Diversified Thermal Solutions (DVTS) Inactive
Filed: 14 Nov 03, 12:00am
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, 2003 | ||
| 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 [X] No [ ]
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 November 13, 2003) |
Diversified Thermal Solutions, Inc.
INDEX TO FORM 10-QSB
| Page | ||||||||||||
| Part I | Financial Information | |||||||||||
| Item 1. | Financial Statements | |||||||||||
| Condensed Consolidated Balance Sheets | 1 | |||||||||||
| Condensed Consolidated Statements of Operations | 2 | |||||||||||
| Condensed Consolidated Statements of Cash Flows | 3 | |||||||||||
| Notes to Condensed Consolidated Financial Statements | 5 | |||||||||||
| Item 2. | Management’s Discussion and Analysis or Plan of Operation | 8 | ||||||||||
| Item 3. | Controls and Procedures | 9 | ||||||||||
| Part II | Other Information | |||||||||||
| Item 6. | Exhibits and Reports on Form 8-K. 10 | |||||||||||
Diversified Thermal Solutions, Inc.
Condensed Consolidated Balance Sheets
| September 30 | December 31 | |||||||||
| 2003 | 2002 | |||||||||
| (Unaudited) | ||||||||||
Assets | ||||||||||
| Current assets: | ||||||||||
| Cash | $ | 2,857 | $ | 14,188 | ||||||
| Receivables: | ||||||||||
| Trade, net | – | 12,260 | ||||||||
| Related party | 3,623 | 59,009 | ||||||||
| Total receivables | 3,623 | 71,269 | ||||||||
| Unbilled revenue to related company | – | 11,827 | ||||||||
| Refundable income taxes | – | 8,068 | ||||||||
| Inventories | 4,000 | – | ||||||||
| Total current assets | 10,480 | 105,352 | ||||||||
| Deferred loan and acquisition costs | 275,764 | 192,395 | ||||||||
| Total assets | $ | 286,244 | $ | 297,747 | ||||||
Liabilities and shareholders’ deficit | ||||||||||
| Current liabilities: | ||||||||||
| Accounts payable and accrued expenses | $ | 324,869 | $ | 294,034 | ||||||
| Advances from related parties: | ||||||||||
| Shareholder | 80,684 | 120,184 | ||||||||
| Related company | 186,803 | 124,063 | ||||||||
| Total advances from related parties | 267,487 | 244,247 | ||||||||
| Total current liabilities | 592,356 | 538,281 | ||||||||
| Shareholders’ deficit: | ||||||||||
| Common stock, par value $0.0001, authorized 100,000,000 shares, issued and outstanding 20,242,571 shares | 2,024 | 2,024 | ||||||||
| Additional paid-in capital | 10,870,767 | 10,870,767 | ||||||||
| Accumulated deficit | (11,178,903 | ) | (11,113,325 | ) | ||||||
| Net shareholders’ deficit | (306,112 | ) | (240,534 | ) | ||||||
| Total liabilities and shareholders’ deficit | $ | 286,244 | $ | 297,747 | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
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Diversified Thermal Solutions, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
| Three months ended | Nine months ended | ||||||||||||||||
| September 30 | September 30 | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
| Revenues: | |||||||||||||||||
| Related companies | $ | 109,448 | $ | 38,939 | $ | 434,468 | $ | 38,939 | |||||||||
| Other | 35,478 | – | 41,298 | – | |||||||||||||
| Total revenues | 144,926 | 38,939 | 475,766 | 38,939 | |||||||||||||
| Costs of goods sold | 114,804 | 32,139 | 435,418 | 32,139 | |||||||||||||
| Gross profit | 30,122 | 6,800 | 40,348 | 6,800 | |||||||||||||
| Operating expenses: | |||||||||||||||||
| Professional and consulting services | 4,613 | 49,637 | 64,630 | 320,142 | |||||||||||||
| Salaries | – | – | – | 208,729 | |||||||||||||
| Marketing and advertising | 207 | 18,169 | 24,463 | 18,169 | |||||||||||||
| Office and administrative | 5,467 | 2,285 | 16,443 | 29,655 | |||||||||||||
| Total operating expenses | 10,287 | 70,091 | 105,536 | 576,695 | |||||||||||||
| Operating income (loss) | 19,835 | (63,291 | ) | (65,188 | ) | (569,895 | ) | ||||||||||
| Other expenses: | |||||||||||||||||
| Loss on disposal of equipment | – | 8,857 | – | 8,857 | |||||||||||||
| Interest expense | – | – | 390 | – | |||||||||||||
| Total other expenses | – | 8,857 | 390 | 8,857 | |||||||||||||
| Income (loss) from continuing operations | 19,835 | (72,148 | ) | (65,578 | ) | (578,752 | ) | ||||||||||
| Discontinued operations: | |||||||||||||||||
| Loss from operations of discontinued business segment | – | – | – | (172,595 | ) | ||||||||||||
| Gain on disposal of business segment | – | – | – | 830,752 | |||||||||||||
| Income from discontinued operations | – | – | – | 658,157 | |||||||||||||
| Net income (loss) | $ | 19,835 | $ | (72,148 | ) | $ | (65,578 | ) | $ | 79,405 | |||||||
| Income (loss) from continuing operations per share | $ | – | $ | – | $ | – | $ | (0.03 | ) | ||||||||
| Income from discontinued operations per share | – | – | – | 0.03 | |||||||||||||
| Net income (loss) income per share | $ | – | $ | – | $ | – | $ | – | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
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Diversified Thermal Solutions, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
| Nine months ended September 30 | ||||||||||
| 2003 | 2002 | |||||||||
Operating activities | ||||||||||
| Net (loss) income | $ | (65,578 | ) | $ | 79,405 | |||||
| Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | ||||||||||
| Gain on sale of subsidiary | – | (830,752 | ) | |||||||
| Depreciation | – | 34,720 | ||||||||
| Write-off of equipment | – | 8,857 | ||||||||
| Stock issued for services | – | 644,551 | ||||||||
| Changes in operating assets and liabilities, net of subsidiary sale: | ||||||||||
| Receivables | 67,646 | 71,984 | ||||||||
| Unbilled revenue to related company | 11,827 | – | ||||||||
| Refundable income taxes | 8,068 | – | ||||||||
| Inventories | (4,000 | ) | – | |||||||
| Restricted cash | – | (27,535 | ) | |||||||
| Deferred loan and acquisition costs | (38,464 | ) | (46,073 | ) | ||||||
| Checks outstanding in excess of bank balance | – | 346,868 | ||||||||
| Accounts payable and accrued expenses | (14,070 | ) | (130,089 | ) | ||||||
| Unearned revenue | – | 20,385 | ||||||||
| Net cash (used in) provided by operating activities | (34,571 | ) | 172,321 | |||||||
Investing activities | ||||||||||
| Purchases of equipment, furniture and fixtures | – | (15,542 | ) | |||||||
Financing activities | ||||||||||
| Net advances (repayments) to related parties | 23,240 | (160,699 | ) | |||||||
| Net decrease in cash | (11,331 | ) | (3,920 | ) | ||||||
| Cash at beginning of period | 14,188 | 8,790 | ||||||||
| Cash at end of period | $ | 2,857 | $ | 4,870 | ||||||
3
Diversified Thermal Solutions, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited) (continued)
Supplemental schedule of noncash activities
During March 2002, the Company sold its wholly-owned subsidiary, Access Communications, Inc. as further discussed in Note 2. This sale is summarized as follows:
| Net assets sold and liabilities assumed: | |||||
| Receivables | $ | 427,211 | |||
| Equipment, furniture and fixtures | 295,282 | ||||
| Other assets | 55,354 | ||||
| Checks outstanding in excess of bank balance | (346,868 | ) | |||
| Accounts payable and accrued expenses | (932,711 | ) | |||
| Advances from related parties | (329,020 | ) | |||
| Net assets sold and liabilities assumed | $ | (830,752 | ) | ||
Additionally, during the nine months ended September 30, 2003, the Company has $44,905 in deferred loan and acquisition costs related to the acquisition discussed in Note 6 that have not yet been paid.
See accompanying Notes to Condensed Consolidated Financial Statements.
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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”), formerly known as VoIP Telecom, Inc., 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, 2003 are not necessarily indicative of the results that may be expected for the year ended December 31, 2003.
The condensed consolidated financial statements include the accounts of Diversified Thermal Solutions, Inc. and its wholly-owned subsidiaries, DT Solutions, Inc. (formerly Global Holdings, Inc.) and Refractory & Industrial Supply Group, Inc. All inter-company balances and transactions have been eliminated.
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, 2002.
2. Discontinued Operations
Prior to March 29, 2002, the Company delivered international long distance service via flexible, server-based networks consisting of resale arrangements with other long distance providers, primarily through its wholly-owned subsidiary, Access Communications, Inc. On March 29, 2002, the Company sold 100% of the common stock of Access Communications, Inc. to an independent third party in exchange for a note receivable of $399,057. At the time of the sale, the subsidiary had net liabilities of $830,752 and, accordingly, the Company reported a gain on sale of subsidiary of $1,229,809. Subsequent to this sale, the Company determined the note receivable was not collectible and decreased the receivable and the previously reported gain by $399,057. The sale of Access Communications, Inc. represents the disposal of a business segment under Financial Accounting Standards Board (“FASB”) Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. Accordingly, results of this operation have been classified as discontinued.
Operating results of this discontinued business segment for the nine months ended September 30, 2002 are as follows:
| Revenues | $ | 18,700 | ||
| Loss from discontinued operations | $ | (172,595 | ) | |
| Gain on disposal of business segment | 830,752 | |||
| Income from discontinued operations | $ | 658,157 | ||
5
Diversified Thermal Solutions, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
3. Ongoing Company Operations
Subsequent to the sale of Access Communications, Inc. previously discussed, the Company operated essentially as a shell company for the purpose of acquiring businesses related to the manufacturing and distribution of materials used in the refractory industry.
On July 1, 2002, the Company acquired all of the outstanding stock of Global Holdings, Inc., a related entity by common ownership and control, via the issuance of 15 million shares of common stock. In accordance with FASB Statement No. 141, “Business Combinations”, as a result of the companies being under common control, the net liabilities of Global Holdings, Inc. were recorded at their carrying amount of $166,665 as of the date of the acquisition. Subsequent to the acquisition, Global Holdings, Inc. changed its name to DT Solutions, Inc. This subsidiary currently has no operations; however, the Company intends for it to operate as a manufacturer of specialized brick in the refractory industry once the asset purchase discussed in Note 6 is completed.
During July 2002, Refractory & Industry Supply Group, Inc. was formed to operate as a distributor of refractory supplies. All of the current operations of the Company are presently conducted through this subsidiary.
4. Related Party Transactions
The Company’s revenues from continuing operations for the nine months ended September 30, 2003 were derived from three customers. Two of these customers are related companies controlled by family members of a major stockholder and Company board member and represented 91.3% of these revenues. These related companies also represented 100% of the Company’s accounts receivable at September 30, 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.
5. Company Equity Transactions
During the nine months ended September 30, 2002, the Company issued 3,206,422 shares of common stock valued at $644,551 to certain shareholders and employees for their services. The values were determined based on the reported market price of the stock.
6. Commitments
The Company has 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. The funding of the acquisition is expected to be provided through financial institution and seller financing. Additionally, the Company has a preliminary agreement with a financial institution to obtain a $300,000 line of credit once the acquisition is complete. The Company has capitalized $275,764 in acquisition and loan costs which will be allocated between direct costs of the acquisition and debt issue costs upon completion of the acquisition.
6
Diversified Thermal Solutions, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
7. 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. 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 are no diluted earnings per share.
The following table sets forth the computation of basic earnings (loss) per share for the periods indicated:
| Three months ended | Nine months ended | |||||||||||||||
| September 30 | September 30 | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
| Average shares outstanding | 20,242,571 | 20,121,013 | 20,242,571 | 19,316,171 | ||||||||||||
| Loss from continuing operations per share | $ | – | $ | – | $ | – | $ | (0.03 | ) | |||||||
| Income from discontinued operations per share | – | – | $ | – | 0.03 | |||||||||||
| Net (loss) income per share | $ | – | $ | – | $ | – | $ | – | ||||||||
8. Equity Incentive Plan
During the second quarter of 2003, the Company shareholders approved the 2003 Diversified Thermal Solutions, Inc. Equity Incentive Plan (the “Plan”) in an effort to promote the interests of the Company and its shareholders. Under the terms of the Plan, current and prospective officers and employees, and directors of and consultants to the Company or its subsidiaries or affiliates are eligible to be granted awards. Also under the terms of the Plan, the Company is authorized to grant stock options, including both incentive stock options and non-qualified stock options and is also authorized to grant stock appreciation rights, either with or without a related option. The Company has reserved 1,500,000 shares of authorized common stock for future issuance under the Plan. No stock options or stock appreciation rights have been issued under the Plan.
9. 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 maintain profitable operations and generate additional funds in order to continue as a going concern. The Company anticipates the recent changes made in its operations, along with the future operations and related financing of the asset acquisition discussed in Note 6, will provide the Company future positive cash flows necessary to continue as a going concern.
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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
Prior to March 29, 2002, we delivered international long distance service via flexible, server-based networks consisting of re-sale arrangements with other long distance providers primarily through our wholly-owned subsidiary, Access Communications, Inc. On March 29, 2002, we sold Access Communications. The sale represents the disposal of a business segment. The results of this business segment have been classified as discontinued in the accompanying statement of operations for the nine months ended September 30, 2002. On July 1, 2002, we acquired 100% of the outstanding stock of Global Holdings, Inc. and shifted our business focus towards acquiring businesses related to the manufacturing and distribution of materials used in the refractory business. Because of the change in our business focus from the long distance industry to the refractory industry and the disposal of our long distance business, a comparison of the nine months ended September 30, 2003 results of operations to the nine months ended September 30, 2002 results of operations would not be beneficial and is not presented. Below is a discussion of the changes in the third quarter results between 2003 and 2002.
Balance Sheets
Our accounts receivable have decreased by approximately $68,000 between December 31, 2002 and September 30, 2003. This decrease is primarily due to the offsetting of approximately $60,000 of accounts receivable from and accounts payable to a company that is both a vendor and a customer based on a recent arrangement between us and the customer, as allowed by Accounting Principles Board Opinion No. 10. As discussed in the footnotes to our financial statements, we have entered into a letter of intent to acquire substantially all the assets of a company that manufactures specialized brick used in the refractory business. As a result of this intended acquisition, our deferred loan and acquisition costs have increased by approximately $83,000 from December 31, 2002 to September 30, 2003. We have funded these deferred loan and acquisition costs through advances from related parties and increases in accounts payable and accrued expenses. Accordingly, our current liabilities have increased by approximately $54,000, net of the $60,000 offset against accounts receivable discussed above, between December 31, 2002 and September 30, 2003. There have been no other significant changes affecting our balance sheet since December 31, 2002.
Results of Operations
Revenue
Our revenue from continuing refractory operations for the nine months ended September 30, 2003 was $475,766, of which $144,926 was related to the third quarter of 2003. Third quarter 2003 revenues increased approximately $105,000 from 2002 primarily due to more established operations and a few large sales transactions.
Operating Expenses
Our operating expenses from continuing operations for the nine months ended September 30, 2003 totaled $105,536. Of this amount, $64,630 represented payments of professional and consulting services. We incurred no salary expense. We incurred $24,463 of marketing and advertising expenses to develop the logos and brands for Diversified Thermal Solutions and RIS Group, and to announce and market our new products. The remaining expenses were routine office and administrative related. These expenses are significantly less for the three months ended September 30, 2003 than the same period of 2002. We incurred a large amount of professional fees related to our change in operations during the third quarter of 2002. Additionally, marketing and advertising expenses during the third quarter of 2002 were significant related to
8
the acquisition of Global Holdings, Inc. We did not incur such significant expenses related to these matters during the third quarter of 2003.
Liquidity and Capital Resources
Currently, our losses from continuing operations 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 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 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.
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.
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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.
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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. | ||
| Registrant | ||
| Date: November 13, 2003 | /s/ B. Grant Hunter | |
| B. Grant Hunter President and Chief Executive Officer | ||
| Date: November 13, 2003 | /s/ Julie Dean | |
| Julie Dean Acting Chief Financial Officer |