**SECURITIES
      & EXCHANGE COMMISSION**


**Washington,
      D.C.  20549**




**FORM
      10-KSB**





**[X]
      ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**





**For
      the Fiscal Year ended September 30, 2004**





**or**





**[ 
      ] 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
              I.R.S.
                  Employerincorporation
                  or organization
              Identification
                  No.**7734
                  Herschel Street, Suite I, La Jolla, CA**
              **92037**(Address
                  of principal executive office)
              (Zip
                  code)**(858)
                  442-0582**(Issuer’s
                  telephone number)




**SECURITIES
      REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT**




**Common
      Stock, $0.0001 Par Value**


(Title
      of
      Class)




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




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      regulation S-B not contained in this form, and no disclosure will be contained,
      to the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of the Form 10-KSB or any
      amendment to this Form 10-KSB. ý




The
      Company’s revenues for the fiscal year ended September 30, 2004 were
      $1,066,972.




As
      of
      September 30, 2004, 23,715,167 shares of Common Stock were outstanding and
      the aggregate market value of the Common Stock (based on the latest sale price
      on the Nasdaq OTC Bulletin Board on September 30, 2004) held by
      non-affiliates (19,130,925 shares) was $2,104,402.




Transitional
      Small Business Disclosure Format (check one):  Yes o  No  ý








**Part
      I**




**Item
      1.  Description of Business**




**General
      Overview**





On
      October 11, 2004, eleven days after the close of the fiscal year of Composite
      Solutions, Inc. (“CSI” or “the Company”) reported in this Form 10-K, CSI filed a
      voluntary petition for bankruptcy under the U.S. Bankruptcy Code (case number
      04-08830-JM7). Also effective on October 11, 2004, the Company suspended all
      operations. CSI took this step because it was unable to generate cash flows
      sufficient to maintain operations. At no time since October 11, 2004 has the
      company returned to active operations, although it has proposed a Plan of
      Reorganization which, if implemented, would result in a return to business
      operations with a more limited business plan. Thus the operations for the fiscal
      year 2003 - 2004 as reported herein have no relation to the current business
      or
      status of the Company.




Throughout
      the fiscal year ended September 30, 2004 Composite Solutions, Inc. (“CSI or the
      Company”) was a development stage company licensing and distributing composite
      materials technology, engineering services, and special applications for use
      in
      the civil engineering and civil construction markets. These composite materials
      consisted of advanced fiber reinforced polymers (FRPs). Examples include ultra
      high-strength carbon or aramid fibers in a thermoset (e.g., epoxy) matrix.
      When
      used in concert with traditional building material systems, these provide
      superior structural performance with a minimization of cost. The Company’s new
      technology material/composite systems fell into the following main categories:
      1) Composite Overlays for structural retrofits; 2) the Carbon Shell System
      (CSS)
      for new construction and infrastructure renewal; and 3) Specialty Systems for
      ballistic and blast protection.





The
      effectiveness and integrity of the Company’s composite overlay technologies and
      the CSS was extensively validated by full-scale laboratory tests at The Charles
      Lee Powell Structural Research Laboratories (“Powell Laboratories”) located at
      The University of California, San Diego (“UCSD”).  These tests included
      both reinforced and un-reinforced wall specimens that ranged from single-story
      walls to a full-scale five-story building as well as columns ranging from single
      columns to full-scale bridge to the current status of the Company or to its
      possible future operations. **** The
      Powell Laboratories are one of the few such facilities in the world with the
      capability to execute full-scale tests and have performed extensive tests
      relating to the retrofit, and upgrading of structural elements such as walls,
      columns and floor slabs. For blast retrofits, the composite overlay technology
      was validated in U.S. Government field tests. These tests ranged from structural
      components to a full-scale building.





**Business
      Areas**




During
      the year ended September 30, 2004 the Company marketed its new material systems
      and technologies in four primary areas. These were: 1) Force Protection/Homeland
      Security; 2) Seismic Retrofits and Structural Upgrades; 3) Infrastructure
      Renewal; and 4) New Construction. In each area the CSI product lines included
      design services, FRP material systems, data bases, and design methodologies
      for
      civil structures such as buildings, bridges, roadways, and
      pipelines.




**Marketing
      and Sales**




While
      CSI
      made efforts to market its products and services in all four areas, all sales
      were in the “Seismic Retrofit and Structural Upgrade” area. Most (more than 95%)
      of the revenue was from sales of the Company’s RetroshieldTM system under terms
      of an exclusive license agreement with Composite Solutions, Korea (CSK). During
      fiscal year 2004, CSK completed the installation of RetroshieldTM in four
      projects in Korea. In the U.S., CSI completed a shear wall seismic retrofit
      in a
      commercial building in San Diego, California, and also completed a demonstration
      test of our shear wall strengthening system for the owners of a large number
      of
      California hospitals.





1


**Item
      2.  Description of Property**




During
      the fiscal year 2003 - 2004 the Company maintained offices located at 3252
      Holiday Court, Suite 206, La Jolla, CA 92037. The leased office space of
      approximately 1572 sq. ft. was within walking distance to UCSD. The company
      vacated those offices on October 11, 2004 and has had no office location since
      that time. Its records are maintained in an office used by the President of
      the
      Company for his other businesses. That office is at 7734 Herschel Avenue, Suite
      I, La Jolla, CA 92037. Space is made available for the Company’s records at no
      cost to the Company.




**Item
      3.  Legal Proceedings**




Neither
      the Company nor its subsidiary was the subject of any material legal proceeding
      during fiscal year 2003 - 2004. On October 11, 2004, eleven days after the
      close
      of the Company’s fiscal year reported in this Form 10-K, CSI filed a voluntary
      petition for bankruptcy under Chapter 7 of the U.S. Bankruptcy Code (case number
      04-08830-JM7). On November 18, 2004, the United States Bankruptcy Court for
      the
      Southern District of California dismissed the Company’s voluntary petition for
      liquidation under Chapter 7. The dismissal was requested by the Company so
      that
      it could pursue other options for reorganizing the corporation via a Chapter
      11
      bankruptcy, including the possible acquisition of another operating
      entity.





On
      May 5,
      2005 CSI filed a voluntary petition for bankruptcy under Chapter 11 of the
      U.S.
      Bankruptcy Code in the United States Bankruptcy Court for the Southern District
      of California (case number 05-04045-PB11). The Company proposed a Plan of
      Reorganization whereby it would acquire a corporation which operates two hotels
      in China. The Plan was confirmed by the court but subsequently the order of
      confirmation was vacated because the Chinese company refused to complete the
      transaction. In October 2006 the Company proposed a Plan whereby it would return
      to a limited version of its original business, consulting on the use of
      composite materials in construction, and would seek to acquire other similar
      businesses in an effort to increase shareholder value. A confirmation hearing
      has been scheduled for December 4, 2006.





No
      other
      legal proceedings are currently pending or anticipated.




**Item
      4.  Submission of Matters to a Vote of Security
      Holders**




None.






**Part
      II**




**Item
      5.  Market for Company’s Common Equity and Related Stockholders
      Matters**




The
      shares of the Company’s Common Stock were traded on the OTC Bulletin Board
      (Symbol “KIPSQ”). In February 2005 the shares were delisted from the OTC
      Bulletin Board and trading was moved to the OTC Pinksheets because the Company
      lacked the resources to timely file this Form 10-KSB. The following table sets
      forth, for the periods indicated, the high and low closing bid prices for the
      Company’s Common Stock, as reported by the National Quotation Bureau, for the
      quarters presented.  Bid prices represent inter-dealer quotations without
      adjustments for markups, markdowns, and commissions.





2


Quarterly
      Common Stock Price Range (High Low)




Fiscal
                  year ended September 30, 2003:1stQuarter
              
              $
              0.23
              
              $
              0.142ndQuarter
              
              $
              0.22
              
              $
              0.103rdQuarter
              
              $
              0.16
              
              $
              0.074thQuarter
              
              $
              0.24
              
              $
              0.08Fiscal
                  year ended September 30, 2004:1stQuarter
              
              $
              0.22
              
              $
              0.142ndQuarter
              
              $
              0.42
              
              $
              0.183rdQuarter
              
              $
              0.25
              
              $
              0.094thQuarter
              
              $
              0.14
              
              $
              0.06




As
      of
      September 30, 2004, there were 23,715,167 shares of Common Stock
      outstanding, and there were approximately 96 shareholders of record of the
      Company’s Common Stock.




The
      Company has not paid any dividends since its inception and has no current plans
      to pay dividends on the Common Stock in the foreseeable future. Any future
      determination to pay dividends will depend upon the Company’s results of
      operations, financial condition and capital requirements and such other factors
      deemed relevant by the Company’s Board of Directors.




**Item
      6. Management’s Discussion and Analysis**




**Critical
      Accounting Policies and Estimates**




We
      describe our significant accounting policies in the notes to our financial
      statements included in our Annual Report on Form 10-KSB.  However, in
      response to the SEC’s Release No. FR-60, “Cautionary Advice Regarding Disclosure
      About Critical Accounting Policy,” issued December 12, 2001, we have
      identified the policies we believe are most critical to an understanding of
      our
      financial statements. The most critical accounting policies are related to
      the
      following areas: revenue recognition, accounting for equity securities issued
      in
      exchange for services and in settlement of liabilities, intangible assets,
      and
      impairment of long-lived assets.  Since application of these accounting
      policies involves the exercise of judgment and use of estimates, actual results
      could differ from those estimates.  There have been no material changes in
      our critical accounting policies that impacted our financial condition or
      results of operations for 2004.




Revenue
      Recognition -
      Revenue from the sale of product is recognized 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.




3


Accounting
      for Equity Securities Issued in Exchange for Services and In Settlement of
      Liabilities **-** The
      Company measures the value of transactions in which equity instruments are
      issued for services or in settlement of liabilities at the fair value of the
      common stock issued in accordance with SFAS No. 123.  The fair value is
      measured at the date service is complete (EITF 96-18).




In
      the
      case of settlement of liabilities, the fair value is measured at the date the
      settlement agreement is reached, which approximates the date the equity
      instrument is issued.  Differences between liabilities, as originally
      recorded and the fair value of equity instruments issued in settlement of
      liabilities are recorded as an adjustment to expenses.




Intangible
      Assets **-** Other
      assets include intangibles such as licensed technology, computer software and
      goodwill.   In June 2001, the Financial Accounting Standards
      Board (“FASB”) issued SFAS No. 142, *Goodwill
      and Other Intangible Assets.* SFAS
      No.
      142 establishes new guidelines for accounting for goodwill and other intangible
      assets.  The Company implemented the provisions of SFAS No. 142 on
      October 1, 2001.  Since adoption, existing goodwill and certain
      intangibles with indefinite useful lives are no longer amortized but instead
      are
      assessed for impairment at least annually.  Other intangible assets are
      recorded at historical cost less amortization on the straight line method based
      on estimated useful lives.  Periods of amortization are evaluated
      continually to determine whether later events and circumstances warrant revised
      estimated useful lives.




Impairment
      of Long-Lived Assets **-** Long-lived
      assets and intangible assets subject to amortization are reviewed for impairment
      in accordance with SFAS No. 121, *Impairment
      of Long-Lived Assets and Long-Lived Assets to Be Disposed Of.* In
      accordance with SFAS No. 121, an impairment loss is recognized whenever events
      or changes in circumstances indicate that the carrying amount of the asset
      may
      not be recovered, based upon an estimate of future cash flows.  An
      impairment loss is then recognized whenever the carrying amount of the asset
      exceeds its fair value.  After an impairment loss is recognized, the
      adjusted carrying amount of the asset becomes its new basis.




**Results
      of Operations**




The
      following is a discussion of the financial condition and results of operations
      for the year ended September 30, 2004 and 2003.  This discussion
      should be read in conjunction with our consolidated financial statements and
      the
      notes related thereto.




Revenue -
      For the
      fiscal year ended September 30, 2004 the Company recorded revenues of
      $1,066,972, compared to revenues of $426,021 during the fiscal year ended
      September 30, 2003. This increase was comprised almost entirely of sales to
      Korea in the Seismic Retrofit and Structural Upgrade area.




Cost
      of Sales -
      The
      cost of sales for the fiscal year ended September 30, 2004 was $753,782, as
      compared to cost of sales of $383,186 for the fiscal year ended
      September 30, 2003.




Gross
      Profit: -The
      gross profit for the fiscal year ended September 30, 2004 was $313,190, as
      compared to a gross profit of $42,835 for the fiscal year ended
      September 30, 2003. This was due to the increase in contract
      revenue.




Net
      Loss - For the
      fiscal year ended September 30, 2004, the Company recorded a net operating
      loss of $2,046,489 ($0.09 per share) compared to a net loss of $897,736 ($0.04
      per share) during the fiscal year ended September 30, 2003.







4


**Liquidity
      and Capital Resources**




The
      Company had total assets of $45,161 as of September 30, 2004, as compared
      to the total assets of $914,103 as of September 30, 2003.




Although
      the Company’s revenues significantly increased during the fiscal year ending
      September 30, 2004 (see “Results of Operation” above), the Company has been
      operating with insufficient capital. As a consequence, it has not met all of
      its
      financial obligations. This continuing failure led to the Company’s bankruptcy
      filing on October 11, 2004 which is discussed above. The Company has now
      suspended all operations except for pursuing its restructuring in Bankruptcy
      Court.





**Related
      Party Debt Obligations**




The
      following payment obligations are due to related parties. These amounts are
      included in accounts payable as well as other current liabilities.




**2004**
            
            **Relation****Thomas
                Bache**
            
            Officer
            
            286,350**Gilbert
                Hegemier**
            
            Officer
            
            761,754**Jang
                Lee**
            
            Stockholder
            
            110,816**Duane
                Gee**
            
            Stockholder
            
            51,714**Smaha
                & Daley**
            
            Stockholder
            
            19,610**Joyce
                Jones**
            
            Stockholder
            
            10,000**Blanchard,
                Krasner &****French**
            
            Stockholder
            
            9,865**Kurt
                Moesslacher**
            
            Stockholder
            
            6,368**UC
                Regents-UCSD**
            
            Stockholder
            
            64,412**Total
                Current Liabilities**
            
            
            
            **1,320,989**





The
      current liabilities above are past due.




**Management
      Team**




Thomas
      C.
      Bache, PhD, became President, CEO and a director of the Company during 2004.
      He
      joined Gilbert Hegemier, PhD, the founder of the Company, on the board of
      directors. These two individuals made up the board of directors in fiscal
      2004.




**Cautionary
      Statement Regarding Forward-Looking Statements**




This
      report contains “forward-looking” statements.  The Company is including
      this statement for the express purpose of availing itself of protections of
      the
      safe harbor provided by the Private Securities Litigation Act of 1995 with
      respect to all such forward-looking statements.  Examples of
      forward-looking statements include, but are not limited to: (a) projections
      of
      revenues, capital expenditures, growth, prospects, dividends, capital structure
      and other financial matters; (b) statements of plans objectives of the Company
      or its management or Board of Directors; (c) statements of future economic
      performance; (d) statements of assumptions underlying other statements and
      statements 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.




5


The
      Company’s ability to predict projected results or the effect of certain events
      on the Company’s operating results is inherently uncertain.  The Company is
      currently in bankruptcy and, if it is unable to successfully reorganize, it
      may
      be liquidated. Therefore, the Company wishes to caution each reader of this
      report to carefully consider the following factors, any or all of which have
      in
      the past and could in the future affect the ability of the Company to achieve
      its anticipated results and could cause actual results to differ materially
      from
      those discussed herein: (1) ability to attract customers, (2) ability to develop
      and market products or services, (3) results of research and development, (4)
      technological advances by third parties and competition, (5) future capital
      needs of the Company, (6) history of operating losses, (7) dependence upon
      key
      personnel, and (8) general economic and business conditions.  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.




**Risks**




Bankruptcy - The
      Company has ceased all operations and filed a voluntary petition for bankruptcy
      in the Southern District of California as case number 05-04045-PB11. Unless
      a
      Plan of Reorganization is confirmed and effectuated the Company will most likely
      face liquidation. If a Plan is confirmed and effectuated the Company will reduce
      its operations to a construction materials consulting business and may seek
      to
      acquire another business in a related field.





Need
      for Additional Capital **-** The
      Company had cash on hand of $1,265 at year end. Any new business direction
      will
      need to be adequately capitalized or will need to seek adequate capital, and
      there can be no assurance that new capital can be found.




Limited
      Public Market for Common Stock **-** There
      currently is a very limited public market for the Company’s common stock and no
      assurance can be given that a large public market will develop in the future.
      The Company’s common stock may be thinly traded, if at all, even if the Company
      emerges from bankruptcy. If the Company does not emerge from bankruptcy there
      may be no market at all for its stock.




Our
      shares of common stock should be considered highly speculative. Prospective
      investors should consider carefully all risk factors.




Future
      Sales of Common Stock by Our Existing Shareholders Could Reduce the Price of
      Our
      Common Stock **-** The
      market price of our common stock could decline as a result of sales by our
      existing shareholders of shares of common stock in the market.  Likewise,
      the perception that these sales could occur may result in the decline of the
      market price of our common stock. These sales also might make it more difficult
      for us to sell equity securities in the future.





The
      Loss of Existing Management and Uncertainty Concerning Future
      Management **** -
      Current
      management is expected to provide the consulting services the Company expects
      to
      offer to clients. The Company has no long term contracts with management and
      no
      key man insurance on management. Our performance will be substantially dependent
      on the ability of management and on our ability to retain that
      management.




We
      Do
      Not Expect to Declare or Pay Any Dividends **-** We
      have
      not declared or paid any dividends on our common stock since our inception,
      and
      we do not anticipate paying any such dividends for the foreseeable
      future.




6


Because
      We Have Suspended Operations, It Is Impossible to Predict Our Future Revenues -
      As a
      result of our bankruptcy, our absence of all operations, and our highly
      uncertain future, we are unable to reasonably forecast our future
      revenues.





There
      May Be the Possibility of Volatile Share Prices **-** The
      trading price of our common shares may be subject to wide fluctuations. Trading
      prices of the common shares may fluctuate in response to a number of factors,
      chief among them the bankruptcy court’s approval or failure to approve a Plan of
      reorganization. In addition, the stock market in general has experienced extreme
      price and volume fluctuations, often unrelated or disproportionate to the
      performance of a company. Broad market and industry factors may adversely affect
      the market price of the common shares, if a Plan is approved.




**Item
      7.  Financial Statements**




See
      the
      Consolidated Financial Statements and related Report of Independent Certified
      Public Accountants included herewith as pages F-1 through F-29.




**Item
      8.  Change in and Disagreement with Accountants on Accounting and Financial
      Disclosure**




The
      Company has changed accountants and currently uses the services of Armando
      C.
      Ibarra, CPA. The Company’s former accountant was Peterson & Company. There
      have been no disagreements on financial disclosure with the Company’s past or
      present accountants.




**Part
      III**




**Item
      9.  Directors, Executive Officers, Promoters and Control
      Persons**




The
      Directors and Executive Officers of the Company during the fiscal year ended
      September 30, 2004 were as follows:




Dr.
      Gilbert A. Hegemier, Chairman of the Board of Directors since
      June 1999.




**Gilbert
      A. Hegemier, Ph.D.** Dr. Hegemier is one of the developers of the composite overlay technology and
      has served as the Company’s Chairman since June 1999.  Dr. Hegemier
      also served as President of CSI Nevada from December 1998 through
      June 1999.  Dr. Hegemier has served as a professor at the University
      of California, San Diego since 1968, where he currently serves as a Professor
      of
      Structural Engineering and also serves as Co-Director of The Powell Structural
      Systems Laboratory.  Since 1980, Dr. Hegemier has also served as President
      and CEO of Trans-Science Corporation where he directed research and development
      work in shock wave simulation programs and advanced material models for the
      Department of Defense in a wide range of technical areas.





Dr.
      Thomas C. Bache, President, CEO and Director since January 1, 2004.





**Thomas
      C. Bache, Ph.D.** Dr.
      Bache joined the Company as President and CEO in 2004. Dr. Bache is an
      experienced manager and served most recently as Senior Vice President and Group
      Manager at SAIC, a $6.5 billion per year corporation. He has a strong foundation
      in composite materials technology, and he completed his Ph.D. at the University
      of California at San Diego with a thesis on the dynamic response of composite
      materials.




7




**Item
      10.  Executive Compensation**




The
      following table sets forth information concerning compensation of current and
      former Chief Executive Officers of the Company and other Directors and Executive
      Officers who received total annual compensation in excess of $100,000 for the
      fiscal years ended September 30, 2004, 2003, 2002 and 2001: **Please
      refer to the Management Discussion regarding the re-capitalization of consulting
      fees that were due to Dr. Gilbert Hegemier.**




**Name**
            
            **Position**
            
            **Fiscal**
              **Year**
            
            **Salary**
              **($)**
            
            **Consulting
                Fee**
              **($)**Dr.Gilbert
                A Hegemier
            
            Chairman
                & Consultant
            
            2004
            
            xx
            
            191,438(accrued)2003
            
            
            
            53,750(accrued)2003
            
            
            
            198,000(re-cap)2002
            
            
            
            296,413(re-cap)2001
            
            
            
            199,000(re-cap)Dr.
                Thomas C. Bache
            
            President,
                CEO, & Director
            
            2004
            
            168,000
              (accrued)Dr.
                Michael Perlman
            
            Former
                CEO, President, Director & Consultant
            
            2001
            
            
            
            30,000(accrued)Mark
                Olson
            
            Former
                COO, President, Director & Consultant
            
            2001
            
            
            
            34,800




**Item
      11.  Security Ownership of Certain Beneficial Owners and
      Management**




Dr.
      Gilbert A. Hegemier was a Director of the Company during the year. He holds
      3,584,242 shares of the Company’s Common Stock, which represents approximately
      15% beneficial ownership of the Company.





Dr.
      Thomas C. Bache was also a Director of the Company during the year. He holds
      1,000,000 shares of the Company’s Common Stock, which represents approximately
      4% beneficial ownership of the Company.




**Item
      12.  Certain Relationships and Related
      Transactions**




**Transactions
      with Dr. Gilbert A. Hegemier, Dr. Thomas C. Bache, and
      Affiliates**




Dr.
      Hegemier is a full-time professor and staff member with the University of
      California, San Diego, Department of Engineering, as well as Co-Director of
      The
      Powell Structural Systems Laboratory, which is the University’s testing
      laboratory for materials and technologies similar to the Company’s
      products.  In that position, he is responsible to the University and all
      entities dealing with it to be open, fair and even handed in his research,
      testing and public information.  He cannot provide preference to the
      Company or its clientele, even though he is the largest single stockholder
      and
      principal of the Company.




In
      January 1999, the Company acquired certain intangible assets from
      Trans-Science Corporation (TSC), a company with common stockholders through
      July 7, 2000.  Also in January 1999, TSC sold, assigned and
      transferred all of its rights, title and interest in the Earthquake Retrofit
      Design Software to the Company for $330,000 in cash, an amount significantly
      less that the cost incurred by Trans-Science Corporation. In addition, during
      the period ended September 30, 1999, the Company paid Trans-Science Corporation
      $90,000 for upgrade services on this software.





8


During
      the year ended September 30, 2004 the Company issued 1,000,000 shares of common
      stock with a value of $220,000 as compensation to its President, Thomas C.
      Bache. The Company also issued 50,000 shares with a value of $8,500 as
      compensation to another employee.




On
      January 8, 2001 the Company entered into a promissory note with Dr.
      Hegemier in the amount of $159,439, another note with him on April 20, 2001
      in
      the amount of $56,965, and another note with him on June 5, 2002 in the amount
      of $26,584, all with an interest rate of 12% per annum.  As of
      September 30, 2004 and 2003, there was a principal balance of $0 and $0,
      and accrued interest in the amount of $0 and $26,053 respectively.




On
      April 23, 2001 the Company entered into a promissory note with an employee
      in the amount of $41,945 with an interest rate of 12% per annum. As of
      September 30, 2004 and 2003, there was a principal balance of $33,376 and
      $33,376 and accrued interest in the amount of $14,074 and $10,033
      respectively.





On
      January 17, 2002 the Company issued a promissory note payable in the amount
      of
      $10,000 plus interest at a rate of 10% per annum, the accrued interest to be
      paid in the Company’s common stock each quarter. The note was due on January 17,
      2003. As of September 30, 2004 the principal balance outstanding was $10,000
      and
      the Company had accrued a liability to issue 2,990 shares of common stock valued
      at $299.





On
      June 17, 2002 the Company entered into a promissory note payable to a
      stockholder in the amount of $3,000 plus interest at the rate of 10% per annum.
      The note was due on July 17, 2002. As of September 30, 2004 and 2003, there
      was a principal balance of $3,000 and $3,000 and accrued interest in the amount
      of $695 and $395 respectively.





On
      March
      8, 2004 The Company issued a promissory note payable in the amount of $300,000
      plus interest at a rate of 12% per annum. An officer participated in $50,000
      of
      this amount. The note was due on the earlier of July 9, 2004 or upon a minimum
      of $500,000 debt or equity financing by the Company and was personally
      guaranteed by an officer. Warrants were also issued for 500,000 shares of the
      Company’s common stock. The loan was repaid on July 27, 2004 through proceeds
      from the financing discussed below.




On
      July
      26, 2004 the Company issued a promissory note payable in the amount of $550,000
      plus interest at the rate of 12% per annum to Dr. Hegemier. The note was due
      on
      November 23, 2004. Warrants were also issued to purchase 916,667 shares of
      common stock. Proceeds from this loan were used on July 27, 2004 to fulfill
      payment on the $300,000 promissory note due July 9, 2004 as noted
      above.





On
      September 30, 2004 the Company issued a promissory note payable in the amount
      of
      $205,159 plus interest at the rate of 12% per annum to Dr. Bache. The note
      was
      issued for a combination of salary unpaid and expenses
      unreimbursed.





The
      Company has several consulting agreements with stockholders and officers for
      management, marketing and technical services which are applied between cost
      of
      goods sold and expenses as appropriate. Consulting fees for years ended
      September 30, 2004 and 2003 were $306,793 and $307,590, respectively. 
The balance payable at September 30, 2004 and 2003 was $179,916 and 69,118,
      respectively.







9


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




**(a)                                 
      Exhibits**




**Exhibit**
              **Number**
            
            **Description**3.1
            
            Articles
                of Incorporation of the Company, as amended(1)3.2
            
            Bylaws
                of the Company, as amended(1)10.1
            
            License
                Agreement with UCSD (Case No. SD96-103)(2)10.2
            
            License
                Agreement with UCSD (Case No. SD96-040)(2)10.3
            
            Share
                Exchange Agreement(3)10.4
            
            Share
                Exchange Agreement with and Acquisition of TSC(4)10.5
            
            Acquisition
                of Penultimo, Inc.(5)10.6
            
            Global
                Strategic Alliance Agreement with Prime(6)31
            
            Sarbanes-Oxley
                Section 302 Certification32
            
            Sarbanes-Oxley
                Section 906 Certification




(1)
              Incorporated
                  by reference to the referenced document filed as an exhibit to
                  the
                  Company’s Registration Statement on Form 10SB12G/A, Commission File No.
                  000-24551, filed on October 20,
                  1998.




(2)
            Incorporated
                by reference to the referenced document filed as an exhibit to the
                Company’s Annual Report on Form 10-KSB, Commission File No. 000-24551,
                filed on January 13, 2000.




(3)
            Incorporated
                by reference to the referenced document filed as an exhibit to the
                Company’s Current Report on Form 8-K, Commission File No. 000-24551, filed
                on July 14, 2000 and August 31,
                2000.




(4)
            Incorporated
                by reference to the referenced documents related to the Acquisition
                of TSC
                and filed on Form 8-K, Commission File No. 000-24551, on June 26,
                2000 and July 25, 2000.




(5)
            Incorporated
                by reference to the referenced document related to the Acquisition
                of
                Penultimo, Inc. and filed on Form 8-K, Commission File No. 000-24551,
                on
                September 15, 2000 and amended on September 18,
                2000.




(6)
            Incorporated
                by reference to the referenced document filed as an exhibit to the
                Company’s Annual Report on Form 10-KSB, Commission File No. 000-24551,
                filed on January 13, 2001.







**(b).**  **Reports
      on Form 8-K.**




(1)
            Documents
                related to the filing of a Voluntary Petition for Bankruptcy under
                Chapter
                7 and filed on Form 8-K, Commission File No. 000-24551, on October
                12,
                2004.




(2)
            Documents
                related to the dismissal of a Voluntary Petition for Bankruptcy under
                Chapter 7 and filed on Form 8-K, Commission File No. 000-24551, on
                November 23, 2004.




(3)
            Documents
                related to the Letter of Intent to Acquire Shenyang Holiday Building
                Company Ltd. filed on Form 8-K, Commission File No. 000-24551, on
                March 7, 2005.




10


(4)
            Documents
                related to the filing of a Voluntary Petition for Bankruptcy under
                Chapter
                11 and filed on Form 8-K, Commission File No. 000-24551, on May 9,
                2005.




The
      following Form 8-K reportable items are filed herein:





Form
      8-K,
      Item 4.01, Changes in Registrant’s Certifying Accountant.





The
      Company has changed its certifying accountant. The Company’s former certifying
      accountant was Peterson & Company of San Diego, California. The Company’s
      new certifying accountant is Armando C. Ibarra of Chula Vista, California.
      There
      were no disagreements with the former accountants. The change was made on or
      about March 15, 2005.





Form
      8-K,
      Item 8.01, Other Events





On
      October 3, 2005 the United States Bankruptcy Court for the Southern District
      of
      California confirmed the Chapter 11 Bankruptcy Plan of Reorganization as
      proposed by the Company. However the Plan was not implemented as a result of
      the
      events set forth below under Item 1.02.





Form
      8-K,
      Item 1.02, Termination of a Material Agreement





On
      August
      4, 2006 Management of the Company was informed that Holiday Investments, Inc.,
      the Chinese hotel holding company which, under the Court confirmed Plan of
      Reorganization, was to be acquired by the Registrant in a ‘reverse takeover,’
was terminating its agreement to be acquired. The Registrant then reported
      the
      failure of its Plan of Reorganization to the Court.





Form
      8-K,
      Item 8.01, Other Events





On
      October 6, 2006 the United States Bankruptcy Court for the Southern District
      of
      California, Judge Peter Bowie presiding, order the Registrant to mail an amended
      Disclosure Statement and amended Plan of Reorganization and ballots to creditors
      and shareholders, describing the failure of the previous Plan and the
      Registrant’s proposal to go forward with a variation of its prior business,
      consulting on the use of high technology composites in the construction
      industry. The Court also set December 4, 2006 as the date for a new Plan
      Confirmation hearing.





11




**Signatures**




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


Composite
              Solutions, Inc.Date: June
              4,
              2007
            By:
            */s/ Thomas
              C. Bache*Thomas
              C. Bache, President & CEO





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




**Signature**
            
            **Capacity**
            
            **Date**/s/
                Thomas C. Bache
            
            
            President
                & CEO
            
            June 4,
                2007Thomas
                C. Bache







12


**ARMANDO
        C. IBARRA**
 **Certified
        Public Accountants**
 **A
        Professional Corporation**
 
  Armando
                  C. Ibarra, C.P.A.
                Armando
                  Ibarra, Jr., C.P.S., JD
              Members
                  of the California Society of Certified Public Accountants
                Members
                  of the American Institute of Certified Public Accountants
                Registered
                    with the Public Company Oversight Accounting
                    Board
 
  To
        the
        Board of Directors
 Composite
        Solutions, Inc.
  **Report
        of Independent Registered Public Accounting Firm**
  We
        have
        audited the accompanying consolidated balance sheet of Composite Solutions,
        Inc.
        and subsidiaries as of September 30, 2004 and the related consolidated
        statements of operations, changes in shareholders'
        equity and cash flows for the year then ended. These consolidated financial statements
        are the responsibility of the Company's management. Our responsibility is
        to
        express an opinion on these consolidated financial statements based on our
        audits. The consolidated financial statements of Composite Solutions, Inc.
        as of
        September 30, 2003, were audited by other auditors whose report dated January
        15, 2004, expressed an unqualified opinion on those statements. Their report
        included an explanatory paragraph regarding going concern.
  We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight
        Board (United States). Those standards require that we plan and perform the
        audit to obtain
        reasonable assurance about whether the financial statements are free of material
        misstatement. An audit includes examining, on a test basis, evidence supporting
        the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates
        made by management, as well as evaluating the overall financial statement
        presentation. We
        believe that our audit provides a reasonable basis for our opinion.
  In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects,
        the consolidated financial position of Composite Solutions, Inc., and
        subsidiaries as of September
        30, 2004, and the results of their operations and its cash flows for the
        years
        then ended in conformity
        with U.S. generally accepted accounting principles.
  The
        accompanying consolidated financial statements have been prepared assuming
        that
        the Company will
        continue as a going concern. As discussed. in Note 14 to the consolidated
        financial statements, the
        Company's losses from operations raise substantial doubt about its ability
        to
        continue as a going concern.
        The financial statements do not include any adjustments that m ight result
        from the outcome of
        this uncertainty.
  /S/
        ARMANDO C. IBARRA, CPA
 ARMANDO
        C. IBARRA, CPA
  June
        17,
        2005
 Chula
        Vista, Ca. 91910
   **371
        "E" Street, Chula Vista, CA 91910**
 **Tel:
                    (619) 422-1348**
                **Fax:
                    (619) 422-1465**






F-1




**Composite
                  Solutions, Inc. and Subsidiaries****(A
                  Development Stage Company)****Consolidated
                  Balance Sheets**
   **ASSETS****As
                  of**
              
              **As
                  of****September
                  30,**
              
              **September
                  30,****2004**
              
              **2003****CURRENT
                  ASSETS**Cash
              
              $
              1,265
              
              $
              49,495Costs
                  in excess of billing
              
              
              -
              
              
              6,832Prepaid
                  expenses
              
              
              27,152
              
              
              416**Total
                  Current Assets**
              
              
              28,417
              
              
              56,743**NET
                  PROPERTY & EQUIPMENT**
              
              
              1,669
              
              
              649**Other
                  assets**Deposits
              
              
              15,075
              
              
              10,071Intangible,
                  assets, net
              
              
              -
              
              
              427,684Goodwill
              
              
              -
              
              
              418,956**TOTAL
                  ASSETS**
              
              $
              45,161
              
              $
              914,103




*See
      Notes to Financial Statements*




F-2


**Composite
                  Solutions, Inc. and Subsidiaries****(A
                  Development Stage Company)****Consolidated
                  Balance Sheets**
   **LIABILITIES
                  AND STOCKHOLDERS' EQUITY (DEFICIT)****As
                  of**
              
              **As
                  of****September
                  30,**
              
              **September
                  30,****2004**
              
              **2003****CURRENT
                  LIABILITIES**Accounts
                  payable
              
              $
              386,656
              
              $
              266,775Billings
                  in excess of costs
              
              
              -
              
              
              131,169Line
                  of credit
              
              
              -
              
              
              51,887Employee
                  and director payable
              
              
              610,902
              
              
              62,415Related
                  party payable
              
              
              80,000
              
              
              132,205Related
                  party notes payable
              
              
              233,227
              
              
              46,376Accrued
                  expenses
              
              
              131,523
              
              
              181,817Accrued
                  losses on future contracts
              
              
              -
              
              
              3,013Income
                  taxes payable
              
              
              14,521
              
              
              24,881**Total
                  Current Liabilities**
              
              
              1,456,829
              
              
              900,538**TOTAL
                  LIABILITIES**
              
              
              1,456,829
              
              
              900,538**STOCKHOLDERS'
                  EQUITY (DEFICIT)**Preferred
                  stock; $ 0.0001 par value; 10,000,000 shares authorized0
                  shares issued and outstanding
              
              
              -
              
              
              -Common
                  stock; $0.0001 par value; 50,000,000 shares authorized23,565,116
                  and 21,670,555 shares issued and outstanding as ofSeptember
                  30, 2004 and 2003, respectively
              
              
              2,355
              
              
              2,166Additional
                  paid in capital
              
              
              5,742,024
              
              
              5,120,957Retained
                  earnings (deficit)
              
              
              (7,156,047
              )
              
              (5,109,558
              )**Total
                  Stockholders' Equity (Deficit)**
              
              
              (1,411,668
              )
              
              13,565**LIABILITIES
                  & STOCKHOLDERS' EQUITY (DEFICIT)**
              
              $
              45,161
              
              $
              **914,103**
 *See
          Notes to Financial Statements*


F-3


**Composite
                    Solutions, Inc. and Subsidiaries****(A
                    Development Stage Company)****Consolidated
                    Statements of Operation****For
                    the Years Ended September 30, 2004 and 2003****and
                    for the Period October 20, 1997 (Inception) to September 30,
                    2004**
  **October
                    20,****1997****(Inception)****Year
                    Ended**
                
                **Year
                    Ended**
                
                **through****September
                    30,**
                
                **September
                    30,**
                
                **September
                    30,****2004**
                
                **2003**
                
                **2004****Revenues**Contract
                    revenue
                
                $1,066,972
                
                $365,082
                
                $1,700,738Materials
                
                -
                
                60,939
                
                101,789**Total
                    revenue**
                
                1,066,972
                
                426,021
                
                1,802,527**Cost
                    of Sales**Salaries
                    and consulting fees
                
                19,925
                
                266,004
                
                534,098Consulting
                    fees - related party
                
                226,541
                
                42,940
                
                378,981Materials
                
                507,316
                
                74,242
                
                609,804Total
                    cost of sales
                
                753,782
                
                383,186
                
                1,522,883**GROSS
                    PROFIT**
                
                313,190
                
                42,835
                
                279,644**Expenses**Consulting
                    fees
                
                353,285
                
                299,915
                
                994,224Consulting
                    fees - related party
                
                45,000
                
                264,650
                
                1,072,431Depreciation
                    and amortization
                
                42,802
                
                50,803
                
                420,932General
                    and administrative expenses
                
                446,999
                
                193,113
                
                1,541,179Organizational
                    expenses
                
                -
                
                -
                
                514Professional
                    fees - other
                
                19,644
                
                65,643
                
                430,193Professional
                    fees - related party
                
                7,082
                
                10,015
                
                17,097Salaries
                
                455,427
                
                69,680
                
                1,750,136Provision
                    for future contract losses
                
                -
                
                3,013
                
                3,013Impairment
                    loss
                
                804,640
                
                -
                
                1,041,888Total
                    expenses
                
                2,174,878
                
                956,832
                
                7,271,606**Loss
                    from operations**
                
                (1,861,688)
                
                (913,997)
                
                (6,991,962)
  *See
              Notes to Financial Statements*
 F-4
 **Composite
                      Solutions, Inc. and Subsidiaries****(A
                      Development Stage Company)****Consolidated
                      Statements of Operation****For
                      the Years Ended September 30, 2004 and 2003****and
                      for the Period October 20, 1997 (Inception) to September 30,
                      2004**
 **October
                    20,****1997****(Inception)****Year
                    Ended**
                
                **Year
                    Ended**
                
                **through****September
                    30,**
                
                **September
                    30,**
                
                **September
                    30,****2004**
                
                **2003**
                
                **2004****Other
                    income (expenses)**Interest
                    income
                
                
                -
                
                
                -
                
                
                8,363Interest
                    income - forgiveness of debt
                
                
                45,546
                
                
                -
                
                
                63,371Other
                    income
                
                
                -
                
                
                85,258
                
                
                96,058Gain
                    on forgiveness of debt
                
                
                -
                
                
                -
                
                
                8,261Other
                    expenses
                
                
                -
                
                
                (14,538
                )
                
                (22,319
                )Loss
                    on disposal of asset
                
                
                -
                
                
                -
                
                
                (190
                )Interest
                    expense
                
                
                (230,347
                )
                
                (32,778
                )
                
                (377,094
                )Loss
                    on forgiveness of debt
                
                
                -
                
                
                -
                
                
                (11,021
                )Total
                    other income (expenses)
                
                
                (184,801
                )
                
                37,942
                
                
                (234,571
                )**Loss
                    before provision for income taxes**
                
                
                (2,046,489
                )
                
                (876,055
                )
                
                (7,226,533
                )**Provision
                    for income taxes**
                
                
                -
                
                
                21,681
                
                
                34,809**Loss
                    from continuing operations**
                
                $
                (2,046,489
                )
                $
                **(897,736**
                **)**
                $
                **(7,261,342**
                **)****Discontinued
                    operations**Income
                    from discontinued operations (including gain onsale
                    of subsidiary in the amount of $ 177,755)
                
                
                -
                
                
                -
                
                
                105,295**Net
                    Loss**
                
                $
                (2,046,489
                )
                $
                (897,736
                )
                $
                (7,156,047
                )Loss
                    per common share, basic and dilutedNet
                    loss from continuing operations
                
                $
                (0.09
                )
                $
                (0.04
                )
                $
                (0.32
                )Income
                    from Discontinued operations
                
                $
                -
                
                $
                -
                
                $
                0.01Net
                    Loss
                
                $
                (0.09
                )
                $
                (0.04
                )
                $
                (0.31
                )Weighted
                    Average number of shares, basic and diluted
                
                
                22,789,438
                
                
                20,172,538
 *See
          Notes to Financial Statements*
  F-5
 **COMPOSITE
                    SOLUTIONS, INC. AND SUBSIDIARIES****(A
                    Development Stage Company)****Consolidated
                    Statements of Changes in Stockholders’ Equity**
  **Deficit****Accumulated****Additional**
                
                **During
                    the**
                
                **Total****Common**
                
                **Common**
                
                **Paid
                    -In**
                
                **Development**
                
                **Stockholders’****Shares**
                
                **Stock**
                
                **Capital**
                
                **Stage**
                
                **Equity****Balance,
                    October 20, 1997 (inception)**
                
                
                -
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                -Common
                    stock issued in exchange forservices
                
                
                15,233,910
                
                
                1,521
                
                
                (2,120
                )
                
                -
                
                
                (599
                )Common
                    stock issued for cash
                
                
                5,962,500
                
                
                599
                
                
                18,335
                
                
                -
                
                
                18,934Net
                    loss for year ended September 30, 1998
                
                
                
                
                
                
                
                
                
                
                
                (12,193
                )
                
                (12,193
                )**Balance,
                    September 30, 1998**
                
                
                21,196,410
                
                
                2,120
                
                
                16,215
                
                
                (12,193
                )
                
                6,142Common
                    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 ofnote
                    payable
                
                
                200,000
                
                
                20
                
                
                999,980
                
                
                -
                
                
                1,000,000Net
                    loss for year ended September 30, 1999
                
                
                
                
                
                
                
                
                
                
                
                (574,850
                )
                
                (574,850
                )**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
                
                
                668,333
                
                
                67
                
                
                759,933
                
                
                
                
                
                760,000Common
                    stock issued in acquisitions
                
                
                1,103,371
                
                
                110
                
                
                808,668
                
                
                
                
                
                808,778Common
                    stock issued for finder’s fee
                
                
                100,000
                
                
                10
                
                
                (10
                )
                
                
                
                
                -Common
                    stock issued in exchangefor
                    services
                
                
                300,000
                
                
                30
                
                
                173,970
                
                
                
                
                
                174,000-Net
                    loss for year ended September 30, 2000
                
                
                
                
                
                
                
                
                
                
                
                (1,090,715
                )
                
                (1,090,715
                )**Balance,
                    September 30, 2000**
                
                
                12,371,704
                
                
                1,237
                
                
                2,760,023
                
                
                (1,677,758
                )
                
                1,083,502Common
                    stock surrendered
                
                
                (150,000
                )
                
                (15
                )
                
                (93,735
                )
                
                
                
                
                (93,750
                )Common
                    stock issued for cash
                
                
                725,000
                
                
                73
                
                
                244,927
                
                
                
                
                
                245,000Common
                    stock issued in exchange for services
                
                
                1,061,760
                
                
                106
                
                
                128,227
                
                
                
                
                
                128,333Common
                    stock issued for finder’s fee
                
                
                200,000
                
                
                20
                
                
                (20
                )
                
                
                
                
                -Net
                    loss for year ended September 30, 2001
                
                
                
                
                
                
                
                
                
                
                
                (1,367,322
                )
                
                (1,367,322
                )**Balance,
                    September 30, 2001**
                
                
                14,208,464
                
                
                1,421
                
                
                3,039,422
                
                
                (3,045,080
                )
                
                (4,237
                )
  *See
          Notes to Financial Statements*
  F-6
 **COMPOSITE
                      SOLUTIONS, INC. AND SUBSIDIARIES****(A
                      Development Stage Company)****Consolidated
                      Statements of Changes in Stockholders’ Equity**
 **Balance,
                    September 30, 2001**
                
                
                14,208,464
                
                
                1,421
                
                
                3,039,422
                
                
                (3,045,080
                )
                
                (4,237
                )Common
                    stock issued for cash
                
                
                2,339,047
                
                
                234
                
                
                227,266
                
                
                
                
                
                227,500Common
                    stock issued for compensation
                
                
                1,183,149
                
                
                118
                
                
                206,391
                
                
                
                
                
                206,509Common
                    stock issued in exchange for services
                
                
                514,034
                
                
                51
                
                
                91,568
                
                
                
                
                
                91,619Common
                    stock issued for interest due
                
                
                47,350
                
                
                5
                
                
                5,677
                
                
                
                
                
                5,682Net
                    loss for year ended September 30, 2002
                
                
                
                
                
                
                
                
                
                
                
                (1,166,742
                )
                
                (1,166,742
                )**Balance,
                    September 30, 2002**
                
                
                18,292,044
                
                
                1,829
                
                
                3,570,324
                
                
                (4,211,822
                )
                
                (639,669
                )Common
                    stock issued for cash
                
                
                2,404,696
                
                
                240
                
                
                365,060
                
                
                
                
                
                365,300Common
                    stock issued to settle accounts payable
                
                
                582,024
                
                
                58
                
                
                70,325
                
                
                
                
                
                70,383Common
                    stock issued for services
                
                
                400,000
                
                
                40
                
                
                58,960
                
                
                
                
                
                59,000Common
                    stock issued through exercise of options
                
                
                71,428
                
                
                7
                
                
                4,993
                
                
                
                
                
                5,000Common
                    stock issued for interest due
                
                
                90,363
                
                
                9
                
                
                14,412
                
                
                
                
                
                14,421Common
                    stock issued for compensation
                
                
                50,000
                
                
                5
                
                
                8,495
                
                
                
                
                
                8,500Common
                    stock surrendered
                
                
                (220,000
                )
                
                (22
                )
                
                22
                
                
                
                
                
                -Recapitalization
                    of accounts payableand
                    accrued wages
                
                
                -
                
                
                -
                
                
                1,028,366
                
                
                
                
                
                1,028,366-Net
                    loss for year ended September 30, 2003
                
                
                
                
                
                
                
                
                
                
                
                (897,736
                )
                
                (897,736
                )**Balance,
                    September 30, 2003**
                
                
                21,670,555
                
                
                2,166
                
                
                5,120,957
                
                
                (5,109,558
                )
                
                13,565Common
                    stock issued to settle accounts payable
                
                
                377,788
                
                
                38
                
                
                108,172
                
                
                
                
                
                108,210Common
                    stock issued for services
                
                
                50,000
                
                
                5
                
                
                5,495
                
                
                
                
                
                5,500Common
                    stock issued through exercise of options
                
                
                125,000
                
                
                13
                
                
                -
                
                
                
                
                
                13Common
                    stock issued for interest due
                
                
                9,561
                
                
                1
                
                
                955
                
                
                
                
                
                956Common
                    stock issued for compensation
                
                
                1,000,000
                
                
                100
                
                
                219,900
                
                
                
                
                
                220,000Common
                    stock issued for past due royalty late fees
                
                
                44,733
                
                
                4
                
                
                13,186
                
                
                
                
                
                13,190Common
                    stock issued for new licensing fee
                
                
                287,479
                
                
                29
                
                
                82,571
                
                
                
                
                
                82,600Warrants
                    issued in debt financing
                
                
                -
                
                
                -
                
                
                152,044
                
                
                
                
                
                152,044Warrants
                    issued in consulting
                
                
                -
                
                
                -
                
                
                38,744
                
                
                
                
                
                38,744Net
                    loss for year ended September 30, 2004
                
                
                
                
                
                
                
                
                
                
                
                (2,046,489
                )
                
                (2,046,489
                )**Balance,
                    September 30, 2004**
                
                
                23,565,116
                
                $
                2,355
                
                $
                5,742,024
                
                $
                (7,156,047
                )
                $
                (1,411,668
                )
 *See
            Notes to Financial Statements*
 F-7
 **COMPOSITE
                    SOLUTIONS, INC. AND SUBSIDIARIES****(A
                    Development Stage Company)****Consolidated
                    Statements of Cash Flow**
  **October 20,
                    1997****(Inception)****Year
                    Ended**
                
                **Year
                    Ended**
                
                **through****September
                    30,**
                
                **September
                    30,**
                
                **September 30,****2004**
                
                **2003**
                
                **2004**
  **Cash
                    flows from operating activities**Net
                    loss
                
                $
                (2,046,489
                )
                $
                (897,736
                )
                $
                (7,156,047
                )Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:Depreciation
                    and amortization
                
                
                42,802
                
                
                50,803
                
                
                416,905Loss
                    on disposal of assets
                
                
                -
                
                
                -
                
                
                190Common
                    stock issued in exchange for services
                
                
                209,500
                
                
                59,000
                
                
                570,680Common
                    stock issued for interest due
                
                
                956
                
                
                14,421
                
                
                21,059Common
                    stock issued for compensation
                
                
                220,000
                
                
                8,500
                
                
                529,516Forgiveness
                    of accounts payable
                
                
                (45,546
                )
                
                -
                
                
                (48,946
                )Pre-acquisition
                    income
                
                
                -
                
                
                -
                
                
                47Loss
                    from discontinued operations
                
                
                -
                
                
                -
                
                
                93,267Gain
                    on disposal of subsidiary
                
                
                -
                
                
                -
                
                
                (177,755
                )Impairment
                    loss
                
                
                804,640
                
                
                -
                
                
                1,041,888Provision
                    for future contract losses
                
                
                (3,013
                )
                
                3,013
                
                
                -(Increase)
                    decrease in operating assetsAccounts
                    receivable
                
                
                -
                
                
                -
                
                
                17,493Related
                    party receivable
                
                
                -
                
                
                -
                
                
                (22,021
                )Costs
                    in excess of billings
                
                
                6,832
                
                
                (6,832
                )
                
                -Inventory
                
                
                -
                
                
                -
                
                
                (2,055
                )Prepaid
                    expenses and other assets
                
                
                (26,736
                )
                
                (234
                )
                
                (26,952
                )Deposit
                
                
                (5,004
                )
                
                -
                
                
                (15,379
                )Increase
                    (decrease) in operating liabilitiesAccounts
                    payable
                
                
                119,881
                
                
                206,234
                
                
                1,388,755Employee
                    and director payable
                
                
                548,487
                
                
                255,393
                
                
                803,880Billings
                    in excess of costs
                
                
                (131,169
                )
                
                86,738
                
                
                -Related
                    party payable
                
                
                186,851
                
                
                46,528
                
                
                233,379Accrued
                    expenses
                
                
                (50,294
                )
                
                (26,936
                )
                
                213,493Income
                    taxes payable
                
                
                (10,360
                )
                
                19,281
                
                
                18,473Net
                    cash used in operating activities
                
                
                (178,662
                )
                
                (181,827
                )
                
                (2,100,130
                )**Cash
                    flows from investing activities**Purchase
                    of property, plant and equipment
                
                
                (1,820
                )
                
                -
                
                
                (31,480
                )Acquisition
                    of intangible assets
                
                
                (19,090
                )
                
                (5,946
                )
                
                (650,894
                )Loans
                    made to related party
                
                
                -
                
                
                -
                
                
                (10,000
                )Repayments
                    of loans to related party
                
                
                -
                
                
                -
                
                
                10,000Acquisition
                    of subsidiary
                
                
                -
                
                
                -
                
                
                (500,000
                )Cash
                    of discontinued operations
                
                
                -
                
                
                -
                
                
                (19,999
                )Cash
                    of acquired subsidiaries
                
                
                -
                
                
                -
                
                
                17,261Net
                    cash used in investing activities
                
                
                (20,910
                )
                
                (5,946
                )
                
                (1,185,112
                )
  *See
              Notes to Financial Statements*
 F-8
 **COMPOSITE
                      SOLUTIONS, INC. AND SUBSIDIARIES****(A
                      Development Stage Company)****Consolidated
                      Statements of Cash Flow**
  **October 20,
                      1997****(Inception)****Year
                      Ended**
                  
                  **Year
                      Ended**
                  
                  **through****September
                      30,**
                  
                  **September
                      30,**
                  
                  **September 30,****2004**
                  
                  **2003**
                  
                  **2004**
  **Cash
                        flows from financing activities**Increase
                        (decrease) in line of credit
                    
                    
                    (1,153
                    )
                    
                    353
                    
                    
                    -Proceeds
                        from notes payable
                    
                    
                    -
                    
                    
                    -
                    
                    
                    1,064,500Payment
                        of notes payable
                    
                    
                    (343,753
                    )
                    
                    (80,500
                    )
                    
                    (424,253
                    )Proceeds
                        from note payable to related parties
                    
                    
                    496,235
                    
                    
                    2,016
                    
                    
                    780,416Payments
                        on note payable to related parties
                    
                    
                    -
                    
                    
                    (100,422
                    )
                    
                    (247,669
                    )Proceeds
                        from convertible debenture
                    
                    
                    -
                    
                    
                    -
                    
                    
                    500,000Proceeds
                        from issuance of common stock, net
                    
                    
                    13
                    
                    
                    365,300
                    
                    
                    1,613,513Net
                        cash provided by financing activities
                    
                    
                    151,342
                    
                    
                    186,747
                    
                    
                    3,286,507Net
                        increase (decrease) in cash
                    
                    
                    (48,230
                    )
                    
                    (1,026
                    )
                    
                    1,265Cash,
                        beginning of year
                    
                    
                    49,495
                    
                    
                    50,521
                    
                    
                    -**Cash,
                        end of year**
                    
                    $
                    1,265
                    
                    $
                    49,495
                    
                    $
                    1,265**Supplementary
                        disclosures**Cash
                        paid during year for interest
                    
                    $
                    -
                    
                    $
                    23,734
                    
                    $
                    26,085Cash
                        paid during year for taxes
                    
                    $
                    -
                    
                    $
                    2,400
                    
                    $
                    10,728**Non-cash
                        financing and investing activities**Note
                        payable paid through issuance of common stock
                    
                    $
                    
                    
                    
                    
                    
                    $
                    1,000,000Note
                        payable paid through exercise of option
                    
                    $
                    
                    
                    $
                    5,000
                    
                    $
                    5,000Investment
                        in subsidiary
                    
                    $
                    
                    
                    $
                    
                    
                    $
                    796,732Interest
                        on note payable
                    
                    $
                    
                    
                    $
                    
                    
                    $
                    17,825Forgiveness
                        of interest on note payable
                    
                    $
                    
                    
                    $
                    
                    
                    $
                    (17,825
                    )Inter-company
                        receivable released in sale of subsidiary
                    
                    $
                    
                    
                    $
                    
                    
                    $
                    22,021Common
                        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
                    
                    $
                    
                    
                    $
                    
                    
                    $
                    70,383Recapitalization
                        of accounts payable and accrued wages
                    
                    $
                    
                    
                    $
                    (1,028,366
                    )
                    $
                    (1,028,366
                    )
  *See
            Notes to Financial Statements*
 F-9
  **COMPOSITE
          SOLUTIONS, INC. AND SUBSIDIARIES**
 **(A
          Development Stage Company)**
 **Notes
          to Financial Statements**
 **As
          of September 30, 2004**
 **NOTE
        1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
  **The
        Company**
  Composite
        Solutions, Inc. (the “Company”), was incorporated in the state of Florida on
        October 20, 1997.  The Company has two wholly owned subsidiaries:
        Composite Solutions, Inc., incorporated in the state of Nevada on
        December 8, 1998 and Trans-Science Corporation, incorporated in the state
        of California on September 15, 1980.  A third wholly owned subsidiary,
        Penultimo, Inc. dba Anchor Reinforcements, incorporated in the state of
        California on January 13, 1992, was sold on March 31,
        2001.   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 September 30,
        2004 have been principally devoted to raising additional capital and recruiting
        potential key personnel.  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 Presentation**
  The
        consolidated financial statements include the accounts of the Company and
        its
        wholly owned subsidiaries.  All significant inter-company transactions have
        been eliminated in consolidation.
  **Cash
        and Cash Equivalents**
  For
        purposes of the statements of cash flows, the Company considers cash instruments
        with original maturities of less than three months to be cash
        equivalents.
  **Start-up
        Costs**
  Costs
        of
        start-up activities, including organization costs, are expensed as incurred,
        in
        accordance with Statement of Position (SOP) 98-5.
  **Advertising**
  Advertising
        costs are charged to expense as incurred.
  F-10
 **COMPOSITE
            SOLUTIONS, INC. AND SUBSIDIARIES**
 **(A
            Development Stage Company)**
 **Notes
            to Financial Statements**
 **As
            of September 30, 2004**
 
  **NOTE
        1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued**
 
 **Property,
        Plant and Equipment**
  Property,
        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
        Assets**
  Other
        assets include intangibles such as licensed technology, computer software
        and
        goodwill.   In June 2001, the Financial Accounting Standards
        Board (“FASB”) issued SFAS No. 142, *Goodwill
        and Other Intangible Assets.* SFAS
        No.
        142 establishes new guidelines for accounting for goodwill and other intangible
        assets.  The Company implemented the provisions of SFAS No. 142 on
        October 1, 2001.  Since adoption, existing goodwill and certain
        intangibles with indefinite useful lives are no longer amortized but instead
        are
        assessed for impairment at least annually.  Other intangible assets are
        recorded at historical cost less amortization on the straight line method
        based
        on estimated useful lives.  Periods of amortization are evaluated
        continually to determine whether later events and circumstances warrant revised
        estimated useful lives.
  **Impairment
        of Long-lived Assets**
  Long-lived
        assets and intangible assets subject to amortization are reviewed for impairment
        in accordance with SFAS No. 121, *Impairment
        of Long-Lived Assets and Long-Lived Assets to Be Disposed Of.* In
        accordance with SFAS No. 121, an impairment loss is recognized whenever events
        or changes in circumstances indicate that the carrying amount of the asset
        may
        not be recovered, based upon an estimate of future cash flows.  An
        impairment loss is then recognized whenever the carrying amount of the asset
        exceeds its fair value.  After an impairment loss is recognized, the
        adjusted carrying amount of the asset becomes its new basis.
  **Revenue
        Recognition**
  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
        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
 
 F-11
 **COMPOSITE
            SOLUTIONS, INC. AND SUBSIDIARIES**
 **(A
            Development Stage Company)**
 **Notes
            to Financial Statements**
 **As
            of September 30, 2004**
 
 **NOTE
        1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued**
  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.
  Revenue
        from the sale of materials is recognized when shipped.
  **Income
        Taxes**
  The
        Company accounts for income taxes under SFAS No. 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 Estimates**
  The
        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.
 
 **Fair
        Values of Financial Instruments**
  Statement
        of Financial Accounting Standards No. 107, *Disclosures
        about Fair Value of Financial Instruments,* requires
        disclosure of fair value information about financial instruments, whether
        or not
        recognized in the balance sheet.  In cases where quoted market prices are
        not available, fair values are based on estimates using present value or
        other
        valuation techniques.  Those techniques are significantly affected by the
        assumptions used, including the discount rate and estimates of future cash
        flows.  In that regard, the derived fair value estimates cannot be
        substantiated by comparison to independent markets and, in many cases, could
        not
        be realized in immediate settlement of the instruments. Statement No. 107
        excludes certain financial instruments and all nonfinancial instruments from
        its
        disclosure requirements.
  F-12
 **COMPOSITE
            SOLUTIONS, INC. AND SUBSIDIARIES**
 **(A
            Development Stage Company)**
 **Notes
            to Financial Statements**
 **As
            of September 30, 2004**
 
 
 **NOTE
        1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued**
 
 The
        following methods and assumptions were used to estimate the fair value of
        each
        class of financial instrument:
  *Cash
        and cash equivalents* :
        The
        carrying amounts reported in the balance sheet for cash and cash equivalents
        approximates their fair value.
  *Accounts
        receivable and accounts payable* : 
        The carrying amounts reported in the balance sheet for accounts receivable
        and
        accounts payable approximates the fair value, of those assets and
        liabilities.
  *Short-term
        and long-term obligations* : 
        The carrying amounts of the line of credit and short-term notes payable
        approximates the fair value of those obligations.
  *Accrued
        interest receivable and accrued expenses:* The
        carrying amounts of accrued interest and accrued expenses approximate their
        fair
        value.
  **Stock-Based
        Compensation**
  In
        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.
  **New
        Accounting Pronouncements**
  On
        December 16, 2004, the Financial Accounting Standards Board (“FASB”) published
        Statement of Financial Accounting Standards No. 123 (Revised 2004), Shared-Based
        Payment (“SFAS 123R). SFAS 123R requires that compensation cost related to
        share-
 
 based
        payment transactions be recognized in the financial statements. Share-based
        payment transactions within the scope of SFAS 123R include stock options,
        restricted stock plans, performance-based awards, stock appreciation rights,
        and
        employee share purchase plans. The provisions of SFAS 123R are effective
        as of
        the first interim period that begins after June 15, 2005. Accordingly, the
        Company will implement the revised standard in the third quarter of fiscal
        year
        2005. Currently, the Company accounts for its share-based payment transactions
        under the provisions of APB 25, which does not necessarily require the
        recognition of compensation cost in the financial statements. Management
        is
        assessing the implications of this revised standard, which may materially
        impact
        the Company’s results of operations in the third quarter of fiscal year 2005 and
        thereafter.
 
 F-13
 **COMPOSITE
            SOLUTIONS, INC. AND SUBSIDIARIES**
 **(A
            Development Stage Company)**
 **Notes
            to Financial Statements**
 **As
            of September 30, 2004**
 
 **NOTE
        1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued**
 
 On
        December 16, 2004, FASB issued Statement of Financial Accounting Standards
        No.
        153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29,
        Accounting for Nonmonetary transactions (“SFAS 153”). This statement amends APB
        Opinion 29 to eliminate the exception for nonmonetary exchanges of similar
        productive assets and replaces it with a general exception of exchanges of
        nonmonetary assets that do not have commercial substance. Under SFAS 153,
        if a
        nonmonetary exchange of similar productive assets meets a commercial-substance
        criterion and fair value is determinable, the transaction must be accounted
        for
        at fair value resulting in recognition of any gain or loss. SFAS 153 is
        effective for nonmonetary transactions in fiscal periods that begin after
        June
        15, 2005. The Company does not anticipate that the implementation of this
        standard will have a material impact on its financial position, results of
        operations or cash flows.
 
 **Reclassifications**
  Certain
        prior year amounts have been reclassified to conform to the September 30,
        2004 presentation.  These changes had no impact on previously reported
        consolidated results of operations or stockholders’ equity.
  
 **NOTE
        2 - ACQUISITIONS**
  On
        June 23, 2000 the Company entered into a Share Exchange Agreement with
        Trans-Science Corporation, a California corporation and a company with a
        common
        stockholder.  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 exceeded the historical cost of
        the
        assets acquired and the total purchase price was recorded as
        goodwill.
  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 was
        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.
  F-14
 **COMPOSITE
            SOLUTIONS, INC. AND SUBSIDIARIES**
 **(A
            Development Stage Company)**
 **Notes
            to Financial Statements**
 **As
            of September 30, 2004**
 **NOTE
        3 - DISCONTINUED OPERATIONS**
  On
        March 31, 2001 the Company entered into an Agreement to transfer all of the
        outstanding shares of Penultimo, Inc. to an individual in exchange for 150,000
        shares of the Company’s common stock originally valued at $93,750, the release
        of certain inter-company receivables in the amount of $22,021, an 8% convertible
        debenture note in the amount of $500,000 plus accrued interest of $28,199,
        and
        notes payable in the amount of $64,500, plus accrued interest of
        $4,441.
 
  **NOTE
        4 - PROPERTY, PLANT AND EQUIPMENT**
  Property,
        plant and equipment consist of the following at September 30, 2004 and
        2003:
  **2004**
              
              **2003**Leasehold
                  improvements
              
              $
              1,407
              
              $
              1,407Office
                  furniture and equipment
              
              
              183,134
              
              
              181,311Software
              
              
              13,983
              
              
              13,983198,521
              
              
              196,701Accumulated
                  depreciation
              
              
              (196,855
              )
              
              (196,052
              )Property
                  and equipment, net
              
              $
              1,669
              
              $
              649
 
 Depreciation
        expense for the years ended September 30, 2004 and 2003 was $802 and $2,987,
        respectively.
 
 
 **NOTE
        5 - INTANGIBLE ASSETS**
  **Goodwill**
 
 On
        July 7, 2000 the Company acquired 100% of the outstanding shares of common
        stock of Trans-Science Corporation, a company with common shareholders through
        July 7, 2000.  The Company recorded goodwill in the amount of $751,636
        representing the excess of the cost to acquire Trans-Science Corporation
        over the historical cost of the net assets acquired.  The goodwill was
        being amortized over a period of five years.  During the year ended
        September 30, 2001 the Company recognized a $144,772 impairment loss
        because circumstances indicated the carrying amount of this goodwill may
        not be
        recovered, based upon an estimate of future cash flows. During the year
        ended September 30, 2004 the Company recognized a $418,956 impairment loss
        because circumstances indicated the carrying amount of this goodwill may
        not be
        recovered, based upon an estimate of future cash flows. At September 30,
        2003 goodwill had
 
 F-15
 **COMPOSITE
            SOLUTIONS, INC. AND SUBSIDIARIES**
 **(A
            Development Stage Company)**
 **Notes
            to Financial Statements**
 **As
            of September 30, 2004**
   **NOTE
            5 - INTANGIBLE ASSETS - continued**
  accumulated
        amortization of $187,908.  Amortization expense for the period
        October 20, 1997 (inception) to September 30, 2004 was $187,908. 
On October 1, 2001, the Company adopted SFAS No. 142 and since adoption,
        goodwill is no longer amortized.  At September 30, 2004 and 2003 this
        goodwill has a net value of $0 and $418,956, respectively.
  **Other
        Intangible Assets**
  On
        April 20, 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. The agreement
        terminates on the later of the expiration date of the longest-lived patent
        rights or the twenty-first anniversary of effective date.  A license fee of
        $40,000 was paid upon execution of the agreement.  The Company also paid
        for one half of all past and future patent costs.  The Company does not
        expect any future cash flow to be generated and has canceled this license
        agreement.  At September 30, 2002, patent rights were impaired and a
        loss was recognized in the amount of $78,497.  The license was being
        amortized over 17 years and at September 30, 2004 and 2003 this license has
        a net value of $0.
  On
        August 4, 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. The agreement terminates
        on the
        later of the expiration date of the longest-lived patent rights or the
        twenty-first anniversary of the effective date. A license fee in the amount
        of
        $5,000 was paid upon execution of the agreement.  In addition, the Company
        is obligated to pay for one-half of all past and future patent costs. 
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 or a
        minimum royalty up to $50,000.  The license expires in April 2019 and
        is being amortized over 20 years.  At September 30, 2004 and 2003 this
        license has a net value of $ 0 and $91,684, respectively. During the year
        ended September 30, 2004 the Company recognized a $91,684 impairment loss
        because circumstances indicated the carrying amount of this goodwill may
        not be
        recovered, based upon that the company ceased any operations with this license.
        Amortization expense for the years ended September 30, 2004 and 2003 and
        for the period October 20, 1997 (inception) to September 30, 2004 was
        $0, $5,816, and $21,829, respectively.
  At
        September 30, 2004 and 2003 patent and royalty costs payable on the license
        agreements was $61,123 and $82,090, respectively.
  F-16
 **COMPOSITE
            SOLUTIONS, INC. AND SUBSIDIARIES**
 **(A
            Development Stage Company)**
 **Notes
            to Financial Statements**
 **As
            of September 30, 2004**
 **NOTE
        5 - INTANGIBLE ASSETS - continued**
  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.   This purchase price
        is an amount significantly less than the cost incurred by Trans-Science
        Corporation.  In addition, during the year ended
 
 September 30,
        1999, the Company paid Trans-Science Corporation $90,000 for upgrade services
        on
        this software.  The Software was placed in service during the year ended
        September 30, 2002 and is being amortized over a period of ten years. 
Amortization expense for the years ended September 30, 2004 and 2003 was
        $42,000 and $47,816. At September 30, 2004 these assets were impaired and a
        loss was recognized in the amount of $294,000.
 
 At
        September 30, 2004 and 2003 the gross carrying amount and accumulated
        amortization for acquired intangible assets is as follows:
  **September 30,
                  2004**
              
              **Gross**
                **Carrying
                  Amount**
              
              **Accumulated**
                **Amortization**License
                  agreements
              
              $
              -
              
              $
              -Earthquake
                  retrofit design software
              
              
              -
              
              
              -$
              -
              
              $
              -
  
 **September 30,
                  2003**
              
              **Gross**
                **Carrying
                  Amount**
              
              **Accumulated**
                **Amortization**License
                  agreements
              
              $
              110,828
              
              $
              19,144Earthquake
                  retrofit design software
              
              
              420,000
              
              
              84,000$
              530,828
              
              $
              103,144
  Amortization
        expense was $42,000 and $47,816 for the years ended September 30, 2004 and
        2003, respectively.
 
 F-17
 **COMPOSITE
            SOLUTIONS, INC. AND SUBSIDIARIES**
 **(A
            Development Stage Company)**
 **Notes
            to Financial Statements**
 **As
            of September 30, 2004**
 
 
 **NOTE
        6 - STOCKHOLDERS’ EQUITY**
  **Preferred
        Stock**
  The
        Company has authorized the issuance of ten million (10,000,000) shares of
        preferred stock, having one hundredth of a cent ($.0001) par value per
        share.  The Board 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 September 30, 2004
        and 2003, respectively.
  **Common
        Stock**
  The
        Company has authorized fifty million (50,000,000) shares of common stock,
        having
        one hundredth of a cent ($0.0001) par value 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 and in April 1998 the Company issued 49,500 shares to its then
        Executive Vice President for the net value of services rendered valued at
        $(599).  Also in April 1998 the Company issued 646,000 shares of
        common stock for cash, net of offering costs in the amount of $18,934.  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 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.
  In
        December 1999, a trustee stockholder 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 quoted market $174,000
        in exchange for services.
  During
        the period October 2000 through December 2000 the Company issued
        725,000 shares of common stock valued at $245,000 in private placement.  On
        March 31, 2001, a stockholder surrendered 150,000 shares of common stock
        valued at $93,750.  Also on March 31, 2001, the Company issued 200,000
        shares of common stock as finder’s fees.
  F-18
 **COMPOSITE
            SOLUTIONS, INC. AND SUBSIDIARIES**
 **(A
            Development Stage Company)**
 **Notes
            to Financial Statements**
 **As
            of September 30, 2004**
 **NOTE
        6 - STOCKHOLDERS’ EQUITY - continued**
 
 During
        the year ended September 30, 2001, the Company issued 1,061,760 shares of
        common stock valued at $128,333 in exchange for services.
  During
        year ended September 30, 2002, the Company issued 514,034 shares of common
        stock valued at $91,619 in exchange for services, 1,183,149 shares of common
        stock for compensation valued at $206,509, 47,350 shares of common stock
        valued
        at $5,682 for interest
        due, and 2,339,047 shares of common stock for cash and subscriptions paid
        in the
        amount of $227,500.
  During
        the year ended September 30, 2003, the Company issued 582,024 shares of
        common stock valued at $70,383 in exchange for accounts payable, 400,000
        shares
        of common stock valued at $59,000 for services, 90,363 shares of common stock
        valued at $14,421 for accrued interest, 50,000 shares of common stock valued
        at
        $8,500 as compensation, 71,428 shares of common stock through the exercise
        of
        options in the amount of $5,000 exchanged for the repayment of a loan, and
        2,404,696 shares of common stock for cash, net of offering costs in the amount
        of $365,300.  The Company received 220,000 shares of common stock
        contributed back to the Company, which have been canceled.  There are
        21,670,555 and 18,292,044 shares of common stock issued and outstanding at
        September 30, 2003 and 2002, respectively.
  The
        Company recapitalized accounts payable and accrued wages in the amount of
        $1,028,366.
  During
        the year ended September 30, 2004, the Company issued 377,788 shares of
        common stock valued at $108,200 in exchange for accounts payable, 50,000
        shares
        of common
        stock valued at $5,500 for services, 9,561 shares of common stock valued
        at $956
        for accrued interest, 1,000,000 shares of common stock valued at $220,000
        as
        compensation, 125,000 shares of common stock through the exercise of options
        in
        the amount of $38,757. 44,733 shares of common stock valued at $13,190 as
        Royalty late fees, 287,479 shares of common stock valued at $82,600 as payment
        on licensing fees. There are 23,565,116 and 21,670,555 shares of common stock
        issued and outstanding at September 30, 2004 and 2003,
        respectively.
 
 **Stock
        Incentive Plan**
  On
        December 1, 2000 the Company and subsidiaries’ Board of Directors adopted
        the 2000 Stock Incentive Plan pursuant to which incentive stock options or
        nonstatutory 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.
 
 F-19
 **COMPOSITE
            SOLUTIONS, INC. AND SUBSIDIARIES**
 **(A
            Development Stage Company)**
 **Notes
            to Financial Statements**
 **As
            of September 30, 2004**
 **NOTE
        6 - STOCKHOLDERS’ EQUITY - continued**
 
 A
        summary
        of stock option activity for all plans follows:
  **Outstanding
                  Options**
              
              **Shares**
                **Available
                  for**
                **Grant**
              
              **Options**
                **Outstanding**
              
              **Exercise**
                **Price**Authorized
              
              
              1,000,000
              
              
              
              
              $
              0.40-Granted
              
              
              (391,428
              )
              
              1,937,428
              
              $
              0.07Exercised
              
              
              71,428
              
              
              (221,428
              )
              $
              0.07Canceled
              
              
              120,000
              
              
              (120,000
              )
              $
              0.10Balance,
                  September 30, 2003
              
              
              800,000
              
              
              1,596,000
              
              $
              0.10
  At
        September 30, 2004 there were 1,596,000 exercisable options.
  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 year ended September 30, 2003, the Company did not
        recognize any compensation expense.
  Had
        compensation expense for the Company’s 2000 Stock Incentive Plan been determined
        based upon fair values at grant dates for awards under the plan in accordance with
        SFAS
        No. 123, “Accounting for Stock-Based Compensation,” the Company’s net loss and
        loss per share would have been increased to the proforma amounts indicated
        below.  Additional option awards are anticipated in future
        years.
 
 **2004**
              
              **2003**Net
                  lossAs
                  reported
              
              $
              (2,048,700
              )
              $
              (897,736
              )Proforma
              
              $
              (2,051,968
              )
              $
              (901,004
              )Loss
                  per shareAs
                  reported
              
              $
              (0.09
              )
              $
              (0.04
              )Proforma
              
              $
              (0.09
              )
              $
              (0.04
              )
 
 
 F-20
 **COMPOSITE
            SOLUTIONS, INC. AND SUBSIDIARIES**
 **(A
            Development Stage Company)**
 **Notes
            to Financial Statements**
 **As
            of September 30, 2004**
  **NOTE
        6 - STOCKHOLDERS’ EQUITY - continued**
 
 The
        fair
        value of each option grant is estimated on the date of grant using the
        Black-Scholes option pricing model with the following weighted-average
        assumptions and results:
  **2004**
              
              **2003**Dividend
                  yield
              
              0.00
              %
              0.00
              %Risk
                  free interest rate
              
              2.99
              %
              2.99
              %Expected
                  life
              
              5.92
              Yrs
              5.92
              YrsExpected
                  volatility
              
              16.21
              %
              16.21
              %Estimated
                  fair value of options granted per share
              
              $0.0354
              
              $0.0354
  
 **NOTE
        7 - LINE OF CREDIT**
  In
        the
        prior year the Company has a business secured open line of credit with a
        bank in
        the amount of $50,000. This loan has been paid off by one of the Company’s
        officers who secured this loan personally. The balance of this loan $29,941
        has
        been transferred as a payable to the officer.
 
 
 **NOTE
        8 - COMMITMENTS**
  The
        Company and subsidiaries lease office space under a non-cancelable operating
        lease.  At September 30, 2004, there are future minimum payments under
        the lease of $37,491 which are due through June 30, 2004.
  Rental
        expense was $49,986 and $48,505 for the years ended September 30, 2004 and
        2003, respectively and was $348,974 for the period October 20, 1997
        (inception) to September 30, 2004.
 
 As
        noted
        in Note 5 - Other Intangible Assets, the Company entered into a second license
        agreement with UCSD on August 4, 1999 under patent rights to make, use,
        sell, offer for sale, import licensed products, to practice licensed methods,
        and to use certain technology.  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 or a minimum royalty.  For the years ending September 30,
        2004 and 2003 **** and
        for
        the period October 20, 1997 (inception) to
 
 F-21
 **COMPOSITE
            SOLUTIONS, INC. AND SUBSIDIARIES**
 **(A
            Development Stage Company)**
 **Notes
            to Financial Statements**
 **As
            of September 30, 2004**
 
 **NOTE
        8 - COMMITMENTS - continued**
 
 September 30,
        2003 the company paid minimum royalty associated with this license of $82,600,
        $30,000, and $60,000, respectively.
  **NOTE
        9 - EARNINGS PER SHARE**
  The
        computations of basic and diluted earnings per share from continuing operations
        for the years ended September 30, 2004 and 2003 and the period
        October 20, 1997 (inception) to September 30, 2004 were as
        follows:


**Year
                  Ended**
                **September 30,**
              
              **October 20,
                  1997**
                **(Inception)
                  to**
                **September 30,****2004**
              
              **2003**
              
              **2004****Loss
                  per common share, basic**NumeratorNet
                  loss from continuing operations
              
              $
              (2,046,489
              )
              $
              (897,736
              )
              $
              (7,261,342
              )(Loss)
                  income from discontinued operation
              
              
              —
              
              
              —
              
              
              (72,460
              )Gain
                  on sale of subsidiary
              
              
              —
              
              
              —
              
              
              177,755Net
                  loss
              
              $
              (2,046,489
              )
              $
              (897,736
              )
              $
              (7,158,258
              )DenominatorWeighted-average
                  shares
              
              
              22,789,438
              
              
              20,172,538
              
              
              16,498,332
  For
        the
        years ended September 30, 2004 and 2003, and for the period
        October 20, 1997 (inception) to September 30, 2004 the
        weighted-average shares of common stock issuable under stock options of 264,579,
        264,579, and 72,335, respectively were not included in the calculation of
        fully
        diluted earnings per share because their effects would have been antidilutive.
        Therefore, diluted earnings per share were the same as basic earnings per
        share
        at September 30, 2004 and 2003, and for the period October 20, 1997
        (inception) to September 30, 2004.
 
 
 F-22
 **COMPOSITE
            SOLUTIONS, INC. AND SUBSIDIARIES**
 **(A
            Development Stage Company)**
 **Notes
            to Financial Statements**
 **As
            of September 30, 2004**
 
 
 **NOTE
        10 - INCOME TAXES**
  At
        September 30, 2004, the Company has a net operating loss carryforwards for
        tax purpose of approximately $2,200,000 which expires through the year 2023.
        The
        Internal Revenue Code contains provisions which may limit the loss carryforward
        available if significant changes in stockholder ownership of the Company
        occur.
 
 The
        components of the provision for income taxes for the years ended
        September 30, 2004 and 2003 are as follows:
 
 **2004**
              
              **2003**CurrentFederal
              
              $
              12,921
              
              $
              12,921State
              
              
              11,960
              
              
              11,96024,881
              
              
              24,881DeferredFederal
              
              
              —
              
              
              —State
              
              
              —
              
              
              ——
              
              
              —Provision
                  for income taxes
              
              $
              24,881
              
              $
              24,881
  The
        components of the net deferred tax assets were as follows:
  **September 30,****2004**
              
              **2003**Deferred
                  tax assetsStart-up
                  costs
              
              $
              1,248,971
              
              $
              1,248,971Organization
                  costs
              
              
              398
              
              
              398Syndication
                  costs
              
              
              1,168
              
              
              1,168Penalties
              
              
              8,158
              
              
              6,257Impairment
                  loss
              
              
              406,728
              
              
              62,020Accrued
                  vacation/other accruals
              
              
              -
              
              
              2,742Depreciation/amortization
              
              
              -
              
              
              -Net
                  operating loss
              
              
              1,374,967
              
              
              927,2513,040,832
              
              
              2,248,807Deferred
                  tax liabilities State income taxes
              
              
              179,692
              
              
              152,7342,861,069
              
              
              1,739,313Less
                  valuation allowance
              
              
              (2,861,069
              )
              
              (1,739,313
              )Net
                  deferred tax assets
              
              $
              —
              
              $
              —
 
 
 F-23
 **COMPOSITE
            SOLUTIONS, INC. AND SUBSIDIARIES**
 **(A
            Development Stage Company)**
 **Notes
            to Financial Statements**
 **As
            of September 30, 2004**
 **NOTE
        11 - RELATED PARTY TRANSACTIONS**
  **Intangible
        Assets**
  In
        January 1999 the Company acquired certain intangible assets from
        Trans-Science Corporation, a company with common stockholders.  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 for $330,000 in cash, an amount significantly less than the cost
        incurred by Trans-Science Corporation.  In addition, during the period
        ended September 30, 1999, the Company paid Trans-Science Corporation
        $90,000 for upgrade services on this software.
  **Stock-Based
        Compensation**
  During
        the years ended September 30, 2004 and 2003, the Company issued 1,000,000
        and 50,000 shares of common stock with value of $220,000 and $8,500,
        respectively, to certain employees in exchange for compensation.
 
 **Notes
        Payable**
  On
        January 8, 2001, the Company entered into a promissory note with an officer
        in the amount of $159,439 and again with the same officer on April 20, 2001
        and June 5, 2002 in the amount of $56,965 and 26,584, respectively. Terms
        required principal to be advanced in various amounts, accrue interest at
        12%,
        and the principal and interest were to be paid nine months from the date
        of
        latest advance. As of September 30, 2004 and 2003, there was a principal
        balance outstanding in the amount of $0 and $0 and accrued interest in the
        amount of $0 and $26,053, respectively.
  On
        April 23, 2001, the Company issued a promissory note payable to an employee
        in the amount of $41,945. The principal is to be advanced to the Company
        in
        various amounts.  As of September 30, 2004 and 2003, there was a
        principal balance outstanding in the amount of $33,376 and $33,376 and accrued
        interest in the amount of $14,074 and $10,033, respectively.  Principal and
        interest at 12% are to be paid nine months from the date of the latest
        advance.
  On
        March 8, 2004, the Company issued a promissory note payable in the amount
        of $300,000, plus interest at a rate of 12% per annum. An officer and
        stockholder is participating in $50,000 of this loan amount. The note is
        due on
        the earlier of July 9, 2004 or
        upon a
        minimum of $500,000 of debt or equity financing by the Company and is personally
        guaranteed by a stockholder. Warrants were issued to purchase 300,000 and 200,000
        shares of common stock with exercise prices at 75% or 100% of the Company’s next
        offering of equity or convertible debt securities, respectively or $.25 per
        share, whichever is less. The warrants were valued at $93,293 and are recorded
        as a discount to
 
 F-24
 **COMPOSITE
            SOLUTIONS, INC. AND SUBSIDIARIES**
 **(A
            Development Stage Company)**
 **Notes
            to Financial Statements**
 **As
            of September 30, 2004**
 
 **NOTE
        11 - RELATED PARTY TRANSACTIONS - continued**
 
 the
        debt.
        The note provided net proceeds in the amount of $266,000, net of debt issue
        costs of $34,000. The net carrying amount of the debt at June 30, 2004 was
        $290,686, the amount due at maturity, adjusted for unamortized discount and
        cost
        of issuance. The loan was paid off on July 27, 2004 through proceeds from
        financing noted in related party transactions footnote 11.
 
 On
        January 17, 2002, the Company issued a promissory note payable to a
        stockholder in the amount of $10,000, plus interest at a rate of 10% per
        annum.  The accrued interest shall be paid in the Company’s common stock
        each quarter.  The note is due on January 17, 2003.  As of
        September 30, 2003 and 2002 principal in the amount of $10,000 was
        outstanding.  As of September 30, 2004 the Company has accrued a
        liability to issue 2,990 shares of common stock valued at $299.
  On
        June 17, 2002, the Company issued a promissory note payable to a
        stockholder in the amount of $3,000, plus interest at a rate of 10% per
        annum.  The note is due on July 17, 2002.  As of
        September 30, 2004 and 2003, there was a principal balance outstanding in the
        amount of $3,000 and $3,000 and accrued interest in the amount of $695 and
        $395,
        respectively.
 
 On
        July 26, 2004 the Company issued a promissory note payable in the amount of
        $550,000, plus interest at a rate of 12% per annum to an officer and stockholder
        of the company. The note is due on November 23, 2004. Warrants were issued
        to purchase 550,000 and 366,667 shares of common stock with exercise prices
        at
        75% or 100%, of the Company’s next offering of equity or convertible debt
        securities, respectively or $.25 per share, whichever is less. The warrants
        are
        valued at $58,751 and will be recorded as a discount to the debt. The note
        provides net proceeds in the amount of $514,250, net of debt issuance costs
        of
        $35,750. Proceeds from this loan were used on July 27, 2004 to fulfill
        payment on the $300,000 promissory note due July 9, 2004 as noted in
        footnote 10.
 
 On
        September 30, the Company issued a promissory note payable in the amount
        of
        $205,159.34, plus interest at a rate of 12% per annum to an officer and
        stockholder of the company. The note is due on June 30, 2005. The note was
        issued as payment for advances in various advances and accrued
        services.
 
 **Consulting
        Agreements**
 
 The
        Company has several consulting agreements with stockholders and officers
        for
        management, marketing and technical services which are applied between cost
        of
        goods sold and expenses as appropriate. Consulting fees for years ended
        September 30, 2004 and
        2003
        were $306,793 and $307,590, respectively.  The balance payable at
        September 30, 2004 and 2003 was $179,916 and 69,118,
        respectively
 
 F-25
 **COMPOSITE
            SOLUTIONS, INC. AND SUBSIDIARIES**
 **(A
            Development Stage Company)**
 **Notes
            to Financial Statements**
 **As
            of September 30, 2004**
 **NOTE
        11 - RELATED PARTY TRANSACTIONS - continued**
 
 **Representation
        and Advisory Agreement**
  On
        March 6, 2001, the Company entered into a Representation and Advisory
        Agreement (the “Agreement”) with AF Capital and Ace International Domaine
        (collectively referred as “AFA”) for corporate financing and investment advisory
        services. According to the agreement, the Company would pay a non-refundable
        engagement retainer of $50,000, of which $15,000 was payable on or before
        March 14, 2001 with the balance of $35,000 payable in full on
        April 15, 2001. In addition the Agreement required the Company to make
        monthly retainer of $10,000 for twelve months beginning on April 1, 2001.
        Total amount of such retainers shall be payable in full upon the Company
        receiving at least $2,000,000 in financing. The Company is also required
        to pay
        a representation and placement fee equal to 10% of the amount of capital
        raised,
        and warrants to purchase shares of common stock of the Company equal to 15%
        of
        the number of shares of common stock and common stock equivalents issued
        pursuant to the Agreement.
 
 Effective
        July 18, 2001, the Agreement was terminated by the Company.  According
        to the terms of the Agreement, in the event of termination, the Company would
        not be liable to pay the monthly payments of $10,000 after the termination
        date.
  On
        July 3, 2001 Michael Perlman, president and chief executive officer of Ace
        International Domaine was appointed president and chief executive officer
        of the
        Company.  Initial compensation for prior and continuing services in the
        amount of $30,000 will offset the $17,500 for the Ace International Domaine
        portion of the non-refundable engagement fee. In a recent correspondence
        Mr.
        Perlman has submitted that he is owed $ 46,500 the company feels that Mr.
        Perlman is in error and feels they do not need a reserve for the
        difference.
  On
        November 30, 2001, Michael Perlman resigned from the Company.  The
        $30,000 balance for the initial compensation remains an unpaid liability
        of the
        Company at September 30, 2003.
  
 **NOTE
        12 - CANCELLATION OF CONSULTING AGREEMENT**
  On
        January 28, 2002 the Company entered into an agreement with a consultant to
        assist the Company developing market demand for composite technologies. 
According to the terms of the agreement, the Company agreed to pay the
        consultant $10,000 per month, payable
        in installments of $5,000 per month, with any unpaid balance due upon specific
        performance defined in the agreement.
  F-26
 **COMPOSITE
            SOLUTIONS, INC. AND SUBSIDIARIES**
 **(A
            Development Stage Company)**
 **Notes
            to Financial Statements**
 **As
            of September 30, 2004**
   **NOTE
            12 - CANCELLATION OF CONSULTING AGREEMENT -
            continued**
 
 On
        June 30, 2002 the agreement was cancelled, and the unpaid balance due in
        the amount of $85,000 was cancelled and recognized as other income (expenses)
        in
        the statement of operations.
   **NOTE
        13 - STRATEGIC ALLIANCE AGREEMENT**
  On
        December 7, 2000 the Company entered into a Global Alliance Agreement (the
“Agreement”) with The Prime Group (“Prime”) located in Seoul, Korea. 
According to the terms of the Agreement, the Company would receive a 15%
        equity
        position in The Prime Group.  The Prime Group entered into a subscription
        agreement to purchase between 4,166,667 and 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 was to be equally issued quarterly at $0.40 per share
        for
        a total consideration of $1,000,000.  A second 2,500,000 shares of common
        stock was to be issued at $0.40 per share if payment was received
        by May 31, 2001 or 1,666,667 was to be issued at $0.60 per share if payment
        was received after May 31,2001.
  In
        December 2000, the Company received $250,000 representing a subscription
        for 625,000 shares of common stock.  On January 4, 2001 the Company
        issued 500,000 shares of common stock valued at $200,000.  On
        February 28, 2001 the agreement was terminated by Prime. On
        September 30, 2003 the Company issued the remaining 125,000 shares of
        common stock valued at $50,000.
  
 **NOTE
        14 - GOING CONCERN**
  The
        accompanying consolidated financial statements have been prepared assuming
        that
        the Company will continue as a going concern. The Company’s financial position
        and operating results raise substantial doubt about the Company’s ability to
        continue as a going concern, as reflected by the net loss of $2,046,200 and
        $897,736 for the years ended September 30, 2004 and 2003, respectively and
        losses of $7,155,758 accumulated from October 20, 1997 (inception) to
        September 30, 2004. In addition the Company’s current liabilities exceed
        current assets by $1,402,378 at September 30, 2004. The ability of the
        Company to continue as a going concern is dependent upon commencing operations,
        developing sales and obtaining additional capital and financing. The
        consolidated financial statements do not include any adjustments that might
        be
        necessary if the Company is unable to continue as a going concern.
  The
        Company is currently seeking additional capital to allow it to begin its
        planned
        operations.  Management believes the Company’s sales and marketing efforts
        will
 
 
 F-27
 
 **COMPOSITE
              SOLUTIONS, INC. AND SUBSIDIARIES**
 **(A
              Development Stage Company)**
 **Notes
              to Financial Statements**
 **As
              of September 30, 2004**
 **NOTE
        14 - GOING CONCERN - continued**
  partially
        reduce the negative impact of accumulated losses.    In addition,
        the Company continues its efforts to re-capitalize accounts payable into
        stockholders’ equity and negotiate reductions in other accounts payable (see
        note 15).
 
 
 **NOTE
        15 - SUBSEQUENT EVENTS**
  As
        of
        October 1, 2004 the Company has discontinued any regular business and has
        moved
        out of its offices and filed a voluntary petition for bankruptcy under chapter
        7
        on October 11, 2004. The case was voluntarily dismissed by order entered
        on
        November 18, 2004, and the Company announced at that time that it was pursuing
        other options for reorganizing the corporation and acquisition of another
        operating entity. On May 5, 2005 the Company filed a voluntary petition for
        bankruptcy under Chapter 11. The Company has a potential investor who will
        bring
        the Company out of Bankruptcy but no assurance can be made at this time until
        all claims have been settled in court.
 
 
 **NOTE
        16 - FAIR VALUE OF FINANCIAL INSTRUMENTS**
  The
        estimated fair values of the Company’s financial instruments are as
        follows:
  **September 30,
                  2004**
              
              **September 30,
                  2003****Carrying**
                **Value**
              
              **Fair**
                **Value**
              
              **Carrying**
                **Value**
              
              **Fair**
                **Value**Cash
              
              $
              1,265
              
              $
              1,265
              
              $
              49,495
              
              $
              49,495Accounts
                  payable
              
              
              386,656
              
              
              386,656
              
              
              266,775
              
              
              266,775Related
                  party accounts payable
              
              
              690,902
              
              
              690,902
              
              
              194,620
              
              
              194,620Line
                  of credit
              
              
              -
              
              
              -
              
              
              51,887
              
              
              51,887Related
                  party notes payable
              
              
              233,227
              
              
              233,227
              
              
              46,376
              
              
              46,376Accrued
                  expenses
              
              
              131,523
              
              
              131,523
              
              
              315,999
              
              
              315,999


F-28