Diversified Thermal Solutions (DVTS) 10QSB 2007 Q3 Quarterly report (small business)

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 September 30, 2007

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from July 1, 2007 to September 30, 2007

Commission File Number:000-28047

DIVERSIFIED THERMAL SOLUTIONS, INC.

(Exact name of issuer as specified in charter)

Nevada	94-3342064
(State or other jurisdiction	(I.R.S. Employer
of incorporation)	Identification No.)

4126 Delp Street, Memphis, Tennessee 38118
(Address of principal executive offices)

Registrant’s telephone number, including area code(901) 365-7650

Check whether the issuer (1) 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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yeso      Nox

APPLICABLE ONLY TO CORPORATE ISSUERS:

State 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	18,974,238
(Class of Stock)	(Shares outstanding as of November 14, 2007)

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 (Unaudited)
Condensed Consolidated Balance Sheets		F-2
Condensed Consolidated Statements of Operations		F-4
Condensed Consolidated Statements of Cash Flows		F-5
Notes to Condensed Consolidated Financial Statements		F-6
Item 2. Management’s Discussion and Analysis or Plan of Operation		1
Item 3. Controls and Procedures		3
Part II. Other Information
Item 1. Legal Proceedings		4
Item 3. Defaults Upon Senior Securities		4
Item 6. Exhibits		4
EX-31.1 Section 302 Certification of the CEO
EX-31.2 Section 302 Certification of the CFO
EX-32.1 Section 906 Certification of the CEO
EX-32.2 Section 906 Certification of the CFO

Index to Financial Statements

Condensed Consolidated Balance Sheets	F-2
Condensed Consolidated Statements of Operations (Unaudited)	F-4
Condensed Consolidated Statements of Cash Flows (Unaudited)	F-5
Notes to Condensed Consolidated Financial Statements (Unaudited)	F-6

F-1

Diversified Thermal Solutions, Inc.

Condensed Consolidated Balance Sheets

	September 30		December 31
	2007		2006
	(Unaudited)
Assets
Current assets:
Cash	$	1,283	$	122,835
Accounts receivable:
Trade, net of reserve for doubtful accounts of $620 in 2007 and $5,000 in 2006		1,465,625		1,008,082
Related companies		69,444		121,983
Insurance claim		128,485		128,485
Total accounts receivable		1,663,554		1,258,550
Inventories, net		2,944,669		2,463,230
Prepaid expenses		406,935		69,197
Deferred income taxes		—		65,375
Total current assets		5,016,441		3,979,187
Property, plant and equipment:
Land		222,303		217,950
Buildings		821,248		821,248
Machinery and equipment		1,015,999		937,353
		2,059,550		1,976,551
Less accumulated depreciation		491,454		325,500
		1,568,096		1,651,051
Construction in progress		765,305		117,193
Net property, plant, and equipment		2,333,401		1,768,244
Total assets	$	7,349,842	$	5,747,431

See accompanying Notes to Condensed Consolidated Financial Statements.

F-2

Diversified Thermal Solutions, Inc.

Condensed Consolidated Balance Sheets (continued)

	September 30			December 31
	2007			2006
	(Unaudited)
Liabilities and shareholders’ equity
Current liabilities:
Line of credit	$	2,164,016		$	856,389
Accounts payable and accrued expenses		1,645,359			1,106,037
Advances from related company		95,500			—
Current portion of deferred income taxes		63,257			—
Current portion of long-term debt		807,103			1,004,132
Current portion of capital lease obligations		32,987			31,618
Total current liabilities		4,808,222			2,998,176
Advances from shareholders		34,899			34,899
Deferred income taxes, less current portion		249,142			403,129
Long-term debt, less current portion		—			12,220
Capital lease obligations, less current portion		30,467			55,383
Notes payable to related companies		1,000,000			1,000,000
Note payable to shareholder		594,000			600,000
Total liabilities		6,716,730			5,103,807
Shareholders’ equity:
Common stock, par value $0.0001:
Authorized—100,000,000 shares Issued and outstanding—18,974,238 shares in 2007 and 18,834,238 shares in 2006		1,898			1,884
Additional paid-in capital		11,260,904			11,234,318
Accumulated deficit		(10,629,690	)		(10,592,578	)
Net shareholders’ equity		633,112			643,624
Total liabilities and shareholders’ equity	$	7,349,842		$	5,747,431

See accompanying Notes to Condensed Consolidated Financial Statements.

F-3

Diversified Thermal Solutions, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

	Three months ended						Nine months ended
	September 30						September 30
	2007			2006			2007			2006
Revenues	$	3,325,137		$	2,311,112		$	8,895,489		$	7,915,123
Costs of goods sold		2,558,366			2,139,932			7,480,408			6,855,723
Gross profit		766,771			171,180			1,415,081			1,059,400
Operating expenses:
Professional and consulting services		15,779			110,449			132,205			215,264
Marketing and advertising		178,051			70,274			408,369			259,055
Office and administrative		243,116			217,258			693,473			691,905
Total operating expenses		436,946			397,981			1,234,047			1,166,224
Operating income (loss)		329,825			(226,801	)		181,034			(106,824	)
Other income (expenses):
Miscellaneous income		6,852			9,145			23,109			12,961
Interest expense		(100,163	)		(116,465	)		(266,610	)		(335,200	)
Net other expenses		(93,311	)		(107,320	)		(243,501	)		(322,239	)
Net income (loss) before income taxes		236,514			(334,121	)		(62,467	)		(429,063	)
Deferred income tax (expense) benefit		(95,966	)		—			25,355			—
Net income (loss)	$	140,548		$	(334,121	)	$	(37,112	)	$	(429,063	)
Basic net earnings (loss) per share	$	.01		$	(.02	)	$	--		$	(.02	)

See accompanying Notes to Condensed Consolidated Financial Statements.

F-4

Diversified Thermal Solutions, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

	Nine months ended September 30
	2007			2006
Operating activities
Net loss	$	(37,112	)	$	(429,063	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation		165,954			179,778
Deferred income tax benefit		(25,355	)		—
Stock issued for services		26,600			1,600
Changes in operating assets and liabilities:
Accounts receivables		(405,004	)		(209,668	)
Inventories		(481,439	)		431,731
Prepaid expenses		(337,738	)		(76,190	)
Checks outstanding in excess of bank balance		—			(3,450	)
Accounts payable and accrued expenses		539,322			615,756
Net cash (used in) provided by operating activities		(554,772	)		510,494
Investing activities
Purchases of property, plant, and equipment		(656,111	)		(398,813	)
Financing activities
Net borrowings on line of credit		1,307,627			100,000
Net borrowings from related companies		20,500			125,000
Net payments on note payable to shareholder		(6,000	)		(5,000	)
Principal repayments on long-term debt		(209,249	)		(194,928	)
Principal repayments on capital lease obligation		(23,547	)		(22,638	)
Payment on amounts due to seller of business acquired		—			(109,091	)
Net cash provided by (used in) financing activities		1,089,331			(106,657	)
Net (decrease) increase in cash		(121,552	)		5,024
Cash at beginning of period		122,835			—
Cash at end of period	$	1,283		$	5,024

Supplemental disclosure of noncash activities

Advances from related company at September 30, 2007 included $75,000 for equipment.

See accompanying Notes to Condensed Consolidated Financial Statements.

F-5

Diversified Thermal Solutions, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2007

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 period ended September 30, 2007 are not necessarily indicative of the results that may be expected for the year ended December 31, 2007.

The condensed consolidated financial statements include the accounts of Diversified Thermal Solutions, Inc. and its wholly-owned subsidiaries, DT Solutions, Inc. and Fuzion Technologies, Inc. All inter-company balances and transactions have been eliminated.

The balance sheet at December 31, 2006 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, 2006.

2. Recent Accounting Pronouncements

During June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes (an interpretation of FASB Statement No. 109)(“FIN 48”), which is effective for fiscal years beginning after December 15, 2006. This interpretation was issued to clarify the accounting for uncertainty in income taxes recognized in the financial statements by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance prescribed in FIN 48 establishes a recognition threshold of more likely than not that a tax position will be sustained upon examination. The measurement attribute of FIN 48 requires that a tax position be measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company adopted the provisions of FIN 48 on January 1, 2007. The implementation of FIN 48 did not have a significant impact on the Company’s financial position or results of operations.

F-6

Diversified Thermal Solutions, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)

3. Related Party Transactions

During the nine months ended September 30, 2007, the Company purchased $75,000 in equipment from a related company controlled by a family member of a major shareholder and Company board member which was unpaid at September 30, 2007. Additionally during May 2007, the Company borrowed $55,500 from this related company and subsequently repaid $35,000 of this amount. Terms for the remaining amount owed on this loan have not yet been finalized. During the nine months ended September 30, 2006, the Company purchased approximately $56,000 in inventory from the same related company. Sales of approximately $688,000 and $48,000 were made to related companies during the nine months ended September 30, 2007 and 2006, respectively.

4. Contingencies

The Company has agreed to guarantee certain indebtedness of two related companies. Upon default by the related companies, the Company would be obligated to pay any outstanding principal and accrued interest on their behalf. In addition, if the related companies default on these loans, the Company’s outstanding loans with the same financial institution will be considered in default. At September 30, 2007, the debt guaranteed for the related companies was $2,608,449 under term loans and up to $5,500,000 under revolving lines of credit. These term loans and revolving lines of credit expire between October of 2008 and February of 2010. These loans are also cross-collateralized by substantially all of the assets of the related companies and the Company.

5. Debt Covenants

As of December 31, 2006 and September 30, 2007, the Company was not in compliance with certain financial covenants of the line of credit and long-term debt with a financial institution, and accordingly, these balances have been classified as current in the accompanying condensed consolidated balance sheets.

6. Income Tax Provision

Due to the Company’s net operating loss carry-overs for which no benefit had been previously recognized, no provision for income taxes was required for the nine months ended September 30, 2006.

7. Income (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 income (loss) per share.

F-7

Diversified Thermal Solutions, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)

7. Income (Loss) Per Share Data (continued)

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
	2007		2006		2007		2006
Average shares outstanding		18,974,238		18,834,238		18,919,794		18,833,127
Net income (loss) per share	$	0.01	$	—	$	—	$	(0.02	)

8. Facility Consolidation

In an effort to improve efficiency, the Company intends to consolidate its two refractory product manufacturing facilities into a single facility. The Company is currently making additions to the remaining facility to handle the increased capacity. The Company has contracted with a commercial realtor to sell the facility they intend to vacate; however, both of these facilities remain operating at this time.

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 recent 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 maintain profitability in order to continue as a going concern. The Company anticipates the future efficiencies in operations will continue to improve operating cash flows necessary to continue as a going concern.

F-8

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

Our primary business purpose is to acquire businesses related to the manufacturing and distribution of refractory materials used in industry. DT Solutions, Inc., one of our subsidiaries, currently has no operations.

All of our current operations are presently conducted through our other subsidiary, Fuzion Technologies, Inc., formerly known as Refractory & Industrial Supply Group, Inc. This subsidiary is engaged in the business of manufacturing refractory products, and dies used in the refractory industry and precision machining. The subsidiary operates the Freeport Brick Division, Kittanning Brick Division, and Armstrong Precision Manufacturing Division in Pennsylvania and operates the Memphis Division in Tennessee, but on a much smaller scale.

The Company earns revenue and generates cash principally through the sale of products manufactured by its Fuzion Technologies Inc. subsidiary. Products are sold to customers worldwide in the cement & lime, aluminum, steel, chemical, petroleum, paper & pulp, foundry, and other non-ferrous industries.

Balance Sheets

There have been several significant changes in our assets since December 31, 2006. Accounts Receivable has increased $405,004 as compared to December 31, 2006, due to an increase in sales. Inventories at September 30, 2007 have increased $481,439 as compared to December 31, 2006, mainly due to the Company having received two barge-loads of raw materials during the quarter in the amount of $505,000 which was still on-hand at the end of the quarter. Prepaid expenses at September 30, 2007 have increased approximately $338,000 as compared to December 31, 2006 due to the Company pre-paying its natural gas usage throughout the quarter as well as the deposit made on the renewal of the Company’s various insurance policies which is amortized over the life of the policies. Net property, plant, and equipment has increased $565,157 since December 31, 2006 primarily due to expenditures for equipment and construction related to the plant consolidation, which will be discussed later.

As of September 30, 2007, the Company owed $95,500 to an affiliated Company for costs associated with the plant consolidation projects.

The line of credit balance increased $1,307,627 since December 31, 2006 due primarily to the Company drawing on the line to prepay its natural gas usage and to fund some of the costs associated with the plant consolidation.

Our shareholders’ equity at September 30, 2007 has decreased since December 31, 2006, as a result of the net loss for the period ended September 30, 2007, offset by the stock issued for services of approximately $27,000.

1

Results of Operations

Revenues — Our revenues for the nine months ended September 30, 2007 are $8,895,489, which is an increase of approximately $980,000 from the nine months ended September 30, 2006. Sales to our customers in the steel and aluminum industries have increased as compared to last year while sales to the cement and lime industries have decreased. The Company has filled several significant orders in 2007, which may not be indicative of ongoing future sales.

Expenses — Our cost of goods sold for the nine months ended September 30, 2007 are $7,480,408, which is an increase of approximately $625,000 from the nine months ended September 30, 2006. Our Gross Profit percentage for the quarter ended September 30, 2007 was 23.1% which helped to increase our Gross Profit for the nine months ended September 30, 2007 to 15.9%, compared to 13.4% for the nine months ended September 30, 2006. Gross Profit benefited from improved sales for the quarter ended September 30, 2007 which were $3,325,137, the highest sales quarter since the “Freeport acquisition” on January 31, 2005. Other factors that had a significant impact on gross profit relate to energy and raw material costs. Because of increases in the cost of natural gas over the past several years, it has become our single largest cost of operations. That trend has continued into the Company’s 2007 operations as the Company’s gas rate in 2007 is significantly higher than it was in 2006. However, there was a slight downward trend in natural gas cost during the quarter ended September 30, 2007. Combined with increased sales for the quarter, energy costs represented 25% of gross sales for the quarter, thereby reducing the energy costs as a percentage of sales for the nine months ended September 30, 2007 to 29% from 31% for the six months ended June 30, 2007. However, this still compares unfavorably to energy costs of 27% for the nine months ended September 30, 2006. The Company implemented certain operational adjustments at its Freeport plant in 2006 which resulted in an improvement in its gas efficiency on a per-unit basis. The Company is planning a major improvement in the efficiency of its production processes by consolidating its refractory product manufacturing facilities to one site. This will involve moving production operations from the Kittanning Brick facility to the Freeport Brick facility. Unfortunately, a fire that occurred at the Freeport plant on February 2, 2006, has caused a significant delay in this plant consolidation process and has therefore caused a corresponding delay in realizing the financial benefits of this consolidation project. Bauxite is an important and expensive raw material used in the Company’s manufacturing of high alumina products. Also a result of the fire at the Freeport plant, the Company is not yet able to grind bauxite at its own facilities. Since the fire, the Company has been buying already-ground bauxite from a third party on an “as-needed basis.” Until the Company’s own bauxite grinding facility has been re-installed, the Company must also outsource the grinding of the barge-load of bauxite purchased during the quarter ended September 30, 2007. This cost “premium” has had a major impact on the raw material costs to manufacture its high alumina products. The Company expects to have its own bauxite grinding operation in service during the fourth quarter of 2007. In addition, all of the clay used in production at the Freeport plant is being ground at the Kittanning plant and subsequently transported to the Freeport facility. This too is a direct result of the fire. This extra handling and transportation has also had an impact on the Company’s raw material costs.

Our operating expenses for the nine months ended September 30, 2007 are reasonable compared to the same period last year.

All of the above resulted in an operating income for the three months ended September 30, 2007 of $329,825, improving our operating income for the nine months ended September 30, 2007 to $181,034, as compared to an operating loss of $106,824 for the nine months ended September 30, 2006.

For the nine months ended September 30, 2007, interest expense decreased approximately $69,000 compared to the same period last year, primarily due to the Company applying part of its December 2006 settlement on its fire insurance lawsuit to its line of credit.

Liquidity and Capital Resources

As of December 31, 2006 and September 30, 2007, the Company was not in compliance with certain financial covenants of the line of credit and long-term debt and accordingly, these balances have been classified as current in the accompanying consolidated balance sheets. We recognize that the Company must achieve profitable operations to continue as a going concern. The Company anticipates the future efficiencies in operations will continue to improve operating cash flows necessary to continue as a going concern.

2

Other Significant Events

On February 2, 2006, a fire significantly damaged the Grinding Department building and equipment at the Freeport Brick plant. This Grinding Department equipment was used to grind 100% of the clay used in production at the Freeport plant as well as 100% of the bauxite used in production at both the Freeport and Kittanning plants. The Company had property insurance on the damaged facility but a legal issue developed over differences in the form of coverage purchased versus the form of coverage in the issued policy. In June 2006, the Company filed a lawsuit against its insurance agency based on this issue. After a long series of pre-trial legal proceedings, a settlement was reached via mediation in December 2006, shortly before the scheduled trial commencement. However, as of September 30, 2007, the Company is still not able to grind its own bauxite for either plant nor is it able to grind any clay at its Freeport plant. As noted above, the Company is incurring significant additional raw material costs because of this. The Company expects to rebuild its bauxite grinding operation during the fourth quarter 2007. Until the Company has rebuilt the remainder of its damaged grinding department, additional costs will be incurred in this area.

The Company is planning on improving the efficiency of its production processes by consolidating its refractory product manufacturing facilities to one site. This will involve moving production operations from the Kittanning Brick facility to the Freeport Brick facility. The Company has contracted with a commercial realtor to sell the Kittanning Brick facility. This project was expected to have been completed by the middle of the year 2006; however, progress on this major project slowed dramatically pending the outcome of our fire insurance claim. Now that this insurance claim has been settled, the Company is moving forward in 2007 with its plans to consolidate these operations. The Company is aware that it needs to finalize this plant consolidation as quickly as possible in order to improve efficiency. The Company has prioritized its plans to complete the plant consolidation project before rebuilding the grinding department. As of September 30, 2007, the Company has expended approximately $675,000 in construction and equipment related to plant consolidation costs. It is expected that the plant consolidation will be completed in Spring 2008.

On March 27, 2006, our subsidiary, Refractory & Industrial Supply Group Inc. changed its name to Fuzion Technologies, Inc. This name more appropriately describes the vision of the Company and what we are becoming, namely a supplier of a full line of quality refractory and industrial products and complementary industrial services.

Off Balance Sheet Arrangements

In January of 2005, we agreed to guarantee the indebtedness of two related companies to a certain financial institution that also holds our term loan (the “Bank”). Upon the default by the related companies, we would be obligated to pay any outstanding principal and accrued interest on their behalf. In addition, if the related companies default, the Company’s own outstanding loans from the Bank would be considered in default. At September 30, 2007, the debt guaranteed for the related companies was $2,608,449 under term loans and up to $5,500,000 under revolving lines of credit. These term loans and revolving lines of credit expire between October of 2008 and February of 2010. These loans are also cross-collateralized by substantially all of the assets of the related companies and the Company.

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 and Chief Financial 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 and Chief Financial Officer. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have 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 changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of management’s evaluation.

(b) Changes in Internal Control over Financial Reporting

There has been no change during this reporting period that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

3

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On September 25, 2005, First Capital Insulation, Inc. filed a complaint against DT Solutions, Inc., one of our wholly-owned subsidiaries (“DT Solutions”), and Mt. Savage Firebrick Company in the Circuit Court of Allegeny County, Maryland. DT Solutions entered into an agreement for the purchase of real property from Mt. Savage Firebrick Company. First Capital Insulation is seeking approximately $38,000 for its removal and disposition of asbestos containing material from two brick ovens. As of September 30, 2007, this matter had not been resolved.

Item 3. Defaults Upon Senior Securities

As of December 31, 2006 and September 30, 2007, the Company was not in compliance with certain financial covenants of its line of credit and long-term debt.

Item 6. Exhibits

(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

4

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 14, 2007	/s/ B. Grant Hunter
	B. Grant Hunter
	President and Chief Executive Officer

Date: November 14, 2007	/s/ J. Terry Medovitch
	J. Terry Medovitch
	Chief Financial Officer

5