Attached files
file | filename |
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EX-31.1 - CERTIFICATION OF CEO - THERMODYNETICS INC | s22-9582_ex311.htm |
EX-32.1 - CERTIFICATION OF CEO - THERMODYNETICS INC | s22-9582_ex321.htm |
EX-32.2 - CERTIFICATION OF CFO - THERMODYNETICS INC | s22-9582_ex322.htm |
EX-31.2 - CERTIFICATION OF CFO - THERMODYNETICS INC | s22-9582_ex312.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
———————
FORM
10-Q
———————
þ QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended: December 31,
2009
or
¨ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from: _____________ to _____________
Commission
File Number: 0-10707
———————
THERMODYNETICS,
INC.
(Exact
name of registrant as specified in its charter)
———————
Nevada
|
06-1042505
|
(State
or other jurisdiction
|
(I.R.S.
Employer
|
of
incorporation or organization)
|
Identification
No.)
|
651 Day Hill Road, Windsor,
CT 06095
(Address
of Principal Executive Office) (Zip Code)
860-683-2005
(Registrant’s telephone number,
including area code)
———————
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 þ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
|||
Non-accelerated
filer ¨
|
Smaller
reporting company þ
|
|||
(Do
not check if a smaller reporting company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes ¨ No þ
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
Class
|
Outstanding
at December 31, 2009
|
|
Common
stock $.01 Par Value
|
4,600,306
Shares
|
INDEX
Page | ||
PART I FINANCIAL INFORMATION | ||
Item 1. | Financial Statements | 1 |
Consolidated Balance
Sheets
December 31,
2009 and March 31, 2009
|
1 | |
Consolidaetd
Statements Of Income
Three Months
Ended December 31, 2009 and 2008
|
2 | |
Consolidaetd
Statements Of Income
Nine Months
Ended December 31, 2009 and 2008
|
3 | |
Consolidated
Statements Of Cash Flows
Nine Months
Ended December 31, 2009 and 2008
|
4 | |
Notes To Consolidated Financial Statements | 5 | |
Item 2. | Management's Ciscussion and Analysis of Financial Cnodition and Results of Operations | 8 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risks | 9 |
Item 4T. | Controls and Procedurse | 9 |
PART II OTHER INFORMATION | ||
Item 1. | Legal Proceedings | 11 |
Item 1A. | Risk Factors | 11 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 11 |
Item 3 | Defaults Upon Senior Securitise | 11 |
Item 4. | Submission of Matters to a Vote of Security Holders | 12 |
Item 5. | Other Information | 12 |
Item 6. | Exhibits | 12 |
Signatures | 13 |
PART
I: FINANCIAL INFORMATION
Item
1.
|
Financial
Statements
|
THERMODYNETICS,
INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS (in 000’s)
December 31,
2009
|
March 31,
2009
|
|||||||
ASSETS
|
(Unaudited)
|
(Audited)
|
||||||
CURRENT ASSETS
|
||||||||
Cash
|
$
|
2,023
|
$
|
1,984
|
||||
Accounts
Receivable, Net
|
1,089
|
1,860
|
||||||
Inventories
|
3,971
|
3,572
|
||||||
Prepaid
Expenses and Other Current Assets
|
115
|
363
|
||||||
Marketable
Securities
|
49
|
51
|
||||||
Total
Current Assets
|
7,247
|
7,830
|
||||||
PROPERTY, PLANT AND
EQUIPMENT
|
||||||||
Property,
Plant and Equipment - At Cost
|
17,042
|
16,591
|
||||||
Less:
Accumulated Depreciation
|
8,740
|
8,364
|
||||||
Property,
Plant, and Equipment – Net
|
8,302
|
8,227
|
||||||
OTHER ASSETS
|
||||||||
Intangible
Assets - Net of Amortization
|
94
|
94
|
||||||
Investment
in Unaffiliated Companies
|
36
|
36
|
||||||
Deferred
Income Taxes
|
980
|
980
|
||||||
Deposits
and Other
|
125
|
53
|
||||||
Total
Other Assets
|
1,235
|
1,163
|
||||||
TOTAL
ASSETS
|
$
|
16,784
|
$
|
17,220
|
||||
LIABILITIES AND STOCKHOLDERS’
EQUITY
|
||||||||
CURRENT LIABILITIES
|
||||||||
Line
of Credit
|
$
|
1,087
|
$
|
1,062
|
||||
Accounts
Payable
|
1,362
|
906
|
||||||
Accrued
Taxes and Expenses
|
1,338
|
1,204
|
||||||
Current
Portion of Long-Term Debt
|
229
|
306
|
||||||
Total
Current Liabilities
|
4,016
|
3,478
|
||||||
DEFERRED
INCOME TAXES
|
387
|
383
|
||||||
LONG-TERM
DEBT
|
1,550
|
1,712
|
||||||
LONG-TERM
LIABILITIES OF DISCONTINUED OPERATIONS
|
2,782
|
2,782
|
||||||
STOCKHOLDERS’ EQUITY
|
||||||||
Thermodynetics,
Inc. Stockholders Equity:
|
||||||||
Common
Stock, Par Value $.01/Share, Authorized 25,000,000 shares,
issued
4,600,306 and 4,090,306 shares at 12/31/09
and 3/31/09
|
46
|
41
|
||||||
Additional
Paid-in Capital
|
7,262
|
7,138
|
||||||
Retained
Earnings (Deficit)
|
(3,482
|
)
|
(2,254
|
)
|
||||
Accumulated
Other Comprehensive Income
|
20
|
25
|
||||||
Total
Thermodynetics, Inc. Stockholders’ Equity
|
3,846
|
4,950
|
||||||
Noncontrolling
Interest
|
4,203
|
3,915
|
||||||
Total
Equity
|
8,049
|
8,865
|
||||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
16,784
|
$
|
17,220
|
The
accompanying notes are an integral part of these consolidated financial
statements.
1
THERMODYNETICS,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
FOR THE
THREE MONTHS ENDED DECEMBER 31,
(UNAUDITED)
IN
(000’s) EXCEPT PER SHARE DATA
2009
|
2008
|
|||||||
Net
Sales
|
$
|
4,948
|
$
|
7,322
|
||||
Cost
of Goods Sold
|
3,607
|
5,166
|
||||||
Gross
Profit
|
1,341
|
2,156
|
||||||
Selling,
General & Administrative Expenses
|
2,280
|
1,861
|
||||||
Income
(Loss) From Operations
|
(939)
|
295
|
||||||
Other
Income (Expense)
|
||||||||
Interest
Expense, Net
|
(38)
|
(44
|
)
|
|||||
Other
– Net
|
(57
|
)
|
51
|
|||||
Total
Other Income (Expense)
|
(95)
|
7
|
||||||
Income
(Loss) Before Income Taxes and Minority Interest
|
(1,034)
|
302
|
||||||
Provision
for Income Taxes
|
(3)
|
255
|
||||||
Net
Income (Loss)
|
(1,031)
|
47
|
||||||
Less:
Net Income attributable to the Noncontrolling Interest
|
(1
|
)
|
(150
|
)
|
||||
Net
Income (Loss) Attributable to Thermodynetics, Inc.
|
(1,032)
|
(103
|
)
|
|||||
Other
Comprehensive Income (Loss), net of tax:
|
||||||||
Unrealized
holding gains (losses) arising during the period
|
13
|
(2)
|
||||||
Comprehensive
Income (Loss) Attributable to Thermodynetics, Inc.
|
(1,019)
|
(105
|
)
|
|||||
Earnings
per Share-
|
||||||||
Earnings
(Loss) per Share Basic and Diluted
|
(.23)
|
(.03
|
)
|
|||||
Weighted
Average Shares Outstanding- Basic
|
4,373,023
|
4,080,306
|
||||||
Weighted
Average Shares Outstanding- Diluted
|
4,373,023
|
4,080,306
|
The
accompanying notes are an integral part of these consolidated financial
statements.
2
THERMODYNETICS,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
FOR THE
NINE MONTHS ENDED DECEMBER 31,
(UNAUDITED)
IN
(000’s) EXCEPT PER SHARE DATA
2009
|
2008
|
|||||||||
Net
Sales
|
$
|
14,682
|
$
|
22,251
|
||||||
Cost
of Goods Sold
|
10,277
|
15,582
|
||||||||
Gross
Profit
|
4,405
|
6,669
|
||||||||
Selling,
General & Administrative Expenses
|
4,994
|
5,276
|
||||||||
Income
(Loss) From Operations
|
(589
|
) |
1,393
|
|||||||
Other
Income (Expense)
|
||||||||||
Interest
Expense, Net
|
(120
|
)
|
(126
|
)
|
||||||
Other
– Net
|
23
|
40
|
||||||||
Total
Other Income (Expense)
|
(97
|
) |
(86
|
)
|
||||||
Income
(Loss) Before Income Taxes and Minority Interest
|
(686
|
) |
1,307
|
|||||||
Provision
for Income Taxes
|
318
|
753
|
||||||||
Net
Income (Loss)
|
(1,004
|
) |
554
|
|||||||
Less:
Net Income (Loss) attributable to the Noncontrolling Interest
|
(224
|
)
|
(456
|
)
|
||||||
Net
Income (Loss) Attributable to Thermodynetics, Inc.
|
(1,228
|
) |
98
|
|||||||
Other
Comprehensive Income, net of tax:
|
||||||||||
Unrealized
holding gains (losses) arising during the period
|
(5
|
) |
(16
|
) | ||||||
Comprehensive
Income (Loss) Attributable to Thermodynetics, Inc.
|
(1,233)
|
82
|
||||||||
Earnings
(Loss) per Share-
|
||||||||||
Total
Earnings (Loss) per Share Basic and Diluted
|
(.28
|
) |
.02
|
|||||||
Weighted
Average Shares Outstanding- Basic
|
4,373,023
|
4,080,306
|
||||||||
Weighted
Average Shares Outstanding- Diluted
|
4,373,023
|
4,080,306
|
The
accompanying notes are an integral part of these consolidated financial
statements.
3
THERMODYNETICS,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR THE
NINE MONTHS ENDED DECEMBER 31,
(UNAUDITED)
IN
(000’s) EXCEPT PER SHARE DATA
2009
|
2008
|
|||||||
OPERATING ACTIVITIES:
|
||||||||
Net
income (loss)
|
$
|
(1,228)
|
$
|
98
|
||||
Adjustments
to reconcile net income to net cash
provided
by (used in) operating activities:
|
||||||||
Depreciation
and amortization
|
376
|
362
|
||||||
Noncontrolling interest
in earnings of subsidiary
|
288
|
480
|
||||||
Issuance
of Stock
|
129
|
|
||||||
Deferred
tax provision (benefit)
|
4
|
(156
|
)
|
|||||
Changes
in operating assets and liabilities:
|
||||||||
Increase
(decrease) in accounts payable
|
456
|
(308
|
)
|
|||||
(Decrease
) Increase in prepaid expenses and other assets
|
176
|
(87
|
)
|
|||||
Decrease
in accounts receivable
|
771
|
896
|
||||||
Decrease
(increase) in inventories
|
(399)
|
(808
|
)
|
|||||
Increase
(decrease) in accrued taxes and expenses
|
134
|
223
|
||||||
NET
CASH PROVIDED BY OPERATING ACTIVITIES
|
707
|
700
|
||||||
INVESTING ACTIVITIES;
|
||||||||
Purchases
of property, plant and equipment
|
(451)
|
(666
|
)
|
|||||
(Purchase)
sale of marketable securities
|
(3)
|
207
|
||||||
Investment
in unaffiliated company
|
––
|
(36
|
)
|
|||||
NET
CASH USED IN INVESTING ACTIVITIES
|
(454)
|
(495)
|
||||||
FINANCING ACTIVITIES
|
||||||||
Net
proceeds (payments) on revolving debt
|
25
|
921
|
||||||
Principal
payments on long-term debt
|
(239)
|
(188
|
)
|
|||||
NET
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
(214)
|
733
|
||||||
INCREASE
(DECREASE) IN CASH
|
39
|
938
|
||||||
CASH
AT BEGINNING OF PERIOD
|
1,984
|
1,062
|
||||||
CASH
AT END OF PERIOD
|
$
|
2,023
|
$
|
2,000
|
The
accompanying notes are an integral part of these consolidated financial
statements.
4
THERMODYNETICS,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
THREE AND NINE MONTHS ENDED DECEMBER 31, 2009 AND 2008
(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 nine months
ended December 31, 2008 and 2009 are not necessarily indicative of the
results to be expected for the full year.
NOTE
2: SUBSIDIARY
TRANSACTIONS
On
May 8, 2006, the Company completed the sale of a 43.68% minority interest
of its subsidiary, Turbotec Products Plc, (the “PLC”), through an offering on
the AIM Market of the London Stock Exchange.
The
Company and the PLC entered into a Relationship Agreement (RA) which provides
for an annual administration fee; restrictions on related party transactions;
restrictions on appointments to the board of the PLC and mutual confidentiality
and reporting undertakings. See Part II, Item 1. As part of the transaction, the
Company and the PLC established independent officers and directors and the two
boards of directors act independently.
Commercial
Leases:
The
Company and Turbotec Products, Inc., a wholly-owned subsidiary of
the PLC (“Turbotec Products”), entered into formal real estate leases
effective May 8, 2006, for approximately 54,500 square feet at 651 Day Hill
Road, Windsor, CT, and approximately 17,000 square feet at 50 Baker Hollow Road,
Windsor, CT. See Part II, Item 1. The leases commenced April 1, 2006 with a
five-year term, and one extension option for three years, and a second extension
option for two years. Rent charges with respect to the 651 Day Hill Road
property are equal to seven dollars per square foot in years one and two,
escalating annually thereafter through each of the extension terms; monthly
fixed rent in year one equals $31,792, escalating to $42,010 monthly in year
ten, assuming both lease extensions are exercised. Rent charges with respect to
the 50 Baker Hollow Road property are equal to $5.50 per square foot in year
one, escalating annually thereafter through each of the extension terms; monthly
fixed rent in year one equals $7,792, escalating to $10,979 monthly in year ten,
assuming both lease extensions are exercised.
NOTE
3: EARNINGS
PER SHARE
Earnings
per share for the three and nine months ended December 31, 2009 have been
computed 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 December 31
|
||||||||
2009
|
2008
|
|||||||
Weighted
Average Shares Outstanding- Basic
|
4,373,023
|
4,080,306
|
||||||
Weighted
Average Shares Outstanding- Diluted
|
4,373,023
|
4,080,306
|
Nine
Months Ended December 31
|
||||||||
2009
|
2008
|
|||||||
Weighted
Average Shares Outstanding- Basic
|
4,373,023
|
4,080,306
|
||||||
Weighted
Average Shares Outstanding- Diluted
|
4,373,023
|
4,080,306
|
5
NOTE 4:
INVENTORIES
Inventories
consist of the following at (in 000’s):
December 31,
2009
|
March 31,
2009
|
|||||||
Raw
materials
|
$
|
2,452
|
$
|
2,043
|
||||
Finished
goods
|
1,507
|
1,536
|
||||||
Work
in process
|
158
|
120
|
||||||
4,117
|
3,699
|
|||||||
Less:
Reserves
|
146
|
127
|
||||||
$
|
3,971
|
$
|
3,572
|
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: CASH
FLOW INFORMATION AND NON CASH INVESTING ACTIVITIES
The
following supplemental information is disclosed pursuant to the requirements of
ASC 230-10.
Nine
Months Ended Dectember 31,
(in
000’s)
|
||||||||
2009
|
2008
|
|||||||
Cash
payments for interest
|
$
|
120
|
$
|
126
|
During
the nine months ended December 31, 2008, long – term debt of approximately
$35,000 was incurred to acquire a vehicle.
NOTE
6: INVESTMENT/LOAN
As of
December 31, 2009, $300,000 had been advanced to a manufacturer of
commercial buildings under loans which bear interest at 12%, payable monthly,
and are repayable upon the financing of the manufacturer or on August 31,
2010, whichever comes first. As a consideration of the loan described
above, shares were issued to the Company representing 6% of the manufacturer;
Thermodynetics’ CEO is also serving as the manufacturer’s CEO, and he has been
issued shares equal to 5% of the manufacturer as an incentive.
Payments
due under the loan are currently overdue and payment of the loan is in doubt,
although it is the intent to be repaid. The company is currently
seeking capital. Part of the consideration for making the loan was an
escrow of additional shares to bring the total owned to 51%. It is
intended that the shares are to be called if the loan is not paid in the near
term. A reserve of $250,000 has been established.
NOTE
7: LINE OF
CREDIT
The
Company’s $1.1 million line of credit matured on July 31, 2009 and is due in
full; however, the Company's bank has proposed terms for an extension of the due
date and this is a continuing discussion. Since July 31, 2009, the
Company has continued to pay interest under the terms of the line of
credit.
NOTE
8: LEGAL
PROCEEDINGS
(a)
|
The
lawsuit instituted by the Company on January 8, 2008 in the High
Court in England, file no. HC08C00046, against Turbotec Products Plc (PLC)
regarding the PLC’s non-payment of dividends payable to Thermodynetics and
the PLC’s attempt to off-set that dividend against administrative fees
payable to the Company under their Relationship Agreement of
April 28, 2006. The PLC declared and paid dividends in cash to the
other shareholders, but not to Thermodynetics; the unpaid dividends equal
$884,162. Thermodynetics’ solicitors in the United Kingdom share the view
as expressed in the written opinion of the Queen’s Counsel representing
Thermodynetics that the legal positions taken by Thermodynetics are the
correct ones. The trial was completed in February 2010 and a decision is
expected in the next couple of months. Although litigation and
its outcome can be unpredictable, Thermodynetics believes its case is
meritorious.
|
6
(b)
|
Turbotec
Products, Inc. commenced a lawsuit against Thermodynetics on
February 27, 2008 in the Connecticut Superior Court, Judicial
District of Hartford, alleging that Thermodynetics breached two commercial
leases because it received certain overpayments, and that Thermodynetics
improperly withdrew funds from a sinking fund established under the
leases. The lawsuit was transferred from the regular docket to the Housing
Session and now is entitled Turbotec Product, Inc.
v. Thermodynetics, Inc., Connecticut Superior Court, J.D. of
Hartford, Housing Session, Docket No.
7712.
|
On
January 29, 2009, Turbotec Products was granted permission by the court to
file an amended complaint adding counts for fraudulent inducement, fraudulent
misrepresentation, and violation of the Connecticut Unfair Trade Practices Act
(Conn. Gen. Stat. Sect. 42-110b, et seq.) claiming
that it was induced to enter into the two commercial leases based on alleged
false statements by an officer of Thermodynetics concerning the market rent for
the leased properties. Thermodynetics has completed discovery on the new claims
as well as discovery on the initial claims.
Thermodynetics
denies the allegations, is vigorously defending the case, and filed
counterclaims for sums due under the two leases, and has claimed the case for a
jury trial. The Company's motion to transfer the case back to the regular docket
given the nature of the new claims was granted on August 5, 2009. Thermodynetics
does not view the risk of loss in the case as probable or material.
(c)
|
There
are a number of threatened and pending actions against Vulcan, and a
number of material judgments obtained against Vulcan. Thermodynetics and
its other subsidiaries are not and have not been a party to any such
Vulcan actions.
|
7
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
|
RESULTS OF
OPERATIONS
The
lingering effect of the recession has reduced housing and building construction
spending despite the programs enacted by the US government. While
these conditions remain in evidence, the products sold by our Turbotec
subsidiary will likely remain depressed below the record levels of shipments
recorded in prior years. Sales for the 9 months ended December 31,
2009, were $14.7 million vs. $22.3 million for the year earlier period, a
reduction of 34%, and for the 3 months ended December 31, 2009 were $4.9 million
vs. $7.3 million for the year earlier period, a reduction of 32%.
The
facility in North Carolina is considered to be helpful to the long term outlook
for Turbotec’s activities. Overall gross manufacturing margins
declined in the latest quarter. Their operating profit has been
sustained in the latest 9-month period albeit below what had been achieved
previously. Gross profit was $1.3 million and $4.4 million for the
three and nine months ending December 2009 and 2008 representing 27% and 30% of
sales, respectively.
While
Turbotec’s contemporaneous announcement with the timing of this report has not
stated what the drivers of their business were in the latest 3 month period, it
is believed that water source heat pumps was the main contributor to sales while
the depressed level of new construction and the recessionary effect of
discretionary spending has inhibited sales of marine applications and swimming
pool heat pumps, the other traditional contributors to the sales
base.
Thermodynetics
has included in SG&A $380,000 in legal costs in this quarter and $430,000
year to date pertaining to the UK litigation. Turbotec’s legal costs
included in SG&A are not known at this time. These costs
contributed to the loss for the period, along with the factors discussed
above. Thermodynetics’ solicitors in the United Kingdom share the view as
expressed in the written opinion of the Queen’s Counsel representing
Thermodynetics that the legal positions taken by Thermodynetics are the correct
ones. The trial was completed in February 2010 and a decision is expected in the
next couple of months. Although litigation and its outcome can be
unpredictable, Thermodynetics believes its case is meritorious.
Thermodynetics
has reduced its expenditures and is relying on its existing levels of income to
pay its obligations. It is anticipated that certain creditors may not
be paid in a timely manner if additional income is not
generated. Should the result of the UK lawsuit not generate adequate
sums to pay Thermodynetics’ obligations, it may be necessary to sell certain
assets.
Liquidity and Capital
Resources.
Legal
costs have impacted the results of operations
There
were no material defaults of any terms of the securities or indebtedness of the
Company or any of its significant subsidiaries during the three-month period
covered by this Form 10-Q report, except that the Company’s $1.1 million
line of credit matured on July 31, 2009 and is due in full; however, the
Company's bank has proposed terms for an extension of the due date and this is a
continuing discussion. Since July 31, 2009, the Company has continued
to pay interest under the terms of the line of credit against invoices issued by
its bank. It is anticipated that an agreement with the bank will be
reached in the near future.
The other
debt obligations of Thermodynetics consist of mortgages $1.5 million and other
notes payable of $50,000. Turbotec has long term obligations of
$203,000.
The cash
and other current assets of Thermodynetics aggregating $270,000 (exclusive of
intercompany amounts) are anticipated to be available to pay the Company’s
obligations. Of that amount, some $127,000 is cash that is reserved
in a sinking fund under the Turbotec leases that, if not spent to make repairs,
may be returnable to Turbotec.
8
As of
December 31, 2009, $300,000 had been advanced to a manufacturer of
commercial buildings under loans which bear interest at 12%, payable monthly,
and are repayable upon the financing of the manufacturer or on August 31,
2010, whichever comes first. Payments due under the loan are
currently overdue and payment of the loan is in doubt. A reserve of
$250,000 has been established.
At
December 31, 2009 consolidated working capital was $3.2 million.
In the
nine months ended December 31, 2009, cash of $707,000 was provided by operations
which was primarily the result of 1) a decrease in accounts receivable of
$771,000 and 2) an increase in accounts payable of $456,000, netted by an
increase in inventory of $399,000.
Cash of
$446,000 was used by Turbotec in investing activities during the latest nine
months to purchase property, plant and equipment.
Cash used
in financing activities was the result of payments of long-term debt of $239,000
and proceeds from the line of credit of $25,000.
The
Company has reduced its expenditures and is relying on its existing levels of
income to pay its obligations. It is anticipated that certain
creditors will not be paid in a timely manner if additional income is not
generated. Should the result of the UK lawsuit not generate adequate
sums to pay the Company’s obligations, it may be necessary to sell certain
assets.
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.
Significant
risk factors and economic considerations associated with heat transfer products
include, but are not limited to, seasonality of purchasing and building cycles,
the cost of energy, the reported housing slowdown, incentives provided by
manufacturers, marketers and municipalities to encourage the use of more
efficient equipment, interest rate changes that may stimulate or depress demand,
the cost and availability of materials used in manufacturing processes, and
regulatory directives relating to energy consumption, conservation and the
environment.
Item
3.
|
Quantitative
and Qualitative Disclosures About Market
Risks.
|
Not
applicable.
Item
4T.
|
Controls
and Procedures.
|
NOTE: The Company owns 56% of
Turbotec Products Plc (the “PLC”) and entered
into an agreement that limits its influence with the PLC as described in Item
1(a) hereof. The PLC's wholly-owned subsidiary is Turbotec Products, Inc. (which
together with the PLC, is referred to as "Turbotec"). The
Company’s conclusion regarding the effectiveness of its disclosure controls and
procedures and its internal control over financial reporting does not
9
extend to the disclosure controls and procedures and internal control over financial reporting procedures of Turbotec. The Company has not evaluated the internal controls of Turbotec. The Company does not have the ability to examine, dictate, or modify the controls of Turbotec, nor does the Company have the ability, in practice, to evaluate the disclosure controls and procedures or the internal control over financial reporting procedures of Turbotec. Accordingly, the Company does not have actual knowledge of the disclosure controls and procedures or the internal control over financial reporting procedures of Turbotec to the extent believed to be required under Section 404 of the Sarbanes-Oxley Act and Rule 13a-15 of the Securities Exchange Act of 1934. Therefore, the Company is unable to certify as to the disclosure controls and procedures and the internal control over financial reporting procedures of Turbotec. Therefore the Company states as follows:
|
(a)
Evaluation
of Disclosure Controls and Procedures
-
|
The
Company’s principal executive and principal financial officers have concluded,
based on their evaluation, 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 period covered by this report, were not
effective to provide the material information required to be disclosed by the
Company in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified under the
Exchange Act.
|
(b)
Changes
in Internal Controls -
|
There
were no changes made and no corrective actions taken during the quarter ended
for this report with respect to the Company's internal control over financial
reporting that has materially affected, or is reasonably likely to materially
affect the Company's internal control over its financial reporting.
However,
management of the Company has not been able to evaluate the effectiveness of the
internal control over financial reporting procedures that do or may exist at
Turbotec nor is the Company knowledgeable about such
controls. Therefore, the Company’s internal control over financial
reporting for Thermodynetics, Inc. and its subsidiaries was not effective as of
the end of the reporting period for this report.
10
PART II - OTHER
INFORMATION
Item
1.
|
Legal
Proceedings.
|
(a)
|
There
are no material legal proceedings known or threatened against the Company,
except:
The lawsuit instituted by the Company on January 8, 2008 in the High
Court in England, file no. HC08C00046, against Turbotec Products Plc
regarding the PLC’s non-payment of dividends payable to Thermodynetics and
the PLC’s attempt to off-set that dividend against administrative fees
payable to the Company under their Relationship Agreement of
April 28, 2006. The PLC declared and paid dividends in cash to the
other shareholders, but not to Thermodynetics; the unpaid dividends equal
$884,162. Thermodynetics’ solicitors in the United Kingdom share the view
as expressed in the written opinion of the Queen’s Counsel representing
Thermodynetics that the legal positions taken by Thermodynetics are the
correct ones. The trial was completed in February
2010. Although litigation and its outcome can be unpredictable,
Thermodynetics believes its case is
meritorious.
|
(b)
|
Turbotec
Products, Inc. commenced a lawsuit against Thermodynetics on
February 27, 2008 in the Connecticut Superior Court, Judicial
District of Hartford, alleging that Thermodynetics breached two commercial
leases because it received certain overpayments, and that Thermodynetics
improperly withdrew funds from a sinking fund established under the
leases. The lawsuit was transferred from the regular docket to the Housing
Session and now is entitled Turbotec Product, Inc.
v. Thermodynetics, Inc., Connecticut Superior Court, J.D. of
Hartford, Housing Session, Docket No.
7712.
|
On
January 29, 2009, Turbotec Products was granted permission by the court to
file an amended complaint adding counts for fraudulent inducement, fraudulent
misrepresentation, and violation of the Connecticut Unfair Trade Practices Act
(Conn. Gen. Stat. Sect. 42-110b, et seq.) claiming
that it was induced to enter into the two commercial leases based on alleged
false statements by an officer of Thermodynetics concerning the market rent for
the leased properties. Thermodynetics has completed discovery on the new claims
as well as discovery on the initial claims.
Thermodynetics
denies the allegations, is vigorously defending the case, and filed
counterclaims for sums due under the two leases, and has claimed the case for a
jury trial. The Company's motion to transfer the case back to the regular docket
given the nature of the new claims was granted on August 5, 2009. Thermodynetics
does not view the risk of loss in the case as probable or material.
(c)
|
There
are a number of threatened and pending actions against Vulcan, and a
number of material judgments obtained against Vulcan. Thermodynetics and
its other subsidiaries are not and have not been a party to any such
Vulcan actions.
|
Item
1A.
|
Risk
Factors.
|
Not
Applicable.
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 report.
Item
3.
|
Defaults
Upon Senior Securities.
|
There
were no material defaults of any terms of the securities or indebtedness of the
Company or any of its significant subsidiaries during the three-month period
covered by this Form 10-Q report, except that the Company’s $1.1 million
line of credit matured on July 31, 2009 and is due in full; however, the
Company's bank has proposed terms for an extension of the due date and this is a
continuing discussion. Since July 31, 2009, the Company has continued
to pay interest under the terms of the line of credit against invoices issued by
its bank.
11
Item
4.
|
Submission
of Matters to a Vote of Security
Holders.
|
At the
annual meeting of stockholders of the Company held on October 27, 2009, John F.
Ferraro, John J. Hughes, Robert A. Lerman, and Fred H. Samuelson were elected
directors of the Company, to serve for a one year term and until their
successors are elected and qualified.
Nominee
or Matter
|
For
|
Withheld
|
|||||||
John
F. Ferraro
|
3,101,730
|
391,951
|
|||||||
John
J. Hughes
|
3,101,590
|
392,091
|
|||||||
Robert
A. Lerman
|
3,101,330
|
392,351
|
|||||||
Fred
H. Samuelson
|
3,101,590
|
392,091
|
Item
5.
|
Other
Information.
|
None
Item
6.
|
Exhibits.
|
(a) Exhibits:
Rule 13a-14(a)/15d-14(a)
Certifications:
|
·
|
Exhbit
31(a)
|
Certification
of Chief Executive Officer.
|
|
·
|
Exhbit
31(b)
|
Certification
of Chief Financial Officer.
|
Section 1350
Certifications:
|
·
|
Exhbit
32(a)
|
Certification
of Chief Executive Officer.
|
|
·
|
Exhbit
32(b)
|
Certification
of Chief Financial Officer.
|
12
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
THERMODYNETICS,
INC.
|
|||
Date:
February 15, 2010
|
By:
|
/s/
Robert A.
Lerman
|
|
Robert
A. Lerman
|
|||
President
and Chief Executive Officer
|
|||
Date:
February 15, 2010
|
By:
|
/s/
John F.
Ferraro
|
|
John
F. Ferraro
|
|||
Treasurer
and Chief Financial Officer
|
13