<PAGE>
===============================================================================
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-13412
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Hudson Technologies, Inc.
---------------------
(Exact name of small business issuer as specified in its charter)
New York 13-3641539
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
25 Torne Valley Road
Hillburn, New York 10931
(address of principal executive offices) (ZIP Code)
Issuer's telephone number, including area code:
(914) 368-4990
---------------------
Indicate by check mark whether the issuer (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 twelve 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 last 90 days.
YES X NO
----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common stock, $0.01 par value 4,354,495 shares
----------------------------- ----------------
Class Outstanding at October 9, 1996
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<PAGE>
Hudson Technologies, Inc.
Index
<TABLE>
<CAPTION>
Part I. Financial Information Page Number
- ------- --------------------- -----------
<S> <C> <C>
Item 1
Consolidated Statements of Earnings 2
Consolidated Statements of Financial Position 3
Consolidated Statements of Cash flows 4
Notes to the Consolidated Financial statements 5
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II. Other information
- -------- -----------------
Item 1.- Legal proceedings 13
Item 4.- Submission of Matters to a Vote of Security holders 13
Item 6.- Exhibits and Reports on Form 8-K 14
Signatures 15
- ----------
</TABLE>
Page 1
<PAGE>
Part I - Financial Information
Hudson Technologies, Inc. and subsidiaries
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
Three month Nine month
Unaudited period ended period ended
(In thousands, except for share and per share amounts) September 30, September 30,
------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $5,919 $3,839 $15,126 $19,777
Cost of Sales 3,173 2,135 8,437 12,625
------ ------ ------- -------
Gross Profit 2,746 1,704 6,689 7,152
Operating expenses:
Selling and marketing 448 140 930 680
General and administrative 1,554 1,053 4,141 3,145
Depreciation and amortization 393 142 876 273
Restructuring reserve 0 0 1,333 0
------ ------ ------- -------
Total operating expenses 2,395 1,335 7,280 4,098
------ ------ ------- -------
Operating income (loss) 351 369 (591) 3,054
Other income (expense):
Interest income 3 3 42 14
Interest expense (8) (83) (91) (149)
Other income 0 14 26 17
------ ------ ------- -------
(5) (66) (23) (118)
Earnings (loss) before income taxes 346 303 (614) 2,936
Provision (benefit) for income taxes 140 41 (202) 1,111
------ ------ ------- -------
Net earnings (loss) $206 $262 $(412) $1,825
------ ------ ------- -------
- --------------------------------------------
Net earnings (loss) per common and common
stock equivalents $0.05 $0.07 $(0.09) $0.52
Weighted average number of shares outstanding 4,477,580 4,348,201 4,611,676 3,719,167
Net earnings (loss) per common stock
assuming full dilution $0.05 $0.07 $(0.09) $0.45
Weighted average number of shares outstanding 4,477,580 4,348,201 4,611,676 4,243,507
- --------------------------------------------
</TABLE>
Certain 1995 amounts have been reclassified to conform with 1996 presentation
format. See accompanying Notes to the Consolidated Financial Statements.
Page 2
<PAGE>
Hudson Technologies, Inc. and subsidiaries
Consolidated Statements of Financial Position
<TABLE>
<CAPTION>
Unaudited
(Dollars in thousands, except for share amounts)
Balance as of
--------------------------------------
September 30, 1996 December 31,1995
------------------ ----------------
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $519 $2,460
Marketable securities 0 1,100
Trade accounts receivable 3,027 2,381
Inventories 9,682 5,344
Income taxes receivable 388 136
Prepaid expenses and other current assets 1,057 943
------- -------
Total current assets 14,673 12,364
Property and equipment, less accumulated depreciation 6,078 4,536
Goodwill and intangible assets, less accumulated amortization 8,257 7,027
Deferred income taxes 1,828 -
Other assets 198 228
------- -------
Total assets $31,034 $24,155
------- -------
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable and accrued expenses $1,329 $1,527
Short term debt (Notes 2 and 4) 7,237 273
Reserve for restructuring (Note 5) 1,000 -
------- -------
Total current liabilities 9,566 1,800
Deferred income taxes 0 85
Long-term debt, less current maturities 897 1,933
------- -------
Total liabilities 10,463 3,818
Stockholders' equity (Note 3)
Common stock, $0.01 par value; shares authorized 20,000,000;
issued and outstanding 4,354,495 and 4,242,435 44 42
Additional paid-in capital 19,041 18,252
Retained earnings 1,631 2,043
------- -------
20,716 20,337
Less: Treasury stock, 16,000 shares at cost (145) -
------- -------
Total Stockholders' equity 20,571 20,337
------- -------
Total liabilities and Stockholders' equity $31,034 $24,155
------- -------
- -----------------------------------------------------
</TABLE>
Commitments and Contingencies (Note 6 and Part II)
Certain 1995 amounts have been reclassified to conform with 1996 presentation
format. See accompanying Notes to the Consolidated Financial Statements.
Page 3
<PAGE>
Hudson Technologies, Inc. and subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Unaudited
(In thousands)
Nine month period ended
----------------------------------------
September 30, 1996 September 30, 1995
- ---------------------------------------------------------------- ------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $(412) $1,825
Adjustments to reconcile net earnings (loss) to cash provided
(used) by operating activities:
Depreciation and amortization 875 305
Deferred income taxes (18) 68
Changes in assets and liabilities:
Decrease (increase) in trade receivables (484) (1,837)
Decrease (increase) in inventories (4,338) (2,740)
Decrease (increase) in income taxes receivable (252) 587
Decrease (increase) in prepaid and other current assets (114) 516
Decrease (increase) in other assets (132) 135
Increase (decrease) in accounts payable and accrued expenses (198) 360
Increase (decrease) in reserve for restructuring 1,000 0
------- -------
Cash provided (used) by operating activities (4,073) (781)
------- -------
Cash flows from investing activities:
Proceeds from sales of marketable securities 1,100 -
Additions to property, plant, and equipment (2,301) (2,287)
Acquisitions accounted for as purchases (2,716) (1,422)
------- -------
Cash provided (used) by investing activities (3,917) (3,709)
------- -------
Cash flows from financing activities:
Proceeds from issuance of warrants - 500
Proceeds from redemption of warrants 265 -
Proceeds from short-term convertible debt issues 5,300 -
Proceeds from short-term bank borrowings 1,686 1,590
Proceeds from short-term notes 1,000 -
Proceeds from long-term debt issue - 670
Repayment of debt (2,057) (66)
Purchase of treasury stock (145) -
------- -------
Cash provided (used) by financing activities 6,049 2,694
------- -------
Increase (decrease) in cash and cash equivalents (1,941) (1,796)
Cash and equivalents at beginning of period 2,460 2,216
------- -------
Cash and equivalents at end of period $519 $420
------- -------
- ----------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during period for interest $91 $116
Cash paid during period for taxes $69 $275
</TABLE>
Certain 1995 amounts have been reclassified to conform with 1996 presentation
format. See accompanying Notes to the Consolidated Financial Statements.
Page 4
<PAGE>
Hudson Technologies, Inc. and subsidiaries
Notes to Consolidated Financial Statements
General
Hudson Technologies, Inc., incorporated under the laws of New York on
January 11, 1991, together with its subsidiaries (collectively, "Hudson" or the
"Company"), is a leading provider of products and technical services related to
the recovery and / or reclamation of refrigerants used in commercial air
conditioning and refrigeration systems. The Company's services have been
developed to facilitate compliance with the Federal Clean Air Act as amended in
1990, which prohibits the venting, and requires the recovery, of specified
chlorofluorocarbon ("CFCs") and hydrochlorofluorocarbon ("HCFCs") refrigerants.
The Company participates in an industry that is substantially regulated,
changes in which could affect operating results. Currently the Company purchases
unprocessed refrigerants from domestic suppliers. The Company's inability to
obtain refrigerants could cause delays in refrigerant processing, possible loss
of revenues, and resulting possible adverse affect on operating results.
Note 1- Summary of Significant Accounting Policies
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
statements and with the instructions of Regulation SB. Accordingly, they do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. The financial
information included in the quarterly report should be read in conjunction with
the Company's audited financial statements and related notes thereto for the
year ended December 31, 1995.
In the opinion of management, all estimates and adjustments considered
necessary for a fair presentation have been included and all such adjustments
were normal and recurring.
Results of operations for interim periods are not necessarily indicative
of results which may be expected for a full year.
Consolidation The consolidated financial statements represent the adding
together of all companies of which Hudson directly or indirectly has majority
ownership or otherwise controls. Significant intercompany accounts and
transactions have been eliminated. The Company's consolidated financial
statements include the accounts of its wholly-owned subsidiaries, Hudson
Technologies Company (formerly named Refrigerant Reclamation Corporation of
America, Inc.) ("RRCA") and Environmental Support Solutions, Inc. ("ESS"),
together with their subsidiaries, and other controlled affiliates.
Reclassifications Certain 1995 amounts have been reclassified to conform with
1996 presentation format. Amounts reclassified had no impact on consolidated
operating income or earnings.
Fair value of Financial Instruments The carrying values of financial instruments
including cash, trade accounts receivable, and accounts payable approximate fair
value at September 30, 1996 and at December 31, 1995, because of the relatively
short maturity of these instruments. The carrying value of short- and long-term
debt approximates fair value, based upon quoted market prices of similar debt
issues, as of September 30, 1996 and at December 31, 1995.
Revenue Revenues are recorded upon completion of service or product shipment or
passage of title to customers in accordance with contractual terms.
Cash and cash equivalents Money market accounts and temporary investments with
original maturities of ninety days or less are included in cash and cash
equivalents.
Page 5
<PAGE>
Hudson Technologies, Inc. and subsidiaries
Notes to Consolidated Financial Statements (continued)
Note 1- Summary of Significant Accounting Policies (continued)
Marketable securities The Company follows Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities". All marketable securities at
December 31, 1995 were deemed by management to be available for sale and
therefore are reported at fair value with net unrealized gains and losses
reported in stockholders' equity, when required.
Inventories Inventories, consisting primarily of reclaimed refrigerant products
available for sale, are stated at the lower of cost, on a first-in first-out
basis, or market. None of the Company's inventory at September 30, 1996 exceeded
net realizable market values.
Property, plant, and equipment Property, plant, and equipment are stated at
cost; including internally manufactured equipment. Provision for depreciation is
recorded (for financial reporting purposes) using the straight-line method over
the useful lives of the respective assets. Leasehold improvements are amortized
on a straight-line basis over the shorter of economic life or terms of the
respective leases.
Due to the specialized nature of the Company's business, it is possible
that the Company's estimates of equipment useful life periods may change in the
future.
Intangible assets Goodwill is amortized over periods ranging from ten to 25
years using the straight-line method. Other intangible assets consist primarily
of patents or acquired contract rights and are amortized on a straight-line
basis over periods ranging from two to seventeen years.
Income taxes Hudson utilizes the assets and liability method for recording
deferred income taxes, which provides for the establishment of deferred tax
asset or liability accounts based on the difference between tax and financial
reporting bases of certain assets and liabilities.
Short-term debt Short term debt at September 30, 1996 consisted of convertible
debentures ($3.7 million), bank borrowings ($1.7 million), notes payable ($1.0
million), and the current portion of capital lease obligations ( $0.9 million).
Balance ($0.3 million) at December 31, 1995 included the current portion of
capital lease obligations ( $0.3 million).
Long term debt Long-term debt includes capital lease obligations with maturities
over one year.
Treasury stock Common stock, acquired by the Company under a repurchase program
authorized by the Board of Directors on May 10, 1996, is carried at acquisition
cost (market price at acquisition date).
Earnings per common and equivalent shares Earnings per common and common
equivalent shares are computed on the weighted average number of shares, less
treasury stock and, if dilutive, common equivalent shares (common shares
assuming exercise of options and warrants).
Note 2 - Issuance of Convertible Debentures
On June 18, 1996, the Company issued a $3.5 million principal amount
non-interest bearing convertible debenture due June 18, 1998. The Debenture
agreement, as amended on August 16, 1996, provides that twenty-five percent of
the principal amount of the debenture is convertible into Common Stock at any
time commencing September 16, 1996; fifty percent is convertible at any time
commencing October 16, 1996; seventy-five percent is convertible at any time
commencing November 16, 1996; and the entire principal amount is convertible at
any time commencing December 16, 1996 at a conversion price equal to the lesser
of (i) $14.00 per share or (ii) 85% of the average closing bid price as reported
by NASDAQ for the five trading days immediately prior to the conversion, subject
to a floor of $4.00 per share. In the event that the market price of the Common
Page 6
<PAGE>
Hudson Technologies, Inc. and subsidiaries
Notes to Consolidated Financial Statements (continued)
Note 2 - Issuance of Convertible Debentures (continued)
Stock does not exceed $4.00 per share during a period of the later of forty
trading days or 60 days, the holder will have the option to convert the entire
principal amount of the debenture into Common Stock without restriction. In
connection with the amendment to the Debenture agreement during August 1996, the
Company issued a warrant to purchase 20,000 shares of common stock at an
exercise price of $10.00 per share.
The debenture may be redeemed by the Company, in whole or in part, at any
time, for an amount equal to 115% of the principal amount so redeemed, together
with the issuance of a five-year warrant, entitling the holder to purchase
25,000 shares of Common Stock, at an exercise price of $18.00 per share. On
September16, 1996, in accordance with provisions of the Debenture, the holder
required the Company to redeem $1 million principal amount of the debenture for
an amount equal to $1,150,000. The Company redeemed an additional $625,000
principal amount of this debenture for a payment of approximately $718,000
during September 1996.
On September 30, 1996, the Company issued a $1.8 million principal amount
convertible debenture, bearing interest at 7% per annum unless retired or
redeemed in whole or in part within the first six months of issue. The Debenture
agreement provides that twenty-five percent of the principal amount of the
debenture is convertible into Common Stock at any time commencing November 29,
1996; fifty percent is convertible at any time commencing December 29, 1996;
seventy-five percent is convertible at any time commencing January 29, 1997; and
the entire principal amount is convertible at any time commencing February 28,
1997 at a conversion price equal to the lesser of (i) $10.00 per share or (ii)
85% of the average closing bid price as reported by NASDAQ for the five trading
days immediately prior to the conversion, subject to a floor of $4.00 per share.
In the event that the market price of the Common Stock does not exceed $4.00 per
share during a period of the later of forty-five trading days, the holder will
have the option to convert the entire principal amount of the debenture into
Common Stock without restriction. In connection with the Debenture agreement,
the Company issued a warrant to purchase 10,000 shares of common stock at an
exercise price of $10.00 per share.
The debenture may be redeemed by the Company, in whole or in part, at any
time, for an amount equal to 115% of the principal amount so redeemed, together
with the issuance of a five-year warrant, entitling the holder to purchase 2,000
shares of Common Stock, at an exercise price of $10.00 per share, for each
$100,000 of principal redeemed.
Both debenture issues provide for certain events of default, including a
default on the payment of any debts in excess of $250,000, judgments, liens or
attachments in an aggregate amount in excess of $250,000, any merger or
consolidation or the disposition of all or substantially all of the Company's
assets or the redemption of more than a de minimus amount of its Common Stock.
Note 3 - Capital transactions
On September 15, 1995, the Company called for redemption of warrants
previously issued in connection with its initial public offering and
overallotment option. A total of 1,530,139 shares of common stock were issued in
connection with this redemption through December 31, 1995. Net proceeds of
$9,289,138 were used to reduce liabilities and to finance increased levels of
inventory. An additional 66,500 shares were issued during the three months ended
March 31, 1996. Net proceeds of $265,000 were used for working capital purposes.
Note 4 - Acquisitions
On August 15, 1995, the Company acquired Refrigerant Reclamation
Corporation of America ("RRCA"), which the Company subsequently renamed 'Hudson
Technologies Company'. The purchase price was approximately $6,068,000 which
consisted of cash ($1,250,000), a note ($750,000) paid during December 1995, and
174,964 shares of the Company's common stock. The acquisition was accounted for
Page 7
<PAGE>
Hudson Technologies, Inc. and subsidiaries
Notes to Consolidated Financial Statements (continued)
Note 4 - Acquisitions (continued)
as a purchase from the date of acquisition with the assets acquired and
liabilities assumed recorded at fair values, resulting in an excess of cost over
assets acquired of approximately $6 million. During 1996, the Company recorded a
deferred tax asset (about $1.9MM) and reduced RRCA goodwill an equivalent
amount, in recognition of the improved probability of recovering RRCA acquired
net operating losses. RRCA's operations have been included in the Company's
consolidated financial statements from the date of acquisition. The unaudited
pro forma results of operations which follow assume that the acquisition
occurred at the beginning of 1995 and include adjustments for the estimated
effect on the Company's historical operations for depreciation and amortization,
interest and income taxes related to the acquisition.
Nine months ended September 30, 1995
------------------------------- -------------
Sales $ 22,265,000
Net earnings $ 1,891,000
Net earnings per common and
common stock equivalents $ 0.53
Net earnings per common stock
assuming full dilution $ 0.44
The pro forma information presented is for information purposes only and
does not purport to be indicative of the results which would actually have been
obtained if the combination had been in effect for the periods indicated
On April 23, 1996, the Company acquired all the outstanding capital stock
of Environmental Support Solutions, Inc. ("ESS"), a Phoenix, Arizona developer
and provider of environmental software, training, and management services. The
capital stock of ESS was purchased for $2,375,000, which consisted of cash
($700,000) and notes ($1,675,000) paid during September 1996.
On June 14, 1996, ESS acquired all the net assets, subject to
liabilities, of E-Soft, Inc. ("E-Soft"), a Georgia-based developer and marketer
of software programs related to hazardous material management, in exchange for a
cash payment of $50,000 and 41,560 unregistered shares of the Company's stock.
Subsequent to the acquisition, all E-Soft assets and activities were relocated
to ESS headquarters in Phoenix. The former owner of E-Soft has become an
employee of ESS.
On July 24, 1996, the Company acquired all the outstanding common stock of
GRR Co., Inc. dba Golden Refrigerants ("Golden"); a refrigerant reclamation and
recovery company located in Punta Gorda, Florida; in exchange for 20,000
unregistered shares of the Company's stock with a valuation of $0.1 million at
the transaction date. Concurrent with the acquisition, the Company purchased,
for nominal consideration, all the net assets, subject to liabilities, of
Golden, and dissolved GRR Co., Inc.
Note 5 - Reserve for Restructuring
During the second quarter 1996, the Company established a Reserve for
Restructuring totaling $1.3 million. The reserve was established for the
following purposes:
Page 8
<PAGE>
Hudson Technologies, Inc. and subsidiaries
Notes to Consolidated Financial Statements (continued)
Note 5 - Reserve for Restructuring (continued)
<TABLE>
<CAPTION>
(Amounts in millions) Reserve established Charges to date
------------------- ---------------
<S> <C> <C>
Consolidation of RRCA activities including closure
of facilities, personnel termination, and other items. $0.2 $0.1
Relocation of Hudson NY facilities including closure of
existing leased facility 0.9 0.2
Consolidation of product offerings, including
disposal of inventory and equipment 0.2 0.0
---- ----
Total $1.3 $0.3
</TABLE>
Note 6 - Equipment commitment
During June, 1996, the Company entered into commitments to acquire an
additional $1.3 million of equipment consisting primarily of automated container
packaging equipment (about $0.9 million) and ten refrigerant gas, bulk-tank
(so-called 'ISO') storage units (about $0.4 million).
During September 1996, the Company obtained third-party financing ($1.3
million) which permits Hudson to rent this equipment under the terms of an
operating lease. The Company also obtained an additional ($250,000) operating
lease facility to permit the financing of other industrial equipment. The
additional facility expires December 31, 1996.
Page 9
<PAGE>
Hudson Technologies, Inc. and subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Three months ended September 30, 1996
Revenues totaled $5.9 million, an increase of $2.1 million or 54% from the
$3.8 million reported during the comparable prior year period. The increase was
attributable primarily to higher refrigerant products volume and the impact of
acquisitions.
Cost of sales totaled $3.2 million, an increase of $1.1 million or 49%
from the $2.1 million reported during the comparable prior year period due
mainly to higher refrigerant products volume. As a percentage of sales, cost of
sales were 54% of revenues for the three month period ended September 30, 1996,
a decrease from the 56% reported for the comparable prior year. The decrease in
percentage of revenues was attributable primarily to a higher volume of higher
margin, service-related activities during the 1996 comparable period.
Operating expenses totaled $2.4 million, an increase of $1.1 million or
79% from the $1.3 million reported during the comparable prior year period. The
increase was attributable mainly to higher ($0.3 million) sales and marketing
costs related to the Company's significantly expanded marketing programs, higher
($0.5 million) general and administrative expenses associated mainly with the
inclusion of the Company's acquisitions (namely ESS and RRCA) in consolidated
1996 results; and to higher ($0.3 million) depreciation and amortization
attributable to the growth of the Company's equipment assets and to amortization
of goodwill and intangibles related mainly to the Company's August 1995
acquisition of RRCA. As a percentage of revenues, operating expenses totaled 40%
of revenues, up from 35% for the comparable 1995 period, due mainly to expanded
1996 sales and marketing programs.
Net earnings totaled $0.2 million, a decrease of $0.1 million or 21% from
the $0.3 million net earnings reported during the comparable prior year period.
The decrease was attributable mainly to higher tax provisions recorded during
the 1996 reporting period.
Nine months ended September 30, 1996
Revenues totaled $15.1 million, a decrease of $4.7 million or 24% from the
$19.8 million reported during the comparable prior year period. The decrease was
attributable primarily to the discontinuation, during May 1995, of the Company's
program to resell imported refrigerants which accounted for approximately 75% of
1995 reported revenues.
Cost of sales totaled $8.4 million, a decrease of $4.2 million or 33% from
the $12.6 million reported during the comparable prior year period. The decrease
was due mainly to the discontinuation, during May 1995, of the Company's program
to resell imported refrigerants; which accounted for approximately 75% of 1995
reported revenues. As a percentage of sales, cost of sales were 56% of revenues
for the nine month period ended September 30, 1996, a decrease from the 64%
reported for the comparable prior year period. Decrease was attributable
primarily to a higher volume of higher margin, service-related activities during
the 1996 period.
Operating expenses totaled $7.3 million, an increase of $3.2 million or
78% from the $4.1 million reported during the comparable prior year period. The
increase was attributable mainly to the 1996 Reserve for Restructuring (See Note
5, above) totaling $1.3 million; to higher ($1.2 million) sales, marketing, and
administrative costs generally related to the Company's expanded marketing
programs and the inclusion of RRCA and ESS acquisitions in the 1996 reporting
period; and to higher ($0.6 million) depreciation and amortization attributable
to the growth of the Company's equipment assets and to amortization of goodwill
and intangibles related mainly to the Company's 1995 acquisition of RRCA. As a
Page 10
<PAGE>
Hudson Technologies, Inc. and subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Results of Operations (continued)
Nine months ended September 30, 1996 (continued)
percentage of revenues, operating expenses totaled 48% of revenues, up from 21%
for the comparable 1995 period, due mainly to the 1996 Reserve for Restructuring
and lack of counterpart to 1995 imported refrigerant revenues.
Net loss totaled $0.4 million, a decrease of $2.2 million from the $1.8
million net earnings reported during the comparable prior year period. The
decrease was attributable mainly to discontinuation, during May 1995, of the
Company's program to resell imported refrigerants, higher operating costs and
lack of counterpart to the 1996 reserve for restructuring; offset partly by
higher volume from domestic operations.
Liquidity and Capital Resources
Net cash used in operating activities totaled $4.1 million for the nine
month period ended September 30, 1996 compared with a net cash usage of $0.8
million for the prior year comparable period. Increase ($3.3 million) in cash
usage was attributable mainly to higher ($1.6 million) inventories and decreased
($2.2 million) net earnings; offset partly by the 1996 Reserve for Restructuring
($1.0 million).
Net cash used in investing activities ($3.9 million for the nine months
ended September 30, 1996) increased $0.2 million from the prior comparable year
period due mainly to higher ($1.3 million) funds used for acquisitions offset
partly by proceeds ($1.1 million) from 1996 sales of marketable securities.
Cash flows from financing activities totaled $6.0 million for the nine
months ended September 30, 1996, $3.3 million higher than the $2.7 million
reported for the comparable 1995 period. Increase was attributable mainly to
1996 issuance of Convertible Debentures ($5.3 million, see Note 2 above).
At September 30, 1996, the Company reported cash and equivalents totaling
$0.6 million, an increase of $0.1 million from the comparable prior year period.
For the nine months ended September 30, 1996, the Company reported capital
expenditures totaling $2.3 million. During June 1996, the Company entered into
commitments to acquire an additional $1.3 million of equipment consisting
primarily of automated container packaging equipment (about $0.9 million) and
ten refrigerant gas, bulk-tank (so-called `ISO') storage units (about $0.4
million). During September 1996, the Company obtained third-party financing
($1.3 million) which permits Hudson to rent this equipment under the terms of an
operating lease. The Company also obtained an additional ($250,000) operating
lease facility to permit the financing of other industrial equipment. The
additional facility expires December 31, 1996.
On May 10, 1996, the Board of Directors authorized the Company to acquire,
from publicly traded markets, a maximum of 25,000 issued and outstanding shares
of its own Common Stock. As of September 30, 1996, the Company had repurchased
16,000 shares at a average price of $9.06 per share.
On June 18, 1996 and September 30, 1996, the Company issued Convertible
Debentures (See Note 2 above) with face values of $5.3 million. Proceeds from
the offering were used to finance its acquisition of Environmental Support
Solutions, Inc. and E-Soft, Inc. (see Note 4, above), and for other purposes.
On July 24, 1996, the Company completed the acquisition of GRR Co., Inc.
in consideration of 20,000 unregistered shares of the Company's Common stock
(See Note 4, above).
Page 11
<PAGE>
Hudson Technologies, Inc. and subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Liquidity and Capital Resources (continued)
In connection with RRCA's bankruptcy reorganization in June 1994, prior to
its acquisition by Hudson, RRCA has obligations (as modified by a settlement
during April 1996 and totaling $1.4 million at September 30, 1996) to make
periodic payments to bankruptcy creditors through September 1999.
The Company has historically used its cash flows from operations, together
with its available cash resources including borrowings under the terms of its
agreement with MTB Bank (maximum operating line of credit equivalent to $3.0
million secured by certain scheduled receivables and inventory of Hudson), to
satisfy the Company's working capital requirements and to fund proposed
acquisitions and capital expenditure programs. Due to the Company's recent
acquisitions, and funding needs for expansion of capital equipment, the Company
has issued Convertible Debentures (see Note 2, above) and is actively seeking
additional credit lines from lending institutions. There can be no assurance,
however, that any such financing will be available to the Company; lack of which
could materially adversely affect the Company's financial condition and results
of operations.
Reliance on Suppliers
The Company's financial performance is in part dependent on its ability to
obtain sufficient quantities of domestic virgin (pure) and reclaimable
refrigerants from wholesalers, distributors, bulk gas brokers, and from other
sources. To the extent that the Company is unable to obtain sufficient
quantities of refrigerants in the future, the Company's financial condition and
results of operations would be materially adversely affected.
Inflation
Inflation has not historically had a material impact on the Company's
operations.
Seasonality and Fluctuations in Operating Results
The Company's operating results vary from period to period as a result of
weather conditions, requirements of potential customers, availability and price
of refrigerant products (virgin or reclaimable), changes in reclamation
technology, timing in introduction and / or retrofit of CFC-based refrigeration
equipment by domestic users of refrigeration, the rate of expansion of the
Company's operations, and by other factors.
The Company's business has historically been seasonal in nature with peak
sales of refrigerants occurring in the first half of each year.
Unforeseen events, including the delays in securing adequate supplies of
refrigerants at peak demand periods, lack of refrigerant demand, or declining
refrigerant prices could result in significant fluctuations in Company operating
results or losses which might not be easily reversed.
There can be no assurance that the foregoing factors could not result in
material adverse affect of the Company's financial condition and results of
operations.
Page 12
<PAGE>
Hudson Technologies, Inc. and subsidiaries
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
During December 1995, Earle Palmer Brown Companies, Inc. filed a compliant
against the Company in the Circuit Court for Montgomery County Maryland seeking
the sum of $238,761 plus interest for advertising, marketing, and public
relations services provided by Kerr Kelly Thompson, a predecessor company.
During May 1996, this action was dismissed, on the Company's motion, for lack of
jurisdiction.
On July 19, 1996, the Company reached a negotiated settlement and
obtained a full release from Earle Palmer Brown Companies, Inc. in consideration
of a one-time payment of $180,000.
During June 1995, United Water of New York Inc. ("United") alleged that it
discovered that two of its wells within close proximity to the Company's
facility showed elevated levels of refrigerant contamination. During June 1996,
United notified the Company that it was seeking indemnification by the Company
for costs incurred to date as well as costs expected to be incurred in
connection with United taking remedial action. During July 1996, United
threatened to institute legal action in the event that the Company declined to
settle this matter. During August 1996, the Company received a letter from the
New York State Department of Environmental Conservation ('DEC') in which the DEC
stated that it believed that the Company's refrigerants were the cause of the
contamination of the United wells, although the DEC is not aware of the extent
of contamination or the method that the Company's refrigerants allegedly entered
the groundwater.
The Company is currently conducting an investigation to determine the
source of the alleged contamination in United's wells and the need, if any, for
remediation. The Company is cooperating with the DEC's directive to develop a
proposal to quantify and remediate the alleged contamination.
There can be no assurance that United will not commence legal action
seeking substantial damages and/or other relief, that any legal action or
settlement will be resolved in a manner favorable to the Company or that
ultimate outcome of any legal action or settlement will not have a material
adverse effect on the Company's financial condition and results of operations.
Hudson Technologies and its subsidiaries are subject to various claims and
lawsuits from both private and governmental parties arising from the ordinary
course of business, none of which are material.
Item 4. Submission of Matters to a Vote of Security Holders
The Company conducted its scheduled 1995 Annual Meeting of Shareholders on
August 16, 1996. At the meeting, a class of three Directors was elected as
follows:
Shares issued and outstanding
at Record date (June 26, 1996) 4,308,935
Shares voted at Meeting by Proxy
or by Stockholders present 3,819,931
Class of Directors Elected Votes FOR election Votes WITHELD
- -------------------------- ------------------ -------------
o Kevin J. Zugibe 3,766,239 53,692
o Stephen J. Cole-Hatchard 3,763,704 56,227
o Dominic J. Monetta 3,762,479 57,452
Page 13
<PAGE>
Hudson Technologies, Inc. and subsidiaries
PART II. OTHER INFORMATION (Continued)
Item 5. Other Items
NONE
Item 6. Exhibits and Reports on Form 8-K
The Company filed the following Current Reports on Form 8-K under the
Securities Exchange Act of 1934 during the quarter ended September 30, 1996.
NONE
Exhibits
The following exhibits are attached to this report.
Exhibit 10: Convertible Promissory Note dated September 30, 1996
Exhibit 27: Financial Data Schedule
Page 14
<PAGE>
Hudson Technologies, Inc. and subsidiaries
Form 10-QSB of September 30, 1996
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed in its behalf by the
undersigned, thereunto duly authorized.
HUDSON TECHNOLOGIES, INC.
By: /s/ William A. Barron October 22, 1996
---------------------------------------
William A. Barron Date
Vice President
and Chief Financial Officer
Page 15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
AT SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 519,000
<SECURITIES> 0
<RECEIVABLES> 3,027,000
<ALLOWANCES> 0
<INVENTORY> 9,682,000
<CURRENT-ASSETS> 14,673,000
<PP&E> 6,078,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 31,034,000
<CURRENT-LIABILITIES> 9,566,000
<BONDS> 0
0
0
<COMMON> 44,000
<OTHER-SE> 20,527,000
<TOTAL-LIABILITY-AND-EQUITY> 31,034,000
<SALES> 15,126,000
<TOTAL-REVENUES> 15,126,000
<CGS> 8,437,000
<TOTAL-COSTS> 8,437,000
<OTHER-EXPENSES> 7,280,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91,000
<INCOME-PRETAX> (614,000)
<INCOME-TAX> (202,000)
<INCOME-CONTINUING> (412,000)
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<EXTRAORDINARY> 0
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<NET-INCOME> (412,000)
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