or after the merger would be, an affiliate or associate of the interested stockholder, (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of assets, in one transaction or a series of transactions, to an “interested stockholder,” having (i) an aggregate market value equal to 5% or more of the aggregate market value of the corporation’s assets; (ii) an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares of the corporation; or (iii) representing 10% or more of the earning power or net income of the corporation, (c) any issuance or transfer of shares of the corporation or its subsidiaries, to the “interested stockholder,” having an aggregate market value equal to 5% or more of the aggregate market value of all the outstanding shares of the corporation, (d) the adoption of any plan or proposal for

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the liquidation a dissolution of the corporation proposed by the “interested stockholder,” (e) certain transactions which would result in increasing the proportionate share of shares of the corporation owned by the “interested stockholder,” or (f) the receipt of benefits, except proportionately as a stockholder, of any loans, advances or other financial benefits by an “interested stockholder.” An “interested stockholder” is a person who, together with affiliates and associates, beneficially owns (or within the prior three years, did beneficially own) 10% or more of the corporation’s voting stock.

A corporation to which the statute applies may not engage in a “combination” with an “interested stockholder” within three years after the date on which the interested stockholder acquired its shares, unless the combination or the interested stockholder’s acquisition of shares was approved by the board of directors before the interested stockholder acquired such shares. If this approval was not obtained, after the three-year period expires, the combination may be consummated if all the requirements in the Articles are met, if any, and either (a) (i) the board of directors of the corporation approves, prior to such person becoming an “interested stockholder”, the combination or the purchase of shares by the “interested stockholder” or (ii) the combination is approved by the affirmative vote of holders of a majority of voting power not beneficially owned by the “interested stockholder” at a meeting called no earlier than three years after the date the “interested stockholder” became such or (b) (x) the aggregate amount of cash and the market value of consideration other than cash to be received by holders of common shares and holders of any other class or series of shares meets the minimum requirements set forth in Section 78.441 through 78.443, inclusive, and (y) prior to the consummation of the combination, except in limited circumstances, the “interested stockholder” will not have become the beneficial owner of additional voting shares of the corporation. The Company believes that it currently has over 200 stockholders of record and a class of voting shares registered with the Securities and Exchange Commission under Section 12 of the Act. As a result, since the Company has not opted-out of the provisions of the statutes, the Company believes that it may be subject to the provisions of these statutes.

Nevada’s “Control Share Acquisition Status,” Nevada Revised Statute §§78.378-78.3793, prohibits an acquiror, under certain circumstances, from voting shares of a target corporation’s stock after crossing certain threshold ownership percentages, unless the acquiror obtains the approval of the target corporation’s stockholders. The Control Share Acquisition Statute only applies to Nevada corporations with at least 200 stockholders, including at least 100 record stockholders who are Nevada residents, and which do business directly or indirectly in Nevada. The Company does not intend to “do business” in Nevada within the meaning of the Control Share Acquisition Statute. Therefore, it is unlikely that the Control Share Acquisition Statute will apply to the Company. The statute specifies three thresholds: at least one-fifth but less than one-third, at least one-third but less and a majority, and a majority or more, of the outstanding voting power. Once an acquiror crosses one of the above thresholds, shares which it acquired in the transaction taking it over the threshold or within ninety days become “Control Shares” which are deprived of the right to vote until a majority of the disinterested stockholders restore that right. A special stockholders’ meeting may be called at the request of the acquiror to consider the voting rights of the acquiror’s shares no more than 50 days (unless the acquiror agrees to a later date) after the delivery by the acquiror to the corporation of an information statement which sets forth the range of voting power that the acquiror has acquired or proposes to acquire and

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certain other information concerning the acquiror and the proposed control share acquisition. If no such request for a stockholders’ meeting is made, consideration of the voting rights of the acquiror’s shares must be taken at the next special or annual stockholders’ meeting. If the stockholders fail to restore voting rights to the acquiror or if the acquiror fails to timely deliver an information statement to the corporation, then the corporation may, if so provided in its Articles of Incorporation or By-Laws, call certain of the acquiror’s shares for redemption. The Company’s Articles of Incorporation and By-Laws do not currently permit it to call an acquiror’s shares for redemption under these circumstances. The Control Share Acquisition Statute also provides that in the event the stockholders who do not vote in favor of restoring voting rights to the Control Shares may demand payment for the “fair value” of their shares (which is generally equal to the highest price paid in the transaction subjecting the stockholder to the statute).

The provisions described above, together with the ability of the Board of Directors to issue Preferred Stock may have the effect of delaying or deterring a change in the control or management of the Company.

RISK FACTORS

The following risk factors and other information included in this Quarterly Report should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks occur, our business, financial condition, operating results and cash flows could be materially adversely affected.

We are still building our market presence and are subject to substantial competition that could inhibit our ability to succeed as planned.

We are one of many small companies in the coating systems market with no measurable percentage of that market. We are still attempting to build our market presence as we compete with both domestic and foreign companies. Our success is largely predicated upon our ability to produce superior products to meet the needs of manufacturers, satisfy government environmental guidelines, maintain quality standards and sell our products at competitive prices. Our markets are subject to intense competition from both private and public businesses, many of which have greater financial resources and considerably larger operations than us and may benefit from greater name recognition than us. Such competition as well as any future competition may adversely affect our success in the market place. Any reputation that we may successfully gain with retailers for quality product does not necessarily translate into name recognition or increased market share with the end consumer. Our products may not be well received by OEM firms or end-user consumers, or other companies may surpass us in product innovations.

We cannot be certain that our product innovations and marketing successes will continue.

We believe that, to an extent, our past performance has been based upon, and our future success will partially depend upon, in part, our ability to continue to improve our existing products through product innovation and to develop, market and produce new products. We cannot assure you that we will be successful in the introduction, marketing and production of any new products

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or product innovations, or develop and introduce in a timely manner innovations to our existing products that satisfy customer needs or achieve market acceptance. Our failure to develop new products and introduce them successfully and in a timely manner could harm our ability to grow our business and could have a material adverse effect on our business, results of operations and financial condition.

The inability to successfully obtain or protect our intellectual property could harm our competitive advantage.

Our success will depend, in part, on our ability to maintain protection for the research and development of our formulated coating and adhesive products. Our products represent significant intellectual property assets. This proprietary position reflects a technology and expertise that we believe enables us to provide products that meet customer and regulatory expectations and therefore we continually try to offer our customers several additional advantages over our competitors to obtain their loyalty and help sustain our sales. Even though we strictly maintain policies and procedures for strict internal confidentiality, patent protection and binding non-disclosure agreements we cannot assure you that our intellectual assets will be protected and not made available to our competitors.

The products that we manufacture could expose us to product liability claims.

Our business exposes us to potential product liability risks, which are inherent in the manufacture and distribution of certain of our products. Although we generally seek to insure against such risks, there can be no assurance that such coverage is adequate or that we will be able to maintain such insurance on acceptable terms. A successful product liability claim in excess of our insurance coverage could have a material adverse effect on us and could prevent us from obtaining adequate product liability insurance in the future on commercially reasonable terms.

Our business is subject to many regulations and noncompliance is costly.

The manufacture, marketing and sale of our products are subject to the rules and regulations of various federal, state and local agencies, including, without limitation, the Federal Environmental Protection Agency (“EPA”) and, in particular, the 1990 Clean Air Act and the Toxic Substance Control Act, as well as the State of California’s South Coast Air Quality Management District (“SCAQMD”). If a regulatory authority finds that our manufacturing process results in the creation of pollution, or that a current or future product or production run is not in compliance with any of these regulations, we may be fined and/or forced to implement a costly remediation plan, production may be stopped or our product may be pulled from the shelves, any of which could adversely affect our financial conditions and operations. Similarly, any adverse publicity associated with any noncompliance may damage our reputation and our ability to successfully market our products. Furthermore, the rules and regulations are subject to change from time to time and while we closely monitor developments in this area, we have no way of anticipating whether changes in these rules and regulations will impact our business adversely. Additional or revised regulatory requirements, whether environmental, tax or otherwise, could have a material adverse effect on our financial condition and results of operations.

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If we fail to generate sufficient revenues to cover our planned expenditures, our financial condition will be harmed.

Our market is based upon a large number of small manufacturers in the California area. Poor market conditions and inflation or other unanticipated events may result in lower revenues than anticipated, making certain planned expenditures on advertising, promotion and research and development projects unachievable. The occurrence of any of these events would have a negative impact on our financial condition and operating results.

The unsuccessful implementation of our growth strategy and expansion plans could result in lower gross margins and harm our financial condition.

We intend to commence an aggressive sales growth strategy to markets in other states, which may not prove profitable due to a lack of acceptance of our products or increased costs in providing our products due to raw materials or delivery costs, which in turn could result in decreased margins.

Any future acquisitions could prove difficult to integrate, disrupt our business, dilute shareholder value and adversely affect our operating results.

We may acquire or make investments in complementary companies and products in the future. If we fail to properly evaluate, execute and integrate acquisitions and investments, our business and prospects may be seriously harmed. To successfully complete an acquisition, we must properly evaluate the products, accurately forecast the financial impact of the transaction, including accounting charges and transaction expenses, integrate and retain personnel, combine potentially different corporate cultures and effectively integrate products and research and development, sales, marketing and support operations. If we fail to do any of these, we may suffer losses and impair relationships with our employees, customers and strategic partners, and our management may be distracted from our day-to-day operations. We also may be unable to maintain uniform standards, controls, procedures and policies, and significant demands may be placed on our management and our operations, information services and financial, legal and marketing resources. Finally, acquired businesses sometimes result in unexpected liabilities and contingencies that could be significant. In addition, acquisitions using debt or equity securities dilute the ownership of existing shareholders, which could affect the market price of our stock.

If we need to raise additional capital for our operating plan, our business would be harmed if we were unable to do so on acceptable terms.

We currently anticipate that our existing capital resources and cash flows from operations will enable us to maintain our currently planned operations for the foreseeable future. However, our current operating plan may change as a result of many factors, including general economic conditions affecting the U.S. economy that are beyond our control. If we are unable to generate and maintain positive operating cash flows and operating income in the future, we may need additional funding. We may also choose to raise additional capital due to market conditions or strategic considerations even if we believe that we have sufficient funds for our current or future operating plans. If additional capital were needed, our inability to raise capital on favorable terms would harm our business and financial condition. To the extent that we raise additional

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capital through the sale of equity or debt securities convertible into equity, the issuance of these securities could result in dilution to our stockholders.

Competition in our industries may hinder our ability to execute our business strategy, achieve profitability, or maintain relationships with existing customers.

We operate in highly competitive industries. We compete against numerous other companies, some of which are more established in their industries and have substantially greater revenue or resources than we do. Our products compete against national and regional products and private label products produced by various suppliers. Our largest domestic competitors include Akzo Nobel, The Sherwin-Williams Company, Valspar/Lilly Industries, MacLac, Cardinal Paints, Rudd Coatings, Performance Coatings, and Triangle Paints. To compete effectively, among other things, we must:

•

maintain our relationships with key retailers;

•

continually develop innovative new products that appeal to consumers;

•

ensure compliance with current environmental regulations;

•

maintain strict quality standards; and

•

deliver products on a reliable basis at competitive prices.

Competition could cause lower sales volumes, price reductions, reduced profits or losses, or loss of market share. Our inability to compete effectively could have a material adverse effect on our business, results of operations and financial condition.

The loss of key senior management personnel could negatively affect our business.

We depend on the continued services and performance of our senior management and other key personnel. We do not have “key person” life insurance policies. The loss of any of our executive officers or other key employees could harm our business.

Any increase in the costs, or decreases in the supply, of the raw materials necessary for our business could have an adverse effect on our financial condition.

Our business places heavy reliance on raw materials being readily available. Although we believe that there are a number of companies that can provide us with the raw materials necessary to conduct our business, any significant decreases in supplies, or any increase in costs or a greater increase in delivery costs for these materials, could result in a further decrease in our margins, which would harm our financial condition.

The price for our common shares may continue to be volatile.

The market price of our securities, like that of many other emerging companies, has been highly volatile, experiencing wide fluctuations not necessarily related to the operating performance of

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such companies. Factors such as our operating results, announcements by us or our competitors concerning innovations and new products or systems may have a significant impact on the market price of our securities. In addition, we have experienced limited trading volume in our common shares.

FORWARD-LOOKING STATEMENTS

Some statements and information contained in this Quarterly Report are not historical facts, but are forward-looking statements. They can be identified by the use of forward-looking words such as “believes,” “expects,” “plans,” “may,” “will,” “would,” “could,” “should” or “anticipates” or other comparable words, or by discussions of strategy, plans or goals that involve risks and uncertainties that could cause actual results to differ materially from those currently anticipated. We warn you that these forward-looking statements are only predictions, subject to risks and uncertainties. Actual events or results can differ materially from those expressed or implied as a result of a variety of factors. For a discussion of important factors that could cause results to differ materially from the forward-looking statements contained in this Quarterly Report, see “Risk Factors”.

Please read the above discussion together with the consolidated financial statements and the related notes included elsewhere in this Quarterly Report.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risk arising from changes in interest rates. Our primary interest rate risk results from changes in the prime rate, which is used to determine the interest rate applicable to the term loans under our credit facility. At September 30, 2003, there were no borrowings under the credit facility. Exposure would increase accordingly should we begin borrowing during fiscal year 2004.

We have minimal operations in foreign countries. While we are exposed to foreign currency fluctuations, we presently have no financial instruments in foreign currency and we do not maintain material funds in foreign currency beyond those necessary for operations.

Item 4.     Controls and Procedures.

We carried out an evaluation required by the Securities Exchange Act of 1934, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC reports.

During the most recent fiscal quarter, there has not occurred any change in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1.

Legal Proceedings None

Item 2.

Changes in Securities and Use of Proceeds During the quarter ending September 30, 2003, the Company issued 9,857 shares of its common stock on the exercise of stock options at an exercise price of $0.26 (Cdn $0.40) per share.

Item 3.

Defaults Upon Senior Securities None

Item 4.

Submission of Matters to a Vote of Securities Holders The Annual Meeting of Stockholders was held August 14, 2003 in Vancouver, British Columbia, Canada. At such meeting, 9,252,192 shares were entitled to vote of which 4,880,312 shares were voted or 52.75%. The following proposals were adopted by the margins indicated.

1)

The election of the following directors who will serve for a term ending upon the 2004 Annual Meeting of Stockholders or until their successors are elected and qualified:

2)

The selection of PricewaterhouseCoopers, LLP, Sacramento, California to continue as the auditors of Polymer Solutions, Inc., was approved by the following vote: For — 4,738,035; Withheld — 142,277.

Item 5.     Other Information

On October 29, 2003 we entered into a Disposition Agreement (the “Disposition Agreement”) with Chemcraft Holdings Corporation whereby Chemcraft would acquire 100% of the issued and outstanding stock of Alternative Materials Technology (AMT), held by AMT Environmental Products, Inc., the Company’s wholly-owned subsidiary. AMT represents substantially all of the Company’s assets.

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Pursuant to the Disposition Agreement, the Company would receive approximately US$7.5 million in cash proceeds net of transaction expenses, taxes or other liabilities. It is management’s intention to distribute these proceeds to the Company’s shareholders and optionholders and, following or in connection with such distribution, to dissolve and wind-up the business and affairs of the Company.

If the transaction closes, shareholders and optionholders, net of the option exercise price, are expected to receive approximately US$0.75 per share, subject to any indemnification claims or certain post-closing adjustments. Ninety (90) percent of the proceeds, or approximately US$0.675 per share, is expected to be disbursed to shareholders and optionholders shortly after closing. After a forty-five (45) day period for any indemnification claims or post-closing adjustments has elapsed, the balance of the proceeds of up to approximately US$0.075 in total per share would be disbursed. This period may be extended if an agreement to the adjustments has not been reached by the end of the forty-five (45) day period. The transaction is subject to certain conditions, including receipt of regulatory approval and approval from the Company’s shareholders.

The Company may terminate the Disposition Agreement in the event that it receives a proposal from a third party that has a value to the Company’s shareholders in excess of US$8 million, in which case the Company is to pay Chemcraft a fee of US$250,000. Chemcraft has a right to match a better offer within a limited time of their being informed of the offer. In certain circumstances, Chemcraft is to pay the Company a fee of US$200,000 if Chemcraft terminates the Disposition Agreement.

Item 6.     Exhibits and Reports on Form 8-K

a)   List of Exhibits

[ 1 ]

Incorporated by reference to the exhibit of the same number filed with the Form 10-K for the year ended March 31, 2003.

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b)

Reports on Form 8-K:

1)

On July 22, 2003 a report on Form 8-K was filed with the Securities and Exchange Commission announcing the Company had received a letter of intent from an arms length third party relating to the purchase of all of the Company’s outstanding shares.

2)

On August 4, 2003 a report on Form 8K was filed with the Securities and Exchange Commission announcing the earnings for the quarter ending June 30, 2003.

3)

On August 7, 2003 a report on Form 8-K was filed with the Securities and Exchange Commission announcing the Company has entered into a letter of intent with Chemcraft Holdings Inc., a North Carolina corporation, pursuant to which Chemcraft would acquire 100% of the issued and outstanding stock of Polymer Solutions.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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