United States
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form 10-Q

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

For the quarterly period ended June 30, 2003

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to .

Commission File Number 0-18583

Polymer Solutions, Inc.

(Exact name of registrant as specified in its charter)


Nevada, U.S.A.		88-0360526

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

312 Otterson Dr. Suite H
Chico, California 95928

(Address of principal executive offices)

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

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 þ No o

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


Title of Class		No. of Shares

Common Shares, par value $0.001		9,310,400

POLYMER SOLUTIONS, INC.
Quarterly Report on Form 10-Q
For the Three Months Ended June 30, 2003

TABLE OF CONTENTS


Item			Page
Number			Number

		PART I — FINANCIAL INFORMATION

1.	Financial Statements

	Consolidated Balance Sheets at June 30, 2003 and March 31, 2003			3

	Consolidated Statements of Operations for the three months ended June 30, 2003 and 2002			4

	Consolidated Statements of Cash Flows for the three months ended June 30, 2003 and 2002			5

	Notes to Consolidated Financial Statements			6

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			9

		PART II — OTHER INFORMATION

1.	Legal Proceedings			16
2.	Changes in Securities and Use of Proceeds			16
3.	Defaults Upon Senior Securities			16
4.	Submission of matters to a vote of securities holders			16
5.	Other Information			16
6.	Exhibits Index and Reports on Form 8-K			16

SIGNATURES				19

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

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

Polymer Solutions, Inc. and Subsidiaries

Consolidated Balance Sheets
(U.S. Dollars)


			June 30,			March 31,
			2003			2003

			(Unaudited)
Assets
Current assets:
	Cash		$	941,830		$	1,165,031
	Accounts receivable, net			1,838,347			1,643,305
	Inventories, net			1,446,362			1,265,236
	Prepaid expenses and other assets			266,903			140,847
	Deferred income taxes, current			351,300			351,300

		Total current assets		4,844,742			4,565,719
Fixed assets, net				466,942			476,856
Deferred income taxes				1,174,693			1,138,017
Goodwill				1,072,863			1,072,863

		Total assets	$	7,559,240		$	7,253,455

Liabilities and Shareholders’ Equity
Current liabilities:
	Accounts payable		$	1,138,119		$	892,337
	Payroll related and commissions payable			259,316			282,024
	Current portion of severance liability			79,853			79,853
	Current portion of capital lease obligations			18,031			45,699

		Total current liabilities		1,495,319			1,299,913
	Capital lease obligations, net of current portion			12,092			14,041
	Severance plan liability, net of current portion			52,441			64,030

		Total liabilities		1,559,852			1,377,984

Commitments and contingencies (Note 7)
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; June 30, 2003: issued 9,684,700 and outstanding 9,310,400 and				9,685			9,627
	March 31, 2003: issued 9,626,492 and outstanding 9,252,192 Treasury stock, at cost; 374,300 shares			(106,144	)		(106,144	)
Additional paid-in capital				12,324,200			12,143,465
Accumulated deficit				(6,228,353	)		(6,171,477	)

		Total shareholders’ equity		5,999,388			5,875,471

		Total liabilities and shareholders’ equity	$	7,559,240		$	7,253,455

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

Polymer Solutions, Inc. and Subsidiaries

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


		Three months ended June 30,

		2003			2002

Sales revenue		$	3,778,227		$	3,722,117
Cost of goods sold			2,826,474			2,617,886

			951,753			1,104,231

Corporate and administrative expenses:
	Marketing and sales		303,400			283,982
	General and administrative		568,579			413,219
	Research and development		166,516			142,051

			1,038,495			839,252

(Loss) income from operations			(86,742	)		264,979
Interest expense			(2,163	)		(7,618	)

(Loss) income before provision for income taxes			(88,905	)		257,361
Income tax (benefit) expense			(32,029	)		90,130

Net (loss) income		$	(56,876	)	$	167,231

Basic and diluted (loss) earnings per share		$	(.01	)	$	.02

Weighted average basic number of shares outstanding			9,055,058			9,188,088

Weighted average diluted number of shares outstanding			9,307,662			9,188,088

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

Polymer Solutions, Inc. and Subsidiaries

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


				Three months ended June 30,

				2003			2002

Cash flows from operating activities:
	Net (loss) income			$	(56,876	)	$	167,231
	Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
		Depreciation and amortization			43,182			65,345
		Gain on disposals of fixed assets			—			(300	)
		Deferred income tax (benefit) expense			(36,676	)		90,339
		Variable option based compensation			161,293			—
		Changes in operating assets and liabilities:
			Accounts receivable		(195,042	)		(22,200	)
			Inventories		(181,126	)		(35,806	)
			Prepaid expenses and other assets		(126,056	)		(24,249	)
			Accounts payable		245,782			(150,102	)
			Payroll related and commissions payable		(22,708	)		30,923
			Severance plan liability		(11,589	)		(7,312	)

Net cash (used in) provided by operating activities					(179,816	)		113,869

Cash flows from investing activities:
	Purchase of fixed assets				(33,268	)		(43,503	)
	Proceeds from disposals of fixed assets				—			300

Net cash used in investing activities					(33,268	)		(43,203	)

Cash flows from financing activities:
	Repurchase of stock				—			(43,229	)
	Proceeds from issuance of stock				19,500			—
	Payments of capital lease obligations				(29,617	)		(46,343	)

Net cash used in financing activities					(10,117	)		(89,572	)

Decrease in cash					(223,201	)		(18,906	)
Cash, beginning of year					1,165,031			1,036,709

Cash, end of period				$	941,830		$	1,017,803

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

Polymer Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

1.		Basis of Presentation

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

2.		Inventories

		Inventories consist of the following:


	June 30,			March 31,
	2003			2003

Raw materials and supplies	$	1,026,070		$	887,160
Finished goods		654,471			620,337
Less allowance for slow-moving inventory		(234,179	)		(242,261	)

	$	1,446,362		$	1,265,236

3.		The Economic Value Added Compensation Program (The EVA Plan)

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

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

Polymer Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

		The Bonus Bank Balance is paid to a participant in cash upon the occurrence of any of the following events: (1) retirement of a participant at the age of 55 or older; (2) the termination or suspension of the plan for a period of more than 90 days; or (3) upon the purchase of 45% or more by a person or group, as defined, of the voting stock of the Company. At June 30, 2003, the Bonus Bank Balance for all participants amounted to approximately $276,000.

4.		Earnings Per Share (“EPS”)

		The Company’s basic net (loss) income per share is computed by dividing net (loss) income by the weighted average number of outstanding common shares. The diluted EPS amounts are the same as the basic EPS for all periods presented due to rounding. At June 30, 2003, there were options for 960,693 shares that were dilutive and included in the diluted EPS. At June 30, 2003, there were options for 348,641 shares that could potentially dilute basic EPS in the future.

5.		Common Stock

		During the quarter ended June 30, 2003, the Company issued 58,208 shares of its common stock on the exercise of stock options at an exercise price of $0.26 (Cdn $0.40) per share.

6.		Stock Options

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

		On August 15, 2002, 2,137,499 outstanding stock options and warrants granted to employees, officers, consultants and directors, with exercise prices between $.78 and $.53 per share, were reissued and repriced into options to purchase 816,719 shares at an exercise price of $0.26 (Cdn$0.40) per share. The repriced options are being accounted for as variable from August 15, 2002 to the date the options are exercised, forfeited, or expire unexercised. During the quarter ended June 30, 2003, compensation expense of approximately $161,000 has been recorded in connection with these options.

		For purposes of the pro forma disclosures required by SFAS No. 123, the estimated fair value of options and warrants is recognized as expense upon issuance as the options and warrants are immediately vested. The fair value of each option and warrant grant is estimated at the

Polymer Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

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

7.		Commitments and Contingencies

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

8.		Subsequent Event

		On August 4, 2003, The Company signed a letter of intent to sell 100% of its issued and outstanding stock to Chemcraft Holdings Inc., a North Carolina corporation. If the transaction is consummated, the existing shareholders and optionholders of Polymer Solutions will receive cash in exchange for their securities.


Item 2	–	Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Three Months Ended June 30, 2003

OVERVIEW

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

RESULTS OF OPERATIONS

Sales revenues increased 2% to $3,778,227 for the three months ended June 30, 2003, compared to the same prior year period.

Gross profit for the first quarter decreased 14% to $951,753 from $1,104,231 for the comparable period last year due to an increase in raw material costs, wages and benefits.

Marketing and sales expense for the three months ended June 30, 2003 totaled $303,400, an increase of 7% from $283,982 in the comparable prior year period due to an increase in wages and benefits.

General and administrative expenses for the first quarter were $568,579 versus $413,219 for the same prior year period, an increase of 38% due primarily to variable stock option based compensation.

Research and development expenses were $166,516 during the first quarter, versus $142,051 for the same prior year period, reflecting a 17% increase due to an increase in wages and benefits.

Interest expense totaled $2,163 for the three months ended June 30, 2003 compared to $7,618 in the same prior year period reflecting a 72% decrease resulting from the pay down of capital lease obligations.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2003, the Company had $941,830 in cash compared to $1,165,031 at the end of fiscal 2003. Cash flow used in operating activities totaled $179,816 for the first three months of fiscal year 2004, versus cash provided by operations of $113,869 in the comparable prior year period. This is due to a decrease in net income, slower collections on receivables as well as an increase in inventory. Capital additions were $33,268 in the three months ended June 30, 2003, compared to $43,503 for the same period a year ago. There were no cash payments for

repurchase of stock during the first quarter of fiscal 2004, versus $43,229 in the comparable prior year period.

The Company has a positive working capital of $3,349,423 at June 30, 2003, versus $3,265,806 at March 31, 2003. The current ratio at June 30, 2003 was 3.2:1 compared with 3.5:1 for the fiscal 2003 year end ratio.

OUTLOOK

In fiscal year 2004, the Company is pursuing additional internal sales growth, and will continue to aggressively seek opportunities to create a meaningful increase in shareholder value for our investors through future acquisitions, joint ventures, and other strategic alliances that will utilize capacity of our state of the art manufacturing plant by adding new customers and improved products.

SIGNIFICANT ACCOUNTING POLICIES

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

DESCRIPTION OF NEVADA LAW

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

corporation owned by the “interested stockholder,” or (f) the receipt of benefits, except proportionately as a stockholder, of any loans, advances or other financial benefits by an “interested stockholder.” An “interested stockholder” is a person who, together with affiliates and associates, beneficially owns (or within the prior three years, did beneficially own) 10% or more of the corporation’s voting stock.

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

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

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

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

RISK FACTORS

The following risk factors and other information included in this 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 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 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.

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

PART II — OTHER INFORMATION


Item 1.		Legal Proceedings
		None
Item 2.		Changes in Securities and Use of Proceeds
		During the quarter ended June 30, 2003, the Company issued 58,208 shares of its common stock on the exercise of stock options at an exercise price of $0.26 (Cdn $0.40) per share.
Item 3.		Defaults Upon Senior Securities
		None
Item 4.		Submission of Matters to a Vote of Securities Holders
		None
Item 5.		Other Information
		None
Item 6.		Exhibits and Reports on Form 8-K
		Form 8-K filed June 16, 2003 and July 22, 2003

CERTIFICATION

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

1.		I have reviewed this quarterly report on Form 10-Q 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 quarterly 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 quarterly 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 quarterly 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 quarterly report (the “Evaluation Date”); and

	c)		presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

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

The registrant’s other certifying officers and I have indicated in this quarterly 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: August 7, 2003

/s/ E. Laughlin Flanagan

E. Laughlin Flanagan
President, CEO & Director

CERTIFICATION

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

1.		I have reviewed this quarterly report on Form 10-Q 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 quarterly 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 quarterly 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 quarterly 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 quarterly report (the “Evaluation Date”); and

	c)		presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

	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

Date: August 7, 2003

/s/ Charlene Bellante

Charlene Bellante
Corporate Controller, Assistant Secretary/Treasurer

SIGNATURES

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

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

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

3. To my knowledge, the information in this report fairly presents, in all material respects, the financial condition and results of operations as of June 30, 2003.


Date: August 7, 2003		/s/ Flanagan E. Laughlin Flanagan President and CEO

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

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

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

3. To my knowledge, the information in this report fairly presents, in all material respects, the financial condition and results of operations as of June 30, 2003.


Date: August 7, 2003		/s/ Bellante Charlene Bellante Corporate Controller

POLYMER SOLUTIONS INC 10-Q