UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 Form
10-QSB
 
 
 QUARTERLY
REPORT UNDER SECTION 13 OR 15 (d)
 OF THE
SECURITIES EXCHANGE ACT OF 1934
 
 
 For the
quarterly period ended December 31,
2007    Commission File Number: 0-10707
 
 
 THERMODYNETICS,
      INC.(Exact
      name of small business issuer as specified in its
  charter)
 
 
 Delaware
              
              06-1042505(State
      or other Jurisdiction of Incorporation or Organization)
              
              (I.R.S.
      Employer Identification No.)
 
 
 651 Day Hill Road, Windsor,
    CT
              06095
              860-683-2005(Address
      of Principal Executive Offices)
              (Zip
      Code)
              (Telephone
      Number)
 
   
 (Former
name, former address and former fiscal year, if changed since last
report.)
 
 
 
 State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date.
 
 
 Class
              
              Outstanding at December 31,
      2007Common
      stock $.01 Par Value
              
              4,062,297Shares
 
 
 Check
whether the issuer has (1) filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act 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 S   No
£
 
 Indicate
by check mark whether the registrar is a shell company (as defined in Rule 12b-2
of the Exchange Act).
 Yes £   No
S
 
 
 
 Transitional
Small Business Disclosure
Format                                              Yes
£   No
S
  
 Page - 1
-
  THERMODYNETICS, INC. AND SUBSIDIARIES
 
 
 INDEX
 
 
 Page NumberPART
      I
              FINANCIAL
      INFORMATIONItem
      1.
              Financial
      StatementsConsolidated Balance Sheets December 31, 2007 and March 31,
      2007
              3Consolidated Statements of Income Three Months Ended December
      31, 2007 and 2006
              4Consolidated Statements of Income Nine Months Ended December
      31, 2007 and 2006
              5Consolidated Statements of Cash Flows Nine Months Ended
      December 31, 2007 and 2006
              6Notes to Consolidated Financial Statements
              7-9Item
      2.
              Management's Discussion and Analysis or Plan of
      Operation
              10-12Item
      3.
              Controls and Procedures
              12PART
      II
              OTHER
      INFORMATIONItem
      1.
              Legal Proceedings
              12Item
      2.
              Unregistered Sales of Equity Securities and Use of
      Proceeds
              12Item
      3.
              Defaults Upon Senior Securities
              12Item
      4.
              Submission of Matters to a Vote of Security
      Holders
              12Item
      5.
              Other Information
              13Item
      6.
              Exhibits
              13SIGNATURE PAGE
              14
 Page - 2
-
 Index
  PART I: FINANCIAL
INFORMATION
 
 Item 1.  Financial
Statements.
 
 THERMODYNETICS, INC. AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS (in 000’s)
 ASSETS
 
 December 31, 2007
              
              
              March 31, 2007(Unaudited)
              
              
              (Audited)CURRENT
      ASSETSCash
              
              $
              799
              
              
              $
              659Accounts
      Receivable, Net
              
              
              2,252
              
              
              
              2,840Inventories
              
              
              3,312
              
              
              
              3,416Prepaid
      Expenses and Other Current Assets
              
              
              269
              
              
              
              121Marketable
      Securities
              
              
              311
              
              
              
              216Total
      Current Assets
              
              
              6,943
              
              
              
              7,252PROPERTY, PLANT AND
      EQUIPMENTProperty,
      Plant and Equipment - At Cost
              
              
              15,394
              
              
              
              15,025Less:
      Accumulated Depreciation
              
              
              7,722
              
              
              
              7,390Property,
      Plant, and Equipment – Net
              
              
              7,672
              
              
              
              7,635OTHER
      ASSETSIntangible
      Assets - Net of Amortization
              
              
              93
              
              
              
              93Investment
      in Unaffiliated Company
              
              
              95
              
              
              
              95Deferred
      Income Taxes
              
              
              980
              
              
              
              980Deposits
      and Other
              
              
              67
              
              
              
              106Total
      Other Assets
              
              
              1,235
              
              
              
              1,274TOTAL
      ASSETS
              
              $
              15,850
              
              
              $
              16,161
 LIABILITIES
      AND STOCKHOLDERS’ EQUITY
 CURRENT
      LIABILITIESAccounts
      Payable
              
              $
              1,171
              
              
              $
              2,095Accrued
      Taxes and Expenses
              
              
              654
              
              
              
              975Current
      Portion of Long-Term Debt
              
              
              285
              
              
              
              229Notes
      Payable – Bank
              
              
              0
              
              
              
              0Total
      Current Liabilities
              
              
              2,110
              
              
              
              3,299DEFERRED
      INCOME TAXES
              
              
              366
              
              
              
              335LONG-TERM
      DEBT
              
              
              2,071
              
              
              
              1,966LONG-TERM
      LIABILITIES OF DISCONTINUED OPERATIONS
              
              
              2,782
              
              
              
              2,782MINORITY
      INTEREST IN SUBSIDIARY
              
              
              3,214
              
              
              
              3,164STOCKHOLDERS’
      EQUITYCommon
      Stock, Par Value $.01/Share,Authorized
      25,000,000 shares, issued 4,062,297 shares at12/31/07
      and 4,046,361 shares at 3/31/07
              
              
              40
              
              
              
              40Additional
      Paid-in Capital
              
              
              7,134
              
              
              
              7,116Retained
      Earnings (Deficit)
              
              
              (1,956
              )
              
              
              (2,543
              )Accumulated
      Other Comprehensive Income
              
              
              89
              
              
              
              2Total
      Stockholders’ Equity
              
              
              5,307
              
              
              
              4,615TOTAL
      LIABILITIES ANDSTOCKHOLDERS’
      EQUITY
              
              $
              15,850
              
              
              $
              16,161
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  Page - 3
-
 Index
  THERMODYNETICS, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF INCOME
 FOR THE
THREE MONTHS ENDED DECEMBER 31,
 (UNAUDITED)
 IN
(000’s) EXCEPT PER SHARE DATA
 
 2007
              
              
              2006Net
      Sales
              
              $
              6,415
              
              
              $
              5,767Cost
      of Goods Sold
              
              
              4,640
              
              
              
              4,518Gross
      Profit
              
              
              1,775
              
              
              
              1,249Selling,
      General & Administrative Expenses
              
              
              1,265
              
              
              
              1,041Income
      From Operations
              
              
              510
              
              
              
              208Other
      Income (Expense)Interest
      Expense, Net
              
              
              ( 42
              )
              
              
              ( 53
              )Gain
      on Sale of Stock
              
              
              -0-
              
              
              
              -0-Gain
      on Extinguishment of Debt
              
              
              -0-
              
              
              
              606Other
      – Net
              
              
              3
              
              
              
              22Total
      Other Income (Expense)
              
              
              (39
              )
              
              
              575Minority
      Interest in Subsidiary
              
              
              171
              
              
              
              73Income
      Before Income Taxes
              
              
              300
              
              
              
              710Provision
      for Income Taxes
              
              
              187
              
              
              
              340Income
      From Continuing Operations
              
              
              113
              
              
              
              370Discontinued
      Operations:Income
      (Loss) from Discontinued Operations Before Taxes
              
              
              0
              
              
              
              0Income
      Tax Benefit
              
              
              0
              
              
              
              0Income
      (Loss) From Discontinued Operations
              
              
              0
              
              
              
              0Net
      Income
              
              $
              113
              
              
              $
              370Earnings
      (Loss) per Share- BasicEarnings
      (Loss) per Share- Continuing Operations
              
              $
              .03
              
              
              $
              .09Earnings
      (Loss) per Share - Discontinued Operations
              
              
              -0-
              
              
              
              -0-Total
      Earnings (Loss) per Share – Basic
              
              $
              .03
              
              
              $
              .09Earnings
      (Loss) per Share- DilutedEarnings
      (Loss) per Share From Continuing Operations
              
              $
              .03
              
              
              $
              .09Earnings
      (Loss) per Share From Discontinued Operations
              
              
              -0-
              
              
              
              -0-Total
      Earnings (Loss) per Share – Diluted
              
              $
              .03
              
              
              $
              .09Weighted
      Average Shares Outstanding- Basic and Diluted
              
              
              4,062,297
              
              
              
              4,027,361
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  Page - 4
-
 Index
  THERMODYNETICS, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF INCOME
 FOR THE
NINE MONTHS ENDED DECEMBER 31,
 (UNAUDITED)
 IN
(000’s) EXCEPT PER SHARE DATA
 
 2007
              
              
              2006Net
      Sales
              
              $
              20,874
              
              
              $
              17,312Cost
      of Goods Sold
              
              
              15,431
              
              
              
              13,624Gross
      Profit
              
              
              5,443
              
              
              
              3,688Selling,
      General & Administrative Expenses
              
              
              3,833
              
              
              
              2,814Income
      From Operations
              
              
              1,610
              
              
              
              874Other
      Income (Expense)Interest
      Expense, Net
              
              
              ( 122
              )
              
              
              ( 197
              )Gain
      on Sale of Stock
              
              
              -0-
              
              
              
              2,666Gain
      on Extinguishment of Debt
              
              
              -0-
              
              
              
              606Other
      – Net
              
              
              ( 2
              )
              
              
              7Total
      Other Income (Expense)
              
              
              (124
              )
              
              
              3,082Minority
      Interest in Subsidiary
              
              
              504
              
              
              
              201Income
      Before Income Taxes
              
              
              982
              
              
              
              3,755Provision
      for Income Taxes
              
              
              423
              
              
              
              555Income
      From Continuing Operations
              
              
              559
              
              
              
              3,200Discontinued
      Operations:Income
      (Loss) from Discontinued Operations Before Taxes
              
              
              -0-
              
              
              
              (9
              )Loss
      on Disposal of Assets of Discontinued Operation
              
              
              -0-
              
              
              
              -0-Income
      Tax Provision (Benefit)
              
              
              -0-
              
              
              
              -0-Income
      (Loss) From Discontinued Operations
              
              
              -0-
              
              
              
              ( 9
              )Net
      Income  (Loss)
              
              $
              559
              
              
              $
              3,191Earnings
      (Loss) per Share- BasicEarnings
      (Loss) per Share- Continuing Operations
              
              $
              .14
              
              
              $
              .79Earnings
      (Loss) per Share - Discontinued Operations
              
              
              -0-
              
              
              
              -0-Total
      Earnings (Loss) per Share – Basic
              
              $
              .14
              
              
              $
              .79Earnings
      (Loss) per Share- DilutedEarnings
      (Loss) per Share From Continuing Operations
              
              $
              .14
              
              
              $
              .79Earnings
      (Loss) per Share From Discontinued Operations
              
              
              -0-
              
              
              
              -0-Total
      Earnings (Loss) per Share – Diluted
              
              $
              .14
              
              
              $
              .79Weighted
      Average Shares Outstanding- Basic and Diluted
              
              
              4,051,906
              
              
              
              4,023,261
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  Page - 5
-
 Index
  THERMODYNETICS, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 FOR THE
NINE MONTHS ENDED DECEMBER 31,
 (UNAUDITED)
 IN
(000’S)
 
 2007
              
              
              2006OPERATING
      ACTIVITIES:Net
      income (loss)
              
              $
              559
              
              
              $
              3,191Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
              
              
              332
              
              
              
              295Gain
      on sale of stock of subsidiary
              
              
              -0-
              
              
              
              (
      2,666
              )Forgiveness
      of debt of discontinued operation
              
              
              -0-
              
              
              
              (606
              )Minority
      interest in earnings of subsidiary
              
              
              50
              
              
              
              201Deferred
      tax provision
              
              
              31
              
              
              
              311Changes
      in operating assets and liabilities:Increase
      (decrease) in accounts payable
              
              
              ( 924
              )
              
              
              ( 361
              )Decrease
      (increase) in prepaid expenses and other assets
              
              
              ( 117
              )
              
              
              ( 66
              )Decrease
      (increase) in accounts receivable
              
              
              588
              
              
              
              ( 344
              )Decrease
      (increase) in inventories
              
              
              104
              
              
              
              ( 861
              )Increase
      (decrease) in accrued taxes and expenses
              
              
              ( 321
              )
              
              
              ( 136
              )Cash
      provided from discontinued  operations
              
              
              -0-
              
              
              
              ( 8
              )NET
      CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
              
              
              302
              
              
              
              (1,050
              )INVESTING
      ACTIVITIES;Purchases
      of property, plant and equipment, net
              
              
              ( 369
              )
              
              
              ( 575
              )Proceeds
      from sale of stock of subsidiary
              
              
              -0-
              
              
              
              6,755NET
      CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
              
              
              (369
              )
              
              
              6,180FINANCING
      ACTIVITIESProceeds
      from short term borrowings and notes payable
              
              
              357
              
              
              
              657Principal
      payments on long-term debt
              
              
              ( 196
              )
              
              
              ( 201
              )Proceeds
      from stock sale used to repay debt
              
              
              -0-
              
              
              
              (
      4,619
              )Cash
      used in financing activities of discontinued operations
              
              
              -0-
              
              
              
              ( 21
              )Compensation
      expense from stock options
              
              
              28
              
              
              
              -0Issuance
      of stock to retirement plan
              
              
              18
              
              
              
              -0-NET
      CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
              
              
              207
              
              
              
              ( 4,184
              )INCREASE
      (DECREASE) IN CASH
              
              
              140
              
              
              
              946CASH
      AT BEGINNING OF PERIOD
              
              
              659
              
              
              
              -0-CASH
      AT END OF PERIOD
              
              $
              799
              
              
              $
              946
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  Page - 6
-
 Index
  THERMODYNETICS, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE THREE AND NINE
MONTHS ENDED DECEMBER 31, 2007 AND 2006
 (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, 2007 and December 31, 2006 are not
necessarily indicative of the results to be expected for the full
year.
 
 NOTE
2:  SALE OF
MINORITY INTEREST IN SUBSIDIARY
 
 On May 8,
2006, Thermodynetics (“Company”) sold a 43.68% interest in its
subsidiary,   Turbotec Products Plc, (“Plc”), to institutional
investors pursuant to an offering on the AIM Market of the London Stock
Exchange. Prior to the offering, the Plc was formed in the United Kingdom and
the Company transferred its entire interest in its operating subsidiary,
Turbotec Products, Inc. to the Plc.  Pursuant to the offering, the
Company and the Plc each sold 2,797,183 shares (a total of 5,594,366 ordinary
shares of the Plc) for 85 pence per ordinary share, resulting in gross proceeds
of $8,765,280 before costs of $2,010,000. Under the terms of the offering the
two companies shared equally in the net proceeds after fees and
expenses.  From the net proceeds received, an aggregate of
approximately $4,619,000 was used to repay bank debt.
 
 The
Company and its Board of Directors (the “Board”) pursuant to a Relationship
Agreement (RA) have undertaken, inter alia, not to exercise its voting rights in
the shares of the Plc, except with the consent of the nominated advisor and the
Plc (on the authority of its non-executive Directors) to vote in favor of any
resolution to give the Board authority under British law to allot shares in the
Company, or under British law to vote to remove or reduce any pre-emption rights
that shareholders may have.  The RA contains further provisions
restricting the ability of the Company to dispose of its interest in the
ordinary Shares into the United States in a manner that would require
registration of any such disposition under the US Securities Act.
 
 Loan
Modifications:
 The
Company, certain of its subsidiaries, and their original 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 the bank were  a secured mortgage term
loan in the original principal amount of $2,025,000 secured by the real estate
and building at 651 Day Hill Road, Windsor, CT. and a term loan of the original
principal amount of $183,000, secured by all of the assets of the
Company.  In October 2006 the $183,000 note was repaid and in December
2006 the Company refinanced the mortgage note secured by the 651 Day Hill Road
property with another bank that holds a mortgage secured by the real estate and
building at 50 Baker Hollow Road, Windsor, CT.  The Company also
received a two year revolving line of credit with a maximum availability of
$1,100,000, also secured by both properties and buildings. The Company no longer
has borrowings from the original bank; however Turbotec Products, Inc. remains
indebted on an equipment term note and a revolving line of credit with that
bank.
  Page - 7
-
 Index
  NOTE 3:
DISCONTINUED
OPERATIONS AND GAIN ON EXTINGUISHMENT OF DEBT
 
 In July
2005, the Company and its Vulcan Industries, Inc. subsidiary (Vulcan), received
notices of default of term loans with a secured lender and its principal
bank.  The Company subsequently consummated an agreement with a major
customer of Vulcan and the lenders, whereby the customer purchased certain
Vulcan equipment by paying certain of Vulcan’s outstanding debts. The Company
and Vulcan received releases for the related obligations. The
Company and its bank (as the only remaining secured creditor) entered into an
agreement whereby the bank waived the existing defaults on all debt instruments
(except those relating to the Vulcan debt which continued) and modified a
financial covenant to exclude Vulcan from the compliance
calculation.
 
 In August
2005, the Company discontinued the operations of Vulcan and began liquidating
its remaining assets and paid all sums received to the bank.  At
September 2005 all operating assets of Vulcan had been liquidated and the
Company and the bank restructured the balance of the secured debt resulting from
the Vulcan closure.
 
 In
November 2006 the Company and the selling shareholders of Vulcan reached
agreement on extinguishing 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 payment of $10,000.
Accordingly, the Company recorded a gain on extinguishment of debt of $605,928,
less applicable income taxes of $193,000.
 
 NOTE
4:  INVENTORIES
 
 Inventories
consist of the following at (in 000’s):
 
 December 31, 2007
              
              
              March 31, 2007Raw
      materials
              
              $
              1,946
              
              
              $
              2,224Work-in-process
              
              
              185
              
              
              
              123Finished
      goods
              
              
              1,216
              
              
              
              1,104Less:
      Reserves
              
              
              (35
              )
              
              
              ( 35
              )$
              3,312
              
              
              $
              3,416
 
 Inventories
are valued at the lower of cost or market, with cost determined on a standard
cost basis which approximates a first-in, first-out basis.
 
 
 NOTE
5:  EARNINGS
PER SHARE
 
 The
Company has adopted Statement of Accounting Standards No. 128, “Earnings per
Share" (SFAS 128).  Earnings per share for the three and nine months
ended December 31, 2007 and December 31, 2006 have been computed in accordance
with this pronouncement, based on the weighted average of outstanding shares
during the periods.
 
 The
weighted average numbers of shares outstanding used in the calculations are as
follows:
 
 Three
      Months Ended Dec. 31
              
              
              Nine
      Months Ended Dec 312007
              
              
              2006
              
              
              2007
              
              
              2006Weighted
      Average Shares - (Basic)
              
              
              4,062,937
              
              
              
              4,027,361
              
              
              
              4,051,906
              
              
              
              4,023,261Assumed
      Conversion of Stock Options
              
              
              -0-
              
              
              
              -0-
              
              
              
              -0-
              
              
              
              -0-Weighted
      Average Shares- (Diluted)
              
              
              4,062,937
              
              
              
              4,027,361
              
              
              
              4,051,906
              
              
              
              4,023,261
  Page - 8
-
 Index
  NOTE
6:  INCOME
TAXES
 
 In
accordance with "Statement of Accounting Standards No. 109, Accounting for
Income Taxes", the primary components of the Company's deferred tax assets and
liabilities and the related valuation allowance are as follows (in
000’s):
 
 December 31, 2007
              
              
              March 31, 2007Assets:Uniform
      capitalization adjustment
              
              $
              34
              
              
              $
              4Net
      operating loss carryforward
              
              
              1,225
              
              
              
              1,112Research
      and development credit
              
              
              121
              
              
              
              69Other
              
              
              342
              
              
              
              4791,722
              
              
              
              1,664Liabilities:Accelerated
      depreciation
              
              
              ( 1,108
              )
              
              
              (1,019
              )Net
      deferred tax asset
              
              $
              614
              
              
              $
              645
 
 
 NOTE 7:
INVESTMENT /
LOAN
 
 In
September 2006, the Company advanced $300,000 to an unaffiliated company and
received a note due March 7, 2007 in the amount of $342,858.  The note
is convertible into common stock at the option of the Company at the rate of
$0.439 per share and bears interest at a rate of 25% per annum.  The
Company also received 208,001 warrants exercisable at $0.439 that expire on
September 7, 2010. In March 2007 the Company reduced the carrying value of the
note to $30,000.
 
 
 NOTE
8:  CASH
FLOW INFORMATION AND NON CASH INVESTING ACTIVITIES
 
 The
following supplemental information is disclosed pursuant to the requirements of
Financial Accounting Standards Board's (“FASB”) "Statement of Accounting
Standards No 95, Statement of Cash Flows”.
 
 9
      Months Ended Dec 31, (in 000’s)2007
              
              
              2006Cash
      payments for interest
              
              $
              122
              
              
              $
              197
 
 NOTE 9:
FINANCIAL ACCOUNTING
STANDARDS
 
 In July 2002, the Public Company
Accounting Reform and Investor Protection Act of 2002 (the Sarbanes-Oxley Act)
was enacted.  Section 404 stipulates that public companies must take
responsibility for maintaining an effective system of internal
control.  The Act requires public companies to report on the
effectiveness of their control over financial reporting and obtain an attest
report from their independent registered public accountant about management’s
report.  The Company is not required to report on the effectiveness of
its controls over financial reporting in order to comply with section 404 of the
Act until the fiscal year ending March 31, 2008, nor is it requiredto
obtain a report from its independent registered public accountant attesting to the Company's internal
controls over financial reportinguntil the fiscal year ending March 31,
2009.
  Page - 9
-
 Index
  THERMODYNETICS,
INC. AND SUBSIDIARIES
 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
 
 RESULTS OF
OPERATIONS
 
 The
Company’s results of operations reflect the operations of its majority-owned
subsidiary, Turbotec Products, Plc.   Revenues set a new record
for the Company and were ahead of expectations.  For the nine month
period ended December 31, 2007 net revenues increased $3.6 million (20.6%) to
$20.9 million over the prior year.  Shipments to major water source
heat pump customers remained strong for the period despite the continued
weakening in the housing and construction markets.  The demand for
high efficiency heat pumps as part of a “green” initiative continues to give
Turbotec’s products broad appeal in retrofit and high end system
applications.  Shipments of boiler tubing, significantly higher due to
a strong replacement market for high efficiency boilers in the first six months
of the current fiscal year, declined in the most recent quarter as many of the
projects were completed during the summer months.  Product
applications used in swimming pool heat pumps remains significantly lower as
compared to 2006 installations as the Florida market continues to be very soft
and near term expectations do not reflect an improvement in this
region.  Turbotec’s share of the overall market continues to grow with
the addition of two major OEM customers beginning in the third quarter of this
fiscal year.
 
 Based on
the results through the first nine months, Turbotec’s Directors anticipate
delivering full year results generally in line with market expectations. However
the ongoing uncertainty in the sub-prime mortgage sector and the increasing
inventory of unsold homes may retard their pace of growth in the fourth quarter
and fiscal 2009.
 
 Gross
margin percentage was 26.0% for the first nine months of fiscal 2008 compared to
21.3% for the same period last year.  For the full fiscal year ended
31 March 2007 gross margin percentage was 21.6%.  The improvement in
gross margin was a result of a more favorable product mix, adjustments to
formulas passing on the cost increases of raw materials, and production
efficiencies resulting from completed lean manufacturing projects.
 
 Selling,
general and administrative expenses increased in both the three and nine month
periods primarily because of increased costs incurred for corporate governance,
engineering and administrative expenses.  Interest expenses decreased
resulting from the repayment of debt obligations through the use of proceeds in
the UK securities sale and the settlement of a debt obligation.
 
 The
increase of the minority interest of the Company’s holding in Turbotec resulted
from their improvement in operating results.
 
 Net
profit for the period ended 31 December 2006 was impacted by two non recurring
transactions.  In May 2006, the sale of the securities of Turbotec
Products Plc in the UK resulted in a gain of $2,666,000 and also in the three
months ended December 2006, an extinguishment of debt netted
$606,000.  Upon reversing those one time gains, the recast numbers
show Income before Taxes of $300,000 (07) versus $104,000 (06) for the 3 month
period and $982,000 (07) versus $483,000 (06) for the 9 months periods ended
December 31.  The improvement in earnings came despite increased
expenditures relating to operating and administrative areas and corporate
governance functions in the current year.  Turbotec and Thermodynetics
incurred costs related to litigation instituted by the Company in the High Court
in England against Turbotec regarding Turbotec’s non payment of dividends
payable to Thermodynetics.  This negatively impacted the operating
results for the current year.  The outcome of that case could affect
the operating results of Turbotec if it loses the case.
  Page - 10
-
 Index
  Significant
risk factors and economic considerations pertaining to Turbotec include the cost
of energy and incentives provided by producers, sellers and municipalities to
encourage the use of more efficient equipment; interest rates that can stimulate
or depress purchasing demand;  the cost and availability of materials
used in production; and regulatory directives relating to energy consumption,
conservation and environmental issues.   Thermodynetics may be
affected by the economic cycles that the world is currently experiencing as
business conditions, stock market volatility and other financial perturbations
create disruptions or opportunities.
 
 LIQUIDITY AND CAPITAL
RESOURCES
 
 In May
2006 the Company completed the sale of a 43.68% interest in its Turbotec
subsidiary through a public offering of Turbotec’s securities in
London.
 
 At
December 31, 2007 consolidated working capital was $4,833,000 compared to
$3,953,000 at March 31, 2007.
 
 The
Company’s access to credit is believed to be adequate.  Cash reserves
currently exist and both Thermodynetics and Turbotec through independent
revolving lines of credit have substantial availability at December 31,
2007.  A separate line of credit of $500,000 to fund capital
expenditure programs has also been established for Turbotec.
 
 Increases
in operating costs continue to play a more significant role in day-to-day
operations at Turbotec as competitive pricing pressures have restricted the
ability to fully recover all added expenses. Improvements in manufacturing
processes and procedures have enabled them to offset a portion of increasing
costs while continuing internal refinements are expected to generate further
cost reductions.  A portion of the metal price increases have been
passed on to the customer base to mitigate the impact on gross
margins.  A shortage of experienced technical support, engineering
staff and skilled and semi-skilled employees is being
experienced.  Employment related costs continue to escalate and the
impact on future periods is unknown although opportunities to reduce these
expenses are currently being explored.
 
 FORWARD LOOKING
STATEMENTS
 
 This
report contains certain forward-looking statements regarding the Company, its
business prospects and results of operations that are subject to certain risks
and uncertainties posed by many factors and events that could cause the
Company’s actual business, prospects and results of operations to differ
materially from those that may be anticipated by such forward-looking
statements.  Factors that may affect such forward-looking statements
include, without limitation: the Company’s ability to successfully and timely
develop and finance new projects, the impact of competition on the Company’s
revenues, and changes in unit prices, supply and demand for Turbotec’s tubing
product line especially in applications serving the commercial, industrial and
residential construction industries.
 
 When
used, words such as "believes,"  "anticipates," "expects," "continue",
"may", "plan", "predict",  "should",  "will", "intends" and
similar expressions are intended to identify forward-looking statements, but are
not the exclusive means of identifying forward-looking
statements.  Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this
report.  The Company undertakes no obligation to revise any
forward-looking statements in order to reflect events or circumstances that may
subsequently arise.  Readers are urged to carefully review and
consider the various disclosures made by the Company in this report, news
releases, and other reports filed with the Securities and Exchange Commission
that attempt to advise interested parties of the risks and factors that may
affect the Company’s business.
  Page - 11
-
 Index
  Item 3 CONTROLS AND
PROCEDURES
 
 (a)  Evaluation of disclosure controls
and procedures -
 The
Company’s principal executive and financial officers believe that the Company’s
disclosure controls and procedures, as defined in Rule 13a-15(e) of the
Securities Exchange Act of 1934 (the "Exchange Act"), as of the end of the
reported period are effective to ensure that the information required to be
disclosed by the Company in reports that it files or submits under the Exchange
Act are recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms.  No significant deficiencies
or material weaknesses requiring corrective actions were uncovered.
 
 (b)  Changes in internal controls
-
 There
were no changes to the Company's internal controls over financial reporting or
in other factors that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting that
occurred during the quarter ended for this report.
 
 
 
 THERMODYNETICS,
INC. AND SUBSIDIARIES
 
 
 PART II - OTHER
INFORMATION
 
 
 Item 1.  Legal Proceedings.
 
 The
Company is not a party to and its property is not the subject of any pending
legal proceedingexcept:
 
 (A) The
dispute instituted by the Company on January 8, 2008 in the High Court in
England against Turbotec Products Plc regarding Turbotec’s non-payment of
dividends due to Thermodynetics and Turbotec’s attempt to off-set that dividend
against administrative fees payable to the Company under its Relationship
Agreement of April 28, 2006.
 
 (B)  There
are a number of material legal proceedings and judgments obtained against the
Company's discontinued subsidiary, Vulcan Industries, Inc.  All legal
proceedings commenced or threatened against Vulcan have been fully accounted for
and all Vulcan obligations have been consolidated and included in the $2,782,195
on the balance sheet; there is no further contingent liability to the
Company.  Thermodynetics and its other subsidiaries have been advised
by their attorneys that they, with the exception of Vulcan, do not, and did not,
have, any liability with respect to the existing judgments or filed legal
proceedings against Vulcan.
 
 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-Qsb report.
  Page - 12
-
 Index
  Item 3.    Defaults Upon Senior
Securities.
 
 There
were no defaults of any terms of the Company's securities during the three month
period covered by this Form 10-Qsb report.
 
 
 Item 4.   Submission of Matters to a Vote of
Security Holders.
 
 At the
annual meeting of shareholders of the Company held on November 8, 2007, Robert
A. Lerman, John F. Ferraro, John J. Hughes and Fred H. Samuelson were elected
directors of the Company, to serve for a one year term or until their successors
are elected and qualified.
 
 Nominee or Matter
              
              For
              
              
              Against
              
              
              Abstain
              
              
              Not VotedJohn
      F. Ferraro
              
              
              3,500,172
              
              
              
              7,824
              
              
              
              --
              
              
              
              --Robert
      A. Lerman
              
              
              3,500,232
              
              
              
              7,764
              
              
              
              --
              
              
              
              --John
      J. Hughes
              
              
              3,497,627
              
              
              
              10,369
              
              
              
              --
              
              
              
              --Fred
      H. Samuelson
              
              
              3,947,687
              
              
              
              10,309
              
              
              
              --
              
              
              
              --
 .
 
 Item 5.   Other Information.
 
 None
 
 Item 6.    Exhibits
 
 (a)   Exhibits:
 
 Rule
13a-14(a) / 15d-14(a) Certifications:
 ·
              Exhibit
      31(a)       Certification of Chief
      Executive Officer.
 ·
              Exhibit
      31(b)       Certification of Chief
      Financial Officer.
 
 Section
1350 Certifications:
 ·
              Exhibit
      32(a)       Certification of Chief
      Executive Officer.
 ·
              Exhibit
      32(b)       Certification of Chief
      Financial Officer.
  Page - 13
-
 Index
  THERMODYNETICS, INC. AND SUBSIDIARIES
 
 
 SIGNATURE
PAGE
 
 
 
 In
accordance with the requirements of the Exchange Act , the registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
 
 
 
 THERMODYNETICS,
      INC.Date:
      February 13, 2008By:
              /s/  Robert A.
      LermanRobert
      A. LermanPresident
      and Chief Executive OfficerDate:
      February 13, 2008
              By:
              s/  John F.
    FerraroJohn
      F. FerraroTreasurer
      and Chief Financial Officer
   Page - 14 -