Thermodynetics (TDYT) 10-Q 2010 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

———————

FORM 10-Q

———————

þ  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: December 31, 2009

or

¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from: _____________ to _____________

Commission File Number: 0-10707

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THERMODYNETICS, INC.

(Exact name of registrant as specified in its charter)

———————

Nevada	06-1042505
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)

651 Day Hill Road, Windsor, CT06095

(Address of Principal Executive Office) (Zip Code)

860-683-2005

(Registrant’s telephone number, including area code)

———————

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer  ¨	Accelerated filer  ¨
Non-accelerated filer  ¨	Smaller reporting company  þ
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at December 31, 2009
Common stock $.01 Par Value	4,600,306 Shares

INDEX

		Page
	PART I               FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Consolidated Balance Sheets           December 31, 2009 and March 31, 2009	1
	Consolidaetd Statements Of Income           Three Months Ended December 31, 2009 and 2008	2
	Consolidaetd Statements Of Income           Nine Months Ended December 31, 2009 and 2008	3
	Consolidated Statements Of Cash Flows           Nine Months Ended December 31, 2009 and 2008	4
Notes To Consolidated Financial Statements		5
Item 2.	Management's Ciscussion and Analysis of Financial Cnodition and Results of Operations	8
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	9
Item 4T.	Controls and Procedurse	9
	PART II               OTHER INFORMATION
Item 1.	Legal Proceedings	11
Item 1A.	Risk Factors	11
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	11
Item 3	Defaults Upon Senior Securitise	11
Item 4.	Submission of Matters to a Vote of Security Holders	12
Item 5.	Other Information	12
Item 6.	Exhibits	12
Signatures		13

PART I:   FINANCIAL INFORMATION

Item 1. Financial Statements

THERMODYNETICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (in 000’s)

	December 31, 2009			March 31, 2009
ASSETS	(Unaudited)			(Audited)
CURRENT ASSETS
Cash	$	2,023		$	1,984
Accounts Receivable, Net		1,089			1,860
Inventories		3,971			3,572
Prepaid Expenses and Other Current Assets		115			363
Marketable Securities		49			51
Total Current Assets		7,247			7,830
PROPERTY, PLANT AND EQUIPMENT
Property, Plant and Equipment - At Cost		17,042			16,591
Less: Accumulated Depreciation		8,740			8,364
Property, Plant, and Equipment – Net		8,302			8,227
OTHER ASSETS
Intangible Assets - Net of Amortization		94			94
Investment in Unaffiliated Companies		36			36
Deferred Income Taxes		980			980
Deposits and Other		125			53
Total Other Assets		1,235			1,163
TOTAL ASSETS	$	16,784		$	17,220
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Line of Credit	$	1,087		$	1,062
Accounts Payable		1,362			906
Accrued Taxes and Expenses		1,338			1,204
Current Portion of Long-Term Debt		229			306
Total Current Liabilities		4,016			3,478
DEFERRED INCOME TAXES		387			383
LONG-TERM DEBT		1,550			1,712
LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS		2,782			2,782
STOCKHOLDERS’ EQUITY
Thermodynetics, Inc. Stockholders Equity:
Common Stock, Par Value $.01/Share, Authorized 25,000,000 shares, issued 4,600,306 and  4,090,306 shares at  12/31/09 and  3/31/09		46			41
Additional Paid-in Capital		7,262			7,138
Retained Earnings (Deficit)		(3,482	)		(2,254	)
Accumulated Other Comprehensive Income		20			25
Total Thermodynetics, Inc. Stockholders’ Equity		3,846			4,950
Noncontrolling Interest		4,203			3,915
Total Equity		8,049			8,865
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	16,784		$	17,220

The accompanying notes are an integral part of these consolidated financial statements.

1

THERMODYNETICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED DECEMBER 31,

(UNAUDITED)

IN (000’s) EXCEPT PER SHARE DATA

	2009			2008
Net Sales	$	4,948		$	7,322
Cost of Goods Sold		3,607			5,166
Gross Profit		1,341			2,156
Selling, General & Administrative Expenses		2,280			1,861
Income (Loss) From Operations		(939)			295
Other Income (Expense)
Interest Expense, Net		(38)			(44	)
Other – Net		(57	)		51
Total Other Income (Expense)		(95)			7
Income (Loss) Before Income Taxes and Minority Interest		(1,034)			302
Provision for Income Taxes		(3)			255
Net Income (Loss)		(1,031)			47
Less: Net Income attributable to the Noncontrolling Interest		(1	)		(150	)
Net Income (Loss) Attributable to Thermodynetics, Inc.		(1,032)			(103	)
Other Comprehensive Income (Loss), net of tax:
Unrealized holding gains (losses) arising during the period		13			(2)
Comprehensive Income (Loss) Attributable to Thermodynetics, Inc.		(1,019)			(105	)
Earnings per Share-
Earnings (Loss) per Share Basic and Diluted		(.23)			(.03	)
Weighted Average Shares Outstanding- Basic		4,373,023			4,080,306
Weighted Average Shares Outstanding- Diluted		4,373,023			4,080,306

The accompanying notes are an integral part of these consolidated financial statements.

2

THERMODYNETICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE NINE MONTHS ENDED DECEMBER 31,

(UNAUDITED)

IN (000’s) EXCEPT PER SHARE DATA

	2009			2008
Net Sales	$	14,682		$	22,251
Cost of Goods Sold		10,277			15,582
Gross Profit		4,405			6,669
Selling, General & Administrative Expenses		4,994			5,276
Income (Loss) From Operations		(589	)		1,393
Other Income (Expense)
Interest Expense, Net		(120	)		(126	)
Other – Net		23			40
Total Other Income (Expense)		(97	)		(86	)
Income (Loss) Before Income Taxes and Minority Interest		(686	)		1,307
Provision for Income Taxes		318			753
Net Income (Loss)		(1,004	)		554
Less: Net Income (Loss) attributable to the Noncontrolling Interest		(224	)		(456	)
Net Income (Loss) Attributable to Thermodynetics, Inc.		(1,228	)		98
Other Comprehensive Income, net of tax:
Unrealized holding gains (losses) arising during the period		(5	)		(16	)
Comprehensive Income (Loss) Attributable to Thermodynetics, Inc.		(1,233)			82
Earnings (Loss) per Share-
Total Earnings (Loss) per Share Basic and Diluted		(.28	)		.02
Weighted Average Shares Outstanding- Basic		4,373,023			4,080,306
Weighted Average Shares Outstanding- Diluted		4,373,023			4,080,306

The accompanying notes are an integral part of these consolidated financial statements.

3

THERMODYNETICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED DECEMBER 31,

(UNAUDITED)

IN (000’s) EXCEPT PER SHARE DATA

	2009		2008
OPERATING ACTIVITIES:
Net income (loss)	$	(1,228)	$	98
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		376		362
Noncontrollinginterest in earnings of subsidiary		288		480
Issuance of Stock		129
Deferred tax provision (benefit)		4		(156	)
Changes in operating assets and liabilities:
Increase (decrease)  in accounts payable		456		(308	)
(Decrease ) Increase in prepaid expenses and other assets		176		(87	)
Decrease in accounts receivable		771		896
Decrease (increase) in inventories		(399)		(808	)
Increase (decrease) in accrued taxes and expenses		134		223
NET CASH PROVIDED BY OPERATING ACTIVITIES		707		700
INVESTING ACTIVITIES;
Purchases of property, plant and equipment		(451)		(666	)
(Purchase) sale of marketable securities		(3)		207
Investment in unaffiliated company		––		(36	)
NET CASH USED IN INVESTING ACTIVITIES		(454)		(495)
FINANCING ACTIVITIES
Net proceeds (payments) on revolving debt		25		921
Principal payments on long-term debt		(239)		(188	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		(214)		733
INCREASE (DECREASE) IN CASH		39		938
CASH AT BEGINNING OF PERIOD		1,984		1,062
CASH AT END OF PERIOD	$	2,023	$	2,000

The accompanying notes are an integral part of these consolidated financial statements.

4

THERMODYNETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

NOTE 1:  BASIS OF PRESENTATION

The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for a fair statement of results for the interim period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The results of operations for the three and nine months ended December 31, 2008 and 2009 are not necessarily indicative of the results to be expected for the full year.

NOTE 2:  SUBSIDIARY TRANSACTIONS

On May 8, 2006, the Company completed the sale of a 43.68% minority interest of its subsidiary, Turbotec Products Plc, (the “PLC”), through an offering on the AIM Market of the London Stock Exchange.

The Company and the PLC entered into a Relationship Agreement (RA) which provides for an annual administration fee; restrictions on related party transactions; restrictions on appointments to the board of the PLC and mutual confidentiality and reporting undertakings. See Part II, Item 1. As part of the transaction, the Company and the PLC established independent officers and directors and the two boards of directors act independently.

Commercial Leases:

The Company and Turbotec Products, Inc., a wholly-owned subsidiary of the  PLC (“Turbotec Products”), entered into formal real estate leases effective May 8, 2006, for approximately 54,500 square feet at 651 Day Hill Road, Windsor, CT, and approximately 17,000 square feet at 50 Baker Hollow Road, Windsor, CT. See Part II, Item 1. The leases commenced April 1, 2006 with a five-year term, and one extension option for three years, and a second extension option for two years. Rent charges with respect to the 651 Day Hill Road property are equal to seven dollars per square foot in years one and two, escalating annually thereafter through each of the extension terms; monthly fixed rent in year one equals $31,792, escalating to $42,010 monthly in year ten, assuming both lease extensions are exercised. Rent charges with respect to the 50 Baker Hollow Road property are equal to $5.50 per square foot in year one, escalating annually thereafter through each of the extension terms; monthly fixed rent in year one equals $7,792, escalating to $10,979 monthly in year ten, assuming both lease extensions are exercised.

NOTE 3:  EARNINGS PER SHARE

Earnings per share for the three and nine months ended December 31, 2009 have been computed based on the weighted average of outstanding shares during the periods.

The weighted average numbers of shares outstanding used in the calculations are as follows:

	Three Months Ended December 31
	2009		2008
Weighted Average Shares Outstanding- Basic		4,373,023		4,080,306
Weighted Average Shares Outstanding- Diluted		4,373,023		4,080,306

	Nine Months Ended December 31
	2009		2008
Weighted Average Shares Outstanding- Basic		4,373,023		4,080,306
Weighted Average Shares Outstanding- Diluted		4,373,023		4,080,306

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NOTE 4: INVENTORIES

Inventories consist of the following at (in 000’s):

	December 31, 2009		March 31, 2009
Raw materials	$	2,452	$	2,043
Finished goods		1,507		1,536
Work in process		158		120
		4,117		3,699
Less: Reserves		146		127
	$	3,971	$	3,572

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

NOTE 5:  CASH FLOW INFORMATION AND NON CASH INVESTING ACTIVITIES

The following supplemental information is disclosed pursuant to the requirements of ASC 230-10.

	Nine Months Ended Dectember 31, (in 000’s)
	2009		2008
Cash payments for interest	$	120	$	126

During the nine months ended December 31, 2008, long – term debt of approximately $35,000 was incurred to acquire a vehicle.

NOTE 6:  INVESTMENT/LOAN

As of December 31, 2009, $300,000 had been advanced to a manufacturer of commercial buildings under loans which bear interest at 12%, payable monthly, and are repayable upon the financing of the manufacturer or on August 31, 2010, whichever comes first.  As a consideration of the loan described above, shares were issued to the Company representing 6% of the manufacturer; Thermodynetics’ CEO is also serving as the manufacturer’s CEO, and he has been issued shares equal to 5% of the manufacturer as an incentive.

Payments due under the loan are currently overdue and payment of the loan is in doubt, although it is the intent to be repaid.  The company is currently seeking capital.  Part of the consideration for making the loan was an escrow of additional shares to bring the total owned to 51%.  It is intended that the shares are to be called if the loan is not paid in the near term.  A reserve of $250,000 has been established.

NOTE 7:  LINE OF CREDIT

The Company’s $1.1 million line of credit matured on July 31, 2009 and is due in full; however, the Company's bank has proposed terms for an extension of the due date and this is a continuing discussion.  Since July 31, 2009, the Company has continued to pay interest under the terms of the line of credit.

NOTE 8:  LEGAL PROCEEDINGS

(a)   The lawsuit instituted by the Company on January 8, 2008 in the High Court in England, file no. HC08C00046, against Turbotec Products Plc (PLC) regarding the PLC’s non-payment of dividends payable to Thermodynetics and the PLC’s attempt to off-set that dividend against administrative fees payable to the Company under their Relationship Agreement of April 28, 2006. The PLC declared and paid dividends in cash to the other shareholders, but not to Thermodynetics; the unpaid dividends equal $884,162. Thermodynetics’ solicitors in the United Kingdom share the view as expressed in the written opinion of the Queen’s Counsel representing Thermodynetics that the legal positions taken by Thermodynetics are the correct ones. The trial was completed in February 2010 and a decision is expected in the next couple of months.  Although litigation and its outcome can be unpredictable, Thermodynetics believes its case is meritorious.

6

(b)   Turbotec Products, Inc. commenced a lawsuit against Thermodynetics on February 27, 2008 in the Connecticut Superior Court, Judicial District of Hartford, alleging that Thermodynetics breached two commercial leases because it received certain overpayments, and that Thermodynetics improperly withdrew funds from a sinking fund established under the leases. The lawsuit was transferred from the regular docket to the Housing Session and now is entitled Turbotec Product, Inc. v. Thermodynetics, Inc., Connecticut Superior Court, J.D. of Hartford, Housing Session, Docket No. 7712.

On January 29, 2009, Turbotec Products was granted permission by the court to file an amended complaint adding counts for fraudulent inducement, fraudulent misrepresentation, and violation of the Connecticut Unfair Trade Practices Act (Conn. Gen. Stat. Sect. 42-110b, et seq.) claiming that it was induced to enter into the two commercial leases based on alleged false statements by an officer of Thermodynetics concerning the market rent for the leased properties. Thermodynetics has completed discovery on the new claims as well as discovery on the initial claims.

Thermodynetics denies the allegations, is vigorously defending the case, and filed counterclaims for sums due under the two leases, and has claimed the case for a jury trial. The Company's motion to transfer the case back to the regular docket given the nature of the new claims was granted on August 5, 2009. Thermodynetics does not view the risk of loss in the case as probable or material.

(c)   There are a number of threatened and pending actions against Vulcan, and a number of material judgments obtained against Vulcan. Thermodynetics and its other subsidiaries are not and have not been a party to any such Vulcan actions.

7

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

RESULTS OF OPERATIONS

The lingering effect of the recession has reduced housing and building construction spending despite the programs enacted by the US government.  While these conditions remain in evidence, the products sold by our Turbotec subsidiary will likely remain depressed below the record levels of shipments recorded in prior years.  Sales for the 9 months ended December 31, 2009, were $14.7 million vs. $22.3 million for the year earlier period, a reduction of 34%, and for the 3 months ended December 31, 2009 were $4.9 million vs. $7.3 million for the year earlier period, a reduction of 32%.

The facility in North Carolina is considered to be helpful to the long term outlook for Turbotec’s activities.  Overall gross manufacturing margins declined in the latest quarter.  Their operating profit has been sustained in the latest 9-month period albeit below what had been achieved previously.  Gross profit was $1.3 million and $4.4 million for the three and nine months ending December 2009 and 2008 representing 27% and 30% of sales, respectively.

While Turbotec’s contemporaneous announcement with the timing of this report has not stated what the drivers of their business were in the latest 3 month period, it is believed that water source heat pumps was the main contributor to sales while the depressed level of new construction and the recessionary effect of discretionary spending has inhibited sales of marine applications and swimming pool heat pumps, the other traditional contributors to the sales base.

Thermodynetics has included in SG&A $380,000 in legal costs in this quarter and $430,000 year to date pertaining to the UK litigation.  Turbotec’s legal costs included in SG&A are not known at this time.  These costs contributed to the loss for the period, along with the factors discussed above. Thermodynetics’ solicitors in the United Kingdom share the view as expressed in the written opinion of the Queen’s Counsel representing Thermodynetics that the legal positions taken by Thermodynetics are the correct ones. The trial was completed in February 2010 and a decision is expected in the next couple of months.  Although litigation and its outcome can be unpredictable, Thermodynetics believes its case is meritorious.

Thermodynetics has reduced its expenditures and is relying on its existing levels of income to pay its obligations.  It is anticipated that certain creditors may not be paid in a timely manner if additional income is not generated.  Should the result of the UK lawsuit not generate adequate sums to pay Thermodynetics’ obligations, it may be necessary to sell certain assets.

Liquidity and Capital Resources.

Legal costs have impacted the results of operations

There were no material defaults of any terms of the securities or indebtedness of the Company or any of its significant subsidiaries during the three-month period covered by this Form 10-Q report, except that the Company’s $1.1 million line of credit matured on July 31, 2009 and is due in full; however, the Company's bank has proposed terms for an extension of the due date and this is a continuing discussion.  Since July 31, 2009, the Company has continued to pay interest under the terms of the line of credit against invoices issued by its bank.  It is anticipated that an agreement with the bank will be reached in the near future.

The other debt obligations of Thermodynetics consist of mortgages $1.5 million and other notes payable of $50,000.  Turbotec has long term obligations of $203,000.

The cash and other current assets of Thermodynetics aggregating $270,000 (exclusive of intercompany amounts) are anticipated to be available to pay the Company’s obligations.  Of that amount, some $127,000 is cash that is reserved in a sinking fund under the Turbotec leases that, if not spent to make repairs, may be returnable to Turbotec.

8

As of December 31, 2009, $300,000 had been advanced to a manufacturer of commercial buildings under loans which bear interest at 12%, payable monthly, and are repayable upon the financing of the manufacturer or on August 31, 2010, whichever comes first.  Payments due under the loan are currently overdue and payment of the loan is in doubt.  A reserve of $250,000 has been established.

At December 31, 2009 consolidated working capital was $3.2 million.

In the nine months ended December 31, 2009, cash of $707,000 was provided by operations which was primarily the result of 1) a decrease in accounts receivable of $771,000 and 2) an increase in accounts payable of $456,000, netted by an increase in inventory of $399,000.

Cash of $446,000 was used by Turbotec in investing activities during the latest nine months to purchase property, plant and equipment.

Cash used in financing activities was the result of payments of long-term debt of $239,000 and proceeds from the line of credit of $25,000.

The Company has reduced its expenditures and is relying on its existing levels of income to pay its obligations.  It is anticipated that certain creditors will not be paid in a timely manner if additional income is not generated.  Should the result of the UK lawsuit not generate adequate sums to pay the Company’s obligations, it may be necessary to sell certain assets.

FORWARD LOOKING STATEMENTS

This report contains certain forward-looking statements regarding the Company, its business prospects and results of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause the Company’s actual business, prospects and results of operations to differ materially from those that may be anticipated by such forward-looking statements. Factors that may affect such forward-looking statements include, without limitation: the Company’s ability to successfully and timely develop and finance new projects, the impact of competition on the Company’s revenues, and changes in unit prices, supply and demand for the Company’s tubing product line especially in applications serving the commercial, industrial and residential construction industries.

When used, words such as "believes," "anticipates," "expects," "continue", "may", "plan", "predict", "should", "will", "intends" and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. The Company undertakes no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made by the Company in this report, news releases, and other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect the Company’s business.

Significant risk factors and economic considerations associated with heat transfer products include, but are not limited to, seasonality of purchasing and building cycles, the cost of energy, the reported housing slowdown, incentives provided by manufacturers, marketers and municipalities to encourage the use of more efficient equipment, interest rate changes that may stimulate or depress demand, the cost and availability of materials used in manufacturing processes, and regulatory directives relating to energy consumption, conservation and the environment.

Item 3. Quantitative and Qualitative Disclosures About Market Risks.

Not applicable.

Item 4T. Controls and Procedures.

NOTE: The Company owns 56% of Turbotec Products Plc (the “PLC”) and entered into an agreement that limits its influence with the PLC as described in Item 1(a) hereof. The PLC's wholly-owned subsidiary is Turbotec Products, Inc. (which together with the PLC, is referred to as "Turbotec"). The Company’s conclusion regarding the effectiveness of its disclosure controls and procedures and its internal control over financial reporting does not

9

extend to the disclosure controls and procedures and internal control over financial reporting procedures of Turbotec.  The Company has not evaluated the internal controls of Turbotec.  The Company does not have the ability to examine, dictate, or modify the controls of Turbotec, nor does the Company have the ability, in practice, to evaluate the disclosure controls and procedures or the internal control over financial reporting procedures of Turbotec.  Accordingly, the Company does not have actual knowledge of the disclosure controls and procedures or the internal control over financial reporting procedures of Turbotec to the extent believed to be required under Section 404 of the Sarbanes-Oxley Act and Rule 13a-15 of the Securities Exchange Act of 1934.  Therefore, the Company is unable to certify as to the disclosure controls and procedures and the internal control over financial reporting procedures of Turbotec.  Therefore the Company states as follows:

(a) Evaluation of Disclosure Controls and Procedures - -

The Company’s principal executive and principal financial officers have concluded, based on their evaluation, that the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)), as of the end of the period covered by this report, were not effective to provide the material information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified under the Exchange Act.

(b) Changes in Internal Controls -

There were no changes made and no corrective actions taken during the quarter ended for this report with respect to the Company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect the Company's internal control over its financial reporting.

However, management of the Company has not been able to evaluate the effectiveness of the internal control over financial reporting procedures that do or may exist at Turbotec nor is the Company knowledgeable about such controls.  Therefore, the Company’s internal control over financial reporting for Thermodynetics, Inc. and its subsidiaries was not effective as of the end of the reporting period for this report.

10

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

(a)   There are no material legal proceedings known or threatened against the Company, except: The lawsuit instituted by the Company on January 8, 2008 in the High Court in England, file no. HC08C00046, against Turbotec Products Plc regarding the PLC’s non-payment of dividends payable to Thermodynetics and the PLC’s attempt to off-set that dividend against administrative fees payable to the Company under their Relationship Agreement of April 28, 2006. The PLC declared and paid dividends in cash to the other shareholders, but not to Thermodynetics; the unpaid dividends equal $884,162. Thermodynetics’ solicitors in the United Kingdom share the view as expressed in the written opinion of the Queen’s Counsel representing Thermodynetics that the legal positions taken by Thermodynetics are the correct ones. The trial was completed in February 2010.  Although litigation and its outcome can be unpredictable, Thermodynetics believes its case is meritorious.

(b)   Turbotec Products, Inc. commenced a lawsuit against Thermodynetics on February 27, 2008 in the Connecticut Superior Court, Judicial District of Hartford, alleging that Thermodynetics breached two commercial leases because it received certain overpayments, and that Thermodynetics improperly withdrew funds from a sinking fund established under the leases. The lawsuit was transferred from the regular docket to the Housing Session and now is entitled Turbotec Product, Inc. v. Thermodynetics, Inc., Connecticut Superior Court, J.D. of Hartford, Housing Session, Docket No. 7712.

On January 29, 2009, Turbotec Products was granted permission by the court to file an amended complaint adding counts for fraudulent inducement, fraudulent misrepresentation, and violation of the Connecticut Unfair Trade Practices Act (Conn. Gen. Stat. Sect. 42-110b, et seq.) claiming that it was induced to enter into the two commercial leases based on alleged false statements by an officer of Thermodynetics concerning the market rent for the leased properties. Thermodynetics has completed discovery on the new claims as well as discovery on the initial claims.

Thermodynetics denies the allegations, is vigorously defending the case, and filed counterclaims for sums due under the two leases, and has claimed the case for a jury trial. The Company's motion to transfer the case back to the regular docket given the nature of the new claims was granted on August 5, 2009. Thermodynetics does not view the risk of loss in the case as probable or material.

(c) There are a number of threatened and pending actions against Vulcan, and a number of material judgments obtained against Vulcan. Thermodynetics and its other subsidiaries are not and have not been a party to any such Vulcan actions.

Item 1A. Risk Factors.

Not Applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

There were no unregistered sales of equity securities of the Company during the three-month period covered by this Form 10-Q report.

Item 3. Defaults Upon Senior Securities.

There were no material defaults of any terms of the securities or indebtedness of the Company or any of its significant subsidiaries during the three-month period covered by this Form 10-Q report, except that the Company’s $1.1 million line of credit matured on July 31, 2009 and is due in full; however, the Company's bank has proposed terms for an extension of the due date and this is a continuing discussion.  Since July 31, 2009, the Company has continued to pay interest under the terms of the line of credit against invoices issued by its bank.

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Item 4. Submission of Matters to a Vote of Security Holders.

At the annual meeting of stockholders of the Company held on October 27, 2009, John F. Ferraro, John J. Hughes, Robert A. Lerman, and Fred H. Samuelson were elected directors of the Company, to serve for a one year term and until their successors are elected and qualified.

Nominee or Matter	For	Withheld
John F. Ferraro	3,101,730	391,951
John J. Hughes	3,101,590	392,091
Robert A. Lerman	3,101,330	392,351
Fred H. Samuelson	3,101,590	392,091

Item 5. Other Information.

None

Item 6. Exhibits.

(a)      Exhibits:

Rule 13a-14(a)/15d-14(a) Certifications:

· Exhbit 31(a) Certification of Chief Executive Officer.

· Exhbit 31(b) Certification of Chief Financial Officer.

Section 1350 Certifications:

· Exhbit 32(a) Certification of Chief Executive Officer.

· Exhbit 32(b) Certification of Chief Financial Officer.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		THERMODYNETICS, INC.
Date: February 15, 2010	By:	/s/ Robert A. Lerman
		Robert A. Lerman
		President and Chief Executive Officer
Date: February 15, 2010	By:	/s/ John F. Ferraro
		John F. Ferraro
		Treasurer and Chief Financial Officer

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