##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-KSB
 (Mark One)
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period from  to
 Commission File Number: 000-28047
 DIVERSIFIED
THERMAL SOLUTIONS, INC.
 (Name of Small Business Issuer in Its Charter)
 Nevada
    
    94-3342064(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (IRS Employer
Identification No.)
 4126 Delp Street, Suite 200, Memphis, TN 38118   (Address of Principal Executive Offices)
Issuers telephone number, including area code (901) 365-7650
 Securities registered pursuant to Section 12(b) of the Act:
    
    NoneSecurities registered pursuant to Section 12(g) of the Act:
    
    Common Stock par value, $0.0001
 o
 þ o
 þ
 o þ
    DOCUMENTS INCORPORATED BY REFERENCE
 o þ




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##### 



TABLE OF CONTENTS
 Page No.PART IITEM 1. DESCRIPTION OF BUSINESS
    
    
    1ITEM 2. DESCRIPTION OF PROPERTY
    
    
    3ITEM 3. LEGAL PROCEEDINGS
    
    
    3ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    4PART IIITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    4ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
    
    
    5ITEM 7. FINANCIAL STATEMENTS
    
    
    7ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    7ITEM 8A. CONTROLS AND PROCEDURES
    
    
    8ITEM 8(B). CONTROLS AND PROCEDURES
    
    
    8PART IIIITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS
AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE
EXCHANGE ACT
    
    
    10ITEM 10. EXECUTIVE COMPENSATION
    
    
    11ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    14ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
    
    
    14ITEM 13. EXHIBITS
    
    
    15ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    16SIGNATURES, POWER OF ATTORNEY, EXHIBIT INDEX
    
    
    17Ex-21 Subsidiaries of the RegistrantEx-31.1 Section 302 Certification of the CEOEx-31.2 Section 302 Certification of the CFOEx-32.1 Section 906 Certification of the CEOEx-32.2 Section 906 Certification of the CFO




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PART I.
 
 Item 1. DESCRIPTION OF BUSINESS.
 General
      Refractory Industry
   1




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
    
    Monolithic- a furnace lining without joints, formed of material, which is rammed,
cast, gunned or sintered into place;
    
    Brick- low grade, low alumina to high grade, high alumina straight and shaped brick;
or
    
    Pre-Cast Shapes- special shapes designed to the customers specifications, such as a
doorjamb in a furnace.
   Strategy
     Competition
  2




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Employees
  Additional Information
  
 Item 2. DESCRIPTION OF PROPERTY.
  
 Item 3. LEGAL PROCEEDINGS.
   3




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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  
 PART II.
 
 Item 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.
 Market Information
  Low
    
    HighQuarter ended March 31, 2007
    
    $
    0.11
    
    
    $
    0.125Quarter ended June 30, 2007
    
    
    0.10
    
    
    
    0.19Quarter ended September 30, 2007
    
    
    0.08
    
    
    
    0.12Quarter ended December 31, 2007
    
    
    0.07
    
    
    
    0.135Quarter ended March 31, 2006
    
    $
    0.22
    
    
    $
    0.27Quarter ended June 30, 2006
    
    
    0.20
    
    
    
    0.27Quarter ended September 30, 2006
    
    
    0.15
    
    
    
    0.25Quarter ended December 31, 2006
    
    
    0.11
    
    
    
    0.15
  Holders
  Dividends
  4




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##### Table of Contents



Equity Compensation Plan
  Number of securitiesremaining available forNumber of securities to be
    
    
    
    
    
    future issuance underissued upon exercise of
    
    Weighted-average exercise
    
    equity compensation plansoutstanding options,
    
    price of outstanding options,
    
    (excluding securitiesPlan Category
    
    warrants and rights
    
    warrants and rights
    
    reflected in column (a))(a)
    
    (b)
    
    (c)Equity compensationplans approved by
security holders
    
    
    
    
    
    
    
    
    
    
    1,065,000Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    1,065,000
 
 Item 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
 Introduction
    Balance Sheets
   5




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Results of Operations
      Liquidity and Capital Resources
  6




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Other Significant Events
     
 Item 7. FINANCIAL STATEMENTS.
  
 Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
  7




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Item 8A. CONTROLS AND PROCEDURES.
 Managements Evaluation of Disclosure Controls and Procedures
  Managements Annual Report on Internal Control Over Financial Reporting
      Internal Control- Integrated Framework
  8




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Changes in Internal Control Over Financial Reporting
  
 Item 8B. OTHER INFORMATION.
  9




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PART III
 
 Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS AND CORPORATE GOVERNANCE;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
  Name
    
    Age
    
    PositionB. Grant Hunter
    
    
    44
    
    
    President, Chief Executive Officer, and DirectorJ. Terry Medovitch
    
    
    56
    
    
    Chief Financial OfficerMichael J. Livingston
    
    
    58
    
    
    Vice President of OperationsJohn F. Curry
    
    
    49
    
    
    Secretary/Treasurer and DirectorEd H. Gatlin
    
    
    67
    
    
    DirectorJerry W. Hunter
    
    
    70
    
    
    Director
 B. Grant Hunter
 J. Terry Medovitch
 Michael J. Livingston
 John F. Curry
 Ed Gatlin
 Jerry W. Hunter
 Audit Committee
  Section 16(a) Beneficial Ownership Reporting Compliance
  10




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Code of Ethics
  
 Item 10. EXECUTIVE COMPENSATION.
 Summary Compensation Table
 Change in PensionValue andNonqualifiedNon-Equity
    
    DeferredStock
    
    Option
    
    Incentive Plan
    
    Compensation
    
    All OtherSalary
    
    Bonus
    
    Awards
    
    Awards
    
    Compensation
    
    Earnings
    
    CompensationName and Principal
    
    
    
    
    
    ($)
    
    ($)
    
    ($)(1)
    
    ($)
    
    ($)
    
    ($)
    
    ($)(2)
    
    Total ($)Position
    
    Year
    
    (c)
    
    (d)
    
    (e)
    
    (f)
    
    (g)
    
    (h)
    
    (i)
    
    (j)B. Grant Hunter
    
    
    2007
    
    
    $
    116,218
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    3,213
    
    
    $
    119,431President and Chief
Executive Officer
    
    
    2006
    
    
    
    70,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    2,038
    
    
    
    72,038J. Terry Medovitch
    
    
    2007
    
    
    $
    121,215
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    16,520
    
    
    $
    137,735Chief Financial
Officer
    
    
    2006
    
    
    
    117,905
    
    
    
    0
    
    
    
    1,600
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    15,731
    
    
    
    135,236Michael J. Livingston
    
    
    2007
    
    
    $
    95,990
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    14,020
    
    
    $
    110,010Vice President of
Operations
    
    
    2006
    
    
    
    92,140
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    12,804
    
    
    
    104,944
 
 1.
    
    Represents the proportionate amount of the total value of restricted stock and/or
restricted stock unit awards to named executive officers recognized as an expense during
2006 for financial accounting purposes under SFAS 123R.2.
    
    The amount shown in column (i) reflects for each named executive officer the cost of
company contributions to a defined contribution benefit plan, health insurance, group term
life insurance, short term disability insurance and long term disability insurance. The
amount attributable to each such perquisite or benefit for each named executive officer
does not exceed the greater of $25,000 or 10% of the total amount of perquisites received
by such named executive officer. Employment Agreements with Executive Officers
  Compensation of Directors
  2003 Equity Incentive Plan
  11




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Share Reserve.
  Administration.
 Nonstatutory Stock Options.
    Restricted Stock Awards.
 12




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Stock Appreciation Rights.
  Phantom Stock Awards.
 Other Equity Awards.
 Changes in Control.
 Employee Benefit Plan.
 13




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Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
  Number of Shares of Common Stock
    
    PercentName and Address(1)
    
    Beneficially Owned as of December 31, 2007
    
    of ClassB. Grant Hunter(2)
    
    
    10,785,539
    
    
    
    39
    %John F. Curry
    
    
    3,697,197
    
    
    
    19
    %Ed Gatlin
    
    
    131,452
    
    
    
    *Jerry W. Hunter(2)
    
    
    4,136,654
    
    
    
    4
    %J. Terry Medovitch
    
    
    18,715
    
    
    
    *Michael J. Livingston
    
    
    500
    
    
    
    *Named executive officers and
directors as a group (6
individuals)
    
    
    15,400,214
    
    
    
    63
    %
 
 (1)
    
    The address is 4126 Delp Street, Memphis, TN, 38118.(2)
    
    Includes 3,369,843 shares owned by Lynn Whitsett Corporation with those shares owned by
Messrs. Grant Hunter and Jerry Hunter.*
    
    Less than 1% of the outstanding shares of our common stock.  
 Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
 Certain Relationships and Related Transactions
    14




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Director Independence
  
 Item 13. EXHIBITS.
  Exhibit No.
    
    Exhibit Description2.1*
    
    Agreement and Plan of Reorganization, dated as of July 1, 2002, by and between
VOIP TELECOM, INC. and the persons listed in Exhibit A hereof, being the owners
of record of all of the issued and outstanding stock of GLOBAL HOLDINGS, INC.3.1**
    
    Certificate of Amendment to the Articles of Incorporation filed October 15, 19993.2**
    
    By-Laws10.1***
    
    Asset Purchase Agreement, dated as of January 31, 2005, by and among Freeport
Brick Company, Inc., Kittanning Brick Company, Free-Madie Company, Freeport
Refractories, Inc. and Freeport Area Enterprises, Inc., on one hand, and
Refractory & Industrial Supply Group, Inc. and Diversified Thermal Solutions,
Inc., on the other hand.21#
    
    Subsidiaries of the Registrant31.1#
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2#
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1#
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2#
    
    Certification of Chief Financial Officer Pursuant to 18. U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Filed with Companys Form 8-K/A with the Securities and Exchange Commission on
October 16, 2002.**
    
    Filed with the Companys Amendment No. 1 to Form 10-SB with the Securities and
Exchange Commission on November 19, 1999.***
    
    Filed with the Companys Form 8-K with the Securities and Exchange Commission
on February 24, 2005.#
    
    Filed herewith. 15




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Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
   Audit Fees
    
    Audit-Related Fees
    
    Tax Fees
    
    All Other Fees2007
    
    $
    93,129
    
    
    $
    0
    
    
    $
    11,557
    
    
    $
    02006
    
    $
    92,213
    
    
    $
    0
    
    
    $
    8,176
    
    
    $
    0
 16




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SIGNATURES
  DIVERSIFIED THERMAL SOLUTIONS, INC.Date: April 23, 2008
    By:
    /s/ B. Grant HunterB. Grant HunterChief Executive Officer and Director  Signature
    
    Title
    
    Date/s/ John F. Curry

John F. Curry
    
    Secretary/Treasurer and Director
    
    April 23, 2008/s/ J. Terry Medovitch

J. Terry Medovitch
    
    Chief Financial Officer
    
    April 23, 2008/s/ Ed H. Gatlin

Ed H. Gatlin
    
    Director
    
    April 23, 2008/s/ B. Grant Hunter

B. Grant Hunter
    
    Chief Executive Officer and Director
    
    April 23, 2008/s/ Jerry W. Hunter

Jerry W. Hunter
    
    Director
    
    April 23, 2008
 17




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EXHIBIT INDEX
 21#
    
    Subsidiaries of the Registrant31.1#
    
    Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 200231.2#
    
    Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 200232.1#
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2#
    
    Certification of Chief Financial Officer Pursuant to 18. U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 
 #
    
    Filed herewith.




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Years ended December 31, 2007 and 2006
with Report of Independent Registered
Public Accounting Firm




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
    
    
    F-1Audited Consolidated Financial StatementsConsolidated Balance Sheets
    
    
    F-2Consolidated Statements of Operations
    
    
    F-4Consolidated Statements of Shareholders Equity (Deficit)
    
    
    F-5Consolidated Statements of Cash Flows
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-8




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Report of Independent Registered Public Accounting Firm
 
     
 F-1




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##### Table of Contents



December 312007
    
    2006AssetsCurrent assets:Cash
    
    $
    1,445
    
    
    $
    122,835Accounts receivable:Trade, net of reserve for doubtful accounts of $5,000 in 2006
    
    
    865,056
    
    
    
    1,008,082Related party
    
    
    84,980
    
    
    
    121,983Insurance claim
    
    
    128,485
    
    
    
    128,485Total accounts receivable
    
    
    1,078,521
    
    
    
    1,258,550Inventories, net
    
    
    3,472,744
    
    
    
    2,463,230Prepaid expenses
    
    
    59,544
    
    
    
    69,197Deferred income taxes
    
    
    65,021
    
    
    
    65,375Total current assets
    
    
    4,677,275
    
    
    
    3,979,187Property, plant and equipment:Land
    
    
    222,303
    
    
    
    217,950Buildings and improvements
    
    
    821,248
    
    
    
    821,248Machinery and equipment
    
    
    1,047,685
    
    
    
    937,3532,091,236
    
    
    
    1,976,551Less accumulated depreciation
    
    
    535,383
    
    
    
    325,5001,555,853
    
    
    
    1,651,051Construction in progress
    
    
    1,415,608
    
    
    
    117,193Net property, plant, and equipment
    
    
    2,971,461
    
    
    
    1,768,244Total assets
    
    $
    7,648,736
    
    
    $
    5,747,431
 F-2




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December 312007
    
    2006Liabilities and shareholders equityCurrent liabilities:Checks outstanding in excess of bank balance
    
    $
    25,829
    
    
    $
    Line of credit
    
    
    2,136,811
    
    
    
    856,389Accounts payable and accrued expenses:Trade and other
    
    
    1,651,800
    
    
    
    932,943Related parties
    
    
    268,546
    
    
    
    120,000Total accounts payable and accrued expenses
    
    
    1,920,346
    
    
    
    1,052,943State income taxes payable
    
    
    
    
    
    
    53,094Deferred revenue
    
    
    288,984
    
    
    
    Current portion of long-term debt
    
    
    735,747
    
    
    
    1,004,132Current portion of capital lease obligations
    
    
    33,458
    
    
    
    31,618Total current liabilities
    
    
    5,141,175
    
    
    
    2,998,176Advances from shareholders
    
    
    34,899
    
    
    
    34,899Long-term debt, less current portion
    
    
    8,829
    
    
    
    12,220Capital lease obligations, less current portion
    
    
    21,926
    
    
    
    55,383Notes payable to related companies
    
    
    1,000,000
    
    
    
    1,000,000Note payable to shareholder
    
    
    592,000
    
    
    
    600,000Deferred income taxes
    
    
    262,110
    
    
    
    403,129Total liabilities
    
    
    7,060,939
    
    
    
    5,103,807Shareholders equity:Common stock, par value $0.0001:Authorized100,000,000 sharesIssued and outstanding18,974,238 shares
in 2007 and 18,834,238 shares in 2006
 
    
    1,898
    
    
    
    1,884Additional paid-in capital
    
    
    11,260,904
    
    
    
    11,234,318Accumulated deficit
    
    
    (10,675,005
    )
    
    
    (10,592,578
    )Net shareholders equity
    
    
    587,797
    
    
    
    643,624Total liabilities and shareholders equity
    
    $
    7,648,736
    
    
    $
    5,747,431
 See accompanying Notes to Consolidated Financial Statements.
 F-3




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Year ended December 312007
    
    2006Revenues:Unrelated companies
    
    $
    10,561,726
    
    
    $
    9,322,120Related companies
    
    
    850,553
    
    
    
    986,836Total revenues
    
    
    11,412,279
    
    
    
    10,308,956Costs of goods sold
    
    
    9,679,126
    
    
    
    9,018,906Gross profit
    
    
    1,733,153
    
    
    
    1,290,050Operating expenses:Professional and consulting services
    
    
    167,412
    
    
    
    182,172Selling
    
    
    542,166
    
    
    
    371,644General and administrative
    
    
    932,515
    
    
    
    925,537Total operating expenses
    
    
    1,642,093
    
    
    
    1,479,353Operating income (loss)
    
    
    91,060
    
    
    
    (189,303
    )Other income (expenses):Fire related items:Lawsuit settlement
    
    
    
    
    
    
    2,800,000Insurance proceeds
    
    
    
    
    
    
    561,063Excess costs due to fire
    
    
    
    
    
    
    (1,020,350
    )Net fire related items
    
    
    
    
    
    
    2,340,713Miscellaneous income
    
    
    29,736
    
    
    
    16,154Interest expense (including
approximately $118,000 in 2007 and
2006 to related parties)
    
    
    (359,837
    )
    
    
    (449,080
    )Net other (expense) income
    
    
    (330,101
    )
    
    
    1,907,787(Loss) income before income taxes
    
    
    (239,041
    )
    
    
    1,718,484Income tax benefit (expense):Current
    
    
    15,949
    
    
    
    (53,094
    )Deferred
    
    
    140,665
    
    
    
    (337,754
    )Total income tax benefit (expense)
    
    
    156,614
    
    
    
    (390,848
    )Net (loss) income
    
    $
    (82,427
    )
    
    $
    1,327,636Basic (loss) earnings per share
    
    $
    
    
    
    $
    0.07
 See accompanying Notes to Consolidated Financial Statements.
 F-4




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Number of
    
    
    
    
    
    
    
    NetShares
    
    
    
Additional
    
    
    
    ShareholdersIssued and
    
Common
    
    Paid-in
    
Accumulated
    
    EquityOutstanding
    
Stock
    
Capital
    
Deficit
    
    (Deficit)Balance at January 1, 2006
    
    
    18,824,238
    
    
    $
    1,883
    
    
    $
    11,232,719
    
    
    $
    (11,920,214
    )
    
    $
    (685,612
    )Stock issued for services
    
    
    10,000
    
    
    
    1
    
    
    
    1,599
    
    
    
    
    
    
    
    1,600Net income for 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,327,636
    
    
    
    1,327,636Balance at December 31, 2006
    
    
    18,834,238
    
    
    
    1,884
    
    
    
    11,234,318
    
    
    
    (10,592,578
    )
    
    
    643,624Stock issued for services
    
    
    140,000
    
    
    
    14
    
    
    
    26,586
    
    
    
    
    
    
    
    26,600Net loss for 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (82,427
    )
    
    
    (82,427
    )Balance at December 31, 2007
    
    
    18,974,238
    
    
    $
    1,898
    
    
    $
    11,260,904
    
    
    $
    (10,675,005
    )
    
    $
    587,797
 See accompanying Notes to Consolidated Financial Statements.
 F-5




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##### Table of Contents



Year ended December 312007
    
    2006Operating activitiesNet (loss) income
    
    $
    (82,427
    )
    
    $
    1,327,636Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:Depreciation
    
    
    209,883
    
    
    
    173,620Loss on equipment due to fire
    
    
    
    
    
    
    40,778Stock issued for services
    
    
    26,600
    
    
    
    1,600Deferred income taxes
    
    
    (140,665
    )
    
    
    337,754Changes in operating assets and liabilities:Accounts receivable
    
    
    180,029
    
    
    
    (192,771
    )Inventories
    
    
    (1,009,514
    )
    
    
    933,360Prepaid expenses
    
    
    9,653
    
    
    
    23,055Accounts payable and accrued expenses
    
    
    439,099
    
    
    
    (247,865
    )State income taxes payable
    
    
    (53,094
    )
    
    
    53,094Deferred revenue
    
    
    288,984
    
    
    
    Net cash (used in) provided by operating activities
    
    
    (131,452
    )
    
    
    2,450,261Investing activitiesPurchases of property, plant, and equipment
    
    
    (984,796
    )
    
    
    (465,953
    )Financing activitiesNet borrowings (repayments) on line of credit
    
    
    1,280,422
    
    
    
    (1,379,384
    )Change in checks outstanding in excess of bank balance
    
    
    25,829
    
    
    
    (3,450
    )Payments to seller of business acquired
    
    
    
    
    
    
    (150,000
    )Proceeds from borrowings of long-term debt
    
    
    20,000
    
    
    
    Payments on advances from shareholders
    
    
    
    
    
    
    (5,000
    )Principal repayments on note payable to shareholder
    
    
    (8,000
    )
    
    
    Principal repayments on long-term debt
    
    
    (291,776
    )
    
    
    (293,759
    )Principal repayments on capital lease obligations
    
    
    (31,617
    )
    
    
    (29,880
    )Net cash provided by (used in) financing activities
    
    
    994,858
    
    
    
    (1,861,473
    )Net (decrease) increase in cash
    
    
    (121,390
    )
    
    
    122,835Cash at beginning of year
    
    
    122,835
    
    
    
    Cash at end of year
    
    $
    1,445
    
    
    $
    122,835
 F-6




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##### Table of Contents



Supplemental disclosure of cash flow information
 Year ended December 312007
    
    2006Cash paid for interest
    
    $
    353,245
    
    
    $
    384,186Cash paid for income taxes
    
    
    37,145
    
    
    
    
 Supplemental disclosure of noncash activities
 Year ended December 312007
    
    2006Common stock issued for services
    
    $
    26,600
    
    
    $
    1,600Purchases of property, plant and equipment
included in accounts payable at year end
    
    
    428,304
    
    
    
    
 See accompanying Notes to Consolidated Financial Statements.
 F-7




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##### Table of Contents



1. Significant Accounting Policies
 Principles of Consolidation and Description of Business
   Revenue Recognition
  Business Concentrations and Credit Risks
     Advertising Costs
  Inventories
  F-8




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##### Table of Contents



1. Significant Accounting Policies (continued)
 Property, Plant and Equipment
  Buildings and improvements
    
    15-25 yearsMachinery and equipment
    
    3-20 years
  Income Taxes
 Accounting for Uncertainty in Income Taxes
 An Interpretation of FASB Statement No. 109
  Estimates
  F-9




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##### Table of Contents



1. Significant Accounting Policies (continued)
 Reclassifications
  2. Inventories
  2007
    
    2006Raw materials
    
    $
    753,136
    
    
    $
    466,353Work-in-process
    
    
    324,088
    
    
    
    293,765Finished goods
    
    
    2,881,872
    
    
    
    2,195,945Less reserve for obsolete inventories
    
    
    (486,352
    )
    
    
    (492,833
    )Net inventories
    
    $
    3,472,744
    
    
    $
    2,463,230
 3. Notes Payable and Long-Term Debt
    F-10




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##### Table of Contents



3. Notes Payable and Long-Term Debt (continued)
      2008
    
    $
    340,2222009
    
    
    350,0952010
    
    
    151,1702011
    
    
    137,7552012
    
    
    148,222Thereafter
    
    
    1,209,112$
    2,336,576
 F-11




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##### Table of Contents



4. Leases
  Equipment
    
    $
    60,199Less accumulated depreciation
    
    
    23,730Net assets under capital lease
    
    $
    36,469
  2008
    
    $
    35,7232009
    
    
    18,2582010
    
    
    4,337Total minimum lease payments
    
    
    58,318Less amounts representing interest
    
    
    2,934Present
value of minimum lease payments (including$33,458 classified as current)
    
    $
    55,384
 5. Company Equity Matters
 2003 Diversified Thermal Solutions, Inc.
Equity Incentive Plan
  F-12




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##### Table of Contents



6. Fire Related Matters
  7. Income Taxes
  2007
    
    2006Deferred tax assets:Net operating loss carryovers
    
    $
    258,453
    
    
    $
    53,628Reserve for doubtful accounts
    
    
    
    
    
    
    2,030Capitalized inventory costs
    
    
    36,109
    
    
    
    43,426Accrued expenses
    
    
    53,081
    
    
    
    34,869Total deferred tax assets
    
    
    347,643
    
    
    
    133,953Less valuation allowance for deferred tax assets
    
    
    (62,482
    )
    
    
    (53,628
    )Net deferred tax assets
    
    
    285,161
    
    
    
    80,325Deferred tax liabilities:Tax over book depreciation
    
    
    458,081
    
    
    
    403,129Prepaid expenses
    
    
    24,169
    
    
    
    14,950Total deferred tax liabilities
    
    
    482,250
    
    
    
    418,079Net deferred tax liabilities
    
    
    (197,089
    )
    
    
    (337,754
    )Portion classified as current asset
    
    
    65,021
    
    
    
    65,375Portion classified as long-term liability
    
    $
    262,110
    
    
    $
    (403,129
    )
  F-13




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##### Table of Contents



7. Income Taxes (continued)
  2007
    
    2006Current:Federal
    
    $
    
    
    
    $
    State
    
    
    15,949
    
    
    
    (53,094
    )Total current
    
    
    15,949
    
    
    
    (53,094
    )Deferred:Federal
    
    
    117,827
    
    
    
    (282,918
    )State
    
    
    22,838
    
    
    
    (54,836
    )Total deferred
    
    
    140,665
    
    
    
    (337,754
    )Total income tax benefit (expense)
    
    $
    156,614
    
    
    $
    (390,848
    )
  2007
    
    2006Income tax benefit at U.S. statutory rates of 34%
    
    $
    81,274
    
    
    $
    (584,285
    )Impact of state income taxes
    
    
    38,787
    
    
    
    (107,930
    )Change in valuation allowance
    
    
    8,854
    
    
    
    327,931Other
    
    
    27,699
    
    
    
    (26,564
    )Total income tax benefit (expense)
    
    $
    156,614
    
    
    $
    (390,848
    )
 8. Earnings Per Share Data
   2007
    
    2006Average shares outstanding
    
    
    18,933,405
    
    
    
    18,833,831Net (loss) earnings per share
    
    $
    
    
    
    $
    0.07
 F-14




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##### Table of Contents



9. Other Related Party Transactions
    10. Employee Benefit Plan
  11. Fair Value of Financial Instruments
   12. Going Concern
  F-15