**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 December 31,  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 its  Charter)                      |
|                                                                 |   |   |
| **Florida**                                                          |   | **65-0790758** |
| State or other jurisdiction of  incorporation or organization        |   | I.R.S. Employer  Identification No. |
|                                                                 |   |   |
| **3252 Holiday Court, Suite 206, La Jolla,  California**             |   | **92037** |
| Address of principal executive office                                |   | Zip Code |
|                                                                 |   |   |
| Issuer’s   telephone number:  **(858) 459–4843** |

 

Former name and address, if changed since last report

 

Check whether the issuer has (1) filed all reports required by Section13 or 15(d) of the Exchange Act during the past 12 months, and (2) been subjectto such filing requirements for the past ninety (90) days.  Yes  ý   No  o

 

As of January 31, 2003, 19,861,540 shares of Common Stock wereoutstanding.

 

 

----

 

**PART 1 - FINANCIALINFORMATION**

 

**Item 1. FinancialStatements.**

 

The following consolidated financialstatements contain information regarding the Company’s balance sheets for thequarters ended December 31, 2002 and 2001, and profit & loss, shareholder’sequity, and cash flow for the quarters ended December 31, 2002 and 2001 and forthe period October 1, 1997 to December 31, 2002. All necessary adjustments tothe financial statements have been made.

 

**INDEX TO FINANCIALSTATEMENTS**

 

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Changes in Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

 

2

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**COMPOSITE SOLUTIONS, INC AND SUBSIDIARIES**

(A Development Stage Company)

**Consolidated Balance Sheets**

(Unaudited)

 
|                                                                                                                                                                  |   | **December 31,** |       |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|------------|
|                                                                                                                                                                  |   | **2002**         |       | **2001** |   |
| **ASSETS**                                                                                                                                                            |   |             | ** ** |   | ** ** |
|                                                                                                                                                                  |   |             |       |   |   |
| **Current assets**                                                                                                                                                    |   |             |       |   |   |
| Cash                                                                                                                                                                  |   | $                | 53,583     |   | $ | 448 |   |
| Accounts receivable, net of allowance for doubtful accounts of $0 in  2002 and 2001                                                                                   |   | 25,000           |       | 41,059 |   |
| Costs in excess of billings                                                                                                                                           |   | —           |       | 35,942 |   |
| Prepaid expenses                                                                                                                                                      |   | 31,770           |       | 341 |   |
| Other current assets                                                                                                                                                  |   | 46               |       | 46 |   |
|                                                                                                                                                                  |   |             |       |   |   |
| Total current assets                                                                                                                                                  |   | 110,399          |       | 77,836 |   |
|                                                                                                                                                                  |   |             |       |   |   |
| **Property, plant and equipment, net**                                                                                                                                |   | 2,579            |       | 6,558 |   |
|                                                                                                                                                                  |   |             |       |   |   |
| **Other assets**                                                                                                                                                      |   |             | ** ** |   | ** ** |
| Intangible assets, net                                                                                                                                                |   | 878,648          |       | 1,006,291 |   |
| Deposits                                                                                                                                                              |   | 10,025           |       | 13,147 |   |
|                                                                                                                                                                  |   |             |       |   |   |
| Total assets                                                                                                                                                          |   | $                | 1,001,651  |   | $ | 1,103,832 |   |
|                                                                                                                                                                  |   |             |       |   |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                                         |   |             | ** ** |   | ** ** |
|                                                                                                                                                                  |   |             |       |   |   |
| **Current liabilities**                                                                                                                                               |   |             | ** ** |   | ** ** |
| Accounts payable                                                                                                                                                      |   | $                | 402,317    |   | $ | 344,455 |   |
| Billings in excess of costs                                                                                                                                           |   | 109,672          |       | — |   |
| Line of credit                                                                                                                                                        |   | 51,534           |       | 51,396 |   |
| Employee and director payable                                                                                                                                         |   | 571,849          |       | 230,498 |   |
| Related party payable                                                                                                                                                 |   | 50,000           |       | 50,000 |   |
| Related party notes payable                                                                                                                                           |   | 189,416          |       | 159,764 |   |
| Accrued expenses                                                                                                                                                      |   | 334,341          |       | 129,763 |   |
| Income taxes payable                                                                                                                                                  |   | 5,600            |       | 3,200 |   |
|                                                                                                                                                                  |   |             |       |   |   |
| Total current liabilities                                                                                                                                             |   | 1,714,729        |       | 969,076 |   |
|                                                                                                                                                                  |   |             |       |   |   |
| **Long term obligations**                                                                                                                                             |   |             |       |   |   |
| Note payable                                                                                                                                                          |   | —           |       | 102,258 |   |
|                                                                                                                                                                  |   |             |       |   |   |
| Total liabilities                                                                                                                                                     |   | 1,714,729        |       | 1,071,334 |   |
|                                                                                                                                                                  |   |             |       |   |   |
| **Shareholders’ equity**                                                                                                                                         |   |             | ** ** |   | ** ** |
|                                                                                                                                                                  |   |             |       |   |   |
| Preferred stock; $0.0001 par value; 10,000,000 shares authorized; 0  shares issued and outstanding                                                                    |   | —           |       | — |   |
| Common  stock; $0.0001 par value; 50,000,000 shares authorized; 19,767,096 and  15,136,619 shares issued and outstanding at December 31, 2002 and 2001,  respectively |   | 1,976            |       | 1,513 |   |
| Additional paid in capital                                                                                                                                            |   | 3,710,860        |       | 3,285,639 |   |
| Accumulated deficit                                                                                                                                                   |   | (4,425,914       | )          | (3,254,654 | ) |
|                                                                                                                                                                  |   |             |       |   |   |
| Total shareholders’ equity                                                                                                                                       |   | (713,078         | )          | 32,498 |   |
|                                                                                                                                                                  |   |             |       |   |   |
| Total liabilities and shareholders’ equity                                                                                                                       |   | $                | 1,001,651  |   | $ | 1,103,832 |   |

 

See Accompanying Notes.

 

3

----

 

**COMPOSITESOLUTIONS, INC AND SUBSIDIARIES**(A Development Stage Company)**Consolidated Statements ofOperations**(Unaudited)

 
|                                                                                                   |   | **Three Months Ended  December 31,** |     | **October 20, 1997  (Inception)  to  December 31** |   |
|--------------------------------------------------------------------------------------------------------|--------|--------------------------------------|----------|----------------------------------------------------|--------|
|                                                                                                   |   | **2002**                             |     | **2001**                                           |   | **2002** |   |
| **Revenues**                                                                                           |   | $                                    | 66,908   |                                               | $      | 88,732 |   | $ | 376,442 |   |
| **Cost of sales**                                                                                      |   | 38,004                               |     | 83,297                                             |   | 423,919 |   |
|                                                                                                   |   |                                 |     |                                               |   |   |   |
| Gross profit                                                                                           |   | 28,904                               |     | 5,435                                              |   | (47,477 | ) |
|                                                                                                   |   |                                 |     |                                               |   |   |   |
| **Expenses**                                                                                           |   |                                 |     |                                               |   |   |   |
| Depreciation and amortization                                                                          |   | 13,196                               |     | 4,997                                              |   | 340,523 |   |
| General and administrative expenses                                                                    |   | 228,226                              |     | 205,733                                            |   | 3,803,547 |   |
| Impairment loss                                                                                        |   | —                               |     | —                                             |   | 237,248 |   |
|                                                                                                   |   |                                 |     |                                               |   |   |   |
| Total expenses                                                                                         |   | 241,422                              |     | 210,730                                            |   | 4,381,318 |   |
|                                                                                                   |   |                                 |     |                                               |   |   |   |
| Loss from operations                                                                                   |   | (212,518                             | )        | (205,295                                           | )      | (4,428,795 | ) |
|                                                                                                   |   |                                 |     |                                               |   |   |   |
| **Other income (expense)**                                                                             |   |                                 |     |                                               |   |   |   |
| Interest income                                                                                        |   | —                               |     | —                                             |   | 8,363 |   |
| Interest income - forgiveness of debt                                                                  |   | —                               |     | —                                             |   | 17,825 |   |
| Other Income                                                                                           |   | —                               |     | —                                             |   | 10,800 |   |
| Gain on forgiveness of debt                                                                            |   | —                               |     | —                                             |   | 8,261 |   |
| Other expenses                                                                                         |   | (569                                 | )        | (2,550                                             | )      | (8,350 | ) |
| Loss on disposal of assets                                                                             |   | —                               |     | —                                             |   | (190 | ) |
| Interest expense                                                                                       |   | (1,005                               | )        | (1,130                                             | )      | (114,974 | ) |
| Loss on forgiveness of debt                                                                            |   | —                               |     | —                                             |   | (11,021 | ) |
|                                                                                                   |   |                                 |     |                                               |   |   |   |
| Total other income (expense)                                                                           |   | (1,574                               | )        | (3,680                                             | )      | (89,286 | ) |
|                                                                                                   |   |                                 |     |                                               |   |   |   |
| Loss before provision for income taxes                                                                 |   | (214,092                             | )        | (208,975                                           | )      | (4,518,081 | ) |
|                                                                                                   |   |                                 |     |                                               |   |   |   |
| Provision for income taxes                                                                             |   | —                               |     | 600                                                |   | 13,128 |   |
|                                                                                                   |   |                                 |     |                                               |   |   |   |
| **Loss from continuting operations**                                                                   |   | (214,092                             | )        | (209,575                                           | )      | (4,531,209 | ) |
|                                                                                                   |   |                                 |     |                                               |   |   |   |
| **Discontinued operations**                                                                            |   |                                 |     |                                               |   |   |   |
| Income from  discontinued operations (including gain on sale of subsidiary in the amount  of $177,755) |   | —                               |     | —                                             |   | 105,295 |   |
|                                                                                                   |   |                                 |     |                                               |   |   |   |
| **Net loss**                                                                                           |   | $                                    | (214,092 | )                                                  | $      | (209,575 | ) | $ | (4,425,914 | ) |
|                                                                                                   |   |                                 |     |                                               |   |   |   |
| **Loss per common share, basic and diluted**                                                           |   |                                 |     |                                               |   |   |   |
| Net loss from continuing operations                                                                    |   | $                                    | (0.01    | )                                                  | $      | (0.01 | ) | $ | (0.29 | ) |
| Income from discontinued operations                                                                    |   | $                                    | —   |                                               | $      | — |   | $ | 0.01 |   |
| Net loss                                                                                               |   | $                                    | (0.01    | )                                                  | $      | (0.01 | ) | $ | (0.28 | ) |
|                                                                                                   |   |                                 |     |                                               |   |   |   |
| Weighted average number of shares, basic and diluted                                                   |   | 18,805,912                           |     | 15,136,619                                         |   | 15,884,016 |   |

 

See Accompanying Notes.

 

4

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**COMPOSITESOLUTIONS, INC AND SUBSIDIARIES**(A Development Stage Company)**Consolidated Statements of Changes in Shareholders’ Equity**(Unaudited)

 
|                                             |             |       |       |   |       |                            |       | **Deficit  Accumulated**           |       |
|--------------------------------------------------|------------------|------------|------------|--------|------------|---------------------------------|------------|------------------------------------|------------|
|                                             |             |       |       |   |       | **Additional  Paid in Capital** |       | **During the  Development  Stage** |       | **Total  Shareholders’  Equity** |   |
|                                             | **Common Stock** |       |
|                                             | **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                                         |             |       |       |   |       |                            |       | (1,090,715                         | )          | (1,090,715 | ) |
|                                             |             |       |       |   |       |                            |       |                               |       |   |   |
| **Balance, September 30, 2000**                  |             | 12,371,704 |       | 1,237  |       | 2,760,023                       |       | (1,677,758                         | )          | 1,083,502 |   |
|                                             |             |       |       |   |       |                            |       |                               |       |   |   |
| Common stock surrendered                         |             | (150,000   | )          | (15    | )          | (93,735                         | )          |                               |       | (93,750 | ) |
| Common Stock issued for cash                     |             | 725,000    |       | 73     |       | 244,927                         |       |                               |       | 245,000 |   |
| Common stock issued in exchange for services     |             | 1,061,760  |       | 106    |       | 128,227                         |       |                               |       | 128,333 |   |
| Common stock issued for finder’s fee        |             | 200,000    |       | 20     |       | (20                             | )          |                               |       | — |   |
|                                             |             |       |       |   |       |                            |       |                               |       |   |   |
| Net loss                                         |             |       |       |   |       |                            |       | (1,367,321                         | )          | (1,367,321 | ) |
|                                             |             |       |       |   |       |                            |       |                               |       |   |   |
| **Balance, September 30, 2001**                  |             | 14,208,464 |       | 1,421  |       | 3,039,422                       |       | (3,045,079                         | )          | (4,236 | ) |
|                                             |             |       |       |   |       |                            |       |                               |       |   |   |
| Common stock issued for compensation             |             | 808,155    |       | 80     |       | 161,429                         |       |                               |       | 161,509 |   |
| Common stock issued in exchange for services     |             | 120,000    |       | 12     |       | 34,788                          |       |                               |       | 34,800 |   |
| Subscription 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 cash                     |             | 2,339,047  |       | 234    |       | 177,266                         |       |                               |       | 177,500 |   |
| Common stock issued for compensation             |             | 374,994    |       | 38     |       | 44,962                          |       |                               |       | 45,000 |   |
| Common stock issued in exchange for services     |             | 394,034    |       | 39     |       | 56,780                          |       |                               |       | 56,819 |   |
| Common stock issued for interest due             |             | 47,350     |       | 5      |       | 5,677                           |       |                               |       | 5,682 |   |
|                                             |             |       |       |   |       |                            |       |                               |       |   |   |
| Net loss                                         |             |       |       |   |       |                            |       | (957,168                           | )          | (957,168 | ) |
|                                             |             |       |       |   |       |                            |       |                               |       |   |   |
| **Balance, September 30, 2002**                  |             | 18,292,044 |       | 1,829  |       | 3,570,324                       |       | (4,211,822                         | )          | (639,669 | ) |
|                                             |             |       |       |   |       |                            |       |                               |       |   |   |
| Common Stock issued for cash                     |             | 893,028    |       | 89     |       | 70,211                          |       |                               |       | 70,300 |   |
| Common stock  issued to settle accounts payable  |             | 582,024    |       | 58     |       | 70,325                          |       |                               |       | 70,383 |   |
|                                             |             |       |       |   |       |                            |       |                               |       |   |   |
| Net loss                                         |             |       |       |   |       |                            |       | (214,092                           | )          | (214,092 | ) |
|                                             |             |       |       |   |       |                            |       |                               |       |   |   |
| **Balance, December 31, 2002**                   |             | 19,767,096 |       | $      | 1,976      |                            | $          | 3,710,860                          |       | $ | (4,425,914 | ) | $ | (713,078 | ) |

 

See Accompanying Notes.

 

5

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**COMPOSITESOLUTIONS, INC AND SUBSIDIARIES**(A Development Stage Company)**Consolidated Statements of Cash Flows**(Unaudited)

 
|                                                                         |   | **Three Months Ended  December 31,** |     | **October 20, 1997  (Inception)  to  December 31,** |   |
|------------------------------------------------------------------------------|--------|--------------------------------------|----------|-----------------------------------------------------|--------|
|                                                                         |   | **2002**                             |     | **2001**                                            |   | **2002** |   |
|                                                                         |   |                                 |     |                                                |   |   |   |
| **Cash flows from operating activities**                                     |   |                                 |     |                                                |   |   |   |
| Net loss                                                                     |   | $                                    | (214,092 | )                                                   | $      | (209,575 | ) | $ | (4,425,914 | ) |
| Adjustments to reconcile net loss to net cash used in operating  activities: |   |                                 |     |                                                |   |   |   |
| Depreciation and amortization                                                |   | 13,196                               |     | 4,997                                               |   | 336,496 |   |
| Loss on disposal of assets                                                   |   | —                               |     | —                                              |   | 190 |   |
| Common stock issued in exchange for services                                 |   | —                               |     | 34,800                                              |   | 302,180 |   |
| Common stock issued for interest due                                         |   | —                               |     | 2,258                                               |   | 5,682 |   |
| Common stock issued for compensation                                         |   | —                               |     | 161,509                                             |   | 301,016 |   |
| Pre-acquisition income                                                       |   | —                               |     | —                                              |   | 47 |   |
| Loss from discontinued operations                                            |   | —                               |     | —                                              |   | 93,267 |   |
| Gain on disposal of subsidiary                                               |   | —                               |     | —                                              |   | (177,755 | ) |
| Impairment loss                                                              |   | —                               |     | —                                              |   | 237,248 |   |
| (Increase) decrease in operating assets                                      |   |                                 |     |                                                |   |   |   |
| Accounts receivable                                                          |   | (25,000                              | )        | (41,059                                             | )      | (7,507 | ) |
| Related party receivable                                                     |   | —                               |     | (7,840                                              | )      | (22,021 | ) |
| Costs in excess of billings                                                  |   | —                               |     | (35,942                                             | )      | — |   |
| Inventory                                                                    |   | —                               |     | —                                              |   | (2,055 | ) |
| Prepaid expenses                                                             |   | (31,588                              | )        | 411                                                 |   | (31,570 | ) |
| Employee advances                                                            |   | —                               |     | 271                                                 |   | — |   |
| Deposit                                                                      |   | —                               |     | 46                                                  |   | (10,375 | ) |
| Increase (decrease) in operating liabilities                                 |   |                                 |     |                                                |   |   |   |
| Accounts payable                                                             |   | 8,364                                |     | 30,396                                              |   | 1,071,004 |   |
| Billings in excess of costs                                                  |   | 65,241                               |     | —                                              |   | 109,672 |   |
| Forgiveness of accounts payable                                              |   | —                               |     | —                                              |   | (3,400 | ) |
| Accrued expenses                                                             |   | 159,783                              |     | (11,067                                             | )      | 450,506 |   |
| Income taxes payable                                                         |   | —                               |     | —                                              |   | 9,552 |   |
| Net cash used in operating activities                                        |   | (24,096                              | )        | (70,795                                             | )      | (1,763,737 | ) |
|                                                                         |   |                                 |     |                                                |   |   |   |
| **Cash flows from investing activities**                                     |   |                                 |     |                                                |   |   |   |
| Purchase of property, plant and equipment                                    |   | —                               |     | —                                              |   | (29,660 | ) |
| Acquisition of intangible assets                                             |   | (2,276                               | )        | (144                                                | )      | (628,134 | ) |
| Loans made to related party                                                  |   | —                               |     | —                                              |   | (10,000 | ) |
| Repayments of loans to related party                                         |   | —                               |     | —                                              |   | 10,000 |   |
| Acquisition of subsidiary                                                    |   | —                               |     | —                                              |   | (500,000 | ) |
| Cash of discontinued operations                                              |   | —                               |     | —                                              |   | (19,999 | ) |
| Cash of acquired subsidiaries                                                |   | —                               |     | —                                              |   | 17,261 |   |
| Net cash used in investing activities                                        |   | (2,276                               | )        | (144                                                | )      | (1,160,532 | ) |
|                                                                         |   |                                 |     |                                                |   |   |   |
| **Cash flows from financing activities**                                     |   |                                 |     |                                                |   |   |   |
| Increase (decrease) in line of credit                                        |   | —                               |     | —                                              |   | 800 |   |
| Proceeds from note payable to officer/employee                               |   | 184                                  |     | 117,433                                             |   | 282,349 |   |
| Payments of note payable to officer                                          |   | (41,050                              | )        | (100,250                                            | )      | (188,297 | ) |
| Proceeds from convertible debenture                                          |   | —                               |     | —                                              |   | 500,000 |   |
| Proceeds from notes payable                                                  |   | —                               |     | —                                              |   | 1,064,500 |   |
| Subcriptions paid                                                            |   | —                               |     | 50,000                                              |   | — |   |
| Proceeds from issuance of common stock, net                                  |   | 70,300                               |     | —                                              |   | 1,318,500 |   |
| Net cash provided by financing activities                                    |   | 29,434                               |     | 67,183                                              |   | 2,977,852 |   |
|                                                                         |   |                                 |     |                                                |   |   |   |
| Net increase (decrease) in cash                                              |   | 3,062                                |     | (3,756                                              | )      | 53,583 |   |
| Cash, beginning of period                                                    |   | 50,521                               |     | 4,204                                               |   | — |   |
| Cash, end of period                                                          |   | $                                    | 53,583   |                                                | $      | 448 |   | $ | 53,583 |   |
|                                                                         |   |                                 |     |                                                |   |   |   |
| **Supplementary disclosures**                                                |   |                                 |     |                                                |   |   |   |
| Interest paid                                                                |   | $                                    | —   |                                                | $      | 1,310 |   | $ | 2,351 |   |
| Income taxes paid                                                            |   | $                                    | —   |                                                | $      | 600 |   | $ | 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                                  |   | $                                    | —   |                                                | $      | — |   | $ | (64,500 | ) |
| Accrued interest released in sale of subsidiary                              |   | $                                    | —   |                                                | $      | — |   | $ | (28,867 | ) |
| Common stock issued to settle accounts payable                               |   | $                                    | 70,383   |                                                | $      | — |   | $ | 70,383 |   |

 

See Accompanying Notes.

 

6

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**Composite Solutions, Inc. and Subsidiaries**

** **(A Development StageCompany)

**Notes to Consolidated Financial Statements**

 

**Note 1- Summary ofSignificant Accounting Policies**

 

## ***The Company***

 

Composite Solutions, Inc. (the “Company”), formerly JS Business 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, 2002.   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 its efforts throughDecember 31, 2002 have been principally devoted to raising additional capitaland negotiating with potential key personnel and leasing facilities.  There is no assurance that any benefit willresult from such activities.  TheCompany will continue to incur expenses and losses as it pursues itsdevelopment efforts.

 

**Basis ofPresentation**

 

The consolidated financial statements include the accounts of theCompany and its wholly owned subsidiaries. All significant intercompany transactions have been eliminated inconsolidation.

 

**Unaudited Financial Statements**

 

The accompanying unaudited financial statements have been prepared inaccordance with accounting principles generally accepted in the United Statesfor interim financial information and according to regulatory requirements ofArticle 10 of Regulation S-X for form 10-QSB. Accordingly, the unaudited financial statements do not include all ofthe information and footnotes required by accounting principles generallyaccepted in the United States and should be read in conjunction with Form10-KSB for the fiscal year ended September 30, 2002.

 

**RevenueRecognition**

 

Revenue from the sale of product is recognized in the financialstatements when materials are shipped from stock.  Revenues derived from contracts are accounted for on the percentage-of-completionmethod of accounting.  Revenue isrecognized based on a ratio of the actual cost of work performed to a currentestimate of the total cost to complete a respective contract.

 

7

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Expected profits realized on contracts are based on the differencebetween estimates of total contract revenues and costs of completion.  These estimates are reviewed and revisedperiodically throughout the contract term, and adjustments to profits resultingfrom such revisions are recorded in the accounting period in which therevisions are made.  Profits arerecognized as the contract phase of the work is completed.  Losses on contracts are recorded in full asthey are identified.

 

**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.

 

**Reclassifications**

 

Certain reclassifications have been made to the December 31, 2001balances in order to conform to the December 31, 2002 presentation.

** **

**Note 2 - 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 valueper share.  The Board of Directors ofthe Company has discretion to determine the rights, preferences and privilegesof this preferred stock.  There are noshares of preferred stock issued and outstanding at December 31, 2002 and 2001.

 

#### **Common Stock**

 

In December 1999, a trustee shareholder surrendered 4,300,000 shares,which have been canceled.  During theperiod December 1999 to June 2000 the Company issued 668,333 shares of commonstock under a private placement in exchange for $760,000 in cash, net ofoffering costs.  On July 7, 2000 theCompany issued 953,371 shares of common stock valued at $715,028 in exchangefor 100% of the outstanding shares of common stock of Trans-ScienceCorporation.  On August 31, 2000 theCompany issued 150,000 shares of common stock valued at $93,750 plus $500,000in cash in exchange for 100% of the outstanding shares of common stock ofPenultimo, Inc. dba Anchor Reinforcements. On September 15,

 

8

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2000 the Company issued 100,000 shares of common stock as finder’sfees.  On September 28, 2000 the Companyissued 300,000 shares of common stock valued at $174,000 in exchange forservices. On March 31, 2001, a shareholder surrendered 150,000 shares of commonstock valued at $93,750.  Also on March31, 2001, the Company issued 200,000 shares of common stock as finder’s fees.At September 30, 2001, the Company issued 1,061,760 shares of common stockvalued at $128,333 in exchange for services. During the period October 2000 through December 2000 the Company issued725,000 shares of common stock valued at $245,000 in private placement. Duringyear ended September 30, 2002, the Company issued 514,034 shares of commonstock valued at $91,619 in exchange for services, 1,183,149 shares of commonstock for compensation valued at $206,509, 47,350 shares of common stock valuedat $5,682 for interest due, and 2,339,047 shares of common stock for cash andsubscriptions paid in the amount of $227,500. During the three months ended December 31, 2002, the Company issued582,024 shares of common stock valued at $70,383 in exchange for accountspayable, and 893,028 shares of common stock for cash in the amount of $70,300.

 

**Stock Incentive Plan**

 

On December 1,2000 the Company and subsidiaries’ Board of Directors adopted the 2000 StockIncentive Plan pursuant to which incentive stock options or nonstatutory stockoptions to purchase up to 1,000,000 shares of common stock may be granted toemployees, directors and consultants. Stock options may be exercisable up to ten years from the grantdate.  Stock options vest over serviceperiods that range from zero to five years.

 
| **Outstanding Options**     |   | **Shares  Available for  Grant** |   | **Options  Outstanding** |   | **Exercise Price** |       |
|-----------------------------|--------|----------------------------------|--------|--------------------------|--------|--------------------|------------|
| Authorized                  |   | 1,000,000                        |   |                     |   |               |       |
| Granted                     |   | (391,428                         | )      | 391,428                  |   | $                  | 0.10-$0.40 |   |
| Canceled                    |   | 120,000                          |   | (120,000                 | )      | $                  | 0.40       |   |
| Balance,  December 31, 2002 |   | 728,572                          |   | 271,428                  |   | $                  | 0.10       |   |

 

At December 31, 2002 there were 171,428exercisable options.

 

The Company accounts for stock-based compensation using the intrinsicvalue method prescribed by Accounting Principles Board Opinion No. 25,“Accounting for Stock Issued to Employees,” under which no compensation costfor stock options is recognized for the stock options awards granted at orabove fair market value.  For the threemonths ended December 31, 2002 and 2001 and for the period October 1, 1997 toDecember 31, 2002, the Company did not recognize any compensation expense.

** **

9

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**Note 3 – Line of Credit**

 

The Company has a business secured open line of credit with a bank inthe amount of $50,000. The line of credit bears interest at the prime rate, aspublished in the *Wall Street Journal*, plus 2.5% (7.75% at December 31,2002).  At December 31, 2002 and 2001there was a balance due in the amount of $51,534 and $51,396, respectively.

 

**Note 4 - Commitments**

 

The Company and subsidiaries lease office space under a non-cancelableoperating lease.  Future minimumpayments under the lease at December 31, 2002 are as follows:

 

| **Year Ending  December 31,** |   |   |   |
|-------------------------------|--------|--------|--------|
| 2002                          |   | $      | 49,027 |   |
| 2003                          |   | 24,994 |   |
| 2004                          |   | — |   |
|                          |   | $      | 74,021 |   |

 

Rental expense was $12,016 and $11,554 for the three months endedDecember 31, 2002 and 2001, respectively and was $262,499 for the periodOctober 27, 1997 (inception) to December 31, 2002.

 

**Note 5 – Earnings Per Share**

 

At December 31, 2002 and 2001 there were 171,428 and 100,000weighted-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 December 31, 2002 and 2001.

 

10

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**Note 6 - Related Party Transactions**

 

**Notes Payable**

 

On November20, 2001, the Company entered into a Secured Promissory Note with MarathonDevelopment Company, Inc. (Marathon) in the amount of $105,000, including$5,000 of interest at a rate of 10% per annum. Marathon was a non-affiliated entity at that date.  The note is secured by Company’s assets andis personally guaranteed by a director of the Company.  The note was due on February 20, 2002.  In addition, if not paid when due, theCompany will issue 10,000 shares of common stock per month to Marathon, untilthe note is paid. At December 31, 2002 and 2001 there was a balance due in theamount of $80,500 and $102,258, respectively and accrued interest in the amountof $16,031 and $2,742, respectively and the Company has issued 42,857 shares ofcommon stock valued at $5,143.

** **

On January 8, 2001 and April 20, 2001 the Company entered intopromissory notes with an officer in the amount of $159,439 and 56,965,respectively.  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 thethree months ended December 31, 2002 the officer advanced the Company anadditional $184 and the Company paid $41,050. At December 31, 2002 and 2001 there was a balance due in the amount of$56,355 and $116,384, respectively and accrued interest in the amount of$35,774 and $20,158, respectively.

 

On January 15, 2001, the Company issued a promissory note payable to anemployee in the amount of $10,203 for various advances to the Company. TheCompany paid back the note in full within 30 days with no interest charged.

 

On April 23, 2001, the Company issued a promissory note payable to anemployee in the amount of $41,945, plus interest at a rate of 12% per annum.The principal is to be advanced to the Company in various amounts. The note wasdue on August 30, 2002, nine months from the date of the last advance.  As of December 31, 2002 and 2001, principalin the amount of $33,376 and $41,945 was outstanding.

 

An employee loaned the Company a total of $500 to cover operatingexpenses.  As of December 31, 2002 and2001 there was a balance of $0 and $250, respectively.

 

An officer of the Company loaned Trans-Science Corporation a total of$1,585 to cover operating expenses.  Asof December 31, 2002 and 2001 there was a $1,185 balance due.

 

11

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On January 17, 2002, the Company issued a promissory note payable to ashareholder in the amount of $10,000, plus interest at a rate of 10% perannum.  The principal is to be advanceto the Company in various amounts.  Theaccrued interest shall be paid in the Company’s common stock each quarter.  The note is due on January 17, 2003.  At December 31, 2002 there was a $10,000balance due and accrued interest in the amount of $504 and the company hasissued 4,493 shares of common stock valued at $539.

 

On June 17,2002, the Company issued a promissory note payable to a shareholder in theamount of $3,000, plus interest at a rate of 10% per annum.  The note was due on July 17, 2002.  At December 31, 2002 there was a $3,000balance due and accrued interest in the amount of $170.

 

On July 23,2002, the Company issued a promissory note payable to a shareholder in theamount of $5,000, plus interest at a rate of 8% per annum.  The note is due on July 24, 2003.

 

**Agreements**

 

The Companyhas several consulting agreements with shareholders and officers formanagement, marketing and technical services. Consulting fees for the three months ended December 31, 2002 and 2001were $70,000 and $45,000, respectively

### ** **

### **12**

### ****

###  

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

 

**General Overview**

 

CompositeSolutions, Inc. (CSI) is a development stage company licensing and distributingits proprietary 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 concert 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’snew technology material systems fall into two main categories: 1) CompositeOverlays for 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.

 

TheCSS is a 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.

 

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

 

13

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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 from single-storywalls to a full-scale five-story building as well as columns ranging fromsingle columns to full-scale bridge bents.  The Powell Laboratories areone of the few such facilities in the world with the capability to executefull-scale tests and have performed extensive tests relating to the retrofit,and upgrading of structural elements such as walls, columns and floor slabs.

 

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

 

**Business Areas**

 

CSIis marketing 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.

 

TheCSI technologies 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 for civil,marine and aircraft structures; 2) CFRP- based Carbon Shell System for blasthardening of new structures; 3) Window Catcher Systems for occupant protectionagainst blast generated glass fragments; and 4) AFRP- based Composite BallisticSystems for the mitigation of projectiles from firearms and debris from blastloads.

 

TheCSI technologies 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.

 

**Marketing and Sales**

 

CSIhas been active in all four areas during 2002. A summary of events follows:

 

14

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InfrastructureRenewal - The Companyhas signed an agreement with a large international construction company for providingengineering and design services, as well as technology, for large civilinfrastructure projects. According to the terms of this agreement, the Companywill receive royalties for products designed by the Company. A subsequentagreement defines the scope and conditions under which said constructioncompany will provide financial support for validation testing of CSI products.As part of this agreement, funds have been received by CSI and the associatedproduct testing is in progress.

 

HomelandSecurity – TheCompany is developing strategic alliance and technology licensing agreementswith a large international company in the area of Homeland Security. Thisincludes the Company’s new FRP technologies for the protection of structuresand occupants against both blast and ballistic threats. Testing of these FRPtechnologies continues under government support. Sales of the ballistic –protection products have commenced in the private sector.

 

SeismicRetrofits – Sales inthis area have now commenced. The customer base ranges from hospitals totelecommunication facilities to city facilities to private/commercial owners.As an example, the Company is currently working with a hospital group in aneffort to define the scope and conditions for the seismic retrofit of a numberof hospital campuses in California based on the application of CSI’s CFRPoverlay technology. A contract for the first seismic retrofit project from thisgroup has been obtained and work has begun. As another example, the Company iscurrently working with a large telecommunication company in an effort to definethe scope and conditions for the seismic retrofit of key installations based,again, on the application of CSI’s CFRP overlay technology.  Here the first seismic retrofit has recentlybeen completed. Other example projects include a Church in So. California,which is in progress, a home in No. California which has been completed, and alarge parking structure in So. California, which is in the contract negotiationstage. In addition to the above, the Company is developing a strategic allianceagreement with a large national construction company. When completed, thisagreement will allow CSI to dramatically expand its marketing operations, andto engage in large design-build projects.

 

NewConstruction –Discussions are in progress with a potential customer in No. Californiaconcerning the construction of two short – span bridges using CSI’s CarbonShell System (CSS).

#### ** **

#### **Results of Operations**

 

Thefollowing is a discussion of the financial condition and results of operationsfor the quarter ended December 31, 2002 and 2001.  This discussion shouldbe read in conjunction with our consolidated financial statements and the notesrelated thereto.

 

NetLoss: For the quarterended December 31, 2002, the Company recorded a net loss of $214,092 ($0.01 pershare), compared to a net loss of $209,575 ($0.01 per share) during the quarterended December 31, 2001.

 

15

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Revenue:  The revenues and cost of sales forthe quarter ended December 31, 2002 were $66,908 and $38,004, respectively; ascompared to revenues of $88,732 and cost of sales of $83,297 for the quarterended December 31, 2001.

#####  

Liquidityand Capital Resources: The Company is operating with insufficient capital since January 2001.  Ithas not met all of its financial obligations, and has relied heavily on thesale of its common stock to generate additional capital. During the quarterended December 31, 2002, the Company issued 893,028 shares of common stock forcash in the amount of $70,300, and 582,024 shares of Common Stock to settleaccounts payable in the amount of $70,383.

 

TheCompany had total assets of $1,001,651 as of December 31, 2002, includingintangible assets of $878,648, as compared to the total assets of $1,103,832and intangible assets of $1,006,291 as of December 31, 2001.  TheCompany’s current liabilities as of December 31, 2002 were $1,714,729, ascompared to current liabilities of $969,076 as of December 31, 2001.

 

Inyear 2003, 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.

 

**Cautionary Statement Regarding****Forward-LookingStatements**

 

Thisreport contains “forward-looking” statements.  The Company is includingthis statement for the express purpose of availing itself of protections of thesafe harbor provided by the Private Securities Litigation Act of 1995 withrespect to all such forward-looking statements.  Examples offorward-looking statements include, but are not limited to: (a) projections ofrevenues, capital expenditures, growth, prospects, dividends, capital structureand other financial matters; (b) statements of plans objectives of the Companyor its management 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 ofresearch and development, (4)

 

16

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technologicaladvances by third parties and competition, (5) future capital needs of theCompany, (6) history of operating losses, (7) dependence upon key personnel,and (8) general economic and business conditions.  The Company expresslydisclaims any obligation or undertaking to release publicly any updates orrevisions to any forward—looking statement contained herein to reflect anychange in the Company’s expectations with regard thereto or any change inevents, conditions or circumstances on which any such statement is based

 

**Part II**

 

**Item1.  Legal Proceedings**

 

Neither the Company nor itssubsidiary is the subject of any pending legal proceeding.

 

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

 
| **(a)**                                                                                                                                                                        | **Exhibits**             |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------|
|                                                                                                                                                                           |                     |
| The exhibits required to be filed herewith by item 601 of Regulation  S-B, as described in the following index of exhibits, are incorporated herein  by reference, as follows: |
|                                                                                                                                                                           |                     |
|                                                                                                                                                                           | None.                    |
|                                                                                                                                                                           |                     |
| **(b).**                                                                                                                                                                       | **Reports on Form 8-K.** |
|                                                                                                                                                                           |                     |
|                                                                                                                                                                           | None.                    |

 

17

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**Signatures**

 

In accordance with Section 13 or 15(d) of theSecurities Exchange Act the Company has caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

 

Date: February 13, 2003

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

 

 

Pursuant to the requirements of theSecurities 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 |   | February 13, 2003 |
| Gilbert A. Hegemier     |   |                  |   |              |
|                         |        |                       |        |                   |  |

 

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**SECTION 302 CERTIFICATION**

 

I, Dr. Gil Hegemier, certify that:

 

1. I have reviewed this quarterly report on Form 10-QSB of CompositeSolutions, Inc.;

 

2. Based on my knowledge, this annual report does not contain anyuntrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period covered by thisannual report;

 

3. Based on my knowledge, the financial statements, and other financialinformation included in this annual report, fairly present in all materialrespects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this annual report;

 

4. I am responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)for the registrant and I have:

 

a) designed such disclosure controls and procedures to ensure thatmaterial information relating to the registrant, including its consolidatedsubsidiaries, is made known to me by others within those entities, particularlyduring the period in which this annual report is being prepared;

 

b) evaluated the effectiveness of the registrant’s disclosure controlsand procedures as of a date within 90 days prior to the filing date of thisannual report (the “Evaluation Date”); and

 

c) presented in this annual report my conclusions about theeffectiveness of the disclosure controls and procedures based on my evaluationas of the Evaluation Date;

 

5. I have disclosed, based on my most recent evaluation, to theregistrant’s auditors and the audit committee of registrant’s board ofdirectors (or persons performing the equivalent function):

 

a) all significant deficiencies in the design or operation of internalcontrols which could adversely affect the registrant’s ability to record,process, summarize and report financial data and have identified for theregistrant’s auditors any material weaknesses in internal controls; and

 

b) any fraud, whether or not material, that involves management orother employees who have a significant role in the registrant’s internalcontrols; and

 

6. I have indicated in this quarterly report whether or not there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of my most recentevaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Date: February 13, 2003 |   |   |   |   | /s/ Dr. Gil Hegemier       |   |
|-------------------------|--------|--------|--------|--------|----------------------------|--------|
|                    |   |   |   |   | Dr. Gil Hegemier, Chairman |

 
| /s/ Gilbert A. Hegemier |   | Chairman of the Board | February 13, 2003 |
|-------------------------|--------|-----------------------|-------------------|
| Gilbert A. Hegemier     |   |                  |

 

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