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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended Commission file Number
June 30, 2002 0-9180
Thermal Energy Storage, Inc.
(Exact name of registrant as specified in its charter.)
Colorado 95-3333931
(State of incorporation) (IRS Employer Identification No.)
6362 Ferris Square, Suite C
San Diego, CA 92121
(Address of principal executive offices)
Registrant's telephone number, including area code: (858) 453-1395
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 [ ] NO [x]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the close of the period
covered by this report: Common Stock, $.001 Par Value -
58,931,289 shares
CONTENTS PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Balance Sheets as of December 31, 2001 and June 30, 2002 1
Statements of Operations for the three months ended June 30,2002 2
Statements of Cash Flows for the three months ended June 30,2002 3
Notes to Financial Statements 4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
ITEM 3. Quantitative and Qualitative Disclosures About Market
Risk 7
SIGNATURE PAGE 9
TRANSMITTAL LETTER 10
PART I. - FINANCIAL INFORMATION
ITEM 1.
THERMAL ENERGY STORAGE, INC.
BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except per share data)
June 30, 2002 December 31, 2001
ASSETS ($000) ($000)
Current assets
Cash 8 13
Accounts receivable 0 0
Inventories 1 0
Prepaid expenses 3 2
____ ____
Total current assets 12 15
Property and equipment less accumulated 0 0
depreciation of $109,623
____ ____
TOTAL ASSETS 12 15
LIABILITIES AND STOCKHOLDERS' DEFICIT ($000) ($000)
Current liabilities
Accounts payable 24 24
Accrued payroll 131 131
Reserve for legal expense 25 25
Payable to officers and affiliates 569 569
____ ____
Total current liabilities 750 750
Stockholder's deficit
Common stock par value $.001 per share
Authorized 110,000,000 shares Issued and
outstanding 58,931,289 shares 59 59
Additional paid in capital 4,046 4,046
Accumulated deficit (4,840) (4,816)
Current Profit (Loss) (4) (24)
Total stockholders' deficit (738) (735)
TOTAL LIABILITIES AND STOCKHOLDERS' 12 15
DEFICIT (1)
(1) Numbers may not add due to rounding
See Accompanying Notes to Financial Statements
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THERMAL ENERGY STORAGE, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS
ENDED JUNE 30, 2002 AND 2001
(Unaudited)
(Amounts in thousands, except per share data)
June 30, 2002 June 30, 2001
Results of Operations
($000) ($000)
Contract services 0 0
Cost of revenues 2 0
Gross profit (loss) (2) 0
Operating Expenses
Research and Development 0 0
Selling, general and
administrative expenses 2 0
Operating profit (loss) (4) 0
Transfer fees 0 0
Other income 1 1
Net income (loss) (1) (3) 1
Gain (Loss) per share $0.000 $0.000
(1) Numbers may not add due to rounding
See Accompanying Notes to Financial Statements
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THERMAL ENERGY STORAGE, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND 2001
(Unaudited)
(Amounts in thousands)
Cash flow from operating June 30, 2002 June 30, 2001
activities: ($000) ($000)
Income (loss) from operations (3) 1
Adjustments to reconcile net
income to net cash provided by
operating activities
Depreciation 0 0
Decrease (increase) from changes:
Receivables 0
Prepaid expenses 0 0
Accounts payable 0 0
Payable to officers & 0 0
affiliates
Net cash provided (used) by
operating activities (3) 1
Net cash provided from financing
activities
Increase (Decrease) in cash (3) 1
Cash at beginning of period 12 11
Cash at end of period 9 12
(1) Numbers may not add due to rounding
See Accompanying Notes to Financial Statements
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NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 2002
(UNAUDITED)
1. BASIS OF PRESENTATION
FINANCIAL INFORMATION - The accompanying financial statements
have been prepared assuming the Company will continue as a going
concern; they do not include adjustments relating to the
recoverability of recorded asset amounts and classification of
assets and liabilities that would be necessary should the Company
be unable to continue as a going concern. The going concern
basis might not be appropriate since the Company has required
additional funds in the form of loans from the President's solely
owned consulting company to sustain operations. As of June 30,
2002 its current liabilities exceeded its current assets and
total liabilities exceeded its total assets.
The financial information has been prepared by Thermal Energy
Storage, Inc., without audit, in accordance with the instructions
to Form 10-Q and therefore does not include all information and
footnotes necessary for a fair presentation of financial
position, and results of operations and cash flows in accordance
with generally accepted accounting principles.
ACCOUNTING ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from
those estimates.
UNAUDITED INTERIM FINANCIAL DATA - In the opinion of management,
the unaudited consolidated financial statements for the interim
periods presented reflect all adjustments, consisting of only
normal recurring accruals, necessary for a fair presentation of
the financial position and results of operations as of and for
such periods indicated. These financial statements and notes
thereto should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual
Report on Form 10-K (including items incorporated by reference
therein) for the year ended December 31, 2001. Results for the
interim period presented herein are not necessarily indicative of
results which may be reported for any other interim period or for
the entire fiscal year.
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THERMAL ENERGY STORAGE, INC.
June 30, 2002
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
As of June 30, 2002 cash and cash equivalents amounted to
$11,686 as compared to $15,120 as of March 31, 2002. The decrease
since March 31, 2002 was primarily attributable to a loss for
the three months ended June 30, 2002 of $3434.
As of June 30, 2002 total shareholders' deficit amounted to
($4,843,514) as compared to ($4,840,080) at March 31, 2002. The
decrease in deficit since December 31, 2001 was primarily
attributable to the net loss of $3,434 during the period.
RESEARCH AND DEVELOPMENT Research and development expenses are
included as cost of sales for projects funded in part by a
support agreement with the Bureau of Reclamation, and in part by
loans from the President. These expenses were primarily to
complete a project supported by the Bureau of Reclamation for
experiments with a scale model desalination system, and for
research into alternative clathrate formers. The experiments
with the scale model system reduced the salinity from 35,000
parts per million (ppm) in seawater to less than the 500 ppm
salinity limit on drinking water established by the EPA. Several
alternative clathrate formers that have zero ozone depletion
potential were identified and experiments with those alternative
clathrate formers are planned in the next quarter.
SALES AND MARKETING
There were no sales and marketing expenses during the
period.
GENERAL AND ADMINISTRATIVE
General and administrative expenses included the
bookkeeping, accounting, and SEC report preparation expenses, and
accrued management compensation due. The Company's President
continues to support the company's projects without current
compensation.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, The Company has funded its operations
primarily through the private sale of equity securities,
borrowings from certain of its investors for bridge financing,
bank borrowings, its initial public offering, which resulted in
net proceeds to the Company of approximately $4 million. As of
June 30, 2002, The Company had approximately $9,676 in cash and
cash equivalents. Net cash consumed by operating activities was
approximately $3,434 for the three months ended June 30, 2002.
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The Company requires working capital to fund its business,
particularly to finance research, development, and design
activities. The Company's future capital requirements will
depend on many factors, including the timing and extent of
spending to support system development efforts
and the development of sales, marketing and support; the timing of
introductions of new products and enhancements to existing
products; and overall industry conditions. The Company believes
that it must and can obtain additional working capital to sustain
operations and provide for the future expansion and development
of its business over the next 12 months.
YEAR 2000 READINESS
The company has evaluated the computer systems used and
upgraded them as required for year 2000 compliance. The
shareholder database records are stored in a year 2000 compliant
computer system, in a year 2000 compliant database using a format
that records the date with the full century. The database is in
the process of an upgrade to make its operation less labor
intensive and that upgrade should be completed this year.
SECURITIES MARKET & FINANCING ACTIVITIES
Through the first quarter, the Common Shares of the Company
were traded via an over-the-counter bulletin board (OTCBB) and
quoted under the symbol "THES". TESI Common Shares are not
currently quoted by the National Quotation Bureau. The Company
acts as Transfer Agent for the Common Shares. There are
approximately 3,000 shareholders of record of Common Shares.
The Company has not, since inception, declared or paid a
cash or other dividend with respect to the Common Shares.
Management does not contemplate the payment of such dividend on
the Common Shares in the foreseeable future.
On June 26, 1984, the Company was removed from the NASDAQ
automated reporting system as the Company was not in compliance
with requirements of the NASD Bylaws because it no longer met the
financial net worth standards set by NASDAQ.
Delinquent filings and effects in market for securities
- -------------------------------------------------------
The Company did not hold its annual meeting in 1989 or 1990
until November of each year, and did not hold an annual meeting
in 1992, 1994, 1995, 1996, 1997, 1998 and 1999, and did not
timely file all of the quarterly form 10-Q reports required to be
filed under Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, therefore, the Company failed during these
periods to qualify for the use of Rule 144 under the Securities
Act of 1933. By filing this 10-Q the company will be current in
its reporting under the referenced provisions of the 1934 act.
-6-
In 1998 the company failed to file the first of two required
Y2K compliance reports and in 1999 the Securities and Exchange
Commission cited the Company for violations of Section 17 (a)(3)
and Section 17A (d) (1) of the Securities Exchange Act of 1934
and Rule 17Ad-18. In 1999 the company submitted the first and
second of the required Y2K planning reports, and entered into a
settlement agreement with the Securities and Exchange Commission
ordering the firm to cease and desist from further such
violations. The civil penalty was waived by the SEC because of
the financial condition of the Company.
Through the first quarter, the Common Shares of the Company
were traded in the National Association of Securities Dealers
Over-the- Counter Bulletin Board market under the symbol THES.
In late March the Company received a third-party notice that the
Company was to be removed from the Bulletin Board until it came
into compliance with SEC financial reporting requirements. The
Company has not submitted audited financial statements in its 10-
K annual reports since 1991 as a cost-saving measure. The
management is unaware of any material deficiencies in the
financial statements and has not had disagreements with the CPA
firm, William G. McKee Inc., that prepared the Company's
corporate tax returns. The management believes that the
Company's shares may be traded via "Pink Sheets" and market
makers.
During the first quarter the Company accepted a proposal for
engineering services from Innovative Engineering Services, Inc.
(IES) in which IES proposed that the services be paid either in
cash or in stock, at the Company's option. The Board of
Directors established a price of $0.03 per share as reasonable in
light of the recent volatility in share price and IES accepted
that price as the basis for the contract. The work was completed
in February 2000 and the sale of 202,833 restricted common shares
to IES via a private placement was anticipated in the second
quarter to fund payment for the engineering services. After
further discussions with IES, the Company and IES agreed that a
total of 200,000 shares would be issued for the services provided
by IES. The company expects to issue these shares early in the
third quarter.
Sales of restricted Common Shares under Rule 144 under the
Securities Act of 1933 are available.
ITEM 3. Quantitative and Qualitative Disclosures About Market
Risk
The company has not prepared quantitative evaluations of
market risks for its systems. In the recent past regulatory
actions have made the use of the Company's clathrate formers
impracticable, precluding the sale of the company's systems, both
for thermal energy storage and for desalination. The research
completed to date into alternative clathrate formers to find a
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suitable chemical that is safe, non-toxic, and commercially
available at prices that result in competitive desalination
systems has identified several promising candidates that are
available in commercial quantities. There is no assurance,
however, that the Company will be able to apply these alternative
clathrate formers to commercial desalination or thermal storage
systems, nor is there assurance that future regulatory actions
will not have a similar adverse effect on the ability of the
Company to market its systems.
The Company's product and proposed products are subject to,
or are affected directly and indirectly by various aspects of
federal, state and local governmental regulations and tax laws.
The federal excise tax imposed on R11, which made the Company's
use of R11 impractical, is an example. After 2003 the clathrate
former R141b will also be prohibited by EPA regulations.
Residential and commercial use of the Company's thermal energy
storage systems is also affected by various state and local
building codes. Such regulations, while not directed
specifically to thermal energy storage devices, can impact the
use of systems in which the Company's energy storage units are
used.
There is growing interest and activity at all levels
relating to government and industry regulation of alternate
energy sources. Governmental entities could impose regulations
applicable to the Company and its products, which might require
the Company to submit its systems to various testing,
certification and labeling programs. Management also expects that
private industry associations will become more active in this
area. In the future the Company may also be required to submit
its products for testing and certification to independent
organizations. Compliance with future regulatory or private
industry standards could involve substantial costs and have a
material impact on Company operations.
-8-
THERMAL ENERGY STORAGE, INC.
SIGNATURE PAGE
Pursuant to the requirement 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.
THERMAL ENERGY STORAGE, INC.
Registrant
Date: August 31, 2003 By:/s/Richard A. McCormack
__________________________
Richard A. McCormack
President
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THERMAL ENERGY STORAGE, INC.
6362 Ferris Square, Suite C
San Diego, CA 92121
August 31, 2003
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
Pursuant to the requirements of the Securities Exchange Act of
1934, we are transmitting herewith the attached Form 10-Q.
Sincerely,
THERMAL ENERGY STORAGE, INC.
/s/ Richard A. McCormack
--------------------------
Richard A. McCormack, President
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