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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
September 30, 2003 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: (619) 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, 2002 and September 30, 2003 1
Statements of Operations for the three months ended
September 30, 2003 2
Statements of Cash Flows for the three months ended
September 31,2003 3
Notes to Financial Statements 4
ITEM 2. Management's Discussion and Analysis of Financial 5
Condition and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures About 7
Market Risk
SIGNATURE PAGE 9
TRANSMITTAL LETTER 10
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PART I. - FINANCIAL INFORMATION
ITEM 1. Financial Statements
THERMAL ENERGY STORAGE, INC.
BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except per share data)
Sept. 30, 2003 December 31, 2002
______________ _________________
ASSETS
Current assets
Cash $ 1 $ 4
Accounts receivable 0 0
Inventories 0 0
Prepaid expenses 3 2
______ ______
Total current assets 4 6
Property and equipment
less accumulated depreciation of
$109,623 0 0
______ ______
TOTAL ASSETS 4 6
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 24 $ 24
Accrued payroll 131 131
Reserve for legal expenses 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 (4,850) (4,839)
Current Profit (Loss) (2) (10)
_______ _______
Total stockholders' deficit $ (746) $ (744)
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT(1) $ 4 $ 6
(1) Numbers may not add due to rounding
See Accompanying Notes to Financial Statements
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THERMAL ENERGY STORAGE, INC.
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2003 AND 2002
(Unaudited)
(Amounts in thousands, except per share data)
Sept. 30, 2003 Sept. 30, 2002
______________ ______________
Contract services $ 0 $ 0
Cost of revenues 0 2
______ ______
Gross profit (loss) 0 (2)
Operating Expenses
Research and Development 0 0
Selling, general and
administrative expenses 2 2
______ ______
Operating profit (loss) (2) (4)
Transfer fees 1 0
Other income 1 1
______ ______
Net income (loss) (1) (3)
Loss per share ($0.000) ($0.000)
See Accompanying Notes to Financial Statement
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THERMAL ENERGY STORAGE, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(Unaudited)
(Amounts in thousands)
Sept. 30, 2003 Sept. 30, 2002
______________ ______________
Cash flow from operating activities:
Income (loss) from operations $ (1) $ (5)
_______ _______
Adjustments to reconcile net
income to net cash provided by
operating activities
Depreciation 0 0
Decrease (increase) from changes:
Receivables 0 0
Prepaid expenses 0 0
Increase (decrease) from changes:
Accounts payable 0 0
Payable to officers & affiliates 0 0
_______ _______
Net provided by operating activities $ (1) $ (5)
_______ _______
Net cash provided from
financing activities $ 0 $ 5
_______ _______
Increase (Decrease) in cash (1) (5)
Cash at beginning of period $ 4 $ 9
_______ _______
Cash at end of period (1) $ 4 $ 3
(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 SEPTEMBER 30, 2003
(UNAUDITED)
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 September 30, 2003 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, 2002. 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.
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
September 30, 2003
RESULTS OF OPERATIONS
As of September 30, 2003 cash and cash equivalents amounted to
$3,747 as compared to $4,327 as of June 30, 2002. The decrease
since June 3o, 2002 was primarily attributable to a net
loss for the three months ended September 30, 2003 of $580.
As of September 30, 2003 shareholders' deficit amounted to
$(746,157) as compared to $(745,577) at June 31, 2002. The
increase in deficit since June 31, 2002 was attributable to the
net operating loss of $580 in the period.
RESEARCH AND DEVELOPMENT
Research and development expenses are included in costs of
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 for experiments to complete a major milestone, the
operation of a scale model desalination system to produce desalinated
water bettering the EPA salinity criterion for potable water. The
experiments were conducted by an outside engineering firm, Innovative
Engineering Solutions, Inc. and a consultant to the company.
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 September 30, 2003, The
Company had approximately $3,747 in cash and cash equivalents.
Net cash consumed by operating activities was approximately
$580 for the three months ended September 30, 2003. The
decrease in net cash used by operating activities for the period
was attributable to the net loss for the period.
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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.
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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 accountant, William G. McKee, Inc., CPA, who
prepared the Company's corporate tax returns. The management
believes that until the company is in compliance with reporting
requirements the Company's shares will 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 and the sale of 202,833
restricted common shares to IES via a private placement is anticipated
in the second quarter to fund payment for the engineering services.
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 suitable chemical
that is safe, non-toxic, and commercially available at prices that
result in competitive desalination systems has been encouraging.
There is no assurance, however, that the Company will be able to
find a suitable clathrate former for desalination or thermal
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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.
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THERMAL ENERGY STORAGE, INC.
SIGNATURE PAGE
Pursuant to the requirement of the Securities Exchange Act of
1934, the registrant has duly cause this report to be signed on its
behalf by the undersigned thereunto duly authorized.
THERMAL ENERGY STORAGE, INC.
Registrant
Date: October 31, 2003 By: /s/ Richard A. McCormack
-------------------------
Date Richard A. McCormack
President
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THERMAL ENERGY STORAGE, INC.
6362 Ferris Square, Suite C
San Diego, CA 92121
October 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