Item 1. Business 1 Item 2.
Item 2. Properties 10 Item 3.
Item 3. Legal Proceedings 10 Item 4.
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II Item 5.
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
Securities Market
The Common Shares of the Company are traded via Pink Sheets an over-the-counter bulletin board (OTCBB) and quoted under the symbol "THES". The National Quotation Bureau does not currently quote TESI Common Shares. 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 cash or other dividends with respect to the Common Shares. Management does not contemplate the pay- ment 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 has not held annual meetings since 1992 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-K the company will be current in its reporting under the referenced provisions of the 1934 act.
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.
Sales of restricted Common Shares under Rule 144 under the Securities Act of 1933 are available.
Item 6.
Item 6. Selected Financial Data
The following table summarizes certain financial data of the Company for the years ended December 31, 2000 through December 31, 2004 and is qualified in its entirety by the financial statements and notes thereto included in "ITEM 8. Financial Statements and Supplementary Data."
Year Ended December 31, 	2004		 2003 2002 2001
Revenues $0		$0 $7,374 $0 Net income (loss) (2,174)		(2,868) (10,156) (22,953) Per common share (0.000)		(0.000) (0.000) (0.000) Total assets 2,751		 2,781 5,649 15,805 Long term obligations 0 		 0 0 0 Cash dividends per share 0 		 0 0 0
Item 7.
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 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.
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 remain cognizant of any new development with clathrate forming materials that have zero ODP, such as certain hydrofluoro- carbons (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.
The Company is actively seeking additional operating funds to sustain operations until such time as it generates a positive cash flow from internal operations. An effort is currently underway to obtain private or public funding to construct a modular desalination pilot capable of producing 250,000 gallons per day of fresh water from sea or wastewater. This modular concept creates attractive economies of scale applicable to communities with a wide range of populations.
The pilot advances the concept from research to commercial application and will demonstrate the economic viability of the this form of fresh water reclamation.
The Company had no accounts receivable as of December 31, 2004 and December 31, 2003. As of December 31, 2004 the Company had a cash balance of $741 as compared to $771 cash at December 31, 2003.
The Company had a net loss of $2,174 in 2004 as compared with a net loss of $2,868 in 2003. This loss was due to an excess of expenses with no contract revenues.
A negative cash flow from operations was approximately $974 per month through- out 2004, as compared to a negative cash flow from operations of approximately $760 per month in 2003.
Current assets and total assets were $2,751 as of December 31, 2004 compared to current assets and total assets of $2,781 as of December 31, 2003.
As of December 31, 2004 the Company had a working capital deficiency of $747,124. As of December 31, 2003 the Company had a working capital deficiency of $744,256. This deficiency in working capital was due to operating losses. As of December 31, 2004 the Company had no bank loans outstanding. A bank loan to the company was paid off as of December 31, 1994. As of December 31, 2003 the Company had accounts payable totaling $24,458. As of December 31, 2004 the Company had accounts payable totaling $24,458.
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 Company received the total of $1,000,000 and 9,375,000 Common Shares were issued to RRSI.
In October 1989 RRSI informed the Company that they were terminating their bus- iness 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.
During the period 1989 through 1996 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 and for the denial of coverage for the incident discussed in Item 3. The finding of the arbitrator of liability and damages awarded are discussed in Note 3.
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 desalin- ation technology and the thermal storage technology. The most recent exper- iments are encouraging but further work is required to have high confidence in the technical and commercial feasibility of the TESI processes.
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 Di- rectors to suspend marketing activities and to initiate the subsequent ex- tensive testing program. These decisions further led to substantial cost increases during 1988 and 1989.
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 success- fully demonstrated.
The Company had $0 in contract revenues for the year ended December 31, 2004 and $0 in contract revenues in 2003.
As of December 31, 2004 the Company had no backlog of business. The BuRec contract awarded in 1999 was completed and no other new contracts were in place. There were $0 in internally funded research and development expenses during 2004 compared to $0 expenses in 2003.
There was no interest income or interest expense for 2004.
There were $6,041 in general and administrative expenses in the year ended December 31, 2004 compared to $5,331 reported in 2003.
It is Management's opinion that inflation had no significant effect on Company operations in 2004 and no significant effect is forecast for 2005.
Item 7a.
Item 7a. Quantitative and Qualitative Disclosures about Market Risks
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 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 govern- mental 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. Resident- ial 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, certifcation 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.
Item 8.
Item 8. Financial Statements and Supplementary Data
The information required by this item is Included in Part IV, Item 14.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
In December 1992, the Company's management, citing severe financial restrict- ions, instituted a change to the Company's use of independent auditors, approv- ing 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 Peter- son & Co. during the 1990 and 1991 fiscal year audits on any matter of account- ing 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 William G. McKee, Inc., CPA, to prepare the financial statements without audit or review and has continued this relationship. Since 1998 10-K and 10-Q reports have been prepared using the unreviewed and unaudited financial reports of William G. McKee, Inc. In 2004 Donald McLean, CPA was hired.
PART III Item 10.
Item 10. Directors and Executive Officers of the Registrant
The company has a single Executive Officer who holds all of the executive pos- itions. Mr. Richard A. McCormack is President, Secretary, and Treasurer. Mr. McCormack is also Chairman of the Board of Directors. The Directors include Mr. A. Philip Bray, and Mr. Richard A. McCormack. Mr. Sidney Stoller, previously a Director, has retired and no longer serves as a Director. The Company regrets his decision to retire and will miss his wise counsel.
Item 11.
Item 11. Executive Compensation
Compensation of Management
No executive officers have been paid compensation since December 31, 1993. Com- pensation due to the President for management services provided through RAMCO, Inc. has been accrued as a loan from RAMCO to the company. No compensation was accrued for any executive officer during the years ended December 31, 1997, and 1998 or 2000. In 1999, unpaid compensation due of $30,000 was accrued. Prev- iously, unpaid compensation of $30,000 was accrued in 1996 and $90,000 was accrued in 1995.
The Company adopted a Stock Option Plan (the "Plan") on March 18, 1981 that 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 that 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.
A terminating employee exercised options for 100,000 Common Shares 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.
A standing Compensation and Stock Option Committee of the Board of Directors administer the Plan. The Compensation and Stock Option Committee met in 1994 and issued stock options listed in Note 7.
Prior to 1999, the members of the Compensation and Stock Option Committee were Messrs. Lawrence O'Donnell and Sidney Stoller. Mr. O'Donnell died in 1999 and has not been replaced on this Committee. Mr. Stoller has retired as a Director and has not been replaced on this Committee.
Management believes that the terms of the transactions described were as fav- orable to the Company as could have been arranged with unaffiliated parties.
Compensation of Directors
Directors of the Company who are employees 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, or stock equiv- alents, 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. Since December 31, 1992 no Directors fees were accrued or paid.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of December 31, 1999 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
	A. Philip Bray 6,719,573 11.4% 	1912 Piper Ridge Court 	Walnut Creek, CA 94596
	All Officers and 19,328,944 32.8% 	Directors as a Group
(1) Includes 857,000 shares held of record by RAMCO, Inc. a (2) corporation wholly- owned by Richard A. McCormack.
Item 13.
Item 13. Certain Relationships and Related Transactions
Not applicable.
PART IV
Item 14.
Item 14. Exhibits Financial Statement Schedules and Reports on Form 8-K (a) Documents filed as part of this report (1) Financial Statements The financial statements of Thermal Energy Storage, Inc. are included in a separate section of this report beginning on Page. (b) Reports on Form 8-K No reports have been filed on Form 8-K during the year ended December 31, 1999. (c) Exhibits 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 Labor- atories, 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 in- corporated by reference to Exhibit 10(f) to the Company's 1989 10-K. 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 refer- ence to Exhibit 28(b) to the Company's 1987 10-K.
THERMAL ENERGY STORAGE, INC.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the regist- rant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
THERMAL ENERGY STORAGE, INC. Registrant Richard A. McCormack, President
December 31, 2011 _________________________________________ Date Richard A. McCormack
President and Principal Executive Officer
THERMAL ENERGY STORAGE, INC.
STATEMENTS OF EARNINGS (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2011, 2010
(Unaudited)
(Amount in thousands, except per share data) 2010 2011
REVENUES
Contract services $0 $0
COST OF REVENUES
Contract services 0 0
Gross profit (loss) 0 (0)
OPERATING EXPENSES
Research and development 0 0 Selling, general and administrative 0 0 Total operating expenses 0 0 Income (Loss) from operations (0) (0)
Other Income 0 0
NET INCOME (LOSS) (0) (0)
LOSS PER COMMON SHARE ($0.000) ($0.000)
See Accompanying Notes to Financial Statements
THERMAL ENERGY STORAGE, INC.
BALANCE SHEET
AT DECEMBER 31, 2011, 2010,
(Unaudited)
(Amount in thousands) 		 2010 2011
ASSETS
CURRENT ASSETS Cash 	 $0 $0 Accounts receivable 0 0 Inventories 0 0 Prepaid expenses and deposits 0	 0 Total current assets 0	 0
PROPERTY AND EQUIPMENT, at cost 0 0 Less - Accumulated depreciation (0) (0)
TOTAL ASSETS $0 $0
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES Accounts payable $0 $0 Accrued payroll 0 0 Reserve for legal expense 0 0 Payable to officers and affiliates 0 0 Total current liabilities 585 587
SHAREHOLDERS' DEFICIT Preferred stock, par value $.10 per share; 30,000,000 shares authorized; none issued 0 0 Common stock, par value $.001 per share; 110,000,000 shares authorized; 59,131,289 shares issued and outstanding at 2000 59 59
Additional paid-in capital 4,046 4,046 Accumulated deficit (4,849) 4,849) Total shareholders' deficit (744) (744)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $6 $6 Note: Totals reflect effects of rounding
See Accompanying Notes to Financial Statements
THERMAL ENERGY STORAGE, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2011, 2010,
(Unaudited)
(Amounts in thousands) 2010 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Gain (Loss) from Operations $(0) $(0)
Adjustments to reconcile net loss to net cash provided (used) by operating activities Depreciation 0 0
DECREASE (INCREASE) FROM CHANGES
Accounts receivable 0 0 Prepaid expenses and deposits (0) (0) Adjustment to inventory 0 0 INCREASE (DECREASE) FROM CHANGES
Accounts payable 0 0 Payable to officers and affiliates 0 0
Net cash provided (used) by operating activities (0) (0)
CASH FLOW FROM INVESTING ACTIVITIES 0 0
CASH FLOW FROM FINANCING ACTIVITIES 0 0
NET INCREASE (DECREASE) IN CASH (0) (0)
Cash and cash equivalents at beginning of year 0 0
Cash and cash equivalents at end of year $0 $0
See Accompanying Notes to Financial Statements
Notes to Financial Statements
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 has sought to align itself or merge with a finan- cially 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 technology 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, who for three of those years has served without compensation. RAMCO has notified the Company that it does not intend to continue such support of the Company's activities beyond 2000. 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 the technology was suitable for the desalin- ation of seawater. Known as "freeze desalination", a clathrate system has the potential to be a more efficient desalination system than reverse osmosis sys- tems currently in use. The study, completed in April 1995, theoretically ver- ified 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.
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 participa- tory share, were paid by RAMCO since the Company does not have sufficient in kind funds to meet the funding requirements. This contract was completed in
September 1998. The company has sought, and expects to receive, follow on funding from BuRec as discussed under "Marketing".
In March 1999, the company received a support agreement from BuRec for add- itional research into clathrate formers and for development testing of a key subsystem of the desalination system. This work is largely completed and completion of the work and final report is expected in the first half of 2000.
In September of 2001, the company entered into an agreement with an energy related company to evaluate the applicability of using the companies clathrate- based desalination system in conjunction with a cryogenic application. As of the end of the reporting period the evaluation had not yet been completed.
Note 2. Summary of Significant Accounting Policies
Basis of presentation
The accompanying financial statements have been prepared assuming the Com- pany 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 a ppropriate since the Company has required additional funds in the form of loans from the Pres- ident's solely owned consulting company to sustain operations. As of Decem- ber 31, 1999 its current liabilities exceeded its current assets and total lia- bilities exceeded its total assets.
Inventories
Inventories, which were stated at the lower of cost (first-in, first-out) or market, were entirely composed of purchased parts as of December 31, 2001. During 2002 management determined that these inventories had been disposed of as scrap because they no longer had value for on-going operations.
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 $131,000 consists of accrued compensation due to the Company's President as of December 31, 2001.
Revenue and cost recognition for contract services
Revenues from fixed-price contracts are recognized as they are earned, measured by the costs incurred 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 deter- mined.
Contract costs include all direct material and labor costs and those in- direct 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 59,131,289 Common shares outstanding in 2004. Common share equivalents (stock purchase warrants and stock options) have not been included in the calculation of net loss per com- mon share because the effect would be insignificant for the years reported.
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. At various times RAMCO
has advanced the Company both cash and services that have been accrued as loans by the Company.
In 1998 RAMCO advanced the Company $40,000 with a balance due of $503,554 as of December 31, 1998. In 1997 RAMCO advanced the Company $38,161 with a balance
due of $463,554 as of December 31, 1997. 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 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 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 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 1992 RAMCO charged the Company, but was not paid, 1994. $90,000 for ser- vices, and advanced the Company $24,632 with a balance due as of December 31, 1992 of $218,372. 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 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 1990, 1991, 1992 and 1995, the Company's President provided his service to the Company through the RAMCO affiliate, an arrange- ment approved by the Company's Board of Directors in 1990. RAMCO charged the Company $5,237 and $5,765 during 1986 and 1987 respectively, for travel, sec- retarial 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 that 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. 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.
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 develop- ments through completion of the BuRec contract, to TESI on a worldwide, royal- ty-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.
Note 5. Revenues
A substantial portion of the Company's revenues was derived from a lim- ited number of customers. In 2001, there were no revenues. In 2000 and 1999 one customer accounted for 100 percent of revenues. In 1998 and 1997 two customers accounted for 100 percent of revenues. In 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 $0.13 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 among 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 war- rants 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.
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 Total 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 pur- chased 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 subsequently 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 assistance relating to financial, administrative, stockholder and marketing services as follows:
Mr. Lawrence 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.
Note 8. Income Taxes and Net Operating Losses
The Company has unexpired net operating loss carry-forwards of approx- imately $642,000 as of December 31, 2004, available to reduce future federal taxable income. The carry-forwards are shown in the following tabulation:
Loss carry-forward amount Year of expiration
Annual Year Amount
$226,000 2004 $105,000 2006 $114,000 2007 $18,000 2009 $69,000 2010 $84,000 2011 $22,000 2012 $4,000 2013
In December 1987, the Financial Accounting Standards Board issued State- ment 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, implemen- tation 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 is a lawsuit against the company that is currently being defended against that is discussed in the sections above.
Note 11. Going Concern
	As shown in the accompanying financial statements, as of December 31, 2003 the Company's current liabilities exceeded its current assets by $744,342. 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 con- tracts 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.
THERMAL ENERGY STORAGE, INC. 6362 Ferris Square, Suite C San Diego, CA 92121
December 31, 2011
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-K.
Sincerely,
THERMAL ENERGY STORAGE, INC.
/s/ Richard A. McCormack ______________________________________ Richard A. McCormack, President