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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

OR

Commission File Number 0-18583

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

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

(604) 683-3473
(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 the number of shares outstanding of each of the issuer’s classes of common stock, as of June 30, 2002.

POLYMER SOLUTIONS, INC.
Quarterly Report on Form 10-Q
For the Three Months Ended June 30, 2002

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 June 30, 2002 are not necessarily indicative of results expected for an entire year.

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, 2002, as filed with the Securities and Exchange Commission.
2.		Inventories
		Inventories consist of the following:

3.		Earnings Per Share (“EPS”)
		The Company’s basic net income per share is computed by dividing net 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. At June 30, 2002, all warrants and options were considered anti-dilutive; however, there were warrants and options for 2,406,397 shares that could potentially dilute basic EPS in the future.
4.		Commitments and Contingencies
		The Company is subject to environmental related 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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Polymer Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

5.		Common Stock
		During April 2002, the Company repurchased and returned to treasury 160,000 shares of its common stock for $43,229.
		Subsequent to June 30, 2002, the Company repurchased 59,000 shares of its common stock at market price during the month of July 2002, for $15,606.
6.		Recently Issued Accounting Standards
		In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. They also issued SFAS No. 143, Accounting for Obligations Associated with the Retirement of Long-Lived Assets, and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, in August and October 2001, respectively.
		SFAS No. 141 requires all business combinations initiated after June 30, 2001 be accounted for under the purchase method. SFAS No. 141 supersedes Accounting Principles Board (APB) Opinion No. 16, Business Combinations, and SFAS No. 38, Accounting for Pre-acquisition Contingencies of Purchased Enterprises.
		SFAS No. 142 addresses the financial accounting and reporting for acquired goodwill and other intangible assets. Under the new rules, amortization of goodwill and other intangible assets with indefinite lives is no longer required but intangible assets will be subject to periodic testing for impairment. SFAS No. 142 supersedes APB Opinion No. 17, Intangible Assets. The Company adopted the provisions of SFAS No. 142 effective April 1, 2002, which will have a positive impact on its consolidated results of operations and financial position, as the Company stopped recording amortization expense in connection with the goodwill related to the USC acquisition.
		SFAS No. 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. It also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. SFAS No. 143 is effective in fiscal years beginning after June 15, 2002, with early adoption permitted. The Company expects that the provisions of SFAS No. 143 will not have a material impact on its consolidated results of operations, financial position and cash flows upon adoption. The Company plans to adopt SFAS No. 143 effective April 1, 2003.
		SFAS No. 144 establishes a single accounting model for the impairment or disposal of long-lived assets, including discontinued operations. SFAS No. 144 superseded SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and APB Opinion No. 30, Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. The Company adopted the provisions of SFAS No. 144

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Polymer Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

		effective April 1, 2002, which did not have a material impact on its consolidated results of operations, financial position and cash flows.
7.		Subsequent Event
		Subsequent to June 30, 2002, the Company initiated a program to reissue and reprice substantially all of the outstanding stock options and warrants granted to employees, officers, consultants and directors. On July 22, 2002, the Company proposed to each stock option holder a certain lesser number of options at a price of U.S.$0.26 (Cdn$0.40). On July 29, 2002, the TSX Venture Exchange approved such amendments, noting that options granted to insiders are subject to disinterested shareholder approval. At the Annual General Meeting to be held August 15, 2002, shareholders are being asked to authorize the directors to re-negotiate the existing stock options granted to insiders. If shareholder approval is granted, it is anticipated that options and warrants to purchase 2,133,603 shares, with an exercise price between $.78 and $.53 per share, will be amended to options to purchase 818,111 shares at an exercise price of $0.26 (Cdn$0.40) per share.

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ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                   AND RESULTS OF OPERATIONS

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 1% to $3,722,117 for the three months ended June 30, 2002, compared to the same prior year period.

Gross profit for the first quarter decreased 4% to $1,104,231 from $1,148,989 for the comparable period last year due to an increase in raw material costs and wages.

Marketing and sales expense for the three months ended June 30, 2002 totaled $283,982, an increase of 4% from $272,172 in the comparable prior year period due to an increase in travel and customer samples.

General and administrative expenses for the first quarter were $413,219 versus $396,965 for the same prior year period, an increase of 4% due to an increase in wages.

Research and development expenses were $142,051 during the first quarter, versus $151,836 for the same prior year period, reflecting a 6% decrease due to a decrease in labor costs.

Interest expense totaled $7,930 for the three months ended June 30, 2002 compared to $27,846 in the same prior year period reflecting a 72% decrease due to the pay off of the operating line of credit.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2002, the Company had $1,017,803 in cash compared to $1,036,709 at the end of fiscal 2001. Cash flow provided by operating activities totaled $113,869 for the first three months of fiscal year 2002, versus cash provided by operations of $331,501 in the comparable prior year period. This is due to a decrease in net income, as well as the timing of payments to vendors. Capital additions were $43,503 in the three months ended June 30, 2002, compared to $6,107 for the same period a year ago. Cash payments for repurchase of stock were $43,229 during the first quarter versus $24,387 in the comparable prior year period.

The Company has a positive working capital of $3,213,666 at June 30, 2002, versus $3,035,131 at March 31, 2002. The current ratio at June 30, 2002 was 3.2:1 compared with 2.9:1 for the fiscal 2002-year end ratio.

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RECENTLY ISSUED ACCOUNTING STANDARDS

In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. They also issued SFAS No. 143, Accounting for Obligations Associated with the Retirement of Long-Lived Assets, and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, in August and October 2001, respectively.

SFAS No. 141 requires all business combinations initiated after June 30, 2001 be accounted for under the purchase method. SFAS No. 141 supersedes Accounting Principles Board (APB) Opinion No. 16, Business Combinations, and SFAS No. 38, Accounting for Pre-acquisition Contingencies of Purchased Enterprises.

SFAS No. 142 addresses the financial accounting and reporting for acquired goodwill and other intangible assets. Under the new rules, amortization of goodwill and other intangible assets with indefinite lives is no longer required but intangible assets will be subject to periodic testing for impairment. SFAS No. 142 supersedes APB Opinion No. 17, Intangible Assets. The Company adopted the provisions of SFAS No. 142 effective April 1, 2002, which will have a positive impact on its consolidated results of operations and financial position, as the Company stopped recording amortization expense in connection with the goodwill related to the USC acquisition.

SFAS No. 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. It also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. SFAS No. 143 is effective in fiscal years beginning after June 15, 2002, with early adoption permitted. The Company expects that the provisions of SFAS No. 143 will not have a material impact on its consolidated results of operations, financial position and cash flows upon adoption. The Company plans to adopt SFAS No. 143 effective April 1, 2003.

SFAS No. 144 establishes a single accounting model for the impairment or disposal of long-lived assets, including discontinued operations. SFAS No. 144 superseded SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and APB Opinion No. 30, Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. The Company adopted the provisions of SFAS No. 144 effective April 1, 2002, which did not have a material impact on its consolidated results of operations, financial position and cash flows.

OUTLOOK

In fiscal year 2003, the Company is pursuing additional internal sales growth, and will continue to aggressively seek opportunities to create a meaningful increase in shareholder value for our investors through future acquisitions, joint ventures, and other strategic alliances that will utilize capacity of our state of the art manufacturing plant by adding new customers and improved products.

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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, 2002.

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 dependent solely on the operations of our wholly owned subsidiary, AMT USA, and its success in a highly competitive business, which has a number of inherent risks. These may be summarized as follows:

–     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 who 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. There can be no assurance that we will continue to be able to successfully compete against our competitors or that the competitive pressures faced by us will not affect our financial performance.

–     Our business places heavy reliance on 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 enables us to provide products that meet customer and regulatory expectations and therefore we continually offer our customers several additional advantages over our competitors to attain their confidences and sustain our sales. Even though we strictly maintain policies and procedures for strict internal confidentiality, patent protection and binding non-disclosure agreements it is not certain that our intellectual assets will be protected and not made available to our competitors.

–     We are required to comply with the Federal Environmental Protection Agency (“EPA”) and, in particular, the 1990 Clean Air Act and the Toxic Substance Control Act and the State of California’s South Coast Air Quality Management District (“SCAQMD”). Government and environmental regulations are driving research and development efforts towards reducing the amount of pollution generated during their manufacturing process. There can be no assurance that existing regulations and licensing will not be amended in a way that negatively impacts our business. There can be no assurance that we will be able to comply with all regulations, which

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may be in force from time to time and expenditures for necessary corrective actions would be economical. In either event, a material adverse effect on the results of our operations could be expected.

–     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.

–     We intend to commence an aggressive sales growth strategy to markets in other states, which may not prove profitable due to 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.

–     Should we undertake strategic acquisitions requiring funds in excess of our internally generated cash flow, we might be required to incur additional debt or seek additional financing through private placements. In either case, we may not be able to obtain such funds in sufficient quantities on terms we consider acceptable and there is no assurance that we will operate profitably in the future.

–     We are dependent on a relatively small number of key employees, the loss of any would have a significant adverse effect on the Company. We do not carry key-man insurance on any of our employees.

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.

NOTICE OF INTENTION TO MAKE A NORMAL COURSE ISSUER BID

On April 23, 2001, the Company filed a Notice of Intention to Make a Normal Course Issuer Bid (“Notice”) to purchase up to 200,000 shares of the Company’s common stock, which expired on November 1, 2001. During the period May 2, 2001 through June 12, 2001, the Company purchased 73,800 shares for a cash consideration of $24,387 and subsequently returned the stock to Treasury on June 12, 2001.

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On December 10, 2001, amended June 6, 2002, the Company filed a Notice to purchase an aggregate of 476,143 shares of the Company’s common stock through the facilities of the TSX Venture Exchange, during the period of December 17, 2001 and December 17, 2002. Pursuant to the Notice, the Company purchased and returned to Treasury 39,500 shares for a cash consideration of $10,766, during the fourth quarter of fiscal 2002. During the quarter ended June 30, 2002, the Company purchased and returned to Treasury 160,000 shares for $43,229 and has subsequently purchased 59,000 shares for $15,606, during the month of July 2002.

A copy of the Notice will be provided upon written request to the Secretary of the Company.

PART II — OTHER INFORMATION

SIGNATURES

Pursuant to 18 U.S.C. § 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, I, E. Laughlin Flanagan, President and CEO, certify that:

1.     I have read this quarterly report on Form 10-Q of Polymer Solutions, Inc.;

2.     To my knowledge, this report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

3.     To my knowledge, the information in this report fairly presents, in all material respects, the financial condition and results of operations as of June 30, 2002.

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Pursuant to 18 U.S.C. § 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, I, Charlene Bellante, Corporate Controller, certify that:

1.     I have read this quarterly report on Form 10-Q of Polymer Solutions, Inc.;

2.     To my knowledge, this report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

3.     To my knowledge, the information in this report fairly presents, in all material respects, the financial condition and results of operations as of June 30, 2002.

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