-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UIdmIJck961FIpNRhgPt+XpyEaKljMKIT+RcneK79G5jHxae7EuZAcqiviC4tIae uXdsma4j6cJThFVTJAr0WQ== 0000930413-06-007834.txt : 20061113 0000930413-06-007834.hdr.sgml : 20061110 20061113070817 ACCESSION NUMBER: 0000930413-06-007834 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20060930 FILED AS OF DATE: 20061113 DATE AS OF CHANGE: 20061113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMODYNETICS INC CENTRAL INDEX KEY: 0000351902 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED METAL PRODUCTS [3490] IRS NUMBER: 061042505 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-10707 FILM NUMBER: 061205075 BUSINESS ADDRESS: STREET 1: 651 DAY HILL RD STREET 2: . CITY: WINDSOR STATE: CT ZIP: 06095 BUSINESS PHONE: 2036832005 MAIL ADDRESS: STREET 1: 651 DAY HILL ROAD STREET 2: . CITY: WINDSOR STATE: CT ZIP: 06095 FORMER COMPANY: FORMER CONFORMED NAME: THERMO KINETICS INC DATE OF NAME CHANGE: 19810607 10QSB 1 c45258_10qsb.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 2006 Commission File Number: 0-10707 THERMODYNETICS, INC. - -------------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) DELAWARE 06-1042505 - ----------------------------------- -------------------------------------- (State or other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 651 DAY HILL ROAD, WINDSOR, CT 06095 860-683-2005 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (Telephone Number) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. CLASS OUTSTANDING AT SEPTEMBER 30, 2006 - -------------------------------- --------------------------------- Common stock $.01 Par Value 4,027,361 Shares Transitional Small Business Disclosure Format Yes ( ) No (x) THERMODYNETICS, INC. AND SUBSIDIARIES INDEX
PAGE NUMBER ----------- PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets September 30, 2006 and March 31, 2006......................... 3 Consolidated Statements of Income Three Months Ended September 30, 2006 and 2005................................................. 4 Consolidated Statements of Income Six Months Ended September 30, 2006 and 2005................................................. 5 Consolidated Statements of Cash Flows Six Months Ended September 30, 2006 and 2005................................................. 6 Notes to Consolidated Financial Statements....................... 7-10 Item 2. Management's Discussion and Analysis or Plan of Operation ............................ 11-13 Item 3. Controls and Procedures ......................................... 13 PART II OTHER INFORMATION Item 1. Legal Proceedings................................................ 14 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds...... 14 Item 3. Defaults Upon Senior Securities.................................. 14 Item 4. Submission of Matters to a Vote of Security Holders.............. 14 Item 5. Other Information................................................ 14 Item 6. Exhibits and Reports on Form 8-K................................. 14 SIGNATURE PAGE ................................................................... 15
PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. -------------------- THERMODYNETICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in 000's) ASSETS
SEPTEMBER 30, 2006 MARCH 31, 2006 ------------------ -------------- (Unaudited) (Audited) CURRENT ASSETS Cash $ 1,245 $ 0 Accounts Receivable, Net 2,501 2,050 Inventories 3,653 3,001 Prepaid Expenses and Other Current Assets 529 470 -------- -------- Total Current Assets 7,928 5,521 -------- -------- PROPERTY, PLANT AND EQUIPMENT Property, Plant and Equipment - At Cost 14,425 14,163 Less: Accumulated Depreciation 7,204 7,008 -------- -------- Property, Plant, and Equipment - Net 7,221 7,155 -------- -------- OTHER ASSETS Intangible Assets - Net of Amortization 93 93 Officers' Life Insurance Receivable 0 2 Investment in Unaffiliated Company 95 95 Deferred Income Taxes 1,760 895 Deposits and Other 40 49 -------- -------- Total Other Assets 1,988 1,134 -------- -------- TOTAL ASSETS $ 17,137 $ 13,810 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable $ 2,308 $ 2,259 Accrued Taxes and Expenses 311 336 Current Portion of Long-Term Debt 270 449 Notes Payable - Bank 197 2,610 Notes Payable - Other 0 300 Current Liabilities of Discontinued Operations 71 1,243 ------- ------- Total Current Liabilities 3,157 7,197 ------- ------- DEFERRED INCOME TAXES 908 0 LONG-TERM DEBT 1,884 2,829 LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS 3,364 2,998 MINORITY INTEREST IN SUBSIDIARY 2,784 0 STOCKHOLDERS' EQUITY Common Stock, Par Value $.01/Share, Authorized 25,000,000 shares, issued 4,027,361 shares at 6/30/06 and 3,989,782 shares at 3/31/06 40 40 Additional Paid-in Capital 7,237 5,783 Retained Earnings (Deficit) (2,237) (5,037) ------- ------- Total Stockholders' Equity 5,040 786 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $17,137 $13,810 ======= =======
The accompanying notes are an integral part of these consolidated financial statements Page - 3 - THERMODYNETICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, (UNAUDITED) IN (000's) EXCEPT PER SHARE DATA
2006 2005 ---- ---- Net Sales $ 5,865 $ 4,532 Cost of Goods Sold 4,785 3,319 ----------- ----------- Gross Profit 1,080 1,213 Selling, General & Administrative Expenses 809 800 ----------- ----------- Income From Operations 271 413 ----------- ----------- Other Income (Expense) Interest Expense, Net (64) (113) Other - Net 31 0 ----------- ----------- Total Other Income (Expense) (33) (113) ----------- ----------- Minority Interest in Subsidiary 86 0 ----------- ----------- Income Before Income Taxes 152 300 Provision for Income Taxes 73 115 ----------- ----------- Income From Continuing Operations 79 185 Discontinued Operations: Loss from Discontinued Operations Before Income Taxes 0 (2,003) Income Tax Benefit 0 (1,030) ----------- ----------- Loss From Discontinued Operations 0 (973) ----------- ----------- Net Income (Loss) $ 79 $ (788) =========== =========== Earnings (Loss) per Share- Basic Earnings (Loss) per Share From Continuing Operations $ .02 $ .05 Earnings (Loss) per Share From Discontinued Operations 0 (.25) ----------- ----------- Total Earnings (Loss) per Share - Basic $ .02 $ (.20) =========== =========== Earnings (Loss) per Share- Diluted Earnings (Loss) per Share From Continuing Operations Earnings (Loss) per Share From Discontinued Operations Total Earnings (Loss) per Share - Diluted $ .05 $ .02 (.25) 0 ----------- ----------- $ (.20) $ .02 =========== =========== Weighted Average Shares Outstanding- Basic 4,027,361 3,968,782 =========== =========== Weighted Average Shares Outstanding- Diluted 4,027,361 3,968,782 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements Page - 4 - THERMODYNETICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED SEPTEMBER 30, (UNAUDITED) IN (000's) EXCEPT PER SHARE DATA
2006 2005 ---- ---- Net Sales $ 11,545 $ 9,066 Cost of Goods Sold 9,106 6,753 ----------- ----------- Gross Profit 2,439 2,312 Selling, General & Administrative Expenses 1,773 1,589 ----------- ----------- Income From Operations 666 723 ----------- ----------- Other Income (Expense) Interest Expense, Net (144) (230) Gain on Sale of Subsidiary Stock 2,666 0 Other - Net (15) 0 ----------- ----------- Total Other Income (Expense) 2,507 (230) ----------- ----------- Minority Interest in Subsidiary 128 0 ----------- ----------- Income Before Income Taxes 3,045 493 Provision for Income Taxes 215 155 ----------- ----------- Income From Continuing Operations 2,830 338 Discontinued Operations: Loss from Discontinued Operations Before Income Taxes 9 (2,099) Income Tax Benefit 0 (1,030) ----------- ----------- Loss From Discontinued Operations 9 (1,069) Net Income (Loss) $ 2,821 $ (731) =========== =========== Earnings (Loss) per Share - Basic Earnings (Loss) per Share From Continuing Operations $ .70 $ .09 Earnings (Loss) per Share From Discontinued Operations 0 (.27) ----------- ----------- Total Earnings (Loss) per Share - Basic $ .70 $ (.18) =========== =========== Earnings (Loss) per Share - Diluted Earnings (Loss) per Share From Continuing Operations Earnings (Loss) per Share From Discontinued Operations Total Earnings (Loss) per Share - Diluted $ .70 $ .09 0 (.27) ----------- ----------- $ .70 $ (.18) =========== =========== Weighted Average Shares Outstanding - Basic 4,021,201 3,961,282 =========== =========== Weighted Average Shares Outstanding - Diluted 4,021,201 3,961,282 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements Page - 5 - THERMODYNETICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED SEPTEMBER 30, (UNAUDITED) IN (000'S)
2006 2005 ---- ---- OPERATING ACTIVITIES: Net income (loss) $ 2,821 $ (731) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 196 204 Gain on sale of stock of subsidiary (2,666) -0- Minority interest in earnings of subsidiary 128 -0- Deferred tax provision 43 (875) Changes in operating assets and liabilities: Increase (decrease) in accounts payable 49 335 Decrease (increase) in prepaid expenses and other assets (48) (247) Decrease (increase) in accounts receivable (451) (160) Decrease (increase) in inventories (652) (239) Increase (decrease) in accrued taxes and expenses (25) (139) Cash provided from discontinued operations 9 1,320 ------- ------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (596) (532) ------- ------- INVESTING ACTIVITIES; Purchases of property, plant and equipment, net (262) (132) Proceeds from sale of stock of subsidiary 6,755 -0- Loss on disposal of fixed assets of discontinued business 0 658 Proceeds from sale of assets of discontinued business 0 265 ------- ------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 6,493 791 ------- ------- FINANCING ACTIVITIES Net proceeds (payments) on revolving and term debt 287 984 Principal payments on long-term debt (320) (245) Proceeds from stock sale used to repay debt (4,619) -0- Cash used in financing activities of discontinued operations -0- (996) ------- ------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (4,652) (257) ------- ------- INCREASE (DECREASE) IN CASH 1,245 2 CASH AT BEGINNING OF PERIOD -0- -0- ------- ------- CASH AT END OF PERIOD $ 1,245 $ 2 ======= =======
The accompanying notes are an integral part of these consolidated financial statements Page - 6 - THERMODYNETICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2006 AND 2005 (UNAUDITED) NOTE 1: BASIS OF PRESENTATION The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for a fair statement of results for the interim period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The results of operations for the three and six months ended September 30, 2006 and September 30, 2005 are not necessarily indicative of the results to be expected for the full year. NOTE 2: SALE OF MINORITY INTEREST IN SUBSIDIARY On May 8, 2006, Thermodynetics ("Company") completed the sale of a minority interest of its subsidiary, Turbotec Products Plc, (the "Plc"), whereby approximately 43.68% of that company was sold to institutional investors pursuant to an offering on the AIM Market of the London Stock Exchange. Prior to the offering, Turbotec Products Plc was formed in the United Kingdom and the Plc owns 100% of its operating subsidiary, Turbotec Products, Inc. Pursuant to the offering, the Company and Turbotec Products Plc each sold 2,797,183 shares (a total of 5,594,366 ordinary shares of the Plc) at the price of 85 pence per ordinary share, resulting in gross proceeds of 4,755,211 British Pounds. Under the terms of the offering the two companies shared equally in the net proceeds after fees and expenses. From the net proceeds received, an aggregate of approximately $4,334,000 was used to repay bank debt. The Company and its Board of Directors (the "Board") pursuant to a Relationship Agreement (RA) have undertaken, inter alia, not to exercise its voting rights in the shares of the Plc, except with the consent of the nominated advisor and Plc (on the authority of its non-executive Directors) to vote in favor of any resolution to give the Board authority under British law to allot shares in the Company, or under British law to vote to remove or reduce any pre-emption rights that shareholders may have. The RA contains further provisions restricting the ability of the Company to dispose of its interest in the ordinary Shares into the United States in a manner that would require registration of any such disposition under the US Securities Act. LOAN MODIFICATIONS: The Company, certain of its subsidiaries, and their bank entered into certain loan modification agreements to provide for the separation of the credit facilities between the Company and Turbotec Products, Inc., and the release of certain cross collateral guarantees. Principally, the Company's remaining indebtedness with its principal bank are: a secured mortgage term loan in the original principal amount of $2,025,000 secured by the real estate and building at 651 Day Hill Road, Windsor, CT. and a term loan of the original principal amount of $183,000, secured by all of the assets of the Company. On October 6, the $183,000 note was repaid and $37,000 of the escrowed sum was released. The Company remains indebted on its mortgage secured by the real estate and building at 50 Baker Hollow Road, Windsor, CT through a second bank. The Company has also pledged $337,000 as cash collateral at its principal bank to secure certain obligations. Turbotec Products, Inc. remains indebted on an equipment term note and a revolving line of credit. Page - 7 - NOTE 3: DISCONTINUED OPERATIONS On July 5, 2005, the Company and its Vulcan Industries, Inc. subsidiary (Vulcan), received a notice of default from an equipment finance institution on a term loan secured by equipment. On July 6, 2005, the Company received a notice from its bank stating that it was in default of the bank's term loan. On July 18, 2005, the Company consummated an agreement with a major customer and its bank whereby the customer purchased certain Vulcan manufacturing equipment by paying the balance on the related outstanding debt due the equipment finance institution plus half of the balance due on a term loan to the City of Sturgis, Michigan (Sturgis). The equipment finance institution and Sturgis each released the Company and Vulcan from any further obligation. On July 27, 2005, the Company and its bank (as the only remaining secured creditor) entered into an agreement whereby the bank waived the existing defaults on all debt instruments (except those relating to the Vulcan debt which continued) and modified a financial covenant to exclude Vulcan from the compliance calculation. In August 2005, the Company discontinued the operations of Vulcan and began liquidating its remaining assets and paid all sums received to the bank. At September 30, 2005 all operating assets of Vulcan had been liquidated and the Company and the bank restructured the balance of the secured debt resulting from the Vulcan closure. NOTE 4: INVENTORIES Inventories consist of the following at (in 000's): SEPTEMBER 30, 2006 MARCH 31, 2006 ------------------ -------------- Raw materials $ 1,912 $ 1,329 Work-in-process 131 102 Finished goods 1,645 1,605 Less: Reserves 35 35 ------- ------- $ 3,653 $ 3,001 ======= ======= Inventories are valued at the lower of cost or market, with cost determined on a standard cost basis which approximates a first-in, first-out basis. NOTE 5: EARNINGS PER SHARE The Company has adopted Statement of Accounting Standards No. 128, "Earnings per Share" (SFAS 128). Earnings per share for the three months ended September 30, 2006 and September 30, 2005 have been computed in accordance with this pronouncement, based on the weighted average of outstanding shares during the periods. The weighted average numbers of shares outstanding used in the calculations are as follows:
Three Months Ended Sept. 30 Six Months Ended Sept 30 2006 2005 2006 2005 ---- ---- ---- ---- Weighted Average Shares - (Basic) 4,027,361 3,968,782 4,021,201 3,961,282 Assumed Conversion of Stock Options -0- -0- -0- -0- --------- --------- --------- --------- Weighted Average Shares - (Diluted) 4,027,361 3,968,782 4,021,201 3,961,282 ========= ========= ========= =========
Page - 8 - NOTE 6: INCOME TAXES In accordance with "Statement of Accounting Standards No. 109, Accounting for Income Taxes" (SFAS 109), the primary components of the Company's deferred tax assets and liabilities and the related valuation allowance are as follows (in 000's): SEPTEMBER 30, 2006 MARCH 31, 2006 ------------------ -------------- Assets: Uniform capitalization adjustment $ 9 $ 4 Net operating loss carryforward 1,698 1,749 Investment tax credits 144 144 Research and development credit 120 10 Capital loss 162 162 Other 57 46 ------- ------- 2,190 2,115 ------- ------- Liabilities: Accelerated depreciation (1,269) (1,220) Valuation reserve (69) -0- ------- ------- (1,338) (1,220) ------- ------- Net deferred tax asset $ 852 $ 895 ======= ======= At September 30, 2006, the Company had net operating loss carryforwards of approximately $1,700,000 expiring from 2007 to 2012. NOTE 7: INVESTMENT / LOAN In September 2006, the Company advanced $300,000 to an unaffiliated company and received a note due March 7, 2007 in the amount of $342,858. The note is convertible into common stock at the option of the holder at the rate of $0.439 per share and bears interest at a rate of 25% per annum. The borrower is presently planning an initial public offering of its stock ("IPO") and the expectation is that either (a) the loan will be repaid from the proceeds of the IPO, (b) the note will be converted into shares of stock and sold at the same time the borrower sells its shares via the IPO, or (c) if the underwriter of the IPO refuses to allow the holder to sell its shares in the IPO, the borrower will buy the shares from the Company at the IPO price. The Company also received 208,001 warrants in the borrower that are exercisable at $0.439 and expire on September 7, 2010. NOTE 8: CASH FLOW INFORMATION AND NON CASH INVESTING ACTIVITIES The following supplemental information is disclosed pursuant to the requirements of Financial Accounting Standards Board's ("FASB") "Statement of Accounting Standards No 95, Statement of Cash Flows". 6 MONTHS ENDED SEPT 30, (in 000's) ----------------------- 2006 2005 ---- ---- Cash payments for interest $ 80 $230 NOTE 9: FINANCIAL ACCOUNTING STANDARDS In July 2002, the Public Company Accounting Reform and Investor Protection Act of 2002 (the Sarbanes-Oxley Act) was enacted. Section 404 stipulates that public companies must take responsibility for maintaining an effective system of internal control. The Act requires public companies to report on the effectiveness of their control over financial reporting and obtain an Page - 9 - attest report from their independent registered public accountant about management's report. The Company is not required to comply with section 404 of the Act until the fiscal year ending March 31, 2008. In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - an amendment of ARB No. 43, Chapter 4". This statement clarifies the accounting for abnormal amounts of idle facility expense, freight handling costs and wasted material (spoilage). This statement requires that these types of costs be recognized as current period charges. The Company implemented SFAS No. 151 for inventory costs incurred during fiscal years beginning after September 15, 2005, with earlier application permitted for such costs incurred during fiscal years beginning after November 24, 2004. SFAS No. 151 did not have a material impact on the Company's financial statements. NOTE 10: SUBSEQUENT EVENT - SETTLEMENT OF DEBT In October 2006, the Company reached agreement with the holders of promissory notes aggregating $581,500 wherein threatened litigation allowed the Company to pay $10,000 in exchange for full releases and cancellation of the debt. This transaction resulted in a gain on the extinguishment of the debt which will be recognized during the quarter ended December 31, 2006. Page - 10 - THERMODYNETICS, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION RESULTS OF OPERATIONS The Company recorded record net sales of $5,865,000 and $11,545,000 for the three and six months ended September 30, 2006 representing a 29% and 27% increase over the prior year period. A majority of the sales increase resulted from the pass through of material cost increases incurred. The increase in sales is due largely to sales of condenser/evaporator coils for the housing market augmented by increased sales of enhanced tubing used in specialty commercial boiler applications. Despite reported weakening in residential construction during the past few months, the overall demand for the coils has remained at higher levels than previously. Enhanced surface tubing in titanium is unique to the swimming pool heater market and it has enabled the capture of a large part of this market niche while other applications for surface enhanced titanium tubing are being investigated. Cost of sales approximated 82% and 79% of net sales in the current quarter and six months of this fiscal year compared to 73% and 74% in fiscal 2006. The cost of copper rose sharply between March and May 2006 to record levels and has moderated since; nickel continued to rise unabatedly. The net impact has been a significant reduction in gross margin and a higher inventory carrying value (20% higher than at March 31, 2006). A training program to improve efficiencies on the production floor and pricing initiatives have been initiated. Staff additions and other investments have been made and are planned for the balance of the fiscal year to expand product development activities for heat reclamation, to pursue titanium based heat exchanger applications and for general sales programs. On a consolidated basis, operating expenses for the current three and six months increased by $9,000 and $184,000, respectively compared to the prior periods. The Company recorded a net gain of $2,666,000 on the sale of a minority interest of Turbotec Products, Plc in May 2006. Net cash received after transaction related expenses was $6.8 million. Interest expense decreased significantly as approximately $4.6 million of the proceeds from the London offering was used to retire debt. Minority shareholder interest in the net earnings of Turbotec was $86,000 and $128,000, respectively, for the three and six month periods ended September 30, 2006. Income from continuing operations for the current year to date period was $2,830,000 compared to $338,000 for the prior year period. Excluding the gain from the sale of equity in Turbotec, income before income taxes and minority interest increased by $14,000 or 3% over the prior year. The operations of a former manufacturing subsidiary, Vulcan Industries, Inc., ceased in September 2005. Accordingly, Vulcan has been reflected as a discontinued operation in both the prior and current year financial statements. Turbotec is primarily engaged in the design and manufacture of heat transfer and heat reclamation products. Segment reporting is no longer applicable as operations are now concentrated in heat transfer product related applications. Significant risk factors and economic considerations include the cost of energy and incentives provided by producers, sellers and municipalities to encourage the use of more efficient equipment; interest rates that can stimulate or depress purchasing demand; the cost and availability of materials used in production; and regulatory directives relating to energy consumption, conservation and environmental issues. ACQUISITION SEARCH The Company has initiated a search for a suitable acquisition and has begun to circulate its ideal acquisition criteria which include a) a business in metals manufacturing, b) having a proprietary product or service, engineering oriented, c) with net revenues of $6 - $60 million and positive cash flow, d) continuing management and established sales force, and e) an OEM customer base with growing market, international preferred. Page - 11 - LIQUIDITY AND CAPITAL RESOURCES In May 2006 the Company completed the sale of a 43.68% interest in its newly formed United Kingdom subsidiary Turbotec Products, Plc (Turbotec) through a public offering of Turbotec's securities on the AIM market, part of the London Stock Exchange. At September 30, 2006 consolidated working capital was $4,771,000 compared to a negative $1,676,000 at March 31, 2006. Aggregate debt related to continuing operations at September 30, 2006 was $2,351,000 as compared to $6,188,000 at March 31, 2006. Of these amounts, long-term debt was $1,884,000 and $2,829,000, respectively. These improvements are a direct result of the London equity offering of shares of Turbotec in May 2006. The Company had a consolidated cash position of $1,245,000 at September 30, 2006. Capital expenditures aggregated $262,000 for the first six months of fiscal 2007 compared to $132,000 in the same period of the prior year. A portion of the proceeds from the offering is planned to be used to upgrade the infrastructure of the primary manufacturing plant as well as improvements in the product development laboratory and for production equipment. Capital investments will also be required to support the new markets of heat reclamation and titanium based heat exchangers. The Company's access to credit is expected to be adequate. Cash reserves currently exist and Turbotec has a revolving line of credit which currently has over $3 million of availability. A separate line of credit to fund capital expenditure programs and the refinancing of the mortgage on the Company's primary facility is expected to be consummated during the next few months. Increases in operating costs continue to play a more significant role in day-to-day operations as competitive pricing pressures have restricted the ability to fully recover all added expenses. Improvements in manufacturing processes and procedures have enabled the Company to offset a portion of increasing costs while continuing internal refinements are expected to generate further cost reductions. A portion of the cost increases in metals have been passed on to the customer base which has had a significant negative impact on gross margins while also increasing the carrying value of inventories. A shortage of experienced technical support, engineering staff and skilled and semi-skilled employees is being experienced. Employment related costs continue to escalate and the impact on future periods is unknown although opportunities to reduce these expenses are currently being explored. FORWARD LOOKING STATEMENTS This report contains certain forward-looking statements regarding the Company, its business prospects and results of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause the Company's actual business, prospects and results of operations to differ materially from those that may be anticipated by such forward-looking statements. Factors that may affect such forward-looking statements include, without limitation: the Company's ability to successfully and timely develop and finance new projects, the impact of competition on the Company's revenues, and changes in unit prices, supply and demand for the Company's tubing product line especially in applications serving the commercial, industrial and residential construction industries. When used, words such as "believes," "anticipates," "expects," "continue", "may", "plan", "predict", "should", "will", "intends" and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. The Company undertakes no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made by the Company in this report, news releases, and other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect the Company's business. Page - 12 - ITEM 3 CONTROLS AND PROCEDURES (a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES - Management believes that the Company's disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act"), as of the end of the reported period are designed to ensure that the material information required to be disclosed by the Company in reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported on a timely basis. No significant deficiencies or material weaknesses requiring corrective actions were uncovered. (b) CHANGES IN INTERNAL CONTROLS - There were no significant changes made and no corrective actions taken in the Company's internal controls over financial reporting or in other factors that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting that occurred during the quarter ended for this report. THERMODYNETICS, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. There are no material legal proceedings known or threatened against the Company. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. There were no unregistered sales of equity securities of the Company during the three month period covered by this Form 10-Q SB report. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. There have been no defaults of any terms of the Company's securities. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of the Securities Holders of the Company during the quarterly period for which this report is filed. ITEM 5. OTHER INFORMATION. None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS: Rule 13a-14(a) / 15d-14(a) Certifications: Page - 13 - o Exhibit 31(a) Certification of Chief Executive Officer. o Exhibit 31(b) Certification of Chief Financial Officer. Section 1350 Certifications: o Exhibit 32(a) Certification of Chief Executive Officer. o Exhibit 32(b) Certification of Chief Financial Officer. Page - 14 - THERMODYNETICS, INC. AND SUBSIDIARIES SIGNATURE PAGE In accordance with the requirements of the Exchange Act , the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THERMODYNETICS, INC. Date: November 10, 2006 By: /s/ ROBERT A. LERMAN ---------------------------------------- Robert A. Lerman President and Chief Executive Officer Date: November 10, 2006 By: /s/ JOHN F. FERRARO ---------------------------------------- John F. Ferraro Treasurer and Chief Financial Officer EX-31.A 2 c45258_ex31a.txt EXHIBIT 31(a) CERTIFICATION PURSUANT TO RULES 13A-15 AND 15D-15 OF THE SECURITIES EXCHANGE ACT OF 1934 I, ROBERT A. LERMAN, Chief Executive Officer of Thermodynetics, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-QSB of THERMODYNETICS, INC.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: a) designed such disclosure controls and procedures to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting. 5. The small business issuer's other certifying officers and I have disclosed, based on our knowledge and our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's Board of Directors: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal controls over financial reporting. Date: November 10, 2006 BY: /s/ ROBERT A. LERMAN ------------------------------------- Robert A. Lerman President and Chief Executive Officer EX-31.B 3 c45258_ex31b.txt EXHIBIT 31(b) CERTIFICATION PURSUANT TO RULES 13A-15 AND 15D-15 OF THE SECURITIES EXCHANGE ACT OF 1934 I, JOHN F. FERRARO, Chief Financial Officer of Thermodynetics, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-QSB of THERMODYNETICS, INC.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: a) designed such disclosure controls and procedures to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting. 5. The small business issuer's other certifying officers and I have disclosed, based on our knowledge and our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's Board of Directors: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal controls over financial reporting. Date: November 10, 2006 BY: /s/ JOHN F. FERRARO ---------------------- John F. Ferraro Treasurer and Chief Financial Officer EX-32.A 4 c45258_ex32a.txt EXHIBIT 32(a) CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Thermodynetics, Inc. (the "COMPANY") on Form 10-QSB for the quarter ending September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "REPORT"), the undersigned, the Chief Executive Officer ("CEO"), hereby certifies to the best of the undersigned's knowledge and belief, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 in all material respects; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: November 10, 2006 BY: /s/ ROBERT A. LERMAN ---------------------------------------- Robert A. Lerman President and Chief Executive Officer This certification shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the small business issuer specifically incorporates it by reference. EX-32.B 5 c45258_ex32b.txt EXHIBIT 32(b) CERTIFICATION OF AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Thermodynetics, Inc. (the "COMPANY") on Form 10-QSB for the quarter ending September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "REPORT"), the undersigned, the Chief Financial Officer ("CFO") of the Company, hereby certifies to the best of the undersigned's knowledge and belief, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 in all material respects; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: November 10, 2006 BY: /s/ JOHN F. FERRARO ---------------------- John F. Ferraro Treasurer and Chief Financial Officer This certification shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the small business issuer specifically incorporates it by reference. -----END PRIVACY-ENHANCED MESSAGE-----