##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
   FORM 10-KSB (Mark One) [X]
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
 For the fiscal year ended December 31, 2003 OR [   ]
    
    Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
 For the Transition Period from  to Commission File Number: 000-31225 DIVERSIFIED THERMAL SOLUTIONS, INC. 
 (Name of small business issuer in its charter)
 Nevada
    
    3255
    
    94-3342064(State of jurisdiction of
incorporation or organization)
    
    (Primary Standard Industrial
Classification Code Number)
    
    (I.R.S. 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
 Check whether the Issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days. Yes [X] No [   ] Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is 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 this Form
10-KSB or any amendment to this Form 10-KSB. [   ] State issuers revenues from continuing operations for its most recent fiscal
year: $502,123. Aggregate market value of the voting stock held by non-affiliates computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within the past 60 days:
$748,157 as of March 25, 2004. APPLICABLE ONLY TO CORPORATE REGISTRANTS State the number of shares outstanding of each of the issuers classes of
common equity, as of the latest practicable date: 20,242,571 shares of common
stock as of March 25, 2004. DOCUMENTS INCORPORATED BY REFERENCE
None. Transitional Small Business Disclosure format (check one): Yes [   ] No [X]




---



TABLE OF CONTENTS  
 Page No.PART IITEM 1. DESCRIPTION OF BUSINESS
    
    
    3ITEM 2. DESCRIPTION OF PROPERTIES
    
    
    5ITEM 3. LEGAL PROCEEDINGS
    
    
    5ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    5PART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
    
    
    5ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    
    6ITEM 7. FINANCIAL STATEMENTS
    
    
    8ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    20PART IIIITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF
THE EXCHANGE ACT
    
    
    20ITEM 10. EXECUTIVE COMPENSATION
    
    
    21ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
    
    
    21ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    22ITEM 13. EXHIBITS AND REPORTS ON FORM 10-KSB
    
    
    22ITEM 14. CONTROLS AND PROCEDURES
    
    
    22SIGNATURES, POWER OF ATTORNEY, EXHIBIT INDEX
    
    
    23EX-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




---



##### Table of Contents



PART I. 
 Item 1. DESCRIPTION OF BUSINESS General We were incorporated on May 4, 1987, under the laws of the state of Nevada
as Energy Realty Corporation. On July 31, 1993, we changed our name to Balcor
International, Inc. On December 18, 1998, we changed our name to Dimension
House, Inc. On October 28, 1999, we changed our name to Presidents Telecom,
Inc. On April 17, 2000, we changed our name to VoIP Telecom, Inc. On July 19,
2002, we changed our name to Diversified Thermal Solutions, Inc. On February 25, 2002, we announced a reverse split of our stock on a 1 for
20 basis. Prior to the reverse split we had 40,727,975 shares of common stock
outstanding, with 21,780,957 of those shares available in the public float.
Following the reverse split, the total number of shares outstanding was
2,036,399. Prior to March 29, 2002, we delivered international long distance service
via flexible, server-based networks consisting of re-sale arrangements with
other long distance providers, primarily through our wholly-owned subsidiary,
Access Communications, Inc. On March 29, 2002, we sold 100% of the common
stock of Access Communications, Inc. to an independent third party. After the
sale of Access Communications, we operated essentially as a shell company for
the purpose of acquiring businesses related to the manufacturing and
distribution of materials used in the refractory industry. On July 1, 2002, we issued 15 million shares of common stock in connection
with the acquisition of all of the outstanding stock of Global Holdings, Inc.
On October 16, 2002, Global Holdings, Inc. changed its name to DT Solutions,
Inc. On July 24, 2002, we created another wholly-owned subsidiary, Refractory &
Industrial Supply Group, Inc. RIS Group will act as the marketing and
distribution arm for all refractory products. Refractory Industry Refractory products are heat-resistant materials used for the linings for
high-temperature furnaces and reactors and other processing units. In addition
to being resistant to thermal stress and other physical phenomena induced by
heat, refractory products must also withstand physical wear and corrosion
caused by chemical agents and rapid changes in temperature. Refractory
products are more heat resistant than metals and are required for any heating
applications above 1000 (Degree) Fahrenheit. Because refractory products are
so resistant to heat, erosion and corrosion, they are typically used in any
process involving heat and corrosion such as in kilns and furnaces. The total
U.S. market for clay building material and refractory products is estimated to
have been approximately $6.8 billion in 2001. In recent years, the refractory
industry has witnessed a large amount of consolidation, typically with large
non-U.S. conglomerates acquiring smaller manufacturers. The genesis of the refractory industry can be traced to basalt, a
naturally occurring siliceous refractory product. Basalt is formed under
natural geological forces of heat and pressure. Modern refractory production
is largely a replication of this process of forming naturally occurring or
synthetic non-metallic mineral oxides and some non-oxides like carbides or
nitrides under the bonding conditions of high heat and pressure. Technological
progress has resulted in new bonding techniques using chemicals, cements and
resins rather than simply heat and pressure. Refractory products typically have relatively high bulk density, high
softening point, and high crushing strength. Refractory products are typically
referred to as:  
    
    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 1




---



##### Table of Contents




    
    Pre-Cast Shapes- special shapes designed to the customers
specifications, such as a doorjamb in a furnace. Many refractory products, in final shape, resemble a typical construction
brick. However, there are many different shapes and forms. Some refractory
parts are small and may possess a complex and delicate geometry; others are
massive and may weigh several tons in the form of precast or fusion cast
bricks. Refractory products are used in all heavy industry, including steel,
foundry, chemical, aluminum, petrochemical, pulp and paper, cement, lime,
incineration and power/cogeneration. However, the steel industry represents
approximately 60% of the refractory market in the United States. The
well-documented bankruptcies and other financial troubles of the steel industry
have negatively affected the financial performance of many large refractory
manufacturers. In addition, asbestos litigation has caused many refractory
manufacturers to file for bankruptcy protection. Strategy We are in the process of developing an integrated operating and
acquisition strategy designed to maximize internal and external growth through
a combination of selective acquisitions and procuring distribution agreements
with leading suppliers. Currently, we have in place arrangements with
various suppliers to produce, to our specifications, monolithics and
brick products under our label RISG. Contractor/Installer Focus. A recent trend in the refractory industry
has been the attempt of the industry leaders to bypass the contractor/installer
of refractory products and sell products directly to the end-user. In all
industry groups that utilize refractory products other than the steel and
mineral industries, buyers will typically rely on the expertise and experience
of a contractor/installer to determine when additional refractory products are
needed, the types of refractory products needed, and the method by which the
refractory products should be installed. We intend to focus a significant
portion of our sales and marketing efforts on the contractor/installer, which
has become a neglected portion of the industry. Selective Marketing. We intend to have sales managers initially in the
Southeast and Northeast that will work directly with only two or three approved
contractor/installers. We will focus primarily on the non-ferrous industries
such as aluminum, chemical, pulp and paper, power generation, incineration and
petrochemical. These are industries that typically purchase refractory
products through the contractor/installer instead of buying directly from the
manufacturer. We also intend to have 3 or 4 technical sales specialists
assigned to the minerals processing industries such as lime and cement, and 1
or 2 specialists assigned to the iron and steel industries such as steel mills,
integrated steel, mini mills, and foundry accounts. Purchasing We do not anticipate any significant difficulty in obtaining products
necessary for our operations.




---



##### Table of Contents



Competition We compete with a substantial number of other companies. We believe that
the major competitive factors in our business are the quality and durability of
finished products, the quality of customer service and price. Our ability to
compete effectively in selling our products is primarily dependent on our
ability to deliver high quality finished products with speed and accuracy. Employees On December 31, 2003, we had no employees. Our Chief Executive Officer
and Chief Financial Officer provide their services to the Company on a contract
basis. Additional Information We are subject to the reporting and informational requirements of the
Securities Exchange Act of 1934, as amended (the Exchange Act), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the Commission) pursuant to the
Exchange Act. Such reports, proxy statements and other information filed by
the Company may be examined without charge at, or copies obtained upon payment
of prescribed fees from, the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Investors may
obtain information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. Electronic filings made through the Electronic
Data Gathering, Analysis and Retrieval System are publicly available through
the Commissions web site (http://www.sec.gov). 
 Item 2. DESCRIPTION OF PROPERTY We lease 500 square feet of office space that we use for our corporate
headquarters at 4126 Delp Street, Suite 200, Memphis, TN, 38118, from Lynn
Whitsett Corporation. We currently are not charged for the use of this
property. We believe that the property is suitable for its current usage, and
that it is adequately insured. 
 Item 3. LEGAL PROCEEDINGS We are not party to any litigation and to our knowledge, no action, suit
or proceeding against us has been threatened by any person or entity. 
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth
quarter of 2003.




---



##### Table of Contents



PART II. 
 Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market Information Our common stock has been quoted under the symbol DVTS since July 31,
2002. Our common stock was traded under the symbol VOIP from February 25, 2002
until July 30, 2002. Prior to that time, our common stock was traded under the
symbol VOTM. The common stock is quoted on the OTC Bulletin Board. The
following is a list of the high and low bid quotations by fiscal quarters for
2003 and 2002: Low
    
    HighQuarter ended March 31, 2003
    
    $
    0.19
    
    
    $
    0.90Quarter ended June 30, 2003
    
    
    0.15
    
    
    
    0.25Quarter ended September 30, 2003
    
    
    0.15
    
    
    
    0.25Quarter Ended December 31, 2003
    
    
    0.15
    
    
    
    0.45Quarter ended March 31, 2002
    
    $
    0.01
    
    
    $
    2.25Quarter ended June 30, 2003
    
    
    0.30
    
    
    
    1.10Quarter ended September 30, 2002
    
    
    0.15
    
    
    
    0.34Quarter ended December 31, 2002
    
    
    0.22
    
    
    
    0.85
 The quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commissions and may not represent actual transactions. The
quotations were obtained from yahoo.finance.com. Holders We estimate that there were approximately 116 holders of record of our
common stock as of December 31, 2003. Dividends We have not paid a cash dividend on our common stock during the past two
fiscal years. We do not anticipate paying dividends during the foreseeable
future. Equity Compensation Plans The following table sets forth, as of December 31, 2003, certain
information with respect to shares of common stock authorized for issuance
under the our equity compensation plans: Number of securitiesremaining available forfuture issuance underNumber of securities to be
    
    Weighted-average exercise
    
    equity compensationissued upon exercise of
    
    price of outstanding
    
    plansoutstanding options,
    
    options,
    
    (excluding securitiesPlan Category
    
    warrants and rights(1)
    
    warrants and rights
    
    reflected in column (a))(a)
    
    (b)
    
    (c)Equity compensation
plans approved by
security holders
    
    
    
    
    
    
    
    
    
    
    1,500,000Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    1,500,000




---



##### Table of Contents



Item 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following information specifies certain forward-looking statements
that are not historical facts. These statements represent our expectations or
beliefs, including but not limited to, statements concerning future
acquisitions, future operating results, statements concerning industry
performance, capital expenditures, financings, as well as assumptions related
to the foregoing. Forward-looking statements may be identified by the use of
forward-looking terminology such as may, shall, will, could, expect,
estimate, anticipate, predict, should, continue or similar terms,
variations of those terms or the negative of those terms. Forward-looking
statements are based on current expectations and involve various risks and
uncertainities that could cause actual results and outcomes for future periods
to differ materially from any forward-looking statement or view expressed
herein. Our financial performance and the forward-looking statements contained
in this report are further qualified by other risks including those set forth
from time to time in documents filed by us with the SEC. Introduction Prior to March 29, 2002, we delivered international long distance service
via flexible, server-based networks consisting of re-sale arrangements with
other long distance providers primarily through our wholly-owned subsidiary,
Access Communications, Inc. On March 29, 2002, we sold Access Communications.
This sale represented the disposal of a business segment and the results of
this segment have been classified as discontinued in our 2002 statement of
operations. During July 2002, we shifted our business focus towards acquiring
businesses related to the manufacturing and distribution of materials used in
the refractory business. As a result of this business focus shift, on July 1,
2002, we acquired 100% of the outstanding stock of Global Holdings, Inc. and
subsequently changed its name to DT Solutions, Inc. We entered into a letter
of intent in 2002 to acquire substantially all of the assets, excluding cash
and accounts receivables, of a company that manufactures specialized brick used
in the refractory business. These assets are expected to become the operating
assets of DT Solutions, Inc., once the acquisition is completed. This
acquisition has been delayed due to changes in our financing, along with
related amendments to the letter of intent. These delays have resulted in the
expiration of the letter of intent; however, we are continuing to negotiate
with the business owner and expect the acquisition to take place in 2004.
Additionally in July 2002, we formed Refractory & Industrial Supply Group, Inc.
(RIS Group) which operates as a distributor of refractory supplies. All of
our continuing operations in 2002 and 2003 were conducted through RIS Group.
Due to the business focus shift, 2002 continuing operations represent six
months of activities compared to a full year for 2003. Balance Sheets The primary changes in our balance sheets between December 31, 2003 and
2002 relate to the acquisition discussed above. As a result of this attempted
acquisition, our deferred loan and acquisition costs have increased
significantly along with our accounts payable, accrued expenses and advances
from related parties which is primarily how we have funded these costs. Cash
has also decreased as of result of these costs. Also, at December 31, 2003 a
right of offset existed for a certain customer/vendor, and accordingly,
accounts receivable and accounts payable were offset by approximately $60,000.
No such right of offset existed at December 31, 2002. There have been no other
significant changes affecting our balance sheet since December 31, 2002. Results of Operations Revenue.Our revenue from continuing refractory operations increased
163% to $502,123 for the year ended December 31, 2003 from 191,460 for the year
ended December 31, 2002. This increase was related to the fact that 2002
revenues include only six months of refractory operations and a few large
transactions that occurred in 2003. Substantially all of our revenue was
derived from two customers, which are related companies controlled by family
members of a major stockholder and director of our Company.




---



##### Table of Contents



Operating Expenses. Our operating expenses from continuing operations
decreased 83% to $110,426 for the year ended December 31, 2003 from 639,612
for the year ended December 31, 2002. Of this amount, $48,359 represented
professional and consulting services. We incurred $24,463 of marketing and
advertising expenses to develop the logos and brands for Diversified Thermal
Solutions and RIS Group, and to announce and market our new products. The
remaining expenses were routine office and administrative related. As
expected, our expenses for 2003 were significantly less than 2002. This was
due in part to a large amount of current year costs being capitalized as
deferred loan and acquisition costs as discussed above. Also, during 2002, we
incurred a large amount of professional fees associated with our shift in
business focus and we issued stock to certain former employees, which resulted
in unusually high salary expense in 2002. Pending the completion of our
acquisition, we currently have no employees and all work is being performed on
a contract basis. Liquidity and Capital Resources Currently, our losses from continuing operations have been funded by a
major shareholder and a related company that is also a customer. These
advances are non-interest bearing and have no stated repayment terms. We are
currently seeking funding for our pending acquisition as well as for a working
capital and acquisition line of credit. There is no assurance that additional
funding will be available under favorable terms, if at all. Our inability to
raise additional funding will harm our ability to implement our business plan
which will, in turn, hurt our ability to generate revenue. Our independent
auditors have expressed their concern that our continuing cash requirements,
among other things, raise substantial doubt about our ability to continue as a
going concern. Off Balance Sheet Arrangements We have no off-balance sheet arrangements. 
 Item 7. FINANCIAL STATEMENTS Our
financial statements are included in pages F-2 through F-11. 
 Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE This information was previously reported on form 8-K filed on November 15,
2002. Item 8A. Controls and Procedures Evaluation of Disclosure Controls and Procedures While we currently have no full time employees and our Chief Executive
Officer and Chief Financial Officer are providing services on a contract basis,
we maintain disclosure controls and procedures, that are designed to ensure
that information required to be disclosed in the reports that we file or submit
under the Securities Exchange Act is recorded, processed, summarized, and
reported within the time periods specified in the SECs rules and forms and
that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. Our
Chief Executive Officer and Chief Financial Officer carried out an evaluation
of the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this report. Based on the
evaluation of these disclosure controls and procedures, the Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective. It should be noted that any system of controls,
however well designed and operated, can provide only reasonable, and not
absolute, assurance that the objectives of the system are met. In addition,
the design of any control system is based in part upon certain assumptions
about the likelihood of future events. Because of these and other inherent
limitations of control systems, there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions,
regardless of how remote.




---



##### Table of Contents



Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting
during the fourth quarter 2003 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting. 
 PART III 
  Item 9.
    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT The following table sets forth certain information about our executive
officers and directors as of March 24, 2004. Name
    
    Age
    
    PositionB. Grant Hunter
    
    
    40
    
    
    President and Chief Executive OfficerJulie R. Dean
    
    
    32
    
    
    Chief Financial OfficerJohn F. Curry
    
    
    45
    
    
    Secretary Treasurer, Vice President of
Operations, DirectorEd H. Gatlin
    
    
    63
    
    
    DirectorJerry W. Hunter
    
    
    66
    
    
    DirectorW. Burley Shedd
    
    
    47
    
    
    Director
 B. Grant Hunterbecame our Chief Executive Officer in 2001. Mr. Hunter is
currently Vice President of Lynn Whitsett Corporation, and has served in that
position since 1986. Lynn Whitsett specializes in the construction of high
temperature process vessels. Mr. Hunter is the son of Jerry W. Hunter. Julie R. Deanwas appointed Chief Financial Officer in November 2002. From May 2002 to present, Ms. Dean has worked as an independent
accounting consultant. Prior to that time, Ms. Dean served as a Manager of
Accounting and Finance for Freeliant, Inc., as a Senior Auditor with Andersen,
PLLC, and as a Senior Auditor with Rhea & Ivy, PLLC. John F. Curryhas been a director since 2002. Mr. Curry has been employed
by Knight & Wilson, Inc. as a Risk Manager since February 2001. Prior to that
time, Mr. Curry was self-employed. Ed Gatlinhas been a director since 2001. He is a partner and Chairman of
Empire Express, Inc. Jerry W. Hunterhas been a director with the Company since 2002. He is
the President and sole stockholder of Lynn Whitsett Corporation. Mr. Hunter is
the father of B. Grant Hunter. W. Burley Sheddhas been a director since 2001. Mr. Shedd is the General
Manager of the Mobile, AL division of Lynn Whitsett Corporation. Audit Committee Financial Expert We do not have an audit committee financial expert serving on our audit
committee. Because of our small size and limited resources, we are not able to
attract a candidate to serve on our audit committee that would be an audit
committee financial expert. Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934 requires our
executive officers and directors and the holders of greater than 10% of our
common stock to file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission (SEC). Executive
officers and directors are required by SEC regulations to furnish us with
copies of these reports. Based solely on a review of written representations
from such officers, directors and shareholders with respect to the period




---



##### Table of Contents



from January 1, 2002 through December 31, 2002, we are not aware of any
required Section 16(a) reports that were not filed on a timely basis. Code of Ethics Because we do not have any full time employees, we have not adopted a code
of ethics. 
 Item 10. EXECUTIVE COMPENSATION As of December 31, 2003, we had no full time employees. The compensation
of our Chief Executive Officer for 2003, 2002, and 2001 is described in the
table set forth below. Name and Principal Position
    
    Year
    
    Annual SalaryB. Grant Hunter
    
    
    2003
    
    
    $
    02002
    
    
    
    149,4492001
    
    
    
    121,153
 Benefit Plans 2003 Equity Incentive Plan We adopted and our stockholders approved our 2003 Equity Incentive Plan in
May 2003. The 2003 Equity Incentive Plan will terminate in May 2013. The 2003
Equity Incentive Plan provides for the grant of nonstatutory stock options,
restricted stock awards, stock appreciation rights, phantom stock rights and
other forms of equity compensation, which may be granted to employees,
including officers, non-employee directors and consultants. Share Reserve.An aggregate of 1,500,000 shares of common stock are
reserved for issuance under the 2003 Equity Incentive Plan. The following types of shares issued under the 2003 Equity Incentive Plan
may again become available for the grant of new awards under the 2003 Equity
Incentive Plan: restricted stock that is repurchased or forfeited prior to it
becoming fully vested; shares withheld for taxes; shares used to pay the
exercise price of an option in a net exercise; and shares tendered to the
company to pay the exercise price of an option. In addition, shares subject to
stock options that have expired or otherwise terminated without having been
exercised in full may again become available for the grant of new awards under
the 2003 Equity Incentive Plan. Shares issued under the 2003 Equity Incentive
Plan may be previously unissued shares or reacquired shares bought on the
market or otherwise. Administration.Our Board of Directors will administer the 2003 Equity
Incentive Plan. The Board of Directors may delegate authority to administer the
2003 Equity Incentive Plan to a committee. Subject to the terms of the 2003
Equity Incentive Plan, our Board of Directors or its authorized committee, the
plan administrator, determines recipients, grant dates, the numbers and types
of equity awards to be granted and the terms and conditions of the equity
awards, including the period of their exercisability and vesting. Subject to
the limitations set forth below, the plan administrator will also determine the
exercise price of options granted, the purchase price for rights to purchase
restricted stock and, if applicable, phantom stock and the strike price for
stock appreciation rights. The plan administrator may also amend the terms of
the plan and outstanding equity awards. Amendments to the 2003 Equity Incentive
Plan are subject to stockholder approval to the extent required by law, rule or
regulation. In addition, the plan administrator may amend an option to lower
its exercise price or exchange an option for an option with a lower exercise
price, another equity award, cash or any other valuable consideration or may
take any other action that is treated as a repricing under generally accepted
accounting principles. Nonstatutory Stock Options.Nonstatutory stock options will be granted
pursuant to nonstatutory stock option agreements. The plan administrator
determines the exercise price for a nonstatutory stock option. Options granted
under the 2003 Equity Incentive Plan vest at the rate specified in the option
agreement.




---



##### Table of Contents



Generally, the plan administrator determines the term of nonstatutory
stock options granted under the 2003 Equity Incentive Plan. Unless the terms of
an optionees nonstatutory stock option agreement provide otherwise, if an
optionees service relationship with us, or any of our affiliates, ceases due
to disability or death, the optionee, or his or her beneficiary, may exercise
any vested options up to 12 months in the event of disability, 18 months in the
event of death and 24 months in the event of retirement, after the date such
service relationship ends. If an optionees relationship with us, or any
affiliate of ours, ceases for any reason other than disability, death or
retirement the optionee may exercise any vested options up to three months from
cessation of service, unless the terms of the stock option agreement provide
for earlier or later termination. Acceptable consideration for the purchase of common stock issued upon the
exercise of a nonstatutory stock option will be determined by the plan
administrator and may include cash, common stock previously owned by the
optionee, a broker assisted exercise and the net exercise of the option. Generally, an optionee may not transfer a nonstatutory stock option other
than by will or the laws of descent and distribution unless the nonstatutory
stock option agreement provides otherwise. However, an optionee may designate a
beneficiary who may exercise the option following the optionees death. Restricted Stock Awards.Restricted stock awards are purchased through a
restricted stock award agreement. The purchase price for restricted stock
awards must be at least the par value of the stock. The purchase price for a
restricted stock award may be payable in cash or the recipients past or future
services performed or to be performed for us or any of our affiliates. Rights
to acquire shares under a restricted stock award may not be transferred other
than by will or by the laws of descent and distribution. Stock Appreciation Rights.Stock appreciation rights are granted pursuant
to stock appreciation rights agreements. The plan administrator determines the
strike price for a stock appreciation right. A stock appreciation right granted
under the 2004 Equity Incentive Plan vests at the rate specified in the stock
appreciation right agreement. The plan administrator determines the term of stock appreciation rights
granted under the 2003 Equity Incentive Plan. If an awardees service
relationship with us, or any of our affiliates, ceases due to disability or
death, the awardee, or his or her beneficiary, may exercise any vested stock
appreciation right up to three months or such longer or shorter period of time
provided in the stock appreciation rights agreement. Different post-termination
exercise periods may be provided in the stock appreciation rights agreement for
specific terminations of service such as death, disability or retirement. Phantom Stock Awards.Phantom stock awards are granted pursuant to
phantom stock award agreements. A phantom stock award may require the payment
of at least par value. Payment of any purchase price may be made in any form of
legal consideration acceptable to the plan administrator. Rights to acquire
shares under a phantom stock agreement may not be transferred other than by
will or by the laws of descent and distribution. Other Equity Awards.The plan administrator may grant other awards based
in whole or in part by reference to our common stock. The plan administrator
will set the number of shares under the award, the purchase price, if any, the
timing of exercise and vesting and any repurchase rights associated with such
awards. Unless otherwise specifically provided for in the award agreement, such
awards may not be transferred other than by will or by the laws of descent and
distribution. Changes in Control.In the event of specified corporate transactions, all
outstanding options and stock appreciation rights under the incentive plan
either will be assumed, continued or substituted for by any surviving or
acquiring entity. If the surviving or acquiring entity elects not to assume,
continue or substitute for such awards, such equity awards will become fully
vested and exercisable and such equity awards will be terminated if not
exercised prior to the effective date of the corporate transaction. Other forms
of equity awards such as restricted stock awards may have their repurchase or
forfeiture rights assigned to the surviving or acquiring entity. If such
repurchase or forfeiture rights are not assigned, then such equity awards will
become fully vested. Following specified change in control transactions, the
vesting and




---



##### Table of Contents



exercisability of specified equity awards generally will be accelerated
only if the awardees award agreement so specifies. The standard form of stock
option agreement provides for options to become fully vested and exercisable if
an optionee is involuntarily terminated without cause or has a constructive
termination, in either case, within twelve months after the change in control. 
 Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the number and the percentage of shares of
our outstanding common stock that were beneficially owned by our Chief
Executive Officer, our directors and named executive officers and directors as
a group, and all persons known to us to be a beneficial owner, as such term
is defined by the rules of the Securities and Exchange Commission, of more than
5% of the outstanding shares of our common stock as of December 31, 2003. Number of Shares of Common Stock
    

    PercentName and Address*
    
    Beneficially Owned as of December 31, 2003
    
    of Class(1)B. Grant Hunter
    
    
    9,468,229
    
    
    
    47
    %John F. Curry
    
    
    7,683,714
    
    
    
    38
    %Julie R. Dean
    
    
    
    
    
    
    Ed Gatlin
    
    
    42,837
    
    
    
    *
    *Jerry W. Hunter
    
    
    51,613
    
    
    
    *
    *W. Burley Shedd
    
    
    3,550
    
    
    
    *
    *Named executive officers and
directors as a group (6
individuals)
    
    
    17,249,943
    
    
    
    85
    %
  *
    
    The address is 4126 Delp Street, Memphis, TN, 38118**
    
    Less than 1% of the outstanding shares of our common stock. Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to securities. The number of shares of common stock outstanding used
in calculating the percentage for each listed individual includes 20,242,571
shares of common stock outstanding as of December 31, 2003. There are no
shares of our common stock underlying options or warrants that are currently
exercisable or that are exercisable within 60 days of December 31, 2003.
Except for shares held jointly with a persons spouse or subject to applicable
community property laws, or as indicated in the footnotes to this table, each
shareholder identified in the table possesses sole voting power and investment
power with respect to all shares of common stock shown as beneficially owned by
such shareholder. 
 Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS During the year ended December 31, 2003, Lynn Whitsett Corporation, a
corporation owned by one of our directors, Mr. Jerry Hunter, purchased
$203,166 in refractory materials from us. These purchases
accounted for 40.5% of our 2003 revenues from continuing operations. Mr.
Hunter and his son, B. Grant Hunter, who is our President and Chief Executive
Officer, own Industrial Services Corp., a customer whose 2003 refractory
materials purchases totaled $227,947, and accounted for 45.4% of
our 2003 revenues from continuing operations. Lynn
Whitsett Corporation, B. Grant Hunter and Jerry Hunter have provided noninterest-bearing advances to us
with no stated repayment terms, and we also lease our principal place of
business from Lynn Whitsett Corporation. 
 Item 13. EXHIBITS AND REPORTS ON FORM 8-K  (a)
    
    The following exhibits are filed as part of this report: 31.1
    
    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 2002




---



##### Table of Contents



32.1
    
    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
  (b)
    
    There were no reports filed on Form 8-K during the quarter ended
December 31, 2003. 
 Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. The Board of Directors has appointed Coulter & Justus, P.C. as our
independent auditors to audit the financial statements of the Company and to
perform other accounting services, if appropriate, for the year ending December
31, 2004. Fees paid to Coulter & Justus for services provided during the years ended
December 31, 2003 and 2002, are presented below. Audit Fees include fees
associated with the annual audits and our IPO. Audit-Related Fees include
fees associated with assurance and related services related to the performance
of the audit. Tax Fees include fees associated with tax compliance, tax
advice, and tax planning. Audit Fees
    
    Audit-Related Fees
    
    Tax Fees
    
    All Other Fees2003
    
    $
    22,632
    
    
    $
    16,200
    
    
    $
    0
    
    
    $
    02002
    
    
    0
    
    
    
    9,753
    
    
    
    0
    
    
    
    0




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized. DIVERSIFIED THERMAL SOLUTIONS, INC.Date: March 27, 2004
    By:
    /s/ B. Grant HunterB. Grant HunterChief Executive Officer 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
Registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ John F. Curry
   John F. Curry
    
    Secretary-Treasurer, Vice
President of Operations, and
Director
    
    March 27, 2004/s/ Julie R. Dean
   Julie R. Dean
    
    Chief Financial Officer
    
    March 27, 2004/s/ Ed H. Gatlin
   Ed H. Gatlin
    
    Director
    
    March 27, 2004/s/ Jerry W. Hunter
   Jerry W. Hunter
    
    Director
    
    March 27, 2004/s/ W. Burley Shedd
   W. Burley Shedd
    
    Director
    
    March 27, 2004




---



##### Table of Contents



Diversified Thermal Solutions, Inc. Consolidated Financial Statements Years ended December 31, 2003 and 2002 Contents Report of Independent Auditors
    
    
    F-1Audited Consolidated Financial StatementsConsolidated Balance Sheets
    
    
    F-2Consolidated Statements of Operations
    
    
    F-3Consolidated Statements of Stockholders Deficit
    
    
    F-4Consolidated Statements of Cash Flows
    
    
    F-5Notes to Consolidated Financial Statements
    
    
    F-6




---



##### Table of Contents



Report of Independent Auditors The Board of Directors
Diversified Thermal Solutions, Inc. We have audited the accompanying consolidated balance sheets of Diversified
Thermal Solutions, Inc. (formerly known as VoIP Telecom, Inc.) and subsidiaries
(the Company) as of December 31, 2003 and 2002, and the related consolidated
statements of operations, stockholders deficit and cash flows for the years
then ended. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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
audits provide a reasonable basis for our opinion. In our opinion the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Diversified Thermal Solutions, Inc. and subsidiaries at December 31, 2003 and
2002, and the consolidated results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America. The Company has capitalized deferred loan and acquisition costs of $364,704 at
December 31, 2003, related to the acquisition of a company discussed in Note 6.
Should this acquisition fail to occur, these costs would be expensed. The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 9, the
Companys continuing cash requirements, among other things, raise substantial
doubt about its ability to continue as a going concern. Managements plans in
regard to these matters are also described in Note 9. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. /s/
Coulter & Justus, P.C. Knoxville,
Tennessee
February 17, 2004 F-1




---



##### Table of Contents



Diversified Thermal Solutions, Inc. 
 Consolidated Balance Sheets December 312003
    
    2002AssetsCurrent assets:Cash
    
    $
    4,168
    
    
    $
    14,188Receivables:Trade
    
    
    17,467
    
    
    
    12,260Related company
    
    
    2,338
    
    
    
    59,009Total receivables
    
    
    19,805
    
    
    
    71,269Unbilled revenue to related company
    
    
    926
    
    
    
    11,827Refundable income taxes
    
    
    
    
    
    
    8,068Inventories
    
    
    4,148
    
    
    
    Total current assets
    
    
    29,047
    
    
    
    105,352Deferred loan and acquisition costs
    
    
    364,704
    
    
    
    192,395Total assets
    
    $
    393,751
    
    
    $
    297,747Liabilities and stockholders deficitCurrent liabilities:Accounts payable and accrued expenses
    
    $
    358,363
    
    
    $
    294,034Advances from related parties:Shareholders
    
    
    80,684
    
    
    
    120,184Related company
    
    
    271,592
    
    
    
    124,063Total advances from related parties
    
    
    352,276
    
    
    
    244,247Total current liabilities
    
    
    710,639
    
    
    
    538,281Stockholders deficit:Common stock, par value $0.0001:Authorized100,000,000 sharesIssued and outstanding shares20,242,571 in
2003 and 2002
    
    
    2,024
    
    
    
    2,024Additional paid-in capital
    
    
    10,870,767
    
    
    
    10,870,767Accumulated deficit
    
    
    (11,189,679
    )
    
    
    (11,113,325
    )Net stockholders deficit
    
    
    (316,888
    )
    
    
    (240,534
    )Total liabilities and stockholders deficit
    
    $
    393,751
    
    
    $
    297,747
 See accompanying Notes to Consolidated Financial Statements. F-2




---



##### Table of Contents



Diversified Thermal Solutions, Inc. 
 Consolidated Statements of Operations Year ended December 312003
    
    2002Revenues:Related companies
    
    $
    431,113
    
    
    $
    177,699Other
    
    
    71,010
    
    
    
    13,761Total revenues
    
    
    502,123
    
    
    
    191,460Costs of goods sold
    
    
    467,661
    
    
    
    174,628Gross profit
    
    
    34,462
    
    
    
    16,832Operating expenses:Professional and consulting services
    
    
    48,359
    
    
    
    405,029Salaries
    
    
    
    
    
    
    180,729Marketing and advertising
    
    
    24,463
    
    
    
    31,873Office and administration
    
    
    37,604
    
    
    
    21,981Total operating expenses
    
    
    110,426
    
    
    
    639,612Operating loss
    
    
    (75,964
    )
    
    
    (622,780
    )Other expenses:Interest
    
    
    (390
    )
    
    
    Loss on disposal of equipment
    
    
    
    
    
    
    (8,857
    )Total other expenses
    
    
    (390
    )
    
    
    (8,857
    )Loss from continuing operations
    
    
    (76,354
    )
    
    
    (631,637
    )Discontinued operations:Loss from operations of discontinued business segment
    
    
    
    
    
    
    (172,595
    )Gain on disposal of business segment
    
    
    
    
    
    
    830,752Income from discontinued operations
    
    
    
    
    
    
    658,157Net (loss) income
    
    $
    (76,354
    )
    
    $
    26,520Basic earnings (loss) per share:Continuing operations
    
    $
    
    
    
    $
    (0.03
    )Discontinued operations
    
    
    
    
    
    
    0.03Net basic earnings (loss) per share
    
    $
    
    
    
    $
    
 See accompanying Notes to Consolidated Financial Statements. F-3




---



##### Table of Contents



Diversified Thermal Solutions, Inc. 
 Consolidated Statements of Stockholders Deficit Number ofShares
    
    
    
    
    
    Additional
    
    
    
    
    
    TotalIssued and
    
    Common
    
    Paid-in
    
    Accumulated
    
    StockholdersOutstanding
    
    Stock
    
    Capital
    
    Deficit
    
    DeficitBalance at January 1, 2002
    
    
    17,036,149
    
    
    $
    1,704
    
    
    $
    10,226,536
    
    
    $
    (11,139,845
    )
    
    $
    (911,605
    )Shares issued for
services and accrued
liabilities
    
    
    3,206,422
    
    
    
    320
    
    
    
    644,231
    
    
    
    
    
    
    
    644,551Net income for 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,520
    
    
    
    26,520Balance at December 31, 2002
    
    
    20,242,571
    
    
    
    2,024
    
    
    
    10,870,767
    
    
    
    (11,113,325
    )
    
    
    (240,534
    )Net loss for 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (76,354
    )
    
    
    (76,354
    )Balance at December 31, 2003
    
    
    20,242,571
    
    
    $
    2,024
    
    
    $
    10,870,767
    
    
    $
    (11,189,679
    )
    
    $
    (316,888
    )
 See accompanying Notes to Consolidated Financial Statements. F-4




---



##### Table of Contents



Diversified Thermal Solutions, Inc. 
 Consolidated Statements of Cash Flows Year ended December 312003
    
    2002Operating activitiesNet (loss) income
    
    $
    (76,354
    )
    
    $
    26,520Adjustments to reconcile net (loss) income to
net cash (used in) provided by operating activities:Gain on sale of subsidiary
    
    
    
    
    
    
    (830,752
    )Depreciation
    
    
    
    
    
    
    34,720Loss on disposal of equipment
    
    
    
    
    
    
    8,857Stock issued for services
    
    
    
    
    
    
    494,021Changes in operating assets and liabilities, net
of subsidiary sale in 2002:Receivables
    
    
    51,464
    
    
    
    715Unbilled revenue to related company
    
    
    10,901
    
    
    
    (11,827
    )Deferred loan and acquisition costs
    
    
    (47,407
    )
    
    
    Inventories
    
    
    (4,148
    )
    
    
    Refundable income taxes
    
    
    8,068
    
    
    
    Checks outstanding in excess of cash
    
    
    
    
    
    
    346,868Accounts payable and accrued expenses
    
    
    (60,573
    )
    
    
    80,561Net cash (used in) provided by operating activities
    
    
    (118,049
    )
    
    
    149,683Investing activitiesPurchases of equipment, furniture and fixtures
    
    
    
    
    
    
    (15,542
    )Financing activitiesNet advances from (repayments to) related parties
    
    
    108,029
    
    
    
    (128,743
    )Net (decrease) increase in cash
    
    
    (10,020
    )
    
    
    5,398Cash at beginning of year
    
    
    14,188
    
    
    
    8,790Cash at end of year
    
    $
    4,168
    
    
    $
    14,188
 Supplemental disclosure of noncash activities During March 2002, the Company sold its wholly-owned subsidiary, Access
Communications, Inc. as further discussed in Note 2. This sale is summarized
as follows: Net assets sold and liabilities assumed:Receivables
    
    $
    427,211Equipment, furniture and fixtures
    
    
    295,282Deposits
    
    
    55,354Checks outstanding in excess of bank balance
    
    
    (346,868
    )Accounts payable and accrued expenses
    
    
    (932,711
    )Advances from related parties
    
    
    (329,020
    )Net assets sold and liabilities assumed
    
    $
    (830,752
    )
 See accompanying Notes to Consolidated Financial Statements. F-5




---



##### Table of Contents



Diversified Thermal Solutions, Inc. 
 Notes to Consolidated Financial Statements  1.
    
    Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements of Diversified Thermal
Solutions, Inc. (the Company), formerly known as VoIP Telecom, Inc., include
the accounts of Diversified Thermal Solutions, Inc. and its wholly-owned
subsidiaries, DT Solutions, Inc. (formerly Global Holdings, Inc.) and
Refractory & Industrial Supply Group, Inc. Also, they include the accounts of
Access Communications, Inc., the Companys sold subsidiary discussed in Note 2,
through March 29, 2002. All intercompany balances and transactions have been
eliminated. Revenue Recognition The Company recognizes revenues at the time of shipment. Shipping and handling
costs are classified as a component of costs of goods sold. Major Customers and Credit Concentrations The Companys revenues from continuing operations for 2003 and 2002 were
derived primarily from three customers. Two of these customers are related
companies controlled by family members of a major stockholder and Company board
member and represented 45.4% and 40.5%, of the 2003 revenues. These two
customers accounted for 80.3% and 12.5% of the 2002 revenues from continuing
operations. Two customers accounted for all of the Companys accounts
receivable at both December 31, 2003 and 2002. The Company performs ongoing
credit evaluations of its customers financial condition, but does not require
collateral on accounts receivable. The Company charges accounts to bad debt
expense as they are determined to be uncollectible based, in part, on a review
of aging and collections. Credit losses have historically not been
significant. Advertising Costs Advertising costs are expensed as incurred. Estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from those
estimates. Inventories Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method. F-6




---



##### Table of Contents



Diversified Thermal Solutions, Inc. Notes to Consolidated Financial Statements (continued)  1.
    
    Significant Accounting Policies (continued) Property and Equipment Property and equipment was carried at cost. Repairs and maintenance are
charged to expense as incurred. Depreciation was computed using the
straight-line method over the estimated useful lives of the assets. Offsetting of Accounts The Company offsets accounts receivables and accounts payables whenever a right
of setoff exists. At December 31, 2003, such a right of offset existed for a
certain customer/vendor and accounts receivable and accounts payable were
offset by $59,658. No such right of offset existed at December 31, 2002. Fair Value of Financial Instruments The fair value of the Companys financial instruments approximates their
carrying value based upon the type and nature of the financial instruments.  2.
    
    Discontinued Operations Prior to March 29, 2002, the Company delivered international long distance
service via flexible, server-based networks consisting of re-sale arrangements
with other long distance providers, primarily through its wholly-owned
subsidiary, Access Communications, Inc. On March 29, 2002, the Company sold
100% of the common stock of Access Communications, Inc. to an independent third
party in exchange for a note receivable of $399,057. At the time of the sale,
the subsidiary had net liabilities of $830,752 and, accordingly, the Company
reported a gain on sale of subsidiary of $1,229,809. Subsequent to this sale,
the Company determined the note receivable was not collectible and decreased
the receivable and the previously reported gain by $399,057. The sale of
Access Communications, Inc. represents the disposal of a business segment under
Financial Accounting Standards Board (FASB) Statement No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. Accordingly, results of
this operation have been classified as discontinued for the year ended December
31, 2002. Operating results of this discontinued business segment are as follows for the
year ended December 31, 2002: Revenues
    
    $
    18,700Loss from discontinued operations
    
    $
    (172,595
    )Gain on disposal of business segment
    
    
    830,752Income from discontinued operations
    
    $
    658,157
 F-7




---



##### Table of Contents



Diversified Thermal Solutions, Inc. Notes to Consolidated Financial Statements (continued)  3.
    
    Ongoing Company Operations Subsequent to the sale of Access Communications, Inc. discussed in Note 2, the
Company operated essentially as a shell company for the purpose of acquiring
businesses related to the manufacturing and distribution of materials used in
the refractory industry. On July 1, 2002, the Company acquired all of the outstanding stock of Global
Holdings, Inc., a related entity by common ownership and control, via the
issuance of 15 million shares of common stock. In accordance with FASB
Statement No. 141, Business Combinations, as a result of the companies being
under common control, the net liabilities of Global Holdings, Inc. were
recorded at their carrying amount of $166,665 as of the date of the
acquisition. Subsequent to the acquisition, Global Holdings, Inc. changed its
name to DT Solutions, Inc. This subsidiary currently has no operations;
however, the Company intends for it to operate as a manufacturer of specialized
brick in the refractory industry once the asset purchase discussed in Note 6 is
completed. During July 2002, Refractory & Industrial Supply Group, Inc. was formed to
operate as a distributor of refractory supplies. All of the current operations
of the Company are presently conducted through this subsidiary.  4.
    
    Income Taxes For tax purposes, the Company has net operating loss (NOL) carryovers which
are available to offset future taxable income. These NOL carryovers expire as
follows: Year
    
    Year of
    
    NOLGenerated
    
    Expiration
    
    Amount2000
    
    2020
    
    $
    8,185,1222001
    
    2021
    
    
    1,558,9032002
    
    2022
    
    
    127,6842003
    
    2023
    
    
    75,907$
    9,947,616
 The amount of future taxable income which may be offset by the 2000 and 2001
NOL carryovers is limited due the change of ownership which occurred in July
2002 and is estimated to be approximately $80,000 annually. F-8




---



##### Table of Contents



Diversified Thermal Solutions, Inc. Notes to Consolidated Financial Statements (continued)  4.
    
    Income Taxes (continued) Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Companys deferred tax assets and liabilities are as follows as of
December 31: 2003
    
    2002Deferred tax assets:NOL carryovers
    
    $
    3,808,942
    
    
    $
    3,779,877Expenses not currently deductible
    
    
    189,161
    
    
    
    189,161Total deferred tax assets
    
    
    3,998,103
    
    
    
    3,969,038Less valuation allowance for
deferred tax assets
    
    
    (3,998,103
    )
    
    
    (3,969,038
    )Net deferred tax asset
    
    $
    
    
    
    $
    
 The valuation allowance was increased by $29,065 in 2003 and decreased by
$270,183 in 2002 due to changes in deferred tax assets for which realization
was not assured. Taxable income in 2002 was fully offset by NOLs. No income tax expense was
recognized in 2002, because no deferred benefits had been recorded related to
the NOLs generated in prior years. At the 34% statutory rate, the income tax
expense would have been approximately $9,000 in 2002.  5.
    
    Company Equity Matters During 2002, the Company issued 2,720,842 shares of common stock valued at
$494,021 for services. Additionally, the Company issued 485,580 shares valued
at $150,530 for accrued liabilities. Of these shares, 2,785,771 valued at
$434,553 were issued to related parties including Company board members and
their family. The values were determined based on the reported market price of
the stock. During 2003, the Companys stockholders approved the 2003 Diversified Thermal
Solutions, Inc. Equity Incentive Plan (the Plan) in an effort to promote the
interests of the Company and its stockholders. Under the terms of the Plan,
current and prospective officers and employees, and directors of and
consultants to the Company or its subsidiaries or affiliates are eligible to be
granted awards. Also under the terms of the Plan, the Company is authorized to
grant stock options, including both incentive stock options and non-qualified
stock options and is also authorized to grant stock appreciation rights, either
with or without a related option. The Company has reserved 1,500,000 shares of
authorized common stock for future issuance under the Plan. As of December 31,
2003, no stock options or stock appreciation rights have been issued under the
Plan. F-9




---



##### Table of Contents



Diversified Thermal Solutions, Inc. Notes to Consolidated Financial Statements (continued)  6.
    
    Commitments During 2002, the Company entered into a letter of intent to acquire
substantially all of the assets, with the exception of cash and receivables, of
a company that manufactures specialized brick used in the refractory business
for approximately $9 million. Due to delays related to amending and
restructuring the original letter of intent, along with changes in the
financing, the acquisition has taken longer than originally expected to
complete and the letter of intent has expired; however, the Company and the
refractory business owner are still pursuing the acquisition and management of
the Company anticipates the acquisition will take place in 2004. The funding
of the acquisition is expected to be provided through financial institution and
seller financing. Additionally, the Company anticipates obtaining a $300,000
and a $500,000 working capital line of credit once the acquisition is complete.
Also at the completion of the acquisition, the Company will be required to pay
approximately $260,000 in professional fees associated with the acquisition.
Should this acquisition fail to occur, the Company is not liable for these
fees, and accordingly, these amounts have not been accrued in the Companys
balance sheet. The Company has capitalized $364,704 in acquisition and loan costs which will
be allocated between direct costs of the acquisition and debt issue costs upon
completion of the acquisition. Should this acquisition fail to occur, these
capitalized costs would be expensed. The Company had $124,902 and $192,395 of
these capitalized costs that were not paid and included in accounts payable and
accrued expenses as of December 31, 2003 and 2002, respectively.  7.
    
    Earnings (Loss) Per Share Data Basic earnings (loss) per share assumes no dilution and is computed by dividing
income (loss) available to common shareholders by the weighted average number
of common stock outstanding during each period. Diluted earnings per share
reflect, in periods in which they have a dilutive effect, the effect of common
shares issuable upon the exercise of stock options or warrants, using the
treasury stock method of computing such effects and contingent shares. As the
Company has no outstanding stock options or warrants, there are no diluted
earnings (loss) per share. The following table sets forth the computation of basic earnings (loss) per
share for the years ended December 31: 2003
    
    2002Average shares outstanding
    
    
    20,242,571
    
    
    
    19,529,956Loss from continuing operations per share
    
    $
    
    
    
    $
    (0.03
    )Income from discontinued operations per share
    
    
    
    
    
    
    0.03Net income (loss) per share
    
    $

    
    
    
    $
    
 F-10




---



##### Table of Contents



Diversified Thermal Solutions, Inc. Notes to Consolidated Financial Statements (continued)  8.
    
    Other Related Party Transactions The Company has received advances from a related company that is also a
customer, from a stockholder and from a family member of a major stockholder in
order to meet its current obligations. These advances are noninterest bearing
and have no stated repayment terms. 9. Going Concern The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Companys continuing cash
requirements, among other things, may indicate the Company will be unable to
continue as a going concern for a reasonable period of time. Management
recognizes the Company must achieve profitable operations and generate
additional funds in order to continue as a going concern. The Company
anticipates the future operations and related financing of the asset
acquisition discussed in Note 6 will provide the Company future positive cash
flows necessary to continue as a going concern. F-11