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                                  UNITED STATES
                       SECURITIES AND 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, 2000

                                       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 incorporation or organization I.R.S. Employer
Identification Number


      3655 NOBEL DRIVE, SUITE 440, SAN DIEGO, CA              92122
--------------------------------------------------------------------------------
        Address of principal executive office                Zip Code

Issuer's telephone number:  (858) 459-4843
                            --------------

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

                         COMMON STOCK, $0.0001 PAR VALUE
                         -------------------------------
                                (Title of Class)

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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 X  No
                                                           ---   ---
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.[ ]

The Company's revenues for the fiscal year ended September 30, 2000 were
$48,013.

As of September 30, 2000, 12,371,704 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, 2000) held by
non-affiliates (8,662,462 shares) was $5,136,839.

Transitional Small Business Disclosure Format (check one):    Yes      No X
                                                                 ---     ---


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                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL OVERVIEW

         The Company was incorporated under the laws of the State of Florida on
October 20, 1997 as JS Business Works, Inc. On June 30, 1999, the Company
consummated a reverse acquisition pursuant to which the Company acquired
Composite Solutions, Inc., which was incorporated under the laws of the State of
Nevada ("CSI Nevada") in December 1998 to engage in "composite overlay"
technology for construction industry. Pursuant to the terms of a Share Exchange
Agreement executed in connection with such transaction, the former stockholders
of CSI Nevada were issued 1,000,000 shares of the Company's Common Stock and the
Company's corporate name was changed to Composite Solutions, Inc. ("the Company"
or "CSI").

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

         The key element of the Company's composite overlay technology consists
of an aerospace-type advanced composite material system, such as a carbon or
glass fabric impregnated with a chemical resin. The composite overlay system is
in the form of a cured-in-place "wallpaper" for applications to walls and a
"jacket" for columns. In the retrofit of buildings and other structures,
composite overlays increase both the shear and flexural performance of
structural elements making the building or structure stronger and more ductile
than "as-built" construction. As a repair medium, composite overlays provide a
highly efficient, clean and cost-effective method of repairing damaged
structures. In addition, use of composite overlays is the preferred repair
method as buildings can be fortified without additional weight and damaged
structures are returned to use sooner than repairs made by traditional methods.

         The effectiveness and integrity of the Company's composite overlay
technique has been tested 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


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five-story building as well as columns ranging from single columns to full-scale
bridge bents. 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.

         The Company believes that its composite overlay technology is unique
and constitutes a major advance in the construction industry. The simplicity of
the overlay application as well as the expected reduced cost and time to apply
the composite overlay could revolutionize the way retrofit/repairs are performed
and could provide a unique solution to many structures that require expensive
and extensive rebuilding or must be demolished.

         In addition to retrofit and repair, and with respect to new
construction, the Company believes that the application of the composite overlay
concept to encase concrete beams, columns and girders could substantially reduce
the need for reinforcing steel, which represents a significant portion of
building construction costs. In this application, the composite is
pre-manufactured in the form of a tube, which serves both as a form and
reinforcement.

RECENT ACQUISITIONS

         In July 2000, the Company expanded its advanced composite technology
base by acquiring Trans-Science Corporation (TSC), a San Diego-based privately
held California Corporation. As reported in the 8-K filing dated July 25, 2000,
the transaction involved exchange of TSC shares for CSI shares.

         Since its inception in 1980, TSC is specialized in the development of
computer simulation programs for sophisticated design analysis related to
complex structures, including blast effects; and for the past several years in
the development of design software for the use of advanced composite materials.
Recently, TSC developed the only comprehensive design software for the seismic
retrofit of reinforced concrete columns using composite jackets, and is now
extending its design software to include explosive threats. TSC's work on
explosive blasts is part of a counter-terrorism program sponsored by the Defense
Threat Reduction Agency (DTRA). In recent tests conducted by DTRA on a
full-scale building at the White Sands Missile Range in New Mexico, composite
overlays prevented damage to structural elements after an explosion.

         The TSC acquisition will allow the Company to participate in DTRA's
program to mitigate structural damage to US installations from conventional bomb
blasts. The Company believes that the protection of the structural elements of
installations such as Embassies can be accomplished by the use of composite
materials in a cost-effective manner.


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         On August 31, 2000 the Company acquired Penultimo Inc., dba Anchor
Reinforcements ("Anchor") a California corporation of Huntington Beach,
California. As reported in the 8-K filing dated September 15, 2000, the
transaction included payment of $500,000 in cash and 150,000 shares of the
Company's common stock. The Company issued an 8% Convertible Debenture Note in
the amount of $500,000, due on August 17, 2003 and secured it by a Security
Agreement, California UCC-1 Financial Statement, and non-recourse guarantee
issued by Penultimo, Inc.

         Anchor has been manufacturing high performance and affordable
unidirectional fabrics of carbon, glass, and aramid over a decade for products
such as sailboats, snowboards, satellites, and civil construction systems.
Anchor's product line specializes in carbon and aramid fabrics, and has a
reputable client base of approximately 200 with an annual sales of over half
million dollars.

         The acquisition of Anchor enhances CSI's ability to provide
comprehensive and optimized solutions to a variety of civil and non-civil
construction industries. The Company will be better able to compete for projects
in the repair/retrofit category, as well as for projects involving blast
mitigation.

GLOBAL STRATEGIC ALLIANCE

         In August 2000, the Company entered into a Global Strategic Alliance
Agreement with The Prime Group ("Prime"), a consortium of related companies
located in Seoul, Korea, and engaged in various construction-related projects.
Pursuant to the Agreement, Prime will invest $2,000,000 into CSI in exchange for
CSI's common stock at a predetermined price. The investment schedule includes
installment payments of $250,000 every three months, with the first payment due
by December 12, 2000, and the second due by February 28, 2001. The initial
$1,000,000 will be invested within one year (October 31, 2001) at a stock price
of $0.40, and the second $1,000,000 will be invested within the second year
(October 31, 2002) at a stock price of $0.60. However, should both the first and
second $1,000,000 be invested by May 31, 2001 the stock price will be $0.40 on
all shares issued. Prime also has an option to purchase an additional 1,000,000
shares of common stock between October 31, 2001 to October 31, 2003 at a stock
price equal to 35% of the fair value of the shares issued.

         Additionally, CSI and Prime have agreed to form a new Korean company
called CS-Prime Korea, Inc. ("CSPK"), which will utilize and promulgate CSI's
technology in Korea and other parts of the Asian Region. The Company will have a
15% equity position in CSPK. If this alliance establishes other operative
entities in the Asian Region, CSI will have an equity position in such entities,
which will be negotiated at a later date. Also CSI will be invited, as a leading
member of the consortium, to participate in all major projects in the Asian
Region whenever CSI's technology is involved. CSI will bill CSPK for
deliverables such as


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engineering services, materials, etc., except training of CSPK engineers, which
will be limited to less than ten.

MARKETS, PRODUCTS AND SERVICES

         The primary goals of the Company's marketing plan are to offer turnkey
or a combination of service/technology solutions such as design services,
composite overlay material systems and/or material applications, which would be
licensed to major construction companies. The Company expects that its
technology/service solutions will be able to accomplish a variety of structural
objectives for its customers including:

                - retrofit/repair for earthquake damage,
                - construction defect repairs,
                - structural strengthening for enhanced load capacity, and
                - structural strengthening for bomb blast protection.

         Initially, the Company's business strategy is to adapt and market its
composite overlay technology and services to the RETROFIT/REPAIR SEGMENT of the
construction industry to upgrade aging bridges and buildings for seismic
requirements. The Company has recently targeted clients in the healthcare
agencies and medical centers complying with the new seismic requirements.

         The Company has the potential to generate significant revenue and
profits from the sale of its cost-effective composite overlay technology and
services based on the demand for seismic retrofit/repair of damaged and aging
buildings as well as the nation's highway and bridge infrastructure. For
example, industry experts estimate that in one area of the United States
approximately 40% of all existing buildings and structures could require
earthquake upgrading or retrofitting. In California, a major utility is
considering to undertake, over the next ten years, the retrofit of a number of
their switching facilities at an estimated cost of $300 to $500 million.

         Further, the California Senate has passed Bill 1955, which requires all
hospitals to be retrofitted to comply with existing seismic codes by the year
2008. It is estimated that the total cost to retrofit these hospitals could
approximate $55 billion. In addition, published reports by the U.S. Department
of Transportation have indicated that approximately $35 billion a year is spent
in the United States to maintain the highway and bridge infrastructure.
Conservative estimates indicate that approximately $53 billion will be necessary
to maintain the highway and bridge infrastructure in its current conditions.


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         The Company's products and services consist of several composite
overlay technology solution options that it believes meet the needs of the
market and offer potential revenue and growth opportunities for the Company.
These "portfolio technology/service options" include:

         RETROFIT DESIGN SOFTWARE. The utilization of composites in the
retrofit/rebuilding of structures is an emerging technology where the
civil/structural engineering profession is only now becoming aware of the
significant opportunities and potential applications of this material. To
facilitate the acceptance and application of composite overlays, the Company is
developing proprietary design software. Beta copies of the software have been
installed in several key design facilities in the U.S. When completed, the
design software will provide civil/structural engineers with an easy to use
design service tool in the use of composite overlays for columns, walls, floors,
beams and connections between such members.

         DESIGN SERVICES. The principals of the Company are recognized as the
developers of composite materials that include the risk assessment, damage
analysis and retrofit design services, which are the key components in seismic
and blast retrofit repairs. The Company is not aware of any firms that offer and
possess the experience and knowledge base that its principals have developed.

         MATERIAL SYSTEMS. Material systems refer to the fabric (carbon, glass,
etc.), the architecture of the weave, the resin system as well as any additives
incorporated in the resin system for mitigating fire, eliminating toxicity and
influencing resin cure. The Company has designed and is marketing a unique
material system that consists of fiber-reinforced polymeric matrix composites
(PMCs). Fiber types can include carbon, aramid and glass. Fiber forms can vary
from tows (yarns) to fabrics with architectures such as weaves, knits and mats.
Matrix materials include thermoset resins such as epoxies, vinylesters and
 .phenolics. These composites, especially carbon-based, exhibit strength/weight
and stiffness/weight ratios which are up to ten times that of the steel commonly
used in the construction industry.

         The Company is also marketing a RETROSHIELD material system that
utilizes PMC's and a unique and affordable high technology method for new
construction called the CARBON SHELL SYSTEM ("CSS"). The Company believes that
RetroShield is capable of handling earthquake-type loads while containing
damaged concrete and steel in civil infrastructures. The Carbon Shell System
combines conventional civil construction and advanced carbon fiber reinforced
polymer matrix composites with concrete to provide a pre-manufactured advanced
composite tube depending on the strength, stiffness and stability requirements
for the structural component. It has application in a variety of common
structural components, including columns, girders and beams.

         APPLICATION METHODS. In the retrofit/repair of existing structures with
composite overlays the application methods begin with a fabric, which is
impregnated with the matrix


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resin on-site and subsequently applied or "wallpapered" to structural elements
(i.e., walls, columns, beams, and/or floor slabs) after surface preparation.
Each "structural wallpaper" layer forms a composite overlay of approximately
0.05 inches (1.2 mm) in thickness. The Company expects to market turnkey
applications for projects under $10 million and in projects over $10 million it
plans to farm-out the application to major construction firms and provide the
management or application oversight, receiving a fee between 10% to 20% of the
total cost of the retrofit/repair project.

         The Company believes that one of its key competitive advantages is due
to the composite material knowledge base that it has accumulated. Although the
ultimate future revenue and cash flow realization of this "knowledge capital" is
uncertain, the Company believes that it is a critical component in the
successful execution of its business strategy.

         With the acquisition of TSC and Anchor and Global Strategic Alliance
with Prime, The Company believes that a significant opportunity exists
nationally and in the Asian Region for growth and profit. The Company expects to
market a wide range of value-priced services/technology directly to commercial
and governmental customers as well as composite overlay solution services to
construction and A&E firms through technology licenses. In addition, the Company
believes that through the focused acquisition and consolidation of niche design
service firms, it could offer an expanded range of service that would enable it
to deploy composite overlay solutions more rapidly and cost-effectively.

COMPETITION

         The use of composite overlays for retrofit and repair of large
structures, including buildings, bridges and highways, is dominated by a number
of larger material supply competitors who are well financed and have well
recognized industry names, and are aggressively competing in the market.
However, these competing companies are primarily focused on the sale of the
material components through supply houses or partnering construction firms.

EMPLOYEES

         As of September 30, 2000, the Company has thirteen full-time and
seven part-time employees. None of the employees are represented by a labor
union, and the Company considers its relations with employees to be good. The
Company also engages consultants from time to time for various services.

                                       8
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RESEARCH & DEVELOPMENT

         Since its inception, the Company's research and development activities
have primarily focused on the following three main areas: (1) advanced composite
overlays for BLAST RETROFITS; (2) COMPOSITE SHELL SYSTEMS (CSS) as structural
stay-in-place forms for new construction; and (3) advanced composite overlays
for SEISMIC RETROFITS, repairs, and upgrades.

         With respect to (1), government field tests (e.g., at White Sands
Missile Range in New Mexico) have demonstrated that composite overlays
constitute an extremely effective and affordable method for protecting primary
structural elements (e.g., columns) against blast threats. As a result, this
technology is under consideration by the Department of State and the Department
of Defense for protection of key foreign and domestic structures.

         With respect to (2), the new CSS technology has reached an operational
stage. The first bridge based on the use of the CSS system (the King's
Stormwater Channel Bridge) was recently completed in California, near the Salton
Sea. This structure serves as an important technology demonstrator.

         With respect to (3), CSI has, with the aid of the acquisition of Anchor
Reinforcements, developed a material system for seismic retrofits, which has
better performance and cost metrics than CSI's previous system. This is expected
to improve current profit margins. In addition to material systems, CSI has
completed PC-based design software, which allows an engineer to rapidly execute
composite overlay designs for the seismic retrofit of key structural elements
such as columns. The Company is currently extending this software to include
retrofit designs for blast loads.

         During the next report period, the Company intends to devote
substantial resources to research and development activities related to
composite overlays, CSS for new construction, material systems, and software
development.

INTELLECTUAL PROPERTY

         The Company owns a unique retrofit design software program for the
seismic loading of structures, which is subject to copyrights. This program is
being expanded to include blast retrofit designs; the expanded program too will
be subject to copyrights. The Company has licensed additional key
retrofit/repair and new construction technology from the University of
California. This license is co-exclusive (see item 12 below). If the third party
license is surrendered or otherwise terminated, the licensor has granted the
Company the right of first negotiations to become the exclusive licensee for
that technology. The University of California has retained the priority rights
to enforce the patent protection against infringements by any third party. The
foregoing licenses are based on two patent applications. One has been granted
(Patent Number 6,003,276 issued December 21, 1999). The other patent application
is under review by the U.S. Patent and Trademark Office.


                                       9
<PAGE>

         The Company intends to rely on patent and copyright protection, to the
extent that such protection is available under applicable law. However, any such
patents and copyrights would not foreclose all possibilities of protection to
that technology. It is possible that certain patent or copyright claims superior
to those of the University of California's currently pending patent, either
within the U.S. or other countries, could impact the Company's rights to the use
of some aspects of the Company's technology.

GOVERNMENTAL AND INDUSTRY REGULATIONS

         Widespread commercialization of certain of the Company's technology
into buildings is necessarily dependent upon building and other code approvals
of a number of the governmental jurisdictions in which sales are to be made.
Local governments which adopt and administer the building codes, generally adopt
the model codes of either the International Conference of Building Officials
(ICBO) with its Uniform Building Code (UBC), or the American Concrete Institute
(ACI), each of which apply primarily to building structures. The Company's
technology is presently acknowledged by ICBO and ACI, through published
acceptance criteria and preliminary guideline documents. No formal approvals of
the technology have been granted to date. Therefore, approval through any
governmental office within the United States will require departmental review in
order to be granted an exemption to the current code. However, such exemptions
are readily allowed for the nature of the work contemplated by the Company. The
Company believes that previous testing, approvals, and technology use, along
with future testing will provide the necessary justification to obtain
approvals. Additionally, the Company intends to contribute aggressively to the
adoption of new codes to include the technology.


ITEM 2.  DESCRIPTION OF PROPERTY

         The Company's executive offices are located at 3655 Nobel Drive, Suite
440, San Diego, CA 92122. The Company, along with Trans-Science Corporation,
leases this office space of approximately 2800 sq. ft. The lease obligation is
for three years, which commenced on November 15, 1999. The lease provides for
monthly payments of approximately $6,912, subject to periodic adjustments for
inflation.

         The Company has recently opened a new East Coast office in Washington,
D.C. (CSI-Washington), located at 15200 Shady Grove Road, Suite 202, Rockville,
Maryland 20850. The area is known as the I-270 Technology Corridor, located
approximately 25 minutes from downtown Washington, D.C.


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         CSI-Washington will market CSI's revolutionary composite technologies
for new and existing civil structures in the eastern United States. In addition,
this office will assist in the coordination of CSI's international programs. It
will interface with the Prime Group of Korea to use CSS for new construction in
Asia, and also with the Department of State (DOS), the Defense Threat Reduction
Agency (DTRA), and the Federal Emergency Management Agency (FEMA) concerning the
blast hardening of US Embassies and other key government structures.

         The newly acquired Anchor Reinforcements is located at 5692 Buckingham
Drive, Huntington, Beach, California 92649, and leases an office and
manufacturing space of approximately 3,000 sq. ft. with monthly payments of
approximately $3,000.

         Anchor Reinforcement owns and operates custom, patented,
state-of-the-art equipment for the fabrication of unidirectional fabrics. This
proprietary equipment blends Remays into the fabric via a proprietary process,
which leads to high quality, low cost fabrics with exceptional drapability
characteristics. The market for such fabrics currently ranges from aerospace -
to recreational - to civil industries.

ITEM 3.  LEGAL PROCEEDINGS

         Neither the Company nor its subsidiaries are the subject of any pending
legal proceeding.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.


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                                     PART II


ITEM 5.  MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS

         The shares of the Company's Common Stock are traded on the OTC Bulletin
Board (Symbol "KIPS"). 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.

         Quarterly Common Stock Price Range (High Low)

         Fiscal year ended September 30, 1999 4th Quarter $0.60 $0.10

         Fiscal year ended September 30, 2000 1st Quarter $5.00 $0.65 2nd
         Quarter $4.90 $0.80 3rd Quarter $3.45 $0.75 4th Quarter $1.00 $0.50

         As of September 30, 2000, there were 12,371,704 shares of Common Stock
outstanding, and there were approximately 59 shareholders 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.
The Company intends to reinvest future earnings in the development and expansion
of its business. 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 OR PLAN OF OPERATION

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


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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.

         The Company's ability to predict projected results or the effect of
certain events on the Company's operating results is inherently uncertain.
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 than those discussed
herein: (1) ability to attract and retain customers to purchase its products and
services, (2) ability to commercialize and market products, (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.

RESULTS OF OPERATIONS

         For the period from inception (October 20, 1997) through September 30,
1999, the Company had no revenues from operations and had no significant
business operations other than organizational and capital raising activities. On
June 30, 1999, as mentioned above, the Company consummated a reverse acquisition
pursuant to which the Company acquired CSI Nevada, a developer of composite
overlay technology for construction. Since that date, the Company's business
activities have consisted of, (1) research and development activities relating
to design software development and development of new material systems, (2)
identification and acquisition of related companies (TSC and Anchor) to enhance
Company's technology base and growth potential, (3) formation of Global
Strategic Alliance With the Prime Group of Korea to expand the Company's markets
in the Asian Region, and (4) marketing of its products and services to potential
customers.

         Some of the benefits of the new acquisitions and alliance have been
discussed in Item 1, above. From a revenue generation standpoint, with the
acquisition of Anchor on August 31, 2000, the Company immediately started to
generate revenues of approximately $45,000 per month. The acquisition of TSC has
allowed the Company to secure a DTRA research and development contract related
to application of composite overlay technology to blast effects on structures
and valued at approximately $288,000 for a performance period of 18 months.

         For the fiscal year ended September 30, 2000, the Company had net loss
of $1,090,715 or $0.09 per share, as compared to a net loss of $574,850 or $0.03
per share for the fiscal year


                                       13
<PAGE>

ended September 30, 1999. Its general and administrative expenses increased from
$143,656 in 1999 to $287,778 in 2000.

LIQUIDITY AND CAPITAL RESOURCES

         The Company operated with modest capital in 2000, as it did in 1999. In
order to meet all of its financial obligations in 2000, the Company relied
heavily on the sale of its Common Stock to generate additional capital. 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 September 28, 2000 the Company issued 300,000 shares of
Common Stock in exchange for services.

         The Company had current assets of $282,597 as of September 30, 2000,
representing an increase of $269,560 over the prior fiscal year ended September
30, 1999. In addition, the Company's property, plant and equipment were valued
at $94,891 as of September 30, 2000, compared to $13,143 in 1999. The Company's
current and long-term liabilities as of September 30, 2000 were $348,260 and
$500,000, respectively.

         In year 2001, the Company intends to devote substantial part of its
financial resources towards the marketing of its products and services to the
construction industry. In order to facilitate such marketing efforts, the
Company expects to seek additional capital through the sale of equity
securities. Also, the Company intends to pursue licensing technologies as a
financing alternative.


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-19.

ITEM 8. CHANGE IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

         As reported in 8-K filing dated June 26, 2000, the Company was advised
on June 23, 2000 by Durland & Company, CPA's of Palm Beach, Florida ("Durland")
and the Company's independent accounting firm that Durland would not stand for
re-election, effectively immediately. During the Company's two most recent
fiscal years and the subsequent interim periods up to the date of declining to
stand for re-election, there were no disagreements on any matters of the
accounting principles or practices, financial statement disclosure, or auditing


                                       14
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scope or procedure which, if not resolved to the satisfaction of Durland, would
have caused Durland to make reference to the matter in its report. Durlands
report on the Company's financial statements for each period for which it
performed an audit of the Company's financial statements contained no adverse
opinion or disclaimer of opinion, nor was modified or qualified as to
uncertainty, audit scope, or accounting principles. The Durland's decision to
not stand for re-election was approved by the Board of Directors of the Company.

         On June 23, 2000, Peterson & Co. of San Diego, California was engaged
as the principal independent accountant to audit the Company's financial
statements. The engagement was approved by the Board of Directors of the
Company.


                                       15
<PAGE>

                                    PART III


ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS


         The Directors and Executive Officers of the Company as of September 30,
2000 are as follows:

         Dr. Gilbert A. Hegemier, Chairman of the Board of Directors since June
         1999
         Mark Olson, Director, President and Chief Operating Officer since
         February 2000
         Donald Nicholson, Director and Chief Executive Officer from June 1999
         to August 2000 WHEN HE RESIGNED.

         The terms of all Directors will expire at the next annual meeting of
the Company's stockholders when their successors are elected and qualified. All
Corporate Officers serve at the pleasure of the Board of Directors.

         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.

         MARK OLSON. Mr. Olson has more than 25 years of marketing experience in
the textile industry worldwide, with special expertise in fiber-reinforced
laminates. He has held positions with companies focused on manufacturing,
domestic and international marketing, and business management and consulting,
where he specialized in mergers, acquisitions and turnarounds of both public and
private textile companies. Mr. Olson served as a division president of a leading
weaving and finishing house in Spain. There, he completed a company turnaround
that included the introduction of new products in the United States, Europe and
Asia.


                                       16
<PAGE>

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

         Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers and directors and persons who own more
than 10% of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission (hereafter referred to as the
"Commission") initial statements of beneficial ownership, reports of changes in
ownership and annual reports concerning their ownership, of Common Stock and
other equity securities of the Company on Forms 3, 4, and 5, respectively.
Executive officers, directors and greater than 10% shareholders are required by
Commission regulations to furnish the Company with copies of all Section 16(a)
reports they file.

         Based solely on review of copies of such reports furnished to the
Company and written representations that no other reports were required during
the fiscal year ended September 30, 2000. The Company believes that all persons
subject to the reporting requirements pursuant to Section 16(a) filed the
required reports on a timely basis with the Commission.

ITEM 10.  EXECUTIVE COMPENSATION

         The following table sets forth information concerning compensation of
the FORMER Chief Executive Officer 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, 2000 and 1999:

         Donald Nicholson, FORMER Chief Executive Officer; 2000 $97,489; 1999
         $29,667
         Mark Olson, President and Chief Operating Officer; 2000 $48,385; 1999
         $0.00
         Dr. Gilbert A. Hegemier, Chairman of the Board of Directors; 2000
         $130,000; 1999 $113,750

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of September 30, 2000, for
(i) each of the Company's directors, (ii) by each of the executive officers
identified in the Summary Compensation Table, (iii) all executive officers and
directors of the Company as a group and (iv) each person who is known by the
Company to beneficially own 5% or more of the outstanding shares of Common
Stock. The Company believes that the persons named in the table have sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws, where
applicable.

         Name Position Shares Owned Percent

         Dr. Gilbert A. Hegemier, Chairman; 3,584,242, 29%


                                       17
<PAGE>

         All Officers and Directors as a Group; 3,709,242, 30%

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS WITH DR. GILBERT HEGEMIER 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 June 1999, the Company entered into a Share Exchange Agreement with
CSI Nevada of which Dr. Gilbert A. Hegemier was the principal shareholder.
Pursuant to that Share Exchange Agreement, the Company acquired 100% of the
outstanding stock of CSI Nevada by issuing 1,000,000 new shares of the Company
to Dr. Hegemier.

         In June 2000, through a Share Exchange Agreement the Company acquired
TSC where Dr. Gilbert A. Hegemier was the Director and CEO and owned
approximately 56% of TSC's privately held Stocks. Pursuant to the Agreement, Dr.
Hegemier received 532,960 shares of the Company's Common Stock in exchange for
his 1,217 shares of TSC.

LICENSES WITH THE UNIVERSITY OF CALIFORNIA

         The University of California is the holder of a patent for the Retrofit
and Repair of Concrete and Masonry Walls from the inventions made in the course
of research by Prof. Gilbert A. Hegemier and his associates. On April 20, 1999,
the Company entered into a License Agreement with the University of California,
San Diego, under which the University granted to the Company a license for that
patent. That document grants the Company a license to use that technology
throughout the world for the life of the patent. In consideration, the Company
paid a licensing fee of $40,000 and is to pay royalty fees of 1.5% of its net
sales revenues. Under the terms of the agreement, the Company must also pay
one-half of all past and future patent costs. The license is co-exclusive with
one other third party licensee. That third party licensee does not have access
to the other ancillary technology, has not recently been active in the
retrofit/repair business and is subject to a default notice by the University.
In the event of a termination of that license, the University has expressed its
willingness to negotiate in good faith with the Company to reach an arrangement
in which the Company would be the exclusive licensee for that technology.


                                       18
<PAGE>

         The University of California has developed certain proprietary
technology for the CARBON SHELL SYSTEM from the inventions made in the course of
research by Prof. Gilbert A. Hegemier and his associates. On August 4, 1999, the
Company entered into a License Agreement with the University of California, San
Diego, under which the University granted to the Company a co-exclusive license
throughout the part of the world the Company designates (after payment of costs)
for that technology. In consideration, the Company paid a licensing fee of
$5,000 and is to pay royalties of 1.5% of its net sales revenues. Under the
terms of the agreement, the Company must also pay one-half of all past and
future patent costs.

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
16.1              Independent Auditor's Report for fiscal year ended
                  September 30, 1999(6).
16.2              Letter on Change in Certifying Account(7)
----------------

(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.


                                       19
<PAGE>

(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
         Independent Auditor's Report as part of the Company's Annual Report
         filed on Form 10KSB, Commission file No. 000-24551, filed on
         January 13, 2000.

(7)      Incorporated by reference to the referenced document related to the
         Change in Certifying Account and filed on Form 8-K, Commission File No.
         000-24551, on June 26, 2000.

(b)      REPORTS ON FORM 8-K.

                  On July 25, 2000, the Company filed a Current Report on Form
         8-K relating to the Company's acquisition of TSC by way of an exchange
         of shares of the Company for all of the shares of TSC.

                  On September 15, 2000, the Company filed a Current Report on
         Form 8-K (amended on September 18, 2000) relating to the Company's
         acquisition of Penultimo, Inc. by way of an exchange of shares of the
         Company for all of the shares of Penultimo.


                                       20
<PAGE>

                                   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.

Date: January 12, 2000

                                            Composite Solutions, Inc.


                                            By: /s/ MARK OLSON
                                                --------------------------------
                                                Mark Olson, President


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

<TABLE>
<CAPTION>

SIGNATURES                          CAPACITY                           DATE
----------                          --------                           ----
<S>                                 <C>                                <C>

/s/ MARK OLSON                      President                          January 12, 2000
---------------------------
Mark Olson


/s/ GILBERT A. HEGEMIER             Chairman of the Board              January 12, 2000
---------------------------
Gilbert A. Hegemier
</TABLE>



                                       21
<PAGE>

                          INDEX TO FINANCIAL STATEMENTS





<TABLE>
<S>                                                                    <C>
Independent Auditor's Report from Peterson & Company                   F-2

Consolidated Balance Sheets                                            F-3

Consolidated Statements of Operations                                  F-4

Consolidated Statements of Stockholders' Equity                        F-5

Consolidated Statements of Cash Flows                                  F-6

Notes to Consolidated  Financial Statements                            F-7
</TABLE>


                                      F-1

<PAGE>

                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders
Composite Solutions, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of Composite
Solutions, Inc. (a development stage company) and Subsidiaries as of September
30, 2000, and the related consolidated statements of operations, 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 audit. The consolidated financial statements of
Composite Solutions, Inc. and Subsidiaries as of September 30, 1999 and 1998,
were audited by other auditors whose report dated December 17, 1999, expressed
an unqualified opinion on those statements.

We conducted our audit in accordance with generally accepted auditing standards.
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 September 30, 2000 consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Composite Solutions, Inc. and Subsidiaries as of September 30, 2000,
and the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.




                                                         PETERSON & CO.


San Diego, California
DECEMBER 22, 2000, except as to the last paragraph of Note 14, as to which
the date is January 12, 2001.


                                      F-2
<PAGE>

                   COMPOSITE SOLUTIONS, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                               SEPTEMBER 30,
                                                                   ----------------------------------------
                                                                       2000           1999          1998
                                                                   -------------   -----------    ---------
<S>                                                                <C>             <C>            <C>
                                          ASSETS

CURRENT ASSETS
  Cash                                                             $      24,930   $     8,811    $     379
  Accounts receivable, net of allowance for doubtful
    accounts of $3,333 in 2000 and $0 in 1999 and 1998                    79,177             -            -
  Related party receivables                                                9,920             -            -
  Inventory                                                              167,001             -            -
  Shareholder note receivable and accrued interest                             -             -       10,263
  Prepaid expenses                                                         1,369         4,226            -
  Prepaid income taxes                                                       200             -            -
                                                                   -------------   -----------    ---------
    Total current assets                                                 282,597        13,037       10,642

PROPERTY, PLANT AND EQUIPMENT, NET                                        94,891        13,143            -

OTHER ASSETS
  Intangible assets                                                    1,546,597       527,661            -
  Deposit                                                                  7,677             -            -
                                                                   -------------   -----------    ---------
    Total assets                                                   $   1,931,762   $   553,841    $  10,642
                                                                   =============   ===========    =========

                           LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
  Bank overdraft                                                   $       1,214   $         -    $       -
  Accounts payable                                                       177,634        90,630            -
  Line of credit                                                          51,494             -            -
  Notes payable                                                           64,500             -            -
  Note payable to officer                                                 24,816             -            -
  Accrued expenses                                                        22,250        17,999        4,500
  Income taxes payable                                                     6,352             -            -
                                                                   -------------   -----------    ---------
    Total current liabilities                                            348,260       108,629        4,500

LONG TERM OBLIGATIONS
  Convertible debenture                                                  500,000             -            -
  Other long term obligations                                                  -        13,773            -
                                                                   -------------   -----------    ---------
    Total liabilities                                                    848,260       122,402        4,500

SHAREHOLDERS' EQUITY
  Preferred stock; $0.0001 par value; 10,000,000
    shares authorized; 0 shares issued and outstanding                         -             -            -
  Common stock; $0.0001 par value; 50,000,000
    shares authorized; 12,371,704, 14,500,000 and
    21,196,410 shares issued and outstanding at
    September 30, 2000, 1999 and 1998, respectively                        1,237         1,450        2,120
  Additional paid in capital                                           2,760,023     1,017,032       16,215
  Accumulated deficit                                                 (1,677,758)     (587,043)     (12,193)
                                                                   -------------   -----------    ---------
    Total shareholders' equity                                         1,083,502       431,439        6,142
                                                                   -------------   -----------    ---------
    Total liabilities and shareholders' equity                     $   1,931,762   $   553,841    $  10,642
                                                                   =============   ===========    =========
</TABLE>


                                      F-3
<PAGE>

                   COMPOSITE SOLUTIONS, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                                                  OCTOBER 20, 1997
                                                                                                     (INCEPTION)
                                                               YEAR ENDED                                TO
                                                              SEPTEMBER 30,                         SEPTEMBER 30,
                                                  ------------------------------------   -----------------------------------
                                                          2000               1999              1998                2000
                                                  ----------------    ----------------   ---------------   -----------------
<S>                                               <C>                 <C>                <C>               <C>
REVENUES                                          $         48,013    $              -   $             -   $          48,013
COST OF SALES                                                9,206                   -                 -               9,206
                                                  ----------------    ----------------   ---------------   -----------------

    Gross profit                                            38,807                   -                 -              38,807

EXPENSES
  Consulting fees                                          277,485              79,000             2,100             358,585
  Depreciation and amortization                             50,592               1,655                 -              52,247
  General and administrative expenses                      287,778             143,656               721             432,155
  Organizational expenses                                        -                 514                 -                 514
  Professional fees - related party                              -              16,249             9,635              25,884
  Professional fees - other                                239,746              12,641                 -             252,387
  Salaries                                                 262,464             320,661                 -             583,125
                                                  ----------------    ----------------   ---------------   -----------------

    Total expenses                                       1,118,065             574,376            12,456           1,704,897
                                                  ----------------    ----------------   ---------------   -----------------

Loss from operations                                    (1,079,258)           (574,376)          (12,456)         (1,666,090)

OTHER INCOME (EXPENSE)
  Interest income                                            2,413               5,686               263               8,362
  Interest income - forgiveness of debt                          -              17,825                 -              17,825
  Gain on forgiveness of debt                                    -               4,861                 -               4,861
  Interest expense                                          (7,518)            (17,825)                -             (25,343)
  Loss on forgiveness of debt                                    -             (11,021)                -             (11,021)
                                                  ----------------    ----------------   ---------------   -----------------

    Total other income (expense)                            (5,105)               (474)              263              (5,316)
                                                  ----------------    ----------------   ---------------   -----------------

Loss before provision for income taxes                  (1,084,363)           (574,850)          (12,193)         (1,671,406)

Provision for income taxes                                   6,352                   -                 -               6,352
                                                  ----------------    ----------------   ---------------   -----------------

NET LOSS                                          $     (1,090,715)   $       (574,850)  $       (12,193)  $      (1,677,758)
                                                  ================    ================   ===============   =================

Basic net loss per share                          $          (0.09)   $          (0.03)  $             -   $           (0.10)
                                                  ================    ================   ===============   =================

Weighted average number of shares                       11,943,406          19,395,182        17,723,194          16,326,140
                                                  ================    ================   ===============   =================
</TABLE>


                                      F-4
<PAGE>

                   COMPOSITE SOLUTIONS, INC. AND SUBSIDIARIES
                         (A Development Stage Company)
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                                      DEFICIT
                                                                                   ACCUMULATED
                                            COMMON STOCK                            DURING THE         TOTAL
                                      --------------------------    ADDITIONAL      DEVELOPMENT     SHAREHOLDERS'
                                         SHARES         AMOUNT    PAID IN CAPITAL       STAGE          EQUITY
                                      ------------   -----------  ---------------  -----------      -------------
<S>                                   <C>            <C>          <C>              <C>              <C>
BALANCE, OCTOBER 20, 1997 (INCEPTION)            -   $         -  $             -  $         -      $          -

Common stock issued in exchange
 for services                           15,233,910         1,521           (2,120)                          (599)
Common Stock issued for cash             5,962,500           599           18,335                         18,934
Net loss                                                                               (12,193)          (12,193)
                                      ------------   -----------  ---------------  -----------      -------------

BALANCE, SEPTEMBER 30, 1998             21,196,410         2,120           16,215      (12,193)            6,142

Common stock contributed                (7,896,410)         (790)             790                              -
Pre-acquisition income                                                                      47                47
Common stock issued in acquisition       1,000,000           100               47          (47)              100
Common stock issued for payment of
 note payable                              200,000            20          999,980                      1,000,000
Net loss                                                                              (574,850)         (574,850)
                                      ------------   -----------  ---------------  -----------      -------------

BALANCE, SEPTEMBER 30, 1999             14,500,000         1,450        1,017,032     (587,043)          431,439

Common stock surrendered                (4,300,000)         (430)             430                              -
Common Stock issued for cash               668,333            67          759,933                        760,000
Pre-acquisition income                                                                  50,877            50,877
Common stock issued in acquisitions      1,103,371           110          808,668      (50,877)          757,901
Common stock issued in exchange for
 services                                  300,000            30          173,970                        174,000
Common stock issued for finder's fee       100,000            10              (10)                             -
Net loss                                                                            (1,090,715)       (1,090,715)
                                      ------------   -----------  ---------------  -----------      -------------

BALANCE, SEPTEMBER 30, 2000             12,371,704   $     1,237  $     2,760,023  $(1,677,758)   $    1,083,502
                                      ============   ===========  ===============  ===========      =============
</TABLE>


                                      F-5
<PAGE>

                   COMPOSITE SOLUTIONS, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                                 OCTOBER 20, 1997
                                                                                                    (INCEPTION)
                                                                    YEAR ENDED                          TO
                                                                   SEPTEMBER 30,                    SEPTEMBER 30,
                                                         -------------------------------  ---------------------------------
                                                               2000            1999           1998             2000
                                                         ---------------  --------------  -------------  ------------------
<S>                                                      <C>              <C>             <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                  $   (1,090,715) $     (574,850) $     (12,193) $       (1,677,758)
Adjustments to reconcile net loss to
  net cash used in operating activities:
    Depreciation and amortization                                 50,592           1,655              -              52,247
    Common stock issued in exchange for services                 174,000               -          2,635             176,635
    Common stock issued in lieu of cash                                -             100              -                 100
    Pre-acquisition income                                             -              47              -                  47
(Increase) decrease in operating assets:
  Accounts receivable                                             15,840               -              -              15,840
  Shareholder accrued interest                                         -             263           (263)                  -
  Inventory                                                       (2,055)              -              -              (2,055)
  Prepaid expenses                                                 2,857          (4,226)             -              (1,369)
  Deposit                                                         (7,677)              -              -              (7,677)
Increase (decrease) in operating liabilities:
  Accounts payable                                                50,319          90,630              -             140,949
  Accrued expenses                                                (8,367)         13,499          4,500               9,632
  Income taxes payable                                             6,352               -              -               6,352
  Long term obligation for accounts payable                      (13,773)         13,773              -                   -
                                                         ---------------  --------------  -------------  ------------------

    Net cash used in operating activities                       (822,627)       (459,109)        (5,321)         (1,287,057)

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of property, plant and equipment                      (12,906)        (14,798)             -             (27,704)
  Acquisition of intangible assets                               (16,899)       (527,661)             -            (544,560)
  Loans made to related party                                          -               -        (10,000)            (10,000)
  Repayments of loans to related party                                 -          10,000              -              10,000
  Acquisition of subsidiaries                                   (500,000)              -              -            (500,000)
  Cash of acquired subsidiaries                                   17,261               -              -              17,261
                                                         ---------------  --------------  -------------  ------------------

    Net cash used in investing activities                       (512,544)       (532,459)       (10,000)         (1,055,003)

CASH FLOWS FROM FINANCING ACTIVITIES
  Bank overdraft                                                   1,214               -              -               1,214
  Increase (decrease) in line of credit                              760               -              -                 760
  Proceeds from note payable to officer                           26,500               -              -              26,500
  Payments of note payable to officer                             (1,684)              -              -              (1,684)
  Proceeds from convertible debenture                            500,000               -              -             500,000
  Proceeds from notes payable                                     64,500       1,000,000              -           1,064,500
  Proceeds from issuance of common stock, net                    760,000               -         15,700             775,700
                                                         ---------------  --------------  -------------  ------------------

    Net cash provided by financing activities                  1,351,290       1,000,000         15,700           2,366,990
                                                         ---------------  --------------  -------------  ------------------

Net increase in cash                                              16,119           8,432            379              24,930

Cash, beginning of period                                          8,811             379              -                   -
                                                         ---------------  --------------  -------------  ------------------

Cash, end of period                                      $        24,930  $        8,811  $         379  $           24,930
                                                         ===============  ==============  =============  ==================

SUPPLEMENTARY DISCLOSURES
  Interest paid                                          $         1,505  $            -  $           -  $            1,505
  Income taxes paid                                      $             -  $            -  $           -  $                -

NON-CASH FINANCING AND INVESTING ACTIVITIES
  Note payable paid by issuance of common stock          $             -  $    1,000,000  $           -  $        1,000,000
  Investment in subsidiary                               $       808,778  $      (12,046) $           -  $          796,732
  Interest on note payable                               $             -  $       17,825  $           -  $           17,825
  Forgiveness of interest on note payable                $             -  $      (17,825)                $          (17,825)
</TABLE>


                                      F-6
<PAGE>

                   COMPOSITE SOLUTIONS, INC. AND SUBSIDIARIES
                         (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         THE COMPANY

         Composite Solutions, Inc. (the "Company"), formerly JS Business Works,
         Inc., was incorporated in the state of Florida on October 20, 1997. The
         Company has three wholly owned subsidiaries: Composite Solutions, Inc.
         was incorporated in the state of Nevada on December 8, 1998,
         Trans-Science Corporation was incorporated in the state of California
         on September 15, 1980, and Penultimo, Inc. dba Anchor Reinforcements
         was incorporated in the state of California on January 13, 1992.
         Composite Solutions Inc. and subsidiaries were organized to develop,
         manufacture and market unique, innovative and affordable 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, 2000 have been principally devoted to raising additional
         capital and negotiating with potential key personnel and leasing
         facilities. There is no assurance that any benefit will result from
         such activities. The Company will continue to incur expenses and losses
         as it pursues its development efforts.

         BASIS OF 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.

         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.

         INVENTORIES

         Inventories are valued at lower of the first-in, first-out (FIFO) cost
         or market.


                                      F-7
<PAGE>

                   COMPOSITE SOLUTIONS, INC. AND SUBSIDIARIES
                         (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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. Intangible assets are recorded at historical
         cost less amortization. Goodwill is amortized on the straight-line
         method based on an estimated useful life of five years. Other
         intangibles are amortized on the straight-line method beginning on the
         date the assets are placed in service, over their estimated useful
         lives. The cost of software has been capitalized in accordance with
         SFAS 86, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD,
         LEASED, OR OTHERWISE MARKETED, and amortization is accounted for at the
         greater of a ratio equal to current revenue divided by estimated future
         gross revenue or on the straight-line method over a period of five
         years.

         REVENUE RECOGNITION

         Revenue from the sale of product is recognized in the financial
         statements when materials are shipped from stock.

         Revenues derived from contracts are accounted for on the
         percentage-of-completion method of accounting. Revenue is recognized
         based on a ratio of the actual cost of work performed to a current
         estimate of the total cost to complete a respective contract.

         Expected profits realized on contracts are based on the difference
         between estimates of total contract revenues and costs of completion.
         These estimates are reviewed and revised periodically throughout the
         contract term, and adjustments to profits resulting from such revisions
         are recorded in the accounting period in which the revisions are made.
         Profits are recognized as the contract phase of the work is completed.
         Losses on contracts are recorded in full as they are identified.


                                      F-8
<PAGE>

                   COMPOSITE SOLUTIONS, INC. AND SUBSIDIARIES
                         (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INCOME TAXES

         The Company accounts for income taxes under SFAS 109, ACCOUNTING FOR
         INCOME TAXES. This statement requires an asset and liability approach
         to account for income taxes. The Company provides deferred income taxes
         for temporary differences that will result in taxable or deductible
         amounts in future years based on the reporting of certain costs in
         different periods for financial and income tax purposes.

         USE OF 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.

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.

NOTE 2 - ACQUISITIONS

         On June 17, 1999 the Company entered into a Share Exchange Agreement.
         On June 30, 1999 according to the terms of the agreement, the Company
         issued 1,000,000 shares of its common stock for all of the shares of
         the outstanding stock of Composite Solutions, Inc. (the "Subsidiary"),
         a Nevada corporation. The exchange of shares has been accounted for as
         a reverse merger, under the purchase method of accounting. Accordingly,
         the combination of Company and the Subsidiary is recorded as a
         recapitalization of the shareholders' equity of the Subsidiary, the
         surviving corporation, and for accounting purposes the financial
         statements presented are those of the Subsidiary.

         On June 23, 2000 the Company entered into a Share Exchange Agreement
         with Trans-Science Corporation, a California corporation and a company
         under common control. On July 7, 2000 the Company completed its
         acquisition. The acquisition, recorded under the purchase method of
         accounting, included the purchase of all of the outstanding shares of
         common stock of Trans-Science Corporation in exchange for 953,371
         shares of the Company's common stock at $0.75 per share which resulted
         in a purchase price of $715,028. The liabilities assumed were in excess
         of the historical cost of the assets acquired at the date of
         acquisition and the total amount of the purchase price was recorded as
         goodwill and is being amortized over five years using the straight-line
         method.


                                      F-9
<PAGE>

                   COMPOSITE SOLUTIONS, INC. AND SUBSIDIARIES
                         (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - ACQUISITIONS (CONTINUED)

         On August 16, 2000 the Company entered into a Share Exchange Agreement
         with Penultimo, Inc. dba Anchor Reinforcements. On August 31, 2000 the
         Company completed the acquisition. The acquisition, recorded under the
         purchase method of accounting, included the purchase of all of the
         outstanding shares of common stock of Penultimo, Inc. in exchange for
         150,000 shares of the Company's common stock at $0.625 per share plus
         $500,000 in cash which resulted in a total purchase price of $593,750.
         A portion of the purchase price has been allocated to assets acquired
         and liabilities assumed based on estimated fair market value at the
         date of acquisition while the balance of $291,050 was recorded as
         goodwill and is being amortized over five years using the straight-line
         method.

         The unaudited pro forma combined results of the Company, Trans-Science
         Corporation, and Penultimo, Inc. dba Anchor Reinforcements as if the
         acquisitions had taken place at the beginning of fiscal years September
         30, 2000, 1999, and 1998 and for the period October 20, 1997
         (inception) to September 30, 2000 is as follows:
<TABLE>
<CAPTION>
                                                                       OCTOBER 20,
                                                                           1997
                                                                      (INCEPTION) TO
                                   SEPTEMBER 30,                       SEPTEMBER 30,
                       -----------------------------------   -----------------------------------
                             2000              1999               1998               2000
                       ----------------   ----------------   ----------------   ----------------
<S>                    <C>                <C>                <C>                <C>
Revenues               $        624,763   $        963,652   $      1,143,572   $      2,731,987
Net loss                       (778,935)          (392,368)            82,037         (1,089,266)
Loss per share-basic              (0.07)             (0.02)                --              (0.07)
</TABLE>

NOTE 3 - INVENTORIES

Inventories consist of the following at September 30, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
                                                     2000              1999            1998
                                             ----------------  ---------------  ----------------
<S>                                          <C>               <C>              <C>
      Raw material                           $        108,055  $            --  $             --
      Work in process                                      --               --                --
      Finished goods                                   58,946               --                --
                                             ----------------  ---------------  ----------------

                                             $        167,001  $            --  $             --
                                             ================  ===============  ================
</TABLE>


                                      F-10
<PAGE>

                   COMPOSITE SOLUTIONS, INC. AND SUBSIDIARIES
                         (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment consist of the following at September 30,
         2000, 1999 and 1998:
<TABLE>
<CAPTION>
                                                             2000              1999            1998
                                                     ----------------  ---------------  ----------------
<S>                                                  <C>               <C>              <C>
              Leasehold improvements                 $          1,407  $            --  $             --
              Office furniture and equipment                  195,056           14,798                --
              Machinery                                        65,902               --                --
                                                     ----------------  ---------------  ----------------
                                                              262,365           14,798                --
              Less accumulated depreciation                  (167,474)          (1,655)               --
                                                     ----------------  ---------------  ----------------

                                                     $         94,891  $        13,143  $             --
                                                     ================  ===============  ================
</TABLE>

         Depreciation expense for the years ended September 30, 2000, and 1999
         was $9,992 and $1,655, respectively, and $11,647 and $0 for the periods
         October 27, 1997 to September 30, 2000 and 1998, respectively.

NOTE 5 - INTANGIBLE ASSETS

         In April 1999 the Company entered into a license agreement with the
         Regents of the University of California San Diego (UCSD) for a license
         under patent rights to make, use, sell, offer for sale, import licensed
         products, practice licensed methods, and to use certain technology. A
         license fee of $40,000 was paid upon execution of the agreement. Under
         the terms of the agreement, the Company must pay to the licensor a
         royalty of 1.5% on net sales of the licensed products. The Company must
         also pay for one half of all past and future patent costs. Payments
         under the license agreement totaled $7,420 and $7,362 for the years
         ended September 30, 2000 and 1999, respectively, and $54,782 and $0 for
         the periods October 20, 1997 (inception) to September 30, 2000 and
         1998, respectively. In addition, the Company is obligated to pay
         certain fees and royalties for any executed sub-license arrangements.
         At September 30, 2000 this intangible asset has not been placed in
         service. Accordingly, there were no such arrangements and no
         amortization expense has been incurred during the period October 20,
         1997 (inception) to September 30, 2000.

         In August 1999 the Company entered into a second license agreement with
         UCSD for a license under patent rights to make, use, sell, offer for
         sale, import licensed products, to practice licensed methods, and to
         use certain technology. A license fee in the amount of $5,000 was paid
         upon execution of the agreement. Under the terms of the agreement, the
         Company must pay to the licensor a royalty of 1.5% on net sales of
         licensed products and certain fees and royalties for any executed
         sub-license agreements. In addition, the Company is obligated to pay
         for one-half of all past and future patent costs. Payments under the
         license agreement totaled $33,354 and $0 for the years ended September
         30, 2000 and 1999, respectively, and $33,354 and $0 for the periods
         October 20, 1997 (inception) to September 30, 2000 and 1998,
         respectively.


                                      F-11
<PAGE>

                   COMPOSITE SOLUTIONS, INC. AND SUBSIDIARIES
                         (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 5 - INTANGIBLE ASSETS (CONTINUED)

     At September 30, 2000, 1999 and 1998 there were past and future patent
     costs payable as follows:
<TABLE>
<CAPTION>
                                                           2000             1999             1998
                                                     ----------------  ---------------  ----------------
<S>                                                  <C>               <C>              <C>
              Included in accounts payable           $         17,445  $        27,547  $             --
              Included in long-term obligations                    --           13,773                --
                                                     ----------------  ---------------  ----------------

                                                     $         17,445  $        41,320  $             --
                                                     ================  ===============  ================
</TABLE>

         In January 1999 the Company acquired certain intangible assets from
         Trans-Science Corporation, a company under common control and
         subsequently acquired on July 7, 2000. Fire test data concerning
         overlay systems in the form of technical reports prepared by an
         independent laboratory in New York performed prior to the Company's
         inception was purchased for cash in the amount of $13,979 from
         Trans-Science Corporation at its cost. At September 30, 2000 these
         intangible assets were not placed in service. Accordingly, there was no
         amortization expense incurred during the period October 20, 1997
         (inception) to September 30, 2000.

         In January 1999 Trans-Science Corporation sold, assigned and
         transferred all of its rights, title and interest in the Earthquake
         Retrofit Design Software to the Company for cash in the amount of
         $330,000. In addition, during the year ended September 30, 1999, the
         Company paid Trans-Science Corporation $90,000 for upgrade services on
         this software. At September 30, 2000 this intangible asset was not
         placed in service. Accordingly, there was no amortization expense
         incurred during the period October 20, 1997 (inception) to September
         30, 2000.

         On July 7, 2000 the Company acquired 100% of the outstanding shares of
         common stock of Trans-Science Corporation, a company under common
         control through July 7, 2000. The Company recorded goodwill in the
         amount of $715,028 representing the excess of the cost to acquire
         Trans-Science Corporation over the historical cost of the net assets
         acquired.

         On August 31, 2000 the Company acquired 100% of the outstanding shares
         of common stock of Penultimo, Inc. dba Anchor Reinforcements. The
         Company recorded goodwill in the amount of $291,050 representing the
         excess of the cost to acquire Penultimo, Inc. over the sum of the
         amounts assigned to identifiable net assets acquired.

         Amortization expense for the years ended September 30, 2000 and 1999
         was $40,600 and $0, respectively, and $40,600 and $0 for the periods
         October 27, 1997 to September 30, 2000 and 1998, respectively.


                                      F-12
<PAGE>

                   COMPOSITE SOLUTIONS, INC. AND SUBSIDIARIES
                         (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6 - SHAREHOLDERS' 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, 2000, 1999 and 1998, 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. In April 1998 the Company issued 646,000 shares of
         common stock under Regulation D offerings in exchange for $18,934 in
         cash, net of offering costs. Also in April 1998 the Company issued
         49,500 shares to its Executive Vice President for the net value of
         services rendered of $2,378. On June 25, 1999 the Company completed a
         9.229876 shares for 1 share forward split. Retroactive effect to this
         split has been given in the accompanying financial statements. On June
         25, 1999 the Company received 7,896,410 shares contributed back to the
         Company. On June 30, 1999 the Company issued 1,000,000 shares to
         acquire 100% of the issued and outstanding common stock of the
         Composite Solutions, Inc., a Nevada corporation. On June 30, 1999 the
         Company issued 200,000 shares in settlement of a note payable with a
         principal balance of $1,000,000 and accrued interest of $17,825.

         In December 1999, a trustee shareholder surrendered 4,300,000 shares,
         which have been canceled. During the period December 1999 to June 2000
         the Company issued 668,333 shares of common stock under a private
         placement in exchange for $760,000 in cash, net of offering costs. On
         July 7, 2000 the Company issued 953,371 shares of common stock valued
         at $715,028 in exchange for 100% of the outstanding shares of common
         stock of Trans-Science Corporation. On August 31, 2000 the Company
         issued 150,000 shares of common stock valued at $93,750 plus $500,000
         in cash in exchange for 100% of the outstanding shares of common stock
         of Penultimo, Inc. dba Anchor Reinforcements. On September 15, 2000 the
         Company issued 100,000 shares of common stock as finder's fees. On
         September 28, 2000 the Company issued 300,000 shares of common stock
         valued at $174,000 in exchange for services. There are 12,371,704,
         14,500,000 and 21,196,410 shares of common stock issued and outstanding
         at September 30, 2000, 1999 and 1998, respectively.


                                      F-13
<PAGE>

                   COMPOSITE SOLUTIONS, INC. AND SUBSIDIARIES
                         (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 7 - LINE OF CREDIT

         The Company has a business secured open line of credit with a bank in
         the amount of $50,000. The line of credit bears interest at the prime
         rate, as published in the WALL STREET JOURNAL, plus 2.5% (12.0% at
         September 30, 2000). At September 30, 2000 there was a balance due in
         the amount of $51,494, including a $250 loan fee and accrued interest.

NOTE 8 - NOTES PAYABLE

         On September 19, 2000 the Company entered into a demand note payable in
         the amount of $44,500, with interest at 12% per annum. At September 30,
         2000 there is a balance due in the amount of $44,500 plus accrued
         interest in the amount of $210.

         On August 29, 2000 the Company entered into a demand note payable in
         the amount of $20,000, with interest at 12% per annum. At September 30,
         2000 there is a balance due in the amount of $20,000 plus accrued
         interest in the amount of $161.

NOTE 9 - LONG TERM OBLIGATIONS

         CONVERTIBLE DEBENTURE

         On August 17, 2000 the Company issued an 8% convertible debenture note
         in the amount of $500,000, which is due on August 17, 2003. Interest at
         the rate of 8% per annum is due on January 1 and July 1 each year until
         the principal amount of the note is paid in full. Interest is
         convertible into shares of common stock at the lesser of the principal
         conversion price or eighty percent (80%) of the average closing bid
         price of the Company's common stock for the five (5) trading days
         immediately prior to the interest due date. Principal is convertible
         into restricted and unrestricted shares of common stock at seventy-five
         cents ($.75) for each restricted share of common stock plus the
         issuance of one unrestricted share of common stock for each two dollars
         ($2) converted. After December 31, 2000 the Company may redeem all or a
         portion of the note by paying all unpaid principal and interest, or
         force conversion at the effective conversion price, subject to the
         performance of the Company's common stock. There is no beneficial
         conversion feature. At September 30, 2000 there is a balance due in the
         amount of $500,000 plus accrued interest in the amount of $4,822.


                                      F-14
<PAGE>

                   COMPOSITE SOLUTIONS, INC. AND SUBSIDIARIES
                         (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 10 - COMMITMENTS

         The Company and subsidiaries lease certain offices, facilities and
         equipment under non-cancelable operating leases. The lease terms end
         between November 2002 and September 2003. Future minimum payments under
         the lease are as follows:
<TABLE>
<S>                                             <C>
                Fiscal Year 2001                $    125,072
                Fiscal Year 2002                     130,237
                Fiscal Year 2003                      23,370
                Fiscal Year 2004                          --
                                                ------------
                                                $    278,679
                                                ============
</TABLE>

         Rental expense was $70,731 and $37,800 for the years ended September
         30, 2000 and 1999, respectively, and was $108,531 and $0 for the
         periods October 27, 1997 to September 30, 2000 and 1998, respectively.

NOTE 11 - EARNINGS PER SHARE

         The computations of basic and diluted earnings per share from
         continuing operations for the years ended September 30, 2000 and 1999,
         and the periods October 27, 1997 (inception) to September 30, 2000 and
         1998 were as follows:
<TABLE>
<CAPTION>
                                                                                 OCTOBER 20,
                                                                                     1997
                                                                                (INCEPTION) TO
                                             SEPTEMBER 30,                       SEPTEMBER 30,
                                 -----------------------------------   -----------------------------------
                                       2000              1999               1998               2000
                                 ----------------   ----------------   ----------------   ----------------
<S>                              <C>                <C>                <C>                <C>
         Loss per share-basic
         Numerator:
         Net loss                $     (1,090,715)  $       (574,850)  $        (12,193)  $    (1,677,758)

         Denominator:
         Weighted average
          number of shares             11,943,406         19,395,182         17,723,194        16,326,140
                                 ----------------   ----------------   ----------------   ----------------
         Loss per share-basic    $          (0.09)  $          (0.03)  $          (-.--)  $         (0.10)
                                 ================   ================   ================   ================
</TABLE>


                                      F-15
<PAGE>

                   COMPOSITE SOLUTIONS, INC. AND SUBSIDIARIES
                         (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12 - INCOME TAXES

         Net deferred tax assets at September 30, 2000, 1999 and 1998 were
         approximately $775,000, $269,600 and $5,600, respectively, which
         represent the amount of tax benefits of start-up, organization and
         syndication costs. The Company has established a valuation allowance
         against these net deferred tax assets because it is more than likely
         that the deferred tax benefits will not be utilized.


NOTE 13 - RELATED PARTY TRANSACTIONS

         INTANGIBLE ASSETS

         In January 1999 the Company acquired certain intangible assets from
         Trans-Science Corporation, a company under common control through July
         7, 2000. Also in January 1999, Trans-Science Corporation sold, assigned
         and transferred all of its rights, title and interest in the Earthquake
         Retrofit Design Software to the Company.

         STOCK-BASED COMPENSATION

         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. Also in April 1998 the Company issued
         49,500 shares to its Executive Vice President for services.

         ADVANCES

         In June 1999 the Company advanced funds in the amount of $4,950 to an
         officer of the Company for certain moving expenses. At September 30,
         1999, the amount was repaid. At September 30, 1999, the Company owed
         certain of its officers a total of $2,179 for reimbursement of certain
         Company related expenses. At September 30, 2000, the amount was repaid.

         NOTE PAYABLE

         On February 24, 2000 the Company issued an unsecured promissory note to
         borrow up to $75,000 from a director. The note bears an interest rate
         of 7% per annum on the outstanding advances. The note is due on demand,
         but not before September 1, 2000.

         On February 14, 2000 the director advanced the Company $25,000. The
         principal plus interest of $243 was paid in April 2000.


                                      F-16
<PAGE>

                   COMPOSITE SOLUTIONS, INC. AND SUBSIDIARIES
                         (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 13 - RELATED PARTY TRANSACTIONS (CONTINUED)

         NOTE PAYABLE (CONTINUED)

         On July 20, 2000 the director advanced the Company $25,000. On August
         18, 2000 the director advanced the Company an additional $1,316 and the
         Company repaid $1,500. At September 30, 2000 there are advances
         outstanding on the promissory note in the amount of $24,816 with
         accrued interest in the amount of $292.

         OFFICE LEASE AND OFFICE EXPENSES

         In January 1999, the Company began sharing office space and certain
         related expenses with Trans-Science Corporation, a company under common
         control through July 7, 2000. The Company remitted their portion of the
         lease payment directly to an independent lessor. Rent expense was
         $53,907 for the period October 1, 1999 to July 7, 2000, $37,800 for the
         year ended September 30, 1999 and $91,707 and $0 for the periods
         October 20, 1997 (inception) to July 7, 2000 and September 30, 1998,
         respectively. Total payments to Trans-Science Corporation for office
         expenses were $4,432 for the period October 1, 1999 to July 7, 2000,
         $2,734 for the year ended September 30, 1999 and $7,166 and $0 for the
         periods October 20, 1997 (inception) to July 7, 2000 and September 30,
         1998, respectively. At September 30, 1999, the Company owed
         Trans-Science Corporation a total of $730 for utilities. At July 7,
         2000 the amount was repaid. On July 7, 2000 the Company purchased 100%
         of the shares of outstanding common stock of Trans-Science Corporation
         and at September 30, 2000 and for the period July 8, 2000 to September
         30, 2000 all significant inter-company transactions have been
         eliminated in consolidation.

         AGREEMENTS

         In October 1999, the Company entered into a consulting agreement with a
         shareholder for management, marketing and technical services. Under the
         terms of the agreement, for the year ended September 30, 2000 the
         Company made payments of $130,000 for management consulting services.

         In July 2000, the Company entered into a consulting agreement with an
         officer for management and technical services. Under the terms of the
         agreement, for the year ended September 30, 2000 the Company made
         payments of $24,900 for management consulting services.


                                      F-17
<PAGE>

                   COMPOSITE SOLUTIONS, INC. AND SUBSIDIARIES
                         (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 14 - SUBSEQUENT EVENTS

         GLOBAL ALLIANCE AND SUBSCRIPTION AGREEMENT

         On December 7, 2000 the Company entered into a Global Alliance
         Agreement with The Prime Group located in Seoul, Korea. According to
         the terms of the Agreement, the Company will receive a 15% equity
         position in The Prime Group. In addition, The Prime Group entered into
         a Subscription Agreement to purchase between 4,166,667 to 5,000,000
         shares of the Company's common stock for cash in the amount of
         $2,000,000. The first 2,500,000 shares of common stock will be issued
         quarterly at $0.40 per share for a total of $1,000,000. An additional
         2,500,000 shares of common stock will be issued at $0.40 per share if
         payment is received by May 31, 2001 or an additional 1,666,667 will be
         issued at $0.60 per share if payment is received after May 31, 2001.
         The first quarterly payment in the amount of $250,000 was received in
         December 2000. The Prime Group has an option to purchase 1,000,000
         shares of common stock between October 31, 2001 to October 31, 2003 at
         an exercise price equal to 35% of the fair value of the shares issued.

         STOCK-BASED COMPENSATION

         On October 24, 2000 the Company issued 99,079 shares of common stock to
         employees at $0.20 per share as compensation in the amount of $19,816.
         The Company accounts for stock-based compensation using the intrinsic
         value based method prescribed by APB 25, ACCOUNTING FOR STOCK ISSUED TO
         EMPLOYEES, under which additional compensation cost for stock options
         is recognized for the stock option awards granted below fair market
         value. Accordingly, the Company recognized additional compensation
         expense of $29,724.

         COMMON STOCK ISSUED

         On October 24, 2000 the Company issued 175,000 shares of common stock
         at $0.20 per share for cash in the amount of $35,000.

         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.

         In October 2000 the Company issued options to purchase 10,000 shares of
         common stock at an exercise price $0.40 per share. The stock options
         vest over a one-year period.


                                      F-18
<PAGE>

                   COMPOSITE SOLUTIONS, INC. AND SUBSIDIARIES
                         (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 14 - SUBSEQUENT EVENTS (CONTINUED)

NOTE PAYABLE

On November 2, 2000 the Company entered into a demand note payable in the amount
of $20,000, with interest at 12% per annum.

SUBCONTRACT

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


                                      F-19