U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) August 4, 2003
THERMODYNETICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-10707 06-1042505
(State or other jurisdiction of (Commission File No.) (I.R.S. Employer
incorporation) Identification No.)
651 Day Hill Road, Windsor, Connecticut 06095
(Address of principal executive offices) (Zip Code)
860-683-2005
(Registrant's telephone number)
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(Former name or former address, if changed since last report.)
Item 2. Acquisition.
(a) On August 4, 2003 ("Closing Date"), the Registrant acquired all of the
issued and outstanding capital stock of Vulcan Industries, Inc. ("Vulcan"), a
Michigan corporation, from the four shareholders of Vulcan, Mark O. Lowell,
Marilyn S. Lowell, Keith J. Briggs, and Caroline A. Briggs (collectively
"Sellers") in exchange for $1,750,000 paid in cash and promissory notes bearing
6% interest which come due at various dates between March, 2004 and June, 2005.
There was no material relationship between the Registrant and any of the Sellers
prior to the acquisition.
To assist in the transition of the business, Mark O. Lowell, the former
president of Vulcan, was engaged as a consultant to Vulcan for a term of 12
months, renewable for up to an additional year, at a rate of compensation of
$9,200 per month under a Consulting Agreement with Vulcan dated as of June 26,
2003 and effective as of the Closing Date. Further, Keith J. Briggs, the former
vice president of Vulcan, was engaged as the General Manager and Chief Operating
Officer of Vulcan under an Employment Agreement with Vulcan dated as of June 26,
2003 and effective as of the Closing Date for a term of 36 months, renewable for
an additional 12-month term, at a compensation rate of $100,000 per annum
subject to upward adjustment based upon the CPI Index for the Michigan/Indiana
Region; Mr. Briggs reports directly to Robert I. Lieberman, the Treasurer of the
Registrant. Mr. Lieberman was elected President and Treasurer of Vulcan by the
newly constituted board of directors of Vulcan. Robert A. Lerman, the President
of the Registrant, serves as the Secretary of Vulcan, and as the sole director
of Vulcan. Robert A. Lerman and Robert I. Lieberman serve as all of the
executive officers of Vulcan.
The principle followed in determining the amount of consideration paid by the
Registrant was through an "arm's-length" negotiation through which the terms of
the transaction and the consideration paid were determined. Further, the
Sellers, through their broker, set a minimum sales price, which was the price
paid. The terms of the acquisition were based upon acquisition of 100% ownership
of Vulcan and the terms of the available financing.
(b) The acquired corporation is engaged in the business of fabricating tubes and
tubing assemblies for the automotive, furniture, heat exchanger and appliance
industries. The Registrant intends to continue the business of Vulcan utilizing
the assets of Vulcan located in Sturgis, Michigan, including a 32,500
square-foot leased facility and related equipment, and certain financed new
equipment currently being manufactured.
(c) The Registrant financed the acquisition through its principal bank, Citizens
Bank, through a credit facility aggregating $1,230,000 consisting of (i) a
revolving credit line with a maximum credit availability of $800,000; and (ii) a
$700,000 term note, payable in equal monthly installments of $11,667 through
August, 2008. Both of the above credit facilities bear interest at 1% above the
bank's prime rate and are secured by substantially all of the assets of Vulcan,
and are guaranteed by the Registrant and its other operating subsidiary. The
revolving line of credit provides for borrowings on a demand basis, with
availability based on formulas relating to inventory and accounts receivable. At
the Closing Date, Vulcan owed approximately $350,000 against such line
of credit. A portion of the proceeds from these loans was also used to refinance
debt and other obligations to Vulcan's bank existing as of the date of the
acquisition.
(d) The Registrant also borrowed approximately $635,000 against two
life-insurance policies it provides to two of its officers. These borrowings are
a portion of the reimbursable premiums on the policies due from the policy
owners.
(e) Further, a term loan was obtained from Wells Fargo Equipment Finance, Inc.,
an equipment financing company, to finance a portion of new equipment ordered by
Vulcan prior to the acquisition. Such equipment, consisting primarily of CNC
controlled multi-stacked tube benders and robotic plasma cutting systems, is to
service new manufacturing orders for Vulcan in its existing line of business.
The equipment credit facility is: (i) an Interim Funding Agreement ("IFA") to
finance the manufacture of the new equipment, to be converted upon final
delivery and acceptance of the equipment into (ii) a $1,750,000 term note,
payable in sixty equal monthly installments of $33,996 including interest, with
amortization to commence upon final delivery and acceptance of the equipment.
Such credit facility bears interest at the rate of 6.25% and will have a first
secured position in the equipment purchased by Vulcan upon final delivery; until
such delivery, a second secured position in the assets of Vulcan and the
Registrant have been granted. The Registrant is a co-borrower for additional
credit and security to such finance company.
(f) Lastly, in August 2003, Vulcan expects to obtain a community block
development term loan from the City of Sturgis, Michigan, through its Economic
Development Corporation to assist in the financing of the new equipment financed
by Wells Fargo and the start-up costs of production relating to the new
equipment. The term loan is to be: a $400,000 term note to be amortized over the
same period as a term loan from Wells Fargo, bearing interest at the rate of 80%
of the prime rate, adjusted quarterly. Such loan will be secured by a
subordinated position in the assets of Vulcan and the new equipment purchased by
Vulcan. The Registrant will be a guarantor of such loan.
Item 7. Financial Statement, Pro Forma Financial Information and Exhibits.
(b) Pro Forma Financial Information.
Thermodynetics, Inc., and Vulcan Industries, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheets at March 31, 2003.
Unaudited Pro Forma Condensed Combined Consolidated Statements of Operations for
the Year Ended March 31, 2003.
(c) Exhibits
The exhibits listed below are being furnished with this Form 8-K:
Exhibit Number Description
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2-a: Stock Purchase Agreement dated as of June 26, 2003, with
a table of contents of the Exhibits and Schedules.
2-b: First Amendment to Stock Purchase Agreement dated as of
July 31, 2003.
2-c: Second Amendment to Stock Purchase Agreement dated as of
August 1, 2003.
10-a: $700,000 Term Note dated as of July 31, 2003.
10-b: $800,000 Revolving Note dated as of July 31, 2003.
10-c: Interim Funding Agreement dated as of July 31, 2003.
10-d: $1,750,000 Term Note dated as of July 31, 2003.
99.1: Press Release dated August 6, 2003.
Item 9. Regulation FD Disclosure.
The Company announced, via a press release dated August 6, 2003, titled,
"Thermodynetics, Inc. Acquires Vulcan Industries, Inc. of Sturgis, Michigan"
attached as Exhibit 99.1, that it had the acquired all of the issued and
outstanding capital stock of Vulcan Industries, Inc.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined consolidated balance sheets
as of March 31, 2003 and the unaudited pro forma condensed combined consolidated
statement of income for the year ended March 31, 2003 are based on the
historical consolidated financial statements of Thermodynetics, Inc. and
subsidiaries and those of Vulcan Industries, Inc. ("Vulcan") after giving effect
to the purchase of Vulcan and the assumptions and adjustments described in the
accompanying notes to the unaudited pro forma condensed combined consolidated
financial statements.
The unaudited pro forma condensed combined consolidated balance sheet is
presented to give effect to the purchase as if it occurred on March 31, 2003.
The unaudited pro forma condensed combined consolidated statement of income is
presented to give effect to the purchase for the twelve month period ended March
31, 2003.
The acquisition will be accounted for as a purchase under generally accepted
accounting principles. Under the purchase method of accounting, the total
estimated purchase price is allocated to net tangible and intangible assets of
Vulcan. Independent valuation specialists were engaged to assist the Company in
determining the fair values of the assets acquired. The amounts reflected in the
unaudited pro forma condensed combined financial statements represent the fair
values of these assets at the date of the transaction.
The unaudited pro forma condensed combined consolidated financial statements
should be read in conjunction with historical consolidated financial statements
and the accompanying notes filed with the U. S. Securities and Exchange
Commission by Thermodynetics, Inc. The unaudited pro forma condensed combined
consolidated financial statements are not intended to represent or be indicative
of the consolidated results of operations or financial position that would have
been reported had the purchase of Vulcan occurred on the date presented and
should not be taken as representative of future consolidated results of
operations or financial position.
THERMODYNETICS, INC AND SUBSIDIARIES AND VULCAN INDUSTRIES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2003
AUDITED UNAUDITED
HISTORICAL HISTORICAL UNAUDITED UNAUDITED
THERMODYNETICS, VULCAN PRO-FORMA ADJUSTMENTS PRO-FORMA
INC. AND SUBS INDUSTRIES, INC. DR CR COMBINED
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CURRENT ASSETS
CASH 1,752 200 1,952
ACCOUNTS RECEIVABLE 1,048,856 966,367 2,015,223
INVENTORIES 1,557,339 291,209 1,848,548
PREPAIDS AND OTHER CURRENT ASSETS 226,184 59,779 [A] 50,000 235,963
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TOTAL CURRENT ASSETS 2,834,131 1,317,555 0 50,000 4,101,686
PROPERTY, PLANT AND EQUIPMENT, AT COST 12,516,143 2,530,555 [B] 259,645 16,106,343
[C] 800,000
ACCUMULATED DEPRECIATION 5,965,336 1,346,293 7,311,629
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NET PROPERTY, PLANT AND EQUIPMENT 6,550,807 1,184,262 1,059,645 0 8,794,714
OTHER ASSETS
INTANGIBLE ASSETS 93,741 [D] 1,700,157 1,793,898
OFFICER LIFE INSURANCE PREMIUMS RECEIVABLE 860,478 30,883 [A] 650,000 241,361
DEPOSITS AND OTHER 28,690 21,113 49,803
INVESTMENT IN VULCAN [A] 2,025,000 [D] 2,025,000 0
INVESTMENT IN BIO-MINERALS 94,856 94,856
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TOTAL OTHER ASSETS 1,077,765 51,996 3,725,157 2,675,000 2,179,918
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TOTAL ASSETS 10,462,703 2,553,813 4,784,802 2,725,000 15,076,318
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CURRENT LIABILITIES
ACCOUNTS PAYABLE 1,161,709 996,037 2,157,746
ACQUISITION ESCROW ACCOUNT [A] 250,000 250,000
ACCRUED EXPENSES 173,379 119,293 292,672
CURRENT PORTION- LONG TERM DEBT 399,615 282,935 [B] 282,935 [B] 140,000 539,615
NOTES PAYABLE-BANK 741,058 373,831 [B] 373,831 [A] 75,000 816,058
[B] 488,785 488,785
NOTES PAYABLE-SELLERS [A] 550,000 550,000
SUBORDINATED NOTES PAYABLE -SELLERS [A] 150,000 150,000
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TOTAL CURRENT LIABILITIES 2,475,761 1,772,096 656,766 1,653,785 5,244,876
DEFERRED INCOME TAXES 50,000 53,000 103,000
LONG TERM DEBT 3,404,802 403,874 [B] 272,374 [B] 560,000 4,896,302
[C] 800,000
SUBORDINATED LT DEBT- SELLERS [A] 300,000 300,000
STOCKHOLDERS' EQUITY
COMMON STOCK 182,261 10,000 [D] 10,000 182,261
ADDITIONAL PAID IN CAPITAL 5,503,226 5,503,226
OFFICER LOANS RECEIVABLE-STOCK OPTIONS (140,645) (140,645)
RETAINED EARNINGS (1,012,702) 314,843 [D] 314,843 (1,012,702)
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TOTAL STOCKHOLDERS' EQUITY 4,532,140 324,843 324,843 4,532,140
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 10,462,703 2,553,813 1,253,983 3,313,785 15,076,318
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THERMODYNETICS, INC. AND SUBSIDIARIES AND VULCAN INDUSTRIES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED MARCH 31, 2003
AUDITED UNAUDITED UNAUDITED UNAUDITED
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
THERMODYNETICS, VULCAN ADJUSTMENTS COMBINED
INC. AND SUBS INDUSTRIES, INC.
SALES $11,151,667 $ 6,756,489 $17,908,156
COST OF GOODS SOLD 8,080,044 6,190,575 14,270,619
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GROSS MARGIN 3,071,623 565,914 3,637,537
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,313,633 544,873 2,858,506
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OPERATING INCOME 757,990 21,041 779,031
INTEREST EXPENSE 380,850 67,865 448,715
OTHER (INCOME) EXPENSE 54,207 86 54,293
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TOTAL OTHER EXPENSE 435,057 67,951 503,008
INCOME (LOSS) BEFORE INCOME TAXES 322,933 (46,910) 276,023
PROVISION FOR INCOME TAXES 38,000 (3,000) 35,000
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NET INCOME (LOSS) $ 284,933 ($43,910) $ 241,023
=======================================================================
NET INCOME (LOSS) PER SHARE
BASIC $ 0.02 ($4.39) $ 0.01
DILUTED $ 0.02 ($4.39) $ 0.01
WEIGHTED AVERAGE NUMBER OF SHARES
BASIC 18,035,173 10,000 18,035,173
DILUTED 18,035,173 10,000 18,035,173
Notes to Unaudited Pro Forma Condensed Combined Consolidated Financial
Statements
1. Basis of Pro Forma Presentation
On August 4, 2003 Thermodynetics, Inc. (the "Company") purchased all of the
issued and outstanding capital stock of Vulcan Industries, Inc. ("Vulcan"), a
Michigan corporation, from its four shareholders (collectively "Sellers") in
exchange for $1,750,000 paid in cash and promissory notes bearing 6% interest
which come due at various dates between March, 2004 and June, 2005 ("Seller
Notes"). Fees, commissions and other expenses related to the acquisition
approximated $275,000. A portion of the purchase price is to be held in escrow
for a maximum of one year from the date of acquisition. Release of the escrow
funds will be based on the liquidation of certain accounts receivable and
inventory and the existence of undisclosed liabilities as of the closing date.
A summary of the purchase price and related costs is as follows:
Purchase price of capital stock of Vulcan $1,750,000
Fees, commissions and other expenses 275,000
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Total purchase price $2,025,000
==========
The total purchase price of $2,025,000 was paid with cash of $700,000, Seller
Notes aggregating $1,000,000, an escrow account of $250,000, and borrowings from
a financial institution. A portion of the cash consideration paid to the Sellers
was obtained by the Company from loans against two life-insurance policies it
provides to two of its officers. These borrowings, totaling approximately
$635,000, represent a portion of the reimbursable premiums on the policies due
from the policy owners.
The Company financed the balance of the purchase price, $75,000, and refinanced
debt and other obligations to Vulcan's bank existing as of the date of the
acquisition, through borrowings of $1,264,000 under credit facilities with its
principal bank. These facilities, aggregating $1,500,000, consist of (i) a
revolving line of credit with a maximum credit availability of $800,000; and
(ii) a $700,000 term note, payable in equal monthly installments of $11,667
through August, 2008. Both of the above credit facilities bear interest at 1%
above the bank's prime rate and are secured by substantially all of the assets
of Vulcan, and are guaranteed by the Company and its other operating subsidiary.
The revolving line of credit provides for borrowings on a demand basis, with
availability based on formulas relating to inventory and accounts receivable.
A summary of the sources of funding of the purchase of the stock and related
costs and amounts paid to refinance debt and other obligations to Vulcan's bank
existing as if the acquisition occurred on March 31, 2003 is as follows:
Cash payments made by the Company $ 700,000
Proceeds from bank term loan 700,000
Promissory notes issued to Sellers 1,000,000
Acquisition escrow account 250,000
Advances under bank revolving lines of credit 564,000
----------
Total payments and other sources of consideration $3,214,000
==========
Concurrent with the acquisition of Vulcan, the Company and Vulcan entered into
secured lending arrangements to finance certain production equipment ordered by
Vulcan prior to the acquisition. This equipment is to service new manufacturing
orders for Vulcan in its existing line of business. A term loan was obtained
from an equipment financing company, consisting of an interim funding agreement,
to be converted upon final delivery and acceptance of the equipment into a
$1,750,000 term note, payable in sixty equal monthly installments of $33,996
including interest, with amortization to commence upon final delivery and
acceptance of the equipment. This credit facility bears interest at the rate of
6.25% and will have a first secured position in the equipment purchased by
Vulcan upon final delivery; until such delivery, a second secured position in
the assets of Vulcan and the Company has been granted. At the date of the
acquisition, approximately $800,000 had been drawn against the interim funding
agreement.
In addition, Vulcan received a commitment for a $400,000 community block
development term loan from the City of Sturgis, Michigan, Economic Development
Corporation, to assist in the financing of the new equipment. The term loan,
estimated to close within thirty days of the date of the purchase, is to be
amortized over the same period as a term loan from the equipment financing
company, bearing interest at the rate of 80% of the prime rate, adjusted
quarterly. This loan is secured by a subordinated position in the assets of
Vulcan and the new equipment purchased by Vulcan. The Company is a guarantor of
such loan.
The acquisition will be accounted for as a purchase under generally accepted
accounting principles. Under the purchase method of accounting, the total
estimated purchase price is allocated to net tangible and intangible assets of
Vulcan. Independent valuation specialists were engaged to assist the Company in
the determining the fair values of the assets acquired. The amounts reflected in
the unaudited pro forma condensed combined financial statements represent the
fair values of these assets at the date of the transaction. Based on this
valuation, the purchase price has been allocated as follows:
Net tangible assets $ 324,843
Intangible assets (goodwill) 1,700,157
----------
Total purchase price $2,025,000
==========
2. Pro Forma Adjustments
The unaudited pro forma condensed combined consolidated financial statements
include certain adjustments to reflect the acquisition of Vulcan by the Company
and the refinancing of Vulcan's debt and other obligations existing as if the
transaction occurred on March 31, 2003. The initial funding of the new equipment
with the equipment lender
has also been reflected in the pro forma financial statements, as the closing of
the interim funding agreement occurred concurrent with the funding of the
acquisition of Vulcan.
The pro forma adjustments are as follows:
[A] Adjustment to reflect the acquisition of Vulcan by the Company, including
cash payments, notes issued to the Sellers and advances from the Company's
revolving line of credit with its principal bank.
[B] Adjustment to reflect the refinancing of Vulcan debt and other obligations
to its bank. These amounts included operating leases with an outstanding balance
of $259,645 that upon payment, title on the related assets transferred to
Vulcan. These obligations were refinanced through a $700,000 term loan and
advances under Vulcan's revolving line of credit with the Company's principal
bank.
[C] Adjustment to reflect the initial funding of the new equipment with the
equipment lender.
[D] Adjustment to reflect purchase accounting and consolidation adjustments and
to reflect the excess of the purchase price of the acquisition over the fair
value of Vulcan's net tangible assets as intangible assets (goodwill) at the
time of the transaction.
SIGNATURES
Pursuant to the requirements 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
Date: August 12, 2003