**SECURITIES & EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-QSB**

 
| **ý** | **QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|------------|----------------------------------------------------------------------------------------------|

 

**For the quarterly period ended June 30, 2002**

 
| **o** | **TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)** |
|-------|-------------------------------------------------------------------------------------------------------------|

 

**Commission File No. 000-24551**

 

**COMPOSITE SOLUTIONS, INC.**

(Name of Small Business Issuer in itsCharter)

 

 

| **Florida**                    |   | **65-0790758**     |
|--------------------------------|--------|--------------------|
| State or other jurisdiction of |   | I.R.S. Employer    |
| incorporation or organization  |   | Identification No. |

 

| **3252 Holiday  Court, Suite 206, La Jolla, California** |   | **92122** |
|----------------------------------------------------------|--------|-----------|
| Address of principal executive  office                   |   | Zip Code  |

 

Issuer’s  telephone number:  **(858) 459–4843**

 

 

Former name and address, ifchanged since last report

 

Check whether the issuer has(1) filed all reports required by Section 13 or 15(d) of the Exchange Actduring the past 12 months, and (2) been subject to such filing requirements forthe past ninety (90) days.  Yes  ý  No  o

 

 

As of June 30, 2002,17,091,320 shares of Common Stock were outstanding.

 

 

----

 

**PART 1 - FINANCIAL INFORMATION**

 

**Item 1. Financial Statements.**

 

                The following consolidated financial statementscontain information regarding the Company’s balance sheet, profit & loss,shareholder’s equity, and cash flow for the quarters ended June 30, 2002 and2001.

 

 

 

**INDEX TO FINANCIAL STATEMENTS**

 

Accountant’sReview Report

 

Balance Sheets

 

Statements ofOperations

 

Statementsof Changes in Stockholders’ Equity

 

Statements of CashFlows

 

Notes toFinancial Statements

 

----

 

**Accountants’ Review Report**

 

 

To the Board of Directors andStockholders

Composite Solutions, Inc. andSubsidiaries

 

We have reviewed theaccompanying consolidated balance sheets of Composite Solutions, Inc. (adevelopment stage company) and subsidiaries as of June 30, 2002 and 2001, andthe related consolidated statements of operations, changes in shareholders’equity and cash flows for the three and nine months then ended and the periodOctober 20, 1997 to June 30, 2002, in accordance with Statements on Standardsfor Accounting and Review Services issued by the American Institute ofCertified Public Accountants.  Allinformation included in these financial statements is the representation of themanagement of Composite Solutions, Inc. and subsidiaries.

 

A review consists principallyof inquiries of Company personnel and analytical procedures applied tofinancial data.  It is substantiallyless in scope than an audit in accordance with generally accepted auditingstandards, the objective of which is the expression of an opinion regarding theconsolidated financial statements taken as a whole.  Accordingly, we do not express such an opinion.

 

Based on our reviews, we arenot aware of any material modifications that should be made to the accompanyingfinancial statements in order for them to be in conformity with generallyaccepted accounting principles in the United States.

 

The consolidated financialstatements of Composite Solutions, Inc. and subsidiaries as of September 30,1999 and 1998 and for the period October 20, 1997 (inception) to September 30,1999 were audited by other accountants, whose report dated December 17, 1999,expressed an unqualified opinion on those statements.

 

 

 

Peterson& Co.

 

 

SanDiego, California

August20, 2002

 

----

 

**COMPOSITESOLUTIONS, INC AND SUBSIDIARIES**

(A Development Stage Company)

**Consolidated BalanceSheets**

 
|                                                                                                                                                            |   | **June 30,** |      |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|-----------|
|                                                                                                                                                            |   | **2002**     |      | **2001** |   |
| **ASSETS**                                                                                                                                                      |   |
|                                                                                                                                                            |   |         |      |   |   |
| **Current  assets**                                                                                                                                             |   |         |      |   |   |
| Cash                                                                                                                                                            |   | $            | 70        |   | $ | 1,295 |   |
| Costs in excess of billings                                                                                                                                     |   | 68,732       |      | — |   |
| Prepaid expenses                                                                                                                                                |   | 574          |      | 1,254 |   |
| Other current assets                                                                                                                                            |   | 46           |      | — |   |
|                                                                                                                                                            |   |         |      |   |   |
| Total current assets                                                                                                                                            |   | 69,422       |      | 2,549 |   |
|                                                                                                                                                            |   |         |      |   |   |
| **Property,  plant and equipment, net**                                                                                                                         |   | 3,310        |      | 17,248 |   |
|                                                                                                                                                            |   |         |      |   |   |
| **Other  assets**                                                                                                                                               |   |         |      |   |   |
| Intangible assets, net                                                                                                                                          |   | 1,021,652    |      | 1,143,399 |   |
| Deposits                                                                                                                                                        |   | 11,697       |      | 20,845 |   |
|                                                                                                                                                            |   |         |      |   |   |
| Total assets                                                                                                                                                    |   | $            | 1,106,081 |   | $ | 1,184,041 |   |
|                                                                                                                                                            |   |         |      |   |   |
| **LIABILITIES AND  SHAREHOLDERS’ EQUITY**                                                                                                                  |   |
|                                                                                                                                                            |   |         |      |   |   |
| **Current  liabilities**                                                                                                                                        |   |         |      |   |   |
| Accounts payable                                                                                                                                                |   | $            | 393,130   |   | $ | 360,384 |   |
| Employee payable                                                                                                                                                |   | 416,734      |      | — |   |
| Related party payable                                                                                                                                           |   | 50,000       |      | — |   |
| Line of credit                                                                                                                                                  |   | 51,396       |      | 51,388 |   |
| Note payable                                                                                                                                                    |   | 80,500       |      | — |   |
| Related party notes payable                                                                                                                                     |   | 146,977      |      | 230,288 |   |
| Accrued expenses                                                                                                                                                |   | 268,274      |      | 80,267 |   |
| Income taxes payable                                                                                                                                            |   | 3,200        |      | — |   |
|                                                                                                                                                            |   |         |      |   |   |
| Total current liabilities                                                                                                                                       |   | 1,410,211    |      | 722,327 |   |
|                                                                                                                                                            |   |         |      |   |   |
| **Shareholders’  equity**                                                                                                                                  |   |         |      |   |   |
| Preferred stock; $0.0001 par  value; 10,000,000shares authorized; 0 shares issued and outstanding                                                               |   |         |      |   |   |
| Common stock; $0.0001 par  value; 50,000,000shares authorized; 17,091,320 and 14,333,464 shares issued and outstanding at June 30, 2002 and 2001,  respectively |   | 1,708        |      | 1,434 |   |
| Additional paid in capital                                                                                                                                      |   | 3,452,518    |      | 3,089,409 |   |
| Accumulated deficit                                                                                                                                             |   | (3,758,356   | )         | (2,629,129 | ) |
|                                                                                                                                                            |   |         |      |   |   |
| Total shareholders’ equity                                                                                                                                 |   | (304,130     | )         | 461,714 |   |
|                                                                                                                                                            |   |         |      |   |   |
| Total liabilities and  shareholders’ equity                                                                                                                |   | $            | 1,106,081 |   | $ | 1,184,041 |   |

 

The accompanying notes are anintegral part of these financial statements.

 

 

2

----

 

**COMPOSITE SOLUTIONS, INC AND SUBSIDIARIES**

(ADevelopment Stage Company)

**Consolidated Statements of Operations**

 

 

 
|                                                  | ** ** | **Three  Months Ended  June 30,** | ** ** | **Nine  Months Ended********June 30,** | ** ** | **October  20, 1997********(Inception)  to  June 30,** | ** ** |
|-------------------------------------------------------|------------|-----------------------------------|------------|----------------------------------------|------------|--------------------------------------------------------|------------|
|                                                  |       | **2002**                          |       | **2001**                               |       | **2002**                                               |       | **2001** |   | **2002** |   |
| **Revenues**                                          |       | $                                 | 5,384      |                                   | $          | 10,400                                                 |       | $ | 227,060 |   | $ | 52,402 |   | $ | 309,157 |   |
| **Cost of sales**                                     |       | 4,552                             |       | 5,098                                  |       | 138,323                                                |       | 21,449 |   | 185,010 |   |
|                                                  |       |                              |       |                                   |       |                                                   |       |   |   |   |   |
| Gross  profit                                         |       | 832                               |       | 5,302                                  |       | 88,737                                                 |       | 30,953 |   | 124,147 |   |
|                                                  |       |                              |       |                                   |       |                                                   |       |   |   |   |   |
| **Expenses**                                          |       |                              |       |                                   |       |                                                   |       |   |   |   |   |
| Consulting  fees                                      |       | 131,720                           |       | 102,133                                |       | 335,493                                                |       | 251,392 |   | 1,078,556 |   |
| Depreciation  and amortization                        |       | 4,499                             |       | 64,393                                 |       | 14,463                                                 |       | 172,733 |   | 293,345 |   |
| General  and administrative expenses                  |       | 103,717                           |       | 52,236                                 |       | 227,395                                                |       | 183,974 |   | 876,259 |   |
| Organizational  expenses                              |       | —                            |       | —                                 |       | —                                                 |       | — |   | 514 |   |
| Professional  fees — other                       |       | (57,145                           | )          | 45,189                                 |       | —                                                 |       | 132,639 |   | 341,624 |   |
| Professional  fees — related party               |       | —                            |       | 1,397                                  |       | —                                                 |       | 1,397 |   | 60,839 |   |
| Salaries                                              |       | 61,168                            |       | 59,469                                 |       | 215,969                                                |       | 291,985 |   | 1,118,106 |   |
| Impairment  loss                                      |       | —                            |       | —                                 |       | —                                                 |       | — |   | 144,772 |   |
|                                                  |       |                              |       |                                   |       |                                                   |       |   |   |   |   |
| Total  expenses                                       |       | 243,959                           |       | 324,817                                |       | 793,320                                                |       | 1,034,120 |   | 3,914,015 |   |
|                                                  |       |                              |       |                                   |       |                                                   |       |   |   |   |   |
| Loss  from operations                                 |       | (243,127                          | )          | (319,515                               | )          | (704,583                                               | )          | (1,003,167 | ) | (3,789,868 | ) |
|                                                  |       |                              |       |                                   |       |                                                   |       |   |   |   |   |
| **Other income (expense)**                            |       |                              |       |                                   |       |                                                   |       |   |   |   |   |
| Interest  income                                      |       | —                            |       | 1                                      |       | —                                                 |       | 3 |   | 8,363 |   |
| Interest  income — forgiveness of debt           |       | —                            |       | —                                 |       | —                                                 |       | — |   | 17,825 |   |
| Gain  on forgiveness of debt                          |       | —                            |       | —                                 |       | 10,534                                                 |       | 3,400 |   | 18,795 |   |
| Other  Income                                         |       | —                            |       | —                                 |       | 266                                                    |       | — |   | 266 |   |
| Other  expenses                                       |       | (1,061                            | )          | —                                 |       | (1,061                                                 | )          | — |   | (22,868 | ) |
| Loss  on disposal of assets                           |       | —                            |       | —                                 |       | —                                                 |       | — |   | (190 | ) |
| Interest  expense                                     |       | (1,506                            | )          | (6,674                                 | )          | (18,433                                                | )          | (39,824 | ) | (74,825 | ) |
| Loss  on forgiveness of debt                          |       | —                            |       | —                                 |       | —                                                 |       | — |   | (11,021 | ) |
|                                                  |       |                              |       |                                   |       |                                                   |       |   |   |   |   |
| Total  other income (expense)                         |       | (2,567                            | )          | (6,673                                 | )          | (8,694                                                 | )          | (36,421 | ) | (63,655 | ) |
|                                                  |       |                              |       |                                   |       |                                                   |       |   |   |   |   |
| Loss  before provision for income taxes               |       | (245,694                          | )          | (326,188                               | )          | (713,277                                               | )          | (1,039,588 | ) | (3,853,523 | ) |
|                                                  |       |                              |       |                                   |       |                                                   |       |   |   |   |   |
| Provision  for income taxes                           |       | (600                              | )          | —                                 |       | —                                                 |       | — |   | 10,128 |   |
|                                                  |       |                              |       |                                   |       |                                                   |       |   |   |   |   |
| **Net loss from continuting operations**              |       | (245,094                          | )          | (326,188                               | )          | (713,277                                               | )          | (1,039,588 | ) | (3,863,651 | ) |
|                                                  |       |                              |       |                                   |       |                                                   |       |   |   |   |   |
| **Discontinued operations**                           |       |                              |       |                                   |       |                                                   |       |   |   |   |   |
| (Loss)  from discontinued operations                  |       | —                            |       | (93,266                                | )          | —                                                 |       | (93,266 | ) | (72,460 | ) |
| Gain  on sale of subsidiary                           |       | —                            |       | 181,484                                |       | —                                                 |       | 181,484 |   | 177,755 |   |
|                                                  |       | —                            |       | 88,218                                 |       | —                                                 |       | 88,218 |   | 105,295 |   |
|                                                  |       |                              |       |                                   |       |                                                   |       |   |   |   |   |
| **Net loss**                                          |       | $                                 | (245,094   | )                                      | $          | (237,970                                               | )          | $ | (713,277 | ) | $ | (951,370 | ) | $ | (3,758,356 | ) |
|                                                  |       |                              |       |                                   |       |                                                   |       |   |   |   |   |
| **Loss per common share, basic and diluted**          |       |                              |       |                                   |       |                                                   |       |   |   |   |   |
| Net  loss from continuing operations                  |       | $                                 | (0.01      | )                                      | $          | (0.02                                                  | )          | $ | (0.05 | ) | $ | (0.08 | ) | $ | (0.25 | ) |
| (Loss)  from discontinued operations             |       | $                                 | —     |                                   | $          | (0.01                                                  | )          | $ | — |   | $ | (0.01 | ) | $ | (0.00 | ) |
| Gain  on sale of subsidiary                           |       | $                                 | —     |                                   | $          | 0.01                                                   |       | $ | — |   | $ | 0.01 |   | $ | 0.01 |   |
| Net  loss                                             |       | $                                 | (0.01      | )                                      | $          | (0.02                                                  | )          | $ | (0.05 | ) | $ | (0.08 | ) | $ | (0.24 | ) |
|                                                  |       |                              |       |                                   |       |                                                   |       |   |   |   |   |
| Weighted  average number of shares, basic and diluted |       | 16,904,838                        |       | 13,650,234                             |       | 15,672,965                                             |       | 13,650,234 |   | 15,637,775 |   |

 

The accompanying notes are an integralpart of these financial statements.

 

 

3

----

 

**COMPOSITESOLUTIONS, INC AND SUBSIDIARIES**

(A Development Stage Company)

**ConsolidatedStatements of Changes in Shareholders’ Equity**

 

 

 
| ** **                                           | ** ** | **Common Stock** | ** ** | **Additional  Paid in Capital** | ** ** | **Deficit********Accumulated********During the********Development********Stage** | ** ** | **Total  Shareholders’  Equity** | ** ** |
|------------------------------------------------------|------------|------------------|------------|---------------------------------|------------|----------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| **Shares**                                           |       | **Amount**       |
| **Balance, October 20, 1997 (inception)**            |       | —           |       | $                               | —     |                                                                             | $          | —                                |       | $ | — |   | $ | — |   |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| Common  stock issued in exchange for services        |       | 15,233,910       |       | 1,521                           |       | (2,120                                                                           | )          | —                                |       | (599 | ) |
| Common  Stock issued for cash                        |       | 5,962,500        |       | 599                             |       | 18,335                                                                           |       | —                                |       | 18,934 |   |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| Net  loss                                            |       |             |       |                            |       |                                                                             |       | (12,193                               | )          | (12,193 | ) |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| **Balance, September 30, 1998**                      |       | 21,196,410       |       | 2,120                           |       | 16,215                                                                           |       | (12,193                               | )          | 6,142 |   |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| Common  stock contributed                            |       | (7,896,410       | )          | (790                            | )          | 790                                                                              |       | —                                |       | — |   |
| Pre-acquisition  income                              |       | —           |       | —                          |       | —                                                                           |       | 47                                    |       | 47 |   |
| Common  stock issued in acquisition                  |       | 1,000,000        |       | 100                             |       | 47                                                                               |       | (47                                   | )          | 100 |   |
| Common  stock issued for payment of note payable     |       | 200,000          |       | 20                              |       | 999,980                                                                          |       | —                                |       | 1,000,000 |   |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| Net  loss                                            |       |             |       |                            |       |                                                                             |       | (574,850                              | )          | (574,850 | ) |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| **Balance, September 30, 1999**                      |       | 14,500,000       |       | 1,450                           |       | 1,017,032                                                                        |       | (587,043                              | )          | 431,439 |   |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| Common  stock surrendered                            |       | (4,300,000       | )          | (430                            | )          | 430                                                                              |       |                                  |       | — |   |
| Common  Stock issued for cash                        |       | 668,333          |       | 67                              |       | 759,933                                                                          |       |                                  |       | 760,000 |   |
| Common  stock issued in acquisitions                 |       | 1,103,371        |       | 110                             |       | 808,668                                                                          |       |                                  |       | 808,778 |   |
| Common  stock issued for finder’s fee           |       | 100,000          |       | 10                              |       | (10                                                                              | )          |                                  |       | — |   |
| Common  stock issued in exchange for services        |       | 300,000          |       | 30                              |       | 173,970                                                                          |       |                                  |       | 174,000 |   |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| Net  loss                                            |       |             |       |                            |       |                                                                             |       | (1,090,716                            | )          | (1,090,716 | ) |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| **Balance, September 30, 2000**                      |       | 12,371,704       |       | 1,237                           |       | 2,760,023                                                                        |       | (1,677,759                            | )          | 1,083,501 |   |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| Common  stock issued in exchange for services        |       | 340,200          |       | 34                              |       | 85,674                                                                           |       |                                  |       | 85,708 |   |
| Common  stock issued for finder’s fee           |       | 200,000          |       | 20                              |       | (20                                                                              | )          |                                  |       | — |   |
| Common  Stock issued for cash                        |       | 850,000          |       | 86                              |       | 294,914                                                                          |       |                                  |       | 295,000 |   |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| Net  loss                                            |       |             |       |                            |       |                                                                             |       | (443,973                              | )          | (443,973 | ) |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| **Balance, December 31, 2000**                       |       | 13,761,904       |       | 1,377                           |       | 3,140,591                                                                        |       | (2,121,732                            | )          | 1,020,236 |   |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| Common  stock surrendered                            |       | (150,000         | )          | (15                             | )          | (93,735                                                                          | )          |                                  |       | (93,750 | ) |
| Common  stock issued for compensation                |       | 303,737          |       | 30                              |       | 36,756                                                                           |       |                                  |       | 36,786 |   |
| Common  stock issued in exchange for services        |       | 50,000           |       | 5                               |       | 4,495                                                                            |       |                                  |       | 4,500 |   |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| Net  loss                                            |       |             |       |                            |       |                                                                             |       | (181,209                              | )          | (181,209 | ) |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| **Balance, March 31, 2001 as originally reported**   |       | 13,965,641       |       | 1,397                           |       | 3,088,107                                                                        |       | (2,302,941                            | )          | 786,563 |   |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| Prior  quarter adjustment of net loss                |       |             |       |                            |       |                                                                             |       | (88,218                               | )          | (88,218 | ) |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| **Balance, March 31, 2001 as restated**              |       | 13,965,641       |       | 1,397                           |       | 3,088,107                                                                        |       | (2,391,159                            | )          | 698,345 |   |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| Common  stock issued in exchange for services        |       | 147,623          |       | 17                              |       | (41,219                                                                          | )          |                                  |       | (41,202 | ) |
| Common  stock issued for compensation                |       | 627,951          |       | 63                              |       | 103,531                                                                          |       |                                  |       | 103,594 |   |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| Net  loss                                            |       |             |       |                            |       |                                                                             |       | (237,970                              | )          | (237,970 | ) |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| **Balance, June 30, 2001 as originally reportied**   |       | 14,741,215       |       | 1,477                           |       | 3,150,419                                                                        |       | (2,629,129                            | )          | 522,767 |   |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| Prior  quarter adjustment of equity transactions     |       | (407,751         | )          | (43                             | )          | (61,010                                                                          | )          |                                  |       | (61,053 | ) |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| **Balance, June 30, 2001 as restated**               |       | 14,333,464       |       | 1,434                           |       | 3,089,409                                                                        |       | (2,629,129                            | )          | 461,714 |   |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| Common  stock cancelled                              |       | (125,000         | )          | (13                             | )          | (49,987                                                                          | )          |                                  |       | (50,000 | ) |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| Net  loss                                            |       |             |       |                            |       |                                                                             |       | (415,950                              | )          | (415,950 | ) |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| **Balance, September 30, 2001**                      |       | 14,208,464       |       | 1,421                           |       | 3,039,422                                                                        |       | (3,045,079                            | )          | (4,236 | ) |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| Common  stock issued for services                    |       | 120,000          |       | 12                              |       | 34,788                                                                           |       |                                  |       | 34,800 |   |
| Common  stock issued for compensation                |       | 808,155          |       | 80                              |       | 161,429                                                                          |       |                                  |       | 161,509 |   |
| Subscriptions  paid                                  |       | —           |       | —                          |       | 50,000                                                                           |       |                                  |       | 50,000 |   |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| Net  loss                                            |       |             |       |                            |       |                                                                             |       | (209,575                              | )          | (209,575 | ) |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| **Balance, December 31, 2001**                       |       | 15,136,619       |       | 1,513                           |       | 3,285,639                                                                        |       | (3,254,654                            | )          | 32,498 |   |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| Common  stock issued for services                    |       | 109,102          |       | 11                              |       | 20,301                                                                           |       |                                  |       | 20,312 |   |
| Common  Stock issued for cash and paid subscriptions |       | 1,503,334        |       | 150                             |       | 109,850                                                                          |       |                                  |       | 110,000 |   |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| Net  loss                                            |       |             |       |                            |       |                                                                             |       | (258,608                              | )          | (258,608 | ) |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| **Balance, March 31, 2002**                          |       | 16,749,055       |       | 1,674                           |       | 3,415,790                                                                        |       | (3,513,262                            | )          | (95,798 | ) |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| Common  stock issued for services                    |       | 42,265           |       | 4                               |       | 6,758                                                                            |       |                                  |       | 6,762 |   |
| Common  Stock issued for cash                        |       | 300,000          |       | 30                              |       | 29,970                                                                           |       |                                  |       | 30,000 |   |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| Net  loss                                            |       |             |       |                            |       |                                                                             |       | (245,094                              | )          | (245,094 | ) |
|                                                 |       |             |       |                            |       |                                                                             |       |                                  |       |   |   |
| **Balance, June 30, 2002**                           |       | 17,091,320       |       | $                               | 1,708      |                                                                             | $          | 3,452,518                             |       | $ | (3,758,356 | ) | $ | (304,130 | ) |

 

The accompanying notes are anintegral part of these financial statements.

 

 

4

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**COMPOSITESOLUTIONS, INC AND SUBSIDIARIES**

(A Development Stage Company)

**ConsolidatedStatements of Cash Flows**

 
| ** **                                                                   | ** ** | **Three  Months Ended****J****une 30,** | ** ** | **Nine  Months Ended  June 30,** | ** ** | **October  20, 1997  (Inception)********to  June 30,** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------------------|------------|----------------------------------|------------|--------------------------------------------------------|------------|
|                                                                         |       | **2002**                                |       | **2001**                         |       | **2002**                                               |       | **2001** |   | **2002** |   |
| **Cash flows from operating activities**                                     |       |                                    |       |                             |       |                                                   |       |   |   |   |   |
| Net  loss                                                                    |       | $                                       | (245,094   | )                                | $          | (326,188                                               | )          | $ | (713,277 | ) | $ | (951,370 | ) | $ | (3,758,356 | ) |
| Adjustments  to reconcile net loss tonet cash used  in operating activities: |       |                                    |       |                             |       |                                                   |       |   |   |   |   |
| Depreciation  and amortization                                               |       | 4,499                                   |       | 64,393                           |       | 14,463                                                 |       | 179,497 |   | 293,347 |   |
| Loss  on disposal of assets                                                  |       | —                                  |       | —                           |       | —                                                 |       | — |   | 190 |   |
| Common  stock issued in exchange for services                                |       | 6,762                                   |       | 44,506                           |       | 61,874                                                 |       | 49,006 |   | 272,435 |   |
| Common  stock issued for compensation                                        |       | —                                  |       | 17,886                           |       | 161,509                                                |       | 140,380 |   | 256,016 |   |
| Pre-acquisition  income                                                      |       | —                                  |       | —                           |       | —                                                 |       | — |   | 47 |   |
| Loss  from discontinued operations                                           |       | —                                  |       | —                           |       | —                                                 |       | — |   | 72,460 |   |
| Gain  on disposal of subsidiary                                              |       | —                                  |       | —                           |       | —                                                 |       | (181,484 | ) | (177,755 | ) |
| Impairment  loss                                                             |       | —                                  |       | —                           |       | —                                                 |       | — |   | 144,772 |   |
| Interest                                                                     |       | —                                  |       | —                           |       | 5,500                                                  |       | — |   | 2,758 |   |
| (Increase)  decrease in operating assets                                     |       |                                    |       |                             |       |                                                   |       |   |   |   |   |
| Accounts  receivable                                                         |       | 4,443                                   |       | 17,571                           |       | —                                                 |       | 26,130 |   | 17,490 |   |
| Related  party receivable                                                    |       | —                                  |       | —                           |       | —                                                 |       | 12,251 |   | (66,661 | ) |
| Costs  in excess of billings                                                 |       | 78,322                                  |       | —                           |       | —                                                 |       | — |   | — |   |
| Inventory                                                                    |       | —                                  |       | —                           |       | —                                                 |       | 251 |   | (2,055 | ) |
| Prepaid  expenses                                                            |       | 201                                     |       | 620                              |       | 178                                                    |       | 315 |   | (420 | ) |
| Employee  advances                                                           |       | —                                  |       | —                           |       | 271                                                    |       | — |   |   |   |
| Deposit                                                                      |       | 370                                     |       | (10,000                          | )          | 1,496                                                  |       | (14,622 | ) | (12,001 | ) |
| Increase  (decrease) in operating liabilities                                |       |                                    |       |                             |       |                                                   |       |   |   |   |   |
| Accounts  payable                                                            |       | 127,590                                 |       | 114,660                          |       | 257,467                                                |       | 195,430 |   | 891,382 |   |
| Billings  in excess of costs                                                 |       | (70,867                                 | )          | —                           |       | (68,732                                                | )          | — |   | (68,732 | ) |
| Forgiveness  of accounts payable                                             |       | —                                  |       | —                           |       | —                                                 |       | — |   | (3,400 | ) |
| Accrued  expenses                                                            |       | 79,239                                  |       | 9,752                            |       | 127,444                                                |       | 27,582 |   | 289,075 |   |
| Income  taxes payable                                                        |       | —                                  |       | —                           |       | —                                                 |       | (3,200 | ) | 7,152 |   |
| Net  cash used in operating activities                                       |       | (14,535                                 | )          | (66,800                          | )          | (151,807                                               | )          | (519,834 | ) | (1,842,256 | ) |
|                                                                         |       |                                    |       |                             |       |                                                   |       |   |   |   |   |
| **Cash flows from investing activities**                                     |       |                                    |       |                             |       |                                                   |       |   |   |   |   |
| Purchase  of property, plant and equipment                                   |       | —                                  |       | —                           |       | —                                                 |       | (1,956 | ) | (29,660 | ) |
| Acquisition  of intangible assets                                            |       | (21,021                                 | )          | (11,282                          | )          | (21,723                                                | )          | (14,038 | ) | (625,857 | ) |
| Loans  made to related party                                                 |       | —                                  |       | —                           |       | —                                                 |       | — |   | (10,000 | ) |
| Repayments  of loans to related party                                        |       | —                                  |       | —                           |       | —                                                 |       | — |   | 10,000 |   |
| Acquisition  of subsidiary                                                   |       | —                                  |       | —                           |       | —                                                 |       | — |   | (500,000 | ) |
| Cash  of discontinued operations                                             |       | —                                  |       | —                           |       | —                                                 |       | (12,628 | ) | (19,999 | ) |
| Cash  of acquired subsidiaries                                               |       | —                                  |       | —                           |       | —                                                 |       | — |   | 17,261 |   |
| Net  cash used in investing activities                                       |       | (21,021                                 | )          | (11,282                          | )          | (21,723                                                | )          | (28,622 | ) | (1,158,255 | ) |
|                                                                         |       |                                    |       |                             |       |                                                   |       |   |   |   |   |
| **Cash flows from financing activities**                                     |       |                                    |       |                             |       |                                                   |       |   |   |   |   |
| Bank  overdraft                                                              |       | —                                  |       | —                           |       | —                                                 |       | (1,214 | ) | — |   |
| Increase  (decrease) in line of credit                                       |       | —                                  |       | (78                              | )          | —                                                 |       | (106 | ) | 662 |   |
| Proceeds  from note payable to officer/employee                              |       | 10,963                                  |       | 45,499                           |       | 38,796                                                 |       | 210,628 |   | 383,061 |   |
| Payments  of note payable to officer                                         |       | (11,000                                 | )          | —                           |       | (134,400                                               | )          | (30,496 | ) | (158,342 | ) |
| Proceeds  from convertible debenture                                         |       | —                                  |       | —                           |       | —                                                 |       | — |   | 500,000 |   |
| Proceeds  from notes payable                                                 |       | —                                  |       | 31,009                           |       | 100,000                                                |       | 51,009 |   | 1,064,500 |   |
| Payment  of notes payable                                                    |       | —                                  |       | —                           |       | (25,000                                                | )          | — |   | — |   |
| Proceeds  from issuance of common stock, net                                 |       | 30,000                                  |       | —                           |       | 190,000                                                |       | 295,000 |   | 1,210,700 |   |
| Net  cash provided by financing activities                                   |       | 29,963                                  |       | 76,430                           |       | 169,396                                                |       | 524,821 |   | 3,000,581 |   |
|                                                                         |       |                                    |       |                             |       |                                                   |       |   |   |   |   |
| Net  (decrease) increase in cash                                             |       | (5,593                                  | )          | (1,652                           | )          | (4,134                                                 | )          | (23,635 | ) | 70 |   |
| Cash,  beginning of period                                                   |       | 5,663                                   |       | $                                | 2,947      |                                                   | 4,204      |   | 24,930 |   | — |   |
| Cash,  end of period                                                         |       | $                                       | 70         |                             | $          | 1,295                                                  |       | $ | 70 |   | $ | 1,295 |   | $ | 70 |   |
|                                                                         |       |                                    |       |                             |       |                                                   |       |   |   |   |   |
| **Supplementary disclosures**                                                |       |                                    |       |                             |       |                                                   |       |   |   |   |   |
| Interest  paid                                                               |       | $                                       | 1,062      |                             | $          | 498                                                    |       | $ | 3,197 |   | $ | 1,184 |   | $ | 5,368 |   |
| Income  taxes paid                                                           |       | $                                       | —     |                             | $          | —                                                 |       | $ | 600 |   | $ | 3,200 |   | $ | 8,328 |   |
|                                                                         |       |                                    |       |                             |       |                                                   |       |   |   |   |   |
| **Non-cash financing and investing activities**                              |       |                                    |       |                             |       |                                                   |       |   |   |   |   |
| Note  payable paid through issuance of common stock                          |       | $                                       | —     |                             | $          | —                                                 |       | $ | — |   | $ | — |   | $ | 1,000,000 |   |
| Investment  in subsidiary                                                    |       | $                                       | —     |                             | $          | —                                                 |       | $ | — |   | $ | — |   | $ | 796,732 |   |
| Interest  on note payable                                                    |       | $                                       | —     |                             | $          | —                                                 |       | $ | — |   | $ | — |   | $ | 17,825 |   |
| Forgiveness  of interest on note payable                                     |       | $                                       | —     |                             | $          | —                                                 |       | $ | — |   | $ | — |   | $ | (17,825 | ) |
| Inter-company  receivable released in sale of subsidiary                     |       | $                                       | —     |                             | $          | —                                                 |       | $ | — |   | $ | — |   | $ | 22,021 |   |
| Common  stock acquired in sale of subsidiary                                 |       | $                                       | —     |                             | $          | —                                                 |       | $ | — |   | $ | — |   | $ | (93,750 | ) |
| 8%  debenture released in sale of subsidiary                                 |       | $                                       | —     |                             | $          | —                                                 |       | $ | — |   | $ | — |   | $ | (500,000 | ) |
| Note  payable released in sale of subsidiary                                 |       | $                                       | —     |                             | $          | (564,500                                               | )          | $ | — |   | $ | 564,500 |   | $ | (64,500 | ) |
| Accrued  interest released in sale of subsidiary                             |       | $                                       | —     |                             | $          | —                                                 |       | $ | — |   | $ | — |   | $ | (32,640 | ) |
|                                                                              |            |                                         |            |                                  |            |                                                        |            |  |  |  |  |  |  |  |  |  |  |

 

The accompanying notes are anintegral part of these financial statements.

 

 

5

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**COMPOSITESOLUTIONS, INC AND SUBSIDIARIES**

(A Development Stage Company)

**Notes toConsolidated Financial Statements**

 

 

# **Note 1 —Summary of Significant Accounting Policies**

 

## ***The Company***

 

Composite Solutions, Inc. (the “Company”), formerly JSBusiness Works, Inc., was incorporated in the state of Florida on October 20,1997.  The Company has two wholly ownedsubsidiaries: Composite Solutions, Inc., incorporated in the state of Nevada onDecember 8, 1998 and Trans-Science Corporation, incorporated in the state ofCalifornia on September 15, 1980.  Athird wholly owned subsidiary, Penultimo, Inc. dba Anchor Reinforcements,incorporated in the state of California on January 13, 1992, was sold on March31, 2001.   Composite Solutions Inc. andsubsidiaries were organized to develop, manufacture and market high technologyproducts and processes in key areas of existing and new construction.

 

The Company is in the development stage and itsefforts through June 30, 2002 have been principally devoted to raisingadditional capital and negotiating with potential key personnel and leasingfacilities.  There is no assurance thatany benefit will result from such activities. The Company will continue to incur expenses and losses as it pursues itsdevelopment efforts.

 

**Basis of Presentation**

 

The consolidated financial statements include theaccounts of the Company and its wholly owned subsidiaries.  All significant intercompany transactionshave been eliminated in consolidation.

 

**Cash and Cash Equivalents**

 

For purposes of thestatements of cash flows, the Company considers cash instruments with originalmaturities of less than three months to be cash equivalents.

 

**Start-upCosts**

 

Costs of start-up activities, including organization costs, are expensed as incurred, inaccordance with Statement of Position (SOP) 98-5.

 

**Advertising**

 

Advertising costs are chargedto expense as incurred.

 

 

6

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**Property,Plant and Equipment**

 

Property, plant and equipment are recorded at costless depreciation. Depreciation is accounted for on the straight-line andaccelerated methods based on the estimated useful lives of the related assets.** **Betterments and large renewals,which extend the life of an asset, are capitalized; whereas, repairs andmaintenance, which do not increase the useful lives of property and equipmentare charged to operations as incurred.

 

**IntangibleAssets**

 

Other assets include intangibles such as licensedtechnology, computer software and goodwill.  In June 2001, the Financial Accounting Standards Board (“FASB”) issuedSFAS No. 142, *Goodwill and Other IntangibleAssets. *SFAS No. 142establishes new guidelines for accounting for goodwill and other intangibleassets.  The Company implemented theprovisions of SFAS No. 142 on October 1, 2001. Since adoption, existing goodwill is no longer amortized but insteadwill be assessed for impairment at least annually.  The Company is currently determining the impact of adopting thisstandard under the transition provisions of SFAS No. 142.  Other intangible assets are recorded athistorical cost less amortization. Other intangibles are amortized on the straight line method based onestimated useful lives.

 

**RevenueRecognition**

 

Revenue from the sale of product is recognized in thefinancial statements when materials are shipped from stock.  Revenues derived from contracts areaccounted for on the percentage-of-completion method of accounting.  Revenue is recognized based on a ratio ofthe actual cost of work performed to a current estimate of the total cost tocomplete a respective contract.

 

Expected profits realized on contracts are based onthe difference between estimates of total contract revenues and costs ofcompletion.  These estimates arereviewed and revised periodically throughout the contract term, and adjustmentsto profits resulting from such revisions are recorded in the accounting periodin which the revisions are made. Profits are recognized as the contract phase of the work iscompleted.  Losses on contracts arerecorded in full as they are identified.

 

 

7

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### **Income Taxes**

 

TheCompany accounts for income taxes under SFAS 109, *Accounting for Income Taxes*.This statement requires an asset and liability approach to account for incometaxes.  The Company provides deferredincome taxes for temporary differences that will result in taxable ordeductible amounts in future years based on the reporting of certain costs indifferent periods for financial and income tax purposes.

 

**Useof Estimates**

 

Thepresentation of financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities, disclosure ofcontingent assets and liabilities at the date of the financial statements, andthe reported amounts of revenues and expenses during the periodspresented.  Actual results may differsignificantly from those estimates.

 

### **Fair Values of Financial Instruments**

 

Statement of FinancialAccounting Standards No. 107, *Disclosuresabout Fair Value of Financial Instruments,*requires disclosure offair value information about financial instruments, whether or not recognizedin the balance sheet.  In cases wherequoted market prices are not available, fair values are based on estimates usingpresent value or other valuation techniques. Those techniques are significantly affected by the assumptions used,including the discount rate and estimates of future cash flows.  In that regard, the derived fair valueestimates cannot be substantiated by comparison to independent markets and, inmany cases, could not be realized in immediate settlement of the instruments.Statement No. 107 excludes certain financial instruments and all nonfinancialinstruments from its disclosure requirements. Accordingly, the aggregate fair amounts of financial instrumentspresented do not represent the underlying value of the Company.

 

The following methods andassumptions were used to estimate the fair value of each class of financialinstrument:

 

#### ***Cash and cashequivalents***: Thecarrying amounts reported in the balance sheet for cash and cash equivalentsapproximates those assets’ fair values.

 

*Accountsreceivable and accounts payable*:  The carrying amounts reported in the balance sheet for accountsreceivable and accounts payable approximates those assets’ and liabilities’fair values.

 

 

8

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*Short-term*:  The carrying amounts of the line of creditand short-term notes payable approximates those obligations’ fair values.

 

*Accruedexpenses:* The carrying amounts of accrued expensesapproximate their fair values.

 

**Stock-Based Compensation**

 

Inaccordance with the provisions of SFAS 123, the Company follows the intrinsicvalue based method of accounting as prescribed by APB 25, *Accounting for Stock Issued toEmployees*, for its stock-based compensation.

 

**Reclassifications**

 

Certain reclassifications have been made to the June30, 2001 balances in order to conform to the June 30, 2002 presentation.

** **

**Note 2 — Acquisitions**

 

On June 17, 1999 the Company entered into a ShareExchange Agreement.  On June 30, 1999according to the terms of the agreement, the Company issued 1,000,000 shares ofits common stock for all of the shares of the outstanding stock of CompositeSolutions, Inc. (the “Subsidiary”), a Nevada corporation.  The exchange of shares has been accountedfor as a reverse merger, under the purchase method of accounting.  Accordingly, the combination of Company andthe Subsidiary is recorded as a recapitalization of the shareholders’ equity ofthe Subsidiary, the surviving corporation, and for accounting purposes thefinancial statements presented are those of the Subsidiary.

 

On June 23, 2000 the Company entered into a ShareExchange Agreement with Trans-Science Corporation, a California corporation, acompany under common control.  On July7, 2000 the Company completed its acquisition. The acquisition, recorded under the purchase method of accounting, includedthe purchase of all of the outstanding shares of common stock of Trans-ScienceCorporation in exchange for 953,371 shares of the Company’s common stock at$0.75 per share which resulted in a purchase price of $715,028. The liabilitiesassumed were in excess of the historical cost of the assets acquired at thedate of acquisition and the total amount of the purchase price was recorded asgoodwill.

 

 

9

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On August 16, 2000 the Company entered into a ShareExchange Agreement with Penultimo, Inc. dba Anchor Reinforcements.  On August 31, 2000 the Company completed theacquisition.  The acquisition, recordedunder the purchase method of accounting, included the purchase of all of theoutstanding shares of common stock of Penultimo, Inc. in exchange for 150,000shares of the Company’s common stock at $0.625 per share plus $500,000 in cashwhich resulted in a total purchase price of $593,750.  A portion of the purchase price has been allocated to assetsacquired and liabilities assumed based on estimated fair market value at thedate of acquisition while the balance of $291,050 was recorded as goodwill.

 

**Note3 — Discontinued Operations**

 

On March 31, 2001 the Company enteredinto an Agreement to transfer all of the outstanding shares of Pemultimo, Inc.to an individual in exchange for 150,000 shares of the Company’s common stockoriginally valued at $93,750, the release of certain inter-company receivablesin the amount of $22,021, an 8% convertible debenture note in the amount of$500,000 plus accrued interest of $28,199, and notes payable in the amount of$64,500, plus accrued interest of $4,441.

 

**Note4 — Property, Plant and Equipment**

 

Property, plant and equipmentconsist of the following at June30, 2002 and 2001:

 
|                            |   | **2002** |   | **2001** |   |
|---------------------------------|--------|----------|--------|----------|--------|
| Leasehold improvements          |   | $        | 1,407  |     | $      | 1,407 |   |
| Office furniture and  equipment |   | 174,456  |   | 195,594  |   |
| Machinery and other assets      |   | 20,839   |   | —   |   |
|                            |   | 196,702  |   | 197,001  |   |
| Less accumulated  depreciation  |   | (193,392 | )      | (179,753 | )      |
|                            |   |     |   |     |   |
|                            |   | $        | 3,310  |     | $      | 17,248 |   |

 

Depreciation expense for thethree and nine months ended June 30, 2002 was $2,315 and $7,184, respectively,$4,809 and $14,504 for the three and nine months ended June 30, 2001,respectively, and $45,927 for the period October 20, 1997 (inception) to June30, 2002.

 

**Note 5**—**IntangibleAssets**

 

On April 20, 1999 the Company entered into a licenseagreement with the Regents of the University of California San Diego (UCSD) fora license under patent rights to make, use, sell, offer for sale, importlicensed products, practice licensed methods, and to use certain

 

 

10

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technology. The agreement terminates on the later of the expiration date of thelongest-lived Patent Rights or the twenty-first anniversary of the effectivedate.  A license fee of $40,000 was paidupon execution****of the agreement.  TheCompany must also pay for one half of all past and future patent costs.  At June 30, 2002 and 2001 the license has anet value of $76,108 and$56,468, respectively.  Under the termsof the agreement, the Company must pay to the licensor a royalty of 1.5% on netsales of the licensed products.

 

On August 4, 1999 the Company entered into a secondlicense agreement with UCSD for a license under patent rights to make, use,sell, offer for sale, import licensed products, to practice licensed methods,and to use certain technology.  Theagreement terminates on the later of the expiration date of the longest-livedPatent Rights or the twenty-first anniversary of the effective date.  A license fee in the amount of $5,000 waspaid upon execution of the agreement. In addition, the Company is obligated to pay for one-half of all pastand future patent costs.  At June 30,2002 and 2001 the license has a net value of $92,610 and $68,151, respectively.  Under the terms of the agreement, the Company must pay to thelicensor a royalty of 1.5% on net sales of licensed products and certain feesand royalties for any executed sub-license agreements.

 

In January 1999 the Companyacquired certain intangible assets from Trans-Science Corporation, a companyunder common control and subsequently acquired on July 7, 2000. Fire test dataconcerning overlay systems in the form of technical reports prepared by anindependent laboratory in New York performed prior to the Company’s inceptionwas purchased for cash in the amount of $13,979from Trans-Science Corporation at its cost. At June 30, 2002 these intangible assets were not placed in service.

 

In January 1999 Trans-Science Corporation sold,assigned and transferred all of its rights, title and interest in theEarthquake Retrofit Design Software to the Company for cash in the amount of$330,000, and during the year ended September 30, 1999, the Company paidTrans-Science Corporation $90,000 for upgrade services on this software for atotal of $420,000.  At June 30, 2002 this intangible asset wasnot placed in service.

 

On July 7, 2000 the Company acquired 100% of theoutstanding shares of common stock of Trans-Science Corporation, a companyunder common control through July 7, 2000. The Company recorded goodwill in the amount of $715,028 representing theexcess of the cost to acquire Trans-Science Corporation over the historicalcost of the net assets acquired.  AtSeptember 30, 2001 goodwill was impaired and a loss was recognized in theamount of $144,772.  At June 30, 2002and 2001 this goodwill has a net value of $418,955 and $584,801, respectively.

 

On August 31, 2000 the Company acquired 100% of theoutstanding shares of common stock of Penultimo, Inc. dba AnchorReinforcements.  The Company recordedgoodwill in the amount of $291,050 representing the excess of the cost toacquire Penultimo, Inc. over the

 

 

11

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sum of the amounts assigned to identifiable net assetsacquired.  On March 31, 2001 the Companytransferred all of the outstanding shares of common stock of Penultimo, Inc.dba Anchor Reinforcements to an individual. At June 30, 2002 and 2001 this goodwill has a net value of $0.

 

Amortization expense for thethree and nine months ended June 30, 2002 was $2,184 and $7,279, respectively,$59,584 and $151,465 for the three and nine months ended June 30, 2001,respectively, and $226,118 for the period October 20, 1997 (inception) to June30, 2002.

 

**Note 6**—**Capitalization**

 

#### **Preferred Stock**

 

The Company has authorized the issuance of ten million(10,000,000) shares of preferred stock, having one hundredth of a cent ($.0001)par value per share.  The Board ofDirectors of the Company has discretion to determine the rights, preferencesand privileges of this preferred stock. There are no shares of preferred stock issued and outstanding at June30, 2002 and 2001, respectively.

 

#### **Common Stock**

 

The Company has authorized fifty million (50,000,000)shares of common stock, having one hundredth of a cent ($0.0001) par value pershare.   On October 21, 1997 the Companyissued 1,601,000 shares to its President for the value of services rendered inconnection with the organization of the Company.** **In April 1998 the Company issued 646,000 shares of commonstock under Regulation D offerings in exchange for $18,934 in cash, net ofoffering costs.  Also in April 1998 theCompany issued 49,500 shares to its Executive Vice President****forthe net value of services rendered of $2,378. On June 25, 1999 the Company completed a 9.229876 shares for 1 shareforward split.  Retroactive effect tothis split has been given in the accompanying financial statements.   On June 25, 1999 the Company received7,896,410 shares contributed back to the Company.  On June 30, 1999 the Company issued 1,000,000 shares to acquire100% of the issued and outstanding common stock of the Composite Solutions,Inc., a Nevada corporation.  On June 30,1999 the Company issued 200,000 shares in settlement of a note payable with aprincipal balance of $1,000,000 and accrued interest of $17,825.

 

In December 1999, a trustee shareholder surrendered4,300,000 shares, which have been canceled. During the period December 1999 to June 2000 the Company issued 668,333shares of common stock under a private placement in exchange for $760,000 incash, net of offering costs.  On July 7,2000 the Company issued 953,371 shares of common stock valued at $715,028 inexchange for 100% of the outstanding shares of common stock of Trans-

 

 

12

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Science Corporation. On August 31, 2000 the Company issued 150,000 shares of common stockvalued at $93,750 in exchange for 100% of the outstanding shares of commonstock of Penultimo, Inc. dba Anchor Reinforcements.  On September 15, 2000 the Company issued 100,000 shares of commonstock as finder’s fee.  On September 28,2000 the Company issued 300,000 shares of common stock valued at $174,000 inexchange for services.

 

During the three months ended December 31, 2000 theCompany issued shares of common stock in non-cash transactions as follows:  340,200 shares as compensation valued at$85,708 and 200,000 shares as finder’s fee. The Company issued additional shares of common stock in cashtransactions:  850,000 shares for cashin the amount of $295,000.

 

During the three months ended March 31, 2001 theCompany issued shares of common stock in non-cash transactions as follows:  303,737 shares for compensation valued at$36,786 and 50,000 shares for services valued at $4,500.  In addition, 150,000 shares of common stockvalued at $93,750 were surrendered

 

During the three months ended June 30, 2001 theCompany issued 367,823 shares of common stock for services valued at $1,339.

 

During the three months ended September 30, 2001,125,000 shares of common stock were cancelled and the subscription price in theamount of $50,000 was recorded as a liability.

 

During the three months ended December 31, 2001 theCompany issued shares of common stock in non-cash transactions as follows:120,000 shares for services valued at $34,800 and 808,155 shares forcompensation valued at $161,509.  Inaddition, the Company received $50,000 in cash for the purchase of 500,000shares of common stock.

 

During the three months endedMarch 31, 2002 the Company issued 109,102 shares of common stock for servicesin a non-cash transaction valued at $20,312 and 1,503,334 shares of commonstock for cash in the amount of $110,000.

 

During the three months endedJune 30, 2002 the Company issued 42,265 shares of common stock for services ina non-cash transaction valued at $6,762 and 300,000 shares of common stock forcash in the amount of $30,000.

 

 

13

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**Stock Incentive Plan**

 

On December 1, 2000 the Company and subsidiaries’Board of Directors adopted the 2000 Stock Incentive Plan pursuant to whichincentive stock options or nonstatutory stock options to purchase up to1,000,000 shares of common stock may be granted to employees, directors andconsultants.  Stock options may beexercisable up to ten years from the grant date.  Stock options vest commencing April 2001, over service periodsthat range from zero to five years.

 
| ** **                       | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Number of  Shares** | ** ** | **Vested  Shares** | ** ** |
|----------------------------------|------------|----------------------------------------|------------|-----------------------|------------|--------------------|------------|
| Outstanding, October 20,  1997   |       |                                   |       | —                |       | —             |       |
| Granted                          |       | $                                      | .40        |                  | 120,000    |               | —     |   |
| Cancelled                        |       | $                                      | .40        |                  | (120,000   | )                  | —     |   |
| Outstanding, March 31, 2001      |       |                                   |       | —                |       | —             |       |
| Granted                          |       | $                                      | .10        |                  | 100,000    |               | —     |   |
| Outstanding, June 30, 2001       |       | $                                      | .10        |                  | 100,000    |               | —     |   |
| Outstanding, September 30,  2001 |       | $                                      | .10        |                  | 100,000    |               | —     |   |
| Granted                          |       | $                                      | .10        |                  | —     |               | 50,000     |   |
| Outstanding, March 31, 2002      |       | $                                      | .10        |                  | 100,000    |               | 50,000     |   |
| Granted                          |       | $                                      | .10        |                  | —     |               | 50,000     |   |
| Outstanding, June 30, 2002       |       | $                                      | .10        |                  | 100,000    |               | 100,000    |   |

 

The Company accounts forstock-based compensation using the intrinsic value method prescribed byAccounting Principles Board Opinion No. 25, “Accounting for Stock Issued toEmployees,” under which no compensation cost for stock options is recognizedfor the stock options awards granted at or above fair market value.  For the three and nine months ended June 30,2002, the Company did not recognize any compensation expense.

** **

**Note7 — Line of Credit**

 

The Company has a business secured open line of creditwith a bank in the amount of $50,000. The line of credit bears interest at theprime rate, as published in the *Wall Street Journal*, plus 2.5% (12.0% atJune 30, 2002).  At June 30, 2002 and2001 there was a balance due in the amount of $51,396 and $51,388, respectively.

 

 

14

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**Note 8 — Note Payable**

 

On November 20, 2001, the Company entered into aSecured Promissory Note with Marathon Development Company, Inc. (“Marathon”) inthe amount of $105,000, including $5,000 of interest at a rate of 10% perannum.  The note is secured by theCompany’s assets and is personally guaranteed by a director of theCompany.  The note is due on the earlierof February 20, 2002 or the date on which the director completes a refinance ofcertain real property.  In addition, ifthe note is not paid when due, the Company will issue 10,000 shares of commonstock per month to Marathon, until the note is paid.  At June 30, 2002 there is a balance due in the amount of $80,500plus accrued interest in the amount of $1,083, for the total of $81,583 and theCompany has accrued a liability to issue 42,857 shares of common stock valuedat $10,571.

 

**Note 9 — Commitments**

 

The Company and subsidiaries lease office space undera non-cancelable operating lease. Future minimum payments under the lease at June 30, 2002 are as follows:

 

| **Year Ending  June 30,** | ** ** | ** ** | ** ** |
|---------------------------|------------|------------|------------|
| 2003                      |       | $          | 48,066     |   |
| 2004                      |       | 49,988     |       |
|                      |       |       |       |
|                      |       | $          | 98,054     |   |

 

Rent expense for the three and nine months ended June30, 2002 was $15,560 and $36,341, respectively, $28,210 and $76,467 for thethree and nine months ended June 30, 2001, respectively, and $243,477 for theperiod October 20, 1997 (inception) to June 30, 2002.

 

**Note 10 — Earnings Per Share**

 

At June 30, 2002 and 2001 there were 100,000 and120,000 weighted-average shares of common stock issuable under stock options,respectively, not included in the calculation of fully diluted earnings pershare because their effects would have been antidilutive.  Therefore, diluted earnings per share werethe same as basic earnings per share at June 30, 2002 and 2001.

 

 

15

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**Note 11 — Income Taxes**

 

At June 30, 2002 the Companyhas a net operating loss carryforward for tax purposes of approximately$1,825,000 which expires through the year 2022.  Net deferred tax assets at June 30, 2002 and 2001 wereapproximately $1,394,000 and $2,695,000, respectively, which represent theamount of tax benefits of start-up, organization and syndication costs.  The Company has established a valuationallowance against these net deferred tax assets because it is more than likelythat the deferred tax benefits will not be utilized.

 

**Note 12 — Related Party Transactions**

 

**IntangibleAssets**

 

In January 1999 the Company acquired certainintangible assets from Trans-Science Corporation, a company under commoncontrol through July 7, 2000.  Also inJanuary 1999, Trans-Science Corporation sold, assigned and transferred all ofits rights, title and interest in the Earthquake Retrofit Design Software tothe Company.

 

**Stock-Based Compensation**

 

During the three months ended March 31, 2002 theCompany issued 109,102 shares of common stock valued at $20,312 forservices.  During the period October 20,1997 (inception) to June 30, 2002 the Company issued 17,675,192 shares ofcommon stock valued at $528,117 for compensation and services.

 

**NotesPayable**

 

On February 24, 2000 the Company issued an unsecuredpromissory note to borrow up to $75,000 from the director. The note bears aninterest rate of 7% per annum on the outstanding advances.  During the period July 20, 2000 to November21, 2000, the director advanced the Company $31,996, which was repaid, and asof June 30, 2002 and 2001 there was no balance due.

 

On January 8, 2001, the Company entered into apromissory note with an officer in the amount of $159,439. Principal is to beadvanced in various amounts and will accrue interest at 12%. The principal andinterest are to be paid nine months from the date of latest advance. During thenine months ended June 30, 2001 the officer advanced the Company $159,439 andduring the nine months ended June 30, 2002 the Company repaid $124,000.  As of June 30, 2002 and 2001, there was aprincipal balance outstanding in the amount of $35,439 and $159,439,respectively, and accrued interest in the amount of $20,767 and $5,873,respectively.

 

 

16

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On January 15, 2001, the Company issued a promissorynote payable to an employee in the amount of $10,203 for various advances tothe Company. The Company paid back the note in full within 30 days with nointerest charged.

 

On April 20, 2001, the Company issued a promissorynote to an officer for amount of $56,965. Principal is to be advanced invarious amounts and will accrue interest at 12%.  The principal and interest are to be paid nine months from thedate of the latest advance. During the nine months ended June 30, 2002 and 2001the officer advanced the Company $17,300 and $41,117, respectively.  As of June 30, 2002 and 2001, there was aprincipal balance outstanding in the amount of $62,745 and $39,840, respectively,and accrued interest in the amount of $3,013 and $344, respectively.

 

On April 23, 2001, the Companyissued a promissory note payable to an employee in the amount of $41,945, plusinterest at a rate of 12% per annum. The principal is to be advanced to theCompany in various amounts. The note is due on August 30, 2002, nine monthsfrom the date of the last advance.  Asof June 30, 2002 and 2001, there was principal outstanding in the amount of$33,326 and $31,009, respectively and accrued interest in the amount of $5,008and $526, respectively.

 

During the nine months ended June 30, 2002 an employeeloaned the Company a total of $1,782 and the Company repaid $500.  As of June 30, 2002 there is a $1,282balance due.

 

During nine months ended June 30, 2002 an officerloaned the Company a total of $400 to cover operating expenses.  As of June 30, 2002 there is a $1,185balance due.

 

OnJanuary 17, 2002, the Company issued a promissory note payable to a shareholderin the amount of $10,000, plus interest at a rate of 10% per annum.  The principal is to be advanced to theCompany in various amounts.  The accruedinterest shall be paid in the Company’s common stock each quarter.  The note is due on January 17, 2003.  As of June 30, 2002, principal in the amountof $10,000 was outstanding.  As of June30, 2002 the Company hasaccrued a liability to issue 4,490 shares of common stock valued at $490.

 

On June 17, 2002, the Company issued a promissory notepayable to a shareholder in the amount of $3,000, plus interest at a rate of10% per annum.  The note is due on July17, 2002.  At June 30, 2002 there was aprincipal balance outstanding in the amount of $3,000 and accrued interest inthe amount of $12.

 

 

17

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**Agreements**

 

In October 1999, the Companyentered into a consulting agreement with a shareholder for management,marketing and technical services.

 

In July 2000, the Companyentered into a consulting agreement with an officer for management andtechnical services.

 

The Company has severalconsulting agreements with shareholders and officers for management, marketingand technical services.

 

Under the terms of theagreements, the Company made payments for the three and nine months ended June30, 2002 was $139,720 and $343,493, respectively, $102,133 and $251,392 for thethree and nine months ended June 30, 2001, respectively, and $1,083,455 for theperiod October 20, 1997 (inception) to June 30, 2002.

 

**RestrictedStocks Agreement**

 

On April 2, 2002 the Company and an employeeshareholder entered into a Restricted Stocks Agreement.  According to the terms of the agreement theCompany will issue on or before October 2, 2002, 374,994 shares of restrictedcommon stock in exchange for a restriction to sell before April 2, 2003,895,225 shares of common stock originally issued in lieu of salary.

 

**Note 13 — Global Alliance and Subscription Agreement**

 

OnDecember 7, 2000 the Company entered into a Global Alliance Agreement with ThePrime Group (“Prime”) located in Seoul, Korea. According to the terms of the Agreement, the Company would receive a 15%equity position in Prime.  In addition,Prime entered into a Subscription Agreement to purchase between 4,166,667 to5,000,000 shares of the Company’s common stock for cash in the amount of$2,000,000.  The first 2,500,000 sharesof common stock were to be issued quarterly at $0.40 per share for a totalconsideration of $1,000,000.  A second2,500,000 shares of common stock was to be issued at $0.40 per share if paymentis received by May 31, 2001 or 1,666,667 were to be issued at $0.60 per shareif payment is received after May 31, 2001.

 

InDecember 2000, the Company received $250,000 representing a subscription for625,000 shares of common stock; however, on February 28, 2001 the GlobalAlliance Agreement was terminated by Prime. In February 2001, the Company cancelled 125,000 shares of this issue andrecorded $50,000 as a liability.

 

 

18

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**Note 14 — Subsequent Events**

 

On July 25, 2002, the Company sold 285,713 shares ofcommon stock for cash in the amount of $20,000.

 

On July 23, 2002, the Company issued a promissorynote payable in the amount of $5,000, plus interest at a rate of 8% perannum.  The note is due on July 22,2003.  In addition, the loan agreementprovides an option to purchase 71,428 shares of common stock at a price of $.07per share.  The option expires uponpayment of the note payable.

 

**Note 15 — Going Concern**

 

The accompanying consolidated financial statements havebeen prepared assuming that the Company will continue as a going concern. TheCompany’s financial position and operating results raise substantial doubtabout the Company’s ability to continue as a going concern, as reflected by thenet loss of $245,094 and $713,277, respectively, for the three and nine monthsended June 30, 2002 and losses of $3,758,356 accumulated from October 20, 1997(Inception) to June 30, 2002. In addition the Company’s current liabilitiesexceed current assets by $1,340,789 at June 30, 2002. The ability of theCompany to continue as a going concern is dependent upon commencing operations,developing sales and obtaining additional capital and financing. Theconsolidated financial statements do not include any adjustments that might benecessary if the Company is unable to continue as a going concern. The Companyis currently seeking additional capital to allow it to begin its plannedoperations.

 

**Note 16 — Prior Quarter Adjustments**

 

The consolidated financial statements for the threemonths ended June 30, 2001 have been restated. The Company did not carryforward previously reported amounts of commonstock and additional paid in capital. The net effect of this error, $61,053 resulted in an understatement ofliabilities at June 30, 2001, previously paid in a prior quarter in a non-cashequity transaction, and an overstatement of total shareholders’ equity.

 

 

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### **Item 2.  Management Discussion and Analysis**

 

 

**General Overview**

 

Composite Solutions,Inc. (CSI) is an development stage company licensing and distributing itsproprietary composite materials technology and engineering services forapplications in the civil engineering and civil construction market. CSI’stechnology represents a revolutionary breakthrough for the constructionindustry. This technology uses the same type of composite materials found inthe B-2 Bomber and other lightweight, high-strength military hardware. Thesecomposite materials consist of advanced fiber reinforced polymers (FRPs).Examples include ultra high-strength carbon or aramid fibers in a thermoset(e.g., epoxy) matrix. Such fibers are 10-15 times stringer than constructionsteel and 5 times lighter. When used in concrete with traditional buildingmaterial systems, this marriage of new and conventional systems leads to adramatic enhancement of the latter, and to superior structural performance witha minimization of cost.

 

CSI’s newtechnology material systems fall into two main categories: 1) Composite Overlaysfor structural retrofits and 2) the Carbon Shell System (CSS) for newconstruction and infrastructure renewal. In both cases, the materials consistof FRPs.

 

TheComposite Overlay is a “structural skin” which is created by saturating fabricwoven out of carbon, aramid (e.g., kevlar) or other aerospace-quality fiberwith an epoxy-type resin. This product is marketed under the CSI trade name“RetroShield”. The specific composition, architecture and application of thefabric plus resin overlay is engineered by CSI to specific strength, stiffness,and ductility specifications based on the characteristics of the subjectstructure and use loads. The specified composite solution is then “wallpapered”to a structural surface to provide significantly increased ductility and/orstrength. The overlay can be applied to columns, walls, floors, beams andgirders, connections, and other such structural elements. The composite overlaytechnique has been found to be extremely effective for seismic retrofits, blasthardening, structural upgrades, and structural repairs. Typically only a fewlayers of a 1mm thick overlay are needed for such applications.

 

The CSS isa lightweight, high-strength plant-manufactured advanced carbonfiber-reinforced polymer (CFRP) shell (tube) of circular or non-circularcross-section. In new construction of buildings, bridges and other structures,the shell is typically filled with concrete; in this application it serves bothas a stay-in-place form and reinforcement. As a result, this systemsubstantially reduces the need for reinforcing steel and the use of heavylifting equipment, which constitutes a significant part of system buildingcosts. The CSS can be used for structural elements such as columns, beams andgirders for buildings and bridges and for pilings for harbors and docks.

 

In newconstruction of infrastructure systems, the CSS can be used for oil, gas, andwater pipelines. Advantages over conventional material in such applicationsinclude durability (no corrosion) and thermal stability (no thermal expansion).

 

Forinfrastructure renewal, the CSS is employed as a structural liner for pipelinesthat have deteriorated due to age or environmental conditions. An exampleapplication is the repair of large diameter (2-4m), prestressed concretecylindrical pipes (PCCPs) that carry high pressure, high flow water from itssource to urban areas.

 

Theeffectiveness and integrity of the Company’s composite overlay technology andthe CSS has been extensively validated by full-scale laboratory tests at TheCharles Lee Powell Structural Research Laboratories (“Powell Laboratories”)located at The University of California, San Diego (“UCSD”). These testsincluded both reinforced and un-reinforced wall specimens that ranged fromsingle-story walls to a full-scale five-story building as well as columnsranging from single columns to full-scale bridge bents.  The PowellLaboratories are one of the few such facilities in the world with thecapability to execute full-scale tests and have performed extensive testsrelating to the retrofit, and upgrading of structural elements such as walls,columns and floor slabs.

 

For blastretrofits, the composite overlay technology has been validated in U.S.Government field tests. These tests range from structural components to afull-scale building.

 

 

1

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#### **Business Areas**

 

CSI ismarketing its new material systems and technologies in four primary areas.These are: 1) Homeland Security; 2) Seismic retrofits and Structural Upgrades;3) Infrastructural Renewal; and 4) New Construction.

 

The CSItechnologies and product lines for the Homeland Security area includes: 1)Carbon Fiber Reinforced Polymer (CFRP) and Aramid Fiber Reinforced Polymer(AFRP)- based blast retrofit methodologies, material systems, and data forcivil, marine and aircraft structures; 2) CFRP- based Carbon Shell System forblast hardening of new structures; 3) Window Catcher Systems for occupantprotection against blast generated glass fragments; and 4) AFRP- basedComposite Ballistic Systems for the mitigation of projectiles from firearms anddebris from blast loads.

 

The CSItechnologies and product lines for the Seismic Retrofits and StructuralUpgrades include CFRP material systems, data bases, design methodologies, anddesign software for civil structures such as buildings and bridges.

 

CSI’sefforts in the area of Infrastructure Renewal are currently focused on therehabilitation of water transmission lines in the form of large diameterprestressed concrete cylindrical pipes (PCCPs). The technologies and productlines here include CFRP- based structural liner designs and material systems,cost metrics and installation methodologies. The associated product linesinclude design methodologies, data bases, and distribution of CFRP forms.

#### ** **

 

#### **Management**

 

CSI hasinitiated the creation of separate business units (SBUs) for the aforementionedfour primary business areas. Each unit will be governed by its own managementteam. Identification and selection of key SBU management personnel hascommenced.

 

In additionto the SBU management teams, and in an effort to coordinate and optimize theSBUs, CSI has entered into an agreement to retain the services of AmbassadorRichard Sklar. Ambassador Sklar will explore and develop commercialopportunities for the exploitation of CSI’s technology as well as identifyingand soliciting interest from potential joint venture partners.  He willalso advise the company in its effort to explore an appropriate businessstructure, including changes within CSI itself, to most effectively accomplishthose ends.  This action is the first step in what Management hopes to bean aggressive strategy to attract highly talented management services to theCompany and to restructure the Company into a mode which will allow it togenerate the revenues which it believes the Company’s technology warrants.

 

AmbassadorSklar has a distinguished and honored 40-year career in private and publicsector management.  He received his bachelor’s degree in mechanicalengineering from Cornell University in 1957 and went on to found a Clevelandbased manufacturer of construction equipment of which he was president andCEO.  That company was sold in 1973.  He later became president and aprincipal owner of the San Francisco based construction management firm ofO’Brien Kreitzberg, Inc. which, at the time that it was sold, was one of thelargest management construction firms in North America.  In 1996,Ambassador Mr. Sklar was appointed as the President’s Special Representativefor Economic Reform and Reconstruction to carry out civilian development inBosnia as part of the U.S. brokered peace accords.   More recently,he was named by Governor Davis to lead a task force of engineering and projectmanagement firms to help speed the construction of new power plants inCalifornia.

 

Managementis extremely encouraged to have been able to attract the services of someonewith his proven competence and management experience as well as his personalstature within the national and international construction community.

 

 

2

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#### **Marketing and Sales**

 

In April,2002, the Company signed an agreement with a large international constructioncompany for providing engineering and design services for large civilinfrastructure projects. According to the terms of this agreement, the Companywill receive royalties for products designed by the Company. A subsequentagreement, which is in progress, defines the scope and conditions under whichsaid construction company will provide financial support for the validationtesting of CSI products. Both agreements replace a previous agreement, signedon January 18, 2002 with an international manufacturer, which was cancelled byCSI.

 

The Companyis currently developing strategic alliance and technology licensing agreementswith a large international aerospace company in the area of Homeland Security.This will include the Company’s new FRP technologies for the protection of avariety of structures and its occupants.

 

The Companyis currently working with a large telecommunication company in an effort todefine the scope and conditions for seismic retrofit of key installations basedon the application of CSI’s CFRP overlay technology.

 

The Companyis currently working with a hospital group in an effort to define the scope andconditions for the seismic retrofit of a hospital campus in California based inthe application of CSI’s CFRP overlay technology.

 

 

#### **Results of Operations**

 

Thefollowing is a discussion of the financial condition and results of operationsfor the three months ended June 30, 2002 and 2001.  This discussion shouldbe read in conjunction with our consolidated financial statements and the notesrelated thereto.

 

Net Loss: For the fiscal quarter ended June 30, 2002,the Company recorded a net operating loss of $245,094 ($0.01 per share) fromcontinuing operations, compared to a net loss of $237,970 ($0.02 per share)during the fiscal quarter ended June 30, 2001.  This increase in loss ismainly due to a cancellation of an agreement by CSI, (see “Marketing and Sales”above).

 

Revenue:  The revenues and cost of sales forthe fiscal quarter ended June 30, 2002 were $5,384 and $4,552 respectively; ascompared to revenues of $10,400 and cost of sales of $5,098 for the fiscalquarter ended June 30, 2001.

#####  

Liquidityand Capital Resources:  TheCompany is operating with insufficient capital since January 2001.  It hasnot met all of its financial obligations, and has relied heavily on the sale ofits Common Stock to generate additional capital. During the three months endedJune 30, 2002, the Company issued 42,265 shares of common stock in non-cashtransactions valued at $6,762.  In addition, the Company received $30,000in cash for the subscription of 300,000 shares of common stock.

 

The Companyhad total assets of $1,106,081 as of June 30, 2002, including intangible assetsof $1,021,652, as compared to the total assets of $1,184,041 and intangibleassts of $1,143,399 as of June 30, 2001.  The Company’s currentliabilities as of June 30, 2002 were $1,410,211, as compared to currentliabilities of $722,327 as of June 30, 2001.

 

In year2002, the Company intends to devote a substantial part of its financialresources towards the marketing of its products and services to theconstruction industry.  In order to facilitate such marketing efforts, theCompany expects to seek additional capital through the sale of equitysecurities.  Also, the Company intends to pursue licensing technologies asa financing alternative.

 

 

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**CautionaryStatement Regarding****Forward-LookingStatements**

 

This reportcontains “forward-looking” statements.  The Company is including thisstatement for the express purpose of availing itself of protections of the safeharbor provided by the Private Securities Litigation Act of 1995 with respectto all such forward-looking statements.  Examples of forward-lookingstatements include, but are not limited to: (a) projections of revenues,capital expenditures, growth, prospects, dividends, capital structure and otherfinancial matters; (b) statements of plans objectives of the Company or itsmanagement or Board of Directors; (c) statements of future economicperformance; (d) statements of assumptions underlying other statements andstatements about the Company and its business relating to the future; and (e)any statements using the words “expects,” “intends,” “anticipates,” “may,”“plans,” “projects” and “estimates,” and analogous or similar expressions.

 

TheCompany’s ability to predict projected results or the effect of certain eventson the Company’s operating results is inherently uncertain.  Therefore,the Company wishes to caution each reader of this report to carefully considerthe following factors, any or all of which have in the past and could in thefuture affect the ability of the Company to achieve its anticipated results andcould cause actual results to differ materially than those discussed herein:(1) ability to attract and retain customers to purchase its products andservices, (2) ability to commercialize and market products,   (3)results of research and development, (4) technological advances by thirdparties and competition, (5) future capital needs of the Company, (6) historyof operating losses, (7) dependence upon key personnel, and (8) generaleconomic and business conditions.  The Company expressly disclaims anyobligation or undertaking to release publicly any updates or revisions to anyforward-looking statement contained herein to reflect any change in theCompany’s expectations with regard thereto or any change in events, conditionsor circumstances on which any such statement is based

 

 

 

 

###### **Part II**

 

**Item 1.****          ****Legal Proceedings**

 

Neitherthe Company nor its subsidiary is the subject of any pending legal proceeding.

 

 

**Item 6.****           Exhibits and****Reports on Form 8-K**

 

**(a)           Exhibits**

 

                Theexhibits required to be filed herewith by item 601 of Regulation S-B, asdescribed in the following index of exhibits, are incorporated herein byreference, as follows:

 

None.

 

**(b).**          **Reportson Form 8-K.**

 

None.

 

 

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**Signatures**

 

                In accordance with Section 13 or15(d) of the Securities Exchange Act the Company has caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.

 

Date:August 20, 2002

 
|   | Composite  Solutions, Inc. |
|--------|----------------------------|
|   |                       |
|   |                       |   |
|   | By:                        | /s/  Gilbert A. Hegemier |
|   |                       | Gilbert  A. Hegemier, Chairman |

 

 

                Pursuant to the requirements ofthe Securities Exchange Act, of 1934 this report has been signed below by thefollowing person on behalf of the Company and in the capacity and on the dateindicated.

 

 

| **Signature**            |   | **Capacity**          |   | **Date**        |
|--------------------------|--------|-----------------------|--------|-----------------|
|                     |   |                  |   |            |
| /s/  Gilbert A. Hegemier |   | Chairman of the Board |   | August 20, 2002 |
| Gilbert  A. Hegemier     |   |                  |   |            |

 

 

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