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2003

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K

|           |  |                                                                                      
|---------- |  | -------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                      
|[X]        |  | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the fiscal year ended March 31, 2003


OR

|     |  |                                                                                          
|---- |  | -----------------------------------------------------------------------------------------
|[  ] |  | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from          to          .


Commission File Number 0-18583

POLYMER SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)


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

312 Otterson Dr. Suite H
Chico, California 95928
(Address of principal executive offices)

Registrants telephone number, including area code: (530) 894-3585

|                                                            |  |                                                                    
|----------------------------------------------------------- |  | -------------------------------------------------------------------
|Securities registered pursuant to Section 12(b) of the Act: |  | None                                                               
|Securities registered pursuant to Section 12(g) of the Act: |  | Common Shares, par value $0.001
                   (Title of class)

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

Yes [X]    No   [  ]

Indicate by check mark 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. [ X ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes
[  ]  No [ X ]

Based on the closing sales price on September 30, 2002, the last day of the
registrants most recently completed second fiscal quarter, the aggregate
market value of the voting common stock held by non-affiliates of the
registrant was Cdn $2,944,373 on the TSX Venture Exchange and US $2,228,174 on
the OTC Bulletin Board.

The aggregate number of Common Shares outstanding as of May 30, 2003 was
9,252,192.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this Report, to the extent not set
forth herein, is incorporated by reference from the registrants definitive
proxy statement relating to the annual meeting of stockholders scheduled to be
held on August 14, 2003, which definitive proxy statement shall be filed with
the Securities and Exchange Commission within 120 days after the end of the
fiscal year to which this report relates.





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POLYMER SOLUTIONS, INC.
Annual Report on Form 10-K
For the Fiscal Year Ended March 31, 2003

TABLE OF CONTENTS

|              |  |                                                                                                |  |     
|------------- |  | ---------------------------------------------------------------------------------------------- |  | ----
|              |  |                                                                                                |  | Page
|              |  | PART I                                                                                         |  |     
|ITEM 1.       |  | Business                                                                                       |  | 1   
|ITEM 2.       |  | Properties                                                                                     |  | 10  
|ITEM 3.       |  | Legal Proceedings                                                                              |  | 11  
|ITEM 4.       |  | Submission of Matters to a Vote of Security Holders                                            |  | 12  
|              |  | PART II                                                                                        |  |     
|ITEM 5.       |  | Market For Registrants Common Equity and Related Stockholder Matters                          |  | 12  
|ITEM 6.       |  | Selected Financial Data                                                                        |  | 15  
|ITEM 7.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations          |  | 15  
|ITEM 7A.      |  | Quantitative and Qualitative Disclosures About Market Risk                                     |  | 21  
|ITEM 8.       |  | Financial Statements and Supplementary Data                                                    |  | 21  
|ITEM 9.       |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure           |  | 38  
|              |  | PART III                                                                                       |  |     
|ITEM 10.      |  | Directors and Executive Officers of the Registrant                                             |  | 38  
|ITEM 11.      |  | Executive Compensation                                                                         |  | 38  
|ITEM 12.      |  | Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters |  | 38  
|ITEM 13.      |  | Certain Relationships and Related Transactions                                                 |  | 38  
|ITEM 14.      |  | Controls and Procedures                                                                        |  | 38  
|              |  | PART IV                                                                                        |  |     
|ITEM 15.      |  | Financial Statements, Financial Statement Schedules, and Reports on Form 8-K                   |  | 39  
|SIGNATURES    |  |                                                                                                |  | 41  
|EXHIBIT INDEX |  |                                                                                                |  | 44  

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





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PART I

ITEM 1.    BUSINESS.

General

Polymer Solutions, Inc. (PSI) develops, manufactures and distributes paints,
coatings and adhesives to various industries on a national basis. We lease a
state-of-the-art, highly automated production facility in Chico, California.
This facility and related processing equipment helps provide us with the unique
ability to make a wide range of water- and solvent-based coatings. The
facility currently has excess production capacity which we believe, with
additional capital equipment and labor, could be increased to help allow us
significant growth opportunities in the future.

We conduct all of our product development, manufacturing and marketing/sales at
the corporate and manufacturing facility in Chico, California. Administration
and regulatory reporting takes place at our corporate headquarters, which are
also located in Chico, California. We also have two laboratory and
distribution facilities located in the major customer base areas of Los Angeles
and San Jose, California, and these satellite facilities are staffed with sales
engineers and technical service personnel.

PSI was incorporated in the State of Nevada in July 1996 as part of a
reorganization conducted to consolidate the issued share capital of AMT
Environmental Products, Inc., a British Columbia corporation (AMT), which was
then a publicly held company, and to redomicile the organizations then parent
company from British Columbia, Canada to Nevada, United States. As a result of
the reorganization, which took place in February 1997, PSI is now the publicly
traded parent company and has a wholly owned subsidiary, PSI Acquisitions
Corp., a British Columbia corporation (PAC). PAC now wholly owns AMT, which
in turn wholly owns its operating subsidiary, Alternative Materials Technology,
Inc., a Nevada corporation (AMT USA), through which we conduct all of our
operations. PSI and PAC were organized for purposes of the reorganization and
had no businesses or operations prior thereto.

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

The market for paints and coatings in the United States has been estimated in
excess of $17 billion, and it is anticipated that the market will generally
grow at the same rate as the U.S. gross domestic product. Our primary target
market is the western half of the United States.

We have developed and produced a unique suite of high-performance, low-volatile
organic compound (VOC), and environmentally sound products that have
performance characteristics that we believe meet or exceed the traditional
products used in the coatings industry. We expect that the trend towards the
reduction or elimination of the use of VOCs and certain other hazardous
solvents in the coatings industry will continue due to government regulation
and market demand. In fact, we anticipate that the growth rate of this market
segment will be higher than the growth rate of traditional coating products
because of increasing environmental concerns regarding the polluting effects of
high VOCs. We believe we are in a position to benefit from this trend because
of the technological lead and reputation we have established in this market
place. Our products designed to address this market segment are low-VOC
product formulations based on proprietary polymer chemistry.

Our principal executive offices are located at 312 Otterson Drive, Suite H,
Chico, California, 95928 and our phone number is (530) 894-3585.

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The Company

We develop and manufacture proprietary coatings and adhesives and market them
to a wide range of users. We utilize polymer chemistry and in-house developed
techniques to provide competitively priced products that meet or exceed
currently existing and proposed governmental clean-air regulations, while
delivering performance and handling characteristics that we believe are
superior to existing products.

Our focus is the continued product development, refinement and marketing of
low-VOC coatings in the western half of the United States. Our product group
consists of over 100 specialized coatings systems designed to uniquely meet the
design requirements of industrial and retail customers. Wood coating systems
comprise approximately 94% of our total sales. We also produce a water-based
adhesive, which is sold to the aerospace and general industrial-manufacturing
firms.

The Industry and Our Products

In 2002, worldwide paint and coatings shipments were valued at approximately
$50 billion, with sales in the United States in excess of $17 billion, and the
worldwide adhesive and sealant markets were valued at approximately $18
billion, with the United States generating a third of all sales, or about $6
billion.

The wood coatings market is just one segment of the paint and coatings
industry. We believe 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 manufacturers 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.

The original equipment manufacturing (OEM) segment of the industry, which
involves the incorporation of coating products into a manufacturers end
products, typically involves high performance, value-added products. These
segments include OEM firms whose processes demand the application of coatings
to several substrate types including wood, metal, glass and aggregate.
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.

We believe our depth of knowledge in polymer chemistry has enabled us to
develop products suitable for a wide variety of OEM firms in several industrial
segments. The uniqueness of our products in this market place is related to
our ability to produce these high-performance coatings with greatly reduced VOC
content. In fact, we believe AMT USA has succeeded in developing these leading
edge coatings and adhesives ahead of most of the industrys largest,
most-established firms.

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. We believe that there has been resistance to change
among long-time users of high-VOC coatings, who seem generally reluctant to try
new products when their current products produce a satisfactory result. This
holds true even though current use may provoke environmental, health or safety
concerns. We believe that the negative environmental and health aspects of
traditional solvent-based products have not been sufficient incentive to
encourage manufacturers and users to change technologies. Moreover, some
manufacturers have introduced sub-standard and relatively poor performing
low-VOC products to the market during the past decade, which may have helped
prevent adoption of low-VOC products generally. However, our water-based and
low-VOC solvent-based coatings provide these manufacturers with environmentally
sound alternatives to the regulated high-VOC content coatings. We believe that
manufacturers who use our

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products produce a superior end product while drastically reducing the amount
of VOCs that are generated during their manufacturing process.

Our research chemists have developed products that satisfy government-mandated
environmental guidelines while maintaining important quality standards. We
believe our 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

Most of our raw materials are commodity products and supplies that are
available from numerous sources in sufficient quantities; thus, we anticipate
no significant sourcing problems during the next year.

Seasonality

There is no significant seasonality in sales for our products.

Backlog and Productive Capacity

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

Competition

We experience competition from many local, regional, national and international
competitors of various sizes in the manufacture, distribution and sale of our
coatings products. The competitive nature of the paint industry results in
ongoing acquisitions and consolidations. The total number of U.S. companies
within the industry has decreased steadily to an estimated number of less than
1,400 companies today. 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
account for more than 60% of the U.S. domestic coatings market by volume. The
ten largest producers have over 50% of the U.S. market for coatings. There are
several companies such as PPG Industries, The Sherwin-Williams Company,
Valspar/Lilly Industries, and Akzo Nobel, with national distribution, but
generally, the paint and coatings industry remains a highly regional business.
Our major domestic competitors include Akzo Nobel, The Sherwin-Williams
Company, Valspar/Lilly Industries, MacLac, Cardinal Paints, Rudd Coatings,
Performance Coatings, and Triangle Paints.

Although there are many companies with revenues of less than $15 million
operating in the marketplace, we believe competitive forces and environmentally
driven changes will continue to decrease the number of competitors in the
coatings industry (particularly the mid-size companies). 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 and 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 we are
still considered a small manufacturer, we have addressed these obstacles
through the development and refinement of environmentally compliant products

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and a state-of-the-art manufacturing facility. In addition, this strategic
advantage provides us with an opportunity to purchase existing businesses whose
owners have limited exit strategies.

Growth Strategy

We have historically limited our marketing and sales activities primarily to
the California area, but we are now poised to implement a more aggressive
growth strategy. We are continuing the expansion of our marketing and sales
efforts to extend the market focus of our state-of-the-art coatings products
into new markets. Our 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.

The acquisition of USC was designed to provide us with a vehicle to introduce
our advanced OEM coating formulations to the consumer. The USC business was
comprised of approximately 50% OEM sales and 50% consumer sales. We are using
the established consumer brand name of U.S. Cellulose to help expand the
sales of our products to the consumer market place. In particular, our
wood-coating products are well suited for these distribution channels. We
believe they have wide market appeal because of their superior performance and
reduced-VOC content, which generally makes them much more suitable for the
consumer market than higher-VOC products presently being sold into this market
place. In addition, we have had some success with large industrial OEM
producers of redwood and cedar wood products. The product that we are selling
to these customers has been tested against the commercially available retail
products and we believe has proven to out-perform those products in long-term
weatherabilty testing. We hope to increase our overall revenue by building
upon these factors and delivering these products to the consumer market through
our distribution channels.

Government Regulations

The Environmental Protection Agency (EPA) administers fourteen different
statutes, 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 mandate 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 photochemically reactive, smog-producing chemicals and
solvents. These chemicals and solvents 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

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coats, stains (undercoats) and sealers. These limits were to be 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 made the switch to compliant coatings in advance of the new
date. Similar limitations to the earlier proposed limits pertaining to
coatings are now scheduled to become effective July 31, 2003.

Rule 1401 was adopted in 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. We believe our products are as viable, safer, alternatives to the
traditional solvent-based coatings that contain the carcinogens listed in Rule
1401.

Research and Development

Our current research and development activities include new product development
and refinement, analyzing and testing of new and competitive products, and
identification of new applications. On average, over the past three years we
have spent approximately 16% of corporate and administrative expenses on
research and development. Research and development expenses were $578,806 for
fiscal year ended March 31, 2003 as compared to $540,932 for fiscal 2002 and
$550,943 in fiscal 2001.

Intellectual Property

We develop and manufacture products of a proprietary nature, and believe that
our formulated coating and adhesive products represent significant intellectual
property assets. We further believe that our future growth and profitability
will be closely linked to our research and development capabilities. Therefore
we strictly maintain policies and procedures including, but not limited to
strict internal confidentiality, license and 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. AMT USA has been issued one
patent, WaterMaster, describing a unique chemical composition that provides a
specific decorative water based finish.

Management

The Board of Directors has implemented an organization to provide an
infrastructure of experienced management professionals dedicated to maximizing
shareholder value. Their objectives include strengthening controls and
increasing profitability with the present customer base, along with growing
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.

CEO
and President - E. Laughlin Flanagan

Mr. Flanagan has been our CEO and President since February 1998 and is 56 years
old. Mr. Flanagan is a senior management executive with over 21 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.

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CEO and President, AMT USA - William A. Maligie

Mr. Maligie has been the CEO and President of AMT USA since 1989 and is 44
years old. Prior to joining us, he managed product development for Texas
Instruments and marketing and sales for the Dynachem Division of Morton
Thiokol. 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 Dallas located in Irvine, Texas.

Corporate
Controller  Charlene Bellante

Ms. Bellante has been our Corporate Controller since November 1999 and is 45
years old. Ms. Bellante is a Certified Public Accountant with 20 years of
financial reporting experience and nine years of experience as controller of a
multi-million dollar international manufacturing company. Prior to joining us,
Ms. Bellante was the controller of Lares Research, a privately held
manufacturer and distributor of dental products from 1994 to 1999.

General
Manager - Ryan Oates

Mr. Oates, one of our original employees, has worked in the research and
development, manufacturing, information systems and marketing and sales
departments of AMT USA since 1992 and was named General Manager of AMT USA in
1998. Mr. Oates is 36 years old.

Vice
President Marketing & Sales - Craig Pollock

Mr. Pollock has been our Vice President Marketing & Sales since May 1998. He
has over 16 years of sales management experience including tenures at Duckback
Products, Inc., Olympic Stain and PPG Industries. He was responsible for the
establishment of national distributor programs, national account programs and
independent dealer programs for these national manufacturers. Mr. Pollock is
43 years old.

Director
of Research & Development - Wade Potter

Mr. Potter has been our Director of Research & Development since 1989 and is 48
years old. Prior to joining us, Mr. Potter gained 21 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 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.

Personnel

As of May 18, 2003, we had sixty-five full-time employees and we also contract
a small number of temporary employees and contractors. Forty-two employees
operate out of our manufacturing plant located in Chico, California. Our
remaining twenty-three employees are located in our San Jose and Los Angeles
distribution and technical service centers.

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RISK FACTORS

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

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

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

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

We believe that, to an extent, our past performance has been based upon, and
our future success will partially depend upon, in part, our ability to continue
to improve our existing products through product innovation and to develop,
market and produce new products. We cannot assure you that we will be
successful in the introduction, marketing and production of any new products or
product innovations, or develop and introduce in a timely manner innovations to
our existing products that satisfy customer needs or achieve market acceptance.
Our failure to develop new products and introduce them successfully and in a
timely manner could harm our ability to grow our business and could have a
material adverse effect on our business, results of operations and financial
condition.

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

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

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

Our business exposes us to potential product liability risks, which are
inherent in the manufacture and distribution of certain of our products.
Although we generally seek to insure against such risks, there can be no
assurance that such coverage is adequate or that we will be able to maintain
such insurance on

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acceptable terms. A successful product liability claim in excess of our
insurance coverage could have a material adverse effect on us and could prevent
us from obtaining adequate product liability insurance in the future on
commercially reasonable terms.

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

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

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

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

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

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

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

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

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could be significant. In addition, acquisitions using debt or equity securities
dilute the ownership of existing shareholders, which could affect the market
price of our stock.

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

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

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

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



| |  |  | maintain our relationships with key retailers;                       
| | - |  | ---------------------------------------------------------------------
|
| |  |  | continually develop innovative new products that appeal to consumers;
|
| |  |  | ensure compliance with current environmental regulations;            
|
| |  |  | maintain strict quality standards; and                               
|
| |  |  | deliver products on a reliable basis at competitive prices.          

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

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

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

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

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

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

The market price of our securities, like that of many other emerging companies,
has been highly volatile, experiencing wide fluctuations not necessarily
related to the operating performance of such companies. Factors such as our
operating results, announcements by us or our competitors concerning
innovations and new products or systems may have a significant impact on the
market price of our securities. In addition, we have experienced limited
trading volume in our common shares.

FORWARD-LOOKING STATEMENTS

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

ITEM 2.    PROPERTIES.

Chico, CA - Manufacturing and Administration Facility

AMT USA leases a state-of-the-art manufacturing and administrative facility in
Chico, California. The facility as presently configured is approximately 50,000
square feet. We believe that this facility will provide us with sufficient
production and shipping capability for the foreseeable future. This facility
houses operations, materials management, research, finance and administrative
functions. The lease expires on December 31, 2007, and requires monthly
payments of $17,145 to $20,307 during the ten-year term.

Los Angeles, CA - Sales and Technical Service Facility

AMT USA leases an office and warehouse unit of approximately 5,300 square feet
in Los Angeles County. This facility serves as a warehouse, regional sales
office and laboratory. The original lease expired August 31, 2001 and is
currently month-to-month. AMT USA intends to relocate to Ontario, California
in July 2003, at which time the Los Angeles location will be closed.

Ontario, CA  Sales and Technical Service Facility

AMT USA has signed a lease that will commence on July 1, 2003 for a new 23,000
square foot state-of-the-art facility in Ontario, California, which will serve
as our warehouse, sales office and laboratory. This facility will enable us to
be even closer to important customers and will reduce transportation and

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handling costs. This facility will also provide sufficient space for our
continued growth in this important market. The lease expires in September 30,
2012 and requires monthly payments of $10,080 to $12,936 during the ten-year
term.

San Jose, CA  Sales, Warehouse and Manufacturing Facility

AMT USA leases an office and warehouse unit of approximately 10,000 square feet
in San Jose, California. USC previously operated the facility. This facility
serves as a warehouse, regional sales office, manufacturing, and a small
laboratory. The lease has a term of five years that expires September 30,
2007, with no option to renew. The lease requires monthly payments of
approximately $7,000.

Chico, CA - Principal Executive Office

We have our principal executive offices and corporate headquarters of
approximately 1300 square feet in Chico, California. The terms of the rental
agreement call for total monthly payments of $925 and the lease is currently
month-to-month.

Vancouver, BC

We also share 1,640 square feet of office space with related companies in North
Vancouver, British Columbia, Canada. Our rental agreement is month to month,
and calls for monthly payments of $1,000 towards the office space and includes
the use of office furniture and equipment.

ITEM 3.    LEGAL PROCEEDINGS

We are currently in discussions with the San Francisco Regional Water Quality
Control Board regarding our potential responsibility for groundwater pollution
caused by USCs operations at its facility in San Jose, California. We have
retained environmental consultants to assist us in preparing a soil remediation
plan. The current proposed project cost is approximately $53,000. Upon
approval of the remediation plan by the San Francisco Regional Water Quality
Control Board, we intend to implement the plan.

On June 5, 2002, we filed a lawsuit in the State of California Superior Court
for the County of Butte against Kushwood Manufacturing, Inc. et al. The
complaint seeks damages for Kushwoods failure to make certain payments that we
allege are owing to us. Kushwood filed a counterclaim on December 18, 2002,
alleging breach of contract, defective merchandise, and related claims. The
counterclaim seeks compensatory damages. We have been informed that our
insurance carrier will be providing a defense to the counterclaim, subject to
certain conditions and limitations. We dispute the allegations of the
counterclaim and intend to defend the action vigorously and pursue all
appropriate remedies available to us. However, due to the inherent
uncertainties of litigation, we cannot accurately predict the ultimate outcome
of the litigation or that our insurance carrier will fully reimburse us, if at
all, for any damages and costs we incur in connection with this litigation.
Any unfavorable outcome of litigation could have an adverse impact on our
business, financial condition and results of operations.

On November 21, 2002, a lawsuit was filed in the State of California Superior
Court for the County of Santa Clara against us by Young Han/dba Faithful
Kitchen & Bath alleging breach of contract, defective merchandise and related
claims. The complaint seeks compensatory damages. We have been informed that
our insurance carrier will be providing a defense to the complaint, subject to
certain conditions and limitations. We dispute the allegations of the
complaint and intend to defend the action vigorously and pursue all appropriate
remedies available to us. However, due to the inherent uncertainties of
litigation, we cannot accurately predict the ultimate outcome of the litigation
or that our insurance carrier will fully reimburse us, if at all, for any
damages and costs we incur in connection with this litigation. Any

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unfavorable outcome of litigation could have an adverse impact on our business,
financial condition and results of operations.

We are subject to other claims and legal actions that may arise in the ordinary
course of business. We do not believe that any of these other pending claims
or legal actions will have a material adverse effect on our business or results
of operations.

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

During the fourth quarter of the fiscal year ended March 31, 2003, no matters
were submitted to a vote of security holders.

PART II

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

Market information

Our common stock is listed on the TSX Venture Exchange (TSX Venture),
formerly the Canadian Venture Exchange (CDNX), under the symbol PYM and the
OTC Bulletin Board under the symbol PYSU. TSX Venture is our 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.

Shown below are the high and low sale prices on the TSX Venture Exchange for
our common stock for each of the fiscal years ended March 31, 2003 and 2002.

Canadian Dollars:

|               |  |             |      |             |  |      |      |     |  |   |      |  |  |   |      | 
|-------------- |  | ----------- | ---- | ----------- |  | ---- | ---- | --- |  | - | ---- |  |  | - | ---- | 
|               |  | FISCAL 2003 |      | FISCAL 2002
|               |  | HIGH        |      | LOW         |  | HIGH |      | LOW
|               |  |             |      |             |  |      |      |    
|First quarter  |  | $           | 0.50 |             |  | $    | 0.33 |     |  | $ | 0.88 |  |  | $ | 0.46 | 
|Second quarter |  | $           | 0.45 |             |  | $    | 0.35 |     |  | $ | 0.78 |  |  | $ | 0.35 | 
|Third quarter  |  | $           | 0.51 |             |  | $    | 0.36 |     |  | $ | 0.58 |  |  | $ | 0.35 | 
|Fourth quarter |  | $           | 0.50 |             |  | $    | 0.40 |     |  | $ | 0.58 |  |  | $ | 0.40 | 

Shown below are the high and low bid prices on the OTC Bulletin Board for our
common stock for each of the fiscal years ended March 31, 2003 and 2002.

U.S. Dollars:

|               |  |             |      |             |  |      |      |     |  |   |      |  |  |   |      | 
|-------------- |  | ----------- | ---- | ----------- |  | ---- | ---- | --- |  | - | ---- |  |  | - | ---- | 
|               |  | FISCAL 2003 |      | FISCAL 2002
|               |  | HIGH        |      | LOW         |  | HIGH |      | LOW
|               |  |             |      |             |  |      |      |    
|First quarter  |  | $           | 0.34 |             |  | $    | 0.24 |     |  | $ | 0.56 |  |  | $ | 0.32 | 
|Second quarter |  | $           | 0.31 |             |  | $    | 0.24 |     |  | $ | 0.54 |  |  | $ | 0.30 | 
|Third quarter  |  | $           | 0.35 |             |  | $    | 0.24 |     |  | $ | 0.38 |  |  | $ | 0.25 | 
|Fourth quarter |  | $           | 0.35 |             |  | $    | 0.26 |     |  | $ | 0.39 |  |  | $ | 0.25 | 

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The above OTC Bulletin Board quotations, as provided by Canada Stockwatch,
represent prices between dealers and do not include retail markup, markdown or
commission. In addition, these quotations may not necessarily represent actual
transactions.

Shareholders

We had 414 registered shareholders as at May 30, 2003.

Dividends

We have not paid any dividends to the holders of our common stock. The decision
to pay dividends and the amount thereof is at the discretion of our Board of
Directors and will be governed by such factors as earnings, capital
requirements and our operating and financial condition. Our credit facility
contains certain restrictions on our ability to pay dividends. We intend to
retain any earnings to finance growth of our business and, thus, we do not
intend to pay dividends in the foreseeable future.

Recent Sales of Unregistered Securities

In December 2002 and January 2003, PSI issued a total of 9,528 shares of Common
Stock to independent directors of PSI pursuant to the exercise of options
issued under our stock option plan. These transactions were exempt from
registration pursuant to Section 4(2) or Regulation S under the Securities Act
of 1933.

Description Of Nevada Law

Nevadas Combination with Interested Stockholders Statute, Nevada Revised
Statutes 78.411-78.444, applies to Nevada corporations having at least 200
stockholders of record and a class of voting shares registered with the
Securities and Exchange Commission under Section 12 of the Act (unless the
corporation has otherwise effectively opted-out of the provisions of the
statutes) and prohibits an interested stockholder from entering into a
combination with the corporation, unless certain conditions are met. A
combination includes (a) any merger with an interested stockholder, or any
other corporation which is or after the merger would be, an affiliate or
associate of the interested stockholder, (b) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of assets, in one transaction
or a series of transactions, to an interested stockholder, having (i) an
aggregate market value equal to 5% or more of the aggregate market value of the
corporations assets; (ii) an aggregate market value equal to 5% or more of the
aggregate market value of all outstanding shares of the corporation; or (iii)
representing 10% or more of the earning power or net income of the corporation,
(c) any issuance or transfer of shares of the corporation or its subsidiaries,
to the interested stockholder, having an aggregate market value equal to 5%
or more of the aggregate market value of all the outstanding shares of the
corporation, (d) the adoption of any plan or proposal for the liquidation a
dissolution of the corporation proposed by the interested stockholder, (e)
certain transactions which would result in increasing the proportionate share
of shares of the corporation owned by the interested stockholder, or (f) the
receipt of benefits, except proportionately as a stockholder, of any loans,
advances or other financial benefits by an interested stockholder. An
interested stockholder is a person who, together with affiliates and
associates, beneficially owns (or within the prior three years, did
beneficially own) 10% or more of the corporations voting stock.

A corporation to which the statute applies may not engage in a combination
with an interested stockholder within three years after the date on which the
interested stockholder acquired its shares, unless the combination or the
interested stockholders acquisition of shares was approved by the board of

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

Nevadas Control Share Acquisition Status, Nevada Revised Statute
78.378-78.3793, prohibits an acquiror, under certain circumstances, from voting
shares of a target corporations stock after crossing certain threshold
ownership percentages, unless the acquiror obtains the approval of the target
corporations stockholders. The Control Share Acquisition Statute only applies
to Nevada corporations with at least 200 stockholders, including at least 100
record stockholders who are Nevada residents, and which do business directly or
indirectly in Nevada. The Company does not intend to do business in Nevada
within the meaning of the Control Share Acquisition Statute. Therefore, it is
unlikely that the Control Share Acquisition Statute will apply to the Company.
The statute specifies three thresholds: at least one-fifth but less than
one-third, at least one-third but less and a majority, and a majority or more,
of the outstanding voting power. Once an acquiror crosses one of the above
thresholds, shares which it acquired in the transaction taking it over the
threshold or within ninety days become Control Shares which are deprived of
the right to vote until a majority of the disinterested stockholders restore
that right. A special stockholders meeting may be called at the request of
the acquiror to consider the voting rights of the acquirors shares no more
than 50 days (unless the acquiror agrees to a later date) after the delivery by
the acquiror to the corporation of an information statement which sets forth
the range of voting power that the acquiror has acquired or proposes to acquire
and certain other information concerning the acquiror and the proposed control
share acquisition. If no such request for a stockholders meeting is made,
consideration of the voting rights of the acquirors shares must be taken at
the next special or annual stockholders meeting. If the stockholders fail to
restore voting rights to the acquiror or if the acquiror fails to timely
deliver an information statement to the corporation, then the corporation may,
if so provided in its Articles of Incorporation or By-Laws, call certain of the
acquirors shares for redemption. The Companys Articles of Incorporation and
By-Laws do not currently permit it to call an acquirors shares for redemption
under these circumstances. The Control Share Acquisition Statute also provides
that in the event the stockholders who do not vote in favor of restoring voting
rights to the Control Shares may demand payment for the fair value of their
shares (which is generally equal to the highest price paid in the transaction
subjecting the stockholder to the statute).

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

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ITEM 6.    SELECTED FINANCIAL DATA.

The following table sets forth selected financial data regarding our
consolidated operating results and financial position. This data has been
derived from the consolidated financial statements that have been prepared in
accordance with accounting principles generally accepted in the United States
of America.

The following selected financial data is qualified in its entirety by, and
should be read in conjunction with, the consolidated financial statements and
notes thereto, and the Managements Discussion and Analysis of Financial
Condition and Results of Operation included elsewhere in this Annual Report on
Form 10-K.

|                                        |  |                      |             |      |  |      |             |         |  |      |             |   |  |   |            |   |  |   |            |  
|--------------------------------------- |  | -------------------- | ----------- | ---- |  | ---- | ----------- | ------- |  | ---- | ----------- | - |  | - | ---------- | - |  | - | ---------- | -
|                                        |  | Year ended March 31,
|                                        |  |                     
|                                        |  | 2003                 |             | 2002 |  | 2001 |             | 2000(1) |  | 1999
|                                        |  |                      |             |      |  |      |             |         |  |     
|Sales revenue                           |  | $                    | 14,899,242  |      |  | $    | 14,604,141  |         |  | $    | 15,389,181  |   |  | $ | 13,121,376 |   |  | $ | 7,807,291  |  
|Cost of goods sold                      |  |                      | (10,790,947 | )    |  |      | (10,505,821 | )       |  |      | (10,653,988 | ) |  |   | (9,028,728 | ) |  |   | (5,750,127 | )
|                                        |  |                      |             |      |  |      |             |         |  |      |             |   |  |   |            |   |  |   |            |  
|Gross Profit                            |  |                      | 4,108,295   |      |  |      | 4,098,320   |         |  |      | 4,735,193   |   |  |   | 4,092,648  |   |  |   | 2,057,164  |  
|Corp./Admin. Expenses                   |  |                      | (3,570,944  | )    |  |      | (3,251,855  | )       |  |      | (3,489,479  | ) |  |   | (3,204,516 | ) |  |   | (2,377,592 | )
|Income (loss) from operations           |  |                      | 537,351     |      |  |      | 846,465     |         |  |      | 1,245,714   |   |  |   | 888,132    |   |  |   | (320,428   | )
|Income (loss) per share from
operations |  | $                    | 0.06        |      |  | $    | 0.09        |         |  | $    | 0.14        |   |  | $ | 0.11       |   |  | $ | (.06       | )
|Interest expense (net)                  |  |                      | (22,749     | )    |  |      | (72,063     | )       |  |      | (232,970    | ) |  |   | (287,695   | ) |  |   | (280,456   | )
|Income tax benefit (expense)            |  |                      | 407,522     |      |  |      | (201,532    | )       |  |      | 720,000     |   |  |   | 470,000    |   |  |   |           |  
|Net income (loss) for the year          |  |                      | 922,517     |      |  |      | 574,159     |         |  |      | 1,740,155   |   |  |   | 1,105,337  |   |  |   | (526,290   | )
|Net income (loss) per share             |  |                      | .10         |      |  |      | .06         |         |  |      | .19         |   |  |   | .14        |   |  |   | (.09       | )
|Dividends per share                     |  |                      |            |      |  |      |            |         |  |      |            |   |  |   |           |   |  |   |           |  
|Working capital                         |  |                      | 3,265,806   |      |  |      | 3,035,131   |         |  |      | 2,479,899   |   |  |   | 2,711,092  |   |  |   | 888,821    |  
|Total assets                            |  |                      | 7,253,455   |      |  |      | 6,841,334   |         |  |      | 6,933,241   |   |  |   | 6,649,093  |   |  |   | 3,206,480  |  
|Long term obligations                   |  |                      | 78,071      |      |  |      | 256,710     |         |  |      | 899,752     |   |  |   | 2,484,334  |   |  |   | 1,769,192  |  
|Shareholders equity (deficit)          |  |                      | 5,875,471   |      |  |      | 4,982,967   |         |  |      | 4,398,443   |   |  |   | 2,101,967  |   |  |   | (197,874   | )



|(1) |  | We 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.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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


Some statements and information contained in this Managements Discussion and
Analysis of Financial Condition and Results of Operations are not historical
facts but are forward-looking statements. For a discussion of important
factors that could cause results to differ materially from the forward-looking
statements contained in this Annual Report, see Risk Factors and
Forward-Looking Statements.

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

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Overview

We develop, manufacture and distribute paints, coatings and adhesives to
various industries in the western half of the United States. We lease a
production facility in Chico, California that, we believe, allows us
significant growth opportunities both internally and by way of acquisition.
Presently, the facility has excess production capacity that we believe, with
additional capital equipment and labor, it is anticipated that capacity could
increase.

On October 18, 1999, our wholly owned subsidiary, AMT USA, acquired USC for
$1,000,000 in cash and the assumption of certain liabilities. To finance the
cash portion of the transaction, certain warrants were repriced to encourage
exercise and two private placements were conducted. We also assumed
responsibility for an Employee Severance Plan (ESP), which obligates us to
pay up to $384,400 in severance pay to former USC employees through the year
2004. Obligations outstanding under the ESP at March 31, 2003 approximated
$144,000. USC had annual revenues of approximately $3.3 million in 1998.

Management continues to actively seek acquisition candidates with financial and
geographic profiles consistent with our growth objectives.

Results from Operations

Sales revenues for the fiscal year ended March 31, 2003 were $14,899,242, an
increase of 2% from the fiscal 2002 total of $14,604,141, which was a decrease
of 5% over the fiscal 2001 total of $15,389,181. The increase in fiscal 2003
was due to higher solvent-based product sales. The decrease in fiscal 2002 was
primarily due to the slowdown in the economy, resulting in a decrease in sales
of water-based coatings. We expect revenues to increase slightly for fiscal
year ending March 31, 2004.

Gross profit for the fiscal year ended March 31, 2003 increased slightly to
$4,108,295 from $4,098,320 for fiscal 2002. The 13%
decrease in gross profit for the fiscal year ended March 31, 2002 from
$4,735,193 for fiscal 2001 was attributable to certain fixed costs remaining
constant when revenues decreased slightly.

Marketing and sales expenses were $1,165,650 for the year ended March 31, 2003
representing a 9% increase from the fiscal 2002 total of $1,069,636 due to an
increase in wages and travel. Marketing and sales expenses in fiscal 2002
represented a 9% decrease from the fiscal 2001 total of $1,174,365 due to a
full year with a lower commission structure. We expect marketing and sales
expenses to remain fairly constant for the fiscal year ending March 31, 2004.

General and administrative expenses were $1,826,488 for the year ended March
31, 2003 as compared to $1,641,287 in fiscal 2002 and $1,764,171 in fiscal
2001. The 11% increase in fiscal 2003 was associated mainly with an increase
in the use of temporary labor. The 7% decrease in fiscal 2002 was due primarily
to a decrease in wages and investor relation fees. We expect general and
administrative expenses to remain fairly constant for the fiscal year ending
March 31, 2004.

Research and development expenses were $578,806 for fiscal year ended March 31,
2003 as compared to $540,932 for fiscal 2002 and $550,943 in fiscal 2001. The
7% increase in fiscal 2003 was due to an increase in wages and benefits. The
2% decrease in fiscal 2002 was due to a decrease in wages. We expect research
and development expenses to remain fairly constant for the fiscal year ending
March 31, 2004.

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Interest expense totaled $22,749 for the fiscal year ended March 31, 2003 as
compared to $72,063 in fiscal 2002 and $232,970 in fiscal 2001. The 68% and
69% decrease in fiscal 2003 and 2002, respectively, was due to the payoff of
the operating line of credit in fiscal year 2001 and decrease in capital lease
obligations.

Income Taxes

During fiscal 2003, we recognized an income tax benefit of $408,000 as opposed
to an income tax expense of $202,000 during fiscal 2002. The tax benefit
during fiscal 2003 is primarily a result of the reduction of the valuation
allowance against deferred tax assets based on our assessment of certain
contingencies that existed prior to fiscal 2003 surrounding the utilization of
net operating loss carryforwards. As of March 31, 2003, such contingencies no
longer exist.

In managements opinion, it is more likely than not that the deferred tax
assets of approximately $1.5 million at March 31, 2003 will be utilized. The
total amount of future taxable income necessary to realize the net operating
loss carryforwards is approximately $2.4 million.

Liquidity and Capital Resources

At March 31, 2003, we had $1,165,031 in cash compared to $1,036,709 at the end
of fiscal 2002. Cash flow provided by operating activities totaled $612,938 in
fiscal 2003 as compared to $1,530,622 in fiscal 2002 and $1,302,630 in fiscal
2001. The reduction of cash provided by operations in fiscal 2003 reflects our
reduction in profitability due to higher cost of goods sold and higher general
and administrative expenses. It was also due to the reduction in accounts
payable and payments related to the U.S. Cellulose severance plan liability.
The lower cash balances in fiscal 2002 and 2001 were due to higher
profitability and the $411,423 proceeds from exercise of warrants and options
in fiscal 2001 offset by payments toward the operating line of credit and
capital lease obligations.

Cash used in investing activities increased in 2003 to $227,073 as compared to
$42,047 in 2002 due to the purchase of fixed assets.

We had a positive working capital of $3,265,806 at March 31, 2003, as compared
to $3,035,130 at the end of fiscal 2002. The current ratio at March 31, 2003
was 3.5:1 and 2.9:1 at March 31, 2002. The primary reason for the increase in
working capital was the increase of cash, and reduction of capital lease
obligations and severance liability.

Capital additions during the year ended March 31, 2003 were $227,373 and
consisted primarily of office equipment and leasehold improvements. Capital
additions during the year ended March 31, 2002 were $47,889, consisting
primarily of production and office equipment, including $24,490 acquired under
capital leases offset by proceeds from disposal of equipment of $5,842.
Capital additions during the year ended March 31, 2001 of $87,599, consisted
primarily of production and office equipment, including $57,333 acquired under
capital leases, offset by proceeds from disposal of equipment of $8,901.

We anticipate that cash on hand, cash flow from operations and borrowing
capability under our committed credit facility are adequate to fund our cash
requirements for fiscal 2004. Should we undertake strategic acquisitions
requiring funds in excess of our internally generated cash flow, we might be
required to incur additional debt or seek additional financing through private
placements.

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Inflation

In the past we have been able to increase the prices of our products or reduce
overhead costs sufficiently to offset the effects of inflation on our wages,
materials and other expenses, and we anticipate that we will be able to do so
in the future.

Related Party Transactions

General and administrative expenses for fiscal years 2003 and 2002 included
$74,857 and $71,703, respectively, for office rent and related services, which
were incurred on a cost reimbursement basis from a corporation owned and
controlled by one of our officers and directors. At March 31, 2003 and 2002 no
amounts were due to this related party.

We pay for management services to Gordann Consultants for the services of
Gordon L. Ellis, Chairman of the Board of Directors. We have also entered into
employment contracts with William A. Maligie and E. Laughlin Flanagan. In the
fiscal years ended March 31, 2003 and 2002, we made payments of $335,435 and $337,491 for these services.

Contractual Obligations

The following table details our contractual cash obligations subsequent to
March 31, 2003:

|                          |  |       |           |      |  |                        |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         |  |  |       |         | 
|------------------------- |  | ----- | --------- | ---- |  | ---------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- |  |  | ----- | ------- | 
|                          |  |       |           |      |  | Payments Due By Period
|                          |  |       |           |      |  |                       
|Contractual               |  |       |           |      |  |                        |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         |  |  | After
|Obligations               |  | Total |           | 2004 |  | 2005                   |         | 2006 |  | 2007 |         | 2008 |  | 2008
|                          |  |       |           |      |  |                        |         |      |  |      |         |      |  |     
|Capital lease
obligations |  | $     | 59,740    |      |  | $                      | 45,699  |      |  | $    | 14,041  |      |  | $    |        |  |  | $ |        |  |  | $ |        |  |  | $     |        | 
|Operating leases          |  | $     | 2,814,609 |      |  | $                      | 431,172 |      |  | $    | 442,476 |      |  | $    | 449,058 |  |  | $ | 460,740 |  |  | $ | 361,851 |  |  | $     | 669,312 | 
|Severance Plan
Liability  |  | $     | 143,883   |      |  | $                      | 79,853  |      |  | $    | 44,836  |      |  | $    | 19,194  |  |  | $ |        |  |  | $ |        |  |  | $     |        | 

Critical Accounting Policies

Our significant accounting policies are also described in Note 2 to the
financial statements included in Item 8 of this Annual Report. Our financial
statements are prepared in accordance with accounting principles generally
accepted in the United States of America. The following policies, we believe,
are our most critical accounting policies and are explained below.

Basis of consolidation

Our consolidated financial statements include our wholly owned active
subsidiary, AMT USA and our wholly owned inactive subsidiaries AMT and 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 us 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.

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Concentration of credit risk

Financial instruments that potentially subject us to significant concentrations
of credit risk consist primarily of trade accounts receivable and cash. We
perform credit evaluations of our customers financial condition and generally
do not require collateral on accounts receivable. We maintain an allowance for
doubtful accounts on our receivables based on expected collectibility.
Allowance for doubtful accounts was $238,000 and $207,000 at March 31, 2003 and
2002, respectively. At March 31, 2003, we had cash deposited in two financial
institutions that were federally insured up to $100,000 per financial
institution.

Inventories

Inventories are valued at the lower of cost, determined on the first-in
first-out basis, and net realizable value. We maintain 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. 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 applicable costs and accumulated depreciation from
the 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. Prior to April 1, 2002
goodwill was amortized on a straight-line basis over a 15-year life. Effective
April 1, 2002 the Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets,
and accordingly, goodwill is no longer amortized, but is reviewed at least
annually for impairment. Goodwill amortization expense amounted to $85,600
during the year ended March 31, 2002.

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, we assess
the carrying value of such assets if facts and circumstances suggest it 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

We account for stock-based employee compensation arrangements in accordance
with the provisions of Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employeesand 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 our stock and the
exercise price of the option. We account for equity instruments issued to
non-employees in accordance with the provisions of SFAS No. 123.

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Income taxes

We use 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
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.

Recently Issued Accounting Standards

In August and October 2001, the Financial Accounting Standards Board (FASB)
issued SFAS No. 143, Accounting for Obligations Associated with the Retirement
of Long-Lived Assets, and SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, respectively.

SFAS No. 143 establishes accounting standards for the recognition and
measurement of an asset retirement obligation and its associated asset
retirement cost. It also provides accounting guidance for legal obligations
associated with the retirement of tangible long-lived assets. SFAS No. 143 is
effective in fiscal years beginning after June 15, 2002, with early adoption
permitted. The Company adopted the provisions of SFAS No. 143 effective April
1, 2003.

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

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities.The Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liabilities
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
and Activity (including Certain Costs Incurred in a Restructuring).The impact
of this pronouncement on the Companys financial statements is not expected to
be material.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, and Interpretation of SFAS 5,
57, and 107 and Rescission of FIN 34.The interpretation requires certain
disclosures to be made by a guarantor about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is required
to recognize, at the inception of a guarantee, a liability for the fair value
of the obligation undertaken in issuing the guarantee. The initial recognition
and measurement provisions are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002.

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##### 



ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are exposed to market risk arising from changes in interest rates. Our
primary interest rate risk results from changes in the prime rate, which is
used to determine the interest rate applicable to the term loans under our
credit facility. At March 31, 2003, there were no borrowings under the credit
facility. Exposure would increase accordingly should we begin borrowing during
fiscal year 2004.

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

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEX

|                                   |                                                  |         |  | 
|---------------------------------- | ------------------------------------------------ | ------- |  | 
|Consolidated Financial Statements: |                                                  |         | 
|                                   | Report of Independent Accountants                | Page 22
|                                   | Consolidated Balance Sheets                      | Page 23
|                                   | Consolidated Statements of Operations            | Page 24
|                                   | Consolidated Statements of Shareholders Equity  | Page 25
|                                   | Consolidated Statements of Cash Flows            | Page 26
|                                   | Consolidated Statements of Cash Flows, continued | Page 27
|                                   | Notes to Consolidated Financial Statements       | Page 28

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##### 



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 and of cash
flows present fairly, in all material respects, the financial position of
Polymer Solutions, Inc. and its subsidiaries at March 31, 2003 and 2002, and
the results of their operations and their cash flows for the three years in the
period ended March 31, 2003 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 28, 2003

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##### 



Polymer Solutions, Inc. and Subsidiaries
Consolidated Balance Sheets
(U.S. Dollars)

|                                                                                   |                                                                |                                            |            |           |           |      |            |           |           | 
|---------------------------------------------------------------------------------- | -------------------------------------------------------------- | ------------------------------------------ | ---------- | --------- | --------- | ---- | ---------- | --------- | --------- | 
|                                                                                   |                                                                |                                            |            | March 31,
|                                                                                   |                                                                |                                            |            |          
|                                                                                   |                                                                |                                            |            | 2003      |           | 2002
|Assets                                                                             |                                                                |                                            |            |           |           |      |            |          
|Current assets:                                                                    |                                                                |                                            |            |           |           |      |            |          
|                                                                                   | Cash                                                           |                                            | $          | 1,165,031 |           |      | $          | 1,036,709 |          
|                                                                                   | Accounts receivable, net                                       |                                            |            | 1,643,305 |           |      |            | 1,653,506 |          
|                                                                                   | Inventories, net                                               |                                            |            | 1,265,236 |           |      |            | 1,358,223 |          
|                                                                                   | Prepaid expenses and other assets                              |                                            |            | 140,847   |           |      |            | 166,750   |          
|                                                                                   | Deferred income taxes, current                                 |                                            |            | 351,300   |           |      |            | 421,600   |          
|                                                                                   |                                                                |                                            |            |           |           |      |            |           |          
|                                                                                   |                                                                | Total current assets                       |            |           | 4,565,719 |      |            |           | 4,636,788 | 
|Fixed assets, net                                                                  |                                                                |                                            | 476,856    |           |           |      | 498,938    |          
|Deferred income taxes                                                              |                                                                |                                            | 1,138,017  |           |           |      | 632,745    |          
|Goodwill                                                                           |                                                                |                                            | 1,072,863  |           |           |      | 1,072,863  |          
|                                                                                   |                                                                |                                            |            |           |           |      |            |           |          
|                                                                                   |                                                                | Total assets                               |            | $         | 7,253,455 |      |            | $         | 6,841,334 | 
|                                                                                   |                                                                |                                            |            |           |           |      |            |           |          
|Liabilities and Shareholders Equity                                               |                                                                |                                            |            |           |           |      |            |          
|Current liabilities:                                                               |                                                                |                                            |            |           |           |      |            |          
|                                                                                   | Accounts payable                                               |                                            | $          | 892,337   |           |      | $          | 1,069,142 |          
|                                                                                   | Payroll related and commissions payable                        |                                            |            | 282,024   |           |      |            | 239,633   |          
|                                                                                   | Current portion of severance liability                         |                                            |            | 79,853    |           |      |            | 118,261   |          
|                                                                                   | Current portion of capital lease obligations                   |                                            |            | 45,699    |           |      |            | 174,621   |          
|                                                                                   |                                                                |                                            |            |           |           |      |            |           |          
|                                                                                   |                                                                | Total current liabilities                  |            |           | 1,299,913 |      |            |           | 1,601,657 | 
|Capital lease obligations, net of current portion                                  |                                                                |                                            | 14,041     |           |           |      | 74,135     |          
|Severance plan liability, net of current portion                                   |                                                                |                                            | 64,030     |           |           |      | 182,575    |          
|                                                                                   |                                                                |                                            |            |           |           |      |            |           |          
|                                                                                   |                                                                | Total liabilities                          |            |           | 1,377,984 |      |            |           | 1,858,367 | 
|                                                                                   |                                                                |                                            |            |           |           |      |            |           |          
|Commitments and contingencies (Note 9)                                             |                                                                |                                            |            |           |           |      |            |          
|Shareholders equity:                                                              |                                                                |                                            |            |           |           |      |            |          
|Preferred stock, $0.001 par value;                                                 |                                                                |                                            |            |           |           |      |            |          
|                                                                                   | Authorized - 4,000,000 shares; issued and outstanding - nil    |                                            |            |          |           |      |            |          |          
|Common stock, $0.001 par value;                                                    |                                                                |                                            |            |           |           |      |            |          
|                                                                                   | Authorized - 100,000,000 shares in 2003 and 20,000,000 in 2002 |                                            |            |           |           |      |            |           |          
|                                                                                   | March 31, 2003: issued 9,626,492, and outstanding 9,252,192    |                                            |            | 9,627     |           |      |            | 9,617     |          
|                                                                                   | March 31, 2002: issued 9,616,964, and outstanding 9,503,664    |                                            |            |           |           |      |            |           |          
|Treasury stock, at cost; 374,300 and 113,300 shares in 2003 and 2002, respectively |                                                                |                                            | (106,144   | )         |           |      | (35,153    | )        
|Additional paid-in capital                                                         |                                                                |                                            | 12,143,465 |           |           |      | 12,102,497 |          
|Accumulated deficit                                                                |                                                                |                                            | (6,171,477 | )         |           |      | (7,093,994 | )        
|                                                                                   |                                                                |                                            |            |           |           |      |            |           |          
|                                                                                   |                                                                | Total shareholders equity                 |            |           | 5,875,471 |      |            |           | 4,982,967 | 
|                                                                                   |                                                                |                                            |            |           |           |      |            |           |          
|                                                                                   |                                                                | Total liabilities and shareholders equity |            | $         | 7,253,455 |      |            | $         | 6,841,334 | 
|                                                                                   |                                                                |                                            |            |           |           |      |            |           |          

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

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Polymer Solutions, Inc. and Subsidiaries
Consolidated Statements of Operations
(U.S. Dollars)

|                                                      |                            |   |                       |           |      |   |            |           |  |   |            |           | 
|----------------------------------------------------- | -------------------------- | - | --------------------- | --------- | ---- | - | ---------- | --------- |  | - | ---------- | --------- | 
|                                                      |                            |   | Years ended March 31,
|                                                      |                            |   |                      
|                                                      |                            |   | 2003                  |           | 2002 |   | 2001      
|Sales revenue                                         |                            | $ | 14,899,242            |           |      | $ | 14,604,141 |           |  | $ | 15,389,181 |          
|Cost of goods sold                                    |                            |   | 10,790,947            |           |      |   | 10,505,821 |           |  |   | 10,653,988 |          
|                                                      |                            |   |                       |           |      |   |            |           |  |   |            |          
|                                                      |                            |   | 4,108,295             |           |      |   | 4,098,320  |           |  |   | 4,735,193  |          
|                                                      |                            |   |                       |           |      |   |            |           |  |   |            |          
|Corporate and administrative expenses:                |                            |   |                       |           |      |   |            |           |  |   |            |          
|                                                      | Marketing and sales        |   |                       | 1,165,650 |      |   |            | 1,069,636 |  |   |            | 1,174,365 | 
|                                                      | General and administrative |   |                       | 1,826,488 |      |   |            | 1,641,287 |  |   |            | 1,764,171 | 
|                                                      | Research and development   |   |                       | 578,806   |      |   |            | 540,932   |  |   |            | 550,943   | 
|                                                      |                            |   |                       |           |      |   |            |           |  |   |            |          
|                                                      |                            |   | 3,570,944             |           |      |   | 3,251,855  |           |  |   | 3,489,479  |          
|                                                      |                            |   |                       |           |      |   |            |           |  |   |            |          
|Income from operations                                |                            |   | 537,351               |           |      |   | 846,465    |           |  |   | 1,245,714  |          
|Other income                                          |                            |   | 393                   |           |      |   | 1,289      |           |  |   | 7,411      |          
|Interest expense                                      |                            |   | (22,749               | )         |      |   | (72,063    | )         |  |   | (232,970   | )        
|                                                      |                            |   |                       |           |      |   |            |           |  |   |            |          
|Income before provision for income taxes              |                            |   | 514,995               |           |      |   | 775,691    |           |  |   | 1,020,155  |          
|Income tax benefit (expense)                          |                            |   | 407,522               |           |      |   | (201,532   | )         |  |   | 720,000    |          
|                                                      |                            |   |                       |           |      |   |            |           |  |   |            |          
|Net income                                            |                            | $ | 922,517               |           |      | $ | 574,159    |           |  | $ | 1,740,155  |          
|                                                      |                            |   |                       |           |      |   |            |           |  |   |            |          
|Basic and diluted earnings per share                  |                            | $ | .10                   |           |      | $ | .06        |           |  | $ | .19        |          
|                                                      |                            |   |                       |           |      |   |            |           |  |   |            |          
|Weighted average basic number
of shares outstanding   |                            |   | 9,110,410             |           |      |   | 9,344,023  |           |  |   | 9,177,362  |          
|                                                      |                            |   |                       |           |      |   |            |           |  |   |            |          
|Weighted average diluted number
of shares outstanding |                            |   | 9,158,935             |           |      |   | 9,345,109  |           |  |   | 9,294,615  |          
|                                                      |                            |   |                       |           |      |   |            |           |  |   |            |          

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

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Polymer Solutions, Inc. and Subsidiaries
Consolidated Statements of Shareholders Equity
(U.S. Dollars)

|                                   |                                                  |  |              |         |          |   |         |     |             |   |               |   |        |   |            |         |  |   |            |   |  |   |           |         | 
|---------------------------------- | ------------------------------------------------ |  | ------------ | ------- | -------- | - | ------- | --- | ----------- | - | ------------- | - | ------ | - | ---------- | ------- |  | - | ---------- | - |  | - | --------- | ------- | 
|                                   |                                                  |  | Common Stock |         |          |   |         |     | Additional  |   |               |   |        |   | Total     
|                                   |                                                  |  |              |         | Treasury |   | Paid-in |     | Accumulated |   | Shareholders'
|                                   |                                                  |  | Shares       |         | Amount   |   | Stock   |     | Capital     |   | Deficit       |   | Equity
|Balance at March 31, 2000          |                                                  |  | 8,855,939    |         |          | $ | 8,855   |     |             | $ |              |   |        | $ | 11,501,420 |         |  | $ | (9,408,308 | ) |  | $ | 2,101,967 |        
|Shares issued, pursuant 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 |        
|Shares issued, pursuant to:        |                                                  |  |              |         |          |   |         |     |             |   |               |   |        |   |            |         |  |   |            |   |  |   |           |        
|                                   | minority interest shareholder
exchange of shares |  |              | 20,301  |          |   |         | 21  |             |   |               |  |        |   |            | 45,497  |  |   |            |  |  |   |           | 45,518  | 
|Treasury stock purchased           |                                                  |  | (113,300     | )       |          |   |        |     |             |   | (35,153       | ) |        |   |           |         |  |   |           |   |  |   | (35,153   | )      
|Net income                         |                                                  |  |             |         |          |   |        |     |             |   |              |   |        |   |           |         |  |   | 574,159    |   |  |   | 574,159   |        
|                                   |                                                  |  |              |         |          |   |         |     |             |   |               |   |        |   |            |         |  |   |            |   |  |   |           |        
|Balance at March 31, 2002          |                                                  |  | 9,503,664    |         |          |   | 9,617   |     |             |   | (35,153       | ) |        |   | 12,102,497 |         |  |   | (7,093,994 | ) |  |   | 4,982,967 |        
|Shares issued, pursuant to:        |                                                  |  |              |         |          |   |         |     |             |   |               |   |        |   |            |         |  |   |            |   |  |   |           |        
|                                   | exercise of options                              |  |              | 9,528   |          |   |         | 10  |             |   |               |  |        |   |            | 2,454   |  |   |            |  |  |   |           | 2,464   | 
|Treasury stock purchased           |                                                  |  | (261,000     | )       |          |   |        |     |             |   | (70,991       | ) |        |   |           |         |  |   |           |   |  |   | (70,991   | )      
|Variable option based compensation |                                                  |  |             |         |          |   |        |     |             |   |              |   |        |   | 38,514     |         |  |   |           |   |  |   | 38,514    |        
|Net income                         |                                                  |  |             |         |          |   |        |     |             |   |              |   |        |   |           |         |  |   | 922,517    |   |  |   | 922,517   |        
|                                   |                                                  |  |              |         |          |   |         |     |             |   |               |   |        |   |            |         |  |   |            |   |  |   |           |        
|Balance at March 31, 2003          |                                                  |  | 9,252,192    |         |          | $ | 9,627   |     |             | $ | (106,144      | ) |        | $ | 12,143,465 |         |  | $ | (6,171,477 | ) |  | $ | 5,875,471 |        
|                                   |                                                  |  |              |         |          |   |         |     |             |   |               |   |        |   |            |         |  |   |            |   |  |   |           |        

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

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Polymer Solutions, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(U.S. Dollars)

|                                          |                                                                                   |                                              |                                         |          |                       |          |           |          |         |          |            |            |          |          |  
|----------------------------------------- | --------------------------------------------------------------------------------- | -------------------------------------------- | --------------------------------------- | -------- | --------------------- | -------- | --------- | -------- | ------- | -------- | ---------- | ---------- | -------- | -------- | -
|                                          |                                                                                   |                                              |                                         |          | Years ended March 31,
|                                          |                                                                                   |                                              |                                         |          |                      
|                                          |                                                                                   |                                              |                                         |          | 2003                  |          | 2002      |          | 2001   
|Cash flows from operating activities:     |                                                                                   |                                              |                                         |          |                       |          |           |          |         |          |            |           
|                                          | Net income                                                                        |                                              | $                                       | 922,517  |                       |          | $         | 574,159  |         |          | $          | 1,740,155  |         
|                                          | Adjustments to reconcile net income to net
cash provided by operating activities: |                                              |                                         |          |                       |          |           |          |         |          |            |            |         
|                                          |                                                                                   | Depreciation and amortization                |                                         |          | 249,455               |          |           |          | 347,901 |          |            |            | 352,553  |         
|                                          |                                                                                   | (Gain) loss on disposals of fixed assets     |                                         |          | (300                  | )        |           |          | 994     |          |            |            | (5,055   | )       
|                                          |                                                                                   | Deferred income tax (benefit) expense        |                                         |          | (434,972              | )        |           |          | 203,510 |          |            |            | (757,855 | )       
|                                          |                                                                                   | Variable option based compensation           |                                         |          | 38,514                |          |           |          |        |          |            |            |         |         
|                                          |                                                                                   | Changes in operating assets and liabilities: |                                         |          |                       |          |           |          |         |          |            |            |          |         
|                                          |                                                                                   |                                              | Accounts receivable                     |          |                       | 10,201   |           |          |         | 340,564  |            |            |          | 379,995  |  
|                                          |                                                                                   |                                              | Inventories                             |          |                       | 92,987   |           |          |         | 291,072  |            |            |          | (125,348 | )
|                                          |                                                                                   |                                              | Prepaid expenses and other assets       |          |                       | 25,903   |           |          |         | (101,254 | )          |            |          | 54,864   |  
|                                          |                                                                                   |                                              | Accounts payable                        |          |                       | (176,805 | )         |          |         | (9,407   | )          |            |          | (224,539 | )
|                                          |                                                                                   |                                              | Payroll related and commissions payable |          |                       | 42,391   |           |          |         | (85,757  | )          |            |          | (84,401  | )
|                                          |                                                                                   |                                              | Severance plan liability                |          |                       | (156,953 | )         |          |         | (31,160  | )          |            |          | (27,739  | )
|                                          |                                                                                   |                                              |                                         |          |                       |          |           |          |         |          |            |            |         
|Net cash provided by operating activities |                                                                                   |                                              | 612,938                                 |          |                       |          | 1,530,622 |          |         |          | 1,302,630  |           
|                                          |                                                                                   |                                              |                                         |          |                       |          |           |          |         |          |            |            |         
|Cash flows from investing activities:     |                                                                                   |                                              |                                         |          |                       |          |           |          |         |          |            |           
|                                          | Purchase of fixed assets                                                          |                                              |                                         | (227,373 | )                     |          |           | (47,889  | )       |          |            | (87,599    | )       
|                                          | Proceeds from disposals of fixed assets                                           |                                              |                                         | 300      |                       |          |           | 5,842    |         |          |            | 8,901      |         
|                                          |                                                                                   |                                              |                                         |          |                       |          |           |          |         |          |            |            |         
|Net cash used in investing activities     |                                                                                   |                                              | (227,073                                | )        |                       |          | (42,047   | )        |         |          | (78,698    | )         
|                                          |                                                                                   |                                              |                                         |          |                       |          |           |          |         |          |            |            |         
|Cash flows from financing activities:     |                                                                                   |                                              |                                         |          |                       |          |           |          |         |          |            |           
|                                          | Repurchase of stock                                                               |                                              |                                         | (70,991  | )                     |          |           | (35,153  | )       |          |            |           |         
|                                          | Proceeds from issuance of stock                                                   |                                              |                                         | 2,464    |                       |          |           |         |         |          |            | 411,423    |         
|                                          | Payments on operating line of credit, net                                         |                                              |                                         |         |                       |          |           | (340,991 | )       |          |            | (1,411,676 | )       
|                                          | Payments of capital lease obligations                                             |                                              |                                         | (189,016 | )                     |          |           | (188,088 | )       |          |            | (176,410   | )       
|                                          |                                                                                   |                                              |                                         |          |                       |          |           |          |         |          |            |            |         
|Net cash used in financing activities     |                                                                                   |                                              | (257,543                                | )        |                       |          | (564,232  | )        |         |          | (1,176,663 | )         
|                                          |                                                                                   |                                              |                                         |          |                       |          |           |          |         |          |            |            |         
|Increase in cash                          |                                                                                   |                                              | 128,322                                 |          |                       |          | 924,343   |          |         |          | 47,269     |           
|Cash, beginning of year                   |                                                                                   |                                              | 1,036,709                               |          |                       |          | 112,366   |          |         |          | 65,097     |           
|                                          |                                                                                   |                                              |                                         |          |                       |          |           |          |         |          |            |            |         
|Cash, end of year                         |                                                                                   | $                                            | 1,165,031                               |          |                       | $        | 1,036,709 |          |         | $        | 112,366    |           
|                                          |                                                                                   |                                              |                                         |          |                       |          |           |          |         |          |            |            |         

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

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##### 



Polymer Solutions, Inc. and Subsidiaries
Consolidated Statements of Cash Flows, Continued
(U.S. Dollars)

|                                                                      |                |                                                  |  |                       |        |      |  |      |        |  |  |   |         | 
|--------------------------------------------------------------------- | -------------- | ------------------------------------------------ |  | --------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------- | 
|                                                                      |                |                                                  |  | Years ended March 31,
|                                                                      |                |                                                  |  |                      
|                                                                      |                |                                                  |  | 2003                  |        | 2002 |  | 2001
|Supplemental disclosure of cash flow information:                     |                |                                                  |  |                       |        |      |  |      |        |  |  |  
|                                                                      | Cash paid for: |                                                  |  |                       |        |      |  |      |        |  |  |   |        
|                                                                      |                | Income taxes                                     |  | $                     | 54,000 |      |  | $    | 89,200 |  |  | $ | 27,300  | 
|                                                                      |                |                                                  |  |                       |        |      |  |      |        |  |  |   |         | 
|                                                                      |                | Interest                                         |  | $                     | 22,749 |      |  | $    | 72,063 |  |  | $ | 245,560 | 
|                                                                      |                |                                                  |  |                       |        |      |  |      |        |  |  |   |         | 
|Supplemental schedule of non-cash investing
and financing activities: |                |                                                  |  |                       |        |      |  |      |        |  |  |  
|                                                                      |                | Minority interest shareholder exchange of shares |  | $                     |       |      |  | $    | 45,518 |  |  | $ | 144,898 | 
|                                                                      |                |                                                  |  |                       |        |      |  |      |        |  |  |   |         | 
|                                                                      |                | Acquisition of equipment under capital leases    |  | $                     |       |      |  | $    | 24,490 |  |  | $ | 57,333  | 
|                                                                      |                |                                                  |  |                       |        |      |  |      |        |  |  |   |         | 

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

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##### 



Polymer Solutions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements



|1. |  | Nature of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Polymer Solutions, Inc. (PSI or the 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. and its wholly
owned inactive subsidiaries AMT Environmental Products Inc. and PSI
Acquisitions Corp. 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
and cash. The Company performs credit evaluations of its customers
financial condition and generally does 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 $238,000 and $207,000 at March 31, 2003 and 2002, respectively.
At March 31, 2003, the Company had cash deposited in two financial
institutions that were federally insured up to $100,000 per financial
institution.
|  
|   |  | 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. Repair
and maintenance costs are charged against income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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Polymer Solutions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements



| |  | while improvements are
capitalized as additions to the related assets. Retirements, sales and
disposals of assets are recorded by removing the applicable costs and
accumulated depreciation from the 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. Prior to April 1, 2002
goodwill was amortized on a straight-line basis over a 15-year life.
Effective April 1, 2002 the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets,and accordingly, goodwill is no longer amortized, but is
reviewed at least annually for impairment. Goodwill amortization expense
amounted to $85,600 during the year ended March 31, 2002.
|
| |  | Net income and earnings per share exclusive of amortization related to
goodwill, for the years ended March 31, would have been as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                     

|                                              |                                             |   |         |      |      |   |         |      |  |   |           |      | 
|--------------------------------------------- | ------------------------------------------- | - | ------- | ---- | ---- | - | ------- | ---- |  | - | --------- | ---- | 
|                                              |                                             |   | 2003    |      | 2002 |   | 2001   
|                                              |                                             |   |         |      |      |   |        
|Net income                                    |                                             | $ | 574,159 |      |      | $ | 574,159 |      |  | $ | 1,740,155 |     
|Add back: Goodwill amortization, net of tax   |                                             |   |        |      |      |   | 51,360  |      |  |   | 51,360    |     
|                                              |                                             |   |         |      |      |   |         |      |  |   |           |     
|Adjusted net income                           |                                             | $ | 574,159 |      |      | $ | 625,519 |      |  | $ | 1,791,515 |     
|                                              |                                             |   |         |      |      |   |         |      |  |   |           |     
|Basic and diluted earnings per share:         |                                             |   |         |      |      |   |         |      |  |   |           |     
|                                              | Net income                                  |   | $       | 0.10 |      |   | $       | 0.06 |  |   | $         | 0.19 | 
|                                              | Add back: Goodwill amortization, net of tax |   |         |     |      |   |         | 0.01 |  |   |           |     | 
|                                              |                                             |   |         |      |      |   |         |      |  |   |           |     
|Adjusted basic and diluted earnings per share |                                             | $ | 0.10    |      |      | $ | 0.07    |      |  | $ | 0.19      |     
|                                              |                                             |   |         |      |      |   |         |      |  |   |           |     



| |  | 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 Employeesand 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.

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##### 



Polymer Solutions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements



| |  | 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 expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
See Note 8.                                                                                                                                      
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Recently Issued Accounting Standards
In August and October 2001, the Financial Accounting Standards Board (FASB)
issued SFAS No. 143, Accounting for Obligations Associated with the
Retirement of Long-Lived Assets, and SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, respectively.                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | SFAS No. 143 establishes accounting standards for the recognition and
measurement of an asset retirement obligation and its associated asset
retirement cost. It also provides accounting guidance for legal obligations
associated with the retirement of tangible long-lived assets. SFAS No. 143
is effective in fiscal years beginning after June 15, 2002, with early
adoption permitted. The Company adopted the provisions of SFAS No. 143
effective April 1, 2003.                                                                                                                                                                                                               
|
| |  | SFAS No. 144 establishes a single accounting model for the impairment or
disposal of long-lived assets, including discontinued operations. SFAS No.
144 superseded SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, and APB Opinion No. 30,
Reporting the Results of Operations Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions. The Company adopted the provisions of SFAS No. 144
effective April 1, 2002, which did not have a material impact on the
consolidated results of operations, financial position and cash flows.

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Polymer Solutions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements



|   |  | In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities.The Statement addresses financial
accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
Liabilities Recognition for Certain Employee Termination Benefits and Other
Costs to Exit and Activity (including Certain Costs Incurred in a
Restructuring).The impact of this pronouncement on the Companys financial
statements is not expected to be material.                                                                                                                                                                                       
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, and Interpretation of SFAS 5,
57, and 107 and Recission of FIN 34.The interpretation requires certain
disclosures to be made by a guarantor about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is
required to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. The
initial recognition and measurement provisions are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002.
|  
|3. |  | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | Inventories at March 31, consists of the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

|                                         |  |      |           |      |  |   |           |  
|---------------------------------------- |  | ---- | --------- | ---- |  | - | --------- | -
|                                         |  | 2003 |           | 2002
|                                         |  |      |           |     
|Raw materials and supplies               |  | $    | 887,160   |      |  | $ | 882,163   |  
|Finished goods                           |  |      | 620,337   |      |  |   | 724,811   |  
|Less allowance for slow-moving inventory |  |      | (242,261  | )    |  |   | (248,751  | )
|                                         |  |      |           |      |  |   |           |  
|                                         |  | $    | 1,265,236 |      |  | $ | 1,358,223 |  
|                                         |  |      |           |      |  |   |           |  

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##### 



Polymer Solutions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements



|4. |  | Fixed Assets                                        
|-- |  | ----------------------------------------------------
|  
|   |  | Fixed assets at March 31, consists of the following:

|                       |  |                |           |              |  |             |           |  |  |   |         | 
|---------------------- |  | -------------- | --------- | ------------ |  | ----------- | --------- |  |  | - | ------- | 
|                       |  | March 31, 2003
|                       |  |               
|                       |  |                |           |              |  | Accumulated |           |  |  |  
|                       |  | Cost           |           | Depreciation |  | Net        
|                       |  |                |           |              |  |            
|Laboratory equipment   |  | $              | 145,803   |              |  | $           | 132,787   |  |  | $ | 13,016  | 
|Office equipment       |  |                | 309,670   |              |  |             | 171,984   |  |  |   | 137,686 | 
|Production equipment   |  |                | 1,291,959 |              |  |             | 1,141,133 |  |  |   | 150,826 | 
|Leasehold improvements |  |                | 260,859   |              |  |             | 85,531    |  |  |   | 175,328 | 
|                       |  |                |           |              |  |             |           |  |  |   |         | 
|                       |  | $              | 2,008,291 |              |  | $           | 1,531,435 |  |  | $ | 476,856 | 
|                       |  |                |           |              |  |             |           |  |  |   |         | 

|                       |  |                |           |              |  |             |           |  |  |   |         | 
|---------------------- |  | -------------- | --------- | ------------ |  | ----------- | --------- |  |  | - | ------- | 
|                       |  | March 31, 2002
|                       |  |               
|                       |  |                |           |              |  | Accumulated |           |  |  |  
|                       |  | Cost           |           | Depreciation |  | Net        
|                       |  |                |           |              |  |            
|Laboratory equipment   |  | $              | 139,986   |              |  | $           | 120,345   |  |  | $ | 19,641  | 
|Office equipment       |  |                | 225,906   |              |  |             | 126,243   |  |  |   | 99,663  | 
|Production equipment   |  |                | 1,231,896 |              |  |             | 972,532   |  |  |   | 259,364 | 
|Leasehold improvements |  |                | 184,031   |              |  |             | 63,761    |  |  |   | 120,270 | 
|                       |  |                |           |              |  |             |           |  |  |   |         | 
|                       |  | $              | 1,781,819 |              |  | $           | 1,282,881 |  |  | $ | 498,938 | 
|                       |  |                |           |              |  |             |           |  |  |   |         | 



|   |  | Fixed assets include capital leased assets, net of depreciation, of $33,529
and $173,933 at March 31, 2003 and 2002, respectively. Total depreciation
expense for the years ended March 31, 2003, 2002, and 2001, was $249,255,
$262,357 and $270,988, respectively.                                                                                                                                                                                                                                                  
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|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 due to
rounding. At March 31, 2003 and 2002, there were warrants and options for
350,354 and 2,286,397 shares, respectively, 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. |  | 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 80% of eligible accounts
receivable and 25% of eligible inventories. At March 31, 2003, the maximum
available borrowing under the line was approximately $1.7 million. Interest
is payable on funds advanced at the rate of prime plus 0.25% (4.75% at March
31, 2003). The line of credit is collateralized by accounts receivable and
inventories and expires on November                     

Page 32



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##### 



Polymer Solutions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements



| |  | 30, 2003. The line of credit provides for various financial and non-financial covenants including minimum cash flow ratio, minimum quick ratio, net worth, and capital expenditures.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7.     Capital Lease Obligations



| |  | Capital lease obligations at March 31, consist of the following:
| |  | ----------------------------------------------------------------

|                                                                                                                                                                        |  |      |        |      |  |   |         | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | - | ------- | 
|                                                                                                                                                                        |  | 2003 |        | 2002
|Capital lease obligations bearing interest ranging from 6.46%
to 20.49%, payable in monthly principal and interest
payments and collateralized by the related equipment |  | $    | 59,740 |      |  | $ | 248,756 | 
|Less current portion                                                                                                                                                    |  |      | 45,699 |      |  |   | 174,621 | 
|                                                                                                                                                                        |  |      |        |      |  |   |         | 
|                                                                                                                                                                        |  | $    | 14,041 |      |  | $ | 74,135  | 
|                                                                                                                                                                        |  |      |        |      |  |   |         | 



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

|                               |  |   |       
|------------------------------ |  | - | ------
|For the years ending March 31: |  |   |       
|2004                           |  | $ | 45,699
|2005                           |  |   | 14,041
|                               |  |   |       
|                               |  | $ | 59,740
|                               |  |   |       

8.     Income Taxes



| |  | The benefit (expense) for income taxes for the years ended March 31, consists
of the following:
| |  | -----------------------------------------------------------------------------------------------

|         |          |                              |         |         |         |      |          |          |          |   |         |         |         | 
|-------- | -------- | ---------------------------- | ------- | ------- | ------- | ---- | -------- | -------- | -------- | - | ------- | ------- | ------- | 
|         |          |                              |         | 2003    |         | 2002 |          | 2001    
|         |          |                              |         |         |         |      |          |         
|Federal: |          |                              |         |         |         |      |          |          |          |   |         |        
|         | Current  |                              | $       | 11,822  |         |      | $        |         |          |   | $       | (18,597 | )      
|         | Deferred |                              |         | 281,730 |         |      |          | (271,561 | )        |   |         | 754,082 |        
|         |          |                              |         |         |         |      |          |          |          |   |         |         |        
|         |          |                              | 293,552 |         |         |      | (271,561 | )        |          |   | 735,485 |        
|         |          |                              |         |         |         |      |          |          |          |   |         |         |        
|State:   |          |                              |         |         |         |      |          |          |          |   |         |        
|         | Current  |                              |         | (39,272 | )       |      |          | 1,978    |          |   |         | (19,258 | )      
|         | Deferred |                              |         | 153,242 |         |      |          | 68,051   |          |   |         | 3,773   |        
|         |          |                              |         |         |         |      |          |          |          |   |         |         |        
|         |          |                              | 113,970 |         |         |      | 70,029   |          |          |   | (15,485 | )      
|         |          |                              |         |         |         |      |          |          |          |   |         |         |        
|         |          | Income tax benefit (expense) |         | $       | 407,522 |      |          | $        | (201,532 | ) |         | $       | 720,000 | 
|         |          |                              |         |         |         |      |          |          |          |   |         |         |        

Page 33



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##### 



Polymer Solutions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements



| |  | The tax effects of temporary differences that give rise to significant
portions of the net deferred tax assets at March 31, consists of the
following:
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

|                                 |  |      |           |      |  |   |           |  
|-------------------------------- |  | ---- | --------- | ---- |  | - | --------- | -
|                                 |  | 2003 |           | 2002
|Net operating loss carryforwards |  | $    | 811,810   |      |  | $ | 1,095,401 |  
|Tax credits                      |  |      | 683,791   |      |  |   | 610,517   |  
|State taxes                      |  |      | (90,529   | )    |  |   | (46,853   | )
|Other                            |  |      | 84,245    |      |  |   | 5,387     |  
|                                 |  |      |           |      |  |   |           |  
|                                 |  |      | 1,489,317 |      |  |   | 1,664,452 |  
|Less valuation allowance         |  |      |          |      |  |   | (610,107  | )
|                                 |  |      |           |      |  |   |           |  
|Net deferred tax assets          |  | $    | 1,489,317 |      |  | $ | 1,054,345 |  
|                                 |  |      |           |      |  |   |           |  



| |  | The Company eliminated its deferred tax benefit valuation allowance in 2003
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 certain contingencies that existed prior to fiscal year 2003 surrounding
the utilization of net operating loss carryforwards. As of March 31, 2003,
such contingencies no longer exist.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | At March 31, 2003, management believes that it is more likely than not that
the deferred tax assets will be realized. The total amount of future taxable
income necessary to realize the net operating loss carryforward is
approximately $2.4 million.                                                                                                                                                                  
|
| |  | The expiration dates of the net operating loss carryforwards for federal
purposes are from 2010 to 2021 and for state purposes from 2003 to 2005. The
expiration dates of the tax credits for federal purposes are from 2005 to
2018 and for state purposes credits may be carried forward indefinitely.                                                                                                                 
|
| |  | The income tax rate on earnings differed from the Federal statutory rate for
the years ended March 31, as follows:                                                                                                                                                                                                                                                                                                       

|                                             |  |      |        |      |  |      |      |   |  |  |        |   
|-------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ---- | - |  |  | ------ | --
|                                             |  | 2003 |        | 2002 |  | 2001
|Federal statutory rate                       |  |      | 34.0   | %    |  |      | 34.0 | % |  |  | 34.0   | % 
|State statutory rate, net of federal benefit |  |      | 5.8    |      |  |      | 5.8  |   |  |  | 5.8    |   
|Change in valuation allowance                |  |      | (113.0 | )    |  |      |     |   |  |  | (145.7 | ) 
|Research and development credits             |  |      | (5.7   | )    |  |      | (8.1 | ) |  |  | (9.7   | ) 
|Permanent differences                        |  |      | 0.3    |      |  |      |     |   |  |  | 28.5   |   
|Other                                        |  |      | (0.5   | )    |  |      | (5.7 | ) |  |  | 16.5   |   
|                                             |  |      |        |      |  |      |      |   |  |  |        |   
|Effective rate                               |  |      | (79.1  | %)   |  |      | 26.0 | % |  |  | (70.6  | %)
|                                             |  |      |        |      |  |      |      |   |  |  |        |   

Page 34



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##### 



Polymer Solutions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

9.     Commitments and Contingencies



| |  | Operating leases                                                                                                                                                                                                                                              
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company leases certain facilities under arrangements that contain renewal
options and provide for periodic cost of living adjustments. Rental expense
was $359,610, $350,057 and $358,507 for the years ended March 31, 2003, 2002
and 2001, respectively.
|
| |  | Future minimum rental commitments as of March 31, 2003 under noncancelable
operating leases are as follows:                                                                                                                                                   

|                               |  |   |           | 
|------------------------------ |  | - | --------- | 
|For the years ending March 31: |  |   |           | 
|2004                           |  | $ | 431,172   | 
|2005                           |  |   | 442,476   | 
|2006                           |  |   | 449,058   | 
|2007                           |  |   | 460,740   | 
|2008                           |  |   | 361,851   | 
|Thereafter                     |  |   | 669,312   | 
|                               |  |   |           | 
|                               |  | $ | 2,814,609 | 
|                               |  |   |           | 



|    |  | The Company entered into a ten year lease for a new Sales and Technical
Service facility in Southern California which will commence July 1, 2003 and
will replace the lease on the Los Angeles facility, which is now month to
month. The Company will close the Los Angeles facility in July 2003. The
future minimum rental commitment on the new lease has been included in the
above schedule.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Litigation and Environmental Matters                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | The Company is subject to various claims in the normal course of business.
Management believes these liabilities, if any, will not materially affect the
Companys financial position or results of operations.                                                                                                                                                                                   
|   
|10. |  | Founders Shares                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |  | The Companys transfer agent holds an aggregate of 197,774 of Founders
shares in escrow at March 31, 2003. These shares are releasable from escrow
at various times based on requirements of the TSX Venture Exchange. The
founders have all rights related to these shares except the right to transfer
the shares without the permission of the TSX Venture Exchange.                        

Page 35



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##### 



Polymer Solutions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

11.     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, 2000 |                            |  | 1,125,075  |            |                | $ | 1.05             |      |  |  | 0.74 |     
|                                          | Granted at market value    |  |            | 876,771    |                |   |                  | 1.12 |  |  |      | 0.75 | 
|                                          | Exercised                  |  |            | (5,000     | )              |   |                  | 1.00 |  |  |      | 0.63 | 
|                                          | Forfeited                  |  |            | (534,070   | )              |   |                  | 1.06 |  |  |      | 0.67 | 
|                                          |                            |  |            |            |                |   |                  |      |  |  |      |     
|Stock options outstanding, March 31, 2001 |                            |  | 1,462,776  |            |                |   | 1.09             |      |  |  | 0.77 |     
|                                          | Granted at market value    |  |            | 543,692    |                |   |                  | 0.73 |  |  |      | 0.46 | 
|                                          | Forfeited                  |  |            | (180,071   | )              |   |                  | 0.95 |  |  |      | 0.61 | 
|                                          |                            |  |            |            |                |   |                  |      |  |  |      |     
|Stock options outstanding, March 31, 2002 |                            |  | 1,826,397  |            |                |   | 1.00             |      |  |  | 0.69 |     
|                                          | Granted at market value    |  |            | 896,719    |                |   |                  | 0.40 |  |  |      | 0.26 | 
|                                          | Granted above market value |  |            | 203,454    |                |   |                  | 0.68 |  |  |      | 0.44 | 
|                                          | Exercised                  |  |            | (9,528     | )              |   |                  | 0.40 |  |  |      | 0.27 | 
|                                          | Forfeited and expired      |  |            | (1,546,108 | )              |   |                  | 1.03 |  |  |      | 0.69 | 
|                                          |                            |  |            |            |                |   |                  |      |  |  |      |     
|Stock options outstanding, March 31, 2003 |                            |  | 1,370,934  |            |                |   | 0.53             |      |  |  | 0.37 |     
|                                          |                            |  |            |            |                |   |                  |      |  |  |      |     
|Stock options exercisable, March 31, 2003 |                            |  | 1,290,934  |            |                |   | 0.63             |      |  |  | 0.48 |     
|                                          |                            |  |            |            |                |   |                  |      |  |  |      |     



| |  | Options outstanding at March 31, 2003 had a weighted average remaining
contractual life ranging from 1.95 to 2.34 years and had exercise prices
ranging from $.26 (Cdn$.40) to $.78 (Cdn$2.00) per share.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The warrants outstanding at March 31, 2003 are as follows:                                                                                                                                               

|                                    |           |  |            |            |                |   |                  |      |  |   |      |      | 
|----------------------------------- | --------- |  | ---------- | ---------- | -------------- | - | ---------------- | ---- |  | - | ---- | ---- | 
|                                    |           |  |            |            |                |   | Weighted-average
|                                    |           |  | Underlying |            | Exercise price
|                                    |           |  | Shares     |            | CDN            |   | U.S.            
|Warrants outstanding
March 31, 2000 |           |  | 3,065,665  |            |                | $ | 1.12             |      |  | $ | .78  |     
|                                    | Exercised |  |            | (671,100   | )              |   |                  | 0.90 |  |   |      | 0.57 | 
|                                    | Expired   |  |            | (573,400   | )              |   |                  | 1.06 |  |   |      | 0.67 | 
|                                    |           |  |            |            |                |   |                  |      |  |   |      |     
|Warrants outstanding
March 31, 2001 |           |  | 1,821,165  |            |                |   | 1.15             |      |  |   | 0.72 |     
|                                    | Expired   |  |            | (1,221,165 | )              |   |                  | 1.18 |  |   |      | 0.74 | 
|                                    |           |  |            |            |                |   |                  |      |  |   |      |     
|Warrants outstanding
March 31, 2002 |           |  | 600,000    |            |                |   | 1.10             |      |  |   | 0.69 |     
|                                    | Forfeited |  |            | (600,000   | )              |   |                  | 1.10 |  |   |      | 0.69 | 
|                                    |           |  |            |            |                |   |                  |      |  |   |      |     
|Warrants outstanding
March 31, 2003 |           |  |           |            |                |   |                 |      |  |   |     |     
|                                    |           |  |            |            |                |   |                  |      |  |   |      |     

Page 36



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##### 



Polymer Solutions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements



| |  | On August 15, 2002, 2,137,499 outstanding stock options and warrants granted
to employees, officers, consultants and directors, with exercise prices
between $.78 and $.53 per share, were reissued and repriced into options to
purchase 816,719 shares at an exercise price of $0.26 (Cdn$0.40) per share.
The repriced options are being accounted for as variable from August 15, 2002
to the date the options are exercised, forfeited, or expire unexercised.
During the year ended March 31, 2003, compensation expense of $38,514 has
been recorded in connection with these options.                                                                                                                                                                                                                                       
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | For purposes of the pro forma disclosures required by SFAS No. 123, the
estimated fair value of options and warrants is recognized as expense upon
issuance as the options and warrants are immediately vested. The fair value
of each option and warrant grant is estimated at the date of grant using the
Black-Scholes option-pricing model. The Black-Scholes model was developed
for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input 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 2003 would not have been significantly
different than reported if the Company had accounted for its stock options
and warrants using the fair value based method of accounting established by
SFAS 123. The following weighted average assumptions were used in the option
pricing model to determine the fair value of the options: dividend yield of
0%, expected volatility of 20%, risk-free interest rate ranging from 2.11% to
2.22% and expected lives of 1.5 to 3 years.                                                                                                                                                                                                                                       

12.     401 (k) Retirement Plan



| |  | The Company has a 401 (k) retirement plan under which eligible employees may
contribute up to 15% of compensation, and the Company matches 100% of
contributions up to a maximum of 2% of the employees compensation. Employer
matching contributions for the fiscal years ended March 31, 2003, 2002 and 2001
were $37,452, $35,659 and $9,663, respectively.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Page 37



---



##### 



|        |  |                                                                                      
|------- |  | -------------------------------------------------------------------------------------
|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.

For information with respect to our directors, see our definitive Proxy
Statement (the Proxy Statement) for our Annual Meeting of Stockholders to be
held August 14, 2003 (the Annual Meeting), under the caption Election of
Directors, which is incorporated herein by reference. The information
required in this item regarding our executive officers is set forth in Part I
of this Form 10-K Annual Report under the heading Business-Management, which
is incorporated herein by reference.

The information regarding compliance with Section 16 of the Securities and
Exchange Act of 1934 by our directors and executive officers and holders of ten
percent of a registered class of our equity securities is incorporated by
reference to our Proxy Statement under the caption Section 16(a) Beneficial
Ownership Reporting Compliance.

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

The information required by this item regarding compensation of executive
officers and directors is incorporated by reference to our Proxy Statement for
the Annual Meeting.

|         |  |                                                                                                
|-------- |  | -----------------------------------------------------------------------------------------------
|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

For information with respect to the security ownership of directors and
executive officers, see the Proxy Statement for our Annual Meeting, under the
caption, Security Ownership of Certain Beneficial Owners and Management,
which is incorporated by reference herein.

The information required by this item regarding equity compensation plan
information is incorporated herein by reference from the Proxy Statement for
our Annual Meeting under the caption Equity Compensation Plan Information.

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

The information required by this item is incorporated by reference to our Proxy
Statement for the Annual Meeting under the caption Certain Relationships and
Related Transactions.

|         |  |                         
|-------- |  | ------------------------
|ITEM 14. |  | CONTROLS AND PROCEDURES.

Within the 90 days prior to the date of filing this Annual Report on Form 10-K,
we carried out an evaluation of the effectiveness of the design and operation
of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14
under the supervision and with the participation of our management, including
our Chief Executive Officer and the Corporate Controller. Based upon that
evaluation, our Chief Executive Officer and Corporate Controller concluded that
our disclosure controls and procedures are effective in timely alerting them to
material information relating to us (including our consolidated subsidiaries)
required to be included in our periodic SEC filings. Subsequent to the date of

Page 38



---



##### 



that evaluation, there have been no significant changes in our internal
controls or in other factors that could significantly affect internal controls,
nor were any corrective actions required with regard to significant
deficiencies and material weaknesses.

PART IV

|         |  |                                                                              
|-------- |  | -----------------------------------------------------------------------------
|ITEM 15. |  | FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.

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



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



| |  |  | The index for the following documents is located on page 22:                                                                                                                  
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Report of PricewaterhouseCoopers LLP, Certified Public Accountants on
the Consolidated Financial Statements of the Company for the Fiscal
Years Ended March 31, 2003 and 2002.
|
| |  |  | Consolidated Balance Sheets as of March 31, 2003 and 2002.                                                                                                                    
|
| |  |  | Consolidated Statements of Operations for the Years Ended March 31,
2003, 2002 and 2001.                                                                                      
|
| |  |  | Consolidated Statements of Changes in Shareholders Equity for the
Years Ended March 31, 2003, 2002 and 2001.                                                                 
|
| |  |  | Consolidated Statements of Cash Flows for the Years Ended March 31,
2003, 2002 and 2001.                                                                                      
|
| |  |  | Notes to Consolidated Financial Statements.                                                                                                                                   



|(ii) |  | Financial Statement Schedules
|---- |  | -----------------------------



| |  |  | Schedule III - Supplementary financial information required by
Item 302 of Regulations S-K is located on page 40.                                                                                                       
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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 44 are filed or
incorporated by reference as part of this Annual Report on Form
10-K.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------

(b)     Reports on Form 8-K.



| |  |  | Not applicable
| |  |  | --------------

Page 39



---



##### 



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    
|                                       |  |            |           |            |  |            |           |           
|2003                                   |  |            |           |            |  |            |           |            |  |   |           |  |  |   |           |  
|Net revenue                            |  | $          | 3,722,117 |            |  | $          | 3,916,601 |            |  | $ | 3,814,494 |  |  | $ | 3,446,030 |  
|Gross Profit                           |  |            | 1,104,231 |            |  |            | 1,156,805 |            |  |   | 1,038,700 |  |  |   | 808,559   |  
|Income from operations                 |  |            | 264,979   |            |  |            | 278,576   |            |  |   | 100,022   |  |  |   | (106,226  | )
|Income before income taxes             |  |            | 257,361   |            |  |            | 272,086   |            |  |   | 95,197    |  |  |   | (109,649  | )
|Net income                             |  |            | 167,231   |            |  |            | 168,807   |            |  |   | 64,313    |  |  |   | 522,166   |  
|Net income per share - basic & diluted |  |            | 0.02      |            |  |            | 0.02      |            |  |   | 0.01      |  |  |   | 0.02      |  
|2002                                   |  |            |           |            |  |            |           |            |  |   |           |  |  |   |           |  
|Net revenue                            |  | $          | 3,685,240 |            |  | $          | 3,853,965 |            |  | $ | 3,490,215 |  |  | $ | 3,574,721 |  
|Gross Profit                           |  |            | 1,148,989 |            |  |            | 1,105,740 |            |  |   | 952,160   |  |  |   | 891,430   |  
|Income from operations                 |  |            | 328,016   |            |  |            | 238,454   |            |  |   | 126,687   |  |  |   | 153,307   |  
|Income before income taxes             |  |            | 299,531   |            |  |            | 220,570   |            |  |   | 112,008   |  |  |   | 143,581   |  
|Net income                             |  |            | 190,377   |            |  |            | 127,591   |            |  |   | 64,313    |  |  |   | 191,878   |  
|Net income per share - basic & diluted |  |            | 0.02      |            |  |            | 0.01      |            |  |   | 0.01      |  |  |   | 0.02      |  

Page 40





---



##### 



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. corporation

|                              |  |                                                    
|----------------------------- |  | ---------------------------------------------------
|/s/ E. Laughlin Flanagan      |  | /s/ Charlene Bellante                              
|                              |  |                                                    
|E. Laughlin Flanagan          |  | Charlene Bellante                                  
|President, CEO & Director     |  | Corporate Controller, Assistant Secretary/Treasurer
|(Principal Executive Officer) |  | (Principal Financial and Accounting Officer)       
|                              |  |                                                    
|Dated: June 04, 2003          |  |                                                    

POWER OF ATTORNEY

Each person whose individual signature appears below hereby authorizes and
appoints E. Laughlin Flanagan and Gordon Ellis, and each of them, with full
power of substitution and resubstitution and full power to act without the
other, as his true and lawful attorney-in fact and agent to act in his name,
place below, and to file, any and all amendments to this Form 10-K Annual
Report, including any an all amendments thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing, ratifying and confirming all that said attorneys-in-fact
and agents or any of them or their or his substitute or substitutes may
lawfully do or cause to be done by virtue thereof.

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 6th day of June, 2003.

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

John J. Sutherland |  | Director                 |  |                      |  |                         

Page 41





---



##### 



CERTIFICATION

I, E. Laughlin Flanagan, President and Chief Executive Officer of Polymer
Solutions, Inc., certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Polymer Solutions,
Inc.;                                                                                                                                                                                                                                             
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: June 12, 2003

/s/ E. Laughlin Flanagan
E. Laughlin Flanagan
President, CEO & Director

Page 42





---



##### 



CERTIFICATION

I, Charlene Bellante, Corporate Controller, Assistant Secretary/Treasurer of
Polymer Solutions, Inc., certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Polymer Solutions,
Inc.;                                                                                                                                                                                                                                             
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: June 12, 2003

/s/ Charlene Bellante
Charlene Bellante
Corporate Controller, Assistant Secretary/Treasurer

Page 43





---



##### 



EXHIBIT INDEX

|     |  |     |  |                                                                                                                                                   
|---- |  | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | [1] |  | Articles of Incorporation                                                                                                                         
|     |  |     |  |                                                                                                                                                   
|3.2  |  | [1] |  | By-Laws                                                                                                                                           
|     |  |     |  |                                                                                                                                                   
|10.1 |  | [2] |  | U.S. Cellulose Employee Severance Plan effective October 15, 1999                                                                                 
|     |  |     |  |                                                                                                                                                   
|10.2 |  | [3] |  | Directors, Consultants and Employees 1998 Stock Option Plan                                                                                       
|     |  |     |  |                                                                                                                                                   
|10.3 |  | [1] |  | Employment Agreement of William Albert Maligie                                                                                                    
|     |  |     |  |                                                                                                                                                   
|10.4 |  | [1] |  | Employment Agreement of E. Laughlin Flanagan                                                                                                      
|     |  |     |  |                                                                                                                                                   
|10.5 |  | [1] |  | Lease of 311 Otterson Drive, Suite 60, Chico, CA 95928                                                                                            
|     |  |     |  |                                                                                                                                                   
|11.1 |  | [1] |  | Statement Regarding Computation of Per Share Earnings                                                                                             
|     |  |     |  |                                                                                                                                                   
|21.1 |  | [4] |  | List of Subsidiaries of the Company                                                                                                               
|     |  |     |  |                                                                                                                                                   
|24.1 |  | [1] |  | Powers of attorney (located on the signature page of this Form 10-K)                                                                              
|     |  |     |  |                                                                                                                                                   
|99.1 |  | [1] |  | Certification of Chief Executive Officer pursuant to
18. U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|     |  |     |  |                                                                                                                                                   
|99.2 |  | [1] |  | Certification of Corporate Controller pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002    



---

|[1] | Filed herewith.                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------
|   
|[2] | Incorporated by reference to Exhibit 2.3 to the Companys current report
on Form 8-K filed on November 2, 1999.                     
|   
|[3] | Incorporated by reference to Exhibit 10.2 to the Form 10-K filed with the
Companys Annual Report for the year ended March 31, 2002.
|   
|[4] | Incorporated by reference to Exhibit 21.1 to the Form 10-K filed with the
Companys Annual Report for the year ended March 31, 2000.

Page 44