##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-QSB
 (MARK ONE)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 for the quarterly period ended March 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 for the transition period from January 1, 2007 to March 31, 2007
 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
 (901) 365-7650
 x o
 o x
  
 Common Stock, $0.0001 Par value
    
    18,834,238 shares(Class of Stock)
    
    (Shares outstanding as of May 14, 2007)
 o x




---



##### Table of Contents



INDEX TO FORM 10-QSB
 PagePart I. Financial InformationItem 1. Financial Statements.Condensed Consolidated Balance Sheets
    
    
    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 or Plan of Operation
    
    
    1Item 3. Controls and Procedures.
    
    
    3Part II. Other InformationItem 1. Legal Proceedings
    
    
    4Item 3. Defaults Upon Senior Securities
    
    
    4Item 6. Exhibits
    
    
    4Ex-31.1 Section 302 CertificationEx-31.2 Section 302 CertificationEx-32.1 Section 906 CertificationEx-32.2 Section 906 Certification




---



##### Table of Contents



Index to Financial Statements
 Condensed Consolidated Balance Sheets
    
    
    F-2Condensed Consolidated Statements of Operations
    
    
    F-4Condensed Consolidated Statements of Cash Flows
    
    
    F-5Notes to Condensed Consolidated Financial Statements
    
    
    F-6
 F-1




---



##### Table of Contents



March 31
    
    
    December 312007
    
    
    2006(Unaudited)AssetsCurrent assets:Cash
    
    $
    16,598
    
    
    $
    122,835Accounts receivable:Trade, net of reserve for doubtful
accounts of $5,000 in 2007 and
2006
    
    
    890,514
    
    
    
    1,008,082Related companies
    
    
    327,470
    
    
    
    121,983Insurance claim
    
    
    128,485
    
    
    
    128,485Total accounts receivable
    
    
    1,346,469
    
    
    
    1,258,550Inventories, net
    
    
    2,364,027
    
    
    
    2,463,230Prepaid expenses
    
    
    421,399
    
    
    
    69,197Deferred income taxes
    
    
    
    
    
    
    65,375Total current assets
    
    
    4,148,493
    
    
    
    3,979,187Property, plant and equipment:Land
    
    
    221,893
    
    
    
    217,950Buildings
    
    
    821,248
    
    
    
    821,248Machinery and equipment
    
    
    958,226
    
    
    
    937,3532,001,367
    
    
    
    1,976,551Less accumulated depreciation
    
    
    376,176
    
    
    
    325,5001,625,191
    
    
    
    1,651,051Construction on progress
    
    
    50,906
    
    
    
    42,128Equipment not in service
    
    
    69,065
    
    
    
    75,065Net property, plant, and equipment
    
    
    1,745,162
    
    
    
    1,768,244Total assets
    
    $
    5,893,655
    
    
    $
    5,747,431
 See accompanying Notes to Condensed Consolidated Financial Statements.
 F-2




---



##### Table of Contents



March 31
    
    
    December 312007
    
    
    2006(Unaudited)Liabilities and shareholders equityCurrent liabilities:Checks outstanding in excess of bank balance
    
    $
    23,632
    
    
    $
    Line of credit
    
    
    1,516,120
    
    
    
    856,389Accounts payable and accrued expenses
    
    
    951,032
    
    
    
    1,106,037Current portion of deferred income taxes
    
    
    90,905
    
    
    
    Current portion of long-term debt
    
    
    956,702
    
    
    
    1,004,132Current portion of capital lease obligations
    
    
    32,068
    
    
    
    31,618Total current liabilities
    
    
    3,570,459
    
    
    
    2,998,176Advances from shareholders
    
    
    34,899
    
    
    
    34,899Deferred income taxes, less current portion
    
    
    143,738
    
    
    
    403,129Long-term debt, less current portion
    
    
    7,055
    
    
    
    12,220Capital lease obligations, less current portion
    
    
    46,799
    
    
    
    55,383Notes payable to related companies
    
    
    1,000,000
    
    
    
    1,000,000Note payable to shareholder
    
    
    598,000
    
    
    
    600,000Total liabilities
    
    
    5,400,950
    
    
    
    5,103,807Shareholders equity:Common stock, par value $0.0001:Authorized100,000,000 sharesIssued and outstanding18,834,238 shares in 2007 and 2006
    
    
    1,884
    
    
    
    1,884Additional paid-in capital
    
    
    11,234,318
    
    
    
    11,234,318Accumulated deficit
    
    
    (10,743,497
    )
    
    
    (10,592,578
    )Net shareholders equity
    
    
    492,705
    
    
    
    643,624Total liabilities and shareholders equity
    
    $
    5,893,655
    
    
    $
    5,747,431
 See accompanying Notes to Condensed Consolidated Financial Statements.
 F-3




---



##### Table of Contents



Three months ended March 312007
    
    
    2006Revenues:Trade
    
    $
    2,256,486
    
    
    $
    3,287,671Related companies
    
    
    389,589
    
    
    
    Total revenues
    
    
    2,646,075
    
    
    
    3,287,671Costs of goods sold
    
    
    2,481,758
    
    
    
    2,767,056Gross profit
    
    
    164,317
    
    
    
    520,615Operating expenses:Professional and consulting services
    
    
    24,900
    
    
    
    26,006Marketing and advertising
    
    
    96,519
    
    
    
    104,404Office and administrative
    
    
    223,109
    
    
    
    239,100Total operating expenses
    
    
    344,528
    
    
    
    369,510Operating (loss) income
    
    
    (180,211
    )
    
    
    151,105Other income (expenses):Miscellaneous income
    
    
    1,683
    
    
    
    2,420Interest expense
    
    
    (75,502
    )
    
    
    (107,466
    )Net other expenses
    
    
    (73,819
    )
    
    
    (105,046
    )Net (loss) income before income taxes
    
    
    (254,030
    )
    
    
    46,059Deferred income tax benefit
    
    
    103,111
    
    
    
    Net (loss) income
    
    $
    (150,919
    )
    
    $
    46,059Net (loss) income per share
    
    $
    (0.01
    )
    
    $
    0.00
 See accompanying Notes to Condensed Consolidated Financial Statements.
 F-4




---



##### Table of Contents



Three months ended March 312007
    
    
    2006Operating activitiesNet (loss) income
    
    $
    (150,919
    )
    
    $
    46,059Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:Depreciation
    
    
    50,676
    
    
    
    55,557Deferred income tax benefit
    
    
    (103,111
    )
    
    
    Stock issued for service
    
    
    
    
    
    
    1,600Changes in operating assets and liabilities:Accounts receivables
    
    
    (87,919
    )
    
    
    (594,802
    )Inventories
    
    
    99,203
    
    
    
    352,474Prepaid expenses
    
    
    (352,202
    )
    
    
    (80,287
    )Accounts payable and accrued expenses
    
    
    (155,005
    )
    
    
    391,202Net cash (used in) provided by operating activities
    
    
    (699,277
    )
    
    
    171,803Investing activitiesPurchases of property, plant, and equipment
    
    
    (27,594
    )
    
    
    (148,778
    )Financing activitiesIncrease (decrease) in checks outstanding in excess of bank balance
    
    
    23,632
    
    
    
    (3,450
    )Net borrowings on line of credit
    
    
    659,731
    
    
    
    99,000Principal repayments on long-term debt
    
    
    (52,595
    )
    
    
    (70,724
    )Principal repayments on capital lease obligations
    
    
    (8,134
    )
    
    
    (7,688
    )Payments on amount due to related company
    
    
    (2,000
    )
    
    
    (27,273
    )Net cash provided by (used in) financing activities
    
    
    620,634
    
    
    
    (10,135
    )Net (decrease) increase in cash
    
    
    (106,237
    )
    
    
    12,890Cash at beginning of period
    
    
    122,835
    
    
    
    Cash at end of period
    
    $
    16,598
    
    
    $
    12,890
 See accompanying Notes to Condensed Consolidated Financial Statements.
 F-5




---



##### Table of Contents



1. Basis of Presentation
     2. Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes (an interpretation of FASB Statement No. 109)
 3. Related Party Transactions
  F-6




---



##### Table of Contents



4. Contingencies
  5. Debt Covenants
  6. Income Tax Provision
  7. Income (Loss) Per Share Data
   Three months ended March 312007
    
    
    2006Average shares outstanding
    
    
    18,834,238
    
    
    
    18,832,571Net (loss) income per share
    
    $
    (0.01
    )
    
    $
    0.00
 F-7




---



##### Table of Contents



8. Going Concern
  F-8




---



##### Table of Contents



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
    Balance Sheets
      1




---



##### Table of Contents



Results of Operations
     2




---



##### Table of Contents



Liquidity and Capital Resources
  Other Significant Events
    Off Balance Sheet Arrangements
  
 Item 3. Controls and Procedures
 (a) Evaluation of Disclosure Controls and Procedures.
  3




---



##### Table of Contents



(b) Changes in Internal Control over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 3. Defaults Upon Senior Securities
  
 Item 6. Exhibits
  31.1
    
    
    Certification Pursuant to Section 302 of the Sarbanes  Oxley Act of 200231.2
    
    
    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
 4




---



##### Table of Contents



SIGNATURES
  DIVERSIFIED THERMAL SOLUTIONS, INC.
Registrant Date: May 14, 2007
    /s/ B. Grant HunterB. Grant HunterPresident and Chief Executive Officer Date: May 14, 2007
    /s/ J. Terry MedovitchJ. Terry MedovitchChief Financial Officer 5