UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal period ended December 31, 1998
Commission file Number 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, California 92121
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (619) 453-1395
Securities registered pursuant to Section 12(g) of the Act:
Title of class: Common Stock, $.001 par value
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 [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of December 31, 1998:
Common Stock, $.001 Par Value - 58,931,289 shares
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PART I
ITEM 1. BUSINESS
Thermal Energy Storage Product Line
Converting electricity to cool thermal energy at night and storing the
energy for use the following day allows the shifting of electrical loads
for air conditioning, from "peak" to "off-peak" hours. Cool thermal
energy storage for peak shifting is the basis of the Company's business.
The Company has developed a unique system to store cool thermal energy.
The system stores energy in the form of a "clathrate" ice, a mixture of
a clathrate forming compound (monoflourodichloroethane, R141b, a
hydrochloroflourocarbon, HCFC) and water. This clathrate ice has several
advantages over the more conventional, normal water-ice systems in use
for this purpose, including the fact that: (i) it freezes at approximately
47.5 degrees F. instead of 32 degrees F. as with water-ice and thus permits
retrofitting thermal energy storage (TES) systems to existing compressors;
(ii) it requires much less energy to achieve storage at this higher
temperature as compared to water-ice; and (iii) it does not expand as does
water-ice, thereby simplifying equipment design.
The U.S. Environmental Protection Agency (EPA) has determined that R141b
depletes ozone in the upper atmosphere and that it has an Ozone Depletion
Potential (ODP) of 0.11. This is substantially lower than the material
used by the Company earlier, a chloroflourocarbon, CFC, R11,
trichloromonoflouromethane, the production of which has been banned by the
EPA and which had an ODP of 1.0. The EPA has ruled that the manufacture of
R141b must cease in the year 2003. This ruling, coupled with the
uncertainty of finding a suitable replacement, has effectively eliminated
the Company's ability to sell its product in its prime marketplace.
Through work performed in the development of a freeze desalination system
it may be possible to find a substitute clathrate former that is suitable
for the purposes of thermal energy storage.
Freeze Desalination Development
The Company, funded by the Company's president through his solely owned
engineering consulting company, RAMCO, Inc., is attempting to apply
similar clathrate technology in the research and development of desalination
plants that would convert seawater to fresh water. In this process, the
clathrate former R141b is mixed within pipes carrying cold seawater from
2,000 foot depth, forming a clathrate-ice. A slurry of the clathrate-ice
and brine is pumped to a wash column where the ice crystals are separated
from the brine and washed of surface salt. The ice is then melted producing
fresh water, and the HCFC R141b is recovered for the reinjection in a
continuous cycle. Initial studies show that, if certain problems can
be resolved, this process could compete economically with water collection
and storage systems now in common use.
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Since the manufacture of R141b will cease in the US in 2003, an effort is
being made to find a suitable substitute clathrate-former for desalination
purposes. For this service a higher temperature clathrate former is
desirable. A small, follow-on contract has been received from the Bureau
of Reclamation to identify possible replacement materials suitable for
desalination, which work is ongoing. In identifying potential clathrate
formers for the purpose of desalination it is possible that the work could
also find clathrate former candidates for use in thermal energy storage.
Company Business Outlook
Since 1989 the Company's existence has been threatened by serious financial
difficulties as a result of circumstances that made the Company unable to
market its products. These circumstances have been noted in prior 10-K
reports and are briefly reviewed under History below. In fact, as early
as 1989, the Company's Directors were required to consider terminating the
Company's business when it became unclear that the Company could meet its
obligations for operating funds. However, certain of the Directors,
including the President pledged personal funds to attempt to keep the Company
in operation, principally to explore the possibility of a merger or
acquisition with or by a stronger company, and more recently to help advance
the desalination technology. With this financial support the Company was
able to continue.
After 1992, substantial contributions from the President were a major source
of funding, combined with supplementary support from other Directors. In
1994, dollar contributions from the other Directors ceased although these
Directors continue to provide services. Continued financial support by the
President from 1994 to present have produced some positive results. The
Company has received funds from the Bureau of Reclamation for its
desalination program. These funds from the Bureau have also carried with
them an obligation for the Company to contribute on a participatory basis
and this latter obligation was met in major part by continued funding of the
Company by RAMCO, a firm wholly owned by the Company's President.
In the 1995 Annual Report, Form 10K, the company reported that there was
one outside company with whom there had been discussions concerning a
possible merger of the two organizations. However in 1996 those discussions
were terminated. There have been no other discussions since and none are
expected unless and until a new replacement clathrate former is found.
History
Thermal Energy Storage, Inc. (the Company) was incorporated under the laws
of Colorado on December 8, 1978. Initially the Company's business was the
manufacture and marketing of thermal energy storage systems to the solar
industry. In fact, virtually all of the Company's existing shareholders
trace their participation to the 1980-1983 period. However, by the end of
1984 consumer demand for solar energy systems declined and the Company
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directed its efforts into the growing commercial demand for off-peak cool
thermal storage.
The TES system first developed by the Company relied on the use of the
refrigerant labeled R11 (monofluorotrichloromethane), a chlorofluorocarbon
(CFC) that was subsequently (in 1989) identified with the depletion of the
earth's ozone layer. The U.S. government placed a heavy tax on the use of
CFC R11 in 1990 and the U.S. Environment Protection Agency (EPA) ordered
the termination of manufacture of all CFC products at the end of 1995.
Under a contract with Consolidated Edison of New York, the Company was
successful in identifying the HCFC R141b as a suitable replacement to CFC
R11. However, the expenditures made by the Company to accomplish the
development of the SNOPEAK thermal energy storage system depleted the
Company's resources so that it was unable to sustain a marketing effort.
The Company then began to seek merger partners to promote the product line.
However in 1995 the EPA ruled that the manufacture of R141b must also be
terminated and established the year 2003 as the date after which no new
material can be produced. This ruling by EPA effectively removed the
Company from the market place.
In 1993 an effort was begun to pursue clathrate desalination technology.
This work led to a contract with the Bureau of Reclamation (BUREC) to design,
build, and test a small-scale demonstration plant at the Natural Energy
Laboratory of Hawaii, on the Big Island of Hawaii. As part of this endeavor
a search for a new clathrate former for use with the desalination technology
is being made and that work is ongoing. In order to obtain this contract,
RAMCO, to a large extent, met the financial sharing obligations required by
BUREC.
In January, 1995 the Company's President filed for a patent on a clathrate
desalination system, which patent has subsequently been issued. All costs
incurred up to the time of issuance of the patent and thereafter, for
developing, obtaining and supporting the patent were paid by RAMCO. The
Company's Board of Directors has proposed, and the Company's president has
agreed, that RAMCO cross-license the technology, as embodied in the patent
application and developments through the completion of the aforementioned
BUREC contract, to the Company in perpetuity, on a world-wide, royalty-free
basis.
Additionally, RAMCO has agreed to assign all its rights to the desalination
technology to the Company upon reimbursement of expenditures and amounts
owed RAMCO by the Company at a time to be determined.
<PAGE>
Marketing
Analysis of a typical utility company's electrical load pattern over a
24-hour period shows that daytime use is much higher than nighttime.
A utility must have sufficient generating capacity to meet this daytime,
or "peak" period, load. Such being the case, many utility generators are
left under-utilized during the nighttime, or "off-peak" period. In fact,
the typical utility company has approximately twice the installed generating
capacity it would need if its load were level throughout the day. Because
of this disparity, to the extent that a utility can shift electrical loads
from peak to off-peak periods, the utility can avoid building additional
generating capacity. By virtue of such load shifting, utilities would be
able to operate more efficiently by utilizing their most efficient generators
at a higher capacity through the night. The restructuring of the electrical
industry is expected to emphasize the need for energy storage.
Over the long and difficult period, from 1989 to present, while the Company
was developing its 'Snopeak product line and searching for a suitable
replacement for its clathrate-forming chemical, many fundamental and
structural changes were occurring in the traditional electric utility industry
leading up to the current restructuring of the industry. Having lost its
ability to market its 'Snopeak product line because of EPA rulings, the
Company sought to align with a financially strong company with comparable
business interests that would continue to fund the search for new a
clathrate-former as well as to develop the desalination technology. However
management judges that the best opportunity to find an appropriate partner
is to find a suitable replacement clathrate-former and also to develop a
working system for its desalination technology at its Hawaiian test site.
(The reason for choosing Hawaii for the test site is that at NELH there
exists an extensive supply of cold deep sea water (2,000 feet) pumped to
the surface for use by the various tenants of NELH).
In an approach to revitalize itself the Company was able to obtain two
cost-sharing desalination contracts from the Bureau of Reclamation amounting
to $553,000 for work that will continue through September 1998. In order
for the Company to obtain these contracts it was necessary for RAMCO to
agree to fund the major part of the cost-sharing amount of $241,000.
The testing to date has shown that four of the five subsystems making up the
desalination system operate satisfactorily. The fifth system, the separator
and wash column, did not work as required for the overall system to be deemed
successful. Follow on funding was sought from BUREC to modify the design of
the design of the separator and wash column and to perform further testing.
<PAGE>
This funding was held back by BUREC because of an incident at NELH in
September 1998 whereby certain parties accused, falsely as it turns out,
NELH and the Company of causing a fish kill through the release of R141b into
the outfall from the company's test facility. The company's subsequent
investigation determined that the most likely cause of any fish kill was
due to thermal shock caused by the release of very cold water into the warm
water that collects in the outfall during periods when the company's system
is not operating. Further it was shown that the R141b to be toxic to humans,
fish or plant life it would have to be in concentrations on the order of
magnitude of 1 million times greater than the amounts reportedly detected.
It was concluded that the most likely cause of there being R141b in the
outfall was through the efforts of one or more disgruntled defendants in a
suit brought by NELH to eject them from the land to which they claim
ownership, which land is part of NELH's facility.
The Company expects to receive the follow on contract from BUREC before
March 1999.
Research and Development
The Company spent $494,293 on research and product development during the
period from inception (December 8, 1978) to December 31, 1981, $187,744
during 1982, $42,827 during 1983, $33,921 during 1984, $92,967 during 1985,
$91,359 during 1986, $65,455 during 1987, $128,714 during 1988, $34,979
during 1989, $34,562 during 1990, $33,818 during 1991, $39,889 during
1992, $8,873 during 1993, $2,104 during 1994 and $66,115 during 1995 for a
total expenditure on research and development during the period from
inception to December 31, 1998 of $1,357,620.
In October, 1993 the Company was awarded a $103,000 participatory contract
from the U.S. Department of Interior, Bureau of Reclamation (BUREC), to
perform a feasibility study to determine if clathrate technology is suitable
for the desalination of sea water. Known as "Freeze Desalination" a
clathrate system, theoretically, has the potential to be a more efficient
desalination system than reverse osmosis systems currently in use. The
study was completed in April, 1995 and verified the technical feasibility
of the clathrate desalination system and showed that there is potential
for this system to compete with other desalination systems now in
commercial use. In October 1995, the Company received a follow-on,
$450,000, participatory contract to build a small demonstration plant to
be located at the Natural Energy Laboratory of Hawaii. Certain costs
associated with obtaining the follow-on contract and funding for the
$178,000 participatory share, are being paid by RAMCO, the Company not
having sufficient funds to meet the funding requirements.
<PAGE>
In accordance with generally accepted accounting principles, all costs
associated with research and development incurred by the Company were
expensed.
Patents
The Company has patented its clathrate phase-change technology based on the
concept of freezing the clathrate mix in a range of 42 degrees F to
48 degrees F while maintaining high thermal storage capacity. Clathrates,
also known as gas-hydrates, are produced by mixing certain compounds with
water using off-the-shelf mechanical and chemical components. At certain
temperatures and pressures, depending on the chemistry of the mixture,
molecules of the clathrate forming compound are completely enclosed with
a group of water molecules in a solid crystalline structure to form the
clathrate storage medium. The Company's first patent, issued in September
1987, covers the formation of the clathrate under specific physical and
chemical conditions. The Company's second patent was issued in May, 1989
and covers different methods and chemicals for forming its clathrate
storage medium.
The Company was issued U.S. patent No. 4,696,338 on September 29, 1987, and
No. 4,821,794 on April 18, 1989. These patents will expire 17 years after
issuance. The claims in these patents are important to the Company because
they provide broad patent coverage to the Company's formulation of and
methods of producing its clathrate energy storage material. Specifically,
the patents provide coverage for the formulation of clathrates for energy
storage using both a direct contact heat exchange system and an indirect
heat exchange system.
In January 1995, Richard McCormack, the Company's President filed for a
patent on a clathrate desalination system, which patent has been issued.
RAMCO is the originator and holder of the basic patent applications on
freeze desalination that is used by the Company in its desalination
development work. All costs of obtaining the patent have been, and are
being, paid by RAMCO. The Company's Board of Directors has proposed, and
the Company's president has agreed, that RAMCO cross-license the technology,
as embodied in the patent application and developments through the
completion of aforementioned BUREC contract, to the Company in perpetuity,
on a world-wide, royalty-free basis.
<PAGE>
Additionally, RAMCO has agreed to assign all its rights to the desalination
technology to the Company on reimbursement of expenditures and amounts owed
RAMCO by the Company, at a time to be determined.
Trademark
In 1981 the Company was granted a federal trademark for the name, Thermal
Energy Storage, Inc., as well as the acronym, "TESI", and the Company's
logo. A state trademark registration has been granted by the State of
California. The Company believes its name is an asset as it reflects the
name for thermal energy storage (TES) commonly used in the literature and
in the industry.
Material Customers
In 1998, 1997, and 1996, 100 percent of the Company's revenues were derived
from a research contract from the U.S. Department of Interior, Bureau of
Reclamation, CEROS. The failure of the Company to contract with additional
new customers is having a material adverse effect on the Company.
Industry and Competition
Because of the delay created by the elimination of CFC R11 and HCFC R141b,
the Company still has not entered the thermal energy storage (TES) market,
which exacerbates the financial constraints under which the Company had
been operating. Management is aware of at least eight companies currently
competing in the off-peak storage air conditioning market. Seven of these
companies produce systems based on water-ice, or water, as the storage
media. Management believes its clathrate storage technology is unique and,
as noted earlier, offers technical advantages over systems presently
marketed by competitors.
Management is not aware of any manufacturer currently producing or
developing a clathrate-based cool storage system; however, other firms
with greater resources than the Company are interested in the utilization
of phase-change materials for thermal energy storage. Some of these firms
have the technical capability of developing a thermal energy storage system
along the lines of the Company's product should they decide to do so,
subject to constraints imposed by our patent position.
<PAGE>
Both the technology and the utility perception as to the requirements for
energy storage and electric power load management, are experiencing many new
developments. There can be no assurance that the Company's products will
not be made uncompetitive or obsolete in the future.
The Company's storage medium, HCFC R141b is currently being manufactured
by several major chemical companies in the U.S. at a price that permits
the company to compete in the market. However, the uncertainty surrounding
the Company's ability to find a suitable replacement has stalled the
Company's entrance into the market place. Should the price of a replacement
increase significantly over that of R141b the Company's system could be
rendered uncompetitive. An alternate clathrate former will have to be used
after 2003. The Company is seeking R&D funds to meet this need.
Manufacturing and Assembly
The Company's production of storage systems consists primarily of
engineering, procurement and final assembly of components produced by
other manufacturers to Company specifications, and charging the system
with its storage medium. Management believes that all major equipment
components of its system are, and will remain, readily obtainable from
numerous suppliers to the extent necessary to meet the Company's production
needs. The Company has not entered into any long-term contract for the
supply of any component. The Company does not intend to build any
manufacturing facilities in the foreseeable future.
Regulations
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
CFC R11, which made the Company's use of CFC 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 products 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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Employees
As of December 31, 1998 the Company had no full time employees. Part time
employees, consultants and contractors are hired as needed in engineering,
marketing, manufacturing and administration.
ITEM 2. PROPERTIES
Lease
In March, 1998 the Company moved to 6362 Ferris Square, Suite C, San Diego,
California 92121, where it share 1,600 square feet of office space with
RAMCO. RAMCO signed a three year lease, commencing on March 1, 1998, and
RAMCO is currently providing the office space to the Company for no charge.
ITEM 3. LEGAL PROCEEDINGS
There are no pending or threatened lawsuits against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED MATTERS
Price range of Common Shares
The Common Shares of the Company are traded on the over-the-counter market
and quoted under the symbol "TESI". 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 was not current in its reporting obligations
under the Securities Exchange Act of 1934 and because it no longer met the
financial net worth standards set by NASDAQ. Market prices for the
Company's Common Shares can now be obtained through NASDAQ brokerage houses.
<PAGE>
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 and 1998, and did not timely file the quarterly form 10-Q 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-K and
the 1998 10-Q reports the Company will be current in its reporting under
the referenced provisions of the 1934 Act.
Sales of restricted Common Shares under Rule 144 under the Securities Act
of 1933 are available.
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain financial data of the Company for
the years ended December 31, 1995 through December 31, 1998 and is
qualified in its entirety by the financial statements and notes thereto
included in ITEM 9. FINANCIAL STATEMENTS.
Year Ended December 31,
____________________________________________
1998 1997 1996 1995
Revenues $140,714 $280,787 $153,684 $40,000
Net income (loss) (4,013) (21,578) (83,707) (82,633)
Per common share (.000) (.001) (.001) (.001)
Total assets 29,000 27,828 58,557 4,851
Long term obligations 0 0 0 0
Cash dividends per share 0 0 0 0
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and capital resources
In 1990 a new United States federal excise tax on the material CFC R11 used
in the formation of the Company's storage media forced the Company to
terminate its U.S. marketing efforts until a suitable substitute material
was identified and successfully demonstrated.
Under contract from Consolidated Edison of New York and Empire State Electric
Energy Research Corp. (a group of New York State utilities) the Company
conducted successful research and identified a new clathrate forming
material, HCFC R141b, as a suitable replacement. This material is being
manufactured by several major chemical companies in the U.S. as a
substitute for CFC R11 in the rigid foam insulation industry. Currently
the EPA, through the National Clean Air Act, has approved this material,
which has an Ozone Depletion Potential of approximately 11% of the former
clathrate former CFC R11, for manufacture through 2003.
The Company's Board of Directors has directed management to seek an
alignment with a financially strong company with compatible business
interests to market its Snopeak Storage System and to retain cognizant
of any new development with clathrate forming materials that have zero
ODP, such as certain hydrofluorocarbons (HFC's) that are not now being
manufactured but which are under study by several U.S. chemical companies.
Without such an alignment the company may be unable to market its products
and may terminate its business.
In 1988 the Company obtained a $50,000 bank loan, guaranteed by the Directors
and a major stockholder, and in January 1990 completed a Private Placement
which sustained the Company operations until receipt of the Consolidated
Edison/ESEERCO contract. In 1992, $25,000 of the Bank loan was repaid
by the Directors and the major stockholder (who became a member of the
Board of Directors in 1991). In 1993, $15,625 was repaid by the Directors
and the major stockholder. In 1994, the bank loan was paid off by the
Directors and the major stockholder. The Company is actively seeking
additional operating funds to sustain operations until such time as it
generates a positive cash flow from internal operations.
As of December 31, 1998, the Company had accounts receivable of $25,000 as
compared to accounts receivable totaling $18,554 as of December 31, 1997.
As of December 31, 1998 the Company had a cash balance of $989 as compared
to $6,263 cash at December 31, 1997.
The Company had a net loss of $4,013 in 1998. This loss was due to an
excess of expenses over contract revenues in 1998.
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A negative cash flow from operations was approximately $500 per month
throughout 1998, as compared to a negative cash flow from operations of
approximately $2,600 per month in 1997 and a positive cash flow of $2,960
per month in 1996.
Current assets and total assets were $29,000 as of December 31,1998
compared to current assets and total assets of $27,828 as of December
31,1997 and $58,557 as of December 31, 1996.
As of December 31, 1998 the Company had a working capital deficiency
of $665,105. As of December 31, 1997 the Company had a working capital
deficiency of $661,092 as compared to a working capital deficiency of
$639,514 as of December 31, 1996. This deficiency in working capital
was due to operating losses.
As of December 31, 1998 the Company had no bank loans outstanding. As
of December 31, 1994, the Company had paid off the bank loan.
As of December 31, 1998 the Company had accounts payable totaling $24,458.
As of December 31, 1997 the Company had accounts payable totaling $59,273
as compared to accounts payable of $106,585 as of December 31, 1996.
Effective July 20, 1987, the Company entered into an agreement with
Renewable Resource Systems, Inc. (RRSI) of Menlo Park, California whereby
RRSI purchased 3,000,000 Common Shares for $150,000 cash or $.05 per share,
and an additional 6,375,000 Common Shares at $.133 per share for a total
of $850,000. As of December 31, 1987 the total of $1,000,000 was received
by the Company and 9,375,000 Common Shares were issued to RRSI.
In October, 1989 RRSI informed the Company that they were terminating their
business in the U.S. and intended to use their Company holdings to satisfy
their contractual agreements with certain key employees. As a result of
negotiations between RRSI, the Company and Mr. A. Philip Bray, (former CEO
of RRSI, and who, in 1992, became a Company Board Member) and in return for
a release of obligations and liabilities among the Company, RRSI and two
(then current) Company Board Members employed by RRSI, it was agreed that
the Company would issue to RRSI a warrant to purchase up to 2,280,427
Common Shares at a price of $.13 1/3 per share, exercisable for a period of
5 years commencing October 15, 1989 and RRSI would return 3,000,000 of its
shares to be canceled by the Company. These canceled shares formed the
basis of a non-dilutive Private Placement completed by the Company in
February 1990. Mr. Bray received the remainder of the Common Shares held
by RRSI and RRSI's warrant to purchase 2,280,427 Common Shares at $.13 1/3
per share. Mr. Bray also assumed RRSI's 40 percent guarantee obligation
on the $50,000 bank loan. In 1990 Mr. Bray lent the Company $15,000 in
working capital.
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During the period 1989 through 1998 there were periods when there were
lapses in the Company's liability insurance coverage. The Company may
have financial exposure for claims arising during the periods in which no
coverage existed. No such claims against the Company had been made as of
December 31, 1998 and the Company knows of no incidents that would lead to
any such claims.
In December 1992, the Company's management, citing severe financial
restrictions, instituted a change to the Company's use of independent
auditors, approving instead the change from Peterson & Co., a La Jolla
based accounting firm, to use financial results as prepared by the
Company's independent bookkeeper since 1988, Mr. William Jankowski.
Management had no disagreements with Peterson & Co. during the 1990 and
1991 fiscal year audits on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure. All
financial results presented herein are in accord with all previous
practices used by the Company and past auditors and are considered
accurate. The sole reason for making this change is to conserve operating
funds. In 1998 the Company hired Mr. William McKee, CPA, to prepare the
financial statements without audit or review. The 10k and 10q reports
were prepared by William Jankowski.
In 1990 the Company settled a lawsuit with Alternate Energy Development
Corporation by paying $2,500.
The Company needs to raise additional funding to sustain operations until
the Company becomes self sustaining through the sale of its thermal energy
storage (TES) systems or funding of its freeze desalination development.
The Company is currently seeking to align itself or merge with a financially
strong company with compatible business interests. Since 1994 the Company
has discussed possible mergers, acquisitions and affiliations with several
suitable companies but currently there are no ongoing negotiations.
Management believes that the company can pursue a strategic alliance with
any other firm only after it has been able to complete its desalination
testing successfully and has found a substitute clathrate former for both
the desalination technology and the thermal storage technology.
Results of Operations
In 1988, a field demonstration of a 250 ton-hour storage system was placed
in trial operation. At approximately the same time a 24 ton-hour system
also was placed in a field operation. Both systems immediately developed
similar and unexpected operating problems relating to equipment sizing and
scale-up from the Company's test stand system.
These scale up and sizing problems led to the decision by the Board of
Directors to suspend marketing activities and to initiate the subsequent
extensive testing program. These decisions further led to substantial cost
increases during 1988 and 1989.
<PAGE>
To solve these technical operating problems management commenced an
around-the-clock test program on the Company's test stand and, at the same
time, halted field testing of the field units. The test ran for over five
months and was completed in December 1988. Subsequently, all data was
reduced and analyzed. On the basis of this analysis certain modifications
were made to the design of the Company's system such that operation of
the system at the 100% storage capacity rating for each of the Company's
field demonstration units was successfully demonstrated.
The Company had $140,714 in contract revenues for the year ended December
31, 1998 and $280,787 in contract revenues in 1997.
As of December 31, 1998 and December 31, 1997 there was no backlog of
business. The BUREC contract required a funding participation of $178,000,
which funding, in major part, was provided for by RAMCO Inc.
There were no research and development expenses in 1998, 1997 and 1996.
Research and development expenses were $66,115 for the year ended
December 31, 1995 as compared to research and development expenses of
$2,104 for the year ended December 31, 1994.
There was no interest income or interest expense for 1998, 1997 and 1996.
Selling, general and administrative expenses were $28,671 as of December 31,
1998. Selling, general and administrative expenses were $16,150 as of
December 31, 1997 as compared to $58,449 as of December 31, 1996.
It is Management's opinion that inflation had no significant effect on
Company operations in 1998 and no significant effect is forecast for 1999.
<PAGE>
ITEM 8. MANAGEMENT STATEMENT ON LACK OF INDEPENDENT PUBLIC ACCOUNTANT REPORT
The Annual Report Form 10K for the seventh year does not contain a report
by our accounting firm, Peterson and Company. Rather the financial
statements from 1991 until 1997 have been reviewed by the Company's
President and by Mr. William Jankowski, the Company's bookkeeper since
1988. 1998 the financial statements were prepared by the firm of William
McKee and Associates. The sole reason for not including the auditor's
report is to conserve operating funds.
<PAGE>
<TABLE>
ITEM 9. - FINANCIAL STATEMENTS
THERMAL ENERGY STORAGE, INC.
STATEMENTS OF LOSS AND ACCUMULATED DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Unaudited)
(Amounts in thousands, except per share data)
<CAPTION>
1998 1997 1996
______ ______ ______
<S> <C> <C> <C>
REVENUES
Contract services $ 135 $ 281 $ 154
COST OF REVENUES
Contract services 116 292 190
______ ______ ______
Gross profit (loss) 19 (11) (36)
Research and development 0 0 0
Selling, general and
administrative expenses 29 16 59
______ ______ ______
Operating loss (10) (27) (95)
Other income 6 5 11
______ ______ ______
Net loss (4) (22) (84)
Accumulated deficit -
Beginning of period (4,760) (4,738) (4,655)
_______ _______ _______
Accumulated deficit -
End of period (4,764) (4,760) (4,739)
Loss per share $(.000) $(.000) $(.001)
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
THERMAL ENERGY STORAGE, INC.
BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except per share data)
<CAPTION>
1998 1997
______________ ______________
<S> <C> <C>
ASSETS
Current assets
Cash $ 1 $ 6
Accounts receivable 25 19
Inventories 1 1
Prepaid expenses 2 2
______ ______
Total current assets 29 28
Property, plant and equipment 109 109
Accumulated depreciation (109) (109)
______ ______
TOTAL ASSETS 29 28
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C> <C>
Current liabilities
Accounts payable $ 25 $ 59
Accrued payroll 101 101
Payable to officers and affiliates 568 529
______ ______
Total current liabilities 694 689
Stockholder's deficit
Preferred stock par value $.10
per share; 30,000,000 shares
authorized; none issued
Common stock par value $.001 per
share; 110,000,000 shares
authorized; 58,931,289 shares
issued and outstanding in
1998 and 1997 59 59
Additional paid-in capital 4,040 4,040
Accumulated deficit (4,764) (4,760)
_______ _______
Total stockholders' equity $ (665) $ (661)
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 29 $ 28
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
THERMAL ENERGY STORAGE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(Unaudited)
(Amounts in thousands)
<CAPTION>
1998 1997
<S> <C> <C>
Cash flow from operating activities:
Loss from operations $ (4) $ (22)
_______ _______
Adjustments to reconcile net
income to net cash provided by
operating activities
Depreciation 0 0
Increase (decrease) from changes:
Receivables (6) (1)
Accounts payable (34) (46)
Other accrued liabilities 0 0
Payable to affiliates 39 38
_______ _______
Net cash provided by (used in)
operating activities $ (5) $ (31)
_______ _______
Cash flow from investing activities: $ 0 $ 0
Cash flow from financing activities: $ 0 $ 0
_______ _______
Increase (decrease) in cash (5) (31)
Cash at beginning of year $ 6 $ 37
_______ _______
Cash at end of year $ 1 $ 6
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
THERMAL ENERGY STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
Note 1. Organization and Nature of Operations
Thermal Energy Storage, Inc needs to raise additional funding to sustain
operations until the Company becomes self-sustaining through the sale
of its thermal energy storage (TES) systems or funding of its freeze
desalination development. The Company is currently seeking to align
itself or merge with a financially strong company with compatible
business interests. Since 1994 the Company has discussed possible mergers,
acquisitions, and affiliations with several suitable companies. Management
believes that the company can pursue a strategic alliance with another
firm only after it has been able to complete its desalination testing
successfully and has found a substitute clathrate former for both the
desalination and the thermal storage technology.
Without additional funding, or merger with a financially strong company, the
Company may be unable to market its products and may terminate its business.
For the last four years, the Company has been funded in part by RAMCO,
a company wholly owned by the Company's president, and for three of those
years, the Company's president has served without compensation. RAMCO
has notified the Company that it does not intend to continue such support
of the Company's activities beyond 1998. It is therefore likely that the
Company will cease operations if a new funding source is not found.
In October, 1993 the Company was awarded a $103,000 participatory contract
from the US Department of Interior, Bureau of Reclamation (BUREC), to
perform a feasibility study to determine if RAMCO's technology was suitable
for the desalination of sea water. Known as "freeze desalination", a
clathrate system has the potential to be a more efficient desalination
system than reverse osmosis systems currently in use. The study, completed
in April, 1995, theoretically verified the technical feasibility of the
clathrate desalination process and showed that this system has the potential
to compete with other desalination systems now in commercial use. RAMCO
then permitted the Company to use its desalination paten applications in
pursuit of this and subsequent work.
In October 1995 the Company received a follow-on participatory contract for
$450,000 to build a small clathrate desalination demonstration plant to be
located at the Natural Energy Laboratory of Hawaii. Certain costs
associated with obtaining the follow-on contract and funding for the
$178,000 participatory share, were paid by RAMCO since the Company does not
have sufficient funds to meet the funding requirements. This contract
completed in September 1998. The company has sought, and expects to receive,
follow on funding from BUREC as discussed under "Marketing".
<PAGE>
Note 2. Summary of Significant Accounting Policies
Basis of presentation
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
asset 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 to sustain
operations. As of December 31, 1998 its current liabilities exceeded its
current assets and total liabilities exceeded its total assets.
Inventories
Inventories, which are stated at the lower of cost (first-in, first-out) or
market, are entirely composed of purchased parts as of December 31, 1998.
Property and equipment
Depreciation is provided using the straight line method over the estimated
useful lives of the related property, as follows:
Machinery and equipment 3-7 years
Furniture and fixtures 5-10 years
Accrued payroll and related taxes
Accrued payroll of $101,326 consists of accrued compensation due to the
Company's President as of December 31, 1998 and December 31, 1997.
Revenue and cost recognition for contract services
Revenues from fixed-price contracts are recognized on the percentage-of-
completion method, measured by the percentage of costs incurred to date
to estimated total costs for each contract. Revenues from cost-plus-fee
contracts are recognized on the basis of costs incurred during the period
plus the fee earned. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor, supplies,
tools and repairs. Selling, general and administrative costs are charged
to expense as incurred.
Note 3. Loss Per Share
Computation of loss per share was based on the weighted average number of
58,931,289 Common shares outstanding in 1998 and 1997. Common share
equivalents (stock purchase warrants and stock options) have not been
included in the calculation of net loss per common share because the effect
would be insignificant for 1998 and 1997.
<PAGE>
Note 4. Related Party Transactions
The Company's President is the President and sole shareholder of RAMCO,
which is a holder of the Company's equity securities. From 1983 to 1985,
RAMCO loaned the Company a total of $123,517 on an interest free basis of
which $7,500 was repaid in 1983, $9,022 in 1985, $5,000 in 1987, and
$63,936 in 1988. RAMCO charged the Company $5,237 and $5,765 during 1986
and 1987 respectively, for travel, secretarial and engineering services
of which $5,539 was outstanding at December 31, 1988. It was anticipated
that the balance owed RAMCO of $43,598 would be paid at the rate of
$7,500 per month commencing January 1, 1989 in lieu of equivalent salary
which will be accrued and paid from Company profits in accord with an
agreement requested by the Company's President and approved by the
Company's Board of Directors. No such payments were made in 1989 nor did
the President receive any cash for salary in 1989. RAMCO lent the Company
funds at various times throughout 1989. In 1990, 1991, 1992 and 1995, the
Company's President provided his service to the Company through the RAMCO
affiliate, an arrangement approved by the Company's Board of Directors in
1990. In 1990 RAMCO charged the Company $90,000 for management services
and was paid $72,924 with a balance due as of December 31, 1990 and 1989
of $35,477 and $18,401, respectively. In 1991 RAMCO charged the Company
$90,000 for services and was paid $21,737 with a balance due as of December
31, 1991 of $103,740. In 1992 RAMCO charged the Company, but was not paid,
$90,000 for services, and advanced the Company $24,632 with a balance due
as of December 31, 1992 of $218,372. In 1993 RAMCO did not charge the
Company for services and was repaid $9,174 with a balance of $209,198 as
of December 31, 1993. In 1994 RAMCO did not charge the Company for services
and advanced the Company $22,302 with a balance due of $231,500 as of
December 31, 1994. In 1995 RAMCO charged the Company, but was not paid,
$90,000 for services and advanced the Company $14,950 with a balance due of
$336,450 as of December 31, 1995. In 1996 RAMCO charged the company $30,000
for services and advanced the company $58,942, with a balance due of
$425,393 as of December 31, 1996. In 1997 RAMCO advanced the Company
$38,161 with a balance due of $463,554 as of December 31, 1997. In 1998
RAMCO advanced the Company $40,000 with a balance due of $503,554 as of
December 31, 1998.
In order for the Company to qualify to receive a BUREC contract, in 1995
RAMCO agreed to fund up to $178,000 of the participatory BUREC contract
until another funding source can be obtained. RAMCO is the holder of a
patent application for a clathrate-based desalination system and has agreed
to cross-license the technology, as embodied in the patent application and
any developments through completion of the BUREC contract, to TESI on a
world-wide, royalty-free basis, in perpetuity. Additionally, RAMCO has
agreed to assign all its rights to the desalination technology to the
Company upon reimbursement of expenditures and amounts owed RAMCO by the
Company, at a time to be determined.
<PAGE>
Note 5. Revenues
In the past a substantial portion of the Company's revenues other than
license fees are derived from a limited number of customers. In 1998, 1997,
1996, 1995 and 1993 one customer accounted for 100 percent of revenues.
There were no revenues in 1994.
Note 6. Common Shares and Warrants
On September 17, 1987, the Company entered into a common stock purchase
agreement (the "Agreement") with Renewable Resource Systems, Inc. (RRSI)
of Menlo Park, California. On July 20, 1987 the Company sold 3,000,000
Common Shares at a price of $.05 per share for $150,000 cash and during
September through December 1987 sold an additional 6,375,000 Common Shares
at $.13 1/3 per share for $850,000 cash.
In October 1989 RRSI informed the Company that they were terminating their
business in the U.S. and intended to use their holdings in the Company to
satisfy their contractual agreements with certain key employees. As a
result of a negotiation between RRSI, the Company and Mr. A. Philip Bray
(former CEO of RRSI and subsequent to the year ending December 31, 1991
a Company Board Member), and in return for a release of obligations and
liabilities amoung the Company RRSI and two (then current) Company Board
Members employed by RRSI, it was agreed that the Company would issue a
warrant to purchase up to 2,280,427 Common Shares at a price of $.13 1/3
per share, exercisable for a period of 5 years commencing October 15, 1989
and RRSI would return 3,000,000 of its shares to be canceled by the Company.
The canceled shares formed the basis of a non-dilutive Private Placement
completed by the Company in February 1990. Mr. Bray received the remainder
of the Common Shares held by RRSI and the RRSI warrant to purchase up to
2,280,427 Common Shares at $.13 1/3 per share. Mr. Bray also assumed RRSI's
40 percent guarantee obligation on the $50,000 bank loan. In 1990 Mr. Bray
lent the Company $15,000 in working capital.
In connection with the sale of Common Shares to RRSI and in consideration
of other services rendered, in 1987 the Company issued to a consultant
500,000 Common Shares valued at $.03 per share. The consultant, Sidney M.
Stoller, also become a member of the Board of Directors. On December 14,
1987, the Company entered into an agreement with Mr. Stoller under which he
could acquire warrants for the purchase of up to 300,000 shares of the
Company's Common Shares at an exercise price of $.1333 per share, and as of
December 31, 1988 Mr. Stoller had acquired warrants to purchase 300,000
Common Shares. The warrants were issued in exchange for consulting services
to be provided through December 1988 and expire two years from completion
of such services. The consulting contract was extended through December 31,
1992. During 1990 Mr. Stoller acquired warrants to purchase an additional
300,000 Common Shares. The Board of Directors directed that the exercise
price be established at $.03 per share.
<PAGE>
Common Shares reserved for issuance on the exercise of warrants and options
as of December 31, 1998 are as follows (excluding subsequently expired
warrants):
Description Shares Reserved
Warrants 4,830,047
Non-qualified stock options 350,000
Incentive stock options (Note 7) 7,400,000
__________
12,580,047
Note 7. Stock Options
Pursuant to a stock plan approved by the Company's stockholders in June,
1988, the Company reserved 7,500,000 Common Shares (100,000 Shares were
purchased in 1988 pursuant to this plan leaving 7,400,000 Shares reserved).
The plan provides for the granting of both incentive stock options and
non-qualified stock options to purchase Common Shares at prices not less
than the fair market value at the date of grant as determined by the
Compensation and Stock Option Committee of the Board of Directors. The
period for the exercise of each option granted is five years from the date
of grant of an incentive stock option and ten years from the date of the
grant of a non-qualified stock option. Options to purchase 1,000,000 and
150,000 Common Shares were forfeited in 1992 and 1989.
In 1990 the Company granted an option to purchase 100,000 Common Shares
at $.065 per share to an employee who has terminated employment, in
exchange for future services to be rendered relating to technology transfer.
In 1994 and 1995, the Company granted an option to purchase shares at $.03
per share, in exchange for future assistance relating to financial,
administrative, stockholder and marketing services as follows:
Mr. Larry O'Donnell 200,000 shares
Mr. William Jankowski 200,000 shares
Mrs. Virginia Paul 200,000 shares
Mrs. Bernice King 100,000 shares
Mrs. Debbie Smith 100,000 shares
Mr. Richard Andersen 200,000 shares
In 1995 the Board of Directors reestablished the option price to $0.005 for
the 1,000,000 shares outlined.
<PAGE>
Note 8. Income Taxes and Net Operating Losses
The Company has net operating loss carry-forwards of approximately
$2,352,000 as of December 31, 1998, available to reduce future federal
taxable income. The carry-forwards expire $615,000 in 1999, $206,000
in 2000, $23,000 in 2001, $403,000 in 2002, $463,000 in 2003, $226,000
in 2004, $105,000 in 2006, $114,000 in 2007, $18,000 in 2009, $69,000
in 2010, $84,000 in 2011, $22,000 in 2012, $4,000 in 2013.
In December 1987, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 96, "Accounting for Income
Taxes". Because the Company has significant net operating loss
carry-forwards and no material differences between book income and taxable
income, implementation of SFAS No. 96 is not expected to have a material
effect on the Company's reported financial position and results of
operations.
Note 9. Commitments and Contingencies
The Company has no other undisclosed commitments or contingencies.
Note 10. Equipment Warranties and Claims
There are no pending or threatened lawsuits against the Company.
Note 11. Going Concern
As shown in the accompanying financial statements, as of December 31, 1998
the Company's current liabilities exceeded its current assets by $665,105.
Those factors create an uncertainty about the Company's ability to continue
as a going concern. The ability of the Company to continue as a going
concern is dependent on its success in obtaining working capital and
increasing revenues. The Company plans on obtaining working capital through
performance on contracts and potential merger with a company with
complementary products. The financial statements do not include any
adjustment that might be necessary if the Company is unable to continue as
a going concern.
<PAGE>
ITEM 10. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
Management believes that the terms of the transactions described hereunder
were as favorable to the Company as could have been arranged with
unaffiliated parties.
No executive officers have been paid compensation during the years ended
December 31, 1998, 1997, 1996 and 1995. No compensation was accrued for
any executive officer during the years ended December 31, 1997 and 1998,
$30,000 in compensation was accrued and unpaid in 1996 and $90,000 was
accrued and unpaid in 1995.
The Company adopted a Stock Option Plan (the "Plan") on March 18, 1981 which
was approved by the shareholders on May 28, 1981 and further amended on
October 30, 1987, and approved by the shareholders in June 1988. The
purpose of the Plan is to advance the interest of the Company and
shareholders by affording to employees an opportunity to acquire or
increase their proprietary interest in the Company by the grant to such
employees of options.
Options granted pursuant to the Plan shall be options to purchase shares
of the Company's Common Stock, $.001 par value. Subject to adjustments
described in the Plan the aggregate number of Common Shares which may be
issued upon the exercise of options granted cannot exceed 7,500,000 Common
Shares.
There were no Common Shares acquired through the exercise of options granted
by the Company to its executive officers during the fiscal years ended
December 31, 1998, 1997 and 1996 and to all executive officers as a group.
Options for 100,000 Common Shares were exercised by a terminating employee
in 1988. No stock options were exercised during the years ended December 31,
1991, 1990, 1989, 1987 and 1986. In February 1985, the Board of Directors
accelerated the vesting period to make all options granted prior to
December 31, 1984 fully exercisable.
<PAGE>
The Plan is administered by a standing Compensation and Stock Option
Committee of the Board of Directors. The members of the Compensation and
Stock Option Committee were Messrs. Lawrence O'Donnell and Sidney Stoller.
The Compensation and Stock Option Committee met in 1994 and issued stock
options in Note 7.
Compensation of Directors
Directors who are employed by the Company receive no special compensation
for serving as Directors or for their attendance at Board or Committee
meetings. Company policy is to pay non-employee Directors a fee of $480
per day for Board and Committee meetings, except that if a committee
meeting is held in conjunction with a Board meeting there is no compensation
for the committee meeting. For the years end December 31, 1992 through
December 31, 1998 no Directors fees were accrued or paid.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 1998 certain information
with respect to all stockholders known by the Company to be beneficial
owners of more than five percent of its outstanding Common Stock, and all
officers and directors of the Company as a group.
Name and Address of Shares Owned Percent of
Beneficial Owner Beneficially Class
__________________ ____________ _________
Richard A. McCormack 10,067,503 17.1% (1)
8155 Paseo del Ocaso
La Jolla, CA 92037
All Officers and 19,328,944 32.8%
Directors as a Group
A. Philip Bray 6,719,573 11.4%
235 Montgomery, Suite 820
San Francisco, CA 94104
(1) Includes 857,000 shares held of record by RAMCO, INC. a corporation
wholly-owned by Richard A. McCormack.
<PAGE>
PART II - OTHER INFORMATION
Item 13. Exhibits, Financial Statements and Reports on Form 8-K
A. Documents filed as part of this report:
1. Financial Statements:
Statements of Loss and Accumulated Deficit
Balance Sheets
Statements of Cash Flow
2. Exhibits required to be filed by item 601 of Regulation S-K:
(3a) Articles of Incorporation of the Company incorporated by
reference to Exhibit 2.1 to the Company's Registration Statement
on Form S-18, dated September 21, 1979, Registration No. 2-65548,
(hereinafter "1979 Form s-18).
(3b) By Laws of the Company incorporated by reference to Exhibit
2.2 of the Company's 1979 Form S-18.
(3c) Form of Common Share Purchase Warrant, issued by the Company
to certain Underwriters for 600,000 Common Shares incorporated by
reference to 1979 Form S-18.
(10a) Cross License Agreement, dated March 2, 1979 by and between
Kay Laboratories, Inc. and the Company incorporated by reference
to Exhibit 11.1(d) of the Company's 1979 Form S-18.
(10b) Contract to Supply Equipment and Services dated August 28,
1986 by and between Pacific Gas and Electric and the Company
incorporated by reference to Exhibit 10(b) to the Company's
Annual Report on Form 10-K dated December 31, 1987 (hereinafter
"1987 10-K").
(10c) Contract to Supply Equipment and Services, dated April 28,
1987 by and between Southern California Edison and the Company
incorporated by reference to Exhibit 10(c) to the Company's
1987 10-K.
(10d) Stock Purchase Agreement effective July 20, 1987 by and
Renewable resource Systems, Inc. and the Company, incorporated
by reference to Exhibit 10.6 to the Company's Form 8-K dated
September 17, 1987.
(10e) Consulting Agreement between the Company and Sidney Stoller,
Director, incorporated by reference to Exhibit 10(c) to the
Company's 1987 10-K.
(10f) Settlement Agreement between Company and RRSI and Philip
Bray incorporated by reference to Exhibit 10(f) to the Company's
1989 10-K.
<PAGE>
(28a) U.S. Patent No. 4,696,338, incorporated by reference to
Exhibit 28(a) to the Company's 1987 10-K.
(28b) U.S. Patent Application Serial No. 07/176,934 incorporated
by reference to Exhibit 28(b) to the Company's 1987 10-K.
B. Reports on Form 8-K
No reports have been filed on Form 8-K during the year end
December 31, 1998.
<PAGE>
THERMAL ENERGY STORAGE, INC.
SIGNATURES
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
Richard A. McCormack, President
February 19, 1999 Richard A. McCormack
Date Richard A. McCormack
President and Principal Executive Officer
February 19, 1999 Sidney M. Stoller
Date Sidney M. Stoller
Director
February 19, 1999 Philip Bray
Date Philip Bray
Director
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Dec-31-1998
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 25
<ALLOWANCES> 0
<INVENTORY> 1
<CURRENT-ASSETS> 29
<PP&E> 109
<DEPRECIATION> 109
<TOTAL-ASSETS> 29
<CURRENT-LIABILITIES> 694
<BONDS> 0
<COMMON> 59
0
0
<OTHER-SE> (665)
<TOTAL-LIABILITY-AND-EQUITY> 29
<SALES> 135
<TOTAL-REVENUES> 135
<CGS> 116
<TOTAL-COSTS> 116
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4)
<EPS-PRIMARY> (.000)
<EPS-DILUTED> (.000)
</TABLE>
