Diversified Thermal Solutions (DVTS) Inactive
Filed: 14 May 04, 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 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. Employer | |
| of 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. Yesx Noo
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): Yeso Nox
Diversified Thermal Solutions, Inc.
INDEX TO FORM 10-QSB
| Page | ||||||||
| Part I. Financial Information | ||||||||
| Item 1. Financial Statements. | ||||||||
| 3 | ||||||||
| 4 | ||||||||
| 5 | ||||||||
| 6 | ||||||||
| 8 | ||||||||
| 9 | ||||||||
| 9 | ||||||||
| EX-31.1 SECTION 302 CEO CERTIFICATION | ||||||||
| EX-31.2 SECTION 302 CFO CERTIFICATION | ||||||||
| EX-32.1 SECTION 906 CERTIFICATION OF THE CEO | ||||||||
| EX-32.2 SECTION 906 CERTIFICATION OF THE CFO | ||||||||
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Diversified Thermal Solutions, Inc.
Condensed Consolidated Balance Sheets
| March 31 | December 31 | |||||||
| 2004 | 2003 | |||||||
| (Unaudited) | ||||||||
Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | 276 | $ | 4,168 | ||||
| Receivables: | ||||||||
| Trade, net | 8,049 | 17,467 | ||||||
| Related party | 3,717 | 2,338 | ||||||
| Total receivables | 11,766 | 19,805 | ||||||
| Unbilled revenue to related company | — | 926 | ||||||
| Inventories | 4,148 | 4,148 | ||||||
| Total current assets | 16,190 | 29,047 | ||||||
| Deferred loan and acquisition costs | 383,720 | 364,704 | ||||||
| Total assets | $ | 399,910 | $ | 393,751 | ||||
Liabilities and shareholders’ deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 207,263 | $ | 358,363 | ||||
| Advances from related parties: | ||||||||
| Shareholder | 80,684 | 80,684 | ||||||
| Related company | 469,795 | 271,592 | ||||||
| Total advances from related parties | 550,479 | 352,276 | ||||||
| Total current liabilities | 757,742 | 710,639 | ||||||
| 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 | (11,230,623 | ) | (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.
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Diversified Thermal Solutions, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
| Three months ended March 31 | ||||||||
| 2004 | 2003 | |||||||
| Revenues: | ||||||||
| Related companies | $ | 3,717 | $ | 299,457 | ||||
| Other | 8,049 | 5,820 | ||||||
| Total revenues | 11,766 | 305,277 | ||||||
| Costs of goods sold | 11,843 | 295,211 | ||||||
| Gross (loss) profit | (77 | ) | 10,066 | |||||
| Operating expenses: | ||||||||
| Professional and consulting services | 24,538 | 34,814 | ||||||
| Marketing and advertising | 2,082 | 15,950 | ||||||
| Office and administrative | 14,247 | 16,357 | ||||||
| Total operating expenses | 40,867 | 67,121 | ||||||
| Operating loss | (40,944 | ) | (57,055 | ) | ||||
| Interest expense | — | 390 | ||||||
| Net loss | $ | (40,944 | ) | $ | (57,445 | ) | ||
| Net loss 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)
| Three months ended March 31 | ||||||||
| 2004 | 2003 | |||||||
Operating activities | ||||||||
| Net 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 | 17,551 | ||||||
| Unbilled revenue to related company | 926 | (3,356 | ) | |||||
| Refundable income taxes | — | 2,391 | ||||||
| Deferred loan and acquisition costs | — | (8,069 | ) | |||||
| Accounts payable and accrued expenses | (170,116 | ) | 53,535 | |||||
| Net cash (used in) provided by operating activities | (202,095 | ) | 4,607 | |||||
Financing activities | ||||||||
| Net borrowings (repayments) to related parties | 198,203 | (12,459 | ) | |||||
| Net decrease in cash | (3,892 | ) | (7,852 | ) | ||||
| Cash at beginning of period | 4,168 | 14,188 | ||||||
| Cash at end of period | $ | 276 | $ | 6,336 | ||||
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”) 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.
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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 ended | ||||||||
| March 31 | ||||||||
| 2004 | 2003 | |||||||
| Average shares outstanding | 20,242,571 | 20,242,571 | ||||||
| Net 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.
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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
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.
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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: May 13, 2004 | /s/ B. Grant Hunter | |||
| B. Grant Hunter | ||||
| President and Chief Executive Officer | ||||
| Date: May 13, 2004 | /s/ Mary Eubanks | |||
| Mary Eubanks | ||||
| Acting Chief Financial Officer | ||||
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