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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 Form 10-QSB Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (MARK ONE) x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 for the quarterly period ended March 31, 2004 OR o
    
    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:
000-28047 DIVERSIFIED THERMAL SOLUTIONS, INC.   Nevada
    
    94-3342064(State or other jurisdiction
    
    (I.R.S. Employerof incorporation)
    
    Identification No.)
 4126 Delp Street, Memphis, Tennessee 38118   Registrant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.       Yes x       No o APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date. Common Stock, $0.0001 Par value
    
    20,242,571 shares(Class of Stock)
    
    (Shares outstanding as of May 10, 2004)
 Transitional Small Business Disclosure Format (check one):       Yes o       No x




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Diversified Thermal Solutions, Inc.INDEX TO FORM 10-QSB PagePart I. Financial InformationItem 1. Financial Statements.Condensed Consolidated Balance Sheets
    
    
    3Condensed Consolidated Statements of Operations
    
    
    4Condensed Consolidated Statements of Cash Flows
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis or Plan of Operation
    
    
    8Item 3. Controls and Procedures
    
    
    9Part II. Other InformationItem 6. Exhibits and Reports on Form 8-K
    
    
    9EX-31.1  SECTION 302 CEO CERTIFICATIONEX-31.2  SECTION 302 CFO CERTIFICATIONEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO
 2




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Diversified Thermal Solutions, Inc. 
 Condensed Consolidated Balance Sheets March 31
    
    December 312004
    
    2003(Unaudited)AssetsCurrent assets:Cash
    
    $
    276
    
    
    $
    4,168Receivables:Trade, net
    
    
    8,049
    
    
    
    17,467Related party
    
    
    3,717
    
    
    
    2,338Total receivables
    
    
    11,766
    
    
    
    19,805Unbilled revenue to related company
    
    
    
    
    
    
    926Inventories
    
    
    4,148
    
    
    
    4,148Total current assets
    
    
    16,190
    
    
    
    29,047Deferred loan and acquisition costs
    
    
    383,720
    
    
    
    364,704Total assets
    
    $
    399,910
    
    
    $
    393,751Liabilities and shareholders deficitCurrent liabilities:Accounts payable and accrued expenses
    
    $
    207,263
    
    
    $
    358,363Advances from related parties:Shareholder
    
    
    80,684
    
    
    
    80,684Related company
    
    
    469,795
    
    
    
    271,592Total advances from related parties
    
    
    550,479
    
    
    
    352,276Total current liabilities
    
    
    757,742
    
    
    
    710,639Shareholders deficit:Common stock, par value $0.0001,
authorized 100,000,000 shares, issued
and outstanding 20,242,571 shares
    
    
    2,024
    
    
    
    2,024Additional paid-in capital
    
    
    10,870,767
    
    
    
    10,870,767Accumulated deficit
    
    
    (11,230,623
    )
    
    
    (11,189,679
    )Net shareholders deficit
    
    
    (357,832
    )
    
    
    (316,888
    )Total liabilities and shareholders deficit
    
    $
    399,910
    
    
    $
    393,751
 See accompanying Notes to Condensed Consolidated Financial Statements. 3




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Diversified Thermal Solutions, Inc. 
 Condensed Consolidated Statements of Operations (Unaudited) Three months ended March 312004
    
    2003Revenues:Related companies
    
    $
    3,717
    
    
    $
    299,457Other
    
    
    8,049
    
    
    
    5,820Total revenues
    
    
    11,766
    
    
    
    305,277Costs of goods sold
    
    
    11,843
    
    
    
    295,211Gross (loss) profit
    
    
    (77
    )
    
    
    10,066Operating expenses:Professional and consulting services
    
    
    24,538
    
    
    
    34,814Marketing and advertising
    
    
    2,082
    
    
    
    15,950Office and administrative
    
    
    14,247
    
    
    
    16,357Total operating expenses
    
    
    40,867
    
    
    
    67,121Operating loss
    
    
    (40,944
    )
    
    
    (57,055
    )Interest expense
    
    
    
    
    
    
    390Net loss
    
    $
    (40,944
    )
    
    $
    (57,445
    )Net loss per share
    
    $
    
    
    
    $
    
 See accompanying Notes to Condensed Consolidated Financial Statements. 4




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Diversified Thermal Solutions, Inc. 
 Condensed Consolidated Statements of Cash Flows (Unaudited) Three months ended March 312004
    
    2003Operating activitiesNet loss
    
    $
    (40,944
    )
    
    $
    (57,445
    )Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:Changes in operating assets and liabilities, net
of subsidiary sale:Receivables
    
    
    8,039
    
    
    
    17,551Unbilled revenue to related company
    
    
    926
    
    
    
    (3,356
    )Refundable income taxes
    
    
    
    
    
    
    2,391Deferred loan and acquisition costs
    
    
    
    
    
    
    (8,069
    )Accounts payable and accrued expenses
    
    
    (170,116
    )
    
    
    53,535Net cash (used in) provided by operating activities
    
    
    (202,095
    )
    
    
    4,607Financing activitiesNet borrowings (repayments) to related parties
    
    
    198,203
    
    
    
    (12,459
    )Net decrease in cash
    
    
    (3,892
    )
    
    
    (7,852
    )Cash at beginning of period
    
    
    4,168
    
    
    
    14,188Cash at end of period
    
    $
    276
    
    
    $
    6,336
 See accompanying Notes to Condensed Consolidated Financial Statements. 5




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Diversified Thermal Solutions, Inc. 
 Notes to Condensed Consolidated Financial Statements (Unaudited) 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, 2004 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2004. The condensed consolidated financial statements include the accounts of
Diversified Thermal Solutions, Inc. and its wholly-owned subsidiaries, DT
Solutions, Inc. and Refractory & Industrial Supply Group, Inc. All
inter-company balances and transactions have been eliminated. The balance sheet at December 31, 2003 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, 2003. 2. Related Party Transactions The Companys revenues from continuing operations for the three months ended
March 31, 2004 and 2003 were derived from two customers. One of these
customers is a related company controlled by a family member of a major
stockholder and Company board member and represented 31.6% of the first quarter
2004 revenues. This customer accounted for 98.1% of the first quarter 2003
revenues. Two customers, including this related company, accounted for all of
the Companys accounts receivables at March 31, 2004 and December 31, 2003.
Additionally, the Company has received advances from this related company and a
shareholder in order to meet its current obligations. These advances are
noninterest bearing and have no stated repayment terms. 3. Commitments and Contingencies 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. The funding of
the acquisition is expected to be provided through financial institution and
seller financing. Additionally, the Company anticipates obtaining working
capital lines of credit of $300,000 and $500,000 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. 6




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Diversified Thermal Solutions, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (continued) 3. Commitments and Contingencies (continued) The Company has capitalized $383,720 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 incurred $19,016 during the
first quarter 2004 and $66,595 during the first quarter 2003 of these
capitalized costs that were not paid and included in accounts payable and
accrued expenses as of March 31, 2004 and 2003, respectively. 4. 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 loss
per share. The following table sets forth the computation of basic loss per share for the
periods indicated: Three months endedMarch 312004
    
    2003Average shares outstanding
    
    
    20,242,571
    
    
    
    20,242,571Net loss per share
    
    $
    
    
    
    $
    
 5. 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 3 will provide the Company future positive cash
flows necessary to continue as a going concern. 7




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ITEM 2. Managements Discussion and Analysis or Plan of Operation. Caution regarding Forward-Looking Statements 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
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 This Quarterly Report on Form 10-QSB for the period ended March 31, 2004
should be read in conjunction with our unaudited financial statements included
as part of this Form 10-QSB Report. This report contains forward-looking
statements which are described and defined above. General Our primary business purpose is to acquire businesses related to the
manufacturing and distribution of materials used in the refractory industry.
In regards to this, we are currently negotiating the purchase of substantially
all of the assets, with the exception of cash and receivables, of a company
that manufactures specialized brick used in the refractory business. DT
Solutions, Inc., one of our subsidiaries, currently has no operations; however,
we intend for it to operate as a manufacturer of specialized brick in the
refractory industry once this asset purchase is completed. Refractory & Industrial Supply Group, Inc., our other subsidiary, was
formed to operate as a distributor of refractory supplies. All of our current
operations are presently conducted through this subsidiary. Balance Sheets Our assets have not changed significantly since December 31, 2003. Our
deferred loan and acquisition costs have increased as a result of the
asset-purchase negotiations discussed above. Additionally, our accounts
receivable have decreased due to our significant decrease in operations in the
first quarter 2004. Overall our total liabilities have increased somewhat due
to our current limited cash flows. We received additional advances from a
related company to fund our cash flow needs and to reduce our accounts payable
and accrued expenses. There have been no other significant changes affecting
our balance sheet since December 31, 2003. Results Of Operations Revenue.Our revenues for the first quarter of 2004 were $11,766 which is
a significant decrease from first quarter of 2003. This decrease is
attributable to our limited operations thus far in 2004 pending the acquisition
discussed above. Expenses.Due to an untimely shipment of our goods to a customer, we
incurred additional product costs which resulted in our cost of goods sold
exceeding our revenues for the first quarter of 2004. We have corrected this
matter and do not anticipate this problem to recur in the future. Overall our
operating expenses have decreased in the first quarter 2004 compared to the
first quarter 2003. This decrease was anticipated due to the slowdown in our
operations pending the acquisition discussed above. Liquidity and Capital Resources Currently, our losses 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 the acquisition discussed above as well as 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 8




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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 3. Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures. We have instituted disclosure controls and procedures designed to ensure
the timely recording, processing, summarization and reporting to our
management, including our Chief Executive Officer, of information required to
be disclosed in our reports under the Securities Exchange Act of 1934, as
amended (the Exchange Act). Within the 90 days prior to the filing date of
this Quarterly Report on Form 10-QSB, we have performed an evaluation of the
effectiveness of the design and operation of these controls under the
supervision and with the participation of our management, including our Chief
Executive Officer. Based upon that evaluation, the Chief Executive Officer has
concluded that the disclosure controls and procedures effectively alert
management to material information related to the Company in a manner which
allows timely decisions regarding required disclosures of such information. In
the design and evaluation of our disclosure controls and procedures, management
has recognized that risks of misstatements due to error, failures in
compliance, or changes in conditions are inherent in any cost-effective control
system. Thus, management can provide only reasonable assurance that its
controls and procedures will achieve their stated goals under all potential
future conditions. There have been no significant changes in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of managements evaluation. 
 PART II. OTHER INFORMATION 
 Item 6. Exhibits and Reports on Form 8-K (a). Exhibits 31.1 Certification Pursuant to Section 302 of the Sarbanes  Oxley Act of 2002 31.2 Certification Pursuant to Section 302 of the Sarbanes  Oxley Act of 2002 32.1 Certification Pursuant to Section 906 of the Sarbanes  Oxley Act of 2002 32.2 Certification Pursuant to Section 906 of the Sarbanes  Oxley Act of 2002 (b). Reports on Form 8-K None. 9




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. DIVERSIFIED THERMAL SOLUTIONS, INC.
RegistrantDate: May 13, 2004
    /s/ B. Grant HunterB. Grant HunterPresident and Chief Executive Officer Date: May 13, 2004
    /s/ Mary EubanksMary EubanksActing Chief Financial Officer 10