<PAGE>
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JUNE 30, 2000
[ ] TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (No Fee Required)
Commission File No. 000-24551
COMPOSITE SOLUTIONS, INC.
(Name of Small Business Issuer in its Charter)
FLORIDA 65-0790758
------------------------------ ------------------
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
3655 NOBEL DRIVE, SUITE 440, SAN DIEGO, CALIFORNIA 92122
-------------------------------------------------- --------
Address of principal executive office Zip Code
Issuer's telephone number: (858) 459-4843
--------------------------------------------------------------------------------
Former name and address, if changed since last report
Check whether the issuer has (1) filed all reports required by Section 13 or
15(d) of the Exchange Act during the past 12 months, and (2) been subject to
such filing requirements for the past ninety (90) days. Yes /X/ No / /
As of JUNE 30, 2000 10,868,333 SHARES OF COMMON STOCK THE ISSUER HAD
OUTSTANDING.
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited financial statement contain information
regarding the results of operations and balance sheet of Composite
Solutions, Inc. a Florida corporation formerly known
As JS Business Works, Inc., for the quarterly period ended as
of June 30, 2000.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Unaudited Balance Sheet for the quarterly period ended June 30, 2000............F-2
Unaudited Statements of Operations for the Nine Months Ended June 30, 2000
and 1999 and period from inception to June 30, 2000............................F-3
Unaudited Statements of Changes in Stockholders' Equity ........................F-4
Unaudited Statements of Cash Flows for the Nine Months Ended June 30, 2000
and 1999 and period from inception to June 30, 2000............................F-5
Notes to Financial Statements...................................................F-6
</TABLE>
F-1
<PAGE>
COMPOSITE SOLUTIONS, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETs
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 68,808 $ 8,811
Accounts receivable, net of allowance for doubtful accounts
of $0 at June 30, 2000 and September 30, 1999 2,513 -
Other receivables - related party 5,151 -
Prepaid expenses 7,420 4,226
Deposits 8,627 -
----------- ----------
Total current assets 92,519 13,037
----------- ----------
PROPERTY AND EQUIPMENT
Telephone equipment 6,855 -
Computer equipment 20,897 14,798
Less: Accumulated depreciation (6,580) (1,655)
----------- ----------
Property and equipment, net 21,172 13,143
----------- ----------
INTANGIBLE ASSETS
Technical licenses 106,152 93,682
Fire Test Data 13,979 13,979
Software - related party 420,000 420,000
----------- ----------
Total intangible assets 540,131 527,661
----------- ----------
Total Assets $ 653,822 $ 553,841
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 53,143 $ 90,630
Income taxes payable 800 -
Accrued payroll and related liabilities 16,930 17,999
----------- ----------
Total current liabilities 70,873 108,629
----------- ----------
LONG-TERM OBLIGATIONS - 13,773
----------- ----------
Total Liabilities 70,873 122,402
----------- ----------
SHAREHOLDERS' EQUITY
Preferred stock, $0.001 par value, authorized 10,000,000
shares, 0 issued and outstanding - -
Common stock, $0.001 par value, authorized 50,000,000
shares, issued and outstanding 10,868,333 at
June 30, 2000 and 14,500,000 at September 30, 1999 1,087 1,450
Additional paid-in capital 1,765,202 1,004,839
Deficit accumulated during the development stage (1,183,340) (574,850)
----------- ----------
Total Shareholders' Equity 582,949 431,439
----------- ----------
Total Liabilities and Shareholders' Equity $ 635,822 $ 553,841
=========== ==========
</TABLE>
See accompanying notes and accountants' report.
F-2
<PAGE>
COMPOSITE SOLUTIONS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended October 20,1997
June 30, June 30, (Inception) to
2000 1999 June 30, 2000
------------ ------------ ----------------
<S> <C> <C> <C>
REVENUES $ 2,513 $ - $ 2,513
COST OF SALES 1,439 - 1,439
----------- ----------- -----------
Gross Profit 1,074 - 1,074
EXPENSES
Consulting fees 188,291 41,000 269,391
Depreciation 4,925 530 6,580
General and administrative expenses 184,963 96,224 329,340
Organizational fees - - 514
Professional fees - related party - - 25,884
Professional fees - other 33,232 - 45,873
Salaries - employees 199,468 174,473 520,129
----------- ----------- -----------
Total Expenses 610,879 312,227 1,197,711
----------- ----------- -----------
Loss from operations (609,805) (312,227) (1,196,637)
OTHER INCOME (EXPENSE)
Interest income 2,376 3,875 8,325
Interest expense (261) (17,825) (18,086)
Gain on forgiveness of debt - - 4,861
Interest income - forgiveness of note - - 17,825
Loss on forgiveness of debt - - (11,021)
----------- ----------- -----------
Total other income (expense) 2,115 (13,950) 1,904
----------- ----------- -----------
Loss before provision for income taxes (607,690) (326,177) (1,194,733)
Provision for income taxes 800 - 800
----------- ----------- -----------
NET LOSS $ (608,490) $ (326,177) $(1,195,533)
=========== =========== ===========
Basic net loss per weighted average share $ (0.06) $ (0.02)
=========== ===========
Weighted average number of shares 10,783,333 14,500,000
=========== ===========
</TABLE>
See accompanying notes and accountants'report.
F-3
<PAGE>
COMPOSITE SOLUTIONS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE TOTAL
----------------------- PAID-IN DEVELOPMENT SHAREHOLDERS'
SHARES AMOUNT CAPITAL STAGE EQUITY
---------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 20, 1997 - $ - $ - $ - $ -
Common stock issued in exchange for services 14,777,031 1,476 (4,453) - (2,977)
Common stock issued for cash 5,962,500 599 18,335 - 18,934
Common stock issued for services rendered 456,879 45 2,333 - 2,378
Common stock contributed (7,896,410) (790) 790 - -
Pre-acquisition income - - - 47 47
Common stock issued in acquisition 1,000,000 100 (12,146) 12,146 100
Common stock issued for payment of note payable 200,000 20 999,980 - 1,000,000
Net loss - - - (338,370) (338,370)
---------- ------ ---------- ----------- ----------
BALANCE, JUNE 30, 1999 14,500,000 1,450 1,004,839 (326,177) 680,112
Net Loss - - - (248,673) (248,673)
---------- ------ ---------- ----------- ----------
BALANCE, SEPTEMBER 30, 1999 14,500,000 1,450 1,004,839 (574,850) $ 431,439
Shares of common stock surrendered (4,300,000) (430) 430 - -
Common stock issued in private placement,
net of offering costs 668,333 67 759,993 - 760,000
Net loss - - - (608,490) (608,490)
---------- ------ ---------- ----------- ----------
BALANCE, JUNE 30, 2000 10,868,333 $1,087 $1,765,202 $(1,183,340) $ 582,949
========== ====== ========== =========== ==========
</TABLE>
See accompanying notes and accountants'report.
F-4
<PAGE>
COMPOSITE SOLUTIONS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
October 20,
Nine Months Nine Months 1997
Ended Ended (Inception) to
June 30, June 30, June 30,
2000 1999 2000
------------ ------------ --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(608,490) $ (326,177) $(1,195,533)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 4,925 530 6,580
Stock issued for services - - 2,635
Stock issued in lieu of cash - 100 100
Pre-acquisition income - - 47
(Increase) decrease in operating assets
Accounts receivable (2,513) - (2,513)
Other receivable - related party (5,151) - (5,151)
Prepaid expense (3,194) (6,761) (7,420)
Deposits and other assets (8,627) (4,950) (8,627)
Increase (decrease) in operating liabilities
Accounts payable (51,260) 23,147 53,143
Accrued payroll and related liabilities (1,069) 25,828 16,930
Other accrued liabilities 800 17,825 800
--------- ---------- -----------
Net cash used in operating activities (674,579) (270,458) (1,139,009)
--------- ---------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment (12,954) (9,096) (27,752)
Acquisition of intangible assets (12,470) (440,753) (540,131)
--------- ---------- -----------
Net cash used in investing activities (25,424) (449,849) (567,883)
--------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net 760,000 - 775,700
Proceeds from unsecured loan 25,000 - 25,000
Payments of unsecured loan (25,000) - (25,000)
Proceeds from note payable - 1,000,000 1,000,000
--------- ---------- -----------
Net cash provided by financing activities 760,000 1,000,000 1,775,700
--------- ---------- -----------
Net increase in cash 59,597 279,693 68,808
Cash, beginning of period 8,811 - -
--------- ---------- -----------
Cash, end of period $ 68,808 $ 279,693 $ 68,808
========= ========== ===========
SUPPLEMENTAL DISCLOSURES
Interest paid $ 243 $ - $ 243
========= ========== ===========
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 $ - $ (12,046) $ (12,046)
========= ========== ===========
Interest on note payable $ - $ 17,825 $ 17,825
========= ========== ===========
Forgiveness of interest on note payable $ - $ (17,825) $ (17,825)
========= ========== ===========
</TABLE>
See accompanying notes and accountants'report.
F-5
<PAGE>
COMPOSITE SOLUTIONS, INC.
(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.
Composite Solutions, Inc. (the "Subsidiary") was incorporated in the
state of Nevada on December 8, 1998. On June 30, 1999 the Subsidiary's
shareholders exchanged all of their shares of common stock for shares
in Company. The Company was organized to market unique, innovative,
and affordable high technology products and processed in key areas of
existing and new construction.
The Company is in the development stage and its efforts through June
30, 200 have been principally devoted to raising additional capital
and negotiating with potential key personnel and facilities. There is
no assurance that any benefit will result from such activities. The
Company will not receive any operating revenues until the commencement
of operations, but will nevertheless 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 subsidiary. All significant intercompany
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The presentation of consolidated 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.
START-UP COSTS
Costs of start-up activities, including organization costs, are
expensed as incurred, in accordance with Statement of Position (SOP)
98-5.
NET INCOME (LOSS) PER SHARE
Basic loss per share is computed by dividing the net income (loss) by
the weighted average number of common shares outstanding during the
period.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less depreciation.
Depreciation is accounted for on the straight-line method based on the
estimated useful lives of the related asset. 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.
Depreciation expense was $4,925 and $530 for the nine months ended
June 30, 2000 and 1999, respectively and $6,580 for the period October
20, 1997 (inception) to June 30, 2000.
F-6
<PAGE>
COMPOSITE SOLUTIONS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INTANGIBLE ASSETS
Intangible assets are recorded at historical cost less amortization.
Amortization is accounted for on the straight-line method, beginning
on the date the assets are placed in service, over their estimated
useful lives. The cost of software intended to be sold or licensed to
others has been capitalized in accordance with Statement of Financial
Accounting Standards No. 86, and amortization is accounted for at the
greater of a ratio equal to current revenue divided by estimated
future gross revenue or the straight-line method.
REVENUE RECOGNITION
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. Estimated costs and earnings in excess of billings on
uncompleted contracts comprise revenues recognized on contract for
which billings have not been presented. Expected revenues are billed
and collected generally within one year. Billings in excess of
estimated costs and earnings on uncompleted contracts represent
amounts that have been billed to customers for which related costs
have not been incurred or revenue recognized.
INTERIM FINANCIAL INFORMATION
The financial statements for the nine months ended June 30, 2000 and
1999 are unaudited and include all adjustments which in the opinion of
management are necessary for fair presentation, and such adjustments
are of a normal and recurring nature. The results for the nine months
are not indicative of a full year results.
INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". This
statement requires an asset and liability approach to account for
income taxes. The Company provides deferred income taxes for temporary
differences that will result in taxable or deductible amounts in
future years based on the reporting of certain costs in different
periods for financial and income tax purposes.
NOTE 2 - ACQUISITIONS
On June 17, 1999, the Company entered into a Share Exchange Agreement
with the Subsidiary. On June 30, 1999, the Company issued 1,000,000
shares of its common stock for all of the shares of the outstanding
stock of the Subsidiary. This exchange of shares has been accounted
for as a reverse merger, under the purchase method of accounting.
Accordingly, the combination of Company and 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.
F-7
<PAGE>
COMPOSITE SOLUTIONS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - 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 use technology. A
license fee of $40,000 was paid upon execution of the agreement. Under
certain 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 $6,663 and $46,774 for
the nine months ended June 30, 2000 and 1999, respectively and a total
of $54,025 for the period October 20, 1997 (inception) to June 30,
2000. In addition, the Company is obligated to pay certain fees and
royalties for any executed sub-license arrangements. As of June 30,
2000, there were no such arrangements.
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, and import licensed products, to practice licensed methods
and to use 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 $32,496 and $0 for the nine months ended
June 30, 2000 and 1999, respectively and a total of $37,496 for the
period October 20, 1997 (inception) to June 30, 2000. At June 30, 2000
and September 30, 1999, there were past and future patent costs
payable as follows:
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Included in accounts payable $14,631 $27,547
Included in long-term obligation - 13,773
------- -------
$14,631 $41,320
======= =======
</TABLE>
In January 1999, the Company acquired certain intangible assets from
Trans-Science Corporation (TSC), a company under common control. 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 from TSC, at it's cost, for the
amount of $13,979.
Also, in January 1999, TSC sold, assigned and transferred all of its
rights, title and interest in the Earthquake Retrofit Design Software
to the Company for cash in the amount of $330,000. In addition, during
the nine month period ended June 30, 1999, the Company paid TSC
$90,000 for upgrade services on this software.
At June 30, 2000, no intangible assets were placed in service.
Accordingly, there was no amortization expense incurred during the
period October 20, 1997 (inception) to June 30, 2000.
NOTE 4 - STOCKHOLDERS' EQUITY
PREFERRED STOCK
The company has authorized the issuance of ten million (10,000,000)
shares of preferred stock, having one hundredth of a cent ($.0001) par
value per share. The Board of Directors of the Company has discretion
to determine the rights, preferences, and privileges of this preferred
stock. There are no shares of preferred stock issued and outstanding
at June 30, 2000 and September 30, 1999, respectively.
F-8
<PAGE>
COMPOSITE SOLUTIONS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - STOCKHOLDERS' EQUITY (Continued)
COMMON STOCK
The Company has authorized fifty million (50,000,000) shares of common
stock, having one hundredth of a cent ($.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 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 Subsidiary. On June 30,
1999, the Company issued 200,000 shares in settlement of its
Subsidiary's 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. There are 10,868,333 and 14,500,000
shares of common stock issued and outstanding at June 30, 2000 and
September 30, 1999, respectively.
NOTE 5 -COMMITMENTS
In November 1999, the Company and TSC, a company under common control,
entered into an operating lease for its offices. The lease term ends
November 2002. Future minimum payments under the lease are as follows:
<TABLE>
<CAPTION>
<S> <C>
Fiscal Year 2000 $ 18,144
Fiscal Year 2001 85,367
Fiscal Year 2002 88,013
Fiscal Year 2003 14,746
--------
$206,151
========
</TABLE>
Rental expense for the nine months ended June 30, 2000 and 1999 were
$44,208 and $25,200, respectively.
NOTE 6 - INCOME TAXES
At June 30, 2000 the Company has a net operating loss carry-forward
for income tax purposes of approximately $1,200,000 which expires
through the year 2020.
Net deferred tax assets at June 30, 2000 and September 30, 1999 were
approximately $453,000 and $221,000, respectively, which represent the
amount of tax benefits of the loss carry-forwards. The Company has
established a valuation allowance against this net deferred tax assets
because it is more than likely that the deferred tax benefits will not
be utilized.
F-9
<PAGE>
COMPOSITE SOLUTIONS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - RELATED PARTY TRANSACTIONS
In January 1999, the Company acquired certain intangible assets from
Trans-Science Corporation (TSC), a company under common control. Also,
in January 1999, TSC sold, assigned and transferred all of its rights,
title and interest in the Earthquake Retrofit Design Software to the
Company. See Note 3.
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. See Note
4.
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 June 30, 2000, the amount was repaid.
In January 1999, the Company began sharing office space and certain
related expenses with TSC, a company under common control. The Company
remits their portion of the lease payment directly to an independent
lessor. Rent expense was $44,208 and $25,200 for the nine months ended
June 30, 2000 and 1999, respectively and $82,008 for the period
October 20, 1997 (inception) to June 30, 2000. Total payments to TSC
for office expenses was $3,804 and $959 for the nine months ended June
30, 2000 and 1999, respectively and $6,538 for the period October 20,
1997 (inception) to June 30, 2000. At September 30, 1999, the Company
owed TSC a total of $730 for utilities. At June 30, 2000, the amount
was repaid. At June 30, 2000, TSC owed the Company a total of $5,151
for office expenses.
In October 1999, the Company entered into a consulting agreement with
a shareholder for management, marketing and technical services. During
the nine months ended June 30, 2000, the Company made payments of
$129,000 to a shareholder and a member of the board of directors for
management consulting services.
On February 14, 2000, the Company issued a promissory note in exchange
for an unsecured loan of $25,000 from a director. The note bears an
interest rate of 7%. The principal plus interest of $243 was paid in
April 2000.
NOTE 8 - GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The
Company's financial position and operating results raise substantial
doubt about the Company's ability to continue as a going concern, as
reflected by the net loss of $1,195,533 accumulated from October 20,
1997 (inception) to June 30, 2000. The ability of the Company to
continue as a going concern is dependent upon commencing operations,
developing sales and obtaining additional capital and financing. The
consolidated financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going
concern. The Company is currently seeking additional capital to allow
it to begin its planned operations.
In October 1999, the Company began efforts to raise $2,000,000 through
a private placement limited offering of 2,000,000 shares of common
stock priced at $1.00 per share. The private placement was closed on
February 27, 2000 after raising $425,000 net of offering costs. On
March 10, 2000, the Company created a new private placement offering
300,000 shares of common stock at $1.50 per share. The private
placement was closed on May 22, 2000 after raising $335,000 net of
offering costs.
F-10
<PAGE>
COMPOSITE SOLUTIONS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - SUBSEQUENT EVENTS
ACQUISITION
On July 14, 2000 the Company entered into a Share Exchange Agreement
with the shareholders of Trans-Science Corporation (TSC), a company
under common control. The Company will acquire 100% of the issued and
outstanding shares of TSC in exchange for 953,371 shares of common
stock of the Company. TSC specializes in the development of computer
simulation programs, sophisticated design analysis related to complex
structures, and in the development of design software for the use of
advanced composite materials.
LETTERS OF INTENT TO ACQUIRE
On June 29, 2000, the Company entered into a Letter of Intent to
acquire a company that manufactures non-woven unidirectional fabrics,
comprised of carbon, aramid and/or glass fibers. The manufacturing
company would become a wholly owned subsidiary of the Company upon
finalization of the acquisition.
On July 6, 2000, the Company signed a Letter of Intent to acquire a
consulting engineering firm that provides civil and structural
engineering services, including earthquake engineering and engineering
related to the effects of explosions.
F-11
<PAGE>
ITEM 2. PLAN OF OPERATION
In June 2000 The company booked revenues of about $2000 from 2 small
projects. For the first project, the company performed engineering design and
field inspection services for general contractor Ace Restoration, as part of a
$12,000 seismic upgrade of a City of Inglewood, California parking garage. The
interior columns of the garage were strengthened by wrapping them with carbon
fiber sheets, thereby enhancing their seismic resistance. For the second project
the company supplied and installed a carbon strengthening system to a concrete
ramp at the Waikiki Sand Villa Hotel in Honolulu, Hawaii. The subcontract was
part of a $300,000 hotel renovation that required modifications to the structure
for compliance with current legislation associated with the Americans with
Disabilities Act.
On June 30, 1999, the Company consummated a reverse acquisition pursuant to
which the Company acquired Composite Solutions, Inc., a Nevada corporation ("CSI
Nevada"), a developer of certain construction technology described below. Since
the date of such acquisition, the Company's business activities have consisted
of research and development and marketing activities relating to the development
of the Company's construction technology and services.
Utilizing the technology of CSI - Nevada Company, the Company intends to
complete CSI - Nevada's development an affordable high-technology method for the
retrofit/repair of buildings and other structures. This technology is based upon
the application of a composite material that is layered over existing surfaces.
This "composite overlay" is designed to be applied to key areas of buildings and
other structures to repair damage or to add structural integrity. The Company
believes that the simplicity of the overlay applications, and the reduced cost
and time to apply such applications have the potential to revolutionize the way
retrofit/repairs are done and will provide a solution to many structures that
would have otherwise been torn down or rebuilt completely. This overlay, which
is created by impregnating a carbon or glass fabric with a chemical resin and
"wallpapering" this combination to a structural surface, is appropriate for
concrete, masonry and wood, and can be used to accomplish a variety of
structural objectives including: earthquake retrofit and damage repair, defect
repair, load capacity increase, and structural hardening to protect against bomb
blasts.
Subsequent to the end of the Third Quarter, the Company acquired control of
Trans-Science Corporation (TSC) as reported in the 8K filing dated July 14,
2000. This acquisition will allow the Company to participate in the Defense
Threat Reduction Agency program to mitigate damage to US installations from bomb
blast. The protection of the structural elements of installations such as
embassies can be accomplished by the use of composite materials.
Also, during the Third Quarter the Company entered into detailed
negotiation to acquire the assets and business of Anchor Reinforcements, Inc.
(Anchor). Anchor manufactures various types of fabric from glass carbon, and
aramid fibers. By having its own "custom" fabrics made from specific composite
materials, the Company will be better able to compete for projects in the
repair/retrofit category, as well as for projects involving blast mitigation.
The Company intends to market a method for new construction, called the
Carbon Shell System ("CSS"). CSS combines conventional civil construction
techniques and advanced carbon fiber reinforced polymer matrix composites to
provide a pre-manufactured advanced composite tube which is filled with concrete
depending on the strength, stiffness and stability requirements for the
structural component. In CSS, the carbon shells are joined and filled with
concrete on site. The lightweight tubes will allow for rapid field construction
without the need for heavy lifting equipment. This, as well as the lack of
cumbersome rebar cages, offers the potential for reduced construction costs and
time. The Company believes CSS is applicable for a variety of common structural
components, including columns, girders and beams.
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In 2000, the Company has continued the development of its technology and
has started the marketing of its technology and services to the construction
industry. The two projects mentioned above are examples of such services. In
order to facilitate such marketing efforts, the Company expects to seek
additional capital through the sale of debt or equity securities or a
combination thereof. The Company may also seek to add more sales and marketing
personnel in order to accelerate the marketing of its products and services.
The Company's financial position and operating results raise substantial
doubt about its ability to continue as a going concern, as reflected by the net
losses accumulated from inception through June 30, 2000. The Company currently
does not have sufficient capital resources to effectively pursue its plan of
operation or continue its operations over the next twelve months. The ability of
the Company to continue as a going concern will be dependent upon obtaining
additional capital and financing in order to support its marketing and sales
activities. The Company is currently seeking additional capital to allow it to
implement its business plan. However, no assurances can be given that the
Company will be successful in raising such additional capital or other financing
or that the Company will be successful in implementing its business plan even if
adequate financing is obtained.
To the extent that the Company is successful in its financing activities,
the Company intends to devote substantially all of its financial resources
towards the continued development and marketing of its technology and services
to the construction industry. Capital will also be used for corporate and
administrative expenses and general working capital.
FORWARD-LOOKING STATEMENTS
When included in this Quarterly Report on Form 10-QSB, the words "expects,"
"intends," "anticipates," "plans," "projects" and "estimates," and analogous or
similar expressions are intended to identify forward-looking statements. Such
statements, which include statements contained in Item 2 hereof, are inherently
subject to a variety of risks and uncertainties that could cause actual results
to differ materially from those reflected in such forward-looking statements.
For a discussion of certain of such risks, see the subsection of Item 1 entitled
"Risk Factors" in the Annual Report 10KSB for September 30, 1999.
These forward-looking statements speak only as of the date of this
Quarterly Report on Form 10-QSB. The Company expressly disclaims any obligation
or undertaking to release publicly any updates or revisions to any
forward-looking statement contained herein to reflect any change in the
Company's expectations with regard thereto or any change in events, conditions
or circumstances on which any such statement is based.
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PART II
ITEM 1. LEGAL PROCEEDINGS.
The Company knows of no legal proceedings to which it is a party or to
which any of its property is the subject which are pending, threatened or
contemplated or any unsatisfied judgments against the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. The exhibits required to be filed herewith by Item 601 of Regulation S-B,
as described in the following index of exhibits, are incorporated herein by
reference, as follows: Form 8K filed June 26, 2000 Trans-Science
Corporation acquisition.
27.1 * Financial Data Schedule
-------------------
* Filed herewith
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: August 11, 2000
Composite Solutions, Inc.
By: /s/ GILBERT HEGEMIER
---------------------------------------
Gilbert Hegemier, Chairman and CEO
By: /s/ MARK OLSON
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Mark Olson, President and COO
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