<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 March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-13412
---------------------
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 4,997,080 shares
- ----------------------------- ------------------
Class Outstanding at March 31, 1997
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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 Operations 2
Consolidated Balance Sheets 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 8
Part II. Other information
Item 1.-Legal proceedings 11
Item 4.-Submission of Matters to a Vote of Security holders 11
Item 6.-Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
1
<PAGE>
Part I - Financial Information
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three month
Unaudited period ended
(In thousands, except for share and per share amounts) March 31,
---------
1997 1996
---- ----
<S> <C> <C>
Revenues $ 9,024 $ 3,757
Cost of Sales 6,595 2,037
----------- -----------
Gross Profit 2,429 1,720
Operating expenses:
Selling and marketing 142 231
General and administrative 1,436 1,154
Depreciation and amortization 283 232
----------- -----------
Total operating expenses 1,861 1,617
Operating income 568 103
Other income (expense):
Interest income -- 27
Interest expense (185) (51)
Other income 30 10
----------- -----------
(155) (14)
Earnings before income taxes 413 89
Provision for income taxes 178 9
----------- -----------
Net earnings $ 235 $ 80
----------- -----------
- ---------------------------------------------
Net earnings per common share $ 0.05 $ 0.02
Weighted average number of shares outstanding 4,825,580 4,308,935
Net earnings per common share-assuming dilution $ 0.05 $ 0.02
Weighted average number of shares outstanding-assuming dilution 5,108,742 4,663,100
- --------------------------------------------
</TABLE>
Certain 1996 amounts have been reclassified to conform with 1997 presentation
format. See accompanying Notes to the Consolidated Financial Statements.
2
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Amounts in thousands, except for share amounts)
Balance as of: March 31, December 31,
1997 1996
--------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $477 $422
Trade accounts receivable; net of allowance
for doubtful accounts of $545,000 5,276 2,476
Inventories 5,641 9,062
Income taxes receivable 744 930
Prepaid expenses and other current assets 357 141
------- -------
Total current assets 12,495 13,031
Property, plant and equipment, less accumulated depreciation 6,315 5,882
Goodwill and intangible assets, less accumulated amortization 7,640 7,754
Deferred income taxes 1,947 1,978
Other assets 97 130
------- -------
Total assets $28,494 $28,775
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $1,454 $2,762
Short term debt; including loans from officers and
stockholders of $202,000 at December 31, 1996 2,800 5,678
Reserve for restructuring 294 377
------- -------
Total current liabilities 4,548 8,817
Deferred income 67 71
Long-term debt, less current maturities 1430 1,509
------- -------
Total liabilities 6045 10,397
------- -------
Stockholders' equity
Common stock, $0.01 par value; shares authorized 20,000,000;
issued and outstanding 4,997,080 and 4,308,935 50 44
Additional paid-in capital 22,348 18,517
Retained earnings (deficit) 224 (10)
------- -------
22,622 18,551
Less: Treasury stock, 21,000 shares at cost (173) (173)
------- -------
Total Stockholders' equity 22,449 18,378
------- -------
Total liabilities and Stockholders' equity $28,494 $28,775
======= =======
- -----------------------------------------------------------------------------
Commitments and contingencies (Part II)
</TABLE>
Certain 1996 amounts have been reclassified to conform with 1997 presentation
format. See accompanying Notes to the Consolidated Financial Statements.
3
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(Amounts in thousands)
For the three month period ended March 31, 1997 1996
- ------------------------------------------ ---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 234 $ 80
Adjustments to reconcile net earnings (loss)
to cash provided (used) by operating activities:
Depreciation and amortization 283 232
Deferred income taxes 32 15
Decrease (increase) in trade receivables (2,801) (1,293)
Decrease (increase) in inventories 3,422 967
Decrease (increase) in income taxes receivable 186 --
Decrease (increase) in prepaid and other current assets (216) (327)
Decrease (increase) in other assets 33 1
Increase (decrease) in accounts payable and accrued expenses (1,308) (37)
Increase (decrease) in deferred income (4) --
Increase (decrease) in reserve for restructuring (83) --
------- --------
Cash provided (used) by operating activities (222) (362)
------- --------
Cash flows from investing activities:
Additions to property, plant, and equipment (603) (606)
------- --------
Cash provided (used) by investing activities (603) (606)
------- --------
Cash flows from financing activities:
Proceeds from redemption of warrants -- 331
Proceeds from issuance of stock 3,837
Proceeds from short-term bank borrowings 513 --
Repayment of debt (3,470) (63)
------- --------
Cash provided (used) by financing activities 880 268
------- --------
Increase (decrease) in cash and cash equivalents 55 (700)
Cash and equivalents at beginning of period 422 2,460
------- --------
Cash and equivalents at end of period $ 477 $ 1,760
======= =======
</TABLE>
- ----------------------------------------------------------------------
Certain 1996 amounts have been reclassified to conform with 1997 presentation
format. See accompanying Notes to the Consolidated Financial Statements.
4
<PAGE>
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 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,
1996.
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.
Consolidation
The consolidated financial statements represent 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 wholly-owned
subsidiaries Hudson Technologies Company (formerly named Refrigerant Reclamation
Corporation of America, Inc.) ("RRCA") and Environmental Support Solutions, Inc.
("ESS"), together with other controlled affiliates.
Reclassifications
Certain 1996 amounts have been reclassified to conform with 1997 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 trade accounts
receivable, and accounts payable approximate fair value at March 31, 1997 and
December 31, 1996, 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 rates of similar debt issues.
The fair value of officer and shareholder notes cannot be determined due to the
nature of the transactions.
5
<PAGE>
Notes to Consolidated Financial Statements
Credit Risk
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments and trade accounts
receivable. The Company maintains its temporary cash investments in highly-rated
financial institutions. The Company's trade accounts receivable are due from
companies throughout the U.S. The Company reviews each customer's credit history
before extending credit.
The Company establishes an allowance for doubtful accounts based on factors
associated with the credit risk of specific accounts, historical trends, and
other information.
Revenue and cost of sales
Revenues are recorded upon completion of service or product shipment or passage
of title to customers in accordance with contractual terms. Cost of sales are
recorded based on the cost of products shipped or services performed and related
direct operating costs of the Company's reclamation sites.
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.
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.
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.
Goodwill and intangible assets
Goodwill is amortized over 25 years using the straight-line method. Other
intangible assets consisting primarily of patents or acquired contract rights
are amortized on a straight-line basis over the remaining life of the patent.
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.
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
During February 1997, the FASB issued SFAS No. 128 'Earnings Per Share' which
replaces the presentation of primary earnings per share ('EPS') with basic EPS.
It also requires dual presentation of basic and diluted EPS. The Company adopted
SFAS No. 128 as of January 1, 1997.
6
<PAGE>
Notes to Consolidated Financial Statements
Recent accounting pronouncements
During March 1995, the Financial Accounting Standards Board ('FASB') issued
Statement of Financial Accounting Standard ('SFAS') No. 121 'Accounting for
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of'
which requires, among other things, that impairment losses of assets held and
gains or losses of assets to be disposed of, be included as a component of
income from continuing operations before taxes. The Company adopted SFAS 121 on
January 1, 1996 and at December 31, 1996, no provision for the impairment of
Long-lived assets was required.
During October 1995, the FASB issued SFAS No. 123, 'Accounting for
stock-based compensation', which established a fair value method for accounting
of stock-based compensation plans. As of January 1, 1996, the Company elected to
implement SFAS No. 123 by disclosing the proforma net income and proforma net
income per share amounts assuming the fair valuation method. This disclosure is
displayed in note 14 of the Notes to the Consolidated Financial Statements
associated with the Company's report Form 10-KSB filed for the year ended
December 31, 1996.
During February 1997, the FASB issued SFAS No. 128 'Earnings Per Share' which
replaces the presentation of primary earnings per share ('EPS') with basic EPS.
It also requires dual presentation of basic and diluted EPS. The Company adopted
SFAS No. 128 as of January 1, 1997.
Estimates and Risks
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts of certain assets and liabilities, the disclosure of
contingent assets and liabilities, and the results of operations during the
reporting period. Actual results could differ from these estimates.
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 and its customers. 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.
7
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Three months ended March 31, 1997
Revenues totaled $9.1 million, an increase of $5.3 million or 140% from the
$3.8 million reported during the comparable prior year period. The increase was
attributable primarily to higher refrigerant product sales volume.
Cost of sales totaled $6.6 million, an increase of $4.6 million or 224% from
the $2.0 million reported during the comparable prior year period due mainly to
higher refrigerant products sales volume. As a percentage of sales, cost of
sales were 73% of revenues for the three month period ended March 31, 1997, an
increase from the 54% reported for the comparable prior year. The increase in
cost of sales as a percentage of revenues was attributable primarily to a change
in product mix; with a higher volume of lower margin, refrigerant product sales
occurring during the 1997 period.
Operating expenses totaled $1.9 million, an increase of $0.3 million or 15%
from the $1.6 million reported during the comparable prior year period. The
increase was attributable mainly to the inclusion of the Company's acquisitions
(namely ESS) in consolidated 1997. As a percentage of revenues, operating
expenses totaled 21% of revenues, down from 43% for the comparable 1996 period,
due mainly to greater 1997 sales volume.
Net earnings totaled $0.2 million, an increase of $0.1 million or 100% from
the $0.1 million net earnings reported during the comparable prior year period.
The increase was attributable mainly to higher revenues.
Liquidity and Capital Resources
Net cash used in operating activities totaled $0.2 million for the three months
ended March 31, 1997 compared with a net cash usage of $0.4 million for the
prior year comparable period. Decrease ($0.2 million) in 1997 cash usage
compared with 1996 was attributable mainly to higher earnings.
Net cash used in investing activities ($0.6 million) for the three months ended
March 31, 1997 and 1996 consisted of equipment additions ($0.6 million).
Cash flows from financing activities totaled $0.8 million for the three months
ended March 31, 1997 and consisted mainly of issuance of common shares to E.I.
DuPont de Nemours ($3.5 million) offset by retirement of debt ($3.1 million)
associated with the Company's Convertible Notes issued during 1996. Cash flows
from financing activities totaled $0.3 million for the three month period ended
March 31, 1996 and consisted mainly of proceeds ($0.3 million) from the
redemption of warrants.
At March 31, 1997, the Company reported cash and equivalents totaling $0.4
million, a decrease of $1.3 million from the comparable prior year period.
Decrease in cash and equivalents was attributable mainly to 1996 acquisitions
and fixed asset purchases.
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 December 31, 1996, the Company had repurchased
21,000 shares at a average price of $8.25 per share.
On June 18, and September 30, 1996, the Company issued Convertible Debentures
with a combined face value of $5.3 million. Outstanding Debentures at December
31, 1996 were retired during January 1997.
8
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
On July 24, 1996, the Company completed the acquisition of GRR Co., Inc. in
consideration of the issuance of 20,000 unregistered shares of the Company's
Common Stock.
In connection with its bankruptcy reorganization in June 1994, prior to its
acquisition by Hudson, RRCA has obligations (as modified by a settlement during
April 1996) totaling $0.8 million at March 31, 1997 payable in periodic payments
to bankruptcy creditors through July 2000.
On November 14, 1996, certain officers and stockholders of Hudson granted
unsecured loans ($678,000) to the Company; repayable upon receipt of proceeds
from property mortgage (see below) or on subsequent demand. On January 29, 1997,
the Company retired the officer loans and accrued interest outstanding.
During 1996, the Company mortgaged its property and building located in Ft.
Lauderdale with Turnberry Savings Bank, NA. The mortgage ($0.7 million at March
31, 1997) bears a fixed annual interest rate of 9.25% and repayable over 20
years commencing February 1997.
The Company has a bank line of credit ($3.0 million) with MTB Bank N.A. ('MTB'),
which bears interest at a rate of prime plus 2%. Advances under the MTB line
($1.7 million at March 31, 1996) were limited to 85% of eligible trade
accounts receivable and 50% of inventories not exceeding trade receivable
lending limits (above) or $2 million. Substantially all the Company's assets are
pledged as collateral for Hudson obligations to MTB Bank. The Company was in
compliance with all terms of the MTB Bank agreement at March 31, 1997. The
agreement expires May 1, 1997.
During January 1997, in connection with the execution of various agreements with
E.I. DuPont de Nemours ("DuPont'), the Company obtained additional equity funds
($3.5 million) from an affiliate of DuPont.
Proceeds from this funding were utilized primarily to retire debt.
During January 1997, the Company entered into an agreement to purchase a 29,000
square foot facility on 5.15 acres in Congers, New York for about $1.4 million;
subject to approvals and ability to obtain financing.
The Company is leasing the facility in the interim period.
The Company has historically financed its working capital requirements primarily
through cash flows from operations, the issuance of debt and equity securities,
and bank borrowings. The Company is seeking to implement an expanded bank credit
line; however, there is no assurance 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.
9
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Reliance on Suppliers
The Company's financial performance is in part dependent on its ability to
obtain sufficient quantities of domestic virgin and reclaimable refrigerants
from manufacturers, wholesalers, distributors, bulk gas brokers, and from other
sources; and on corresponding demand for reclaimed refrigerants. To the extent
that the Company is unable to obtain sufficient quantities of refrigerants in
the future, or resell reclaimed refrigerants at a profit, the Company's
financial condition and results of operations would be materially adversely
affected.
During January 1997, the Company entered into agreements with DuPont to market
DuPont's SUVA(TM) refrigerants. Under the agreement, 95% of virgin refrigerants
provided to specified market segment customers must be purchased from DuPont.
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.
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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") which stated that in the
opinion of DEC the Company's refrigerants were the cause of the contamination of
United's wells. The DEC report states that it is not aware of the extent of the
contamination or how the Company's refrigerants entered the groundwater. The
Company is cooperating with the DEC to develop a proposal to quantify and
remediate the contamination
During December 1996, the Company and United entered into an interim
settlement agreement which provided for (a) reimbursement ($84,000) of United's
operating costs associated with certain wells through August 1996, (b)
reimbursement, subject to a dollar cap of $12,650 per month, of United monthly
operating costs for certain wells from September 1996 through April 1997, and
(c) continued monitoring of refrigerant groundwater levels. Under the agreement,
United agreed not to commence legal action against the Company prior to May 1,
1997. Neither party waived their rights as a result of the interim agreement.
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. There can be no assurance that United will not commence legal
action after May 1, 1997 seeking substantial damages and/or other relief; or
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.
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other information
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 March 31, 1997.
Form 8K filed on February 7, 1997 relating to the Company's
relationship with DuPont.
Exhibits
The following exhibits are attached to this report.
Exhibit 27: Financial Data Schedule
11
<PAGE>
Form 10-QSB of March 31, 1997
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/ April 8, 1997
----------------------------------------
Stephen J. Cole-Hatchard Date
Vice President,
Principal Accounting Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
AT MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 477,000
<SECURITIES> 0
<RECEIVABLES> 5,276,000
<ALLOWANCES> (545,000)
<INVENTORY> 5,641,000
<CURRENT-ASSETS> 12,495,000
<PP&E> 6,315,000
<DEPRECIATION> (1,856,000)
<TOTAL-ASSETS> 28,494,000
<CURRENT-LIABILITIES> 4,458,000
<BONDS> 0
0
0
<COMMON> 50
<OTHER-SE> 22,399,000
<TOTAL-LIABILITY-AND-EQUITY> 28,494,000
<SALES> 9,024,000
<TOTAL-REVENUES> 9,024,000
<CGS> 6,595,000
<TOTAL-COSTS> 6,595,000
<OTHER-EXPENSES> 1,861,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 185,000
<INCOME-PRETAX> 413,000
<INCOME-TAX> 178,000
<INCOME-CONTINUING> 235,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 235,000
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
