UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549


________________________





FORM
10-Q


(Mark
One)





[X]
            QUARTERLY REPORT UNDER SECTION
      13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
  1934





For the
fiscal year ended March 31, 2008





[   ]
            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
            (IRS
      EmployerIncorporation
      or Organization)
            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





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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
the past 90 days.   þ Yes   ̈ No





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definitions of “accelerated filer,” “large accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.





Large
      accelerated filer  ̈
            Accelerated
      filer  ̈Non-accelerated
      filer  ̈
            Smaller
      Reporting Company þ


Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).   ̈Yes  þ No





Number of
shares outstanding of each of the issuer’s classes of common stock, as of May
20, 2008:




Title
            OutstandingCommon
      Stock, $0.0001 par value
            18,974,238
















TABLE
OF CONTENTS







Page
      No.PART
      I.  FINANCIAL INFORMATIONItem
      1.          Financial
      Statements (Unaudited)Condensed Consolidated Balance
      Sheet
            F-2Condensed Consolidated
      Statements of Operations
            F-4Condensed Consolidated
      Statements of Cash Flows
            F-5Notes to Condensed Consolidated
      Financial Statements
            F-6Item
      2.           Management’s
      Discussion and Analysis of Financial Condition andResults of
      Operations
            1Item
      3.          
      Quantitative and Qualitative Disclosures About Market Risk
            4Item
      4.           Controls
      and Procedures
            4PART
      II.  OTHER INFORMATIONItem
      1.           Legal
      Proceedings
            5Item
      1A.        Risk
      Factors
            5Item
      2.           Unregistered
      Sales of Equity Securities and Use of Proceeds
            5Item
      3.           Defaults
      Upon Senior Securities
            5Item
      4.           Submission
      of Matters to a Vote of Security Holders
            5Item
      5.           Other
      Information
            5Item
      6.           Exhibits
            5SIGNATURES
            6









F-1








PART
I.





ITEM
      1.
            FINANCIAL
      STATEMENTS.








Index
to Financial Statements








Condensed
Consolidated Balance
Sheets........................................................................................................................................................................................................................................ F-2


Condensed
Consolidated Statements of
Operations...................................................................................................................................................................................................................... F-4


Condensed
Consolidated Statements of Cash
Flows..................................................................................................................................................................................................................... F-5


Notes to
Condensed Consolidated Financial
Statements.............................................................................................................................................................................................................. F-6











































F-1


Diversified
Thermal Solutions, Inc.




Condensed
Consolidated Balance Sheets











March
      31
              2008
            
            
            December
      31
              2007(Unaudited)AssetsCurrent
      assets:Cash
            
            $
            9,373
            
            
            $
            1,445Accounts
      receivable:Trade
            
            
            1,132,244
            
            
            
            865,056Related
      companies
            
            
            100,568
            
            
            
            84,980Insurance claim
            
            
            128,485
            
            
            
            128,485Total
      accounts receivable
            
            
            1,361,297
            
            
            
            1,078,521Inventories,
      net
            
            
            3,190,777
            
            
            
            3,472,744Prepaid
      expenses
            
            
            100,979
            
            
            
            59,544Deferred
      income taxes
            
            
            61,248
            
            
            
            65,021Total
      current assets
            
            
            4,723,674
            
            
            
            4,677,275Property,
      plant and equipment:Land
            
            
            222,303
            
            
            
            222,303Buildings
            
            
            821,248
            
            
            
            821,248Machinery
      and equipment
            
            
            1,307,120
            
            
            
            1,047,6852,350,671
            
            
            
            2,091,236Less
      accumulated depreciation
            
            
            589,633
            
            
            
            535,3831,761,038
            
            
            
            1,555,853Construction
      in progress
            
            
            2,143,338
            
            
            
            1,415,608Net
      property, plant, and equipment
            
            
            3,904,376
            
            
            
            2,971,461Total
      assets
            
            $
            8,628,050
            
            
            $
            7,648,736














F-2


Diversified
Thermal Solutions, Inc.




Condensed
Consolidated Balance Sheets (continued)











March
      31
              2008
            
            
            December
      31
              2007(Unaudited)Liabilities
      and shareholders’ equityCurrent
      liabilities:Checks
      outstanding in excess of bank balance
            
            $
            –
            
            
            $
            25,829Line
      of credit
            
            
            2,453,728
            
            
            
            2,136,811Accounts
      payable and accrued expenses:Trade and other
            
            
            2,411,681
            
            
            
            1,651,800Related parties
            
            
            287,965
            
            
            
            268,546Total
      accounts payable and accrued expenses
            
            
            2,699,646
            
            
            
            1,920,346Deferred
      revenues
            
            
            –
            
            
            
            288,984Current
      portion of long-term debt
            
            
            654,342
            
            
            
            735,747Current
      portion of capital lease obligations
            
            
            37,596
            
            
            
            33,458Total
      current liabilities
            
            
            5,845,312
            
            
            
            5,141,175Advances
      from shareholders
            
            
            34,899
            
            
            
            34,899Advances
      from related company
            
            
            361,432
            
            
            
            –Deferred
      income taxes
            
            
            222,084
            
            
            
            262,110Long-term
      debt, less current portion
            
            
            6,259
            
            
            
            8,829Capital
      lease obligations, less current portion
            
            
            26,865
            
            
            
            21,926Notes
      payable to related companies
            
            
            1,000,000
            
            
            
            1,000,000Note
      payable to shareholder
            
            
            592,000
            
            
            
            592,000Total
      liabilities
            
            
            8,088,851
            
            
            
            7,060,939Shareholders’
      equity:Common
      stock, par value $0.0001:
              Authorized--100,000,000
      shares
              Issued
      and outstanding--18,974,238 shares in 2008 and 2007
            
            
            1,898
            
            
            
            1,898Additional
      paid-in capital
            
            
            11,260,904
            
            
            
            11,260,904Accumulated
      deficit
            
            
            (10,723,603
            )
            
            
            (10,675,005
            )Net
      shareholders’ equity
            
            
            539,199
            
            
            
            587,797Total
      liabilities and shareholders’ equity
            
            $
            8,628,050
            
            
            $
            7,648,736














See
accompanying Notes to Condensed Consolidated Financial Statements.








F-3


Diversified
Thermal Solutions, Inc.




Condensed
Consolidated Statements of Operations (Unaudited)











Three
      months ended March 312008
            
            
            2007Revenues:Trade
            
            $
            3,151,173
            
            
            $
            2,256,486Related
      companies
            
            
            93,443
            
            
            
            389,589Total
      revenues
            
            
            3,244,616
            
            
            
            2,646,075Costs
      of goods sold
            
            
            2,816,469
            
            
            
            2,481,758Gross
      profit
            
            
            428,147
            
            
            
            164,317Operating
      expenses:Professional
      and consulting services
            
            
            81,424
            
            
            
            24,900Marketing
      and advertising
            
            
            105,429
            
            
            
            96,519Office
      and administrative
            
            
            247,945
            
            
            
            223,109Total
      operating expenses
            
            
            434,798
            
            
            
            344,528Operating
      loss
            
            
            (6,651
            )
            
            
            (180,211
            )Other
      income (expenses):Miscellaneous
      income
            
            
            2,430
            
            
            
            1,683Interest
      expense
            
            
            (80,630
            )
            
            
            (75,502
            )Net
      other expenses
            
            
            (78,200
            )
            
            
            (73,819
            )Net
      loss before income taxes
            
            
            (84,851
            )
            
            
            (254,030
            )Deferred
      income tax benefit
            
            
            36,253
            
            
            
            103,111Net
      loss
            
            $
            (48,598
            )
            
            $
            (150,919
            )Net
      loss per share
            
            $
            –
            
            
            $
            (0.01
            )














See
accompanying Notes to Condensed Consolidated Financial Statements.







F-4


Diversified
Thermal Solutions, Inc.




Condensed
Consolidated Statements of Cash Flows (Unaudited)











Three
      months ended March 312008
            
            
            2007Operating
      activitiesNet
      loss
            
            $
            (48,598
            )
            
            $
            (150,919
            )Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activities:Depreciation
            
            
            54,250
            
            
            
            50,676Deferred
      income tax benefit
            
            
            (36,253
            )
            
            
            (103,111
            )Changes
      in operating assets and liabilities:Accounts
      receivables
            
            
            (282,776
            )
            
            
            (87,919
            )Inventories
            
            
            281,967
            
            
            
            99,203Prepaid
      expenses
            
            
            (41,435
            )
            
            
            (352,202
            )Accounts
      payable and accrued expenses
            
            
            779,300
            
            
            
            (155,005
            )Deferred
      revenues
            
            
            (288,984
            )
            
            
            –Net
      cash provided by (used in) operating activities
            
            
            417,471
            
            
            
            (699,277
            )Investing
      activitiesPurchases
      of property, plant, and equipment
            
            
            (968,910
            )
            
            
            (27,594
            )Financing
      activities(Decrease)
      increase in checks outstanding in excess of bank balance
            
            
            (25,829
            )
            
            
            23,632Net
      borrowings on line of credit
            
            
            316,917
            
            
            
            659,731Advances
      from related company
            
            
            361,432
            
            
            
            –Principal
      repayments on long-term debt
            
            
            (83,975
            )
            
            
            (52,595
            )Principal
      repayments on capital lease obligations
            
            
            (9,178
            )
            
            
            (8,134
            )Payments
      on amount due to related company
            
            
            –
            
            
            
            (2,000
            )Net
      cash provided by financing activities
            
            
            559,367
            
            
            
            620,634Net
      increase (decrease) in cash
            
            
            7,928
            
            
            
            (106,237
            )Cash
      at beginning of period
            
            
            1,445
            
            
            
            122,835Cash
      at end of period
            
            $
            9,373
            
            
            $
            16,598








Supplemental
Schedule of Noncash Activities





During
January 2008, the Company entered into a capital lease obligation for certain
equipment with a cost of $18,255.














See
accompanying Notes to Condensed Consolidated Financial
Statements.


F-5


Diversified
Thermal Solutions, Inc.




Notes
to Condensed Consolidated Financial Statements (Unaudited)







March 31,
2008











1.  Basis
of Presentation





The
accompanying unaudited condensed consolidated financial statements of
Diversified Thermal Solutions, Inc. (the “Company”) have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and pursuant to the rules and
regulations of the Securities and Exchange
Commission.   Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements.  In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included.  Operating results for the three month period ended March
31, 2008, are not necessarily indicative of the results that may be expected for
the year ending December 31, 2008.




The
condensed consolidated financial statements include the accounts of Diversified
Thermal Solutions, Inc. and its wholly-owned subsidiaries, DT Solutions, Inc.
and Fuzion Technologies, Inc.  All intercompany balances and
transactions have been eliminated.





The
balance sheet at December 31, 2007, has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by accounting principles generally accepted in the United
Sates of America for complete financial statements.





For
further information, refer to the consolidated financial statements and notes
thereto included in the Company’s annual report on Form 10-KSB for the year
ended December 31, 2007.





2.  Recent
Accounting Pronouncements




During
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, Fair Value Measurements, which is effective for fiscal years beginning
after November 15, 2007, with earlier adoption encouraged. SFAS 157 defines fair
value, establishes a framework for measuring fair value in GAAP, and expands
disclosures about fair value measurements. In February 2008, the FASB issued
FASB Staff Position FAS 157-2, Effective Date of FASB Statement No. 157, which
delayed the effective date of SFAS 157 for all non-financial assets and
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis, until January 1,
2009.   The Company adopted SFAS 157 on January 1, 2008, for all
financial assets and liabilities, but the implementation did not have a
significant impact on the Company’s financial position or results of
operations.  The Company has not yet determined the impact the
implementation of SFAS 157 will have on the Company’s non-financial assets and
liabilities which are not recognized or disclosed on a recurring
basis.  However, the Company does not anticipate that the full
adoption of SFAS 157 will significantly impact its consolidated financial
statements.







F-6


Diversified
Thermal Solutions, Inc.




Notes
to Condensed Consolidated Financial Statements (Unaudited)










2.  Recent
Accounting Pronouncements (continued)




During
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities—Including an Amendment of FASB Statement No.
115, which permits entities to choose to measure many financial instruments and
certain other items at fair value. The objective of SFAS 159 is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. The Company adopted SFAS 159 on January 1, 2008, but the
implementation of SFAS 159 did not have a significant impact on the Company's
financial position or results of operations.





3.  Contingencies





The
Company has agreed to guarantee certain indebtedness of two related
companies.  Upon default by the related companies, the Company would
be obligated to pay any outstanding principal and accrued interest on their
behalf.  In addition, if the related companies default on these loans,
the Company’s outstanding loans with the same financial institution will be
considered in default.  At March 31, 2008, the debt guaranteed for the
related companies was $1,907,934 under term loans and up to $5,500,000 under
revolving lines of credit.  These term loans and revolving lines of
credit expire between February 2009 and October 2010.  These loans are
also cross-collateralized by substantially all of the assets of the related
companies and the Company.





4.  Debt
Covenants





As of
December 31, 2007 and March 31, 2008, the Company was not in compliance with
certain financial covenants of the line of credit and long-term debt with a
financial institution, and accordingly, these balances have been classified as
current in the accompanying condensed consolidated balance sheets.





5.  Income
(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 is no diluted income (loss) per share.





The
following table sets forth the computation of basic loss per share for the
periods indicated:





Three
      months ended March 312008
            
            
            2007Average
      shares outstanding
            
            
            18,974,238
            
            
            
            18,834,238Net
      loss per share
            
            $
            –
            
            
            $
            (0.01
            )





F-7


Diversified
Thermal Solutions, Inc.




Notes
to Condensed Consolidated Financial Statements (Unaudited)
(continued)














6.  Advances
from Related Company





During
the three-month period ended March 31, 2008, the Company received advances from
a related company of $361,432 with no repayment terms.  During May 2008,
the Company received additional advances of $147,000 from the
same related company.





7.  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 recent losses and
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 profitably in
order to continue as a going concern.  The Company anticipates
that future efficiencies in operations will continue to improve operating
cash flows necessary to continue as a going concern.















F-8


ITEM
      2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS.





Caution regarding Forward-Looking
Statements





The following
information contains 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 uncertainties 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





Our
primary business purpose is to acquire businesses related to the manufacturing
and distribution of refractory materials used in industry.  DT
Solutions, Inc., one of our subsidiaries, currently has no
operations.





All of
our current operations are presently conducted through our other subsidiary,
Fuzion Technologies, Inc. This subsidiary is engaged in the business of
manufacturing refractory products, and dies used in the refractory industry and
precision machining. The subsidiary operates the Freeport Brick Division,
Kittanning Brick Division, and Armstrong Precision Manufacturing Division in
Pennsylvania and operates the Memphis Division in Tennessee, which is on a much
smaller scale.





The
Company earns revenue and generates cash principally through the sale of
products manufactured by its Fuzion Technologies Inc. subsidiary. Products are
sold to customers worldwide in the cement & lime, aluminum, steel, chemical,
petroleum, paper & pulp, foundry, and other non-ferrous
industries.





BALANCE
SHEETS





There
have been several significant changes in our assets since December 31, 2007.
Accounts receivable at March 31, 2008 have increased approximately $283,000 as
compared to December 31, 2007, mainly due to increased sales in the last month
of the reporting period.  Inventories decreased approximately $282,000
at March 31, 2008 as compared to December 31, 2007. This was the result of a
slow-down in production at the Freeport plant in January 2008, as the inventory
of finished goods at Freeport at the beginning of the year was sufficient enough
to allow us to reduce gas consumption by shutting off the Freeport tunnel kiln
for several weeks. In addition, we purchased only minimal amounts of raw
materials during the quarter, thereby reducing the amount of raw materials
inventory from what was on hand at December 31, 2007.  Net property,
plant, and equipment has increased approximately $933,000 since December 31,
2007 primarily due to expenditures for equipment and construction related to the
plant consolidation, which will be discussed later.











1




Accounts
payable and accrued expenses have increased $779,300 since December 31, 2007,
mainly due to amounts owed on construction costs related to the plant
consolidation as well as approximately $415,000 owed for natural gas used in
production in the month of March 2008.  Also, we borrowed an
additional $361,432 from a related company and drew an additional $316,917 on
our line of credit to fund the plant consolidation projects.





Our
shareholders’ equity at March 31, 2008 has decreased since December 31, 2007, as
a result of the net loss for the quarter.





RESULTS
OF OPERATIONS





Revenues
– Our revenues for the period ended March 31, 2008 are $3,244,616, which is an
increase of $598,541 from the period ended March 31, 2007.  This is
primarily due to several significant orders for Duro brick during the quarter
which accounted for most of the sales increase.  Two of our product
lines for clay brick showed a combined increase in sales of approximately
$332,000 while our sales of runner brick decreased approximately $207,000 for
the period ended March 31, 2008 as compared to the period ended March 31, 2007.
Sales of our other product lines were relatively consistent. We expect that this
level of Duro sales will decrease throughout the remainder of the year due to
the singular nature of several of the large orders in the period ended March 31,
2008. However, we also project an increase in runner brick
sales.  Also, the increase in revenues is due to selective price
increases throughout 2007 and first quarter of 2008.





Expenses
– Our cost of goods sold for the period ended March 31, 2008 are $2,816,469,
which is an increase of  approximately $335,000 from the period ended
March 31, 2007, due somewhat to the increase in costs directly related to the
increase in sales. However, our gross profit percentage for the period ended
March 31, 2008 was 13.2%, which compares favorably to 6.2% for the same period
last year. One of the factors contributing to this increase related to improved
sales in some of our better performing product lines along with our price
increases. Other factors that had a significant impact on gross profit relate to
energy and raw material costs. Because of increases in the cost of natural gas
over the past several years, it has become our single largest cost of
operations.  That trend has continued into our first quarter 2008
operations as our gas rate in 2008 is higher than it was in 2007. Natural gas
expense represented 28.8% of our gross sales for the period ended March 31, 2008
as compared to 26.6% for the period ended March 31, 2007.  We are
planning a major improvement in the efficiency of our production processes by
consolidating our refractory product manufacturing facilities to one
site.  This will involve moving production operations from the
Kittanning Brick facility to the Freeport Brick facility. Unfortunately, a fire
that occurred at the Freeport plant on February 2, 2006, has caused a
significant delay in this plant consolidation process and has therefore caused a
corresponding delay in realizing the financial benefits of this consolidation
project.  Also as a result of the fire at the Freeport plant, we were
unable to grind bauxite (which is an important and expensive raw material used
in our manufacturing of high alumina products) at our own facilities from
February 2006 through March 2008, until we completed the re-installation of our
bauxite grinding equipment.  This enabled us to grind some of the
lower cost raw bauxite that we had on site with our own equipment during the
quarter ended March 31, 2008, thereby generating some cost
savings.  Prior to the re-installation of this equipment, we were
buying already-ground bauxite from a third party on an “as-needed basis” as well
as out-sourcing the grinding of our own raw bauxite inventory. In addition, all
of the clay used in production at the Freeport plant is being ground at the
Kittanning plant and subsequently transported to the Freeport
facility.  This too is a direct result of the fire. These extra
handling and transportation costs have also had an impact on our raw material
costs.










2




Operating
expenses for the period ended March 31, 2008 are approximately $90,000 higher
than the period ended March 31, 2007, primarily due to a significant increase in
costs for professional services.





All of
the above resulted in an operating loss of $6,651 for the period ended March 31,
2008 as compared to an operating loss of $180,211 for the period ended March 31,
2007. This represents an improvement of $173,560.





For the
period ended March 31, 2008, other income and interest expense were generally
consistent compared to the same period last year.





LIQUIDITY
AND CAPITAL RESOURCES





As of
December 31, 2007 and March 31, 2008, the Company was not in compliance with
certain financial covenants of the line of credit and long-term debt and
accordingly, these balances have been classified as current in the accompanying
condensed consolidated balance sheets.  We recognize that the Company
must achieve profitable operations to continue as a going concern. The Company
anticipates the future efficiencies in operations will continue to improve
operating cash flows necessary to continue as a going concern.





OTHER
SIGNIFICANT EVENTS





On
February 2, 2006, a fire significantly damaged the Grinding Department building
and equipment at the Freeport Brick plant.  This Grinding Department
equipment was used to grind 100% of the clay used in production at the Freeport
plant as well as 100% of the bauxite used in production at both the Freeport and
Kittanning plants.  We had property insurance on the damaged facility
but a legal issue developed over differences in the form of coverage purchased
versus the form of coverage in the issued policy. In June 2006,  we
filed a lawsuit against our insurance agency based on this
issue.  After a long series of pre-trial legal proceedings, a
settlement was reached via mediation in December 2006, shortly before the
scheduled trial commencement.  As of March 31, 2008, we are still not
able to grind any clay at our Freeport plant. As noted above, we are incurring
significant additional raw material costs because of this. Until we rebuild the
remainder of our damaged grinding department, additional costs will be incurred
in this area.





We are
planning on improving the efficiency of our production processes by
consolidating our refractory product manufacturing facilities to one
site.  This involves moving production operations from the Kittanning
Brick facility to the Freeport Brick facility. We have contracted with a
commercial realtor to sell the Kittanning Brick facility.  This
project was expected to have been completed by the middle of the year 2007;
however, progress on this major project slowed dramatically pending the outcome
of our fire insurance claim.  Now that this insurance claim has been
settled, we are moving forward with our plans to consolidate these
operations.  We are aware that we need to finalize this plant
consolidation as quickly as possible in order to improve
efficiency.  We have prioritized our plans to complete the plant
consolidation project before rebuilding the grinding department.  As
of March 31, 2008, we have expended approximately $2,100,000 in construction and
equipment related to plant consolidation costs. It is expected that plant
consolidation will be completed in Summer 2008.





As
discussed earlier, bauxite is an important and expensive raw material used in
manufacturing some of our products. However, there is no domestic supply of
refractory grade bauxite and all of it must be imported from
China.  Unfortunately, the cost of this important raw material is
rising at an alarming rate. The most recent price quote that we were provided in
2008 represented a price increase of well over 200% as compared to our most
recent purchase in August 2007.  All of our competitors are facing
this same cost increase issue. Although we have increased our prices in 2008 to
offset these cost increases, the problem is compounded by the pressure placed on
our cash management in having to purchase raw materials well in advance of the
time that we are able to turn this raw material into a manufactured product,
sell the product, and collect our payments from our customers.  We are
currently researching alternative product mixes to counter this
problem.








3





ITEM
      3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.








ITEM
      4.
            CONTROLS
      AND PROCEDURES.





(a)
            Evaluation of Disclosure
      Controls and Procedures.





We have
evaluated the effectiveness of our disclosure controls and procedures in
ensuring that the information required to be disclosed in our filings under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission’s
rules and forms, including ensuring that such information is accumulated and
communicated to our management as appropriate to allow timely decisions
regarding required disclosure. Based on such evaluation, our principal executive
and financial officers have concluded that such disclosure controls and
procedures were not effective as of March 31, 2008, (the end of the period
covered by this Quarterly Report on Form 10-Q) as a result of two material
weaknesses relating to (i) our policy of verifying the physical quantity of raw
materials inventory only on an annual basis, and (ii) the segregation on duties
in the area of preparing checks.  Both of these material weaknesses
are further described in our Annual Report on Form 10-KSB for the year ended
December 31, 2007.  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.





(b)
            Changes in Internal Control
      over Financial Reporting.





During
the three months ended March 31, 2008, there were no changes in our internal
control over financial reporting that materially affected, or that are
reasonably likely to materially affect, our internal control over financial
reporting.













4


PART
II. – OTHER INFOMRATION





ITEM
1.      LEGAL PROCEEDINGS.





There are
no material changes to the Legal Proceedings described under the title “Legal
Proceedings” in our Annual Report on Form 10-KSB for the year ended December 31,
2007.




ITEM
1A.   RISK FACTORS.





Not
Applicable.




ITEM
2.      UNREGISTERED SALES OF EQUITY SECURITIES AND USE
OF PROCEEDS.




None.




ITEM
3.      DEFAULT UPON SENIOR SECURITES




None.




ITEM
4.      SUBMISSION OF MATTERS TO A VOTE OF
SECURITYHOLDERS




None.




ITEM
5.      OTHER INFORMATION




None.






ITEM
6.      EXHIBITS




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 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.









5


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:                      May
20,
2008                                                                    By:  /s/ B. Grant
Hunter


B. Grant
Hunter


Chief
Executive Officer and Director








Date:                      May
20,
2008                                                                    By:  /s/ J. Terry
Medovitch
 J. Terry
Medovitch
 Chief
Financial Officer



















6







EXHIBIT
INDEX







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 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.