TDYT Thermodynetics Inc (CE)

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 periods. 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 six months ended September 30, 2007 and 2006 are not necessarily indicative of the results to be expected for the full year.

On May 8, 2006, the Company completed the sale of a minority interest of its subsidiary, Turbotec Products Plc (the "Plc"), whereby approximately 43.68% of that company was sold pursuant to an offering on the AIM Market of the London Stock Exchange. Prior to the offering, the Plc was established in the United Kingdom as a holding company for the Company's operating subsidiary, Turbotec Products, Inc. Pursuant to the offering, the Company and the Plc jointly sold a total of 5,594,366 ordinary shares of the Plc at the price of 85 pence per ordinary share, resulting in gross proceeds of 4,755,211 British Pounds. 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 $4,616,000 was used by the companies to repay term and revolving bank debt.

Under a Relationship Agreement (RA), the Company and its Board of Directors (the "Board") have agreed not to exercise its voting rights, except with the consent of the nominated advisor and Plc in favor of any resolution to give the board of the Plc authority under British law to allot shares in the Plc or to remove or reduce any pre-emption rights that Plc shareholders may have. The RA contains further provisions regarding an annual administration fee; restrictions on related party transactions; non-competition provisions; restrictions on appointments to the board of the Plc and mutual confidentiality and reporting undertakings. 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. 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. 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.

In July 2005, the Company and its Vulcan Industries, Inc. subsidiary (Vulcan), received a notice of default from an equipment finance institution and its bank.

On July 18, 2005, the Company consummated an agreement with a major customer and its bank whereby the customer purchased certain Vulcan manufacturing equipment by paying the balance on the related outstanding debt due the equipment finance institution plus half of the balance due on a term loan to the City of Sturgis, Michigan (Sturgis). The equipment finance institution and Sturgis each released the Company and Vulcan from any further obligation. 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 30, 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.

 September 30, 2007 March 31, 2007
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Raw materials $ 2,365 $ 2,224
Work-in-process 136 123
Finished goods 1,431 1,104
Less: Reserves (35) (35)
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 $ 3,897 $ 3,416
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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.

The Company has adopted Statement of Accounting Standards No. 128, "Earnings per Share" (SFAS 128). Earnings per share for the three and six month periods ended September 30, 2007 and September 30, 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 Sept. 30 Six Months Ended Sept 30
 2007 2006 2007 2006
 ---- ---- ---- ----
Weighted Average Shares - (Basic) 4,046,361 4,027,361 4,046,361 4,021,201
Assumed Conversion of Stock Options -0- -0- -0- -0-
 --------- --------- --------- ---------
 Weighted Average Shares- (Diluted) 4,046,361 4,027,361 4,046,361 4,021,201
 ========= ========= ========= =========

 September 30, 2007 March 31, 2007
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Assets:
 Uniform capitalization adjustment $ 38 $ 4
 Net operating loss carryforward 1,633 1,112
 Research and development credit 61 69
 Other 341 479
 ------- -------
 2,073 1,664

Liabilities:
 Accelerated depreciation (1,091) (1,019)
 ------- -------
 982 645

Less: Valuation reserve (348) -0-

Net deferred tax asset $ 634 $ 645
 ======= =======

At September 30, 2007, the Company had net operating carryforwards of approximately $1,633,000 expiring in years beginning 2012.

 6 Months Ended September 30,
 ----------------------------
 (in 000's)
 ----------

 2007 2006
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Cash payments for interest $ 80 $ 80

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 comply with section 404 of the Act until the fiscal year ending March 31, 2008.

In September 2006, the FASB issued Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes (an interpretation of FASB Statement No. 109)," which is effective for fiscal years beginning after December 15, 2006. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company will adopt FIN 48 as of April 1, 2007. The cumulative effect upon adoption will be reported as an adjustment to opening retained earnings. The Company has estimated that the cumulative

effect of adopting FIN 48 will not have a material impact on the financial statements of the Company.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." This Statement defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and expands disclosures about fair value measurements. This Statement will be effective for the Company in fiscal year 2009. The Company is currently evaluating the impact this Statement will have on the Company's financial position, results of operations and cash flows.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities." This Statement permits the measurement of certain financial instruments at fair value. This Statement will be effective for the Company in fiscal year 2009. The Company is currently evaluating the impact this Statement will have on the Company's financial position, results of operations and cash flows.

THERMODYNETICS, INC. AND SUBSIDIARIES