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EX-21 - EXHIBIT 21 - THERMODYNETICS INCex21.htm
EX-31.1 - EXHIBIT 31(A) - THERMODYNETICS INCex31-1.htm
EX-31.2 - EXHIBIT 31(B) - THERMODYNETICS INCex31-2.htm
EX-32.2 - EXHIBIT 32(B) - THERMODYNETICS INCex32-2.htm
EX-32.1 - EXHIBIT 32(A) - THERMODYNETICS INCex32-1.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K/A

(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 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 of   (I.R.S. Employer Identification
Incorporation or Organization)    Number)
     
651 Day Hill Road, Windsor, Connecticut  06095 (860) 683-2005
(Address of Principal Executive Offices) (Zip Code)  (Registrant's telephone number)
 
Securities registered pursuant to Section 12(b) of the Exchange Act:
 
Title of Each Class   Name of Each Exchange on which Registered
None    None
 
Securities registered pursuant to Section 12(g) of the Exchange Act:
 
Title of Class    
Common Stock $.01 par value    
     

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes [   ]    No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.  Yes [   ]    No [X]

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 past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [ X ]  No [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [   ]  No [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ X ]
 
 
 

 
 
Thermodynetics, Inc.
2009 Amended Annual Report on Form 10-K/A
Page 1 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):
 
  Large accelerated filer [  ]   Accelerated filer [  ]
  Non-accelerated filer [  ]     Smaller reporting company [ X ]
  (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 [ X ]

As of June 11, 2009, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $1,500,000 based on the price at which the common equity was last sold, or based on the average of the closing bid and asked prices as reported by the Non-NASD OTC Bulletin Board composite feed or other qualified interdealer quotation medium.

Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date.
 
Class   Outstanding as of June 9, 2009
Common Stock $.01 par value    4,090,306 Common Shares
 
The following documents are incorporated by reference:  None.

 
 

 

Thermodynetics, Inc.
Amended 2009 Annual Report on Form 10-K/A
Page 2
 
AMENDMENT:

On March 31, 2010, the Audit Committee of the Company's Board of Directors and the Company's management concluded that the equity method of accounting for the May 2006 sale of 43.68% of Turbotec Products, Plc ("Turbotec") and subsequent reporting for the remaining 56.32% interest in Turbotec is the proper method to utilize.  Previously the Company utilized the consolidation method of accounting under Generally Accepted Accounting Principles ("GAAP").  In the course of a routine Securities and Exchange Commission ("SEC") review of the Company's prior periodic filings, the SEC issued comments identifying possible incorrect applications of certain accounting principles.  As a result of the SEC staff comments, the Company reconsidered its accounting method and agreed consolidating Turbotec into its financial statements subsequent to the May, 2006 Turbotec stock offering was inappropriate.  Therefore, the Company on June 11, 2010 restated its annual and quarterly financial statements since May, 2006 utilizing the equity method of accounting.  Further, due to the deconsolidation of Turbotec, the business description and its management's discussion and analysis require corresponding restatements to address the effects of the deconsolidation.

A complete amendment and restatement of the amended form 10-K reporting events through July 13, 2009 is hereby submitted in its entirety as follows:
 
PART I

Item 1.
Business.

(a)           Business Development - Thermodynetics, Inc. (the "Company") was incorporated in Delaware in 1981 and reincorporated by merger in Nevada in 2008.

At July 13, 2009 the Company was engaged in managing its real estate and business holdings, and offering consulting services to and investing in other companies.  The Company competes with other companies which have been established for a longer period of time, are larger, and possess substantially greater financial resources and substantially larger staffs.  No assurances can be given that the Company will be able to successfully compete with such firms.  The Company owns two commercial buildings which it leases to two commercial/industrial tenants; the leases expire on August 31, 2010 and March 31, 2011.  The loss of both tenants is expected to have a material adverse effect upon the Company.

Prior to the May 2006 London initial public offering ("IPO") described below, the Company was principally engaged in the manufacture of spirally fluted metal tubes used for a variety of heat transfer applications through its then subsidiary, Turbotec Products, Inc. ("Turbotec").  After the IPO, Turbotec and its new parent, Turbotec Products Plc (the “PLC"), operated independently of the Company as a requirement of the UK underwriter and as a result of the April 28, 2006 Relationship Agreement (“RA”).  The RA became the subject of litigation between the Company and the PLC described in Item 3 herein.  At July 13, 2009, the Company owned 7,212,407 shares of the PLC, constituting 56.32% of the PLC.
 
 
 

 
 
Thermodynetics, Inc.
2009 Amended Annual Report on Form 10-K/A
Page 3
 
The Company has a significant tax loss carryforward, which tax loss carryforward is believed to be of significant value.  The Company is seeking a merger partner to utilize the tax loss carryforward.

Turbotec Investment and London IPO

In December 2005, the Company formed the PLC as a 100% owned subsidiary organized in the United Kingdom and contributed 100% of the outstanding shares of Turbotec to the PLC.  In 2006 an offering and sale of 43.68% of the PLC was sold through the IPO.  The PLC ordinary shares are trading under the symbol “TRBO” on the Alternative Investment Market (“AIM Market”) of the London Stock Exchange.  As of July 13, 2009 an aggregate of 12,806,773 ordinary shares of the PLC were issued and outstanding.

Under the terms of the RA, the Company and its directors had agreed to certain limitations of the Company's voting rights.  The RA contained provisions whereby Turbotec was to conduct its business independently of the Company, and contained other restrictive provisions which are in dispute.  See Item 3 herein.

The Company maintains its registered U.S. trademark "THERMODYNETICS®" and believes such mark to be valuable.

Subsidiaries.

TPI Systems, Inc. ("TPI") and National Energy Systems, Inc. ("NES") 100% owned subsidiaries have been dormant with little or no activity for many years.  In 2003, the Company financed the acquisition of Vulcan Industries, Inc. ("Vulcan") as an operating subsidiary.  In September, 2005, Vulcan was closed and liquidated.  The Company restructured its debt in November, 2005.  A further loan restructuring along with significant debt repayments were made in May 2006 as a result of the proceeds from the IPO.  In December 2006, the Company refinanced its remaining debt obligations with its current bank.  See item 1(b)(13).
 
The Company does not have majority control over any manufacturing concern, and as such, it has no foreign operations, no inventory, does not export products or services, its present business is not seasonal in nature nor does the Company offer or produce any products.  The Company does not have any patents.  The Company's business does not and is not expected to involve contracts or subcontracts with the United States government.  The Company is not conducting any research and development.  During the fiscal year ended March 31, 2009, there was no material effect on the business of the Company with respect to its requirements to comply with environmental laws.

At July 13, 2009, the Company had 2 salaried employees and 1 part-time employee compensated on an hourly basis.

Working Capital Items - At March 31, 2009, the Company had a negative working capital position of $4,351,530.  See Item 7 herein.

At March 31, 2009, the Company's material credit facilities consisted of:  The Company’s bank has provided a revolving line of credit dated December 21st, 2006 with a maximum credit limit of $1,100,000; this revolving line of credit provides for borrowings on a demand basis with interest payable at the bank’s prime rate.  At March 31, 2009 the principal balance due under this line of credit was $1,062,000 which subsequently matured on July 31, 2009; at July 13, 2009, the bank and the Company are in discussions with respect to repayment or further extensions of the line of credit.  The credit facility is secured by the Company’s Day Hill Road facility.

Item 1A. 
Risk Factors.

Not required.
 
 
 

 
 
Thermodynetics, Inc.
2009 Amended Annual Report on Form 10-K/A
Page 4
 
Item 1B. 
Unresolved Staff Comments.

Not required.

Item 2. 
Properties.

Facilities:

The Company's executive offices are located at its approximately 55,000 square foot one story building (of which 40,000 sq. ft. was constructed in 1981 and a 15,000 sq. ft. addition was constructed in 2000) on a six acre site located at 651 Day Hill Road, Windsor, Connecticut.  Turbotec's manufacturing operations are also located at the Day Hill facility.  The Day Hill facility is a steel frame structure with polystyrene and stucco outer walls, has parking for approximately 115 cars and contains approximately 45,000 square feet of factory space and approximately 10,000 square feet of office space.  The Day Hill facility is owned by the Company in fee simple and is subject to a $900,000 mortgage term note for the Day Hill Road facility, payable in 120 equal monthly installments of $3,750 plus interest through December 2016 with the balance due at that time.  At March 31, 2009 the interest rate in effect was 7.5% and the unpaid balance was $798,750.  See Notes 10 and 11 of Notes to Financial Statements.

The Company owns in fee simple a light manufacturing multi-purpose facility on approximately 3.5 acres located at 50 Baker Hollow Road, Windsor, Connecticut, contiguous to the Day Hill site.  The Baker Hollow facility was constructed in 1991 and is comprised of a steel frame structure with concrete block outer walls, has parking for approximately 95 cars and contains approximately 28,500 square feet of factory space.  The Company's Baker Hollow facility is subject to a $1,000,000 ten year mortgage from its bank which is due August 2011 with an interest rate of 6.9%.  At March 31, 2009 the Company owed $799,860 under such mortgage.

Leases:
The Company, as lessor, and Turbotec, as the lessee, entered into two five year real estate leases effective May 8th, 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.  The five-year term of both leases terminate on March 31st, 2011 with extension options.  Rent charges with respect to the 651 Day Hill Road property equaled to seven dollars per square foot in years one and two, escalating by $0.25 per square foot annually thereafter through each of the extension terms; monthly fixed rent in year one equals $31,792, escalating to $36,333 monthly in year five.  Rent charges with respect to the 50 Baker Hollow Road property were equal to $5.50 per square foot in year one, escalating by $0.25 per square foot annually thereafter through each of the extension terms; monthly fixed rent in year one equals $7,792, escalating to $9,208 monthly in year five.  The Company and Turbotec Products are currently litigating with respect to monies owed and encroachment issues under the leases.  See Item 3 "Legal Proceedings" herein.  That lease will expire March 31st, 2011.

The Company has reserved from the Turbotec Windsor leases, and continues to use, its existing executive office space in the Day Hill facility, and additional office/storage space in the Baker Hollow facility.  See Item 3 "Legal Proceedings" herein.

The Company is currently leasing approximately 11,500 square feet of the Baker Hollow facility to an unaffiliated third-party with monthly rental of $5,750, triple net which lease will expire August 31, 2010.

The Company built the Day Hill facility and the Baker Hollow facility for the operating needs of Turbotec, not for investment purposes.  The stated intention by Turbotec to relocate its operations to North Carolina leaving the Company without its significant and primary tenant will have a material adverse effect on the Company’s revenues and liabilities.  The Company is actively seeking a purchaser or tenant for either or both buildings.

Vehicles

The Company has an $83,464 term loan dated December 1, 2006, which is payable in 60 monthly installments of $1,628 including principal and interest at 6.39%.  The unpaid balance at March 31, 2009 was $49,149.  The note is secured by a vehicle.  The Company has a second term loan in the amount of $34,557 dated May 6, 2008, which is payable in 36 monthly installments of $974 including principal and interest at 1%.  The unpaid balance at March 31, 2009 was $24,096.

 
 

 
 
Thermodynetics, Inc.
2009 Amended Annual Report on Form 10-K/A
Page 5
Item 3. 
Legal Proceedings.

At July 13, 2009 there are no material legal proceedings known or threatened against the Company, except:

(a)           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, as follows:  August 24, 2007 in the amount of 5.8 cents per share, December 12, 2007 in the amount of 2.3 cents per share and March 28, 2008 in the amount of 4.4 cents per share.  Thermodynetics owns 7,212,407 ordinary shares of the PLC; 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 and that Thermodynetics is likely to prevail at trial, and therefore Thermodynetics does not view the risk of loss to be probable or material at July 13, 2009.

(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 as a result of alleged encroachment of space leased to Turbotec Products and for common area and maintenance charges, 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 Products, Inc. v. Thermodynetics, Inc., Connecticut Superior Court, Judicial District 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 is in the process of conducting discovery on the new claims as well as continuing discovery on the initial claims.  Thermodynetics denies the allegations, is vigorously defending the case which is still in its intermediate stages, and filed counterclaims against Turbotec Products for sums due under the two leases, and has claimed the case for a jury trial.  It is also seeking to transfer the case back to the regular docket given the nature of the new claims.  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 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 fourth quarter of the fiscal year for which this report is filed.

PART II

Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
 
 

 
 
Thermodynetics, Inc.
2009 Amended Annual Report on Form 10-K/A
Page 6
Market for Common Equity and Related Stockholder Matters

(a)           The Company's Common Stock is quoted and traded in the over-the-counter market on the Non-NASDAQ OTC Bulletin Board system under the symbol "TDYT".  The following table indicates high and low bid and asked quotations for the Company's Common Stock for the periods indicated based upon information compiled by the Pink OTC Markets, Inc. and represent prices between dealers and do not include retail mark-up, mark-down or commissions; and may not represent actual transactions.

                                             
    Bid Prices     Asked Prices  
Quarter Ended
 
High
   
Low
   
High
   
Low
 
                         
March 31, 2009
  $ 0.30     $ 0.20     $ 1.01     $ 0.50  
December 31, 2008
  $ 0.75     $ 0.30     $ 2.25     $ 0.40  
September 30, 2008
  $ 1.45     $ 0.68     $ 1.50     $ 1.30  
June 30, 2008
  $ 1.79     $ 1.01     $ 1.93     $ 1.35  
                                 
March 31, 2008
  $ 1.74     $ .70     $ 1.88     $ 1.20  
December 31, 2007
  $ 2.40     $ .95     $ 2.50     $ 1.20  
September 30, 2007
  $ 2.30     $ 1.62     $ 2.60     $ 1.70  
June 30, 2007
  $ 2.30     $ 1.65     $ 2.50     $ 1.90  
 


(b)           At March 31, 2009, the number of record holders of the Company's Common Stock was 2,174.

(c)           The Company has not paid any dividends on the Common Stock since inception and does not expect to pay any dividends in the foreseeable future.

(d)           Securities Authorized for Issuance under Equity Compensation Plans.  The following table sets forth as of March 31, 2009, compensation plans under which equity securities of the Company are authorized for issuance:
 
Plan Category
 
(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights
   
(b) Weighted - average exercise price of outstanding options, warrants and rights
   
(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
 
Equity Compensation Plans Approved by Shareholders:
    0       0       195,000  
Equity Compensation Plans Not Approved by Shareholders:
    0       0       0  
Total
    0       0       195,000  

(e)           Recent Sales of Unregistered Securities - The Company has not made any sales of any unregistered securities within the past three (3) years at fiscal year ended March 31, 2009 other than (a) shares sold under the Company’s 401(k) plan.  The exemption from the registration requirements of Section 5 of the Securities Act of 1933 claimed was under §4(2) of the Act not involving a public offering and Regulation S under the Act.
 
 
 

 
 
Thermodynetics, Inc.
2009 Amended Annual Report on Form 10-K/A
Page 7
Item 6. 
Selected Financial Data.

Not required.

Item 7. 
Management's Discussion and Analysis of Financial Condition and Results of Operations.

Results of Operations.

Income resulted from consulting fees and rental income in fiscal years 2007, 2008 and 2009 respectively, in roughly equal amounts while the period from April 1, 2006 through May 10, 2006 also reflected that period’s manufacturing revenues generated by Turbotec Products, Inc.

Operating expenses increased because of the legal costs involved in the litigation regarding the interpretation of the relationship agreement that was required to complete the London IPO of Turbotec in May 2006.

The equity in earnings of Turbotec Products Plc derives from the 56.32% ownership by the Company of the Plc shares.  The sale of the 43.68% interest in the Plc is included in fiscal 2007 while the sale of a different holding in an unaffiliated entity was realized in fiscal 2009.

The Company recorded net income in each of fiscal years 2007 and 2008 except in fiscal 2009 when a loss occurred in that fiscal year.

Rental income derives from the two buildings located in Windsor, CT that are currently rented.  The current tenants are not expected to renew their leases and the property is being actively offered for sale or rent.  There can be no assurance that a sale or rental will be consummated, nor as to the financial effect of such transactions, if any.

With respect to the impairment of the Turbotec share holdings, the issues considered are the value that is carried on the Company’s books, the price of the shares as they trade on the open market, the underlying causes of the changes in share value and the duration of the price trends of the shares.  The holdings were valued at the end of each reporting period based on GAAP and were compared to the market value based on the quoted share price; consideration was given to all the issues noted above as to whether the value was impaired or not.  The prevalent determining factors of these evaluations were the time duration of the decreased valuation and the affects of the global economy and related currency fluctuations, therefore it was determined that at March 31, 2009 the impairment was temporary.

The Company is seeking other entities that would be interested in obtaining assistance through consulting efforts for their organizations.  Such opportunities are possible from a modular building manufacturer that is currently seeking financing and a metal finishing company that has approached the Company’s management on a preliminary basis.  The difficulty in consummating such assignments is believed to be a result of the general sluggish economy and the lack of credit available through banks or other lenders.

Liquidity.

The Company’s working capital position was positive at March 31, 2007 and negative at March 31, 2008 and 2009.  It is anticipated that future working capital will be generated by the sale of assets or from consulting assignments and rents, although no assurance can be given that these efforts will be successful.

At July 13, 2009, the Company’s line of credit was due to be repaid in July 2009 and discussions with the lender as to repayment and extension are ongoing.
 
 
 

 
 
Thermodynetics, Inc.
2009 Amended Annual Report on Form 10-K/A
Page 8
 
Cash was generated from short term borrowings and the sale of assets as well as from fees and rents received.

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, the real estate market in Connecticut, and the economy as it relates to companies seeking and able to pay for consulting services.
 
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.
 
Item 7A. 
Quantitative and Qualitative Disclosures About Market Risk.

Not required.

Item 8. 
Financial Statements and Supplementary Data.

Attached, following Item 15.

Item 9. 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

No change in the Company’s principal independent accountants occurred during the Company’s two most recent fiscal years or any subsequent interim period, nor did any disagreements occur with the Company’s accountants on any matter of accounting principles or practices or financial statement disclosure that would require a current report on Form 8-K.

Item 9A(T). 
Controls and Procedures

(a)
Evaluation of Disclosure Controls and Procedures -

The Company’s principal executive and principal financial officers believe, based on their evaluation, that as of March 31, 2009 the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 (the “Exchange Act”) 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 within the specified time periods under the Exchange Act.  Utilization of the consolidation method of accounting under GAAP rather than the equity method of accounting was the result of the ineffective procedures.
 
(b)
Management’s Annual Report on Internal Control Over Financial Reporting
 
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Exchange Act Rule 13a-15(f) under the Exchange Act.  Under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, an evaluation of the effectiveness of our control over financial reporting was conducted based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).  Based on the evaluation under the framework, management has concluded that the Company’s internal control over financial reporting was not effective as of March 31, 2009.  Utilization of the consolidation method of accounting under GAAP rather than equity method of accounting was the result of the ineffective procedures.
 
 
 

 
 
Thermodynetics, Inc.
2009 Amended Annual Report on Form 10-K/A
Page 9
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm, pursuant to temporary rules of the Securities and Exchange Commission, that permit the Company to provide only Management’s Report in this annual report.
 
(c)
Changes in Internal Controls -

There were no changes made and no corrective actions taken during the fourth quarter of fiscal year 2009 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, except the utilization of the equity method of accounting in the restated financial statements.

Item 9.B. 
Other Information.

Not applicable.
 
PART III

Item 10. 
Directors, Executive Officers and Corporate Governance

(a)           At June 9, 2009 the executive officers and directors of the Company were:

Name
 
Born
 
Position
 
Officer or Director Since
             
John F. Ferraro
 
1934
 
Chairman of the Board, Treasurer, Chief Financial Officer, and Secretary
 
1979
Robert A. Lerman
 
1935
 
President, Chief Executive Officer and Director
 
1979
John J. Hughes
 
1926
 
Director
 
2003
Fred H. Samuelson
 
1931
 
Director
 
2003

The directors of the Company are each elected to one-year terms.  The term of each director and officer expires when his successor is elected and qualified.

The following is a brief account of the business experience of each director and executive officer of the Company during the past five years.

John F. Ferraro holds the degree of Bachelor of Science in Industrial Engineering, New York University (1962).  In 1979, Mr. Ferraro was elected Secretary and a Director of the Company.  In 2006 as a part of the reorganization in connection with the London IPO and stock sale, Mr. Ferraro was elected Treasurer and Chief Financial Officer of the Company.  Since 1981, Mr. Ferraro has been Chairman of the Board of the Company.  Mr. Ferraro was appointed a Director of Initio, Inc. in 2003.  See Item 13 “Certain Relationships”.

Robert A. Lerman holds the degrees of Bachelor of Mechanical Engineering, College of the City of New York (1957), Master of Science in Mathematics, Adelphi College (1961), and Master of Science in Electrical Engineering, University of Connecticut (1964).  In 1979, Mr. Lerman was elected Treasurer and a Director, in 1980 President of the Company and was appointed Chief Executive Officer in 2002.  Mr. Lerman co-authored the text book, Nonlinear Systems Dynamics, which was published in 1992 by Van Nostrand Reinhold, New York, New York.  In 1998 Mr. Lerman became a Director of Bio Minerals n.v. and resigned his position in June 2009.  Mr. Lerman was appointed in June 2008 as Chairman and a director of Tower Acquisitions Limited.  Mr. Lerman was appointed in February 2009 as president, CEO and a director of Tower Structures, Inc.  See Item 13 “Certain Relationships”.
 
 
 

 
 
Thermodynetics, Inc.
2009 Amended Annual Report on Form 10-K/A
Page 10
John J. Hughes was appointed a Director of the Company in 2003.  Mr. Hughes was the founder, and served from 1970 through 1990 as the president and chief executive officer of East Windsor Metal Fabricating Inc.; Mr. Hughes continues to provide services on a consulting basis to that company.

Fred H. Samuelson was appointed a Director of the Company in 2003.  Mr. Samuelson holds the degree of Bachelor of Science of Mechanical Engineering, University of Connecticut (1954); and completed a portion of the masters’ curriculum.  Mr. Samuelson was the founder, and served from 1982 through 2001 as the president of Samuelson Engineering Inc., a cutting tools supplier and mechanical components design consultant.

(c)           Family Relationships between Directors and Officers - None.

(d)           Certain Legal Proceedings of Directors or Officers.  The Company knows of no legal proceedings pending or threatened or judgments entered against any director, director nominee, or officer of the Company or of any of its subsidiaries as specified in the rules of the Securities and Exchange Commission (the “SEC”).

(e)           Audit Committee and Audit Committee Financial Expert.
 
Audit Committee.  The Audit Committee consists of John J. Hughes and Fred H. Samuelson, both of whom are independent members of the Board of Directors.  The Audit Committee has the responsibility to ascertain that the Company's financial statements reflect fairly the financial condition and operating results of the Company and to appraise the accounting and operating controls.  The Audit Committee is to (i) serve as an independent and objective party to monitor the Company's financial reporting process and internal control system, (ii) review and appraise the audit efforts of the Company's independent accountants, (iii) review and confirm the Company’s financial statements contained in filings with the SEC, (iv) review and confirm matters relating to the examination of the Company by its independent auditors, (v) review the use and security of the Company’s liquid assets through the review of the Treasurer’s function, (vi) reassess its charter annually and recommend any proposed changes to the Board for approval, and (vii) recommend the appointment of independent accountants to the Board of Directors for its consideration and approval.  The responsibilities of the Audit Committee are outlined in a written charter, which is included as Exhibit 99.a to this report.
 
During fiscal 2009 the Company did not have an “Audit Committee Financial Expert” serving on the Audit Committee because neither of the Audit Committee members qualified as such under the rules of the Commission.  In 2005, the Audit Committee engaged Mr. David S. Federman as a financial expert advisor and he has served in that capacity since 2005.  Mr. Federman is a certified public accountant, and is senior partner of the accounting firm: Federman, Lally & Remis.  Mr. Federman has experience in financial and tax matters.  Mr. Federman is independent and meets the requirements to qualify as an Audit Committee Financial Expert; Mr. Federman serves as an advisor and is not a member of the Audit Committee.
 
Senior Financial Officer Code of Ethics

The Company has a written Code of Business Conduct (the "Code") that includes a code of ethics (the "Senior Financial Officer Code of Ethics") that applies to the Company's Chief Executive Officer and senior financial officers (including the Company's Chief Financial Officer, Controller and persons performing similar functions) (collectively, the "Senior Financial Officers").  The Company will provide a copy of the Senior Financial Officer Code of Ethics, without charge, upon written request to Office of the Treasurer at the Company.  If the Company changes the Senior Financial Officer Code of Ethics in any material respect or waives any provision of the Senior Financial Officer Code of Ethics for any of its Senior Financial Officers, the Company expects to provide the public with notice of any such change or waiver by publishing an appropriate description of such event as required or permitted under applicable rules of the SEC.
 
 
 

 
 
Thermodynetics, Inc.
2009 Amended Annual Report on Form 10-K/A
Page 11
Section 16(a) Beneficial Ownership Reporting Compliance

Based solely on a review of the forms submitted to the Company during and with respect to the most recent fiscal year, the Company is not aware that any report required by §16(a) of the Exchange Act to be filed by any director, officer or principal shareholder that was not filed on a timely basis.

Item 11.
Executive Compensation.

(a)-(b)           Summary Compensation Table - The following table sets forth on an accrual basis for the most recently ended two fiscal years, the remuneration of each of the Company's officers whose remuneration exceeded $100,000.
 
SUMMARY COMPENSATION TABLE
 
Name & Principal Position
 
Year
(1)
 
Salary
($)
   
Bonus
($)
   
Stock
Awards
($)
   
Option Awards
($)
   
Non-Equity
Incentive Plan Compen-
sation
($)
   
Non-qualified Deferred Compensation Earnings ($)
   
All
Other
Compen-sation
($)
   
Total
($)
 
Thermodynetics
                                                   
Robert A. Lerman(1)  President, CEO & Director
 
2009
    276,553       0       0       0       0       0       6,087       282,640  
   
2008
    267,289       100,000       0       0       0       0       18,047       385,336  
John F. Ferraro (1) Chairman of the Board, Treasurer and CFO, Secretary & Director
 
2009
    208,628       0       0       0       0       0       6,089       214,717  
   
2008
    200,792       0       0       0       0       0       6,466       207,258  

Notes:
(1)  See (1) in sub-item (c) Narrative Disclosure to Summary Compensation Table.

 
(c)            Narrative Disclosure to Summary Compensation Table.
 
 
 

 
 
Thermodynetics, Inc.
2009 Amended Annual Report on Form 10-K/A
Page 12
 
 
(1) Messrs. Lerman and Ferraro each entered into five-year employment contracts with the Company which were extended in 2009 through March 31st, 2014.  Each employment contract provides for a basic annual salary for Mr. Ferraro and for Mr. Lerman of $208,000 and $276,000 at April 1st, 2009 with an annual increase at April 1st of each year based on increases in the Consumer Price Index for all Urban Consumers for the New York, New Jersey, and Connecticut Region.  Each employment contract requires the Company to provide medical insurance coverage for the employee as well as $50,000 of group term insurance, and $65,000 annual expense reimbursement of additional insurance of each employee's selection.  In addition, each employment contract contains a provision providing that in the event of disability, the employee will receive disability payments equal to the annual salary of the employee for five years (with proportional reductions in the event of partial disability) and that the employee will receive $6,500 per year for tax planning services.  The contract may be terminated by the employee on 120 days prior written notice.  The contract may also be terminated by the Company in which event the employee will be paid termination compensation equal to each employee's then current salary for five years; in the event there is a change in control of the Company and the employee is terminated, the employee shall receive twice the amount of compensation as termination compensation which would otherwise be due.  Further, the employee may opt to terminate the employment contract and shall be paid a lump-sum equal to 12 months' basic salary.
 
However, in 2009 the Compensation Committee had requested, and Messrs. Ferraro and Lerman agreed, to reduce their respective salaries twenty-five (25%) percent from April 1, 2009 through March 31, 2010, and in consideration of such cash deferrals such committee recommended that a stock bonus award of 150,000 and 300,000 shares to those two officers, respectively, be issued; both stock bonuses were issued in August 2009.
 
 
 
(2) Remuneration -For the fiscal year ending March 31, 2010, the Company anticipates paying aggregate direct remuneration (based on current salaries and anticipated bonuses) of approximately $325,000 to all officers as a group (two persons) of which Mr. Lerman will be paid approximately $225,000, and Mr. Ferraro will be paid approximately $150,000.

(d)           Outstanding Equity Awards at Fiscal Year-End

    OUTSTANDING EQUITY AWARDS AT FISCAL YEAR_END  
   
Option Awards
   
Stock Awards
 
Name
 
Number of Securi-ties Under-lying Un-exercised Options (#) Ex-ercisa-ble
   
Number of Securities Under-lying
Unexer-cised Options (#) Unex-ercisable
   
Equity Incentive Plan Awards:
Number of Securities Underlying Unexercised Unearned Options (#)
   
Option Exercise Price
($)
   
Option Expira-tion Date
   
Number of Shares or Units That Have Not Vested (#)
   
Market Value of Shares or Units That Have Not Vested ($)
   
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)
   
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
 
Thermodynetics
                                                     
Robert A. Lerman
    0       0       0       0       0       0       0       0       0  
John F. Ferraro
    0       0       0       0       0       0       0       0       0  

2002 Incentive Stock Option Plan - On October 22nd, 2002, the Company's stockholders approved the adoption of the Company's 2002 Incentive Stock Option Plan (the "2002 ISO Plan") reserving 100,000 shares (on a post-split basis) of the Company's Common Stock for issuance pursuant to incentive stock options (“ISOs”) qualified under the U.S. Internal Revenue Code of 1986 which may be granted under the 2002 ISO Plan at exercise prices at least equal to 100% of the fair market value of the Common Stock on the date of the effective date of the grant of the option.

At March 31, 2009 and at June 9, 2009 no ISOs under the 2002 ISO Plan were outstanding.  No options under the 2002 ISO Plan were granted or outstanding in fiscal year ended March 31, 2009.  The 2002 ISO Plan will expire on July 31st, 2012.

2002 Non-Qualified Stock Incentive Plan - On October 22nd, 2002, the Company's stockholders approved the adoption of the Company's 2002 Non-Qualified Stock Incentive Plan ("2002 NQ Plan") reserving 100,000 shares (on a post-split basis) of the Company's Common Stock for issuance pursuant to the 2002 NQ Plan in the form of stock options, stock bonus, or stock appreciation rights ("SAR").  The purchase price for the exercise of  shares subject to any option shall not be less than 33.33% of the fair market value ("FMV") of the shares of common stock of the Company on the effective date of the option and in no event shall be less than the par value of the common stock; the value of the shares subject to any bonus shall be equal in value to a fixed dollar amount and such value shall not be less than 33.33% of the FMV of the shares of common stock of the Company on the effective date of the bonus and in no event shall be less than the par value of the common stock; the value of an SAR award of stock is equal to or less than (as the Board may determine) the excess of the FMV of one share of stock on the date of the exercise of the SAR less the FMV of one share of stock on the effective date of the award, the result of which is multiplied by the number of shares with respect to which the SAR shall have been exercised.
 
 
 

 
 
Thermodynetics, Inc.
2009 Amended Annual Report on Form 10-K/A
Page 13
No stock incentive awards were issued or outstanding under the 2002 NQ Plan in fiscal year ended March 31, 2009.  The 2002 NQ Plan will expire on December 31, 2012.
 
(e)           Additional Narrative Disclosure – See Item 11(b) with respect to certain employment contracts, and retirement and termination benefits provided to the executive officers of the Company.  See Item 11(g) with respect to the Company’s employee 401(k) retirement savings plan.

(f)           Directors’ Compensation During the fiscal year ended March 31, 2009, compensation was paid to the Company’s nonexecutive and nonemployee directors were compensated as shown in the following table.

DIRECTOR COMPENSATION
 
Name
 
Fees Earned or Paid in Cash ($)
   
Stock Award ($)
   
Option Awards ($)
   
Non-Equity Incentive Plan Compensa-tion ($)
   
Nonqualified Deferred Compensation Earnings ($)
   
All Other Comp- ensation ($)
   
Total ($)
 
Thermodynetics
                                         
John J. Hughes (1)
  $ 3,500       0       0       0       0       0     $ 3,500  
Fred H. Samuelson (1)
  $ 3,500       0       0       0       0       0     $ 3,500  

Note (1):  No option awards or stock awards were held by Messrs Hughes or Samuelson at March 31, 2009.
Note (2):  Each director receives an annual retainer of $5,000, $500 for each Board meeting attended and $500 for each committee meeting attended.

(g)           Employee Retirement Savings Plans - The Company made no contributions to the Thermodynetics, Inc. 401(k) Profit-Sharing Plan (the "TDYT 401(k) Plan") for the plan year ending December 31, 2008.  Although the Company has reserved 25,000 shares for each of 2007 and 2008 of the Company’s common stock for its contribution; such shares have not been issued as of the date of this report.  The aggregate valuation of such shares equals $13,000.  The assets of the TDYT 401(k) Plan are held in trust for the exclusive benefit of the participants by the trustees of the Plan, Messrs. Hughes, Samuelson, and Lerman.  The Company has not yet determined the amount of its contributions to the TDYT 401(k) Plan for the plan year ending December 31, 2009.

(h)           Other Plans and Employment Contracts - The Company does not have any other pension or similar plan.  See Item 11(a) at footnotes (1) and (3) therein as to the Company's employment contracts with Messrs. Lerman and Ferraro, which provide for the terms of their compensation and disability and termination payment provisions.
 
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth, as of June 9, 2009, the number of shares of the Company's Common Stock owned beneficially to the knowledge of the Company, by each beneficial owner of more than 5% of such Common Stock, by each director, by each officer named in the Summary Compensation Table and by all officers and directors of the Company as a group.

 
 

 
 
Thermodynetics, Inc.
2009 Amended Annual Report on Form 10-K/A
Page 14
Name and Address of Beneficial Owner
 
Amount and Nature of Beneficial Ownership
 
Percent of Class Owned
 
THERMODYNETICS (1)
Directors and Officers
         
Robert A. Lerman
 
1,058,999 shs (2)
    25.9 %
John F. Ferraro
 
  831,341 shs (3)
    20.3 %
John J. Hughes
 
18,500 shs
    0.5 %
Fred H. Samuelson
 
18,500 shs
    0.5 %
             
Directors and Officers
           
All above listed officers and directors as a group (four  persons)
 
1,927,340 shs
    47.2 %
             
Other 5% Shareholders
           
Turbotec Products, Inc. 401(k) Retirement Savings Plan
 
298,156 shs
    7.3 %
 
 
(1)
The address of all officers and directors of the Company is c/o Thermodynetics, Inc., 651 Day Hill Road, Windsor, CT 06095.

 
(2)
Includes 60,505 shares held for Mr. Lerman in trust under the TDYT 401(k) Plan; includes 48,905 shares held by the spouse of Mr. Lerman; excludes 85,793 shares held in trust by the trustees, including Mr. Lerman, of the TDYT 401(k) Plan for all of the participating employees.  Mr. Lerman owns 66,500 shares which are subject to a Rule 10b5-1 sales plan.

 
(3)
Includes 33,709 shares held for Mr. Ferraro in trust under the TDYT 401(k) Plan; excludes 85,793 shares held in trust by the trustees, including Mr. Ferraro, of the TDYT 401(k) Plan for all of the participating employees.

Item 13.
Certain Relationships and Related Transactions, and Director Independence.

(a)           Transactions with Management and Others and Certain Business Relationships - None of the officers and directors of the Company are currently engaged in businesses competitive to the business of the Company.  Since the beginning of the Company’s last fiscal year, the Company has not been engaged in any material transaction(s) in which any officer, director, person or entity with which they were affiliated, or beneficial holders of more than 5% of its outstanding voting securities, had a direct or indirect interest and no such transactions currently proposed, except as presented below.

(i)           Tower Acquisitions.  Tower Acquisitions Limited (“TAL”) was incorporated in England in June 2008 primarily to acquire, finance and operate other businesses.  (i) Robert A. Lerman, the president, CEO and a director of the Company, in 2008 became Chairman and a director of TAL.  The Company, Mr. Lerman, and one UK individual (Irving Goldstein) were the original three founders of TAL, owning one-third each of its outstanding equity; each of the founders at July 13, 2009 own approximately 18% of the outstanding equity of TAL.  The Company and each founder invested approximately $36,000 for its ownership stake in TAL; (ii) TAL acquired HenMar International from one of TAL’s founders, Irving Goldstein, and from Mark O’Callaghan, for a purchase price of £150,000 plus shares of stock of TAL resulting in the 3 founders and Mr. O’Callaghan each owning an equal amount of the outstanding shares.  Henmar previously assisted the Company in its 2006 stock placing of its Turbotec subsidiary on the London AIM market; and previously received 31,579 shares of common stock of the Company as compensation.  (iii) Kenneth B. Lerman, Esquire through his law firm provides legal services to the Company; he is the son of Robert A. Lerman.  Attorney Lerman acquired for $15,000 less than a 1% stake in the equity of TAL.
 
 
 

 
 
Thermodynetics, Inc.
2009 Amended Annual Report on Form 10-K/A
Page 15
(ii)           Tower Structures, Inc.  Tower Structures, Inc. (“TSI”) is a modular building manufacturer and was incorporated in Connecticut in February 2009.  On February 20, 2009, the Company committed to loan, as a line of credit subject to certain conditions, up to $300,000 to finance the start-up and early operations of TSI.  The loan is secured by all of the assets of TSI, and by a total of 45% of the outstanding common shares of TSI which are pledged in favor of the Company by two principals of TSI.  The Company was also issued common stock in TSI comprising 6% of its outstanding capital stock.  TSI is in the process of preparing to raise capital through a public offering in England on the PLUS market.

TSI is seeking to raise capital.  TSI agreed, upon its receipt of a minimum of $1,250,000 from a financing, that it will purchase a 25% interest in the landlord which owns the real property housing the TSI operations at 370 South Main Street, Plymouth, Connecticut at a purchase price of up to $200,000.

Robert A. Lerman, the president, CEO and a director of the Company, on February 20, 2009 became president, CEO and a director of TSI; he is being compensated by TSI at the rate of $5,000 per month.  He was issued common stock in TSI comprising 5% of its outstanding capital stock as a performance incentive.

The Company’s 6% share holding and Mr. Lerman’s 5% share holding are protected against dilution until completion of the financing.  In the event of a legal conflict between the Company and TSI, TSI has agreed that Mr. Lerman will resign as an officer and director of TSI, and Mr. Lerman will assist the Company in pursuing any legal remedies the Company may then have against TSI.  The Company will be paid a loan fee of $60,000 by TSI upon a further financing of TSI.  Mr. Lerman and one other individual, through a company owned and controlled by Mr. Lerman had been receiving a combined $5,000 per month expense reimbursement and consulting fee from TSI prior to the loan; such fee has not been paid since February, 2009 but continues to accrue and is to be paid upon a further financing.

In the event Tower Acquisitions Limited, a second company affiliated with Mr. Lerman, arranges financing for TSI, TSI is to pay Tower Acquisitions Limited a fee of 5% in cash and 5% in free trading stock of TSI, or a fee of 10% of the funds raised for TSI.  Tower Acquisitions Limited and TSI are not otherwise affiliated.

The Company does not have any formal policies and procedures for review, approval or ratification of related party transactions.  In the transaction reported above, the terms of the transaction with Mr. Lerman were on the same terms as with unrelated third parties who participated.

(b)           Director Independence.  At March 31, 2009, Messrs. John J. Hughes and Fred H. Samuelson are independent directors of the Company.  In making this determination, the Board used the criteria of applicable NASDAQ rules to determine their independence.  Messrs. Hughes and Samuelson are members of the Company’s Audit, Compensation and Nominating/Corporate Governance Committees and under the criteria of applicable NASDAQ rules are also independent members of such Committees.  In determining their independence, the Board of Directors did not consider any transaction, relationship or arrangement under the independence definition of the NASDAQ rules.  Messrs. Lerman and Ferraro are also members of the Nominating/Corporate Governance Committee but are not independent under the criteria of the applicable NASDAQ rules as they are officers of the Company.

Item 14. 
Principal Accountant Fees and Services.

Audit Fees –The aggregate fees billed for the professional audit services rendered by Mahoney Sabol & Co., LLP for the audit of the Company's annual financial statements for the years ended March 31, 2009 and 2008 equaled $70,000, and $92,000 respectively.

Audit-Related Fees –The aggregate fees billed for assurance and related services by Mahoney Sabol & Co., LLP that are reasonably related to the performance of the audit or review of the Company’s financial statements that are not reported above for the fiscal years ended March 31, 2009 and 2008 equaled $21,700, and $19,500, respectively.  The nature of such services were the quarterly reviews of the quarterly reports on Form 10-Q and an audit of the 401(K) Plan.
 
 
 

 
 
Thermodynetics, Inc.
2009 Amended Annual Report on Form 10-K/A
Page 16
Tax Fees –The aggregate fees billed for tax compliance, tax advice and tax planning services by Mahoney Sabol & Co., LLP for the fiscal years ended March 31, 2009 and 2008 equaled $7,500, and $6,500, respectively.

All Other Fees – The aggregate fees billed for products and services provided by Mahoney Sabol & Co., LLP , other than as reported above, for the fiscal years ended March 31, 2009 and 2008 equaled $32,150, and $41,455, respectively.  Such services consisted of accounting services in connection with a tax audit, and SEC comment letters.

Auditor Independence  – The Audit Committee evaluated whether providing non-audit services by Mahoney Sabol & Co., LLP for the fiscal year ended March 31, 2009 is compatible with maintaining the principal accountant's independence, and concluded it is independent.

Pre-Approval Policy – The Audit Committee pre-approves all audit and permissible non-audit services provided by the independent auditors.  The non-audit services include audit-related services and tax services.  The Audit Committee’s policy is to pre-approve all services and fees for up to one year, which approval includes the appropriate detail with regard to each particular service and its related fees.  In addition, the Audit Committee can be convened on a case-by-case basis to approve any services not anticipated or services whose costs exceed the pre-approved amounts.

During the last two fiscal years ended March 31, 2009, 100% of all audit and permissible non-audit services were pre-approved by the Audit Committee.
 
PART IV

Item 15. 
Exhibits and Financial Statement Schedules.

(a)           Financial Statements

 
Report of Independent Registered Public Accounting Firm.

 
Consolidated Balance Sheets - March 31, 2009 and March 31, 2008.

 
Consolidated Statements of Operations - For The Years Ended March 31, 2009 and 2008.

 
Consolidated Statements of Stockholders' Equity - For The Years Ended March 31, 2009 and 2008.

 
Consolidated Statements of Cash Flows - For The Years Ended March 31, 2009 and 2008.

 
Notes to Consolidated Financial Statements

(b)           Exhibits

 
(3)(a)
Articles of Incorporation, as filed with the Nevada Secretary of State. (a)
 
(3)(b)
Articles of Merger, as filed with the Nevada Sec. of State. (b)
 
(3)(c)
Certificate of Merger, as filed with the Delaware Secretary of State. (c)

(3)(b)                      By-Laws. (d)
 
 
 

 
 
Thermodynetics, Inc.
2009 Amended Annual Report on Form 10-K/A
Page 17
 
 
(10.1)
Loan and Security Agreement dated February 20, 2009 between the Company and Tower Structures, Inc. (i)

 
(11)(i)
Calculations of Earnings Per Common Share.  This information is presented in Note 13 to the Financial Statements.

 
(14.1)
Code of Ethics. (e)

 
(21)
Subsidiaries.

 
(31.a)
CEO Certification

 
(31.b)
CFO Certification

 
(32.a)
CEO Certification

 
(32.b)
CFO Certification

 
(99.a)
Audit Committee Charter (f)

 
(99.b)
Compensation Committee Charter (g)

 
(99.c)
Nominating Committee/Corporate Governance Charter (h)
 

Incorporated by Reference to:

 
(a)
Appendix C to Proxy Statement for October 21, 2008 Annual Meeting filed September 15, 2008 (File No. 0-10707)
 
(b)
Appendix B to Proxy Statement for October 21, 2008 Annual Meeting filed September 15, 2008 (File No. 0-10707)
 
(c)
Appendix E to Proxy Statement for October 21, 2008 Annual Meeting filed September 15, 2008 (File No. 0-10707)
 
(d)
Appendix D to Proxy Statement for October 21, 2008 Annual Meeting filed September 15, 2008 (File No. 0-10707)
 
(e)
Exhibit 14.1 to Annual Report on Form 10-Ksb for fiscal year ended 2004 filed July 29th, 2005 (File No. 0-10707)
 
(f)
Exhibit 99.a to Annual Report on Form 10-Ksb for fiscal year ended 2005 (File No. 0-10707)
 
(g)
Exhibit 99.b to Annual Report on Form 10-Ksb for fiscal year ended 2005 filed July 29th, 2005 (File No. 0-10707)
 
(h)
Exhibit 99.c to Annual Report on Form 10-Ksb for fiscal year ended 2005 filed July 29th, 2005 (File No. 0-10707)
 
(i) 
Exhibit 10.1 to Current Report on Form 8-K filed July 9th, 2009 (File No. 0-10707)
 
 
 

 
 
THERMODYNETICS, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AND

REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

YEARS ENDED MARCH 31, 2009, 2008 AND 2007
 
CONTENTS
 
 
 
Page
     
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
F-1
     
CONSOLIDATED FINANCIAL STATEMENTS:
 
     
 
Consolidated Balance Sheets
F-2
     
 
Consolidated Statements of Operations and Comprehensive Income (Loss)
F-3
     
 
Consolidated Statements of Stockholders’ Equity
F-4
     
 
Consolidated Statements of Cash Flows
F-5
     
 
Notes to Consolidated Financial Statements
F-6  -  F-24

 
 

 

Report of Independent Registered Public Accounting Firm


To the Board of Directors and
Stockholders of
Thermodynetics, Inc. and Subsidiaries
Windsor, Connecticut


We have audited the accompanying consolidated balance sheets of Thermodynetics, Inc. and Subsidiaries (the “Company”) as of March 31, 2009, 2008 and 2007, and the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Thermodynetics, Inc. and Subsidiaries as of March 31, 2009, 2008 and 2007 and the results of its operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
 
As discussed in Note 3, the consolidated financial statements for the years ended March 31, 2009, 2008 and 2007 have been restated.
 
 
/s/ Mahoney Sabol & Company, LLP
Certified Public Accountants
Glastonbury, Connecticut
 
June 25, 2009
(except for Notes 3 and 22, as to which
the date is June 11, 2010)
 
 
F-1

 

THERMODYNETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2009, 2008 AND 2007
 
   
2009
   
2008
   
2007
 
    (Restated)     (Restated)     (Restated)  
   
ASSETS
 
CURRENT ASSETS
                 
Cash
  $ 475,399     $ 176,068     $ 613,818  
Marketable securities
    50,767       259,332       215,521  
Prepaid expenses and other current assets
    583,644       25,201       37,462  
Total current assets
    1,109,810       460,601       866,801  
                         
PROPERTY, PLANT AND EQUIPMENT, net
    3,207,949       3,329,081       3,460,309  
                         
DEFERRED INCOME TAXES
    1,200,000       1,200,000       1,200,000  
                         
OTHER ASSETS
                       
Investments - at equity
    5,323,704       4,520,438       4,366,251  
Related party receivables
    889,297       997,558       8,723  
Other
    82,580       167,602       168,907  
Total other assets
    6,295,581       5,685,598       4,543,881  
                         
    $ 11,813,340     $ 10,675,280     $ 10,070,991  
                         
LIABILITIES AND STOCKHOLDERS' EQUITY
 
CURRENT LIABILITIES
                       
Line of credit
  $ 1,062,000     $ 100,000     $ -  
Accounts payable
    205,264       80,768       37,367  
Accrued expenses and taxes
    552,515       209,909       87,815  
Current portion of long-term debt
    110,681       111,190       95,950  
Total current liabilities
    1,930,460       501,867       221,132  
                         
LONG-TERM LIABILITIES
                       
Long-term debt, less current maturities above
    1,561,174       1,645,202       1,766,258  
Long-term liabilities from discontinued operations
    2,782,195       2,782,195       2,782,195  
Total long-term debt
    4,343,369       4,427,397       4,548,453  
                         
COMMITMENTS AND CONTINGENCIES (Note 22)
    -       -       -  
                         
STOCKHOLDERS' EQUITY
                       
Common stock, par value $.01 per share; authorized 25,000,000 shares
    40,903       40,803       40,463  
Additional paid-in capital
    7,138,403       7,137,803       7,115,523  
Accumulated other comprehensive income
    24,554       36,690       1,600  
Deficit
    (1,664,349 )     (1,469,280 )     (1,856,180 )
Total stockholders' equity
    5,539,511       5,746,016       5,301,406  
                         
    $ 11,813,340     $ 10,675,280     $ 10,070,991  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-2

 
 
THERMODYNETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED MARCH 31, 2009, 2008 AND 2007

   
2009
   
2008
   
2007
 
    (Restated)     (Restated)     (Restated)  
REVENUES
 
 
   
 
   
 
 
Consulting Fees & Rental Income
  $ 967,557     $ 924,380     $ 919,824  
Manufacturing Sales
    -       -       2,839,969  
                         
COST OF SALES
    -       -       2,160,494  
                         
OPERATING EXPENSES
    2,269,860       1,546,151       2,097,256  
                         
Income (loss) from operations
    (1,302,303 )     (621,771 )     (497,957 )
                         
EQUITY IN EARNINGS OF UNCONSOLIDATED SUBSIDIARY
    913,536       1,147,872       751,487  
                         
OTHER INCOME (EXPENSE)
                       
Other, net
    52,331       21,509       51,130  
Interest expense
    (147,699 )     (130,310 )     (172,344 )
Gain of sale of investment in unaffiliated company
    328,928       -          
Gain on sale of subsidiary stock
    -       -       2,547,179  
      233,560       (108,801 )     2,425,965  
                         
Income (loss) before provision for income taxes
    (155,207 )     417,300       2,679,495  
                         
PROVISION FOR  INCOME TAXES
    39,862       30,400       95,313  
                         
Income (loss) from continuing operations
    (195,069 )     386,900       2,584,182  
                         
DISCONTINUED OPERATIONS
                       
Income from discontinued operations including gain on extinguishment of debt of $605,929      -        -       597,071  
Net income on discontinued operations
    -       -       597,071  
                         
Net income (loss)
    (195,069 )     386,900       3,181,253  
                         
OTHER COMPREHENSIVE INCOME (LOSS), net of tax
    (12,136 )     35,090       1,600  
                         
Comprehensive income (loss)
  $ (207,205 )   $ 421,990     $ 3,182,853  
                         
                         
EARNINGS  PER COMMON SHARE
  $ (0.05 )   $ 0.10     $ 0.79  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-3

 
 
THERMODYNETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2009, 2008, AND 2007

 
Common Stock
                     
                   
Accumulated
       
         
Additional
 
Retained
   
Other
       
 
Number of
     
Paid-in
 
Earnings
   
Comprehensive
       
 
Shares
 
Amount
 
Capital
 
(Deficit)
   
Income
   
Total
 
              (Restated)           (Restated)  
                             
Balance, March 31, 2006
3,989,727   $ 39,897   $ 5,783,090   $ (5,037,433 )   $ -     $ 785,554  
                                       
Issuance of stock pursuant to retirement plans
25,000     250     -     -       -       250  
Sale of common stock
31,579     316     22,172     -       -       22,488  
Sale of subsidiary stock
-     -     1,310,261     -       -       1,310,261  
Net income
-     -           3,181,253       1,600       3,182,853  
                                       
Balance, March 31, 2007
4,046,306   $ 40,463   $ 7,115,523   $ (1,856,180 )   $ 1,600     $ 5,301,406  
                                       
Issuance of stock pursuant to retirement plans
25,000     250     18,500     -       -       18,750  
Sale of common stock
9,000     90     3,780     -       -       3,870  
Amortization of share based payments
-     -     -     -       -       -  
Net income
-     -     -     386,900       35,090       421,990  
                                       
Balance, March 31, 2008
4,080,306   $ 40,803   $ 7,137,803   $ (1,469,280 )   $ 36,690     $ 5,746,016  
                                       
Issuance of common stock
10,000     100     600     -       -       700  
Net loss
-     -     -     (195,069 )     (12,136 )     (207,205 )
                                       
Balance, March 31, 2009
4,090,306   $ 40,903   $ 7,138,403   $ (1,664,349 )   $ 24,554     $ 5,539,511  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-4

 
 
THERMODYNETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2009, 2008 AND 2007
 
   
2009
   
2008
   
2007
 
    (Restated)     (Restated)     (Restated)  
                   
CASH FLOWS FROM OPERATING ACTIVITIES:
                 
Net income (loss)
  $ (195,069 )   $ 386,900     $ 3,181,253  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
                       
Depreciation and amortization
    180,806       162,588       135,483  
Earnings in unconsolidated subsidiary
    (803,266 )     (1,055,725 )     (682,990 )
Amortization of share based payment expense
    -       -       -  
Gain on sale of investments in unaffiliated companies
    (328,928 )     -       -  
Deconsolidation of subsidiary, net of cash
    -       -       117,340  
Gain on sale of stock
    -       -       (2,547,179 )
Gain on extinguishment of debt
    -       -       (605,750 )
Increase (decrease) in deferred tax liability
    -       -       (305,000 )
Issuance of stock
    -       18,750       -  
Changes in operating assets and liabilities:
                       
Decrease (increase) in accounts receivable
    -       -       (1,146,991 )
Decrease (increase) in inventories
    -       -       1,089,921  
(Increase) decrease in prepaid expenses and other current assets
    (558,445 )     12,261       553,589  
(Increase) decrease in other assets
    6,173       1,305       -  
Increase (decrease) in accounts payable
    124,497       43,401       (374,605 )
Increase (decrease) in accrued expenses and taxes
    342,606       122,094       201,276  
Cash provided from operating activities of discontinued operations
    -       -       (8,858 )
Net cash provided by operating activities
    (1,231,626 )     (308,426 )     (392,511 )
                         
CASH FLOWS FROM INVESTING ACTIVITIES:
                       
Purchases of property, plant and equipment
    (19,917 )     (31,360 )     (138,896 )
(Purchase) proceeds - marketable securities
    196,429       (8,721 )     (213,921 )
Proceeds from sale of investment in unaffiliated companies
    438,442       -       -  
Dividends from equity investment
    -       901,538       -  
Investment in unafiliated company
    (35,863 )     -       -  
Net cash used in investing activities
    579,091       861,457       (352,817 )
                         
CASH FLOWS FROM FINANCING ACTIVITIES:
                       
Net (increase) decrease in related party receivable
    108,261       (988,835 )     (6,286 )
Proceeds from long-term debt
    -       -       -  
Proceeds from issuance of stock
    700       3,870       3,212,815  
Proceeds from short-term borrowings
    962,000       100,000       176,416  
Principal payments on debt and capital lease obligations
    (119,095 )     (105,816 )     (2,023,799 )
Net cash provided by financing activities
    951,866       (990,781 )     1,359,146  
                         
NET INCREASE (DECREASE) IN CASH
    299,331       (437,750 )     613,818  
                         
CASH, beginning of year
    176,068       613,818       -  
                         
CASH, end of year
  $ 475,399     $ 176,068     $ 613,818  
 
The accompanying notes are an integral part of these consolidated financial statements.

 
F-5

 
 
 
THERMODYNETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED MARCH 31, 2009, 2008 AND 2007

 
NOTE 1 – BASIS OF PRESENTATION:

The consolidated financial statements include the accounts of Thermodynetics, Inc. and its wholly owned subsidiaries, Vulcan Industries, Inc., TPI Systems, Inc. and National Energy Systems, Inc. (collectively the “Company”).  For the period from April 1, 2006 through May 8, 2006 the consolidated statements of operations includes a majority interest in Turbotec Products, Plc and its wholly owned subsidiary, Turbotec Products, Inc. (“Turbotec”) (see Note 2).  From May 8, 2006 through March 31, 2009, the Company accounts for its ownership of Turbotec under the equity method of accounting.  All material intercompany balances and transactions have been eliminated.
 
NOTE 2 – SALE OF MINORITY INTEREST IN SUBSIDIARY:

On May 8, 2006, the Company completed the sale of a minority interest of its subsidiary, Turbotec Products Plc (PLC), whereby approximately 43.68% of that company was sold pursuant to an offering on the AIM Market of the London Stock Exchange. The PLC is a United Kingdom holding company for the Company’s operating subsidiary, Turbotec Products, Inc.

Under a Relationship Agreement (RA), the Company and its Board of Directors (the “Board”) have undertaken, inter alia, not to exercise its voting rights, except with the consent of the nominated advisor and PLC (on the authority of its non-executive Directors) in favor of any resolution to give the board of the Plc authority under British law to allot shares in the PLC or to remove or reduce any pre-emption rights that PLC shareholders may have.  The RA contains further provisions regarding an annual administration fee; restrictions on related party transactions; restrictions on appointments to the board of the PLC and mutual confidentiality and reporting undertakings. The RA also contains non-competition undertakings from both the Company and its Board and restricts 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.  As part of the transaction, in accordance with the RA, the Company and the PLC established independent officers and directors and the two boards of directors act independently.

As a result of the transaction and the terms of the RA, the Company began to account for its significant influence in Turbotec under the equity method of accounting effective May 8, 2006.

Nature of Operations:

Thermodynetics, Inc., is engaged in managing its real estate and business holdings, marketing consulting services to other companies and investing in other companies.

Turbotec is a manufacturer of high performance, high quality heat exchangers, fabricated metal components and flexible connector products serving the heat transfer, transportation and plumbing industries.  The Company markets its products in the United States, Canada and abroad to customers in the space conditioning, refrigeration, biomedical, appliance, water heating, aerospace and other industries.
 
 
F-6

 
THERMODYNETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED MARCH 31, 2009, 2008 AND 2007

 
NOTE 3 - RESTATEMENT

The accompanying financial statements have been restated to utilize the equity method of accounting for the May 2006 sale of 43.68% of Turbotec Products, Plc and subsequent reporting for the remaining 56.32% interest in Turbotec Products, Plc.  Previously the Company utilized the consolidation method of accounting under Generally Accepted Accounting Principles ("GAAP”). A summary of the effects of this change are shown in the following schedules. 
 
THERMODYNETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2009, 2008 AND 2007
 
 
As Restated
 
As Previously Reported
 
Change
 
 
2009
 
2008
 
2007
 
2009
 
2008
 
2007
 
2009
 
2008
 
2007
 
                                     
ASSETS
 
CURRENT ASSETS
                                   
Cash $ 475,399   $ 176,068   $ 613,818   $ 1,984,092   $ 1,061,647   $ 659,238   $ (1,508,693 $ (885,579 $ (45,420
Accounts receivable, net of allowance for doubtful accounts
  -     -     -     1,859,834     2,908,606     2,839,958     (1,859,834 )   (2,908,606 )   (2,839,958 )
Marketable securities
  50,767     259,332     215,521     50,767     259,332     215,521     -     -     -  
Inventories
  -     -     -     3,571,743     3,136,220     3,415,929     (3,571,743 )   (3,136,220 )   (3,415,929 )
Prepaid expenses and other current assets
  583,644     25,201     37,462     363,418     196,359     120,880     220,226     (171,158 )   (83,418 )
Total current assets
  1,109,810     460,601     866,801     7,829,854     7,562,164     7,251,526     (6,720,044 )   (7,101,563 )   (6,384,725 )
                                                       
PROPERTY, PLANT AND EQUIPMENT, net
  3,207,949     3,329,081     3,460,309     8,226,673     7,825,326     7,635,388     (5,018,724 )   (4,496,245 )   (4,175,079 )
                                                       
DEFERRED INCOME TAXES
  1,200,000     1,200,000     1,200,000     980,000     980,000     980,000     220,000     220,000     220,000  
                                                       
OTHER ASSETS
                                                     
Investments - at equity
  5,323,704     4,520,438     4,366,251     -     -     -     5,323,704     4,520,438     4,366,251  
Related party receivables
  889,297     997,558     8,723     -     -     -     889,297     997,558     8,723  
Other   82,580     167,602     168,907     183,573     266,615     293,649     (100,993 )   (99,013   (124,742
Total other assets
  6,295,581     5,685,598     4,543,881     183,573     266,615     293,649     6,112,008     5,418,983     4,250,232  
                                                       
  $ 11,813,340   $ 10,675,280   $ 10,070,991   $ 17,220,100   $ 16,634,105   $ 16,160,563   $ (5,406,760 ) $ (5,958,825 ) $ (6,089,572 )
                                                       
LIABILITIES AND STOCKHOLDERS' EQUITY
 
CURRENT LIABILITIES
                                                     
Line of credit
$ 1,062,000   $ 100,000   $ -   $ 1,062,000   $ 100,000   $ -   $ -   $ -   $ -  
Accounts payable
  205,264     80,768     37,367     905,662     2,046,076     2,095,006     (700,398 )   (1,965,308 )   (2,057,639 )
Accrued expenses and taxes
  552,515     209,909     87,815     1,204,295     818,680     975,720     (651,780 )   (608,771 )   (887,905 )
Current portion of long-term debt
  110,681     111,190     95,950     306,366     290,044     228,830     (195,685 )   (178,854 )   (132,880 )
Total current liabilities
  1,930,461     501,867     221,132     3,478,323     3,254,800     3,299,556     (1,547,862 )   (2,752,933 )   (3,078,424 )
                                                       
LONG-TERM LIABILITIES
                                                     
Long-term debt, less current maturities above
  1,561,174     1,645,202     1,766,258     1,711,383     1,991,097     1,965,776     (150,209 )   (345,895 )   (199,518 )
Long-term liabilities from discontinued operations
  2,782,195     2,782,195     2,782,195     2,782,195     2,782,195     2,782,195     -     -     -  
Total long-term
  4,343,369     4,427,397     4,548,453     4,493,578     4,773,292     4,747,971     (150,209 )   (345,895 )   (199,518 )
                                                       
DEFERRED INCOME TAXES
  -     -     -     383,000     296,000     335,000     (383,000 )   (296,000 )   (335,000 )
                                                       
COMMITMENTS AND CONTINGENCIES (Note 23)
  -     -     -     -     -     -     -     -     -  
                                                       
MINORITY INTEREST
  -     -     -     3,914,836     3,152,001     3,163,545     (3,914,836 )   (3,152,001 )   (3,163,545 )
                                                       
STOCKHOLDERS' EQUITY
                                                     
Common stock, par value $.01 per share; authorized
25,000,000 shares
  40,903     40,803     40,463     40,903     40,803     40,463     -     -     -  
Additional paid-in capital
  7,138,403     7,137,803     7,115,523     7,138,403     7,137,803     7,115,523     -     -     -  
Accumulated other comprehensive income
  24,554     36,690     1,600     24,554     36,690     1,600     -     -     -  
Deficit   (1,664,349   (1,469,280   (1,856,180   (2,253,497   (2,057,284   (2,543,095   589,148     588,004     686,915  
Total stockholders' equity
  5,539,511     5,746,016     5,301,406     4,950,363     5,158,012     4,614,491     589,148     588,004     686,915  
                                                       
  $ 11,813,340   $ 10,675,280   $ 10,070,991   $ 17,220,100   $ 16,634,105   $ 16,160,563   $ (5,406,760 ) $ (5,958,825 ) $ (6,089,572 )
 
 
F-7

 
THERMODYNETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED MARCH 31, 2009, 2008 AND 2007

 
As Restated
 
As Previously Reported
 
Change
 
 
2009
 
2008
 
2007
 
2009
 
2008
 
2007
 
2009
 
2008
 
2007
 
                                     
REVENUES
 
 
 
 
 
 
 
 
 
 
 
             
   Consulting Fees & Rental Income
$ 967,557   $ 924,380   $ 919,824   $ -   $ -   $ -   $ 967,557   $ 924,380   $ 919,824  
   Manufacturing Sales
  -     -     2,839,969     26,985,712     28,020,878     23,529,748     (26,985,712 )   (28,020,878 )   (20,689,779 )
                                                       
COST OF SALES
  -     -     2,160,494     19,052,789     20,212,772     18,439,961     (19,052,789 )   (20,212,772 )   (16,279,467 )
                                                       
OPERATING EXPENSES
  2,269,860     1,546,151     2,097,256     6,691,137     5,637,045     4,258,436     (4,421,277 )   (4,090,894 )   (2,161,180 )
                                                       
Income from operations
  (1,302,303 )   (621,771 )   (497,957 )   1,241,786     2,171,061     831,351     (2,544,089 )   (2,792,832 )   (1,329,308 )
                                                       
EQUITY IN EARNINGS OF UNCONSOLIDATED SUBSIDIARY
  913,536     1,147,872     751,487     -     -     -     913,536     1,147,872     751,487  
                                                       
OTHER INCOME (EXPENSE)
                                                     
Other, net
  52,331     21,509     51,130     35,000     (8,509 )   26,225     17,331     30,018     24,905  
Interest expense
  (147,699 )   (130,310 )   (172,344 )   (164,310 )   (162,831 )   (250,562 )   16,611     32,521     78,218  
Gain of sale of investment in unaffiliated company
  328,928     -           328,928     -           -     -     -  
Gain on sale of stock
  -     -     2,547,179     -     -     2,547,179     -     -     -  
    233,560     (108,801 )   2,425,965     199,618     (171,340 )   2,322,842     33,942     62,539     103,123  
                                                       
Income before provision for income taxes
  (155,207 )   417,300     2,679,495     1,441,404     1,999,721     3,154,193     (1,596,611 )   (1,582,421 )   (474,698 )
                                                       
PROVISION FOR  INCOME TAXES
  39,862     30,400     95,313     1,006,462     863,000     950,000     (966,600 )   (832,600 )   (854,687 )
                                                       
MINORITY INTEREST
  -     -     -     (631,155 )   (688,722 )   (306,926 )   631,155     688,722     306,926  
                                                       
Income from continuing operations
  (195,069 )   386,900     2,584,182     (196,213 )   447,999     1,897,267     1,144     (61,099 )   686,915  
                                                       
DISCONTINUED OPERATIONS
                                                     
Income from discontinued operations including gain on extinguishment of debt of $605,929
  -     -     597,071     -     -     597,071     -     -     -  
Net income on discontinued operations
  -     -     597,071     -     -     597,071     -     -     -  
                                                       
       Net income (loss)   (195,069 )   386,900     3,181,253     (196,213 )   447,999     2,494,338     1,144     (61,099 )   686,915  
                                                       
OTHER COMPREHENSIVE INCOME (LOSS), net of tax
  (12,136 )   35,090     1,600     (12,136 )   35,090     1,600     -     -     -  
                                                       
       Comprehensive income (loss) $ (207,205 ) $ 421,990   $ 3,182,853   $ (208,349 ) $ 483,089   $ 2,495,938   $ 1,144   $ (61,099 ) $ 686,915  
                                                       
                                                       
EARNINGS  PER COMMON SHARE
$ (0.05 ) $ 0.10   $ 0.79   $ (0.05 ) $ 0.11   $ 0.62   $ 0.00   $ (0.01 ) $ 0.17  
 
 
F-8

 
THERMODYNETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
MARCH 31, 2009, 2008 AND 2007

 
As Restated
 
As Previously Reported
 
Change
 
 
2009
 
2008
 
2007
 
2009
 
2008
 
2007
 
2009
 
2008
 
2007
 
CASH FLOWS FROM OPERATING ACTIVITIES
                                   
Net income (loss)
$ (195,069 ) $ 386,900   $ 3,181,253   $ (196,213 ) $ 447,999   $ 2,494,338   $ 1,144   $ (61,099 ) $ 686,915  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
                                                     
Depreciation and amortization
  180,806     162,588     135,483     523,605     456,209     381,833     (342,799 )   (293,621 )   (246,350 )
Earnings in unconsolidated subsidiary
  (803,266 )   (1,055,725 )   (682,990 )                     (803,266 )   (1,055,725 )   (682,990 )
Net change in minority interest in subsidiary
  -     -     -     762,835     (11,544 )   306,926     (762,835 )   11,544     (306,926 )
Amortization of share based payment expense
  -     -     -     -     37,812     -     -     (37,812 )   -  
Gain on sale of investments in unaffiliated companies
  (328,928 )   -     -     (328,928 )   -     -     -     -     -  
Deconsolidation of subsidiary, net of cash
  -     -     117,340     -     -     -     -     -     117,340  
Gain on sale of stock
  -     -     (2,547,179 )   -     -     (2,547,179 )   -     -     -  
Gain on extinguishment of debt
  -     -     (605,750 )   -     -     (605,750 )   -     -     -  
Increase (decrease) in deferred tax liability
  -     -     (305,000 )   87,000     (39,000 )   250,000     (87,000 )   39,000     (555,000 )
Unrealized gain on marketable securities
  -     -     -     -     35,090     1,600     -     (35,090 )   (1,600 )
Issuance of stock
  -     18,750     -     -     18,750     -     -     -     -  
Changes in operating assets and liabilities:
                                                     
Decrease (increase) in accounts receivable
  -     -     (1,146,991 )   1,048,772     (68,648 )   (789,444 )   (1,048,772 )   68,648     (357,547 )
Decrease (increase) in inventories
  -     -     1,089,921     (435,523 )   279,709     (414,173 )   435,523     (279,709 )   1,504,094  
(Increase) decrease in prepaid expenses andother current assets
  (558,445 )   12,261     553,589     (167,059 )   (45,479 )   348,645     (391,386 )   57,740     204,944  
(Increase) decrease in other assets
  6,173     1,305     -     (31,671 )   15,963     (27,451 )   37,844     (14,658 )   27,451  
 Increase (decrease) in accounts payable
  124,497     43,401     (374,605 )   (1,140,414 )   (48,930 )   (163,763 )   1,264,911     92,331     (210,842 )
 Increase (decrease) in accrued expenses and taxes
  342,606     122,094     201,276     385,616     (161,261 )   645,951     (43,010 )   283,355     (444,675 )
 Cash provided from operating activities of discontinued operations
  -     -     (8,858 )   -     -     (8,858 )   -     -     -  
Net cash provided by operating activities
  (1,231,626 )   (308,426 )   (392,511 )   508,020     916,670     (127,325 )   (1,739,646 )   (1,225,096 )   (265,186 )
                                                       
CASH FLOWS FROM INVESTING ACTIVITIES
                                                     
Purchases of property, plant and equipment
  (19,917 )   (31,360 )   (138,896 )   (885,197 )   (646,197 )   (861,780 )   865,280     614,837     722,884  
(Purchase) proceeds - marketable securities
  196,429     (8,721 )   (213,921 )   196,429     (58,469 )   (245,521 )   -     49,748     31,600  
Proceeds from sale of investment in unaffiliated companies
  438,442     -     -     438,442     -     -     -     -     -  
Dividends from equity investment
  -     901,538     -     -     -     -     -     901,538     -  
Investment in unafiliated company
  (35,863 )   -     -     -     -     -     (35,863 )   -     -  
Other decrease in life insurance receivable
  -     -     -     -     -     2,437     -     -     (2,437 )
Net cash used in investing activities
  579,091     861,457     (352,817 )   (250,326 )   (704,666 )   (1,104,864 )   829,417     1,566,123     752,047  
                                                       
CASH FLOWS FROM FINANCING ACTIVITIES
                                                     
Net (increase) decrease in related party receivable
  108,261     (988,835 )   (6,286 )   -     -     -     108,261     (988,835 )   (6,286 )
Proceeds from long-term debt
  -     -     -     -     366,000     -     -     (366,000 )   -  
Proceeds from issuance of stock
  700     3,870     3,212,815     700     3,870     6,736,260     -     -     (3,523,445 )
Proceeds from short-term borrowings
  962,000     100,000     176,416     962,000     100,000     89,628     -     -     86,788  
Payments of debt from stock offering proceeds
  -     -     -     -     -     (4,616,000 )   -     -     4,616,000  
Principal payments on debt and capital lease obligations
  (119,095 )   (105,816 )   (2,023,799 )   (297,949 )   (279,465 )   (318,461 )   178,854     173,649     (1,705,338 )
Net cash provided by financing activities
  951,866     (990,781 )   1,359,146     664,751     190,405     1,891,427     287,115     (1,181,186 )   (532,281 )
                                                       
NET INCREASE (DECREASE) IN CASH
  299,331     (437,750 )   613,818     922,445     402,409     659,238     (623,114 )   (840,159 )   (45,420 )
                                                       
CASH, beginning of year
  176,068     613,818     -     1,061,647     659,238     -     (885,579 )   (45,420 )   -  
                                                       
CASH, end of year
$ 475,399   $ 176,068   $ 613,818   $ 1,984,092   $ 1,061,647   $ 659,238   $ (1,508,693 ) $ (885,579 ) $ (45,420 )
 
 
F-9

 

THERMODYNETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED MARCH 31, 2009, 2008 AND 2007


NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
Estimates:

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures.  Accordingly, actual results could differ from those estimates.

Cash Equivalents:
 
The Company considers all highly liquid instruments purchased with original maturities of three months or less to be cash equivalents.
Accounts Receivables:

Accounts receivables are carried at their estimated collectible amounts and represent rental income and pass through costs to a third party lessee of the Company’s real estate.
 
Marketable Securities:
The Company determines the appropriate classification of debt and equity securities at the time of purchase and reevaluates such designation as of each balance sheet date.

Inventories:

Inventories of Turbotec were valued at the lower of cost or market, with cost determined on a standard cost basis which approximates a first-in, first-out basis.

Property, Plant and Equipment:

Property, plant and equipment of the Company are carried at cost.  For financial and income tax reporting purposes, depreciation is computed using straight-line and accelerated methods over the estimated useful lives of the assets.  Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized; expenditures for maintenance and repairs are charged to expense as incurred.

Estimated useful lives to compute depreciation are as follows:

Office equipment, furniture and fixtures                                               7 years
Building and improvements                                                                   40 years

 
F-10

 
 
THERMODYNETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED MARCH 31, 2009, 2008 AND 2007

 
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

Intangible Assets:

The Company utilizes Statement of Financial Accounting Standards (SFAS) No. 142 “Goodwill and Other Intangible Assets.”  Under the provisions of this Statement, goodwill and intangible assets deemed to have indefinite lives are no longer subject to amortization.  Goodwill is assigned to specific reporting units and is reviewed for impairment at least annually and upon the occurrence of an event or when circumstances indicate that a reporting units’ carrying value is greater than its fair value. All other intangible assets, classified as definite-lived assets, are amortized over their estimated future lives (See Note 8).
 
Revenue Recognition:
 
Rental income and management fee income are recognized when services are rendered or when the revenue is earned.
 
Income Taxes:

The Company files consolidated federal and combined state corporate income tax returns with all of its subsidiaries.  Tax credits are recorded as a reduction of income taxes in the year realized. The Company utilizes the asset and liability method of accounting for deferred income taxes as prescribed by the Statement of Financial Accounting Standards No. 109 (SFAS 109) "Accounting for Income Taxes."  This method requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the tax return and financial statement reporting bases of certain assets and liabilities.

The Company also follows FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes” (an interpretation of FASB Statement No. 109), which clarifies the accounting for uncertainty in income taxes recognized in financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

Earnings Per Common Share:

In fiscal 1999, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 128, “Earnings Per Share”.  SFAS No. 128 simplifies the standards for computing earnings per share (EPS) and makes them comparable to international EPS standards.  It replaced the presentation of primary EPS with a presentation of basic EPS.

Reclassification:

Certain amounts as of March 31, 2008 and 2007 have been reclassified to conform with the March 31, 2009 presentation.  The reclassifications have no material affect on the financial statements.
 
 
F-11

 
 
THERMODYNETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED MARCH 31, 2009, 2008 AND 2007

NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

New Pronouncements:

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 (effective with fiscal year ended March 31, 2008) and obtain an attest report from their independent registered public accountant about management’s report (for the fiscal year ending March 31, 2010).

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. This Statement defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and expands disclosures about fair value measurements.  The Company has determined that there is no material impact to the financial statements as a result of the adoption of this Statement.

The Company adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115” (“SFAS No. 159”) as of May 4, 2008. SFAS No. 159 permits entities to elect to measure many financial instruments and certain other items at fair value. The company did not elect the fair value option for any assets or liabilities that were not previously carried at fair value. Accordingly, the adoption of SFAS No. 159 had no impact on our Consolidated Financial Statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51 (“SFAS 160”).  SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated.  SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners.  SFAS 160 is effective for fiscal years beginning after December 15, 2008.  The Company is currently evaluating the potential impact of the adoption of SFAS 160 on the consolidated financial statements.

In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”.  SFAS No. 162 sets forth the level of authority to a given accounting pronouncement or document by category.  Where there might be conflicting guidance between two categories, the more authoritative category will prevail.  SFAS No. 162 will become effective 60 days after the SEC approves the PCAOB’s amendments to AU Section 411 of the AIPCA Professional Standards.  SFAS No. 162 has no affect on the Company’s financial position, statements of operations, or cash flows at this time.
 
 
F-12

 
 
THERMODYNETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED MARCH 31, 2009, 2008 AND 2007

 
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

New Pronouncements (continued):

In April 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments (“FAS 107-1 and APB 28-1”), which amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” and APB opinion No. 28, “Interim Financial Reporting,” to require disclosures about fair value of financial instruments in interim as well as in annual financial statements.  FSP FAS 107-1 and ABP 28-1 are effective for interim reporting periods ending after June 15, 2009, which for the Company is the first quarter of fiscal 2010.  It is not believed that, based on the Company’s current corporate structure, FSP FAS 107-1 and ABP 28-1 will have an impact on the Company's financial position, results of operations or cash flows.

NOTE 5 – FINANCIAL INSTRUMENTS:

Concentrations of Credit Risk:

The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and other assets.

·  
Cash – At various times during the fiscal year, the Company’s cash balances exceeded federally insured limits. The cash balance in excess of federally insured limits was $-0-, $42,578 and $814,083 at March 31, 2009, 2008 and 2007, respectively.

Fair Value of Financial Instruments:

Statement of Financial Accounting Standards (SFAS) No. 107, “Fair Value of Financial Instruments”, requires disclosure of the fair value of financial instruments for which the determination of fair value is practicable.  SFAS No. 107 defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties.

The carrying amounts of the Company’s financial instruments approximate their fair value as outlined below:

·  
Cash, trade receivables, trade payables – The carrying amounts approximate their fair value because of the short maturity of those instruments.

·  
Line of credit – The carrying amount approximates fair value as the line of credit has a variable interest rate which fluctuates with the market.

·  
Long-term debt and capital leases – The carrying amount approximates fair value as the interest rates on the various notes/leases approximate the Company’s estimated incremental borrowing rate.

The Company’s financial instruments are held for other than trading purposes.
 
 
F-13

 
 
THERMODYNETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED MARCH 31, 2009, 2008 AND 2007

NOTE 6 – MARKETABLE SECURITIES:

 
The Company invests in certain marketable securities that are categorized as available for sale. The cost and market values of marketable securities as well as the unrealized gains and losses are as follows at March 31:
 
   
2009
   
2008
   
2007
 
                   
Cost
  $ 26,213     $ 222,642     $ 213,921  
Unrealized gains
    24,554       36,690       1,600  
                         
Market value
  $ 50,767     $ 259,332     $ 215,521  

NOTE 7 – NET PROPERTY AND EQUIPMENT:

Property and equipment are summarized by major classifications as follows at March 31:
 
 
 
2009
   
2008
    2007  
                   
Buildings
  $ 4,915,481     $ 4,915,481     $ 4,915,481  
Leasehold improvements
    967,312       951,629       920,263  
Land
    204,484       204,484       204,484  
Furniture and equipment
    140,486       101,694       101,694  
 
    6,227,763       6,173,288       6,141,922  
Less accumulated depreciation and amortization
    3,019,814       2,844,207       2,681,613  
                         
 
  $ 3,207,949     $ 3,329,081     $ 3,460,309  

NOTE 8 – CURRENT AND OTHER ASSETS:
 
Other assets consist of the following at March 31:

   
2009
   
2008
   
2007
 
                   
Deferred financing costs
  $ 51,990     $ 63,359     $ 74,723  
Investments in unaffiliated companies
    35,863       109,514       94,856  
Other
    (5,271 )     (5,271 )     (672 )
                         
 
  $ 82,582     $ 167,602     $ 168,907  
 
 
F-14

 
 
THERMODYNETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED MARCH 31, 2009, 2008 AND 2007

 
NOTE 8 – CURRENT AND OTHER ASSETS (Continued):

 
Impairment tests on intangible assets with indefinite useful economic lives are undertaken annually on March 31. These intangible assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount, the asset is written down accordingly.

 
Included in other current assets is a $100,000 note receivable from an entity in which the Company has some common management and small ownership.  The note is due during fiscal year 2010.  Additional loans have been made subsequent to the year end March 31, 2009.
 
NOTE 9 – EQUITY METHOD INVESTMENT

The Company’s 56.32% investment in its unconsolidated subsidiary Turbotec Products, Plc, in which the Company exercises significant influence, is carried at cost, adjusted for the Company’s proportionate share of their undistributed earnings or losses.

At March 31, 2009, 2008, and 2007, the market values of the common stock investment in Turbotec Products, Plc were as follows:
 
Year   
Carrying
Value
     
Per Share
MV
     
Market
Value
 
                         
2009
  $ 5,323,704     $ 0.39     $ 2,819,352  
2008
    4,520,428     $ 1.61       11,584,877  
2007
    4,366,251     $ 1.39       10,050,760  

As a result of a decline in the market value of Turbotec Products, Plc at March 31, 2009, the carrying amount of the investment exceeded its market value.  Management has evaluated this decline in market value, which is due to fluctuations in the stock price and the foreign currency exchange rate, and has deemed the decline to be temporary at March 31, 2009.
 
 
F-15

 
 
THERMODYNETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED MARCH 31, 2009, 2008 AND 2007

 
NOTE 9 – EQUITY METHOD INVESTMENT (Continued):

Following is a summary of financial position and results of operations of Turbotec Products, Plc:
 
   
2009
   
2008
   
2007
 
Current assets
  $ 6,734,746     $ 7,004,972     $ 6,406,003  
Property and equipment, net
    5,018,725       4,496,245       4,175,078  
Other assets, net
    100,991       94,741       507,752  
Total assets
  $ 11,854,462     $ 11,595,958     $ 11,088,833  
                         
Current liabilities
    1,531,336       2,749,015       2,874,347  
Long-term Debt
    167,040       345,895       223,909  
Deferred liabilities
    781,000       693,000       493,000  
      2,479,376       3,787,910       3,591,256  
Stockholders' equity
    9,375,086       7,808,048       7,497,577  
    $ 11,854,462     $ 11,595,958     $ 11,088,833  
Sales
  $ 26,985,712     $ 28,020,878     $ 23,529,748  
Net income
  $ 1,446,983     $ 1,874,513     $ 1,194,699  
 
Included in consulting fees and rental income on the statements of operations is $898,857, $858,255, $826,189 from Turbotec Products, Plc, for the years ended March 31, 2009, 2008 and 2007, respectively.  Additionally, included in receivables on the balance sheet are net amounts from Turbotec Products, Plc which represent consulting fees, dividends receivable (net of an allowance) and pass-through rent amounts.  The balances are $889,297, $997,558, and $8,723 at March 31, 2009, 2008 and 2007, respectively.
 
NOTE 10 – LINES OF CREDIT:

During December 2006, the Company entered into a line of credit (the “Line”) agreement with a bank.  The agreement provides for a borrowing base of $1,100,000.  Interest is charged at the bank’s prime rate (3.25%, 5.25% and 8.25% at March 31, 2009, 2008 and 2007, respectively).  The Line is secured by certain real property of the Company.  At March 31, 2009, 2008 and 2007, the Company had available borrowings of $38,000, $1,000,000 and $1,100,000, respectively.  The line expired on July 31, 2009 and the Company is currently negotiating renewal terms.
 
 
F-16

 

THERMODYNETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED MARCH 31, 2009, 2008 AND 2007


NOTE 11 – NOTES PAYABLE AND LONG-TERM DEBT:

During the year ended March 31, 2007, the Company, certain of its subsidiaries, Turbotec 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 at that time was a 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 the term loan of the original principal amount of $183,000, secured by all of the assets of the Company.  Turbotec Products, Inc. remained indebted on an equipment term note and the revolving line of credit.

During the year ended March 31, 2007, the Company paid down the Day Hill Road mortgage loan with proceeds from the sale of stock (Note 2). The remaining balance was refinanced by obtaining a 10-year, $900,000 mortgage note payable from another bank.  The mortgage note is secured by a first mortgage on the building.  The note is payable in monthly principal installments of $3,750 plus accrued interest commencing January 21, 2007.  Interest is accrued on the unpaid principal at the 30 day LIBOR market Index rate (6%, 6% and 5.3% at March 31, 2009, 2008, and 2007, respectively) plus 1.5%.

The Company has a term loan dated December 1, 2006, which is payable in 60 monthly installments of $1,628 including principal and interest at 6.39%.  The note is secured by a vehicle.  The Company also has a term loan dated May 6, 2008, which is payable in 36 monthly installments of $974 including principal and interest at 1%.  The note is secured by a vehicle.

In August 2004 the Company refinanced the mortgage on its multi-purpose building by obtaining a 10-year, $1,000,000 mortgage note payable.  The mortgage note is secured by a first mortgage on the multi-purpose building (see Note 15).  The note is payable in eighty-four monthly installments of principal and interest of $8,932 and has a fixed interest rate of 6.9%.

The Company had various subordinated notes to the former shareholders of Vulcan totaling $581,500.  These notes were subordinated in priority to any and all commercial financing.  Interest on the outstanding principal balance was at a fixed interest rate of 6%, payable quarterly commencing March 31, 2004.  These notes were settled and cancelled during the year ended March 31, 2007 (Note 22).
 
   
2009
   
2008
   
2007
 
                   
Mortgage loan
  $ 798,750     $ 843,750     $ 888,750  
Mortgage note payable – multi-purpose building
    799,860       848,904       894,769  
Note payables – vehicles
    73,245       63,738       78,689  
                         
 
  $ 1,671,855     $ 1,756,392     $ 1,862,208  
 
 
F-17

 

THERMODYNETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED MARCH 31, 2009, 2008 AND 2007


NOTE 11 – NOTES PAYABLE AND LONG-TERM DEBT (Continued):

Maturities of notes payable and long-term debt from continuing operations for each of the years succeeding March 31, 2009 are as follows:
 
   Year ending March 31,
   
Amount
 
         
   2010
    $ 110,681  
   2011
      150,412  
   2012
      747,012  
   2013
      45,000  
   2014 and thereafter
      618,750  
           
      $ 1,671,855  

NOTE 12 – LEASES:

The Company and Turbotec Products, Inc. entered into 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. 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 (See Note 9).
 
NOTE 13 – STOCK OPTION PLAN:

In October 2002, the Company adopted the 2002 Incentive Stock Option Plan (“2002 ISO Plan”) and the 2002 Non Qualified Stock Incentive Plan (“2002 NQ Plan”).  The 2002 ISO Plan provides for an aggregate number of shares available for grant of options, not to exceed 100,000 shares (post split).  The option price is not to exceed 100% of fair market value for the stock.  The 2002 NQ Plan provides for an aggregate number of shares available for stock options, stock bonuses and stock appreciation rights (SARS), not to exceed 100,000 shares (post split).

The option price and the value awarded for bonuses shall not exceed 33.33% of the fair market value on the effective date of the option or bonus.  The value awarded for stock appreciation rights shall be equal to the excess of fair market value on the day of exercise less the fair market value on the effective date of the award.  Through March 31, 2009, no options, shares or SARS had been granted under these plans.

 
F-18

 

THERMODYNETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED MARCH 31, 2009, 2008 AND 2007


NOTE 14 – EARNINGS PER COMMON SHARE:

A reconciliation of the numerators and denominators of the basic and diluted Earnings per Common Share (EPS) computations for the years ended March 31:
 
 
2009
 
2008
 
2007
 
 
Income
(Numerator)
   
Shares
(Denominator)
 
Income
(Numerator)
 
Shares
(Denominator)
 
Income
(Numerator)
 
Shares
(Denominator)
 
                           
Net income (loss)           $ (195,069 )       386,900       3,181,253      
                             
Basic EPS                            
Income (loss) available to common stockholders       (195,069 )   4,083,895   386,900   4,060,002   3,181,253   4,025,439  
                             
Effect of Dilutive Securities                            
Stock warrants   -     -   -   -   -   -  
                             
Diluted EPS                            
Income (loss) available to common stockholders including assumed conversions  $ (195,069 )   4,083,895   386,900   4,060,002   3,181,253   4,025,439  
 
NOTE 15 – RENTAL OF MULTI-PURPOSE BUILDING:

The Company leases a portion of its multi-purpose building to an unrelated tenant under an agreement which expires August 31, 2010.  Rental income aggregated $86,000, $66,125 and $64,927 for the years ended March 31, 2009, 2008 and 2007, respectively, and is included in rental income in the accompanying consolidated statements of operations and comprehensive income.
 
NOTE 16 – INCOME TAXES:

The provision (benefit) for income taxes consists of the following as of March 31:
 
   
2009
   
2008
   
2007
 
                         
Current
  $ 39,862     $ 30,400     $ 10,313  
Deferred
    -       -       85,000  
    $ 39,862     $ 30,400     $ 95,313  
 
 
F-19

 

THERMODYNETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED MARCH 31, 2009, 2008 AND 2007


NOTE 16 – INCOME TAXES (Continued):

The alternative minimum tax (AMT) had no effect on the tax provision for financial reporting purposes, as the Company’s AMT income was completely offset by application of AMT net operating loss carryforwards and the AMT exemption.  State taxes accrued were based on net income on a separate company basis.

The provision for income taxes differs from the amount computed by applying the statutory rates to income before income taxes for continuing operations for fiscal years 2009, 2008 and 2007. The principal reasons for this difference are listed in the following table as of March 31:
 
   
2009
   
2008
   
2007
 
                         
Statutory federal and state income tax
    39 %     39 %     39 %
Change in valuation allowance
    (39 )     (39 )     (39 )
Other
    (26 )     7       4  
      (26)     7 %       4 %

The significant components of the deferred tax provision are as follows as of March 31:
 
   
2009
   
2008
   
2007
 
Net operating loss
  $ 6,000     $ 419,000     $ (512,000 )
Reserves
    -       -       118,000  
Deferred Revenue
    -       -       1,224,000  
Valuation allowance
    397,000       77,000       (600,000 )
Equity method investment
    (402,000 )     (495,000 )     (314,000 )
Property and equipment, net
    (1,000 )     (1,000 )     (1,000 )
    $ -     $ -     $ (85,000 )
 
 
F-20

 
 
THERMODYNETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED MARCH 31, 2009, 2008 AND 2007

 
NOTE 16 – INCOME TAXES (Continued):

The components of the net deferred tax asset as of March 31, 2009, 2008 and 2007 are as follows:
 
      2009       2008       2007  
Deferred tax assets:
                       
Net operating loss
  $ 1,379,000     $ 1,373,000     $ 954,000  
Reserves
    118,000       118,000       118,000  
Deferred revenue
    1,224,000       1,224,000       1,224,000  
Valuation allowance
    (126,000 )     (523,000 )     (600,000 )
Total deferred tax assets
    2,595,000       2,192,000       1,696,000  
Deferred tax liabilities:
                       
Equity method investment
    (936,000 )     (534,000 )     (39,000 )
Property and equipment, net
    (459,000 )     (458,000 )     (457,000 )
Net deferred tax asset
  $ 1,200,000     $ 1,200,000     $ 1,200,000  
 
Differences between financial reporting and tax reporting relate primarily to inventory reserves and allowances for doubtful accounts recorded for financial reporting purposes, inventory capitalization adjustments recorded for tax reporting purposes and differences between depreciation for financial reporting and tax reporting purposes.  Net operating loss carryforwards of approximately $2,500,000 and $4,278,000 are available for federal and state income tax purposes.  The carryforwards begin to expire in 2026 for federal income tax purposes and 2023 for state income tax purposes.
 
In July 2006, the FASB issued FIN 48. The Company adopted the provisions of FIN 48, effective April 1, 2007.  This interpretation was issued to clarify the accounting for uncertainty in income taxes recognized in the financial statements by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
 
The cumulative effect of adopting FIN 48 did not have a material impact on the financial statements of the Company.  At March 31, 2009, the Company had no material gross unrecognized tax benefits.  At this time, the Company’s best estimate of the reasonably possible change in the amount of the gross unrecognized tax benefits is deemed not to be material during the next twelve months mainly due to the expiration of certain statutes of limitations.  The federal statute of limitations remains open for this fiscal year.  Tax years 2005 and forward are subject to audit by state tax authorities depending on open statute of limitations waivers and the tax code of each state.
 
 
F-21

 

THERMODYNETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED MARCH 31, 2009, 2008 AND 2007
 
 
NOTE 17 – 401(k) PLANS:

During the year ended March 31, 2008, the Company formed a deferred compensation/retirement plan covering employees of Thermodynetics.  A contribution of $1,750, $11,250, and $0 was accrued to the plan during the years ended March 31, 2009, 2008 and 2007, respectively, and will be paid through a contribution of shares of Thermodynetics common stock.
 
NOTE 18 – EMPLOYMENT CONTRACTS:

The Company has extended its employment agreements with two employees and directors through March 2014.  These agreements provide for annual base salaries of approximately $276,000 and $208,000, respectively, updated annually for increases in the Consumer Price Index, as well as certain medical, life and disability insurance coverage.

In the event of termination, each agreement provides for the continuation of compensation and benefits.  However, the employees may not compete with the Company within the United States for a period of two years after termination and are subject to the terms and conditions of confidentiality agreements.
 
NOTE 19 – STOCK BONUSES:

During the years ended March 31, 2009, 2008 and 2007, the Company issued a total of 10,000, 8,000 and 12,000 shares, respectively, to certain members of its Board of Directors.
 
NOTE 20 – CASH FLOW INFORMATION:

Cash paid for interest was $147,699, $130,310 and $154,437 for the years ended March 31, 2009, 2008 and 2007, respectively.

Issuance of stock pursuant to the 401(k) plan was $0, $18,750 and $0 for the years ended March 31, 2009, 2008 and 2007, respectively.
 
Long term debt of $34,555, $0 and $83,494 was incurred to acquire vehicles during the years ended March 31, 2009, 2008 and 2007, respectively.
 
 
F-22

 
 
THERMODYNETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED MARCH 31, 2009, 2008 AND 2007

NOTE 21 – DISCONTINUED OPERATIONS:

In August 2005, the Company discontinued the operations of Vulcan.  From that date through March 31, 2007 the Company liquidated Vulcan’s remaining assets and settled all secured liabilities.

In November 2006, the Company and the selling shareholders of Vulcan reached an agreement to extinguish the remaining unpaid notes payable relating to the acquisition of Vulcan.  Under the agreement, all unpaid notes were cancelled together with accrued interest payable in exchange for a lump sum of $10,000.  Accordingly, the Company recorded a gain on extinguishment of debt of $605,928.

The Company allocates interest expense based on the named debtor of all interest bearing debt.  Interest expense included in discontinued operations was $0 for the years ended March 31, 2009, 2008 and 2007.

Assets and liabilities of Vulcan were reported as assets and liabilities of discontinued operations at March 31, 2009, 2008 and 2007, and were as follows:
 
   
2009
   
2008
   
2007
 
Current liabilities of discontinued operations:
                 
Accounts payable
  $ -     $ 12,000     $ 12,000  
Long-term liabilities of discontinued operations:
                       
Long-term payables
    2,782,195       2,782,195       2,782,195  
                         
Total liabilities of discontinued operations
  $ 2,782,195     $ 2,794,195     $ 2,794,195  
 
The following amounts of Vulcan are included in discontinued operations on the consolidated statement of operations:
 
   
2009
   
2008
   
2007
 
                   
Revenues
  $ -     $ -     $ -  
Pre-tax income (loss)
  $ -     $ -     $ 597,071  
 
 
F-23

 
 
THERMODYNETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED MARCH 31, 2009, 2008 AND 2007
 

NOTE 22 – COMMITMENTS AND CONTINGENCIES:

The following are the known or threatened 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 was concluded in February, 2010.  A judgment in favor of the Company on one count and against it on two counts was rendered on May 10, 2010.  The net effect of the judgment held that the administrative fees were not payable to the Company, and that the Company was required under British law to reimburse the PLC for a substantial portion of the PLC’s legal expenses.  All administrative fees that had been paid to the Company by the PLC were credited against the dividends that had been due to the Company, and no further previously declared dividend payments are payable.  The PLC has claimed total legal costs of approximately £700,000 which are to be subject to an assessment by the Court if they cannot be agreed.  The PLC will be entitled to 85% of its legal costs after assessment by the Court.  On May 24, 2010 in accordance with the judgment, the Company paid £350,000 to the PLC on account of their costs.  The exchange rate of pounds sterling for US dollars is approximately $1.45 per £1.

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, 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.
 
 
 
In 2009, Turbotec Products filed 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.).  Thermodynetics has completed discovery.  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.  A prejudgment hearing is scheduled for July 21, 2010.
 
 
 
Turbotec Products claims that it suffered damages in excess of $350,000 and such damages are continuing to accrue.  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.   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.
 
 
F-24

 

Thermodynetics, Inc.
2009 Amended Annual Report on Form 10-K/A
Signature Page

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
(Registrant)        
THERMODYNETICS, INC.        
           
By: /s/ Robert A. Lerman        
  Robert A. Lerman, President,        
  Chief Executive Officer,        
  and Director        
           
Date: July 7, 2010        
 
 (Registrant)
THERMODYNETICS, INC.
Pursuant to the requirements of Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
By:  /s/ Robert A. Lerman   By:  /s/ John F. Ferraro  
  Robert A. Lerman, President,       John F. Ferraro, Chairman of  
  Chief Executive Officer, and Director     the Board, Treasurer, Chief Financial Officer,  
        Secretary and Director  
         
Date: July 7, 2010    Date: July 7, 2010  
           
           
By:  /s/ John J. Hughes        
  John J. Hughes, Director        
           
Date: July 7, 2010