SECURITIES & EXCHANGE
COMMISSIONWashington, D.C. 
20549 FORM
10-QSB x
  QUARTERLY
  REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
  EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2001o
  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
  
  65-0790758State
  or other jurisdiction of
  incorporation or organization
  
  I.R.S. Employer
  Identification No.3655 Nobel Drive, Suite 440, San Diego, California
  
  92122Address
  of principal executive office
  
  Zip CodeIssuer's
  telephone number: (858) 459-4843Former
  name and address, if changed since last report Check whether the issuer has (1) filed
all reports required by Section 13 or 15(d) of the Exchange Act during the past
12 months, and (2) been subject to such filing requirements for the past ninety
(90) days.  YesxNoo As of March 31, 2001,  13,965,641 shares of Common Stock were
outstanding.   COMPOSITE SOLUTIONS, INC.AND SUBSIDIARIES(A Development Stage Company)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements.

The
following un-audited financial statements contain information regarding the
results of operation and balance sheet of Composite Solutions, Inc., a Florida
corporation, for the quarter ended March 31, 2001.

The Companys revenues for the quarter
ended March 31, 2001 were $148,441.



INDEX
  TO FINANCIAL STATEMENTSBalance SheetsStatements of
  OperationsStatements
  of Changes in Stockholders EquityStatements of
  Cash FlowsNotes to
  Financial Statements

COMPOSITE
SOLUTIONS, INC.AND
SUBSIDIARIES(A Development Stage Company)Consolidated
Balance Sheets

March 31,2001
  2000ASSETSCurrent assetsCash
  $2,947
  $102,747Accounts receivable, net of allowance
  for doubtful accounts of $0 in 2001 and $0 in 2000
  17,571
  -Related party receivables
  -
  4,392Inventory
  -
  -Prepaid expenses
  1,674
  10,579Prepaid income taxes
  200
  -Total current assets
  22,392
  117,718Property, plant and equipment, net
  22,057
  21,990Other assetsIntangible assets
  1,204,831
  537,254Deposit
  10,845
  -Total assets
  $1,260,125
  $676,962LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilitiesAccounts payable
  255,175
  74,034Line of credit
  51,466
  -Notes payable to officer
  159,419
  -Accrued expenses
  4,270
  16,934Income taxes payable
  -
  -Total current liabilities
  470,330
  90,968Long term obligationsConvertible debenture
  -
  -Other long term obligations
  -
  25,146Total liabilities
  470,330
  116,114Shareholders' equityPreferred 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; 13,965,641 and 10,625,000 shares issued
  andoutstanding at March
  31, 2001 and 2000, respectively
  1,397
  1,063Additional paid in capital
  3,078,657
  1,430,226Accumulated deficit during the development
  stage
  (2,290,259)
  (870,441)Total shareholders' equity
  789,795
  560,848Total liabilities and shareholders'
  equity
  $1,260,125
  $676,962See
accompanying notes.

COMPOSITE
SOLUTIONS, INC.AND
SUBSIDIARIES(A Development Stage Company)Consolidated Statements of Operations

Six Months EndedMarch
  31,
  October 20, 1997(Inception)
  toMarch
  31,20012001
  2000Revenues
  $269,934
  $-
  $317,947Cost of sales
  96,824
  -
  106,030Gross profit
  173,110
  -
  211,917ExpensesConsulting fees
  189,822
  23,347
  548,407Depreciation and amortization
  115,649
  2,466
  167,896General and administrative expenses
  235,310
  113,757
  667,464Organizational expenses
  -
  -
  514Professional fees - related party
  -
  -
  25,884Professional fees - other
  107,912
  15,797
  360,300Salaries
  318,187
  142,068
  875,173Total expenses
  966,880
  297,435
  2,645,638Loss from operations
  (793,770)
  (297,435)
  (2,433,721)Other income (expense)Interest income
  3
  1,990
  8,365Interest income - forgiveness of debt
  -
  -
  17,825Gain on sale of subsidiary
  109,025
  
  109,025Gain on forgiveness of debt
  3,400
  -
  8,261Interest expense
  (36,713)
  (146)
  (62,056)Loss on forgiveness of debt
  -
  -
  (11,021)Total other income (expense)
  75,715
  1,844
  70,399Loss before provision
  for income taxes
  (718,055)
  (295,591)
  (2,363,322)Provision for income
  taxes
  -
  -
  6,352Net loss
  $(718,055)
  $(295,591)
  $(2,369,674)Basic net loss per
  share
  $(0.06)
  $(0.03)
  $(0.13)Weighted average
  number of shares
  12,954,519
  10,571,923
  16,062,653Summary of Activity of Subsidiary Sold
  
  
  October 20, 1997(Inception)
  toMarch
  31,20012001
  2000Revenues
  132,520
  0
  228,834Cost of sales
  39,834
  0
  81,375Gross profit
  92,686
  0
  147,459ExpensesConsulting fees
  0
  0
  40,563Depreciation and amortization
  3,640
  0
  7,254General and administrative expenses
  101,758
  0
  119,620Professional fees - other
  0
  0
  20,462Salaries
  0
  0
  52,439Total expenses
  105,398
  0
  240,338Loss from operations
  (12,712)
  0
  (92,879)Other income (expense)Interest income
  0
  0
  1Interest expense
  0
  0
  (388)Total other income (expense)
  0
  0
  (387)Loss before provision
  for income taxes
  (12,712)
  0
  (93,266)Provision for income
  taxes
  0
  0
  0Net loss
  (12,712)
  0
  (93,266)Basic net loss per
  share
  (0.00)
  0.00
  (0.01)Weighted average
  number of shares
  12,954,519
  10,571,923
  16,062,653See
accompanying notes.

COMPOSITE
SOLUTIONS, INC.AND
SUBSIDIARIES(A Development Stage Company)Consolidated Statements of Changes in Shareholders' Equity

Common Stock
  AdditionalPaid
  in Capital
  DeficitAccumulatedDuring
  theDevelopmentStage
  TotalShareholders'EquityShares
  AmountBalance, 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
  -
  18,934Common stock
  contributed
  (7,896,410)
  (790)
  790
  -
  -Pre-acquisition income
  -
  -
  -
  47
  47Common stock issued in
  acquisition
  1,000,000
  100
  47
  (47)
  100Common stock issued
  for payment of note payable
  200,000
  20
  999,980
  -
  1,000,000Net loss
  -
  -
  -
  (587,043)
  (587,043)Balance, September 30, 1999
  14,500,000
  1,450
  1,017,032
  (587,043)
  431,439Common stock
  surrendered
  (4,300,000)
  (430)
  430
  -
  -Common Stock issued
  for cash
  320,000
  32
  319,968
  -
  320,000Common Stock issued
  for cash
  105,000
  11
  104,989
  -
  105,000Common Stock issued
  for cash
  83,333
  8
  124,992
  -
  105,000Net loss
  -
  -
  -
  (295,591)
  (295,591)Balance, March 31, 2000
  10,708,333
  1,071
  1,567,411
  (882,634)
  665,848Common Stock issued
  for cash
  160,000
  16
  209,984
  -
  210,000Pre-acquisition income
  
  
  
  50,877
  50,877Common stock issued in
  acquisitions
  1,103,371
  110
  808,668
  (50,877)
  757,901Common stock issued in
  exchange for services
  300,000
  30
  173,970
  -
  174,000Common stock issued
  for finder's fee
  100,000
  10
  (10)
  -
  -Net loss
  -
  -
  -
  (795,124)
  (795,124)Balance, September 30, 2000
  12,371,704
  1,237
  2,760,023
  (1,677,758)
  1,063,502Common Stock issued
  for compensation
  643,937
  64
  112,980
  -
  113,044Common Stock issued
  for cash
  850,000
  86
  294,914
  -
  295,000Common stock issued
  for finder's fee
  200,000
  20
  (20)
  -
  -common stock returned
  in sale of subsidiary
  (150,000)
  (15)
  (93,735)
  -
  (93,750)Common stock issued in
  exchange for services
  50,000
  5
  4,495
  -
  4,500Net loss
  -
  -
  -
  (718,055)
  (718,055)Balance, March  31,
  2001
  13,965,641
  $1,397
  $3,078,657
  $(2,395,813)
  $664,241See
accompanying notes.

COMPOSITE
SOLUTIONS, INC.AND
SUBSIDIARIES(A Development Stage Company)Consolidated Statements of Cash Flows

Six Months EndedMarch
  October 20, 1997(Inception)
  toMarch
  31,20012001
  2000Cash flows from operating activitiesNet loss
  $(718,055)
  $(295,591)
  $(2,369,674)Adjustments to
  reconcile net loss to net cash used in operating activities:Depreciation and amortization
  115,648
  2,466
  167,895Common stock issued in exchange for
  services
  117,544
  -
  294,179Common stock issued in lieu of cash
  -
  -
  100Pre-acquisition income
  -
  -
  47(Increase) decrease in
  operating assetsAccounts receivable
  30,580
  -
  46,420Related party receivable
  -
  (4,392)
  -Shareholder accrued interest
  1,104
  -
  1,104Inventory
  172
  -
  (1,883)Prepaid expenses
  (305)
  (6,353)
  (1,674)Prepaid income taxes
  -
  -
  -Deposit
  (4,622)
  -
  (12,299)Increase (decrease) in
  operating liabilities
  
  
  -Accounts payable
  80,481
  (16,596)
  221,430Accrued expenses
  40,665
  (1,065)
  24,157Income taxes payable
  (3,200)
  -
  3,152Net cash used in operating activities
  (339,988)
  (321,531)
  (1,627,046)Cash flows from investing activitiesPurchase of property, plant and
  equipment
  (2,446)
  (11,313)
  (30,150)Acquisition of intangible assets
  (2,886)
  (9,593)
  (547,446)Loans made to related party
  -
  -
  (10,000)Repayments of loans to related party
  -
  -
  10,000Acquisition of subsidiaries
  -
  -
  (500,000)Gain on sale of Subsidiary
  (109,025)
  
  (109,025)Cash of acquired and disposed of
  subsidiaries
  (12,629)
  -
  4,632Net cash used in investing activities
  (126,986)
  (20,906)
  (1,181,989)Cash flows from financing activitiesBank overdraft
  (1,214)
  -
  -Increase (decrease) in line of credit
  (28)
  -
  732Proceeds from note payable to officer
  165,129
  11,373
  191,629Payments of note payable to officer
  (30,496)
  -
  (32,180)Proceeds from convertible debenture
  -
  -
  500,000Gain on forgiveness of debt
  (3,400)
  
  (3,400)Proceeds from notes payable
  20,000
  -
  1,084,500Proceeds from issuance of common stock,
  net
  295,000
  425,000
  1,070,700Net cash provided by financing
  activities
  444,991
  436,373
  2,811,982Net increase in cash
  (21,983)
  93,936
  2,947Cash, beginning of
  period
  24,930
  8,811
  -Cash, end of period
  $2,947
  $102,747
  $2,947Supplementary disclosuresInterest paid
  $1,184
  $-
  $2,689Income taxes paid
  $3,200
  $-
  $3,200Non-cash financing and investing activitiesNote payable paid by issuance of common
  stock
  $-
  $-
  $1,000,000Investment in subsidiary
  $(93,750)
  $-
  $702,982Interest on note payable
  $1,104
  $-
  $18,929Forgiveness of interest on note payable
  $32,596
  $-
  $14,771See
accompanying notes.

COMPOSITE
SOLUTIONS, INC.AND
SUBSIDIARIES(A Development Stage Company)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The CompanyComposite
Solutions, Inc. (the Company), formerly JS Business Works, Inc., was
incorporated in the state of Florida on October 20, 1997. The Company had three
wholly owned subsidiaries,  as of March
31, 2001: Composite Solutions, Inc., incorporated in the state of Nevada on
December 8, 1998, Trans-Science Corporation, incorporated in the state of
California on September 15, 1980, and Penultimo, Inc. dba Anchor
Reinforcements, incorporated in the state of California on January 13,
1992.   Composite Solutions Inc. and
subsidiaries were organized to develop, manufacture and market high technology
products and processes in key areas of existing and new construction.The
Company is in the development stage and its efforts through March 31, 2001 have
been principally devoted to raising additional capital and negotiating with
potential key personnel and leasing facilities.  There is no assurance that any benefit will result from such
activities.  The Company will continue
to incur expenses and losses as it pursues its development efforts.Basis of PresentationThe
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries.  All
significant inter-company transactions have been eliminated in consolidation.Start-up CostsCosts
of start-up activities, including organization costs, are expensed as incurred,
in accordance with Statement of Position (SOP) 98-5.AdvertisingAdvertising
costs are charged to expense as incurred.InventoriesInventories
are valued at lower of the first-in, first-out (FIFO) cost or market.Property, Plant and EquipmentProperty,
plant and equipment are recorded at cost less depreciation. Depreciation is
accounted for on the straight-line and accelerated 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 and maintenance, which do not increase
the useful lives of property and equipment are charged to operations as
incurred.Intangible AssetsOther
assets include intangibles such as licensed technology, computer software and
goodwill.  Intangible assets are
recorded at historical cost less amortization. 
Goodwill is amortized on the straight-line method based on an estimated
useful life of five years.  Other
intangibles are amortized on the straight-line method beginning on the date the
assets are placed in service, over their estimated useful lives.  The cost of software has been capitalized in
accordance with SFAS 86, Accounting for the Costs of Computer Software to Be
Sold, Leased, or Otherwise Marketedand amortization is accounted
for at the greater of a ratio equal to current revenue divided by estimated
future gross revenue or on the straight-line method over a period of five
years.Revenue RecognitionRevenue
from the sale of product is recognized in the financial statements when
materials are shipped from stock.Revenues
derived from contracts are accounted for on the percentage-of-completion method
of accounting.  Revenue is recognized
based on a ratio of the actual cost of work performed to a current estimate of
the total cost to complete a respective contract.Expected
profits realized on contracts are based on the difference between estimates of
total contract revenues and costs of completion.  These estimates are reviewed and revised periodically throughout
the contract term, and adjustments to profits resulting from such revisions are
recorded in the accounting period in which the revisions are made.  Profits are recognized as the contract phase
of the work is completed.  Losses on
contracts are recorded in full as they are identified.Income TaxesThe
Company accounts for income taxes under SFAS 109, Accounting for Income Taxes. This statement requires an
asset and liability approach to account for income taxes.  The Company provides deferred income taxes
for temporary differences that will result in taxable or deductible amounts in
future years based on the reporting of certain costs in different periods for
financial and income tax purposes.Use of EstimatesThe
presentation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the periods
presented.  Actual results may differ
significantly from those estimates.Stock-Based CompensationIn
accordance with the provisions of SFAS 123, the Company follows the intrinsic
value based method of accounting as prescribed by APB 25, Accounting for Stock Issued to Employees,
for its stock-based compensation.NOTE 2  ACQUISITIONS/SALES

On
June 17, 1999 the Company entered into a Share Exchange Agreement.  On June 30, 1999, according to the terms of
the agreement, the Company issued 1,000,000 shares of its common stock for all
of the shares of the outstanding stock of Composite Solutions, Inc. (the
Subsidiary), a Nevada corporation. 
The exchange of shares has been accounted for as a reverse merger, under
the purchase method of accounting. 
Accordingly, the combination of Company and the Subsidiary is recorded
as a re-capitalization of the shareholders equity of the Subsidiary, the
surviving corporation, and for accounting purposes the financial statements
presented are those of the Subsidiary.On
June 23, 2000 the Company entered into a Share Exchange Agreement with
Trans-Science Corporation, a California corporation, a company under common
control.  On July 7, 2000 the Company
completed its acquisition.  The
acquisition, recorded under the purchase method of accounting, included the
purchase of all of the outstanding shares of common stock of Trans-Science
Corporation 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 liabilities
assumed were in excess of the historical cost of the assets acquired at the
date of acquisition and the total amount of the purchase price was recorded as
goodwill and is being amortized over five years using the straight-line method.On
August 16, 2000 the Company entered into a Share Exchange Agreement with
Penultimo, Inc. dba Anchor Reinforcements. 
On August 31, 2000 the Company completed the acquisition.  The acquisition, recorded under the purchase
method of accounting, included the purchase of all of the outstanding shares of
common stock of Penultimo, Inc. in exchange for 150,000 shares of the Companys
common stock at $0.625 per share plus $500,000 in cash which resulted in a
total purchase price of $593,750.  A
portion of the purchase price has been allocated to assets acquired and
liabilities assumed based on estimated fair market value at the date of
acquisition while the balance of 
$291,050 was recorded as goodwill and is being amortized over five years
using the straight-line method.On
March 31, 2001 the Company entered into a Sales Agreement with Penultimo Inc.
The sale resulted in the return of 150,000 shares of the Companys common
stock, plus the forgiveness of debt of the $500,000 Debenture Note, plus all
related interest payable. There were also two other related Notes Payable,
totaling $64,000, plus interest which were forgiven. All Related Parties
Receivables and payables were forgiven between the parties. All goodwill,
assets, and liabilities related to Anchor Reinforcements were written off. A
Gain related to the Sale and forgiveness of related debt of $109,025 was
recognized during this quarter.NOTE 3  INVENTORIES

Inventories
consist of the following at March 31, 2001 and 2000:2001
  2000Raw material
  $
  $Work in process
  
  Finished goods
  
  $
  $



NOTE 4  PROPERTY, PLANT AND EQUIPMENT

Property,
plant and equipment consist of the following at March 31, 2001 and 2000:2001
  2000Leasehold improvements
  $1,407
  $Office furniture and
  equipment
  195,594
  26,111Machinery
  
  $22,057
  $21,990

Depreciation
expense for the three months ended March 31, 2001, and 2000 was $2,621 and
$1,233, respectively and $18,057 for the period October 27, 1997 (inception) to
March 31, 2001.NOTE 5 - INTANGIBLE ASSETS

In
April 1999 the Company entered into a license agreement with the Regents of the
University of California San Diego (UCSD) for a license under patent rights to
make, use, sell, offer for sale, import licensed products, practice licensed
methods, and to use certain technology. 
A license fee of $40,000 was paid upon executionof the agreement.  Under the terms of the agreement, the
Company must pay to the licensor a royalty of 1.5% on net sales of the licensed
products.  The Company must also pay for
one half of all past and future patent costs. 
Payments under the license agreement totaled $0 and $12,390 for the
three months ended March 31, 2001 and 2000, respectively and $54,782 for the period
October 20, 1997 (inception) to March 31, 2001.  In addition, the Company is obligated to pay certain fees and
royalties for any executed sub-license arrangements.  As of  March 31, 2001,
this intangible asset has not been placed in service. Accordingly, there were
no such arrangements and no amortization expense has been incurred during the
period October 20, 1997 (inception) to March 31, 2001.In
August 1999 the Company entered into a second license 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.  A license fee in the amount of $5,000 was
paid upon execution of the agreement. 
Under the terms of the agreement, the Company must pay to the licensor a
royalty of 1.5% on net sales of licensed products and certain fees and
royalties for any executed sub-license agreements.  In addition, the Company is obligated to pay for one-half of all
past and future patent costs.  There
were no payments made under the license agreement for the three months ended
March 31, 2001 and 2000, respectively and $33,354 for the period October 20,
1997 (inception) to March 31, 2001.At
March 31, 2001 and 2000 there were past and future patent costs payable as
follows:2001
  2000Included in accounts
  payable
  $19,472
  $27,547Included in long-term
  obligations
  
  13,773$19,472
  $41,320

In
January 1999 the Company acquired certain intangible assets from Trans-Science
Corporation, a company under common control and subsequently acquired on July
7, 2000. Fire test data concerning overlay systems in the form of technical
reports prepared by an independent laboratory in New York performed prior to
the Companys inception was purchased for cash in the amount of $13,979 from
Trans-Science Corporation at its cost. 
At March 31, 2001 these intangible assets were not placed in
service.  Accordingly, there was no
amortization expense incurred during the period October 20, 1997 (inception) to
March 31, 2001.In
January 1999 Trans-Science Corporation sold, assigned and transferred all of
its rights, title and interest in the Earthquake Retrofit Design Software to
the Company for cash in the amount of $330,000.   In addition, during the year ended September 30, 1999, the
Company paid Trans-Science Corporation $90,000 for upgrade services on this
software.  At march31, 2001 this
intangible asset was not placed in service. 
Accordingly, there was no amortization expense incurred during the
period October 20, 1997 (inception) to March 31, 2001.On
July 7, 2000 the Company acquired 100% of the outstanding shares of common
stock of Trans-Science Corporation, a company under common control through July
7, 2000.  The Company recorded goodwill
in the amount of $715,028 representing the excess of the cost to acquire
Trans-Science Corporation over the historical cost of the net assets acquired.On
August 31, 2000 the Company acquired 100% of the outstanding shares of common
stock of Penultimo, Inc. dba Anchor Reinforcements.  The Company recorded goodwill in the amount of $291,050
representing the excess of the cost to acquire Penultimo, Inc. over the sum of
the amounts assigned to identifiable net assets acquired. On March 31, 2001 the
Company sold 100% of its holdings in Anchor Reinforcement to Penultimo, Inc.Amortization
expense for the three months ended March 31, 2001 and 2000 was $50,350 and $0,
respectively and $155,757 for the period October 27, 1997 (inception) to March
31, 2001.NOTE 6 - CAPITALIZATION

Preferred StockThe
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 of Directors of the
Company has discretion to determine the rights, preferences and privileges of
this preferred stock.  There are no
shares of preferred stock issued and outstanding at March 31, 2001 and 2000,
respectively.Common StockThe
Company has authorized fifty million (50,000,000) shares of common stock,
having one hundredth of a cent ($0.0001) par value per share.   On October 21, 1997 the Company issued
1,601,000 shares to its President for the value of services rendered in
connection with the organization of the Company.In April 1998 the Company issued 646,000 shares of common
stock under Regulation D offerings in exchange for $18,934 in cash, net of
offering costs.  Also in April 1998 the
Company issued 49,500 shares to its Executive Vice Presidentfor
the net value of services rendered of $2,378. 
On June 25, 1999 the Company completed a 9.229876 shares for 1 share forward
split.  Retroactive effect to this split
has been given in the accompanying financial statements.   On June 25, 1999 the Company received
7,896,410 shares contributed back to the Company.  On June 30, 1999 the Company issued 1,000,000 shares to acquire
100% 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 a principal balance of $1,000,000 and accrued interest
of $17,825.In
December 1999, a trustee shareholder surrendered 4,300,000 shares, which have
been canceled.  During the period
December 1999 to June 2000 the Company issued 668,333 shares of common stock
under a private placement in exchange for $760,000 in cash, net of offering
costs.  On July 7, 2000 the Company
issued 953,371 shares of common stock valued at $715,028 in exchange for 100%
of the outstanding shares of common stock of Trans-Science Corporation.  On August 31, 2000 the Company issued
150,000 shares of common stock valued at $93,750 plus $500,000 in cash in
exchange for 100% of the outstanding shares of common stock of Penultimo, Inc.
dba Anchor Reinforcements.  On September
15, 2000 the Company issued 100,000 shares of common stock as finders fees.  On September 28, 2000 the Company issued
300,000 shares of common stock valued at $174,000 in exchange for
services.  During the six months ended
March 31, 2001 the Company issued shares of common stock in non-cash
transactions as follows:  643,937shares
as compensation valued at $113,044, 50,000 shares in exchange for services
valued at $4,500 and 200,000 shares as finders fees.  The Company issued additional shares of common stock in cash
transactions:  850,000 shares for cash
in the amount of $295,000.  There are
13,965,641 and 10,708,733 shares of common stock issued and outstanding at
March 31, 2001 and 2000, respectively.Stock Incentive PlanOn
December 1, 2000 the Company and subsidiaries Board of Directors adopted the
2000 Stock Incentive Plan pursuant to which incentive stock options or
non-statutory stock options to purchase up to 1,000,000 shares of common stock
may be granted to employees, directors and consultants.  Stock options may be exercisable up to ten
years from the grant date.  Stock
options vest over service periods that range from zero to five years.  Vesting period commences April 2001.Exercise
  Price
  Number
  of
  Shares
  Vested
  SharesOutstanding, October
  20, 1997
  
  
  Granted
  $.40
  - $.50
  120,000
  Fair
  ValueExercised
  
  
  Cancelled
  
  
  Outstanding, March 31,
  2001
  
  120,000
  

The
Company accounts for stock-based compensation using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," under which no compensation cost for stock
options is recognized for the stock options awards granted at or above fair
market value.  For the three months
ended March 31, 2001, the Company did not recognize any compensation expense.NOTE 7  LINE OF CREDIT

The
Company has a business secured open line of credit with a bank in the amount of
$50,000. The line of credit bears interest at the prime rate, as published in
the Wall
Street Journal, plus 2.5% (12.0% at March 31, 2001).  At March 31, 2001 there was a balance due in
the amount of $51,466.NOTE 8  NOTES PAYABLE

On
September 19, 2000 the Company entered into a demand note payable in the amount
of $44,500, with interest at 12% per annum. 
This note was forgiven as part of the Sale of Anchor Reinforcements to
Penultimo, Inc., and at March 31, 2001 there was no balance due.On
August 29, 2000 the Company entered into a demand note payable in the amount of
$20,000, with interest at 12% per annum. 
This note was forgiven as part of the Sale of Anchor Reinforcements to
Penultimo, Inc., and at March 31, 2001 there was no balance due.On
November 2, 2000 the Company entered into a demand note payable in the amount
of $20,000, with interest at 12% per annum. 
At March 31, 2001, as part of the sale of Anchor Reinforcements this
note and all related interest was transferred to Penultimo, Inc. dba Anchor
Reinforcements.NOTE 9 - LONG TERM OBLIGATIONS

Convertible DebentureOn
August 17, 2000 the Company issued an 8% convertible debenture note in the
amount of $500,000, which is due on August 17, 2003.  Interest at the rate of 8% per annum is due on January 1 and July
1 each year until the principal amount of the note is paid in full.  Interest is convertible into shares of
common stock at the lesser of the principal conversion price or eighty percent
(80%) of the average closing bid price of the Companys common stock for the
five (5) trading days immediately prior to the interest due date.  Principal is convertible into restricted and
unrestricted shares of common stock at seventy-five cents ($.75) for each
restricted share of common stock plus the issuance of one unrestricted share of
common stock for each two dollars ($2) converted.  After March 31, 2001 the Company could redeem all or a portion of
the note by paying all unpaid principal and interest, or force conversion at
the effective conversion price, subject to the performance of the Companys
common stock.  There is no beneficial
conversion feature.  At March 31, 2001
this Convertible Debenture was forgiven as part of the sale of Anchor
Reinforcements to Penultimo, Inc.NOTE 10 - COMMITMENTS

The
Company and subsidiaries lease certain offices, facilities and equipment under
non-cancelable operating leases.  The
lease terms end between November 2002 and September 2003.  Future minimum payments under the lease at
March 31, 2001 are as follows:Year Ending
  December 31,2001
  $82,4172002
  96,1872003
  32,4242004
  $202,028

Rental
expense was $34,427 and $12,646 for the three months ended March 31, 2001 and
2000, respectively and was $174,824 for the period October 27, 1997 (inception)
to March 31, 2001.NOTE 11  EARNINGS PER SHARE

The
computations of basic and diluted earnings per share from continuing operations
for the six months ended March 31, 2001 and 2000, and the period October 27,
1997 (inception) to March 31, 2001 were as follows:March 31,
  October
  20,
  1997
  (Inception) to
  March 31,
  20012001
  2000Loss per share-basicNumerator:Net loss
  $(718,055)
  $(295,591)
  $(2,369,674)Denominator:Weighted average
  number of shares
  12,954,519
  10,571,923
  16,062,653Loss per share-basic
  $(0.06)
  $(0.03)
  $(0.13)

NOTE 12 - INCOME TAXES

At
March 31, 2001 the Company has a net operating loss carry-forward for tax
purposes of approximately $600,000 which expires though the year 2019.  Net deferred tax assets at March 31, 2001
and 2000 were approximately $1,200,500 and $348,000, respectively, which
represent the amount of tax benefits of start-up, organization and syndication costs.  The Company has established a valuation
allowance against these net deferred tax assets because it is more than likely
that the deferred tax benefits will not be utilized.NOTE 13 - RELATED PARTY TRANSACTIONS

Intangible AssetsIn
January 1999 the Company acquired certain intangible assets from Trans-Science
Corporation, a company under common control through July 7, 2000.  Also in January 1999, Trans-Science
Corporation sold, assigned and transferred all of its rights, title and
interest in the Earthquake Retrofit Design Software to the Company.Stock-Based CompensationOn
October 21, 1997 the Company issued 1,601,000 shares to its President for the
value of services rendered in connection with the organization of the
Company.  Also in April 1998 the Company
issued 49,500 shares to its Executive Vice President for services.Note PayableOn
July 20, 2000 the director advanced the Company $25,000.  On August 18, 2000 the director advanced the
Company an additional $1,316 and the Company repaid $1,500.  On October 20, 2000 and November 21, 2000 the
director advanced the Company additional $1,480 and $4,200, respectively.  On December 11, 2000 the Company paid
principal in the amount of $30,496 plus interest of $686. On January 09, 2001
and March 31, 2001 the director paid a bills for the Company of $1,277 and
1,162. The director advanced the Company $7,000 and $150,000 on February 16,
2001 and March 12, 2001.Office Lease and Office
ExpensesIn
January 1999, the Company began sharing office space and certain related
expenses with Trans-Science Corporation, a company under common control through
July 7, 2000.  The Company remitted the
lease payment directly to an independent lessor.  Rent expense was $53,907 for the period October 1, 1999 to July
7, 2000, $12,646 for the three months ended December 31, 1999 and $91,707 for
the period October 20, 1997 (inception) to July 7, 2000.  Total payments to Trans-Science Corporation
for office expenses were $4,432 for the period October 1, 1999 to July 7, 2000,
$1,810 for the three months ended December 31, 1999 and $7,896 for the period
October 20, 1997 (inception) to July 7, 2000. 
At December 31, 1999, Trans-Science Corporation owed the Company $3,883
for its share of rent and office expense. 
At July 7, 2000 the amount was repaid. 
On July 7, 2000 the Company purchased 100% of the shares of outstanding
common stock of Trans-Science Corporation and at March 31, 2001 and for the
period July 8, 2000 to March 31, 2001 all significant inter-company
transactions have been eliminated in consolidation.AgreementsIn
October 1999, the Company entered into a consulting agreement with a
shareholder for management, marketing and technical services.  Under the terms of the agreement, for the
three months ended March 31, 2001 and 2000 the Company made payments of $24,000
and $24,000, respectively, for management consulting services.In
July 2000, the Company entered into a consulting agreement with an officer for
management and technical services. 
Under the terms of the agreement, for the three months ended March 31,
2001 the Company made payments of $30,450 for management consulting services.NOTE 14 - AGREEMENTS

Global Alliance and
Subscription AgreementOn
December 7, 2000 the Company entered into a Global Alliance Agreement with The
Prime Group located in Seoul, Korea. 
According to the terms of the Agreement, the Company will receive a 15%
equity position in The Prime Group.  In
addition, The Prime Group entered into a Subscription Agreement to purchase
between 4,166,667 to 5,000,000 shares of the Companys common stock for cash in
the amount of $2,000,000.  The first
2,500,000 shares of common stock will be issued quarterly at $0.40 per share
for a total of $1,000,000.  An
additional 2,500,000 shares of common stock will be issued at $0.40 per share
if payment is received by May 31, 2001 or an additional 1,666,667 will be
issued at $0.60 per share if payment is received after May 31,2001.  The Prime Group has an option to purchase
1,000,000 shares of common stock between October 31, 2001 to October 31, 2003
at an exercise price equal to 35% of the fair value of the shares issued.  During the three months ended March 31,
2001, the Company did not issue any shares of stock related to this agreement.NOTE 15 - SUBCONTRACT

On
January 12, 2001 the Company was awarded a subcontract with Karagozian &
Case (K&C).  The subcontract for
development of retrofit design methodology in the amount of $288,309 will begin
in June 2001 and will support K&Cs contract with the United States
Department of Defense, Defense Threat Reduction Agency, Office of Special
Technology.Item 2. Plan of Operation

The
Companys primary business focus is toward composite overlay technology
solutions, which can be applied to the retrofit and rehabilitation/repair of
structures that are subject to seismic or blast loads as well as the upgrade of
aging bridges, buildings and other structures for increased service loads.  In addition, these technology solutions,
which include computational analysis tools, design procedures and software,
composite material systems and application methods, can be applied to new
construction as well.

The
key element of the Companys composite overlay technology consists of an
aerospace-type  advanced composite
material system, such as carbon or glass fabric impregnated with a chemical
resin. For retrofit/repairs, the composite overlay system is in the form of
cured-in-place structural wallpaper for application to walls, columns, floors
and other structural elements.  For new
construction, composite stay-in-place forms are utilized for columns, beams,
girders, etc.  These forms are
structural, and they allow the elimination of most steel reinforcement in
concrete structures.

The
Company expects to market a wide range of value-priced services/technology to
commercial and governmental customers as well as composite overlay solution
services to construction and A&E firms through technology licenses.  In order to facilitate such marketing
efforts, the Company expects to seek additional capital through the sale of
debt or equity securities or a combination thereof.   The Company may also seek strategic partners in order to
accelerate the marketing of its products and services.

On
March 6, 2001 the Company entered into a Representation Agreement with AF
Capital of New Canaan, CT and Ace International Domaine of San Ramon, CA (who
together shall be referred to as "AFA") to raise capital to develop
and execute the Company's business plan. 
According to the terms of the Agreement, AFA shall represent the Company
in raising capital through one or more rounds of financing, with the objective
of raising $20 million of new capital for the Company within twelve
months.  In addition, AFA shall provide
the Company ongoing advisory support in strategic planning including marketing
and licensing strategies, financing and other areas, as needed.

AFA'S
compensation package includes the following: (1) a non-refundable engagement
retainer of  $50,000, of which $15,000
was paid on March 14,2001, and the balance of $35,000 was due on April 15, 2001
but not yet paid; (2) a monthly retainer of $10,000 for twelve months, payable
in Company shares;  (3) a placement fee
of 10% of the amount of any capital raised; and (4) seven year warrants
(exercisable at the Funders price) to purchase stock equal to 15% of the number
of Company shares. In the event of any merger, acquisition or strategic
partnership in which AFA has advised and/or represented the Company is
consummated by the Company, AFA shall be paid a cash fee of four percent (4%)
of the aggregate consideration.

To
the extent that the Company is successful in its financing activities, the
Company intends to devote substantial portion of its financial resources
towards the continued development and marketing of its technology, products and
services to  potential customers in the
United States, and globally through licensing and strategic partnerships.  Capital will also be used for corporate and
administrative expenses and general working capital.

For
the fiscal quarter ended March 31, 2001, the Company had a net loss of $274,082
or $0.02 per share, as compared to a net loss of $443,973 or $0.03 per share
for the previous fiscal quarter ended December 31,2000.

Forward-Looking Statements

When included in this Quarterly
Report on Form 10-QSB, the words "expects," "intends,"
"anticipates," "plans," "projects" and
"estimates," and analogous or similar expressions are intended to
identify forward-looking statements. Such statements, which include statements
contained in Item 2  hereof, are
inherently subject to a variety of risks and uncertainties that could cause
actual results to differ materially from those reflected in such
forward-looking statements.

These forward-looking statements speak only
as of the date of this Quarterly Report on Form 10-QSB. The Company expressly
disclaims any obligation or undertaking to release publicly any updates or
revisions to any forward-looking statement contained herein to reflect any
change in the Company's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based.

PART II

Item 1.Legal Proceedings.

The
Company knows of no legal proceedings to which it is a party or to which any of
its property is the subject which are pending, threatened or contemplated or
any unsatisfied judgments against the Company.

Item 5.Other information - 
Sale of Penultimo, Inc. dba Anchor Reinforcements

On
March 31, 2001, the Company ("CSI") entered into a Stock Purchase
Agreement ("Agreement") with Penultimo, Inc., John Gillespie
("Gillespie"), and Luc Vergaelen ("Vergaelen"), the holder
of an 8% convertible Debenture Note in the principal sum of $500,000, which was
issued by the Company on August 17, 2000 when it acquired  Penultimo, and other related party
promissory notes totaling $64,500.  This
Agreement was part of a settlement agreement between the parties to resolve
certain disputes and obligations related to Penultimo.

The
terms of the Agreement included the following:

(a)  Purchase and Sale of Penultimo Shares.Effective
at midnight, March 31, 2001, CSI will sell, transfer, convey, assign, and
deliver to Vergaelen or Vergaelen's authorized designee, and Vergaelen or his
authorized designee will purchase, acquire, and accept from CSI, on an "as
is, where is, and without warranties" basis, all of the outstanding
capital stock of Penultimo, including all of Penultimo's rights, properties,
assets, claims, contracts, and businesses of every kind, character, and
description, whether tangible or intangible, whether real, personal, or mixed,
whether accrued, contingent, or otherwise, and wherever located (collectively,
the "Penultimo Assets"), including minute and stock books, except for
any other documents or records which CSI is required by law to retain in its
possession. Vergaelen hereby designates Gower Management, Inc., a foreign
corporation, as his designee.

(b) Consideration.In consideration of the sale, assignment,
transfer, and delivery of the Penultimo Assets, the Vergaelen Note and any and
all other obligations of CSI in favor of Vergaelen shall be deemed fully,
completely, and finally satisfied, and Vergaelen shall surrender the Vergaelen
Note to CSI for cancellation (or in the event the Vergaelen Note has been lost,
Vergaelen shall issue to CSI a certificate of lost debenture with appropriate
provisions indemnifying CSI).  The
guarantee of the Vergaelen Note by Penultimo shall also be extinguished.  Vergaelen understands and agrees that
hereafter he will have no options to purchase stock in CSI.  As part of the consideration for the
transfer of stock and extinguishment of debt, Vergaelen understands and agrees
that the note executed on or about September 19, 2000, by CSI in favor of Mr.
Guido Cloetens in the amount of $44,500, and the note executed on or about
August 29, 2000, by CSI in favor of Trends, Inc., in the amount of $20,000,
will also be extinguished by such parties and represents that he has made
separate arrangements with such parties which are acceptable to such parties.

(c)  Business Operations of Penultimo.Effective
midnight, March 31, 2001, all operations of Penultimo shall thereafter be
handled internally through itself under the direction and control of its own
officers, directors, and shareholders, and there will be not further employee
or cost sharing between CSI and Penultimo. 
Effective midnight, March 31, 2001, each member of the board of
directors of Penultimo and each officer of Penultimo shall resign.  Vergaelen may as soon as practicable
thereafter appoint new officers and directors of Penultimo.   To the extent a determination must be made
as to which employees will remain employed by Penultimo after March 31, 2001,
such determination will be made by separate agreement of CSI and Penultimo;
provided, however, that Mr. Mark Olson who left the employ of CSI on February
28, 2001, and may continue to be employed by Penultimo.

(d)  Assumption of Liabilities.Vergaelen acknowledges and agrees that
Penultimo shall assume and undertake to pay, satisfy, or discharge all debts,
liabilities, obligations, and commitments of Penultimo and that Penultimo shall
indemnify, defend, and hold CSI harmless from any and all actions, claims,
causes of action, objections, costs, damages, losses, liabilities, and demands
of any kind whatsoever brought against CSI relating to any debts, liabilities,
obligations, and commitments of Penultimo. 
Any inter-company debts and claims between CSI and Penultimo have been
mutually released or otherwise assumed under a separate Settlement Agreement
dated March 30, 2001.  Without limiting
the generality of any of the foregoing, CSI will not have any liability or
obligation for, and Vergaelen and Penultimo shall indemnify, defend, and hold
CSI harmless from:

(1)         Any litigation, arbitration, or
administrative proceedings pending, threatened, or commenced against or
relating to Penultimo, the Penultimo Assets, or the business or operations of
Penultimo;

(2)         Any liability or obligation of
Penultimo as guarantor, surety, cosignor, endorser, comaker, or indemnitor;

(3)         Any environmental claims arising from
actions taken by Penultimo or from the failure to take action by Penultimo;

(4)         Any liabilities for taxes relating to
the business or operations of Penultimo;

(5)         Any liability or obligation directly or
indirectly arising out of or relating to any of the employees, former
employees, employees' collective bargaining representatives, or job
applications of Penultimo;

(6)         Any claims relating to health insurance, workers
compensation, severance or other employee benefits arising from, or in
connection with, the employment of persons by Penultimo; and

(7)         Any liens, pledges, claims, security
interests, conditional sales contracts or other encumbrances upon or relating
to Penultimo or the Penultimo Assets whatsoever.

(e)  Formation of New LLC.
Within thirty (30) days from the date of this Agreement, Penultimo and CSI
shall form a new California limited liability company ("Composite Supply,
LLC") which will allow for the companies to work on future projects and
remain affiliated.  The Operating
Agreement of Composite Supply, LLC, shall provide for Penultimo to supply goods
to Composite Supply, LLC, at cost, for a minimum period of five years, COD or
on other commercially reasonable terms acceptable to Penultimo.  The term "at cost" shall mean
Penultimo's cost of manufacturing the item without regard to profit or
administrative overhead.  While
Composite Supply, LLC may obtain such goods at cost, it may not without
Penultimo's written consent.  The net
profits from the resale of such goods through CSI generated projects shall be
split 50/50.  Penultimo, through
Composite Supply, LLC, will also be able to bring CSI into projects on similar
terms.

(f)  Employment of Gillespie.Pursuant to the Stock Purchase Agreement, CSI was obligated to employ Gillespie
for a period of two (2) years starting on August 27, 2000.  This obligation is hereby transferred to and
assumed by Penultimo.  Upon execution of
this Agreement, Gillespie shall, in exchange for the sum of $1.00 and the
issuance of the releases provided herein, return to CSI  any rights to 150,000 shares of restricted
stock required to be delivered to him on or about August 27, 2000, and shall
concurrently release CSI from any obligation to repurchase such shares as
originally contemplated.

Item 6.Exhibits and Reports on Form 8-K

(a)         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:

27.1                    Financial
Data Schedule, filed herewith

(b)        On
March 29, 2001, the Company filed a current report on Form 8-k relating to the
resignation of Mr. Mark Olson, Director, President, and Chief Operations
Officer of the Company.  The report is incorporated
herein by reference.

Signatures

In
accordance with the requirements of the 
Exchange Act, the registrant  has
caused this report to be signed on its behalf by the undersigned, there unto
duly authorized.

Date: 
May 21, 2001

Composite
  Solutions, Inc.By:
  /s/
  Gilbert HegemierChairman of The Board, andChief Financial Officer