-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CGT4GYSEd8cODARKxVOH215deLOXB0xJsNv3SbtGradiQngHg85oetf8FEUDtM2b 7hSoluQHTXskzRp+Ur57qA== 0000950116-98-001645.txt : 19980812 0000950116-98-001645.hdr.sgml : 19980812 ACCESSION NUMBER: 0000950116-98-001645 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980811 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUDSON TECHNOLOGIES INC /NY CENTRAL INDEX KEY: 0000925528 STANDARD INDUSTRIAL CLASSIFICATION: HAZARDOUS WASTE MANAGEMENT [4955] IRS NUMBER: 133641530 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 033-80270-NY FILM NUMBER: 98681647 BUSINESS ADDRESS: STREET 1: 25 TORNE VALLEY RD CITY: HILLBURN STATE: NY ZIP: 10931 BUSINESS PHONE: 9143684990 MAIL ADDRESS: STREET 1: 25 THORNE VALLEY RD CITY: HILLBURN STATE: NY ZIP: 10931 FORMER COMPANY: FORMER CONFORMED NAME: REFRIGERANT RECLAMATION INDUSTRIES INC DATE OF NAME CHANGE: 19940617 10QSB 1 ============================================================================== 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 June 30, 1998 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 5,065,820 shares ----------------------------- ---------------- Class Outstanding at July 15, 1998 ============================================================================== Hudson Technologies, Inc. Index Part I. Financial Information Page Number - ------- --------------------- ----------- Item 1 Consolidated Balance Sheets 2 Consolidated Statements of Operations 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 12 Item 2.- Changes in Securities 13 Item 6.- Exhibits and Reports on Form 8-K 13 Signatures 14 - ---------- 1 Part I - Financial Information Hudson Technologies, Inc. and subsidiaries Consolidated Balance Sheets (Amounts in thousands, except for share amounts)
June 30, December 31, 1998 1997 ---- ---- (unaudited) Assets Current assets: Cash and cash equivalents $ 784 $ 626 Trade accounts receivable; net of allowance for doubtful accounts of $248,000 and $283,000 3,908 1,737 Inventories 1,407 3,755 Income taxes receivable 167 167 Prepaid expenses and other current assets 311 185 -------- -------- Total current assets 6,577 6,470 Property, plant and equipment, less accumulated depreciation 5,704 5,939 Other assets 124 95 -------- -------- Total assets $ 12,405 $ 12,504 ======== ======== Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses $ 3,435 $ 3,429 Short-term debt 640 1,602 -------- -------- Total current liabilities 4,075 5,031 Deferred income 46 55 Long-term debt, less current maturities 1,808 1,155 -------- -------- Total liabilities 5,929 6,241 -------- -------- Commitments and contingencies Stockholders' equity Common stock, $0.01 par value; shares authorized 20,000,000; issued 5,086,820 and outstanding 5,065,820 51 51 Additional paid-in capital 22,683 22,683 Accumulated deficit (16,085) (16,298) -------- -------- 6,649 6,436 Less: Treasury stock, 21,000 shares at cost (173) (173) -------- -------- Total Stockholders' equity 6,476 6,263 -------- -------- Total liabilities and stockholders' equity $ 12,405 $ 12,504 ======== ========
See accompanying Notes to the Consolidated Financial Statements. 2 Hudson Technologies, Inc. and subsidiaries Consolidated Statements of Operations (Amounts in thousands, except for share and per share amounts) (unaudited)
Three month period Six month period ended June 30, ended June 30, -------------- -------------- 1998 1997 1998 1997 ---- ---- ---- ---- Revenues $ 8,820 $ 5,477 $ 15,525 $ 13,499 Cost of sales 6,723 4,586 11,407 11,420 Inventory write down to net realizable value - 983 - 983 --------- --------- --------- --------- Gross Profit 2,097 (92) 4,118 1,096 --------- --------- --------- --------- Operating expenses: Selling and marketing 384 479 776 898 General and administrative 1,194 1,768 2,436 2,757 Depreciation and amortization 274 378 547 661 --------- --------- --------- --------- Total operating expenses 1,852 2,625 3,759 4,316 --------- --------- --------- --------- Operating income (loss) 245 (2,717) 359 (3,220) --------- --------- --------- --------- Other income (expense): Interest expense (114) (173) (198) (358) Other income 27 24 52 54 --------- --------- --------- --------- Total other income (expense) (87) (149) (146) (304) --------- --------- --------- --------- Income (loss) before income taxes 158 (2,866) 213 (3,524) Income taxes - - - - --------- --------- --------- --------- Net income (loss) $158 $ (2,866) $213 $ (3,524) ========= ========= ========= ========= - -------------------------------------------- Net income (loss) per common share - basic $0.03 ($0.57) $0.04 ($0.72) ===== ======= ===== ======= Weighted average number of shares outstanding 5,065,820 5,031,784 5,065,820 4,871,407 ========= ========= ========= ========= Net income (loss) per common share - dilutive $0.03 ($0.57) $0.04 ($0.72) ===== ======= ===== ======= Weighted average number of shares outstanding 5,079,781 5,031,784 5,076,313 4,871,407 ========= ========= ========= =========
See accompanying Notes to the Consolidated Financial Statements. 3 Hudson Technologies, Inc. and subsidiaries Consolidated Statements of Cash Flows Increase (Decrease) in Cash and Cash Equivalents (unaudited) (Amounts in thousands)
Six month period ended June 30, -------------- 1998 1997 ---- ---- Cash flows from operating activities: Net income (loss) $ 213 $(3,524) Adjustments to reconcile net income (loss) to cash provided (used) by operating activities: Depreciation and amortization 547 661 Deferred income taxes -- 29 Allowance for doubtful accounts 53 100 Changes in assets and liabilities: Trade receivables (2,224) (1,373) Inventories 2,348 1,469 Income taxes receivable -- 10 Prepaid and other current assets (126) (143) Other assets (28) 35 Accounts payable and accrued expenses 5 1,440 Deferred income (9) (8) Reserve for restructuring -- (127) ------- ------- Cash provided (used) by operating activities 779 (1,431) ------- ------- Cash flows from investing activities: Additions to property, plant, and equipment (312) (765) ------- ------- Cash used by investing activities (312) (765) ------- ------- Cash flows from financing activities: Proceeds from issuance of stock -- 4,173 Proceeds from issuance of long-term debt 950 -- Payments of short-term bank borrowings (1,140) -- Payments of long-term debt (119) (2,007) ------- ------- Cash provided (used) by financing activities (309) 2,166 ------- ------- Increase (decrease) in cash and cash equivalents 158 (30) Cash and equivalents at beginning of period 626 422 ------- ------- Cash and equivalents at end of period $ 784 $ 392 ======= ======= - ------------------------------------------ Supplemental disclosure of cash flow information: Cash paid during period for interest $ 198 $ 358 Supplemental schedule of non-cash investing and financing activities: Conversion of debt to common stock $ -- $ 625
See accompanying Notes to the Consolidated Financial Statements 4 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"), sells refrigerants and provides refrigerant management services, consisting primarily of recovery and reclamation of the refrigerants used in commercial air conditioning and refrigeration systems, as well as RefrigerantSide(TM) services, through which the Company performs decontamination to remove moisture, oils and other contaminants in such systems. The Company operates through its wholly owned subsidiaries Hudson Technologies Company and Environmental Support Solutions, Inc. ("ESS"). The Company participates in an industry that is substantially regulated, changes in which could affect operating results. Currently the Company purchases virgin and reclaimable 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 affects 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, 1997. 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 inter-company accounts and transactions have been eliminated. The Company's consolidated financial statements include the accounts of wholly owned subsidiaries Hudson Holdings, Inc., Hudson Technologies Company, and ESS. Fair value of financial instruments The carrying values of financial instruments including trade accounts receivable, and accounts payable approximate fair value at June 30, 1998 and December 31, 1997, 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. 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 receivables 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. During the six months ended June 30, 1998, two customers accounted for 52% of revenues. 5 Hudson Technologies, Inc. and subsidiaries Notes to Consolidated Financial Statements Revenues 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 is 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 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. Provisions 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 the equipment's useful life periods may change in the future. Income taxes The Company utilizes the asset 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 is carried at acquisition cost (market price at acquisition date). Income (loss) per common and equivalent shares Income (loss) per common share (Basic) is computed on the weighted average number of shares, less treasury stock. If dilutive, common equivalent shares (common shares assuming exercise of options and warrants) utilizing the treasury stock method are considered in the presentation of dilutive earnings per share. Recent accounting pronouncements Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income" established standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS No. 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", which supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise", establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and 6 Hudson Technologies, Inc. and subsidiaries Notes to Consolidated Financial Statements major customers. SFAS No. 131 defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by Management in deciding how to allocate resources and in assessing performance. The Company adopted both SFAS Nos. 130 and 131, as of January 1, 1998. 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 highly regulated, changes in which could affect operating results. Currently, the Company purchases virgin and reclaimable refrigerants from domestic suppliers and its customers. The Company has increased its volume of refrigerant sales which has resulted in an increase in its inventory turnover rate and less inventory than historically maintained. The Company's inability to obtain refrigerants on commercially reasonable terms or a decline in demand for refrigerant could cause delays in refrigerant processing, possible loss of revenues, and could have a material adverse affect on operating results. Note 2 - Bank Credit Line On April 28, 1998, the Company entered into a credit facility with CIT Group/Credit Finance Group, Inc. ("CIT") which makes available borrowings to the Company of up to $5,000,000 and increases to $6,500,000 in 1999. The facility provides for a revolving line of credit and a six-year term loan and expires in April 2001. Advances under the revolving line of credit are limited to (i) 80% of eligible trade accounts receivable and (ii) 50% of eligible inventory (which inventory amount shall not exceed 200% of eligible trade accounts receivable or $3,250,000). As of June 30, 1998, the Company has availability under its revolving line of credit of approximately $1,500,000. Advances, available to the Company, under the term loan (currently approximately $1,000,000) are based on existing fixed asset valuations and future advances under the term loan up to an additional $1,000,000 are based on future capital expenditures. As of June 30, 1998 the Company had $996,000 outstanding under this facility. The facility bears interest at the prime rate plus 1.5% and substantially all of the Company's assets are pledged as collateral for obligations to CIT. In addition, among other things, the agreements restrict the Company's ability to declare or pay any dividends on its capital stock. This facility replaces the Company's previous line of credit with MTB Bank ("MTB"). All obligations with MTB have been satisfied subject to certain indemnification rights pursuant to an indemnity agreement among CIT, MTB and the Company. In connection with the loan agreements, the Company issued to CIT warrants to purchase 30,000 shares of the Company's common stock at an exercise price equal to 110% of the then fair market value of the stock, which on the date of issuance was $4.33 per share and expires April 29, 2001. 7 Hudson Technologies, Inc. and subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations The statements contained herein which are not historical facts are forward looking statements that involve risks and uncertainties, including but not limited to, changes in the markets for refrigerants (including unfavorable market conditions adversely affecting the demand for, and the price of refrigerants), regulatory and economic factors, increased competition, the nature of supplier or customer arrangements which become available to the Company in the future, adverse weather conditions, technological obsolescence and potential environmental liability. The Company's actual results may differ materially from the results discussed in any forward-looking statement. Results of Operations Three months ended June 30, 1998 as compared to the three months ended June 30, 1997 Revenues for the three months ended June 30, 1998 were $8,820,000, an increase of $3,343,000 or 61% from the $5,477,000 reported during the comparable 1997 period. The increase was attributable primarily to an increase in the volume of refrigerant sales due to favorable market conditions and an increase in service sales. Cost of sales for the three months ended June 30, 1998 were $6,723,000, an increase of $1,154,000 or 21% from the $5,569,000 reported during the comparable 1997 period due mainly to an increase in sales. As a percentage of sales, cost of sales were 76% of revenues for the three-month period ended June 30, 1998, a decrease from the 102% reported for the comparable 1997 period. The decrease in cost of sales as a percentage of revenues was primarily attributable to a change in product mix with a higher volume of higher margin refrigerant sales and the lack of a reduction of inventory values to net realizable value by $983,000 which occurred during the 1997 period. Operating expenses for the three months ended June 30, 1998 were $1,852,000, a decrease of $773,000 or 29% from the $2,625,000 reported during the comparable 1997 period. The decrease was primarily attributable to a decrease in professional fees and to a lesser extent a reduction in selling expense and depreciation and amortization. Net income for the three months ended June 30, 1998 was $158,000, as compared to the net loss of $2,866,000 reported during the comparable 1997 period. The increase in net income was primarily attributable to higher gross profits on refrigerant sales due to favorable market conditions and a reduction in operating expenses. Six months ended June 30, 1998 as compared to the six months ended June 30, 1997. Revenues for the six months ended June 30, 1998 were $15,525,000, an increase of $2,026,000 or 15% from the $13,499,000 reported during the comparable 1997 period. The increase was attributable primarily to an increase in the volume of refrigerant sales due to favorable market conditions and an increase in service sales. Cost of sales for the six months ended June 30, 1998 were $11,407,000, a decrease of $996,000 or 8% from the $12,403,000 reported during the comparable 1997 period due mainly to a reduction in the volume of lower margin refrigerant sales. As a percentage of sales, cost of sales were 74% of revenues for the six-month period ended June 30, 1998, a decrease from the 92% reported for the comparable 1997 period. The decrease in cost of sales as a percentage of revenues was primarily attributable to a change in product mix with a higher volume of higher margin refrigerant sales and the lack of a reduction of inventory values to net realizable value by $983,000 which occurred during the 1997 period. 8 Hudson Technologies, Inc. and subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Operating expenses for the six months ended June 30, 1998 were $3,759,000, a decrease of $557,000 or 13% from the $4,316,000 reported during the comparable 1997 period. The decrease was primarily attributable to a decrease in professional fees and to a lesser extent a reduction in selling expense and depreciation and amortization. Net income for the six months ended June 30, 1998 was $213,000, as compared to the net loss of $3,524,000 reported during the comparable 1997 period. The increase in net income was primarily attributable to higher gross profits on refrigerant sales due to favorable market conditions and a reduction in operating expenses. Liquidity and Capital Resources At June 30, 1998, the Company had working capital of approximately $2,502,000. A principle component of current assets is inventory. The Company's ability to sell and replace its inventory and the prices at which it can be sold are subject to current market conditions. The Company has historically financed its working capital requirements through cash flows from operations, the issuance of debt and equity securities, bank borrowings and loans from officers. Net cash provided by operating activities was $779,000 for the six months ended June 30, 1998 compared with net cash used by operating activities of $1,431,000 for the comparable 1997 period. Net cash provided by operating activities was primarily attributable to the net income for the period. Net cash used by investing activities was $312,000 for the six months ended June 30, 1998 compared with net cash used by investing activities of $765,000 for the comparable 1997 period. The net cash usage consisted primarily of equipment additions. Net cash used by financing activities was $309,000 for the six months ended June 30, 1998 compared with net cash provided by financing activities of $2,166,000 for the comparable 1997 period. The net cash used by financing activities in 1998 consisted of short and long term debt repayment. Net cash provided by financial activities in 1997 consisted of proceeds from the sale of stock offset by repayment of debt. At June 30, 1998, the Company had cash and equivalents of $784,000. During 1996, the Company obtained financing from two lending institutions which enabled it to rent an additional $1.7 million of equipment under terms of operating leases. Hudson utilized these facilities to acquire automated aerosol packaging equipment of approximately $1,000,000, ten refrigerant gas bulk-tank storage units of approximately $400,000, and other industrial equipment of $300,000. 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 an average price of $8.25 per share. No repurchases were made subsequently. On June 18, and September 30, 1996, the Company issued convertible debentures with a combined face value of $5.3 million. These debentures were retired or converted to common stock through January 1997. In connection with its bankruptcy reorganization in June 1994, prior to its acquisition by Hudson, Refrigerant Reclamation Corporation of America ("RRCA") has obligations (as modified by a settlement during April 1996) totaling $206,000 at June 30, 1998 payable in periodic payments to bankruptcy creditors through July 2000. 9 Hudson Technologies, Inc. and subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) On November 14, 1996, certain officers and stockholders of Hudson made unsecured loans in the principal amount of $678,000 to the Company; repayable upon receipt of proceeds from property mortgage discussed below or on subsequent demand. On January 29, 1997, the Company repaid the officer loans together with accrued interest outstanding. During 1996, the Company mortgaged its property and building located in Ft. Lauderdale, Florida with Turnberry Savings Bank, NA. The mortgage of $671,000 at June 30, 1998 bears interest at a rate of 9.5% and is repayable over 20 years through January 2017. During January 1997, in connection with the execution of various agreements with E.I. DuPont de Nemours ("DuPont'), the Company obtained additional equity funds of $3,500,000 from an affiliate of DuPont. Proceeds were primarily utilized to retire debt. During January 1997, the Company entered into a commitment 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. During May 1997, certain officers of Hudson made unsecured loans in the aggregate principal amount of $585,000 to the Company. Such loans were due on demand and bore interest from 8% to 8.88% per annum. On August 12, 1997, the Company repaid the loans together with outstanding interest. During May 1998, certain officers of Hudson made unsecured loans in the aggregate principal amount of $300,000 to the Company. Such loans were due on demand and bore interest at 10% per annum. On June 30, 1998, the Company repaid the loans together with outstanding interest. On April 28, 1998, the Company entered into a credit facility with CIT Group/Credit Finance Group, Inc. ("CIT") which makes available borrowings to the Company of up to $5,000,000 and increases to $6,500,000 in 1999. The facility provides for a revolving line of credit and a six-year term loan and expires in April 2001. Advances under the revolving line of credit are limited to (i) 80% of eligible trade accounts receivable and (ii) 50% of eligible inventory (which inventory amount shall not exceed 200% of eligible trade accounts receivable or $3,250,000). As of June 30, 1998, the Company has availability under its revolving line of credit at approximately $1,500,000. Advances, available to the Company, under the term loan (currently approximately $1,000,000) are based on existing fixed asset valuations and future advances under the term loan up to an additional $1,000,000 are based on future capital expenditures. As of June 30, 1998 the Company had $996,000 outstanding under this facility. The facility bears interest at the prime rate plus 1.5% and substantially all of the Company's assets are pledged as collateral for obligations to CIT. In addition, among other things, the agreements restrict the Company's ability to declare or pay any dividends on its capital stock. This facility replaces the Company's previous line of credit with MTB Bank ("MTB"). All obligations with MTB have been satisfied subject to certain indemnification rights pursuant to an indemnity agreement among CIT, MTB and the Company. In connection with the loan agreements, the Company issued to CIT warrants to purchase 30,000 shares of the Company's common stock at an exercise price equal to 110% of the then fair market value of the stock, which on the date of issuance was $4.33 per share, and expires April 29, 2001. The Company believes, based on current plans and assumptions, that its credit facility will be sufficient to support its current operating requirements for the foreseeable future. However, in the event that the Company's plans change or its assumptions prove to be inaccurate or its credit facility is insufficient to satisfy its cash requirements, the Company could be required to seek additional financing. There can be no assurance that such additional financing will be available. 10 Hudson Technologies, Inc. and subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Reliance on Suppliers and Customers The Company's financial performance is in part dependent on its ability to obtain sufficient quantities of virgin and reclaimable refrigerants from manufacturers, wholesalers, distributors, bulk gas brokers, and from other sources; and on corresponding demand for 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, 100% of virgin refrigerants provided to specified market segment customers must be purchased from DuPont. During the six months ended June 30, 1998, two customers accounted for 52% of revenues. 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; non-recurring refrigerant sales and service; availability and price of refrigerant products (virgin or reclaimable); changes in reclamation technology and regulations, timing in introduction and/or retrofit or replacement of CFC-based refrigeration equipment by domestic users of refrigerants, the rate of expansion of the Company's operations; and by other factors. During 1998, the Company has increased its volume of refrigerant sales which has resulted in an increase in its inventory turnover rate and less inventory than historically maintained. The Company's business has historically been seasonal in nature with peak sales of refrigerants occurring in the first half of each year. Delays in securing adequate supplies of refrigerants at peak demand periods, lack of refrigerant demand, increased expenses, and declining refrigerant prices could result in significant losses. There can be no assurance that the foregoing factors will not occur and result in a material adverse affect on the Company's financial position and significant losses. Year 2000 Issue The Company has assessed the potential issues associated with the year 2000 and believes that its cost to address such issues would not be material. The Company anticipates that all of its operating systems will be year 2000 compliant by December 31, 1998. The Company also believes that costs or consequences of an incomplete or untimely resolution would not result in the occurrence of a material event or uncertainty reasonably likely to have a material adverse effect on the Company. However, the Company has not determined whether its principle suppliers and customers are year 2000 compliant. In the event any of the Company's principle suppliers and customers are not year 2000 compliant it may have a material adverse affect on the Company. 11 PART II. OTHER INFORMATION Hudson Technologies, Inc. and subsidiaries 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, specifically trichlorofluoromethane (R-11). 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 was the cause of the contamination of United's wells. The DEC letter states that it is not aware of the extent of the contamination or how the refrigerants entered the groundwater. 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's monthly operating costs for certain wells from September 1996 through April 1997, and (c) continued monitoring of R-11 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. During August and September 1997, various proposals for possible further remediation were discussed with the DEC and United in light of the reduction of levels of R-11 in United's Wells. Since August 1997 the levels of R-11 have remained nearly non-detectable and well under minimum contaminant levels established by the State of New York. In January 1998, the Company agreed to install a remediation system at the Company's facility to remove any remaining R-11 levels in the groundwater under and around the Company's facility. The cost of this remediation is estimated to be a range of approximately $80,000 to $100,000. During December 1997, United Water alleged that it discovered levels of Dichlorodifluoromethane (R-12) in two of its wells within close proximity to the Company's facility, and has alleged that the Company is the source. Sampling by the Company of various monitoring wells installed around the Company's facilities have been taken on a monthly basis since August 1996 and have failed to detect any levels of R-12 in the groundwater in and around the Company's facility. In June 1998, United Water commenced an action against the Company in the Supreme Court of the State of New York, Rockland County, seeking damages in the amount of $1.2 Million allegedly sustained as a result of the foregoing. The Company maintains that the allegations in the complaint are without merit and that the damages claimed by United Water are significantly overstated and bear little relation to any damages that United Water allegedly sustained. The Company intends to vigorously defend this action. There can be no assurance that this action, or any settlement thereof, will be resolved in a manner favorable to the Company, or that the 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. In June 1997, an action was commenced against the Company in the 19th Judicial District Court, Parish East Baton Rouge, State of Louisiana, by a former salesperson and her spouse, who was terminated by the Company in June 1996, alleging that the Company wrongfully terminated the employee, and is seeking unspecified damages. This action was settled in April 1998 in the amount of approximately $15,000. 12 PART II. OTHER INFORMATION Hudson Technologies, Inc. and subsidiaries During March and April, 1998, six (6) complaints, each alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, were filed by a total of eight shareholders, on behalf of themselves and all others similarly situated, against the Company and certain of its officers and directors in the United States District Court for the Southern District of New York. Each of the complaints alleges that the defendants, among other things, misrepresented material information about the Company's financial results and prospects, and its customer relationships. The complaints in five of these actions seek relief on behalf of persons purchasing common stock between August 8, 1995 and August 15, 1997, and the complaint in the sixth action seeks relief on behalf of persons purchasing common stock between March 31, 1997 and August 15, 1997. The Company maintains that the allegations of wrongdoing alleged in the complaints are without merit. The Company intends to vigorously defend the claims brought against it and has retained the law firm of Davis, Polk and Wardwell for that defense. There can be no assurance that any of these actions, or the settlement thereof, will be resolved in a manner favorable to the Company, or that the 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. In May 1998, an action was commenced in the Supreme Court of the State of New York, Rockland County, by BNY Financial Corporation ("BNY") against the Company seeking damages in the amount of $49,051 for legal fees and expenses allegedly incurred in connection with certain financial dealings and discussions engaged in between the Company and BNY. The Company denies any liability for such expenses and intends to defend the action vigorously, and has also asserted counterclaims seeking the return of certain fees paid by the Company to BNY in connection with those financial dealings. There can be no assurance that this action, or any settlement thereof, will be resolved in a manner favorable to the Company. Hudson Technologies and its subsidiaries are subject to various other claims and/or lawsuits from both private and governmental parties arising from the ordinary course of business; none of which are material. Item 2. Changes in Securities During the three months ended June 30, 1998, the Company granted options to purchase 301,366 shares of common stock to certain employees pursuant to its 1997 Stock Option Plan at exercise prices ranging from $3.81 to $4.00. In addition, the Company issued to CIT warrants to purchase 30,000 shares of the Company's common stock at an exercise price of $4.33. The Company relied on Section 4(2) under the Securities Act of 1933 as transactions by an issuer not involving a public offering. Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are attached to this report. Exhibit 27: Financial Data Schedule (for SEC use only) (b) No report on Form 8-K was filed during the quarter ended June 30, 1998. 13 Hudson Technologies, Inc. and subsidiaries Form 10-QSB of June 30, 1998 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/ Kevin J. Zugibe August 10, 1998 ------------------------------------------ Kevin J. Zugibe Date Chairman/CEO By: /s/ Brian F. Coleman August 10, 1998 ------------------------------------------ Brian F. Coleman Date Vice President and Chief Financial Officer 14 EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB AT JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATMENTS. 6-MOS DEC-31-1998 JUN-30-1998 784,000 0 4,156,000 248,000 1,407,000 6,577,000 5,704,000 0 12,405,000 4,075,000 0 0 0 51 6,425,000 12,405,000 15,525,000 15,525,000 11,407,000 11,407,000 547,000 0 198,000 213,000 0 213,000 0 0 0 213,000 0.04 0.04
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