2001

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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|[X] |  | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
|    |  | For the fiscal year ended March 31, 2001                                             



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|[   ] |  | 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)

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|Nevada, U.S.A.                                 |  | 88-0360526                          
|(State or other
jurisdiction of incorporation) |  | (I.R.S. Employer
Identification No.)

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

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:

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|Title of each class:            |  | No. of shares:
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|Common Shares, par value $0.001 |  | 9,596,663     

Indicate by checkmark 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [   ]

The aggregate market value of the voting stock (Common Shares) held by
non-affiliates of the Registrant on May 18, 2001 was Cdn$4,542,176 and
US$3,731,073, computed by reference to the closing sale price of the Common
Shares on the Canadian Venture Exchange and Over the Counter Bulletin Board,
respectively on such date. The aggregate number of Common Shares outstanding
on May 18, 2001 was 9,596,663.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement prepared for the Companys Annual Meeting of Shareholders to be
held August 16, 2001 are incorporated by reference in Part III of this Form 10K.
The Exhibit Index is located on page 35.

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POLYMER SOLUTIONS, INC.
Annual Report on Form 10-K
For the Fiscal Year Ended March 31, 2001

TABLE OF CONTENTS

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|Item          |  |                                                                                      |    | Page  
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|PART I       
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|1.            |  | Description of Business                                                              |    |        | 3  | 
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|2.            |  | Properties                                                                           |    |        | 9  | 
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|3.            |  | Legal Proceedings                                                                    |    |        | 10 | 
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|4.            |  | Submission of Matters to a Vote of Security Holders                                  |    |        | 10 | 
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|PART II      
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|5.            |  | Market for Registrants Common Equity and Related Stockholder Matters                |    |        | 11 | 
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|6.            |  | Selected Financial Data                                                              |    |        | 11 | 
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|7.            |  | Managements Discussion and Analysis of Financial Condition and                     
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|              |  | Results of Operation                                                                 |    |        | 12 | 
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|7A            |  | Quantitative and Qualitative Disclosures About Market Risk                           |    |        | 15 | 
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|8.            |  | Financial Statements and Supplementary Data                                          |    |        | 16 | 
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|9.            |  | Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure |    |        | 32 | 
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|PART III     
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|10.           |  | Directors and Executive Officers of the Registrant                                   |    |        | 32 | 
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|11.           |  | Executive Compensation                                                               |    |        | 32 | 
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|12.           |  | Security Ownership of Certain Beneficial Owners and Management                       |    |        | 32 | 
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|13.           |  | Certain Relationships and Related Transactions                                       |    |        | 32 | 
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|PART IV      
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|14.           |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                     |    |        | 32 | 
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|SIGNATURES    |  |                                                                                      | 34 |       
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|EXHIBIT INDEX |  |                                                                                      | 35 |       

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

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PART I

ITEM 1.      DESCRIPTION OF BUSINESS

General

Polymer Solutions, Inc. (the Registrant or PSI or The Company) develops,
manufactures and distributes paints, coatings and adhesives to various
industries, on a national basis. PSI leases a state of the art, highly
automated production facility in Chico, California. This facility and related
processing equipment gives PSI the unique ability to make any type of water or
solvent-based coating the market demands now and into the foreseeable future.
Presently, the facility has excess production capacity and with the addition of
a minor amount of capital equipment and some additional labor, capacity can be
increased to over $50 million per year. These factors combine to allow the
Company significant growth opportunities.

The Company conducts all of its product development, manufacturing and
marketing/sales at its corporate and manufacturing facilities based in Chico,
California. Public-company management and regulatory reporting for the
Registrant is the responsibility of corporate headquarters located at 312
Otterson Drive, Suite H, Chico, California, 95928. The telephone number is
(530) 894-3585. The Company also has a web site at www.polysolutions.com.
The Company also has two laboratory and distribution facilities located in the
major customer base areas of Los Angeles and San Jose, California. These
satellite facilities are staffed with sales engineers and technical service
personnel.

The Registrant holds its investment in Alternative Materials Technology, Inc.
(AMT USA) through two British Columbia-resident holding companies, AMT
Environmental Products Inc. (AMT) and PSI Acquisitions Corp. (PAC). PSI is
a Nevada corporation incorporated in July 1996. By a reorganization completed
February 26, 1997, PSI 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 PSI and 155,130 preferred shares of PSIs 99.9% owned subsidiary, PSI
Acquisitions Corp., a British Columbia corporation.

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. Shareholders approved the reorganization at a Special
Meeting held on November 12, 1996.

On October 18, 1999, AMT purchased all the stock of U.S. Cellulose Co., (USC)
a California corporation. USC was engaged in the business of development,
production and sale of paints and coatings in markets parallel to those of the
Company. Effective November 24, 1999 USC merged into AMT.

The Registrant and its subsidiaries, PAC, AMT and AMT USA are herein referred
to together as Polymer Solutions, Inc., PSI or the Company.

The market for paints and coatings in the USA is estimated in excess of $17
billion and the market is expected to track the growth of US GDP. The
Companys primary target market is the western half of the United States.

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PSIs growth strategy is twofold: First, to identify and acquire companies that
have profitable revenue in complimentary product lines with established
distribution channels over the next several years. The first phase of this
strategy was deployed with the fiscal year 2000 successful purchase of U.S.
Cellulose, a San Jose-based paint manufacturer with annual revenues of
approximately $3.3 million.

And, second, the growth rate of the Companys high-performance, low volatile
organic compound (VOC) coating products is expected to accelerate due to a
number of environmental issues that these proprietary products address and
satisfy.

PSI has developed and produced a unique suite of high performance, low VOC, and
environmentally sound products that have performance characteristics that meet
or exceed the traditional products used in the coatings industry. Managements
assessment of the environmental arena is that the trend towards reduction or
elimination of VOCs and certain hazardous solvents will accelerate in the next
few years due to government regulation and market demand. The Company is in a
position to benefit from these trends, because of the technological lead and
notoriety it has in this market place. The PSI products supplied to this
customer base are low VOC product formulations based on proprietary polymer
chemistry. It is expected that the growth rate of this market segment will be
much higher than traditional coating products because of increasing
environmental concerns regarding the polluting effects of highly volatile
organic compounds. PSIs products are established in the marketplace and the
company is poised to continue its historical effective annual growth rate in
excess of 39% over the past five years.

The Company

PSI develops and manufactures proprietary coatings and adhesives and markets
them to a wide range of users. The Company utilizes polymer chemistry and
in-house developed techniques to provide competitively priced products that
meet or exceed all existing and proposed governmental clean-air regulations,
while delivering performance and handling characteristics superior to existing
products.

The Companys focus is the continued product development, refinement and
marketing of its low VOC coatings in the western half of the United States. The
product group consists of over 100 specialized coatings designed to provide
manufacturing concerns with a wide variety of coating systems that uniquely
meet the design requirements of industrial and retail customers. Wood coatings
comprise approximately 92% of total sales. The Company also produces a
water-based adhesive, which is sold to the aerospace and general
industrial-manufacturing firms.

Thirty-nine of the Companys employees operate out of PSIs fully integrated
and automated manufacturing plant located in Chico, California. PSI also has
20 employees located in San Jose and Los Angeles distribution and technical
service centers. The main production facility in Chico, CA is capable of
producing and shipping approximately five million gallons of coatings per year.
This equates to potential revenue in excess of $50 million per annum.

The Industry

Worldwide paints and coatings shipments are valued at approximately $50
billion, with sales in the USA in excess of $17 billion. The adhesive and
sealant markets are valued at $18 billion, with the USA generating a third of
all sales, or about $6 billion. The Original Equipment Manufacturing (OEM)
segment typically includes the higher value-added products within this diverse
industry.

OEM coatings and adhesives products are performance-driven markets. Products
that are successful in these markets must possess a particular combination of
properties at an acceptable cost to the end user and be easily applied by the
end user. PSI expects the markets for many of its performance coatings to grow
at 15-25% per year because of superior product quality and more aggressive
marketing.

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The Companys depth of knowledge in polymer chemistry has enabled it to develop
products suitable for a wide variety of OEM firms in several industrial
segments. These segments include firms whose processes demand the application
of coatings to several substrate types including wood, metal, glass and
aggregate. The uniqueness of PSIs products in this market place is related to
the Companys ability to produce these high performance coatings with greatly
reduced VOC content. AMT has succeeded in developing these leading edge
coatings and adhesives ahead of the industrys largest, most-established firms.

The Companys formulated coating and adhesive products are significant
intellectual property assets. This proprietary position reflects a technology
and expertise that enables the Company to provide products that meet and exceed
customer and regulatory expectations, especially where competitors have been
unsuccessful.

The Products

In the past, high VOC solvent-based coatings have been the accepted standard by
which manufacturers have been applying coatings or surface protection to their
products for decades. However, the Companys water-based and low VOC
solvent-based coatings provide these manufacturers with environmentally sound
alternatives to the regulated high VOC content coatings. Manufacturers who use
PSI products produce a superior end product while drastically reducing the
amount of VOCs that are generated during their manufacturing process.

PSIs research chemists have developed products that satisfy government
mandated environmental guidelines while maintaining important quality
standards. The Companys low VOC products offer several additional advantages
such as increased yield per gallon, more durability with better clarity and
decreased health risks to employees.

Raw materials and supplies are generally available from various sources in
sufficient quantities; thus, the Company anticipates no significant sourcing
problems during the next year.

The Market

There has been resistance to change among long-time users of solvent-based
coatings. They have a reluctance to try new products when their current
products produce a satisfactory result. This holds true even though current
use provokes environmental, health or safety concerns. The negative
environmental and health aspects of traditional solvent-based products have not
been enough of an incentive to encourage manufacturers and users to change
technologies. Historically, some manufacturers have presented sub-standard and
relatively poor performing low VOC products to the market during the past
decade.

The wood coatings market is just one segment of the multi-billion dollar paint
and coatings industry. This industry can be characterized as changing rather
than growing. Government and environmental regulations are driving research
and development efforts toward coating systems that allow manufactures to
reduce the amount of pollution generated during their manufacturing process.
Most of this research and development is directed toward environmentally safe
products that will meet the needs of manufacturers requiring coating for wood,
metal, plastic and glass for protection or cosmetic value. PSI coatings fill
the needs of these manufacturers.

The competitive nature of the paint industry results in continual acquisitions
and consolidations. The total number of US companies within the industry has
decreased steadily from 1,977 to an estimated less than 1,400 companies today.
The ten largest producers have over 50% of the U.S. market for coatings. There
are several companies, such as PPG Industries, Sherwin Williams, Lilly
Industries/Valspar, and Akzo Nobel, with national distribution, but generally,
the paint and coatings industry remains a highly regional business.

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Seasonality

There is no significant seasonality in sales for the products of the company.

Backlog and Productive Capacity

Backlog orders are not significant in the business since there is normally a
short period of time between the placing of an order and shipment. Sufficient
productive capacity currently exists to fulfill the Companys needs for
coatings products for the foreseeable future.

Competition

The Company experiences competition from many local, regional, national and
international competitors of various sizes in the manufacture, distribution and
sale of its coatings products. The Companys major domestic competitors
include AKZO Nobel, The Sherwin-Williams Company, Lilly Industries/Valspar,
MacLac, Cardinal Paints, Rudd Coatings, Performance Coatings, and Triangle
Paints.

The Growth Strategy

The primary reasons for the historical growth of the Company have been due to
the dynamics of the Companys marketing, manufacturing operations and growth
strategy. As volumes increase the incremental cost of goods sold decreases,
which positively impacts gross margins of incremental revenue.

The Company has historically limited its marketing and sales activities
primarily to the California area, but is now in position to implement a more
aggressive growth strategy. The Company has begun the expansion of its
marketing and sales efforts to extend the market focus for its state-of-the-art
coatings products to new markets. The Companys wood coating markets include
manufacturers of solid and laminate wood furniture, rattan, cabinets, doors,
windows, moldings, signs, sporting goods and sundry smaller articles such as
picture frames. This market can be serviced by PSIs Chico, San Jose and Los
Angeles locations.

Competitive forces and environmentally driven changes will decrease the number
of competitors in the coatings industry (particularly the mid-size companies).
The successors will be companies that can operate globally and focus their
efforts directly on regional markets.

Almost two-thirds of the estimated 1,400 paint and coatings plants are located
east of the Mississippi River. Manufacturers are typically close to population
centers due to logistics. The top 15 companies accounted for more than 60% of
the US domestic coatings market by volume in 2000.

There are many companies with revenues of less than $15 million operating in
the marketplace. The paint business traditionally has had very few barriers to
entry and it was relatively easy to start a regional, fully integrated paint
company. However, current environmental legislation has made the entry into the
coatings business a more strenuous and expensive proposition due to the
extensive capital investment needed in research & development and modern plant
equipment capable of allowing a company to meet the environmental and market
requirements. These regulations are being applied to existing small
manufacturers who face the expense of upgrading their operations. In many
cases, the businesses are too small or have limited growth opportunities to
offset the cost of upgrading the manufacturing facility to achieve regulatory
compliance. Even though PSI is still considered a small manufacturer, the
Company has superceded these obstacles through the development and refinement
of environmentally compliant products and the move to a new state-of-the-art
manufacturing facility. In addition, this strategic advantage provides PSI
with an opportunity to purchase existing businesses whose owners have limited
exit strategies.

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There are about 215 companies that have fewer than 50 employees in the
Companys target market. These companies share some common elements such as
outdated facilities, older coating technologies and lack of growth
opportunities. Combined, however, they also have established significant
distribution channels and a large diversified customer base.

The Companys acquisition of U.S. Cellulose was designed to provide PSI with a
vehicle to introduce its advanced OEM coating formulations to the consumer.
The U.S. Cellulose business was comprised of approximately 50 % OEM and 50%
consumer. PSI is using the established consumer brand name of U.S. Cellulose
to expand the sales of its products to this market place. In particular PSIs
wood-coating products are extremely well suited for these distribution
channels. They have wide market appeal because of their superior performance
and reduced VOC content. This makes them much more suitable for the consumer
market than the toxic products presently being sold into this market place.
PSI has had great success with large industrial OEM producers of redwood and
cedar wood products. The product that PSI is selling to these customers has
been tested against the commercially available retail products and proven to
out perform those products in long-term weatherabilty testing. PSI is
increasing the overall revenue of the Company by building upon these factors
and delivering these products to the consumer market through the Companys
distribution channels.

Government Regulations

In 1970 the U.S. Federal Government created the Environmental Protection Agency
(EPA). The EPA was formed from the combination of existing government
agencies including the Departments of Interior, Health, Education and Welfare
and Public Welfare. The EPA administers some fourteen different statues, each
of which mandates some form of pollution control and abatement. Two of the key
statutes that affect the coatings and adhesive industries are the 1990 Clean
Air Act and the Toxic Substance Control Act.

The above-mentioned legislation applies on a U.S. national level resulting in
the establishment of National Ambient Air Quality Standards (NAAQS), which in
turn produced ceilings for VOC emissions. A region not complying with the
NAAQS is classified as a Non-Attainment Area and is required to develop rules
that limit emissions.

A state which contains a Non-Attainment Area receives the Control Technology
Guidelines issued by the EPA and must submit a State Implementation Plan
(SIP), for approval by the EPA, which outlines the states plan to meet NAAQS
emission standards. The EPA has the authority to withhold federal transfer
payments for state highway construction if the emission standards are not met.

There are 51 regions in the United States that have been classified as
Non-Attainment Areas, the most significant of which is the Los Angeles Basin in
California. The Los Angeles Basin is a major manufacturing, industrial and
population center which, in combination with its topographic and atmospheric
characteristics, produces an inversion layer conducive to retaining pollutants
(i.e. smog). The South Coast Air Quality Management District (SCAQMD) was
created by the California State Legislature in 1977 with a mandate to restrict
the emissions of photo chemically reactive, smog-producing chemicals and
solvents. These chemicals and solvents often contain VOCs.

Rule 1136 was adopted in 1983 by the SCAQMD to regulate users of wood coatings
containing VOCs. The Rule describes specific grams per liter and pounds per
gallon limits for each type of coating: top coats, stains (undercoats) and
sealers. These limits were to have decreased over a six-year period ending in
1996. However, the Board of the SCAQMD extended the timing of the
implementation of reductions in allowable levels of VOCs to 1997, in favor of
an incentive program to reward furniture and cabinet manufacturers who make the
switch to compliant coatings in advance of the new date. Similar limitations
to the earlier proposed limits pertaining to coatings will become effective
July 31, 2003.

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Rule 1401 was adopted during 1990 by the SCAQMD and lists six solvents
typically used in wood finishes as carcinogenic air contaminants. As such, the
use of these six substances is permitted only on a case-by-case basis. This
restricts the end users ability to expand production using traditional
solvent-based coatings.

Research and Development

The Companys current research and development activities include new product
development and refinement, analyzing and testing of new and competitive
products, and identification of new applications.

Patents and Product Protection

Patents and licenses are not of material importance to the business of the
Company. The Company develops and manufactures products of a proprietary
nature. Management believes that the Companys future growth and profitability
will be closely linked to its research and development capabilities. The
Company therefore strictly maintains policies and procedures including, but not
limited to strict internal confidentiality, patent protection (where
appropriate) and binding non-disclosure agreements. During the course of
customer testing and where total non-disclosure is not practicable, secrecy
agreements are used for further protection. The Company has one registered
trademark WaterMaster(TM), related to its water-based wood coating products.

Management

The Companys Board of Directors has implemented an organization 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 other opportunities that could
result in a meaningful increase in shareholder value.

Chairman of the Board Gordon Ellis

Mr. Ellis is a Professional Engineer and Economist with a Master in Business
Administration in finance. He has over 21 years experience in development,
finance and management of diversified companies and projects.

CEO and President E. Laughlin Flanagan

Mr. Flanagan has been CEO and President since February 1998. Mr. Flanagan is a
senior management executive with over 20 years of broad technology company
experience, from start-up to a Fortune 500 subsidiary to a $250 million
publicly traded company. His background includes CFO, COO and CEO positions at
several leading-edge firms including National Micronetics, Inc. and ITT
Corporation. His experience encompasses the acquisition of capital and
financing, the expansion of firms through internal growth, strategic alliances
and acquisitions.

CEO & President, AMT USA William A. Maligie

Mr. Maligie has a Bachelor of Science, Polymer Technology from California State
University, Chico, California and a Masters in Business Administration from the
University of Texas, Dallas. Prior to joining the Company in 1989, he managed
product development, marketing and sales for Texas Instruments and the Dynachem
Division of Morton Thiokol.

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Corporate Controller Charlene Bellante

Ms. Bellante is a Certified Public Accountant with 18 years of financial
reporting experience and seven years of experience as controller of a
multi-million dollar international manufacturing company.

General Manager Ryan Oates

Mr. Oates is one of PSIs leading chemists. His knowledge and ability in the
development and adaptation of wood coatings to specific situations is excellent
and has greatly contributed to PSIs product line expansion

Vice President Marketing & Sales Craig Pollock

Craig has over 14 years of sales management experience including Duckback
Products, Inc. and Olympic Stain. He was responsible for the establishment of
national distributor programs, which helped to increase volume by almost
10-fold in less than 6 years.

Director of Research & Development Wade Potter

Wade Potter has both a Bachelors and a Masters degree in Chemistry and Polymer
Chemistry respectively, from the State University of New York in Syracuse, New
York. In addition, he has 19 years experience in development and market
application chemistry, including extended periods in the well-established
laboratories of Morton Thiokol Inc. and Ablestik Laboratories. Mr. Potter is
responsible for directing PSIs research and development efforts.

PSI also has additional technical sales support, manufacturing, research and
development and logistical support staff in the offices in Chico.

Secretary Darryl Jones

Darryl F. Jones is a Chartered Accountant and has many years of experience in
financial management, and reporting. Mr. Jones has been on the Board of
Directors for the Company and its predecessor since January 1994. Previously,
Mr. Jones was President, CEO and a Director of a publicly-held company, listed
on the NASDAQ, which manufactures and sells absorbent products for the
industrial and animal care markets. Currently, Mr. Jones is COO for a
technology company which develops and operates a computer network providing EDI
and electronic financial services to financing institutions.

Personnel

As of May 18, 2001, the Company has 59 full-time employees. The Company and
its subsidiaries also contract a small number of temporary employees and
contractors.

Income Taxes

Information regarding income taxes and deferred tax assets is contained in Item
7 under the caption entitled Income Taxes.

ITEM 2.      PROPERTIES

Chico, CA Manufacturing and Administration Facility

In 1999, the Company relocated to a leased state-of-the-art manufacturing and
administrative facility in Chico, California. The facility as presently
configured approximates 50,000 square feet. This facility brings the capacity
of the Company to approximately $50 million of revenue per year, with adequate

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room to expand at this location. This facility houses operations, materials
management, research, finance and administrative functions. The lease requires
monthly payments of $17,145 to $20,307 during the ten-year term.

Los Angeles, CA Sales & Technical Service Facility

The Company leases an office and warehouse unit of approximately 5,300 square
feet in Los Angeles county. The facility has easy access to interstate
highways.

This facility serves as a warehouse, regional sales office and laboratory for
minor color matching/shading as required by wood coating customers. This
facility has improved the Companys turnaround time in development of samples
for test runs on customers equipment. The lease has a term that expires
August 31, 2001, with an option held by AMT USA to continue for an additional
five-year term at prevailing rental rates. Monthly lease payments of
approximately $3,450 are required.

San Jose, CA Sales, Warehouse & Manufacturing Facility

The Company leases an office and warehouse unit of approximately 10,000 square
feet in San Jose, California. The facility was previously operated by U.S.
Cellulose. This facility serves as a warehouse, regional sales office,
manufacturing, and a small laboratory. The lease has a term that expires
September 30, 2002, with no option to renew. Monthly lease payments of
approximately $6,000 are required.

Chico, CA Principal Executive Office

The Registrant has its principal executive offices and corporate headquarters
at 312 Otterson Drive, Suite H, Chico, California. The terms of the rental
agreement call for total monthly payments of $925.

ITEM 3.      LEGAL PROCEEDINGS

At the present time there are no material pending legal proceedings to which
the Company or any of its subsidiaries is a party, or to which any of its
property is subject and, to the best of its knowledge, no such actions against
the Company are contemplated or threatened.

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

No matters were submitted to a vote of security holders during the fourth
quarter of the Companys fiscal year ended March 31, 2001.

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PART II

ITEM 5.      MARKET
FOR REGISTRANTS COMMON EQUITY AND RELATED
                     STOCKHOLDER MATTERS

Market information

The Registrants common shares are listed on the Canadian Venture Exchange
(CDNX) under the symbol PYM and the OTC Bulletin Board under the symbol
PYSU.

In November 1999, the Vancouver Stock Exchange and the Alberta Stock Exchange
merged their operations and formed the CDNX. On March 28, 2001 the Toronto
Stock Exchange (TSE) announced its plans to acquire CDNX. The TSE and CDNX
have executed an acquisition agreement for CDNX to become a wholly-owned
subsidiary of the TSE. The closing of the transaction is subject to a CDNX
member-shareholders vote by July 1 and receipt of regulatory approvals. The
two exchanges will remain distinct with the senior market being operated by the
TSE and the public venture market continuing to be operated by CDNX.

CDNX is the Companys principal trading market, where it is classified as a
Tier 1 Issuer. Tier 1 is considered a more advanced tier, where higher
financial requirements must be maintained. The Company is considering the
advantages of listing on the TSE.

Shown below are the high and low sale prices for the Common Shares for each of
the fiscal years ended March 31, 2001, 2000 and 1999.

Canadian Dollars:

|               |  |             |      |             |  |             |      |     |  |      |      |     |  |   |      |  |  |   |      |  |  |   |      | 
|-------------- |  | ----------- | ---- | ----------- |  | ----------- | ---- | --- |  | ---- | ---- | --- |  | - | ---- |  |  | - | ---- |  |  | - | ---- | 
|               |  | FISCAL 2001 |      | FISCAL 2000 |  | FISCAL 1999
|               |  |             |      |             |  |            
|               |  | HIGH        |      | LOW         |  | HIGH        |      | LOW |  | HIGH |      | LOW
|               |  |             |      |             |  |             |      |     |  |      |      |    
|First quarter  |  | $           | 1.20 |             |  | $           | 0.75 |     |  | $    | 0.85 |     |  | $ | 0.65 |  |  | $ | 1.05 |  |  | $ | 0.75 | 
|              
|              
|              
|              
|Second quarter |  | $           | 1.18 |             |  | $           | 0.80 |     |  | $    | 0.95 |     |  | $ | 0.73 |  |  | $ | 1.00 |  |  | $ | 0.60 | 
|              
|              
|              
|              
|Third quarter  |  | $           | 1.25 |             |  | $           | 0.95 |     |  | $    | 1.15 |     |  | $ | 0.95 |  |  | $ | 0.70 |  |  | $ | 0.40 | 
|              
|              
|              
|              
|Fourth quarter |  | $           | 1.19 |             |  | $           | 0.66 |     |  | $    | 1.35 |     |  | $ | 1.05 |  |  | $ | 0.89 |  |  | $ | 0.40 | 

Shareholders

The Company has 422 registered shareholders as at May 18, 2001. The articles
and by-laws of the Company do not contain any restrictions on the right to hold
or vote the Companys Common Shares.

Dividends

The Company has not paid any dividends to its common shareholders since
inception. The decision to pay dividends and the amount thereof is at the
discretion of the Board of Directors of the Company and will be governed by
such factors as earnings, capital requirements and the operating and financial
condition of the Company. The Company intends to retain any earnings to finance
growth of its business and, thus, does not intend to pay dividends in the
foreseeable future.

ITEM 6.      SELECTED FINANCIAL DATA

The following table sets forth selected financial data regarding the Companys
consolidated operating results and financial position. This data has been
derived from the Companys consolidated financial statements which have been
prepared in accordance with accounting principles generally accepted in the
United States. The following selected financial data is qualified in its
entirety by, and should be read

Page 11



---



in conjunction with, the consolidated financial statements and notes thereto
(Part II, Item 8 Financial Statements), and the Managements Discussion and
Analysis (Part II, Item 7) included elsewhere in this Annual Report on Form
10-K.

|                                        |  |                     |             |         |  |      |            |      |  |      |            |   |  |   |            |   |  |   |            |  
|--------------------------------------- |  | ------------------- | ----------- | ------- |  | ---- | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | - |  | - | ---------- | -
|                                        |  | Year ended March 31
|                                        |  |                    
|                                        |  | 2001                |             | 2000(1) |  | 1999 |            | 1998 |  | 1997
|                                        |  |                     |             |         |  |      |            |      |  |      |            |   |  |   |            |   |  |   |            |  
|Sales revenue                           |  | $                   | 15,389,181  |         |  | $    | 13,121,376 |      |  | $    | 7,807,291  |   |  | $ | 7,328,947  |   |  | $ | 4,995,975  |  
|                                       
|                                       
|                                       
|                                       
|Cost of goods sold                      |  |                     | (10,653,988 | )       |  |      | (9,028,728 | )    |  |      | (5,750,127 | ) |  |   | (5,904,797 | ) |  |   | (3,768,510 | )
|                                        |  |                     |             |         |  |      |            |      |  |      |            |   |  |   |            |   |  |   |            |  
|Gross Profit                            |  |                     | 4,735,193   |         |  |      | 4,092,648  |      |  |      | 2,057,164  |   |  |   | 1,424,150  |   |  |   | 1,227,465  |  
|                                       
|                                       
|                                       
|                                       
|Corp./Admin. expenses                   |  |                     | (3,489,479  | )       |  |      | (3,204,516 | )    |  |      | (2,377,592 | ) |  |   | (2,102,042 | ) |  |   | (2,029,422 | )
|                                       
|                                       
|                                       
|                                       
|Income (loss) from operations           |  |                     | 1,245,714   |         |  |      | 888,132    |      |  |      | (320,428   | ) |  |   | (677,892   | ) |  |   | (801,957   | )
|                                       
|                                       
|                                       
|                                       
|Income (loss) per share from
operations |  |                     | .14         |         |  |      | .11        |      |  |      | (.06       | ) |  |   | (0.16      | ) |  |   | (0.23      | )
|                                       
|                                       
|                                       
|                                       
|Interest expense (net)                  |  |                     | (232,970    | )       |  |      | (287,695   | )    |  |      | (280,456   | ) |  |   | (189,382   | ) |  |   | (96,335    | )
|                                       
|                                       
|                                       
|                                       
|Income tax benefit                      |  |                     | 720,000     |         |  |      | 470,000    |      |  |      |           |   |  |   |           |   |  |   |           |  
|                                       
|                                       
|                                       
|                                       
|Income (loss) for the year              |  |                     | 1,740,155   |         |  |      | 1,105,337  |      |  |      | (526,290   | ) |  |   | (870,090   | ) |  |   | (1,103,631 | )
|                                       
|                                       
|                                       
|                                       
|Income (loss) per share                 |  |                     | .19         |         |  |      | .14        |      |  |      | (.09       | ) |  |   | (0.21      | ) |  |   | (0.31      | )
|                                       
|                                       
|                                       
|                                       
|Dividends per share                     |  |                     |            |         |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|                                       
|                                       
|                                       
|                                       
|Working capital                         |  |                     | 3,489,554   |         |  |      | 2,711,092  |      |  |      | 888,821    |   |  |   | 501,292    |   |  |   | 477,034    |  
|                                       
|                                       
|                                       
|                                       
|Total assets                            |  |                     | 6,933,241   |         |  |      | 6,649,093  |      |  |      | 3,206,480  |   |  |   | 3,271,130  |   |  |   | 2,368,291  |  
|                                       
|                                       
|                                       
|                                       
|Long term obligations                   |  |                     | 899,752     |         |  |      | 2,484,334  |      |  |      | 1,769,192  |   |  |   | 1,474,506  |   |  |   | 1,126,423  |  
|                                       
|                                       
|                                       
|                                       
|Shareholders equity (deficit)          |  |                     | 4,398,443   |         |  |      | 2,101,967  |      |  |      | (197,874   | ) |  |   | (206,837   | ) |  |   | (439,146   | )



---

|(1) |  | The Company finalized the acquisition of USC on October 18, 1999 and as a
result of the merger, USC was fully integrated during the last half of
fiscal 2000. The results for the fiscal year end 2000 reflect the
amalgamation. See Item 8  Note 6 to the Consolidated Financial
Statements
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ITEM 7.      MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The Company develops, manufactures and distributes paints, coatings and
adhesives to various industries in the western half of the USA. PSI leases a
production facility in Chico, California that allows the Company significant
growth opportunities both internally and by way of acquisition. Presently, the
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.

On October 18, 1999, the Company acquired USC for $1,000,000 in cash and the
assumption of certain liabilities. To finance the cash portion of the
transaction, the Company repriced certain warrants to encourage exercise and
conducted two private placements. The Company assumed responsibility for an
Employee Severance Plan, which obligates the Company to pay up to $384,400 in
severance pay to former USC employees through the year 2004. USC had annual
revenues of approximately $3.3 million.

Management continues to actively seek acquisition candidates with financial and
geographic profiles consistent with the Companys growth objectives.

Page 12



---



Results from operations

Sales revenues for the fiscal year ended March 31, 2001 were $15,389,181, an
increase of 17% over the fiscal 2000 total of $13,121,376, which was an
increase of 68% over the fiscal 1999 total of $7,807,291. The increase in
fiscal 2001 is due to the addition of new customers and a full year of sales to
USC customers. The increase in fiscal 2000 is due both to the acquisition of
U.S. Cellulose and the continued growth in the number of customers and the
volume of sales to existing customers covering all of the Companys
wood-coating products lines.

Gross profit for the fiscal year ended March 31, 2001 increased 16% to
$4,735,193 from $4,092,648 for fiscal 2000. This increase in gross profit was
attributable to the aforementioned addition of new customers and the result of
greater efficiencies and economies of scale from growing sales volumes. The
increase in gross profit for the fiscal year ended March 31, 2000 over
$2,057,164 for fiscal year ended March 31, 1999 was due to sales increases,
material cost reductions and improved production efficiencies achieved by the
operation of the new facility.

Marketing and sales expenses in fiscal 2001 represent a 2% decrease to
$1,174,365 from the fiscal 2000 total of $1,200,576 due to restructure of the
companys commission plan. Marketing and sales expense in fiscal 2000
increased 28% over fiscal 1999 due to $103,912 commissions paid on increased
sales and an additional $162,645 of wages and travel expenses driven by the
acquisition of U.S. Cellulose.

General and administrative expenses were $1,764,171 for the year ended March
31, 2001 versus $1,428,449 in fiscal 2000 and $935,930 in fiscal 1999. The 23%
increase in fiscal 2001 is due primarily to an increase in bad debt expense,
investor relation fees, goodwill amortization expense, and the write off of
rent deposits. The 53% increase in fiscal 2000 is associated mainly with the
acquisition of U.S. Cellulose and the related increases in wages, rent, and
insurance as well as the amortization of goodwill.

Research and development expenses were $550,943 for fiscal year ended March 31,
2001 versus $575,491 for fiscal 2000 and $507,643 in fiscal 1999. The $24,548
decrease in fiscal 2001 was due to decreased wages and the $67,848 increase in
fiscal 2000 was due to increased wages.

Interest expense totaled $232,970 for the fiscal year ended March 31, 2001
compared to $287,695 in fiscal 2000 and $280,456 in fiscal 1999. The 19%
decrease in fiscal 2001 was due to lower borrowing and a lower interest rate on
the operating line of credit. The marginal increase in fiscal year 2000 was
due to higher borrowing.

Other income of $34,900 in fiscal 2000 is attributable to a settlement from the
Companys previous line of credit lender for approximately $23,000, due to a
dispute over early termination of that operating line of credit. The remaining
balance is bank interest. Fiscal 1999 other income was related to the sale of
the Companys previous manufacturing facility.

Income taxes

For several years prior to fiscal 2000, the Company incurred losses.
Accordingly, prior to fiscal 2000, the Company provided a 100% valuation
allowance against all deferred tax assets, primarily comprised of net operating
loss (NOL) carry-forwards and research and development credits. However, in
fiscal 2000, the Company generated a pre-tax income of approximately $635,000
and based on an analysis of the various factors that contributed to the
Companys fiscal 2000 profitability, management reduced its valuation allowance
by $500,000 during the fourth quarter of fiscal 2000. Such assessment was
based on various factors including pre-tax income; increased sales driven by
more intensive marketing; improved gross margins generated from the
efficiencies of operating in a larger capacity; state of the art plant in
operation for a full year; acquisition of a profitable company; and an
augmented management team.

Page 13



---



During fiscal 2001, the Company continued to be profitable and generated a
pre-tax income of approximately $1 million. Based on the Companys continued
profitability and projected results of future operations, the Company further
reduced its valuation allowance during the fourth quarter of fiscal 2001 by
approximately $1.5 million resulting in a deferred tax asset of approximately
$1.3 million at March 31, 2001. In managements opinion, it is more likely
than not that the deferred tax assets will be utilized. The total amount of
future taxable income necessary to utilize the deferred tax assets is
approximately $3.8 million.

Liquidity and Capital Resources

At March 31, 2001 the Company had $112,366 in cash compared to $65,097 at the
end of fiscal 2000. Cash flow provided by operating activities totaled
$1,302,630 in fiscal 2001 versus cash flow used of $104,351 in fiscal 2000 and
$614,749 used in fiscal 1999. The lower requirements in fiscal 2001 and 2000
are due to the Companys first two years of profitability. The $411,423
proceeds from exercise of warrants and options was in part used to pay down the
operating line of credit in fiscal 2001. The $1,159,883 proceeds from private
placements in 2000 were offset by the acquisition of U.S. Cellulose, while the
Company increased borrowing from the line of credit by $466,194. The cash
requirements in fiscal 1999 were financed primarily from private placements of
$244,721, increased borrowing on the Companys line of credit of $406,506, the
settlement of debt reached by creditors, including related parties of $289,785
in consideration for common shares of the Company and additional capital lease
financing of $239,127, offset by the repayment of debt.

The Company has positive working capital of $3,489,554 at March 31, 2001,
versus $2,711,092 at the end of fiscal 2000. The current ratio at March 31,
2001 was 3.2:1 and 2.4:1 at March 31, 2000. The primary reasons for the
increase in working capital and current ratio are increased sales volume, and
the increase in deferred income taxes.

Capital additions during the year ended March 31, 2001 were $144,932,
consisting primarily of production and office equipment, including $57,333
acquired under capital leases offset by proceeds from disposal of equipment of
$8,901. Capital additions during the year ended March 31, 2000 consisted of
$158,388 including $61,800 of equipment acquired under capital leases, offset
by proceeds from disposal of equipment of $15,145. This compares to fiscal 1999
in which there were $440,459 in purchases of fixed assets offset by proceeds
from the disposal of the old facility of $346,517. The investments in fiscal
2000 consisted mostly of production equipment, and in 1999 were associated with
the new plant.

The Company anticipates that cash on hand, cash flow from operations and
borrowing capability under its committed credit facility are adequate to fund
the Companys cash requirements for fiscal 2002. Should the Company undertake
strategic acquisitions requiring funds in excess of its internally generated
cash flow, it might be required to incur additional debt or seek additional
financing through private placements.

Acquisition of U.S. Cellulose and Related Financing

In October 1999 the Company acquired all the issued and outstanding shares of
U. S. Cellulose Co., Inc. (USC) a California-based paint coatings company for
a total purchase price of $1,000,000 in cash. This purchase price has been
allocated to assets and liabilities based on their estimated fair market
values.

To finance the transaction, the Company sold common shares as detailed on Form
8-K/A dated October 18, 1999, page F-9.

In connection with the purchase, the Company adopted a USC Employee Severance
Plan which entitles former USC employees to receive up to $384,400 in benefits,
paid from 1999 to 2004. The acquisition was accounted for using the purchase
method of accounting. The excess of acquisition cost over the fair value of
net assets acquired (goodwill) is being amortized on a straight-line basis
over fifteen years.

Page 14



---



Outlook

In fiscal year 2001 the Company continued to reach all time record highs in
both sales and net income, as in fiscal 2000. The successful acquisition of
USC increased utilization of capacity of our state of the art manufacturing
plant by adding new customers and improved products. The Companys strong
fundamentals provide the foundation for continued rapid growth through
acquisitions, joint ventures, product licenses, new product development, and
any other opportunities that could result in an increase in shareholder value.

Inflation

The Company has in the past been able to increase the prices of its products or
reduce overhead costs sufficiently to offset the effects of inflation on wages,
materials and other expenses, and anticipates that it will be able to continue
to do so in the future.

Environmental Matters

The Company is committed to being an environmentally friendly company and to
producing products which benefit the quality of the environment. State,
federal, and local laws all have jurisdiction over production activities. The
Company is currently in full compliance with these laws and expects to remain
so in the future.

Safe Harbor Provision

Certain statements identified as forward-looking statements in this Annual
Report on Form 10-K 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.

ITEM 7A.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to interest rate change market risk with respect to its
credit facility with a financial institution, which is priced based on the
prime rate of interest. At March 31, 2001, there was $340,991 in borrowings
under the credit facility. Changes in the prime interest rate during fiscal
2001 had a positive effect on the Companys interest expense. Exposure would
increase accordingly should the Company maintain higher levels of borrowing
during 2002.

The Company has minimal operations in foreign countries. While it is exposed
to foreign currency fluctuations, the Company presently has no financial
instruments in foreign currency and does not maintain material funds in foreign
currency beyond those necessary for operations.

Page 15



---



ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX

|                                           |                                                           |  |         |         | 
|------------------------------------------ | --------------------------------------------------------- |  | ------- | ------- | 
|Consolidated Financial Statements:        
|                                          
|                                          
|                                          
|                                          
|                                           | Report of Independent Accountants                         |  |         | Page 17 | 
|                                          
|                                          
|                                          
|                                          
|                                           | Consolidated Balance Sheets                               |  |         | Page 18 | 
|                                          
|                                          
|                                          
|                                          
|                                           | Consolidated Statements of Operations                     |  |         | Page 19 | 
|                                          
|                                          
|                                          
|                                          
|                                           | Consolidated Statements of Shareholders Equity (Deficit) |  |         | Page 20 | 
|                                          
|                                          
|                                          
|                                          
|                                           | Consolidated Statements of Cash Flows                     |  |         | Page 21 | 
|                                          
|                                          
|                                          
|                                          
|                                           | Consolidated Statements of Cash Flows, continued          |  |         | Page 22 | 
|                                          
|                                          
|                                          
|                                          
|Notes to Consolidated Financial Statements |                                                           |  | Page 23 |        

Page 16



---



Report of Independent Accountants

To the Board of Directors and
Shareholders of Polymer Solutions, Inc.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of shareholders equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
Polymer Solutions, Inc. and its subsidiaries at March 31, 2001 and 2000, and
the results of their operations and their cash flows for the three years in the
period ended March 31, 2001 in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Companys management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

/s/ PricewaterhouseCoopers LLP

Sacramento, California
May 24, 2001

Page 17



---



Polymer Solutions, Inc. and Subsidiaries

Consolidated Balance Sheets
(U.S. dollars)

---

|                                   |                                                                                                                   |   |                                      |           |           |   |            |           |  |  | 
|---------------------------------- | ----------------------------------------------------------------------------------------------------------------- | - | ------------------------------------ | --------- | --------- | - | ---------- | --------- |  |  | 
|                                   |                                                                                                                   |   |                                      |           | March 31,
|                                   |                                                                                                                  
|                                   |                                                                                                                   |   |                                      |           | 2001      |   | 2000      
|                                   |                                                                                                                   |   |                                      |           |           |   |            |          
|                                   |                                                                                                                   |   | Assets                              
|                                  
|                                  
|                                  
|                                  
|Current assets:                   
|                                  
|                                  
|                                  
|                                  
|                                   | Cash                                                                                                              |   | $                                    | 112,366   |           |   | $          | 65,097    | 
|                                  
|                                  
|                                  
|                                  
|                                   | Accounts receivable, net                                                                                          |   |                                      | 1,994,070 |           |   |            | 2,374,065 | 
|                                  
|                                  
|                                  
|                                  
|                                   | Inventories, net                                                                                                  |   |                                      | 1,649,295 |           |   |            | 1,523,947 | 
|                                  
|                                  
|                                  
|                                  
|                                   | Prepaid expenses                                                                                                  |   |                                      | 65,496    |           |   |            | 120,360   | 
|                                  
|                                  
|                                  
|                                  
|                                   | Deferred income taxes, net                                                                                        |   |                                      | 1,257,855 |           |   |            | 500,000   | 
|                                   |                                                                                                                   |   |                                      |           |           |   |            |          
|                                   |                                                                                                                   |   | 5,079,082                            |           |           |   | 4,583,469  |          
|                                  
|                                  
|                                  
|                                  
|Fixed assets, net                  |                                                                                                                   |   | 695,752                              |           |           |   | 825,652    |          
|                                  
|                                  
|                                  
|                                  
|Goodwill, net                      |                                                                                                                   |   | 1,158,407                            |           |           |   | 1,239,972  |          
|                                   |                                                                                                                   |   |                                      |           |           |   |            |          
|                                   |                                                                                                                   | $ | 6,933,241                            |           |           | $ | 6,649,093  |          
|                                   |                                                                                                                   |   |                                      |           |           |   |            |          
|                                   |                                                                                                                   |   | Liabilities and Shareholders Equity
|                                  
|                                  
|                                  
|                                  
|Current liabilities:              
|                                  
|                                  
|                                  
|                                  
|                                   | Accounts payable                                                                                                  |   | $                                    | 1,078,549 |           |   | $          | 1,303,088 | 
|                                  
|                                  
|                                  
|                                  
|                                   | Payroll related and commissions payable                                                                           |   |                                      | 325,390   |           |   |            | 409,791   | 
|                                  
|                                  
|                                  
|                                  
|                                   | Current portion of capital lease obligations                                                                      |   |                                      | 185,589   |           |   |            | 159,498   | 
|                                   |                                                                                                                   |   |                                      |           |           |   |            |          
|                                   |                                                                                                                   |   | 1,589,528                            |           |           |   | 1,872,377  |          
|                                  
|                                  
|                                  
|                                  
|Long-term liabilities:            
|                                  
|                                  
|                                  
|                                  
|                                   | Bank loan facilities                                                                                              |   |                                      | 340,991   |           |   |            | 1,752,667 | 
|                                  
|                                  
|                                  
|                                  
|                                   | Capital lease obligations                                                                                         |   |                                      | 226,765   |           |   |            | 371,932   | 
|                                  
|                                  
|                                  
|                                  
|                                   | Severance plan liability                                                                                          |   |                                      | 331,996   |           |   |            | 359,735   | 
|                                   |                                                                                                                   |   |                                      |           |           |   |            |          
|                                   |                                                                                                                   |   | 2,489,280                            |           |           |   | 4,356,711  |          
|                                   |                                                                                                                   |   |                                      |           |           |   |            |          
|Minority interest                  |                                                                                                                   |   | 45,518                               |           |           |   | 190,415    |          
|                                   |                                                                                                                   |   |                                      |           |           |   |            |          
|Shareholders equity:             
|                                  
|                                  
|                                  
|                                  
|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,
March 31, 2001 - 9,596,663 and March 31, 2000 - 8,855,939 |   |                                      | 9,596     |           |   |            | 8,855     | 
|                                  
|                                  
|                                  
|                                  
|Additional paid-in capital         |                                                                                                                   |   | 12,057,000                           |           |           |   | 11,501,420 |          
|                                  
|                                  
|                                  
|                                  
|Accumulated deficit                |                                                                                                                   |   | (7,668,153                           | )         |           |   | (9,408,308 | )        
|                                   |                                                                                                                   |   |                                      |           |           |   |            |          
|                                   |                                                                                                                   |   | 4,398,443                            |           |           |   | 2,101,967  |          
|                                   |                                                                                                                   |   |                                      |           |           |   |            |          
|                                   |                                                                                                                   | $ | 6,933,241                            |           |           | $ | 6,649,093  |          
|                                   |                                                                                                                   |   |                                      |           |           |   |            |          

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

18



---



Polymer Solutions, Inc. and Subsidiaries

Consolidated Statements of Operations
(U.S. dollars)

---

|                                                      |  |                       |            |      |  |      |            |   |  |   |           |  
|----------------------------------------------------- |  | --------------------- | ---------- | ---- |  | ---- | ---------- | - |  | - | --------- | -
|                                                      |  | Years ended March 31,
|                                                      |  |                      
|                                                      |  | 2001                  |            | 2000 |  | 1999
|                                                      |  |                       |            |      |  |     
|Sales revenue                                         |  | $                     | 15,389,181 |      |  | $    | 13,121,376 |   |  | $ | 7,807,291 |  
|                                                     
|                                                     
|                                                     
|                                                     
|Cost of goods sold                                    |  |                       | 10,653,988 |      |  |      | 9,028,728  |   |  |   | 5,750,127 |  
|                                                      |  |                       |            |      |  |      |            |   |  |   |           |  
|                                                      |  |                       | 4,735,193  |      |  |      | 4,092,648  |   |  |   | 2,057,164 |  
|                                                      |  |                       |            |      |  |      |            |   |  |   |           |  
|Corporate and administrative expenses:               
|                                                     
|                                                     
|                                                     
|                                                     
|Marketing and sales                                   |  |                       | 1,174,365  |      |  |      | 1,200,576  |   |  |   | 934,019   |  
|                                                     
|                                                     
|                                                     
|                                                     
|General and administrative                            |  |                       | 1,764,171  |      |  |      | 1,428,449  |   |  |   | 935,930   |  
|                                                     
|                                                     
|                                                     
|                                                     
|Research and development                              |  |                       | 550,943    |      |  |      | 575,491    |   |  |   | 507,643   |  
|                                                      |  |                       |            |      |  |      |            |   |  |   |           |  
|                                                      |  |                       | 3,489,479  |      |  |      | 3,204,516  |   |  |   | 2,377,592 |  
|                                                      |  |                       |            |      |  |      |            |   |  |   |           |  
|Income (loss) from operations                         |  |                       | 1,245,714  |      |  |      | 888,132    |   |  |   | (320,428  | )
|                                                     
|                                                     
|                                                     
|                                                     
|Other income                                          |  |                       | 7,411      |      |  |      | 34,900     |   |  |   | 74,594    |  
|                                                     
|                                                     
|                                                     
|                                                     
|Interest expense                                      |  |                       | (232,970   | )    |  |      | (287,695   | ) |  |   | (280,456  | )
|                                                      |  |                       |            |      |  |      |            |   |  |   |           |  
|Income (loss) before income tax benefit               |  |                       | 1,020,155  |      |  |      | 635,337    |   |  |   | (526,290  | )
|                                                     
|                                                     
|                                                     
|                                                     
|Income tax benefit                                    |  |                       | 720,000    |      |  |      | 470,000    |   |  |   |          |  
|                                                      |  |                       |            |      |  |      |            |   |  |   |           |  
|Net income (loss)                                     |  | $                     | 1,740,155  |      |  | $    | 1,105,337  |   |  | $ | (526,290  | )
|                                                      |  |                       |            |      |  |      |            |   |  |   |           |  
|Basic and diluted earnings (loss) per share           |  | $                     | .19        |      |  | $    | .14        |   |  | $ | (.09      | )
|                                                      |  |                       |            |      |  |      |            |   |  |   |           |  
|Weighted average basic number
of shares outstanding   |  |                       | 9,177,362  |      |  |      | 7,925,595  |   |  |   | 5,711,797 |  
|                                                      |  |                       |            |      |  |      |            |   |  |   |           |  
|Weighted average diluted number
of shares outstanding |  |                       | 9,294,615  |      |  |      | 8,151,562  |   |  |   | 5,711,797 |  
|                                                      |  |                       |            |      |  |      |            |   |  |   |           |  

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

19



---



Polymer Solutions, Inc. and Subsidiaries

Consolidated Statements of Shareholders' Equity
(Deficit)
(U.S. dollars)

---

|                              |                                                  |  |              |           |         |   |             |       |               |   |            |         |  |   |             |   |       |   |           |         | 
|----------------------------- | ------------------------------------------------ |  | ------------ | --------- | ------- | - | ----------- | ----- | ------------- | - | ---------- | ------- |  | - | ----------- | - | ----- | - | --------- | ------- | 
|                              |                                                  |  |              |           |         |   |             |       |               |   | Additional |         |  |   |             |   | Total
|                              |                                                  |  | Common Stock |           | Paid-in |   | Accumulated |       | Shareholders'
|                              |                                                  |  | Shares       |           | Amount  |   | Capital     |       | Deficit       |   | Equity    
|                              |                                                  |  |              |           |         |   |             |       |               |   |           
|Balance at March 31, 1998     |                                                  |  | 5,344,617    |           |         | $ | 5,345       |       |               | $ | 9,775,173  |         |  | $ | (9,987,355  | ) |       | $ | (206,837  | )      
|                             
|                             
|                             
|                             
|Shares issued, pursuance to -
|                             
|                             
|                             
|                             
|                              | Private placement                                |  |              | 432,000   |         |   |             | 432   |               |   |            | 244,289 |  |   |             |  |       |   |           | 244,721 | 
|                             
|                             
|                             
|                             
|                              | Conversion of debt for common stock              |  |              | 633,883   |         |   |             | 633   |               |   |            | 289,152 |  |   |             |  |       |   |           | 289,785 | 
|                             
|                             
|                             
|                             
|                              | Minority interest shareholder
exchange of shares |  |              | 333       |         |   |             |      |               |   |            | 747     |  |   |             |  |       |   |           | 747     | 
|                             
|                             
|                             
|                             
|Net loss                      |                                                  |  |             |           |         |   |            |       |               |   |           |         |  |   | (526,290    | ) |       |   | (526,290  | )      
|                              |                                                  |  |              |           |         |   |             |       |               |   |           
|                             
|Balance at March 31, 1999     |                                                  |  | 6,410,833    |           |         |   | 6,410       |       |               |   | 10,309,361 |         |  |   | (10,513,645 | ) |       |   | (197,874  | )      
|                             
|                             
|                             
|                             
|Shares issued, pursuance to -
|                             
|                             
|                             
|                             
|                              | Private placement                                |  |              | 2,043,915 |         |   |             | 2,044 |               |   |            | 959,602 |  |   |             |  |       |   |           | 961,646 | 
|                             
|                             
|                             
|                             
|                              | Exercise of warrants                             |  |              | 385,750   |         |   |             | 386   |               |   |            | 197,851 |  |   |             |  |       |   |           | 198,237 | 
|                             
|                             
|                             
|                             
|                              | Minority interest shareholder
exchange of shares |  |              | 15,441    |         |   |             | 15    |               |   |            | 34,606  |  |   |             |  |       |   |           | 34,621  | 
|                             
|                             
|                             
|                             
|Net income                    |                                                  |  |             |           |         |   |            |       |               |   |           |         |  |   | 1,105,337   |   |       |   | 1,105,337 |        
|                              |                                                  |  |              |           |         |   |             |       |               |   |           
|                             
|                             
|                             
|                             
|Balance at March 31, 2000     |                                                  |  | 8,855,939    |           |         |   | 8,855       |       |               |   | 11,501,420 |         |  |   | (9,408,308  | ) |       |   | 2,101,967 |        
|                             
|                             
|                             
|                             
|Shares issued, pursuance to -
|                             
|                             
|                             
|                             
|                              | Exercise of warrants                             |  |              | 671,100   |         |   |             | 671   |               |   |            | 407,347 |  |   |             |  |       |   |           | 408,018 | 
|                             
|                             
|                             
|                             
|                              | Exercise of options                              |  |              | 5,000     |         |   |             | 5     |               |   |            | 3,400   |  |   |             |  |       |   |           | 3,405   | 
|                             
|                             
|                             
|                             
|                              | Minority interest shareholder
exchange of shares |  |              | 64,624    |         |   |             | 65    |               |   |            | 144,833 |  |   |             |  |       |   |           | 144,898 | 
|                             
|                             
|                             
|                             
|Net income                    |                                                  |  |             |           |         |   |            |       |               |   |           |         |  |   | 1,740,155   |   |       |   | 1,740,155 |        
|                              |                                                  |  |              |           |         |   |             |       |               |   |           
|                             
|                             
|                             
|                             
|Balance at March 31, 2001     |                                                  |  | 9,596,663    |           |         | $ | 9,596       |       |               | $ | 12,057,000 |         |  | $ | (7,668,153  | ) |       | $ | 4,398,443 |        
|                              |                                                  |  |              |           |         |   |             |       |               |   |           

The accompanying notes are an integral part of these financial statements

20



---



Polymer Solutions, Inc. and Subsidiaries

Consolidated Statement of Cash Flows
(U.S. dollars)

---

|                                                    |                                                                                                    |                                              |                                         |            |                       |          |            |            |          |          |          |          |         |          |  
|--------------------------------------------------- | -------------------------------------------------------------------------------------------------- | -------------------------------------------- | --------------------------------------- | ---------- | --------------------- | -------- | ---------- | ---------- | -------- | -------- | -------- | -------- | ------- | -------- | -
|                                                    |                                                                                                    |                                              |                                         |            | Years ended March 31,
|                                                    |                                                                                                    |                                              |                                         |            |                      
|                                                    |                                                                                                    |                                              |                                         |            | 2001                  |          | 2000       |            | 1999    
|                                                    |                                                                                                    |                                              |                                         |            |                       |          |            |            |         
|Cash flows from operating activities:              
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Net income (loss)                                                                                  |                                              | $                                       | 1,740,155  |                       |          | $          | 1,105,337  |          |          | $        | (526,290 | )      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                                    | Depreciation and amortization                |                                         |            | 352,553               |          |            |            | 282,111  |          |          |          | 243,778 |         
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                                    | Gain on disposals of fixed assets            |                                         |            | (5,055                | )        |            |            | (945     | )        |          |          | (74,594 | )       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                                    | Benefit from deferred income tax             |                                         |            | (757,855              | )        |            |            | (500,000 | )        |          |          |        |         
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                                    | Changes in operating assets and liabilities:
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                                    |                                              | Accounts receivable                     |            |                       | 379,995  |            |            |          | (875,372 | )        |          |         | (167,718 | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                                    |                                              | Inventories                             |            |                       | (125,348 | )          |            |          | (302,979 | )        |          |         | 257,997  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                                    |                                              | Prepaid expenses and other assets       |            |                       | 54,864   |            |            |          | 74,458   |          |          |         | (62,744  | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                                    |                                              | Accounts payable                        |            |                       | (224,539 | )          |            |          | (5,747   | )        |          |         | (267,475 | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                                    |                                              | Payroll related and commissions payable |            |                       | (84,401  | )          |            |          | 138,451  |          |          |         | (17,703  | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                                    |                                              | Severance plan liability                |            |                       | (27,739  | )          |            |          | (19,665  | )        |          |         |         |  
|                                                    |                                                                                                    |                                              |                                         |            |                       |          |            |            |         
|Net cash provided by (used in) operating activities |                                                                                                    |                                              | 1,302,630                               |            |                       |          | (104,351   | )          |          |          | (614,749 | )       
|                                                    |                                                                                                    |                                              |                                         |            |                       |          |            |            |         
|Cash flows from investing activities:              
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Goodwill acquired in business acquisition                                                          |                                              |                                         |           |                       |          |            | (1,274,487 | )        |          |          |         |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Purchase of fixed assets                                                                           |                                              |                                         | (87,599    | )                     |          |            | (96,588    | )        |          |          | (201,332 | )      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from disposals of fixed assets                                                            |                                              |                                         | 8,901      |                       |          |            | 15,145     |          |          |          | 346,517  |        
|                                                    |                                                                                                    |                                              |                                         |            |                       |          |            |            |         
|Net cash (used in) provided by investing activities |                                                                                                    |                                              | (78,698                                 | )          |                       |          | (1,355,930 | )          |          |          | 145,185  |         
|                                                    |                                                                                                    |                                              |                                         |            |                       |          |            |            |         
|Cash flows from financing activities:              
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from issuance of common stock                                                             |                                              |                                         | 411,423    |                       |          |            | 1,159,883  |          |          |          | 244,721  |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | (Payments) borrowings on operating line of credit,
net                                             |                                              |                                         | (1,411,676 | )                     |          |            | 466,194    |          |          |          | 406,506  |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Payments of capital lease obligations                                                              |                                              |                                         | (176,410   | )                     |          |            | (140,002   | )        |          |          | (99,690  | )      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Other financing activities                                                                         |                                              |                                         |           |                       |          |            |           |          |          |          | (43,847  | )      
|                                                    |                                                                                                    |                                              |                                         |            |                       |          |            |            |         
|Net cash (used in) provided by financing activities |                                                                                                    |                                              | (1,176,663                              | )          |                       |          | 1,486,075  |            |          |          | 507,690  |         
|                                                    |                                                                                                    |                                              |                                         |            |                       |          |            |            |         
|Increase in cash                                    |                                                                                                    |                                              | 47,269                                  |            |                       |          | 25,794     |            |          |          | 38,126   |         
|                                                   
|                                                   
|                                                   
|                                                   
|Cash, beginning of year                             |                                                                                                    |                                              | 65,097                                  |            |                       |          | 39,303     |            |          |          | 1,177    |         
|                                                    |                                                                                                    |                                              |                                         |            |                       |          |            |            |         
|Cash, end of period                                 |                                                                                                    | $                                            | 112,366                                 |            |                       | $        | 65,097     |            |          | $        | 39,303   |         
|                                                    |                                                                                                    |                                              |                                         |            |                       |          |            |            |         

-Continued-

The accompanying notes are an integral part of these financial statements

21



---



Polymer Solutions, Inc. and Subsidiaries

Consolidated Statements of Cash Flows, Continued
(U.S. dollars)

---

|                                                                      |                                                  |                          |              |         |                       |         |        |        |          |         |   |         |   |         | 
|--------------------------------------------------------------------- | ------------------------------------------------ | ------------------------ | ------------ | ------- | --------------------- | ------- | ------ | ------ | -------- | ------- | - | ------- | - | ------- | 
|                                                                      |                                                  |                          |              |         | Years ended March 31,
|                                                                      |                                                  |                          |              |         |                      
|                                                                      |                                                  |                          |              |         | 2001                  |         | 2000   |        | 1999    
|                                                                      |                                                  |                          |              |         |                       |         |        |        |         
|Supplemental disclosure of cash flow information:                    
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Cash paid for:                                  
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      |                                                  |                          | Income taxes |         | $                     | 27,300  |        |        | $        | 800     |   |         | $ |        | 
|                                                                      |                                                  |                          |              |         |                       |         |        |        |         
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      |                                                  |                          | Interest     |         | $                     | 245,560 |        |        | $        | 287,695 |   |         | $ | 267,485 | 
|                                                                      |                                                  |                          |              |         |                       |         |        |        |         
|Supplemental schedule of non-cash investing
and financing activities:
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Minority interest shareholder exchange of shares |                          | $            | 144,898 |                       |         | $      | 34,621 |          |         | $ | 747     |  
|                                                                      |                                                  |                          |              |         |                       |         |        |        |         
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Acquisition of equipment under capital leases    |                          | $            | 57,333  |                       |         | $      | 61,800 |          |         | $ | 239,127 |  
|                                                                      |                                                  |                          |              |         |                       |         |        |        |         
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Conversion of debt for common stock              |                          | $            |        |                       |         | $      |       |          |         | $ | 289,785 |  
|                                                                      |                                                  |                          |              |         |                       |         |        |        |         
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Acquisition of U.S. Cellulose Co.                                    
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      |                                                  | Accounts receivable      |              |         |                       |         |        | $      | 354,774  |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      |                                                  | Inventories              |              |         |                       |         |        |        | 211,214  |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      |                                                  | Prepaid expenses         |              |         |                       |         |        |        | 89,910   |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      |                                                  | Fixed assets             |              |         |                       |         |        |        | 20,896   |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      |                                                  | Accounts payable         |              |         |                       |         |        |        | (269,953 | )      
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      |                                                  | Accrued payroll          |              |         |                       |         |        |        | (27,008  | )      
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      |                                                  | Severance plan liability |              |         |                       |         |        |        | (384,400 | )      
|                                                                      |                                                 
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Net liabilities at date of acquisition                                |                                                  |                          |              |         |                       | $       | (4,567 | )     
|                                                                      |                                                 

The accompanying notes are an integral part of these financial statements

22



---



Polymer Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

---

1. Nature of Operations

Polymer Solutions, Inc. (PSI or Company) is engaged in the development
and sale of advanced polymer-based coatings, sealants and adhesives to
industrial and retail users in the western half of the United States.

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 of America.
Differences between reporting these consolidated financial statements under
accounting principles generally accepted in the United States of America
versus accounting principles generally accepted in Canada are not material.

Basis of consolidation
The Companys consolidated financial statements include its wholly-owned
active subsidiary, Alternative Materials Technology, Inc. (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 the reported amounts of revenues and expenses during the
reporting period. 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. 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 $146,000 and
$20,000 at March 31, 2001 and 2000, 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.

Fixed assets

Fixed assets are recorded at cost and depreciated on a straight-line basis
over their estimated life, which varies between five and ten years.

Page 23



---



Polymer Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

---

Repair and maintenance costs are charged against income while improvements
are capitalized as additions to the related assets. Retirements, sales and
disposals of assets are recorded by removing the costs and accumulated
depreciation from the asset and accumulated depreciation accounts with any
resulting gain or loss reflected in other income.

Goodwill

Goodwill reflects the excess of acquisition costs of U.S. Cellulose Co. over
the estimated fair value of net assets acquired. Goodwill is amortized on a
straight-line basis over a 15-year life. Accumulated amortization amounted
to $124,700 at March 31, 2001. Goodwill amortization expense amounted to
$85,600 and $39,100 during the years ended March 31, 2001 and 2000,
respectively.

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 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.

Research and development costs

Research and development costs are expensed as 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 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 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

Page 24



---



Polymer Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

---

expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
See Note 9.

3. Inventories

Inventories consist of the following:

|                                         |  |           |           |           |  |   |           |  
|---------------------------------------- |  | --------- | --------- | --------- |  | - | --------- | -
|                                         |  | March 31, |           | March 31,
|                                         |  | 2001      |           | 2000     
|                                         |  |           |           |          
|Raw materials and supplies               |  | $         | 1,021,842 |           |  | $ | 951,843   |  
|                                        
|                                        
|                                        
|                                        
|Finished goods                           |  |           | 910,667   |           |  |   | 872,504   |  
|                                        
|                                        
|                                        
|                                        
|Less allowance for slow-moving inventory |  |           | (283,214  | )         |  |   | (300,400  | )
|                                         |  |           |           |          
|                                         |  | $         | 1,649,295 |           |  | $ | 1,523,947 |  
|                                         |  |           |           |          

4. Fixed Assets

Fixed assets consist of the following:

|                       |  |                |           |              |  |             |           |  |  |   |         | 
|---------------------- |  | -------------- | --------- | ------------ |  | ----------- | --------- |  |  | - | ------- | 
|                       |  | March 31, 2001
|                       |  |               
|                       |  |                |           |              |  | Accumulated
|                       |  | Cost           |           | Depreciation |  | Net        
|                       |  |                |           |              |  |            
|Laboratory equipment   |  | $              | 104,940   |              |  | $           | 87,884    |  |  | $ | 17,056  | 
|                      
|                      
|                      
|                      
|Office equipment       |  |                | 128,644   |              |  |             | 58,759    |  |  |   | 69,885  | 
|                      
|                      
|                      
|                      
|Production equipment   |  |                | 546,231   |              |  |             | 380,465   |  |  |   | 165,766 | 
|                      
|                      
|                      
|                      
|Leasehold improvements |  |                | 169,870   |              |  |             | 42,028    |  |  |   | 127,842 | 
|                      
|                      
|                      
|                      
|Capital leases         |  |                | 777,790   |              |  |             | 462,587   |  |  |   | 315,203 | 
|                       |  |                |           |              |  |            
|                       |  | $              | 1,727,475 |              |  | $           | 1,031,723 |  |  | $ | 695,752 | 
|                       |  |                |           |              |  |            

|                       |  |                |           |              |  |             |         |  |  |   |         | 
|---------------------- |  | -------------- | --------- | ------------ |  | ----------- | ------- |  |  | - | ------- | 
|                       |  | March 31, 2000
|                       |  |               
|                       |  |                |           |              |  | Accumulated
|                       |  | Cost           |           | Depreciation |  | Net        
|                       |  |                |           |              |  |            
|Laboratory equipment   |  | $              | 105,191   |              |  | $           | 82,302  |  |  | $ | 22,889  | 
|                      
|                      
|                      
|                      
|Office equipment       |  |                | 148,384   |              |  |             | 104,140 |  |  |   | 44,244  | 
|                      
|                      
|                      
|                      
|Production equipment   |  |                | 502,160   |              |  |             | 337,932 |  |  |   | 164,228 | 
|                      
|                      
|                      
|                      
|Leasehold improvements |  |                | 153,825   |              |  |             | 26,437  |  |  |   | 127,388 | 
|                      
|                      
|                      
|                      
|Capital leases         |  |                | 776,451   |              |  |             | 309,548 |  |  |   | 466,903 | 
|                       |  |                |           |              |  |            
|                       |  | $              | 1,686,011 |              |  | $           | 860,359 |  |  | $ | 825,652 | 
|                       |  |                |           |              |  |            

Page 25



---



Polymer Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

---

5. 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
March 31, 2001, there were warrants and options for 2,360,833 shares that
were not included in the diluted EPS because they were antidilutive for the
period; however, these shares could potentially dilute basic EPS in the
future.

6. Acquisition
In October 1999, the Company purchased the outstanding capital stock of U.S.
Cellulose Co. (USC), a paint coatings company based in California, for
$1,000,000 in cash. In connection with the purchase, the Company adopted
the USC Employee Severance Plan, which entitles former USC employees to
receive up to $384,400 in benefits, to be paid over a six-year period. The
acquisition was accounted for using the purchase method of accounting.
USCs assets and liabilities were recorded at their fair value at the date
of the acquisition. The excess of acquisition cost over the fair value of
tangible net assets acquired (goodwill) is being amortized on a
straight-line basis over fifteen years.

The following summarized unaudited proforma financial information assumes
the acquisition had occurred on April 1 of each year. The USC results of
operations in fiscal year 2000 are through to the date of acquisition,
October 18, 1999.

|                               |                         |                                                   |          |                                                      |         |                     |           |             |            |            |            |  
|------------------------------ | ----------------------- | ------------------------------------------------- | -------- | ---------------------------------------------------- | ------- | ------------------- | --------- | ----------- | ---------- | ---------- | ---------- | -
|                               |                         |                                                   |          |                                                      |         | Twelve Months Ended
|                               |                         |                                                   |          |                                                      |         | March 31,          
|                               |                         |                                                   |          |                                                      |         |                    
|                               |                         |                                                   |          |                                                      |         | 2000                |           | 1999       
|                               |                         |                                                   |          |                                                      |         | (unaudited)         |           | (unaudited)
|                               |                         |                                                   |          |                                                      |         |                     |           |            
|Revenues:                     
|                              
|                              
|                              
|                              
|                               | Polymer Solutions, Inc. |                                                   | $        | 13,121,376                                           |         |                     | $         | 7,807,291   |           
|                              
|                              
|                              
|                              
|                               | U.S. Cellulose Co.      |                                                   |          | 1,949,629                                            |         |                     |           | 3,111,479   |           
|                               |                         |                                                   |          |                                                      |         |                     |           |            
|                               |                         |                                                   | Combined |                                                      | $       | 15,071,005          |           |             | $          | 10,918,770 |           
|                               |                         |                                                   |          |                                                      |         |                     |           |            
|Net income (loss):            
|                              
|                              
|                              
|                              
|                               | Polymer Solutions, Inc. |                                                   | $        | 1,105,337                                            |         |                     | $         | (526,290    | )         
|                              
|                              
|                              
|                              
|                               | U.S. Cellulose Co.      |                                                   |          | (820,708                                             | )       |                     |           | (794,253    | )         
|                               |                         |                                                   |          |                                                      |         |                     |           |            
|                               |                         |                                                   |          | Combined                                             |         | $                   | 284,629   |             |            | $          | (1,320,543 | )
|                               |                         |                                                   |          |                                                      |         |                     |           |            
|Combined net income per share:
|                              
|                              
|                              
|                              
|                               |                         | Basic
Net income available to common
shareholders |          | $                                                    | 284,629 |                     |           | $           | (1,320,543 | )         
|                              
|                              
|                              
|                              
|                               |                         |                                                   |          | Weighted average number of common
shares outstanding |         |                     | 7,925,595 |             |            |            | 5,711,797  |  
|                               |                         |                                                   |          |                                                      |         |                     |           |            
|                               |                         | Basic and diluted earnings per
share              |          | $                                                    | 0.04    |                     |           | $           | (0.23      | )         
|                               |                         |                                                   |          |                                                      |         |                     |           |            

The amounts do not reflect any benefits from economies that might be
achieved from combined operations. The proforma amounts do reflect purchase accounting
adjustments and amortization for the periods presented.

Page 26



---



Polymer Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

---

7. Bank Loan Facilities

The Companys revolving line of credit provides funds up to $3,000,000.
Funds available to be advanced are limited to 85% of eligible accounts
receivable and 50% of eligible inventories. At March 31, 2001, the maximum
available borrowing under the line was $2,019,485. Interest is payable on
funds advanced at the rate of prime plus 2.5% (8% at March 31, 2001). The
line of credit is collateralized by accounts receivable, inventories,
equipment and other assets. The line of credit expires on October 31, 2002.
Terms of the line of credit require repayment from collections of accounts
receivable. The line of credit provides for various financial and
non-financial covenants including minimum working capital, net worth,
capital expenditures and compensation limitations.

8. Capital Lease Obligations

Capital lease obligations at March 31, consisted of the following:

|                                                                                                                                                                 |  |      |         |      |   |         |  | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- |  | 
|                                                                                                                                                                 |  | 2001 |         | 2000
|                                                                                                                                                                 |  |      |         |     
|Capital lease obligations bearing interest ranging from 7.34%
to 24.58%, payable in monthly principal and interest payments
and secured by the related equipment |  | $    | 412,354 |      | $ | 531,430
|                                                                                                                                                                
|                                                                                                                                                                
|                                                                                                                                                                
|                                                                                                                                                                
|Less current portion                                                                                                                                             |  |      | 185,589 |      |   | 159,498
|                                                                                                                                                                 |  |      |         |     
|                                                                                                                                                                 |  | $    | 226,765 |      | $ | 371,932
|                                                                                                                                                                 |  |      |         |     

Future minimum principal payments under capital lease obligations are as
follows:

|     |  |   |         | 
|---- |  | - | ------- | 
|2002 |  | $ | 185,589 | 
|    
|    
|    
|    
|2003 |  |   | 168,771 | 
|    
|    
|    
|    
|2004 |  |   | 41,581  | 
|    
|    
|    
|    
|2005 |  |   | 16,413  | 
|     |  |   |        
|     |  | $ | 412,354 | 
|     |  |   |        

Page 27



---



Polymer Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

---

9. Income Taxes
The benefit (expense) for income taxes consists of the following:

|         |          |   |                    |         |      |   |         |         |  
|-------- | -------- | - | ------------------ | ------- | ---- | - | ------- | ------- | -
|         |          |   | For the year ended
|         |          |   | March 31,         
|         |          |   |                   
|         |          |   | 2001               |         | 2000
|         |          |   |                    |         |     
|Federal:
|        
|        
|        
|        
|         | Current  |   | $                  | (18,597 | )    |   | $       | (17,000 | )
|        
|        
|        
|        
|         | Deferred |   |                    | 754,082 |      |   |         | 434,000 |  
|        
|        
|        
|        
|         |          |   | 735,485            |         |      |   | 417,000 |        
|         |          |   |                    |        
|State:  
|        
|        
|        
|        
|         | Current  |   |                    | (19,258 | )    |   |         | (13,000 | )
|        
|        
|        
|        
|         | Deferred |   |                    | 3,773   |      |   |         | 66,000  |  
|        
|        
|        
|        
|         |          |   | (15,485            | )       |      |   | 53,000  |        
|         |          |   |                    |        
|         |          | $ | 720,000            |         |      | $ | 470,000 |        
|         |          |   |                    |        

The tax effects of temporary differences that give rise to significant
portions of the deferred tax benefits are as follows:

|                                 |  |                    |           |      |  |   |            |  
|-------------------------------- |  | ------------------ | --------- | ---- |  | - | ---------- | -
|                                 |  | For the year ended
|                                 |  | March 31,         
|                                 |  |                   
|                                 |  | 2001               |           | 2000
|                                 |  |                    |           |     
|Net operating loss carryforwards |  | $                  | 705,253   |      |  | $ | 1,444,333  |  
|                                
|                                
|                                
|                                
|Tax credits                      |  |                    | 503,004   |      |  |   | 403,771    |  
|                                
|                                
|                                
|                                
|State taxes                      |  |                    | (23,716   | )    |  |   | (48,111    | )
|                                
|                                
|                                
|                                
|Other                            |  |                    | 73,314    |      |  |   | 187,187    |  
|                                 |  |                    |           |     
|                                 |  |                    | 1,257,855 |      |  |   | 1,987,180  |  
|                                
|                                
|                                
|                                
|Valuation allowance              |  |                    |          |      |  |   | (1,487,180 | )
|                                 |  |                    |           |     
|Net deferred tax benefit         |  | $                  | 1,257,855 |      |  | $ | 500,000    |  
|                                 |  |                    |           |     

The Company has reduced its deferred tax benefit valuation allowance in 2001
and 2000 by $1,487,180 and $500,000, respectively, based on an assessment of
the Companys ability to utilize deferred tax benefits in the future. This
assessment was based on managements analysis of current-year pre-tax
income, projected future income, improved gross margins generated from a new
plant, acquisition of USC and an augmented management team.

At March 31, 2001, management believes that it is more likely than not that
the $1.3 million tax benefit will be realized. The total amount of future
taxable income necessary to realize the benefit is approximately $3.8
million.

Page 28



---



Polymer Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

---

The income tax rate on earnings differed from the Federal statutory rate as
follows:

|                                             |  |                     |        |      |  |  |       |   
|-------------------------------------------- |  | ------------------- | ------ | ---- |  |  | ----- | --
|                                             |  | For the years ended
|                                             |  | March 31           
|                                             |  |                    
|                                             |  | 2001                |        | 2000
|                                             |  |                     |        |     
|Federal statutory rate                       |  |                     | 34.0   | %    |  |  | 34.0  | % 
|                                            
|                                            
|                                            
|                                            
|State statutory rate, net of federal benefit |  |                     | 5.6    |      |  |  | 5.6   |   
|                                            
|                                            
|                                            
|                                            
|Change in valuation allowance                |  |                     | (145.7 | )    |  |  | (99.9 | ) 
|                                            
|                                            
|                                            
|                                            
|Research and development credits             |  |                     | (9.7   | )    |  |  | (25.1 | ) 
|                                            
|                                            
|                                            
|                                            
|Permanent differences                        |  |                     | 28.5   |      |  |  | 6.5   |   
|                                            
|                                            
|                                            
|                                            
|Other                                        |  |                     | 16.7   |      |  |  | 4.9   |   
|                                             |  |                     |        |     
|Effective rate                               |  |                     | (70.6  | %)   |  |  | (74.0 | %)
|                                             |  |                     |        |     

Tax credits may be carried forward indefinitely. The expiration dates of
the net operating loss carryforwards for federal purposes are from 2011 to
2020 and for state purposes from 2002 to 2004.

10. Commitments and Contingencies

Operating leases
The Company leases certain facilities under arrangements which contain
renewal options and provide for periodic cost of living adjustments. Rental
expense was $358,507, $299,012 and $237,024 for each of the three years in
the period ended March 31, 2001, respectively.

Future minimum rental commitments as of March 31, 2001 under noncancelable
operating leases are as follows:

|                      |  |   |           | 
|--------------------- |  | - | --------- | 
|Year ending March 31:
|                     
|2002                  |  | $ | 314,988   | 
|                     
|                     
|                     
|                     
|2003                  |  |   | 277,788   | 
|                     
|                     
|                     
|                     
|2004                  |  |   | 226,212   | 
|                     
|                     
|                     
|                     
|2005                  |  |   | 233,484   | 
|                     
|                     
|                     
|                     
|2006                  |  |   | 236,034   | 
|                     
|                     
|                     
|                     
|Thereafter            |  |   | 426,447   | 
|                      |  |   |          
|                      |  | $ | 1,714,953 | 
|                      |  |   |          

Environmental Matters
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 or results of operations.

Page 29



---



Polymer Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

---

11. Common Stock

Minority interest
Through a reorganization of the Company in February 1997, Canadian
shareholders are given the opportunity to convert their non-transferable,
non-voting PAC preferred shares on a 1:1 basis up to September 1, 2001,
after which the Company may redeem the PAC preferred shares for common
shares. During fiscal 2001 and 2000, 64,624 and 15,441 preferred shares were
exchanged or redeemed into common shares.

Founders shares

An aggregate of 197,774 of Founders shares are held in escrow by the
Companys transfer agent at March 31, 2001. These shares are releasable
from escrow at various times based on requirements of the Canadian Venture
Exchange. The founders have all rights related to these shares except the
right to transfer the shares without the permission of the Canadian Venture
Exchange.

12. Stock Option Plans and Warrants

The following table summarizes the stock option activity under the Companys
stock option plan:

|                                                          |           |  |            |          |                |   |                  |      |  |   |     |     | 
|--------------------------------------------------------- | --------- |  | ---------- | -------- | -------------- | - | ---------------- | ---- |  | - | --- | --- | 
|                                                          |           |  |            |          |                |   | Weighted-average
|                                                          |           |  | Underlying |          | Exercise price
|                                                          |           |  | Shares     |          | CDN            |   | U.S.            
|                                                          |           |  |            |          |                |   |                 
|Stock options outstanding, March 31, 1999                 |           |  | 738,800    |          |                |   | 1.00             |      |  |   | .72 |    
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Granted   |  |            | 637,475  |                |   |                  | 1.08 |  |   |     | .74 | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Forfeited |  |            | (251,200 | )              |   |                  | 1.00 |  |   |     | .68 | 
|                                                          |           |  |            |          |                |   |                 
|Stock options outstanding, March 31, 2000                 |           |  | 1,125,075  |          |                |   | 1.05             |      |  |   | .74 |    
|                                                          |           |  |            |          |                |   |                 
|                                                          | Granted   |  |            | 876,771  |                |   |                  | 1.12 |  |   |     | .75 | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Exercised |  |            | (5,000   | )              |   |                  | 1.00 |  |   |     | .63 | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Forfeited |  |            | (534,070 | )              |   |                  | 1.06 |  |   |     | .67 | 
|                                                          |           |  |            |          |                |   |                 
|Stock options outstanding and exercisable, March 31, 2001 |           |  | 1,462,776  |          |                | $ | 1.09             |      |  | $ | .77 |    
|                                                          |           |  |            |          |                |   |                 

Options outstanding at March 31, 2001 had a weighted average remaining
contractual life of 3.47 years and had exercise prices ranging from $.54
(Cdn$.85) to $1.37 (Cdn$2.00) per share.

On July 5, 1999, the Company issued 800,000 shares with transferable
warrants to purchase an aggregate of 400,000 common shares at $0.60
(Cdn$0.90) up to June 30, 2000. The Company also issued warrants entitling
the Agent to purchase 160,000 common shares at a price of $0.60 (Cdn$.90) up
to June 30, 2000. Warrants to purchase 439,600 common shares were exercised
during fiscal year 2001.

On July 30, 1999, the Company completed a private placement and issued
1,127,750 common shares with non-transferable warrants to purchase an
aggregate of 1,127,750 common shares at $0.60 (Cdn$0.90) for one year to
July 30, 2000 and at $0.84 (Cdn$1.25) for one year expiring July 30, 2001.
The Company also issued warrants entitling the Agent to purchase 66,165
common shares under the same terms as offered. Warrants to purchase 231,500
common shares were exercised during fiscal year 2001.

Page 30



---



Polymer Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

---

The Company also issued 268,750 warrants, which expire October 18, 2001, as
a finders fee to a consulting firm for the coordination of the acquisition
of USC.

The warrants outstanding at March 31, 2001 are as follows:

|                                    |           |  |            |           |                |   |                  |      |  |   |     |      | 
|----------------------------------- | --------- |  | ---------- | --------- | -------------- | - | ---------------- | ---- |  | - | --- | ---- | 
|                                    |           |  |            |           |                |   | Weighted-average
|                                    |           |  | Underlying |           | Exercise price
|                                    |           |  | Shares     |           | CDN            |   | U.S.            
|                                    |           |  |            |           |                |   |                 
|Warrants outstanding March 31, 1999 |           |  | 1,726,250  |           |                |   | 1.27             |      |  |   | .91 |     
|                                   
|                                   
|                                   
|                                   
|                                    | Issued    |  |            | 2,022,665 |                |   |                  | .89  |  |   |     | .60  | 
|                                   
|                                   
|                                   
|                                   
|                                    | Exercised |  |            | (385,750  | )              |   |                  | .76  |  |   |     | .51  | 
|                                   
|                                   
|                                   
|                                   
|                                    | Expired   |  |            | (297,500  | )              |   |                  | .91  |  |   |     | .63  | 
|                                    |           |  |            |           |                |   |                 
|Warrants outstanding March 31, 2000 |           |  | 3,065,665  |           |                |   | 1.12             |      |  |   | .78 |     
|                                   
|                                   
|                                   
|                                   
|                                    | Exercised |  |            | (671,100  | )              |   |                  | .90  |  |   |     | .57  | 
|                                   
|                                   
|                                   
|                                   
|                                    | Expired   |  |            | (573,400  | )              |   |                  | 2.58 |  |   |     | 1.63 | 
|                                    |           |  |            |           |                |   |                 
|Warrants outstanding March 31, 2001 |           |  | 1,821,165  |           |                | $ | .74              |      |  | $ | .59 |     
|                                    |           |  |            |           |                |   |                 

Warrants outstanding at March 31, 2001 expire beginning July 2001 through
December 2003.

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 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 income and pro forma basic and diluted unaudited net
income per share in fiscal year 2001 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 ranging from 43% to 78%, risk-free interest
rate ranging from 4.77% to 6.43% and expected lives of 3 to 5 years.

13. 401 (k) Retirement Plan

On July 1, 2000, the Company implemented a 401 (k) retirement plan. Eligible
employees may contribute up to 15% of compensation and the Company is matching
100% of contributions up to a maximum of 2% of the employees compensation
beginning January 1, 2001. Employer matching contributions for the fiscal year
ended March 31, 2001 were $9,663.

Page 31



---



|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------

Not applicable

PART III

|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
|-------- | --------------------------------------------------

The information concerning the Companys directors and executive officers and
regarding compliance with Section 16 of the Securities and Exchange Act of
1934, required by this Item, is incorporated by reference to the Companys
Proxy Statement prepared for the Annual Meeting of Shareholders to be held
August 16, 2001.



|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

The information required by this Item is incorporated by reference to the
Companys Proxy Statement prepared for the Annual Meeting of Shareholders to be
held August 16, 2001.



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT
|-------- | -------------------------------------------------------------

The information required by this Item is incorporated by reference to the
Companys Proxy Statement prepared for the Annual Meeting of Shareholders to be
held on August 16, 2001.



|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|-------- | ----------------------------------------------

The information required by this Item is incorporated by reference to the
Companys Proxy Statement prepared for the Annual Meeting of Shareholders to be
held August 16, 2001.

PART IV



|ITEM 14. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM8-K
|-------- | --------------------------------------------------------------



| |                                                               
| | --------------------------------------------------------------
| | (A)The following documents are filed as a part of this Report.



| |     |                     
| | --- | --------------------
| | (i) | Financial Statements



| |  |                                                                                 
| |  | --------------------------------------------------------------------------------
| |  | See Index to Financial Statements on page 16 of this Annual Report on Form 10-K.



| |       |                                                                                                                                                                                                                         
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii)  | Financial Statement Schedules                                                                                                                                                                                           
|
| |       | Schedule II  Valuation and qualifying accounts is located on
page 33.                                                                                                                                                  
|
| |       | Schedule III  Supplementary financial information required by
Item 302 of Regulations S-K is located on page 33.                                                                                                       
|
| |       | Financial Statement Schedules may have been omitted because
they are not applicable, are not required, or the information
to be set forth therein is included in the Consolidated
Financial Statements or Notes thereto.
|
| | (iii) | Exhibits                                                                                                                                                                                                                



| |  |                                                                                                         
| |  | --------------------------------------------------------------------------------------------------------
| |  | The exhibits listed on the Exhibit Index at page 35 are filed as part
of this Annual Report on Form10-K.



| |                                          
| | -----------------------------------------
| | (B) Reports on Form 8-K   FILED BY EDGAR
|
| | Not applicable                           

Page 32



---



SCHEDULE II
Valuation and qualifying accounts and Reserves

For the Fiscal Year Ended March 31, 2001

|                                           |  |            |  |              |  |                  |     |                |   |           |  |  |     |  |  | 
|------------------------------------------ |  | ---------- |  | ------------ |  | ---------------- | --- | -------------- | - | --------- |  |  | --- |  |  | 
|Column A                                   |  | Column B   |  | Column C     |  | Column D         |     | Column E      
|Description                                |  | Balance at |  | Additions    |  | Deductions-      |     | Balance at End
|                                           |  |            |  | Beginning of |  | charged to costs |     | describe       |   | of period
|                                           |  |            |  | Period       |  | and expenses    
|Allowance against Available
Income from:  
|                                          
|                                          
|                                          
|                                          
|Valuation allowance on
deferred tax assets |  |            |  | $1,487,180   |  |                  | nil |                | $ | 1,487,180 |  |  | nil | 

Note [1]: The deductions reflect deferred tax assets utilized in fiscal 2001
and the relief of $1,257,855 of the prior year valuation allowance based on
managements assessment regarding the future realization of the deferred tax
benefits.

SCHEDULE III
SUPPLEMENTARY DATA

Supplementary financial information required by Item 302 of Regulations S-K

Selected quarterly financial data (unaudited)

|                                       |            |            |            |            |           |  |   |           |  |   |           | 
|-------------------------------------- | ---------- | ---------- | ---------- | ---------- | --------- |  | - | --------- |  | - | --------- | 
|                                       | Qtr Ending | Qtr Ending | Qtr Ending | Qtr Ending
|                                       | 30-Jun     | 30-Sep     | 31-Dec     | 31-Mar    
|                                       |            |            |            |           
|                                      
|2001                                   |           
|Net revenue                            | $          | 3,914,812  |            | $          | 3,989,313 |  | $ | 3,768,986 |  | $ | 3,716,070 | 
|Gross Profit                           |            | 1,247,879  |            |            | 1,196,687 |  |   | 1,133,352 |  | $ | 1,157,275 | 
|Income from operations                 |            | 349,931    |            |            | 312,729   |  |   | 297,881   |  | $ | 285,173   | 
|Income before income taxes             |            | 275,380    |            |            | 253,500   |  |   | 248,776   |  | $ | 962,499   | 
|Net income                             |            | 157,380    |            |            | 134,698   |  |   | 146,000   |  | $ | 1,302,077 | 
|Net income per share  basic & diluted |            | 0.02       |            |            | 0.01      |  |   | 0.02      |  |   | 0.14      | 
|                                      
|2000                                   |           
|Net revenue                            | $          | 2,795,623  |            | $          | 2,906,894 |  | $ | 3,514,118 |  | $ | 3,904,741 | 
|Gross Profit                           |            | 873,170    |            |            | 913,357   |  |   | 1,150,038 |  | $ | 1,156,083 | 
|Income from operations                 |            | 202,121    |            |            | 211,786   |  |   | 227,531   |  | $ | 246,694   | 
|Income before income taxes             |            | 140,671    |            |            | 154,831   |  |   | 167,024   |  | $ | 172,811   | 
|Net income                             |            | 140,671    |            |            | 154,831   |  |   | 167,024   |  | $ | 642,811   | 
|Net income per share  basic & diluted |            | 0.02       |            |            | 0.02      |  |   | 0.02      |  |   | 0.07      | 

Page 33



---



SIGNATURES

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

POLYMER SOLUTIONS, INC., a
Nevada, U.S.A. corporation

|                                                                  |  |                                                                                            
|----------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------
|/s/ Larry Flanagan
E. Laughlin Flanagan
President, CEO & Director |  | /s/ Charlene Bellante
Charlene Bellante
Corporate Controller, Assistant Secretary/Treasurer

Dated: June 04, 2001

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on this 5th day of June, 2001.

|                       |  |                               
|---------------------- |  | ------------------------------
|Signature              |  | Title                         
|/s/Gordon Ellis        |  | Chairman of the Board of      
|                      
|Gordon L. Ellis        |  | Directors, Director           
|                      
|/s/Larry Flanagan      |  | CEO & President, Director     
|                      
|E. Laughlin Flanagan  
|                      
|/s/Bill Maligie        |  | CEO & President AMT USA,      
|                      
|William A. Maligie     |  | Director                      
|                      
|/s/Stephen Silbernagel |  | Director                      
|                      
|Stephen H. Silbernagel
|                      
|/s/John Sutherland     |  | Director                      
|                      
|John J. Sutherland    
|                      
|/s/Darryl Jones        |  | Director, Secretary/ Treasurer
|                      
|Darryl F. Jones       
|                      
|/s/Gerald Habib        |  | Director                      
|                      
|Gerald A. Habib       

Page 34



---



EXHIBIT INDEX

Exhibit 2 Plan of acquisition, reorganization, arrangement, liquidation or succession



| |                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2.1 [4] Plan of Reorganization  Information Circular for the
Extraordinary General Meeting of AMT Environmental Products, held
November 12, 1996.          
|
| | 2.2 [6] Plan of merger                                                                                                                                      
|
| | 2.3 [2] Plan of acquisition                                                                                                                                 
|
| | 2.4 [3] Stock Purchase Agreement dated October 15, 1999, by and
between Alternative Materials Technology, Inc., U.S. Cellulose Co.,
and Frederick Parkinson.
|
| | 2.5 [3]U.S. Cellulose Employee Severance Plan effective October 15, 1999.                                                                                   

Exhibit 3 Current Articles of Incorporation



| |                                 
| | --------------------------------
| | 3.1 [4]Articles of Incorporation
|
| | 3.2 [4[By-Laws                  

Exhibit 10 Material Contracts

| | 10.1 [3]U.S. Cellulose Employee Severance Plan effective October 15, 1999.
| | --------------------------------------------------------------------------

Exhibit 13 Annual Report to security holders, Form 10Q or Quarterly reports to security holders



| |                                                          
| | ---------------------------------------------------------
| | 13.1 [1]2001 Annual Report to Shareholders               
|
| | 13.2 [5]Form 10Q for the period ending June 30, 2000     
|
| | 13.3 [5]Form 10Q for the period ending September 30, 2000
|
| | 13.4[ 5]Form 10Q for the period ending December 31, 2000 

Exhibit 21. Subsidiaries of the Registrant



| |                                            
| | -------------------------------------------
| | 21.1 [6]List of Subsidiaries of the Company



---

|    |                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|[1] | Filed herewith.                                                                                                                                         
|   
|[2] | Incorporated by reference to the Form 10-K filed with the Companys Annual Report for the year ended
March 31, 1999.                                    
|   
|[3] | Incorporated by reference to the exhibits accompanying the Companys current report on Form 8-K filed on
November 2, 1999.                              
|   
|[4] | Incorporated by reference to the exhibits accompanying the Companys Form 10-K filed for the year ended
March 31, 1997                                  
|   
|[5] | Incorporated by reference to the Form 10-Q filed with the Companys Quarterly Report for the periods
ended June 30, September 30, and December 31, 2000.
|   
|[6] | Incorporated by reference to the Form 10-K filed with the Companys Annual Report for the year ended
March 31, 2000.                                    

Page 35