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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)þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 for the quarterly period ended June 30, 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
of incorporation)
    
    (I.R.S. Employer
Identification No.)
 4126 Delp Street, Memphis, Tennessee 38118
(Address of principal executive offices) 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 þ  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
    
    20,467,571 shares(Class of Stock)
    
    (Shares outstanding as of August
13, 2004)
 Transitional Small Business Disclosure Format (check one): Yes o  No þ




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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 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
  2




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Diversified Thermal Solutions, Inc. 
 Condensed Consolidated Balance Sheets June 30
    
    December 312004
    
    2003(Unaudited)AssetsCurrent assets:Cash
    
    $
    185
    
    
    $
    4,168Receivables:Trade, net
    
    
    15,611
    
    
    
    17,467Related company
    
    
    
    
    
    
    2,338Total receivables
    
    
    15,611
    
    
    
    19,805Unbilled revenue to related company
    
    
    
    
    
    
    926Inventories
    
    
    4,148
    
    
    
    4,148Total current assets
    
    
    19,944
    
    
    
    29,047Equipment
    
    
    59,843
    
    
    
    Deferred loan and acquisition costs
    
    
    5,000
    
    
    
    364,704Total assets
    
    $
    84,787
    
    
    $
    393,751Liabilities and shareholders deficitCurrent liabilities:Accounts payable and accrued expenses
    
    $
    206,552
    
    
    $
    358,363Advances from related parties:Shareholder
    
    
    80,684
    
    
    
    80,684Related company
    
    
    520,419
    
    
    
    271,592Total advances from related parties
    
    
    601,103
    
    
    
    352,276Total current liabilities
    
    
    807,655
    
    
    
    710,639Shareholders deficit:Common stock, par value $0.0001,
authorized 100,000,000 shares, issued
and outstanding 20,467,571 in 2004 and 20,242,571 shares in 2003
    
    
    2,047
    
    
    
    2,024Additional paid-in capital
    
    
    10,966,587
    
    
    
    10,870,767Accumulated deficit
    
    
    (11,691,502
    )
    
    
    (11,189,679
    )Net shareholders deficit
    
    
    (722,868
    )
    
    
    (316,888
    )Total liabilities and shareholders deficit
    
    $
    84,787
    
    
    $
    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
    
    Six months endedJune 30
    
    June 302004
    
    2003
    
    2004
    
    2003Revenues:Related companies
    
    $
    20,746
    
    
    $
    25,564
    
    
    $
    24,463
    
    
    $
    325,020Other
    
    
    7,562
    
    
    
    
    
    
    
    15,611
    
    
    
    5,820Total revenues
    
    
    28,308
    
    
    
    25,564
    
    
    
    40,074
    
    
    
    330,840Costs of goods sold
    
    
    23,340
    
    
    
    15,649
    
    
    
    35,183
    
    
    
    320,614Gross profit
    
    
    4,968
    
    
    
    9,915
    
    
    
    4,891
    
    
    
    10,226Operating expenses:Professional and
consulting services
    
    
    49,680
    
    
    
    25,203
    
    
    
    74,218
    
    
    
    60,017Marketing and advertising
    
    
    
    
    
    
    8,306
    
    
    
    
    
    
    
    24,256Office and administrative
    
    
    921
    
    
    
    4,373
    
    
    
    17,250
    
    
    
    10,976Total operating expenses
    
    
    50,601
    
    
    
    37,882
    
    
    
    91,468
    
    
    
    95,249Operating loss
    
    
    (45,633
    )
    
    
    (27,967
    )
    
    
    (86,577
    )
    
    
    (85,023
    )Write-off of deferred loan and
and acquisition costs
    
    
    (415,246
    )
    
    
    
    
    
    
    (415,246
    )
    
    
    Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (390
    )Net loss
    
    $
    (460,879
    )
    
    $
    (27,967
    )
    
    $
    (501,823
    )
    
    $
    (85,413
    )Basic net loss per share
    
    $
    (.02
    )
    
    $
    
    
    
    $
    (.02
    )
    
    $
    
 See accompanying Notes to Condensed Consolidated Financial Statements. 4




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Diversified Thermal Solutions, Inc. 
 Condensed Consolidated Statements of Cash Flows (Unaudited) Six months ended June 302004
    
    2003Operating activitiesNet loss
    
    $
    (501,823
    )
    
    $
    (85,413
    )Adjustments to reconcile net loss to net cash used in
operating activities:Write-off of deferred loan and acquisition costs
    
    
    415,246Stock issued
for services
    
    
    36,000
    
    
    
    Changes in operating assets and liabilities:Receivables
    
    
    4,194
    
    
    
    39,424Unbilled revenue to related company
    
    
    926
    
    
    
    6,834Refundable income taxes
    
    
    
    
    
    
    8,068Inventories
    
    
    
    
    
    
    (4,000
    )Deferred loan and acquisition costs
    
    
    38,256
    
    
    
    (18,193
    )Checks outstanding in excess of bank balance
    
    
    
    
    
    
    157Accounts payable and accrued expenses
    
    
    (245,609
    )
    
    
    (45,790
    )Unearned revenue
    
    
    
    
    
    
    59,400Net cash used in operating activities
    
    
    (252,810
    )
    
    
    (39,513
    )Financing activitiesNet borrowings from related parties
    
    
    248,827
    
    
    
    25,325Net decrease in cash
    
    
    (3,983
    )
    
    
    (14,188
    )Cash at beginning of period
    
    
    4,168
    
    
    
    14,188Cash at end of period
    
    $
    185
    
    
    $
    
 Supplemental schedule of noncash activities During the six months ended June 30, 2004 and 2003, the Company has $93,798 and
$63,925, respectively, in deferred loan and acquisition costs related to the
acquisitions discussed in Note 3 that have not yet been paid. Additionally, shareholders contributed equipment totaling $59,843 during the
six months ended June 30, 2004. 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 and six month periods ended June 30, 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. 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 States 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 for the six months ended June 30, 2004 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
61% of these revenues. The other customer accounted for all of the Companys
accounts receivable at June 30, 2004. Additionally, the Company has received advances from the related company and a
shareholder in order to meet its current obligations. These advances are
noninterest bearing and have no stated repayment terms. During May 2004, the two majority shareholders of the Company contributed 100%
of the outstanding stock in LW Precast Corp. (LWP) to the Company. LWPs
assets consist entirely of certain equipment used in the refractory industry
and the entity has no revenues, expenses or liabilities. Due to the related
party nature of this transaction, in accordance with Financial Accounting
Standards Board Statement No. 141, Business Combinations, these assets were
recorded by the Company at their carrying amount of $59,843. Additional
paid-in capital was increased by this same amount. 6




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Diversified Thermal Solutions, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (continued) 3. Acquisition Matters 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.
Due to delays to amending and restructuring the original letter of intent,
along with changes in the financing, the anticipated acquisition took longer
than expected and the letter of intent expired. During second quarter 2004,
the management of the Company determined they would no longer pursue this
acquisition. Accordingly, the Company has written off $415,246 in loan and
acquisition costs that were previously capitalized related to this acquisition.
The Company is currently disputing additional fees of approximately $93,000
related to this acquisition. The ultimate outcome of these fee disputes is not
presently determinable and, accordingly, such amounts have not been accrued in
the accompanying condensed consolidated financial statements. During August 2004, the
Company entered into a separate non-binding letter of intent to
acquire substantially all of the assets and assume certain liabilities of a
separate company that operates in the refractory industry for approximately
$4.9 million. The Company anticipates this acquisition will be financed
through note agreements with both the seller and a financial institution. The
Company has capitalized $5,000 in acquisition and loan costs related to this
new intended acquisition, which will be allocated between direct costs of the
acquisition and debt issue costs upon the completion of the acquisition. 4. Stock Issuance During June 2004, the Company
issued under its 2003 Diversified Thermal Solutions, Inc. Equity
Incentive Plan 225,000 shares of common stock valued at $36,000
to certain consultants of the Company. Two of these consultants who
received 100,000 shares each are also Company board members. This
amount has been recorded as professional and consulting services
expenses in the accompanying condensed consolidated statement of
operations. 5. 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
earnings per share. The following table sets forth the computation of basic loss per share for the
periods indicated: Three months ended
    
    Six months endedJune 30
    
    June 302004
    
    2003
    
    2004
    
    2003Net loss
    
    $
    (460,879
    )
    
    $
    (27,967
    )
    
    $
    (501,823
    )
    
    $
    (85,413
    )Average shares outstanding
    
    
    20,298,821
    
    
    
    20,242,571
    
    
    
    20,274,714
    
    
    
    20,242,571Net loss per share
    
    $
    (.02
    )
    
    $
    
    
    
    $
    (.02
    )
    
    $
    
 7




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Diversified Thermal Solutions, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (continued) 6. 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 pending asset
acquisition discussed in Note 3 will provide the Company future positive cash
flows necessary to continue as a going concern. 
 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 June 30, 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 below. General Our primary business purpose is to acquire businesses related to the
manufacturing and distribution of materials used in the refractory industry.
We were previously 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. During the second quarter
of 2004, a decision was made to cease further negotiations related to this
acquisition; accordingly, we wrote-off $415,246 in previously recorded deferred
loan and acquisition costs. During August 2004, we entered into a separate
non-binding letter of intent to acquire substantially all of the assets and assume certain
liabilities of a separate company that operates in the refractory industry. 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 acquisition is completed. Refractory & Industrial Supply Group, Inc., another of our other subsidiaries,
was formed to operate as a distributor of refractory supplies. All of our
current operations are presently conducted through this subsidiary. During May 2004, our two majority shareholders contributed 100% of the
outstanding stock in LW Precast Corp. (LWP) to the Company. LWPs assets
consist entirely of certain equipment (with a carrying value of $59,843) used
in the refractory industry and the entity has no revenues, expenses or
liabilities. LWP became our latest wholly-owned subsidiary. 8




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Balance Sheets Our assets have changed significantly since December 31, 2003. This is
primarily due to our write-off of previously recorded deferred loan and
acquisition cost as discussed above. Our remaining deferred loan and
acquisition costs relate to the new acquisition we are pursuing. During May
2004, we recorded the equipment contributed to us through LWP, as discussed
above. 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. During June 2004, we issued 225,000 shares of our
common stock under the terms of our 2003 Diversified Thermal
Solutions, Inc. Equity Incentive Plan(the Equity Incentive
Plan) resulting in an increase of $36,000 in our common stock
and additional paid-in capital based on the fair value of the stock
issued. There have been no other significant changes affecting our
balance sheet since December 31, 2003. Results Of Operations Revenue  Our revenues for the first half of 2004 were $40,074 which is a
significant decrease from first half 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 in the first
quarter of 2004, we incurred additional product costs which resulted in a
significant increase in our cost of goods sold percentage from 2003. We have
corrected this matter and do not anticipate this problem to recur in the
future. During the second quarter of 2004 our professional and
consulting services expenses increased significantly as a result of
our issuing stock under our Equity Incentive Plan valued at $36,000
as previously discussed. With the exception of this expense, our
overall operating expenses have decreased in the first half of 2004
compared to the first half of 2003 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 our
pending acquisition through a financial institution. 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 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 9




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31.2
    
    Certification Pursuant to Section 302 of the Sarbanes  Oxley Act of 200232.1
    
    Certification Pursuant to Section 906 of the Sarbanes  Oxley Act of 200232.2
    
    Certification Pursuant to Section 906 of the Sarbanes  Oxley Act of 2002 (b). Reports on Form 8-K None. 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:
August 23, 2004
    
    /s/ B. Grant HunterB. Grant HunterPresident and Chief Executive OfficerDate:
August 23, 2004
    
    /s/ Mary EubanksMary EubanksActing Chief Financial Officer
 10