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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION   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 September 30, 2004 OR [  ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 for the transition period from ____________ to ______________ Commission File Number: 000-28047 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.  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 October 31, 2004)
 Transitional Small Business Disclosure Format (check one): Yes [  ] 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
    
    
    2Condensed Consolidated Statements of Operations
    
    
    3Condensed Consolidated Statements of Cash Flows
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5Item 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 ACTING CFOEX-32.1 SECTION 906 CERTIFICATIONS OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE ACTING CFO




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Diversified Thermal Solutions, Inc. 
 Condensed Consolidated Balance Sheets September 30
    
    December 312004
    
    2003(Unaudited)AssetsCurrent assets:Cash
    
    $
    196
    
    
    $
    4,168Receivables:Trade, net
    
    
    15,611
    
    
    
    17,467Related party
    
    
    3,005
    
    
    
    2,338Total receivables
    
    
    18,616
    
    
    
    19,805Unbilled revenue to related company
    
    
    
    
    
    
    926Inventories
    
    
    4,148
    
    
    
    4,148Total current assets
    
    
    22,960
    
    
    
    29,047Equipment
    
    
    59,843
    
    
    
    Accumulated depreciation
    
    
    (2,992
    )
    
    
    Net equipment
    
    
    56,851
    
    
    
    Deferred loan and acquisition costs
    
    
    27,554
    
    
    
    364,704Total assets
    
    $
    107,365
    
    
    $
    393,751Liabilities and shareholders deficitCurrent liabilities:Accounts payable and accrued expenses
    
    $
    195,766
    
    
    $
    358,363Advances from related parties:Shareholder
    
    
    80,684
    
    
    
    80,684Related company
    
    
    563,567
    
    
    
    271,592Total advances from related parties
    
    
    644,251
    
    
    
    352,276Total current liabilities
    
    
    840,017
    
    
    
    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
    
    
    (11,701,286
    )
    
    
    (11,189,679
    )Net shareholders deficit
    
    
    (732,652
    )
    
    
    (316,888
    )Total liabilities and shareholders deficit
    
    $
    107,365
    
    
    $
    393,751
 See accompanying Notes to Condensed Consolidated Financial Statements. 2




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Diversified Thermal Solutions, Inc 
 Condensed Consolidated Statements of Operations (Unaudited) Three months ended
    
    Nine months endedSeptember 30
    
    September 302004
    
    2003
    
    2004
    
    2003Revenues:Related companies
    
    $
    39,921
    
    
    $
    109,448
    
    
    $
    64,384
    
    
    $
    434,468Other
    
    
    
    
    
    
    35,478
    
    
    
    15,611
    
    
    
    41,298Total revenues
    
    
    39,921
    
    
    
    144,926
    
    
    
    79,995
    
    
    
    475,766Costs of goods sold
    
    
    25,612
    
    
    
    114,804
    
    
    
    60,795
    
    
    
    435,418Gross profit
    
    
    14,309
    
    
    
    30,122
    
    
    
    19,200
    
    
    
    40,348Operating expenses:Professional and consulting
services
    
    
    16,831
    
    
    
    4,613
    
    
    
    91,049
    
    
    
    64,630Marketing and advertising
    
    
    
    
    
    
    207
    
    
    
    
    
    
    
    24,463Office and administrative
    
    
    5,756
    
    
    
    5,467
    
    
    
    23,006
    
    
    
    16,443Total operating expenses
    
    
    22,587
    
    
    
    10,287
    
    
    
    114,055
    
    
    
    105,536Operating (loss) income
    
    
    (8,278
    )
    
    
    19,835
    
    
    
    (94,855
    )
    
    
    (65,188
    )Other expenses:Write-off of deferred loan and
acquisition costs
    
    
    4,987
    
    
    
    
    
    
    
    (410,259
    )
    
    
    Interest expense
    
    
    (6,493
    )
    
    
    
    
    
    
    (6,493
    )
    
    
    (390
    )Net (loss) income
    
    $
    (9,784
    )
    
    $
    19,835
    
    
    $
    (511,607
    )
    
    $
    (65,578
    )Basic net loss earnings per share
    
    $
    
    
    
    $
    
    
    
    $
    (0.03
    )
    
    $
    
 See accompanying Notes to Condensed Consolidated Financial Statements. 3




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Diversified Thermal Solutions, Inc. 
 Condensed Consolidated Statements of Cash Flows (Unaudited) Nine months ended September 302004
    
    2003Operating activitiesNet loss
    
    $
    (511,607
    )
    
    $
    (65,578
    )Adjustments to reconcile net loss to net
cash used in operating activities:Depreciation
    
    
    2,992
    
    
    
    Write-off of deferred loan and acquisition costs
    
    
    410,259
    
    
    
    Stock issued for services
    
    
    36,000
    
    
    
    Changes in operating assets and liabilities:Receivables
    
    
    1,189
    
    
    
    67,646Unbilled revenue to related company
    
    
    926
    
    
    
    11,827Refundable income taxes
    
    
    
    
    
    
    8,068Inventories
    
    
    
    
    
    
    (4,000
    )Deferred loan and acquisition costs
    
    
    22,288
    
    
    
    (38,464
    )Accounts payable and accrued expenses
    
    
    (257,994
    )
    
    
    (14,070
    )Net cash used in operating activities
    
    
    (295,947
    )
    
    
    (34,571
    )Financing activitiesNet advances from related parties
    
    
    291,975
    
    
    
    23,240Net decrease in cash
    
    
    (3,972
    )
    
    
    (11,331
    )Cash at beginning of period
    
    
    4,168
    
    
    
    14,188Cash at end of period
    
    $
    196
    
    
    $
    2,857
 Supplemental schedule of noncash activities During the nine months ended September 30, 2004 and 2003, the Company has
$95,397 and $44,905, 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
nine months ended September 30, 2004. See accompanying Notes to Condensed Consolidated Financial Statements. 4




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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 nine
month periods ended September 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 nine months ended September 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.
This related company also represented 16% of the Companys accounts receivable
at September 30, 2004. Additionally, the Company has received advances from this related company and a
shareholder in order to meet its current obligations. Effective July 1, 2004,
these advances became interest bearing at an annual rate of 1.65%. These
advances 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. 5




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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 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 the second quarter 2004, the
management of Company determined they would no longer pursue this acquisition.
Accordingly, the Company wrote off $415,246 in loan and acquisition costs that
were previously capitalized related to this acquisition. During the third
quarter 2004, the management of the Company negotiated the reduction of their
accounts payable related to these costs by $4,987, reducing the amount of loan
and acquisition costs by the same amount. 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 a financial institution. The Company has
capitalized $27,554 in acquisition and loan costs related to this new intended
acquisition, which will be allocated between the direct costs of the
acquisition and the 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 Plan225,000 shares of common stock valued at
$36,000 to certain consultants of the Company. Two of these consultants
received 100,000 shares each. One consultant is also a Company board member
and the other consultant is also an officer of the Company. This amount has
been recorded as professional and consulting services expenses in the
accompanying condensed consolidated statement of operations. 6




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Diversified Thermal Solutions, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (continued) 5. Earnings (Loss) Per Share Data Basic earnings (loss) per share assumes no dilution and is computed by dividing
income (loss) available to common shareholders by the weighted average number
of common stock outstanding during each period. As the Company has no
outstanding stock options or warrants, there are no diluted earnings per share. The following table sets forth the computation of basic (loss) earnings per
share for the periods indicated: Three months ended
    
    Nine months endedSeptember 30
    
    September 302004
    
    2003
    
    2004
    
    2003Net (loss) earnings
    
    $
    (9,784
    )
    
    $
    19,835
    
    
    $
    (511,607
    )
    
    $
    (65,578
    )Average shares outstanding
    
    
    20,355,071
    
    
    
    20,242,571
    
    
    
    20,355,071
    
    
    
    20,242,571Net (loss) income per share
    
    $
    
    
    
    $
    
    
    
    $
    (0.03
    )
    
    $
    
 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 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 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. 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 September 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 the third quarter, we were able to
negotiate a reduction in the accounts payable related to these costs by $4,987.
During August 2004, we entered into a separate letter of intent to acquire
substantially all of the assets and assume certain liabilities of a separate
company that operates in the refractory industry. Refractory & Industrial Supply Group, Inc., one of our subsidiaries, was formed
to operate as a distributor of refractory supplies. All of our current
operations are presently conducted through this subsidiary. DT Solutions, Inc.,
another one of our subsidiaries, currently has no operations. 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. 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 three quarters of 2004 were $79,995 which
is a significant decrease from first three quarters of 2003. This decrease is
attributable to our limited operations thus far in 2004 pending the acquisition
discussed above. Expenses  During 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 8




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this expense, our overall operating expenses have decreased in the first three
quarters of 2004 compared to the first three quarters 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. Effective July 1, 2004, these advances became
interest bearing at 1.65%. These advances have no stated repayment terms. We are currently in negotiations with a financial institution with which we
anticipate obtaining a term loan and a line of credit to fund our pending
acquisition and provide necessary working capital. If this funding fails to
occur, this would 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 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  (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: November 12, 2004
    
    /s/ B. Grant HunterB. Grant HunterPresident and Chief Executive OfficerDate: November 12, 2004
    
    /s/ Mary EubanksMary EubanksActing Chief Financial Officer