<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                                                  CONFORMED COPY

                                    FORM 10-Q

[X]     Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998

                                       OR

[ ]     Transition Report Pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934 For the transition period from to .

                         COMMISSION FILE NUMBER 0-18583



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

            Nevada, U.S.A.                            88-0360526
   (State or other jurisdiction of       (I.R.S. Employer Identification Number)
   incorporation or organization)



                                1569 Dempsey Road
                        North Vancouver, British Columbia
                                 Canada V7K 1S8
                    (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 [ ] No [X]


Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of Sept. 30, 1998.


<TABLE>
<CAPTION>
          TITLE OF CLASS                                    NO. OF SHARES
          --------------                                    -------------
<S>                                                         <C>       
 Common Shares, par value $0.001                             6,410,833*
</TABLE>


*       including 633,883 shares to be issued subject to regulatory approval.


<PAGE>   2
                             POLYMER SOLUTIONS, INC.
                          Quarterly Report on Form 10-Q
              For the Three and Six Months Ended September 30, 1998

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
Item                                                                                               Page
Number                                                                                            Number
------                                                                                            ------
<S>                                                                                               <C>
                         PART I - FINANCIAL INFORMATION

1.      Financial Statements

               Consolidated Statements of Operations
                      for the periods ended September 30, 1998 and 1997 ........................     3
                                                                                                   
               Consolidated Balance Sheets                                                         
                      at September 30, 1998 and March 31, 1998..................................     4
                                                                                                   
               Consolidated Statements of Cash Flows                                               
                      for the periods ended September 30, 1998 and 1997 ........................     5
                                                                                                   
               Consolidated Statements of Shareholders' Equity (Deficiency)                        
                      for the periods ended September 30, 1998 and 1997 ........................     6
                                                                                                   
               Notes to Consolidated Financial Statements.......................................     7
                                                                                                   
2.      Management's Discussion and Analysis of Financial Condition                                
               and Results of Operations .......................................................    14
                                                                                                   
                                                                                                   
                           PART II - OTHER INFORMATION                                             
4.      Submission of matters to a vote of securities holders ..................................    16
                                                                                                   
5.      Other Information ......................................................................    16
                                                                                                   
6.      Exhibits and Reports on Form 8-K .......................................................    16
                                                                                                   
                                                                                                   
SIGNATURES .....................................................................................    16
</TABLE>


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, 1998 are not necessarily indicative of results
expected for an entire year.

Certain statements in this Quarterly Report on Form 10-Q are not based on
historical facts, but are instead based upon a number of assumptions concerning
future conditions that may ultimately prove to be inaccurate. Actual events and
results may materially differ from anticipated results described in such
statements. The Company's ability to achieve such results is subject to certain
risks and uncertainties, including but not limited to, adverse business
conditions in the industries served by the Company and the general economy,
competition, new laws and regulations impacting the products that the Company
provides, and other risk factors affecting the Company's business which are
beyond the Company's control.


                                                                               2


<PAGE>   3
POLYMER SOLUTIONS, INC.

                CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED


<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED                          SIX MONTHS ENDED
                                                               SEPTEMBER 30                               SEPTEMBER 30
                                                   -----------------------------------         -----------------------------------
                                                       1998                  1997                  1998                   1997
                                                   -------------         -------------         -------------         -------------
<S>                                                <C>                   <C>                   <C>                   <C>          
Sales revenue                                      $   1,957,047         $   1,921,258         $   3,692,308         $   3,564,653

Costs of goods sold (Note 14)                         (1,389,359)           (1,553,534)           (2,770,789)           (2,898,110)
                                                   -------------         -------------         -------------         -------------
                                                         567,688               367,724               921,519               666,543
                                                   -------------         -------------         -------------         -------------

Corporate and administrative expenses:
   Marketing and sales                                   255,996               237,189               445,755               462,460
   General and administrative                            168,001               167,536               413,048               355,089
   Research and development                              150,571                76,768               239,453               154,700
                                                   -------------         -------------         -------------         -------------
                                                         574,568               481,493             1,098,256               972,249
                                                   -------------         -------------         -------------         -------------

Loss from operations                                      (6,880)             (113,769)             (176,737)             (305,706)

Interest expense                                         (58,917)              (43,156)             (125,760)              (84,147)
                                                   -------------         -------------         -------------         -------------
Loss before provision for income taxes                   (65,797)             (156,925)             (302,497)             (389,853)
Provision for income taxes                                    --                    --                    --                    --
                                                   -------------         -------------         -------------         -------------
Net loss                                           $     (65,797)        $    (156,925)        $    (302,497)        $    (389,853)
                                                   =============         =============         =============         =============

Basic and diluted net loss per share               $        (.01)        $        (.04)        $        (.06)        $        (.10)
                                                   =============         =============         =============         =============

Weighted average basic and diluted number
 of shares outstanding                                 5,476,428             3,772,500             5,411,048             3,768,219
                                                   =============         =============         =============         =============
</TABLE>


                                                                               3


<PAGE>   4
POLYMER SOLUTIONS, INC.

                     CONSOLIDATED BALANCE SHEETS - UNAUDITED


<TABLE>
<CAPTION>
                                                                              SEPT. 30               MARCH 31
                                                                                1998                   1998
                                                                            -------------          -------------
<S>                                                                         <C>                    <C>          
                          ASSETS
Current assets:
  Cash                                                                      $       2,048          $       1,177
  Accounts receivable, net                                                      1,037,611                976,201
  Inventories                                                                   1,068,366              1,267,751
  Prepaid expenses                                                                122,433                 33,841
                                                                            -------------          -------------
                                                                                2,230,458              2,278,970

Fixed assets, net                                                                 986,401                982,774
Other assets                                                                        8,855                  9,386
                                                                            -------------          -------------
                                                                            $   3,225,714          $   3,271,130
                                                                            =============          =============

         LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
  Accounts payable                                                          $   1,081,298          $   1,356,162
  Salaries payable                                                                252,202                262,035
  Professional fees payable                                                        47,448                 70,681
  Operating line of credit                                                        918,901                879,967
  Current portion of capital lease obligations                                     97,412                 67,738
  Current portion of mortgage payable                                                  --                 21,062
                                                                                2,397,261              2,657,645
Long-term liabilities:
  Capital lease obligations                                                       534,610                402,456
  Due to related parties                                                           42,888                 88,895
  Mortgage payable                                                                     --                 31,188
  Convertible note payable                                                             --                 72,000
                                                                            -------------          -------------
                                                                                2,974,759              3,252,184
                                                                            -------------          -------------
  Minority interest                                                               225,037                225,783
                                                                            -------------          -------------

Commitments and contingencies (Note 9)

Shareholders' equity (deficiency):
Preferred stock, $0.001 par value;
  Authorized - 4,000,000 shares; issued and outstanding - nil
Common stock, $0.001 par value;
  Authorized - 20,000,000 shares; issued and outstanding,
  9/30/98 - 6,410,833 shares including 633,833 shares to be issued                  6,411                  5,345
  subject to regulatory approval, and 3/31/98 - 5,344,617 shares
Additional paid-in capital                                                     10,309,359              9,775,173

Accumulated deficit                                                           (10,289,852)            (9,987,355)
                                                                            -------------          -------------
                                                                                   25,918               (206,837)
                                                                            -------------          -------------
                                                                            $   3,225,714          $   3,271,130
                                                                            =============          =============
</TABLE>


                                                                               4


<PAGE>   5
POLYMER SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED


<TABLE>
<CAPTION>
                                                                 SIX MONTHS ENDED SEPTEMBER 30
                                                                    1998                1997
                                                              ----------------      -------------
<S>                                                           <C>                   <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
  Net loss (Note 14)                                            $    (302,497)      $    (389,853)
  Adjustments to reconcile net loss to net cash used
   in operating activities
   Depreciation and amortization                                      116,334              45,560
   Loss (gain) on disposal of assets                                  (74,094)                299
   Accounts receivable                                                (61,410)           (336,291)
   Inventories (Note 14)                                              199,385            (129,220)
   Prepaid expenses and other assets                                  (88,592)            (32,814)
   Accounts payable                                                  (307,930)            569,807
                                                                -------------       -------------

Net cash used in operating activities                                (518,804)           (272,512)

CASH FLOWS USED IN INVESTING ACTIVITIES:
  Capital additions                                                  (392,352)            (77,406)
  Proceeds from disposal of assets                                    347,017
Net cash used in investing activities                                 (45,335)            (77,406)
                                                                -------------       -------------

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
  Cost of financing                                                   (49,156)                 --
  Proceeds from private placement                                     293,876                  --
  Proceeds from conversion of debt to equity                          289,785
  Proceeds from (payments on) convertible note                        (72,000)             72,000
  Proceeds from (payments on) due to related
   parties, net                                                       (46,007)            111,759
  Proceeds from (payments on) mortgage payable                        (52,250)             (9,412)
  Proceeds from convertible debt - interest                                --                  --
  Borrowings on operating line of credit, net                          38,934             191,047
  (Payment) of capital lease obligations                              161,828                  --
                                                                -------------       -------------
Net cash provided by financing activities                             565,010             365,394
                                                                -------------       -------------

Increase (decrease) in cash                                               871              15,476
Cash, beginning of period                                               1,177               2,538
                                                                -------------       -------------
Cash, end of period                                             $       2,048       $      18,014
                                                                =============       =============
</TABLE>


                                                                               5


<PAGE>   6
POLYMER SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)

                                    UNAUDITED


<TABLE>
<CAPTION>
                                                                  SIX MONTHS ENDED SEPTEMBER 30,
                                              --------------------------------------------------------------------
                                                            1998                                 1997
                                              -------------------------------        ----------------------------- 
                                                 COMMON                                COMMON
                                                 SHARES            AMOUNT              SHARES            AMOUNT
                                              ------------      -------------         ---------      ------------- 
<S>                                           <C>               <C>                   <C>            <C>
COMMON STOCK:
  Balance, beginning of period                   5,344,617      $       5,345         3,762,505      $       3,763

  Shares issued, pursuant to -
   Private placement and other                     432,333                432            10,139                  9
   Debt to equity conversion                       633,883                634                --
     (Shares to be issued subject
       to regulatory approval)

  Balance, end of period                         6,410,833              6,411         3,772,644              3,772
                                              ------------      -------------         ---------      ------------- 

ADDITIONAL PAID -IN CAPITAL:
  Balance, beginning of period                          --          9,775,173                --          8,674,356
  Shares issued, pursuant to -
   Private placement, conversion of
     preferred shares and other                         --            294,190                --             22,664
   Debt to equity conversion                            --            289,151                --                 --
   Cost of financing                                    --            (49,155)               --                 --

  Balance, end of period                                --         10,309,359                --          8,697,020
                                              ------------      -------------         ---------      ------------- 

DEFICIT:
  Balance, beginning of period                          --         (9,987,355)               --         (9,117,265)
  Net loss (Note 14)                                    --           (302,497)               --           (389,853)
                                              ------------      -------------         ---------      ------------- 

  Balance, end of period                                --        (10,289,852)               --         (9,507,118)
                                              ------------       -------------         ---------      ------------- 

TOTAL SHAREHOLDERS' EQUITY
 (Deficiency)                                    6,410,833       $      25,918         3,772,644      $    (806,326)
                                              ============       =============         =========      ============= 
</TABLE>


                                                                               6


<PAGE>   7
POLYMER SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998
--------------------------------------------------------------------------------

1.   NATURE OF OPERATIONS

     Polymer Solutions, Inc. ("PSI" or "Company") is a Nevada corporation
     incorporated in July 1996. Through its wholly-owned subsidiary, Alternative
     Materials Technology, Inc. ("AMT USA"), PSI is engaged in the development
     and sale of water-based coatings, sealants and adhesives to industrial
     users in California and neighboring states, including manufacturers of
     furniture, cabinets, doors and moldings. One customer accounted for 10% of
     net revenue in the prior fiscal year.

     These consolidated financial statements have been prepared on the basis of
     accounting principles applicable to a going concern which assumes the
     realization of assets and discharge of liabilities in the normal course of
     business. The Company's significant losses from operations and capital
     deficiency raise substantial doubt about its ability to continue as a going
     concern and these consolidated financial statements do not include any
     adjustments that may result from the outcome of this uncertainty.

     As of September 30, 1998, the Company's financial statements reflect both a
     positive shareholders' equity and a reduction in losses from operations
     compared to prior periods, as restated per Note 14. In addition, subsequent
     to September 30, 1998, the Company's operating subsidiary obtained a new
     $1,800,000 asset-based line of credit, which is expected to save
     approximately 10 percentage points per annum in interest and fees, and
     which is expected to finance the continued growth of the Company. See Note
     5.

2.   SIGNIFICANT ACCOUNTING POLICIES

     GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

     The consolidated financial statements have been prepared in accordance with
     accounting principles generally accepted in the United States. Differences
     with respect to accounting principles generally accepted in Canada are
     disclosed in Note 15.

     BASIS OF CONSOLIDATION

     The Company's consolidated financial statements include its wholly-owned
     active subsidiary, AMT USA; wholly-owned inactive subsidiary, AMT
     Environmental Products Inc. ("AMT"); and 99.9%-owned inactive subsidiary,
     PSI Acquisitions Corp. ("PAC"). Intercompany transactions and accounts are
     eliminated in consolidation.

     FINANCIAL STATEMENT PRESENTATION

     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions which affect the reported amounts of assets and liabilities and
     disclosure of contingent assets and liabilities at the date of the
     financial statements and revenues and expenses during the period reported.
     Actual results could differ from those estimates.

     CONCENTRATION OF CREDIT RISK

     Financial instruments that potentially subject the Company to significant
     concentrations of credit risk consist primarily of trade accounts
     receivable from wood coatings customers. Concentrations of credit risk with
     respect to trade accounts receivable are limited due to the large number of
     customers. The Company, and its lender of the operating line of credit,
     perform credit evaluations of its customers' financial condition and
     generally do not require collateral on accounts receivable. The Company
     maintains an allowance for doubtful accounts on its receivables based on
     expected collectibility. Allowance for doubtful accounts was $34,628 and
     $41,530 at September 30, 1998 and March 31, 1998, respectively.

     INVENTORIES

     Inventories are valued at the lower of cost, determined on the first-in
     first-out basis, and net realizable value. The Company maintains a reserve
     for slow-moving or obsolete inventory as well as the related disposal
     costs.


                                                                               7


<PAGE>   8
     FIXED ASSETS

     Equipment is recorded at cost and depreciated on a straight-line basis over
     its estimated life, which varies between five and seven years. Building and
     related improvements are recorded at cost and amortized on a straight-line
     basis over an estimated life of 39 years.

     OTHER ASSETS

     Other assets consist of patent and trademark costs, representing the costs
     incurred for the acquisition. Capitalized costs are amortized on a
     straight-line basis over seven years commencing with production of related
     products. When it is determined that a particular technology will no longer
     be used, or a patent application is abandoned, related unamortized costs
     are written off.

     LONG-LIVED ASSETS

     Long-lived assets are recorded at the lower of amortized cost or fair
     value. As part of an ongoing review of the valuation of long-lived assets,
     management assesses the carrying value of such assets if facts and
     circumstances suggest they may be impaired. If this review indicates that
     the carrying value of these assets may not be recoverable, as determined by
     a nondiscounted cash flow analysis over the remaining useful life, the
     carrying value would be reduced to its estimated fair value. There have
     been no material impairments recognized in these financial statements.

     STOCK OPTIONS

     The Company accounts for its stock option plan in accordance with the
     intrinsic value method, under which no compensation expense is recognized
     in the financial statements except where the fair market value of the stock
     exceeds the exercise price of the options granted on the date of the grant.

     ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS

     The Financial Accounting Standards Board issued Statement of Financial
     Accounting Standard No. 128, "Earnings per Share", which changes the basis
     upon which earnings (or loss) per share is calculated. As required by this
     statement, the Company adopted its provisions for the quarter ended
     September 30, 1998, and retroactively for each quarter presented in the
     financial statements.

     Basic net loss per share is computed on the weighted average number of
     common shares outstanding during each period. Diluted net loss per share is
     the same as basic net loss per share because the diluted weighted average
     shares outstanding do not include stock options, warrants and convertible
     long-term debt because they are anti-dilutive.

     RESEARCH AND DEVELOPMENT COSTS

     Research and development costs are expensed as they are incurred.

     REVENUE RECOGNITION

     Revenue from the sale of products is recognized upon shipment.

     FOREIGN CURRENCY TRANSLATION

     The Company's operations are primarily conducted in the United States and
     the United States dollar is the Company's functional currency. The Company
     and its subsidiaries are considered to be integrated operations and the
     accounts are translated as follows:

     Monetary assets and liabilities at the rates of exchange in effect at the
     balance sheet date; non-monetary assets at historical rates; revenue and
     expense items (except depreciation and amortization) at the average rates
     for the period; depreciation and amortization at the same rates as for the
     assets to which they relate. The net effect of the foreign currency
     translation is included in current operations.

     INCOME TAXES

     The Company uses the asset and liability method of accounting for income
     taxes. Deferred tax assets and liabilities are recognized for the future
     tax consequences attributable to temporary differences between the
     financial statement carrying amounts of existing assets and liabilities and
     their respective tax bases. Deferred tax assets and liabilities are
     measured using enacted tax rates expected to apply to taxable income in the
     years in which those temporary differences are expected to be recovered or
     settled.


                                                                               8


<PAGE>   9
     FAIR VALUE OF FINANCIAL INSTRUMENTS

     The fair value of the Company's financial instruments for cash, accounts
     receivable, accounts payable, salaries payable and professional fees
     payable approximate carrying value due to their short-term nature. The fair
     value of the operating line of credit approximates carrying value due to
     the floating rate interest terms. The fair value of the mortgage payable
     approximates carrying value as its interest rate approximates market for
     borrowings with similar terms. The fair value of Due to related parties
     cannot be estimated because of the nature of the relationships involved.

     RECLASSIFICATIONS

     Certain prior year balances have been reclassified to conform to the
     current presentation.

3.   INVENTORIES


<TABLE>
<CAPTION>
                                                      SEPT. 30,             MARCH 31,
                                                        1998                  1998
                                                    -------------         -------------
<S>                                                 <C>                   <C>          
Raw materials and supplies                          $     657,938         $     830,174
Finished goods                                            671,971               684,502
Less allowance for a slow-moving inventory               (261,543)             (246,925)
                                                    -------------         -------------
                                                    $   1,068,366         $   1,267,751
</TABLE>


4.   FIXED ASSETS

<TABLE>
<CAPTION>
                                                                   SEPTEMBER 30, 1998
                                                 -----------------------------------------------------
                                                                     ACCUMULATED
                                                     COST            DEPRECIATION            NET
                                                 -------------       -------------       -------------
<S>                                              <C>                 <C>                 <C>          
Land                                             $          --       $          --       $          --
Laboratory equipment                                   142,573              69,357              73,216
Office equipment                                       180,747              83,786              96,961
Production Equipment - owned and leased              1,005,141             330,187             674,954
Building                                                    --                  --                  --
Leasehold improvements                                 147,358               6,088             141,270
                                                 -------------       -------------       -------------
                                                 $   1,475,819       $     489,418       $     986,401
                                                 =============       =============       =============
</TABLE>


<TABLE>
<CAPTION>
                                                                   MARCH 31, 1998
                                                 -----------------------------------------------------
                                                                     ACCUMULATED
                                                     COST            DEPRECIATION            NET
                                                 -------------       -------------       -------------
<S>                                              <C>                 <C>                 <C>          
Land                                             $     110,000       $          --       $     110,000
Laboratory equipment                                    84,830              63,298              21,532
Office equipment                                       113,567              70,766              42,801
Production equipment - owned and leased                842,401             241,526             600,875
Building and improvements                              177,935              13,426             164,509
Leasehold improvements                                  43,419                 362              43,057
                                                 -------------       -------------       -------------
                                                 $   1,372,152       $     389,378       $     982,774
                                                 =============       =============       =============
</TABLE>

On July 22, 1998, the Company sold the land and building of its previous
operations facility.


5.   OPERATING LINE OF CREDIT

     At September 30, 1998, the Company had a short-term line of credit for up
     to $750,000, secured by the Company's assets. Funds available to be
     advanced were limited to 80% of eligible accounts receivable. Also, on
     September 30, 1998, the Company had an inventory term loan of $240,000,
     which required principal repayments of $30,000 per month. Interest was
     payable on funds advanced at the rate of prime rate as 


                                                                               9


<PAGE>   10
     published by the Comerica Bank - California plus 10% per annum. This line
     of credit was to expire on May 1, 1999.


     Subsequent to September 30, 1998, the Company, on October 30, 1998, through
     its operating subsidiary, replaced the above-mentioned loan arrangements
     with a new $1,800,000 asset-based revolving line of credit. Funds available
     to be advanced are limited to 85% of eligible accounts receivable up to the
     maximum loan amount, and to 50% of eligible inventories to a maximum of
     $600,000. Interest is payable on funds advanced at prime rate as published
     by Citibank, N.A. plus 2.75% per annum.

6.   LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

     Long-term debt at September 30, 1998 and March 31, 1998 consisted of the
     following:


<TABLE>
<CAPTION>
                                                                                  9/30/98           3/31/98
                                                                               -------------     -------------
<S>                                                                            <C>               <C>          
Capital lease obligations bearing interest ranging from 12 1/2%                $     632,022     $     470,194
 to 18 2/3%, payable in monthly principal and interest payments
 and secured by the related equipment

Mortgage payable bearing interest of 9%, payable in monthly
 principal and interest payments of $2,075 and secured by the
 related property and equipment                                                $          --            52,250

Convertible note bearing simple interest of 10%, payable in a balloon
 payment of principal and interest in June, 1999; note is
 convertible at US$.72 per common share                                                   --            72,000
                                                                               -------------     -------------
                                                                                     632,022           594,444

Less current portion                                                                  97,412            88,800
                                                                               -------------     -------------

                                                                               $     534,610     $     505,644
                                                                               =============     =============
</TABLE>


7.   RELATED PARTY TRANSACTIONS

     At September 30, 1998, $42,888 was due to related parties of the Company.

8.   INCOME TAXES

     The Company and its subsidiaries have operating loss carry-forwards in
     excess of $5,000,000 expiring at various dates through 2013, as well as
     federal and state tax credits of $188,000 and $87,000, which are
     indefinite. These operating loss carry-forwards and tax credits are
     available for offset against future taxable incomes arising from Canadian
     and United States operations. There are no other material temporary
     differences. Considering the Company's cumulative losses, the Company has
     provided a valuation allowance of 100% against all available loss
     carry-forwards and tax credits.

9.   COMMITMENTS AND CONTINGENCIES

     OPERATING LEASES

     The Company leases certain facilities under arrangements which contain
     renewal options and provide for periodic cost of living adjustments. The
     Company's operating lease for its primary operating facility includes an
     option to purchase the facility which can be exercised prior to February 1,
     2000.

     LEGAL MATTERS

     The Company is party to legal proceedings and potential claims arising in
     the ordinary course of business. In the opinion of management, the Company
     has adequate legal defense or insurance coverage with respect to these
     matters so that the ultimate resolution of these matters will not have a
     material adverse effect on its financial position, results of operations,
     or cash flows.


                                                                              10


<PAGE>   11
10.  PREFERRED STOCK

     AUTHORIZED

     The Company is authorized to issue up to 4,000,000 shares of preferred
     stock, which is divided into four series of 1,000,000 shares each. With
     respect to each series, the Company's Board of Directors determines all
     rights and preferences including rights related to dividends, conversion,
     and voting.

11.  COMMON STOCK

     REORGANIZATION

     By a reorganization completed February 26, 1997, the Company acquired all
     11,752,907 common shares of the issued share capital of AMT in
     consideration for the issue of 3,762,505 common shares of the Company and
     155,130 preferred shares of PSI's 99.9% owned subsidiary, PAC. The purpose
     of the reorganization was to consolidate the issued share capital on a 1:3
     basis and to redomicile the publicly-listed parent company from British
     Columbia, Canada to the United States. PSI and PAC were organized by AMT
     for purposes of the reorganization and had no businesses or operations of
     their own prior thereto. The reorganization was accounted for in a manner
     similar to a pooling of interests and certain comparative amounts relating
     to share capital, loss per share, outstanding stock options and outstanding
     warrants were restated on a post-reorganization basis.

     MINORITY INTEREST

     In completing the Reorganization, the Company consolidated its shares on
     the basis of one common share of PSI, in exchange for three previously
     existing common shares of AMT. Canadian shareholders holding 465,388 common
     shares of AMT elected to receive 155,130 non-transferable preferred shares
     of PAC in order to defer the tax consequences of receiving a U.S. security.
     The preferred shares of PAC are convertible or redeemable into common
     shares of PSI on a 1:1 basis at any time and have certain rights and
     benefits of PSI common shares, particularly relating to the declaration of
     dividends and proceeds from liquidation, dissolution or wind-up of the
     Company. PAC preferred shares are non-voting and the Company may redeem the
     PAC preferred shares for common shares of PSI at any time after September
     1, 2001. To date a total of 54,764 preferred shares have been exchanged or
     redeemed for 54,764 shares of the Company's common stock.

     FOUNDERS' SHARES

     An aggregate of 197,774 shares were held in escrow by the Company's
     transfer agent at March 31, 1998. These were issued at a price of US$0.13
     (Cdn$0.18) per share in March 1987, pursuant to AMT's incorporation and
     initial public offering. These shares will be released on the basis of one
     share for each US$10.27 (Cdn$14.22) of accumulated "cash flow" of the
     Company, as defined in the Escrow Agreement. Any of the 197,774 shares that
     are not released from escrow on or before December 15, 1997 may be
     canceled. The Company is currently awaiting a response from the Vancouver
     Stock Exchange to review and further extend the expiration date.

     SHARES FOR DEBT

     At September 30, 1998, the number of common shares of common stock
     outstanding and the equity portion of the balance sheet reflect the
     conversion of $289,785 of debt to 633,883 shares, which are to be issued
     subject to regulatory approval.

12.  STOCK OPTION PLANS AND WARRANTS

     Management of the Company, in the Proxy relating to the August 6, 1998
     Annual General Meeting of the Company, received shareholder approval to
     adopt a 1998 Economic Value Added Incentive Compensation Plan (EVA Plan).
     This Plan authorizes the grant of options for the purchase of 1,000,000
     Common shares of the Company and reservation of the 1,000,000 Common
     shares.


                                                                              11


<PAGE>   12
13.  FINANCING

     On June 4, 1998, the Company entered into a Letter of Engagement with a
     brokerage firm to market up to 900,000 special warrants. Each special
     warrant entitled the holder to receive one common share and one common
     share purchase warrant. The exercise of two warrants entitled the holder to
     purchase one additional common share for a period of two years following
     the closing of placement. The warrant exercise price was Cdn$1.00 for the
     first twelve months and Cdn$1.25 for the second twelve months.

     During the quarter ended September 30, 1998, the Company issued 400,000
     shares of its common stock related to the aforementioned transaction, along
     with warrants to purchase a further 200,000 common shares. Net proceeds
     totaled $272,108. Additionally, a commission, paid in special warrants,
     consisted of 32,000 common shares and warrants to purchase 16,000 common
     shares, and agents who arranged the placement of the above financing
     warrants received 80,000 additional warrants exercisable into 80,000 common
     shares. The agents' warrants have the same components, terms and conditions
     as the share purchase warrants.

14.  FOURTH QUARTER ADJUSTMENT TO FISCAL YEAR 1998 (UNAUDITED) 

     In the fourth quarter of fiscal 1998, the Company recorded an adjustment of
     approximately $590,000 to increase cost of goods sold to properly state
     obsolete and slow moving inventory, to reflect other inventory costing
     adjustments and to increase the estimated warranty expense. The Company has
     analyzed the timing of the adjustments, and has determined that an
     appropriate restatement of the application of the $590,000 adjustment to
     the four quarters of fiscal year 1998 is as follows:


<TABLE>
<CAPTION>
                                  Adjustment
                                  ----------
            <S>                   <C>     
            First quarter          $152,264
            Second quarter         $214,059
            Third quarter          $121,863
            Fourth quarter         $101,814
                                   --------
            Total                  $590,000
</TABLE>

     For comparison with quarterly data for fiscal year 1999, the cost of goods
     sold and inventories for each of the first three quarters of 1998 will be
     adjusted as depicted above in order to reflect the impact of the $590,000
     adjustment on a quarterly basis.

     15. DIFFERENCES BETWEEN UNITED STATES AND CANADIAN ACCOUNTING PRINCIPLES
     AND PRACTICES 

     The consolidated financial statements have been prepared in accordance with
     accounting principles generally accepted in the United States ("U.S.
     basis") which differ in certain respects from those principles and
     practices that the Company would have followed had its consolidated
     financial statements been prepared in accordance with accounting principles
     and practices generally accepted in Canada ("Canadian basis").


                                                                              12


<PAGE>   13
     Had the Company followed the Canadian basis, the balance sheets contained
     within the consolidated financial statements would have been reported as
     follows:


<TABLE>
<CAPTION>
                                                         SEPTEMBER 30,                                 MARCH 31,
                                                             1998                                         1998
                                             ------------------------------------          ------------------------------------
                                                  U.S.                 CANADIAN                 U.S.                CANADIAN
                                                 BASIS                  BASIS                   BASIS                 BASIS
                                             -------------          -------------          -------------          -------------
<S>                                          <C>                    <C>                    <C>                    <C>          
ASSETS
Current assets                               $   2,230,458          $   2,230,458          $   2,278,970          $   2,278,970
Fixed assets (a)                                   986,401                971,177                982,774                967,550
Other assets                                         8,855                  8,855                  9,386                  9,386
                                             -------------          -------------          -------------          -------------
                                             $   3,225,714          $   3,210,490          $   3,271,130          $   3,255,906
                                             =============          =============          =============          =============

LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities                          $   2,397,261          $   2,397,261          $   2,657,645          $   2,657,645
Long term liabilities                              577,498                577,498                594,539                594,539
Minority interest                                  225,037                225,037                225,783                225,783
Common shares                                        6,411                  6,411                  5,345                  5,345
Additional paid-in capital (a) (c)              10,309,359              9,509,317              9,624,750              8,822,110
Deficit (a) (c)                                (10,289,852)            (9,505,034)            (9,836,932)            (9,049,516)
                                             -------------          -------------          -------------          -------------
                                             $   3,225,714          $   3,210,490          $   3,271,130          $   3,255,906
                                             =============          =============          =============          =============
</TABLE>


     Had the Company followed the Canadian basis, the Statements of Operations
     contained within the consolidated financial statements would have been
     reported as follows:


<TABLE>
<CAPTION>
                                                       SIX MONTHS ENDED SEPTEMBER 30,
                                                    ----------------------------------- 
                                                         1998                 1997
                                                    -------------         ------------- 
<S>                                                 <C>                   <C>           
Net loss under U.S. basis                           $    (302,497)        $    (389,853)
Effect of change in reporting currency (a)                     --                    --
Effect of Arrangement costs (c)                                --                    --
                                                    -------------         ------------- 

Net loss under Canadian basis                       $    (302,497)        $    (389,853)
                                                    =============         ============= 
Basic and diluted net loss per share under
 U.S. basis                                         $        (.06)        $        (.10)
                                                    =============         ============= 
Basic and diluted net loss per share under
 Canadian basis (b)                                 $        (.05)        $        (.10)
                                                    =============         ============= 
</TABLE>



     (a)  For Canadian purposes, the Company adopted the U.S. dollar as the
          functional currency for the consolidated financial statements
          effective January 1, 1995. The comparative amounts reported in
          Canadian dollars for share capital and non-monetary assets and
          liabilities were translated into U.S. dollars at the December 31, 1994
          exchange rate of one U.S. dollar equal to Cdn $1.4018.

     (b)  On a U.S. basis, common shares returnable to the issuer if specified
          conditions are not met are excluded from the determination of weighted
          average number of common shares used for calculation of earnings per
          share if those conditions are not currently being attained. On a
          Canadian basis, the 197,774 common shares currently escrowed for
          release pursuant to cumulative cash flow earned from operations would
          have been included for reporting loss per share.

     (c)  On a U.S. basis, expenses related to a pooling of interests are
          charged to income in the period the expenses are incurred. On a
          Canadian basis, the costs of the Reorganization are treated as a
          capital transaction, charged to paid-in capital.




                                                                              13


<PAGE>   14
POLYMER SOLUTIONS, INC.


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
              For the Three and Six Months ended September 30, 1998

RESULTS FROM OPERATIONS

Sales revenue increased 2% to $1,957,047 and 4% to $3,692,308 for the three and
six month periods ended September 30, 1998, respectively, over sales revenue for
the comparable periods one year ago, reflecting continued growth in demand for
the Company's coatings and other products.

Gross profit increased to 29% from 19% during the second quarter and to 25% from
19% for the first six months from the comparable periods last year. Cost of
goods sold for the year-ago periods has been adjusted as described in Note 14 of
the Notes to Financial Statements in order to reflect the impact of a year-end
$590,000 adjustment on each quarter of the fiscal year ended March 31, 1998.

Marketing and sales expense for the three months ended September 30, 1998
totaled $255,996, an increase of 8% from $237,189 in the comparable period a
year ago, due primarily to a strengthening of the marketing and sales staff in
order to expand the customer base and distribution channels. For the six months
ending September 30, 1998 and 1997, marketing and sales expense totaled $445,755
and $462,460, respectively.

General and administrative expense totaled $168,001 for the quarter ended
September 30, 1998, approximately the same level as $167,536 for the year-ago
period. For the six months ended September, 1998 and 1997, general and
administrative expense totaled $413,048 and $355,089, respectively.

Research and development expenses were $150,571 for the three months ended
September 30, 1998, up 96% from $76,768 in the year-ago comparable period,
reflecting an increase in the allocation of the Company's resources relating to
product development. Research and development expenses for the six months ending
September 30, 1998 and 1997 were $239,453 and $154,700, respectively.

Interest expense totaled $58,917 for the quarter ended September 30, 1998,
compared with $43,156 for the same quarter a year ago. The 37% increase was due
to the increased use of the Company's operating line of credit and the addition
of capital lease obligations. Interest expense for the six months ended
September 30, 1998 and 1997 was $125,760 and $84,147, respectively.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 1998, the Company had $2,048 in Cash compared to $1,177 at the
end of fiscal 1998. Cash flow used in operating activities totaled $518,804 in
the first six months of 1998 versus $272,512 in the comparable period last year.
Additionally, capital additions were $392,352 in the six months ended September
30, 1998 compared to $77,406 for the same period a year ago. These requirements
were financed primarily from a private placement, sale of the Company's former
operating facility, conversion of debt to common equity, lease financing and
borrowings on the Company's line of credit.

The Company has a working capital deficiency of $166,803 at September 30, 1998
versus $378,675 at the end of fiscal 1998. The current ratio at September 30,
1998 was 0.9 versus 0.9 for the fiscal 1998 year-end ratio.

OUTLOOK

During the fourth quarter of fiscal 1998 and the first quarter of fiscal 1999,
the Company's Board of Directors made strategic organizational changes and key
senior management additions to the Company in order to provide an infrastructure
of experienced management professionals dedicated to maximizing shareholder
value. Their tasks include strengthening controls and achieving profitability
with the present Company base, along with growing the Company externally through
joint ventures, acquisitions, product licenses, new product development,
synergistic strategic alliances and any other opportunities that could result in
a meaningful increase in shareholder value.


                                                                              14


<PAGE>   15
Note to Readers

Certain statements identified as "forward-looking statements" in this Quarterly
Report on Form 10-Q are not based on historical facts, but are instead based
upon a number of assumptions concerning future conditions that may ultimately
prove to be inaccurate. Actual events and results may materially differ from
anticipated results described in such statements. The company's ability to
achieve such results is subject to certain risks and uncertainties, including
but not limited to, adverse business conditions in the industries served by the
Company and the general economy, competition, new laws and regulations impacting
the products that the Company provides, and other risk factors affecting the
Company's business beyond the Company's control.


                                                                              15

<PAGE>   16
PART II - OTHER INFORMATION

4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

     The Company held its 1998 Annual General Meeting of Shareholders on August
     6, 1998. The shareholders approved:

     a)   the appointment of Price Waterhouse LLP (now PricewaterhouseCoopers),
          Sacramento, California as auditors for fiscal 1999;

     b)   the election of directors;

     c)   the adoption of the Polymer Solutions, Inc. 1998 Economic Value Added
          Incentive Compensation Plan.

5.   OTHER INFORMATION

     Directors as at September 30, 1998

             Gordon L. Ellis                          Darryl F. Jones
             Stephen H. Silbernagel                   John J. Sutherland
             Gerald A. Habib                          William A. Maligie
             E. Laughlin Flanagan

6.   EXHIBITS AND REPORTS ON FORM 8-K No exhibits.

     The Company filed a Current Report on Form 8-K, dated September 23, 1998,
     which reported an issuance of shares pursuant to a Private Placement of
     Special Warrants.



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.

                                     POLYMER SOLUTIONS, INC.
                                     (Registrant)



Date:   November 12, 1998                /s/ Gordon L. Ellis
                                     -------------------------------
                                     Gordon L. Ellis
                                     Chairman



Date:   November 12, 1998                /s/ Darryl Jones
                                     -------------------------------
                                     Darryl Jones
                                     Director



                                                                              16