New York
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13-3641539
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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1 Blue Hill Plaza
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P.O. Box 1541
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10965
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Pearl River, New York
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(Zip Code)
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(Address of principal executive offices)
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Registrant’s telephone number, including area code
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(845) 735-6000
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Large accelerated filer
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¨
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Accelerated filer
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¨
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Non-accelerated filer (do not check if a smaller reporting company)
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¨
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Smaller reporting company
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x
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Common stock, $0.01 par value
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23,780,606 shares
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Class
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Outstanding at October 28, 2011
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Part
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Item
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Page
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|||
Part I.
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Financial Information
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||||
Item 1
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- Financial Statements
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||||
- Consolidated Balance Sheets
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3
|
||||
- Consolidated Statements of Operations
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4
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||||
- Consolidated Statements of Cash Flows
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5
|
||||
- Notes to the Consolidated Financial Statements
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6
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||||
Item 2
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- Management’s Discussion and Analysis of Financial Condition and Results
of Operations
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12
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|||
Item 3
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- Quantitative and Qualitative Disclosures About Market Risk
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17
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|||
Item 4
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- Controls and Procedures
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17
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|||
Part II.
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Other Information
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||||
Item 1
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- Legal Proceedings
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18
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|||
Item 6
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- Exhibits
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18
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|||
Signatures
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September 30,
2011
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December 31,
2010
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|||||||
(unaudited)
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||||||||
Assets
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||||||||
Current assets:
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||||||||
Cash and cash equivalents
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$ | 5,189 | $ | 3,926 | ||||
Trade accounts receivable - net of allowance for doubtful accounts of $290 and $220
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4,617 | 1,767 | ||||||
Inventories
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10,008 | 18,211 | ||||||
Prepaid expenses and other current assets
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1,781 | 376 | ||||||
Total current assets
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21,595 | 24,280 | ||||||
Property, plant and equipment, less accumulated depreciation and amortization
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3,043 | 3,008 | ||||||
Other assets
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79 | 66 | ||||||
Deferred tax assets - net
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2,640 | 3,669 | ||||||
Intangible assets, less accumulated amortization
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79 | 73 | ||||||
Total Assets
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$ | 27,436 | $ | 31,096 | ||||
Liabilities and Stockholders' Equity
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||||||||
Current liabilities:
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||||||||
Accounts payable and accrued expenses
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$ | 3,332 | $ | 6,350 | ||||
Accrued payroll
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378 | 693 | ||||||
Short-term debt and current maturities of long-term debt
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3,821 | 5,012 | ||||||
Total current liabilities
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7,531 | 12,055 | ||||||
Long-term debt, less current maturities
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150 | 1,018 | ||||||
Total Liabilities
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7,681 | 13,073 | ||||||
Commitments and contingencies
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||||||||
Stockholders' equity:
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||||||||
Preferred stock shares authorized 5,000,000
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||||||||
Series A Convertible Preferred stock, $0.01 par value ($100 liquidation preference value); shares authorized 150,000 ; none issued or outstanding
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— | — | ||||||
Common stock, $0.01 par value; shares authorized 50,000,000; 23,780,606 issued and outstanding
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238 | 238 | ||||||
Additional paid-in capital
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42,863 | 42,887 | ||||||
Accumulated deficit
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(23,346 | ) | (25,102 | ) | ||||
Total Stockholders' Equity
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19,755 | 18,023 | ||||||
Total Liabilities and Stockholders' Equity
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$ | 27,436 | $ | 31,096 |
Three month period
ended September 30,
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Nine month period
ended September 30,
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|||||||||||||||
2011
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2010
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2011
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2010
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|||||||||||||
Revenues
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$ | 11,935 | $ | 7,996 | $ | 40,465 | $ | 33,133 | ||||||||
Cost of sales
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10,465 | 6,192 | 32,586 | 26,455 | ||||||||||||
Gross Profit
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1,470 | 1,804 | 7,879 | 6,678 | ||||||||||||
Operating expenses:
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||||||||||||||||
Selling and marketing
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563 | 541 | 1,660 | 1,545 | ||||||||||||
General and administrative
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900 | 865 | 2,693 | 2,457 | ||||||||||||
Total operating expenses
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1,463 | 1,406 | 4,353 | 4,002 | ||||||||||||
Operating income
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7 | 398 | 3,526 | 2,676 | ||||||||||||
Other income (expense):
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||||||||||||||||
Interest expense
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(190 | ) | (224 | ) | (707 | ) | (797 | ) | ||||||||
Interest income
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2 | 6 | 14 | 6 | ||||||||||||
Total other income (expense)
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(188 | ) | (218 | ) | (693 | ) | (791 | ) | ||||||||
Income (loss) before income taxes
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(181 | ) | 180 | 2,833 | 1,885 | |||||||||||
Income tax expense (benefit)
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(68 | ) | (20 | ) | 1,077 | 628 | ||||||||||
Net income (loss)
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$ | (113 | ) | $ | 200 | $ | 1,756 | $ | 1,257 | |||||||
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||||||||||||||||
Net income (loss) per common share – Basic
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$ | (0.00 | ) | $ | 0.01 | $ | 0.07 | $ | 0.06 | |||||||
Net income (loss) per common share - Diluted
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$ | (0.00 | ) | $ | 0.01 | $ | 0.07 | $ | 0.05 | |||||||
Weighted average number of shares outstanding – Basic
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23,780,606 | 23,780,606 | 23,780,606 | 21,904,828 | ||||||||||||
Weighted average number of shares outstanding - Diluted
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23,780,606 | 25,228,525 | 24,921,835 | 23,363,760 |
Nine month period
ended September 30,
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||||||||
2011
|
2010
|
|||||||
Cash flows from operating activities:
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||||||||
Net income
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$ | 1,756 | 1,257 | |||||
Adjustments to reconcile net income to cash provided by operating activities:
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||||||||
Depreciation and amortization
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379 | 407 | ||||||
Allowance for doubtful accounts
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70 | 47 | ||||||
Value of share-based payment arrangements
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66 | 183 | ||||||
Amortization of deferred finance costs
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6 | 18 | ||||||
Deferred tax benefit
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1,029 | 606 | ||||||
Changes in assets and liabilities:
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||||||||
Trade accounts receivable
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(2,920 | ) | (2,660 | ) | ||||
Inventories
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8,203 | 3,621 | ||||||
Prepaid and other assets
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(1,405 | ) | (172 | ) | ||||
Other assets
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(19 | ) | 13 | |||||
Accounts payable and accrued expenses
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(3,333 | ) | 308 | |||||
Cash provided by operating activities
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3,832 | 3,628 | ||||||
Cash flows from investing activities:
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||||||||
Additions to patents
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(26 | ) | (9 | ) | ||||
Additions to property, plant, and equipment
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(394 | ) | (264 | ) | ||||
Cash used by investing activities
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(420 | ) | (273 | ) | ||||
Cash flows from financing activities:
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||||||||
Proceeds from issuance of securities – net
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— | 5,006 | ||||||
Purchase of common stock equivalents
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(90 | ) | — | |||||
Repayments from short-term debt – net
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(1,336 | ) | (3,781 | ) | ||||
Proceeds from issuance of long-term debt
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— | 100 | ||||||
Repayment of long-term debt
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(723 | ) | (899 | ) | ||||
Cash provided (used) by financing activities
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(2,149 | ) | 426 | |||||
Increase in cash and cash equivalents
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1,263 | 3,781 | ||||||
Cash and cash equivalents at beginning of period
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3,926 | 299 | ||||||
Cash and cash equivalents at end of period
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$ | 5,189 | $ | 4,080 | ||||
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||||||||
Supplemental disclosure of cash flow information:
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||||||||
Cash paid during period for interest
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$ | 688 | $ | 743 | ||||
Cash paid for income taxes
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$ | 48 | $ | 22 |
Nine Month Period Ended September 30,
(in thousands, unaudited)
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2011
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2010
|
||||||
Refrigerant and reclamation sales
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$ | 37,455 | $ | 30,540 | ||||
RefrigerantSide® Services
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3,010 | 2,593 | ||||||
Total
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$ | 40,465 | $ | 33,133 |
Three Month Period
Ended September 30,
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Nine Month Period
Ended September 30,
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|||||||||||||||
2011
|
2010
|
2011
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2010
|
|||||||||||||
Net Income (loss)
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$ | (113 | ) | $ | 200 | $ | 1,756 | $ | 1,257 | |||||||
Weighted average number of shares – basic
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23,780,606 | 23,780,606 | 23,780,606 | 21,904,828 | ||||||||||||
Shares underlying warrants
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— | 23,439 | 14,856 | 34,363 | ||||||||||||
Shares underlying options
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— | 1,424,480 | 1,126,373 | 1,424,569 | ||||||||||||
Weighted average number of shares outstanding – diluted
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23,780,606 | 25,228,525 | 24,921,835 | 23,363,760 |
Nine Month Period Ended September 30,
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2011
|
2010
|
||||||
Assumptions
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||||||||
Dividend Yield
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0 | % | 0 | % | ||||
Risk free interest rate
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1.0 | % |
0.8% to 2.5%
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|||||
Expected volatility
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63 | % |
56 to 85%
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|||||
Expected lives
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5 years
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3 to 5 years
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Stock Option Plan Totals
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Shares
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Weighted
Average
Exercise Price
|
||||||
Outstanding at December 31, 2009
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3,394,343 | $ | 1.20 | |||||
· Exercised
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(101,400 | ) | $ | 0.90 | ||||
· Forfeited
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(36,000 | ) | $ | 2.02 | ||||
· Granted
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155,000 | $ | 1.89 | |||||
Outstanding at December 31, 2010
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3,411,943 | $ | 1.23 | |||||
· Cancelled
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(49,000 | ) | $ | 2.04 | ||||
· Granted
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75,000 | $ | 1.31 | |||||
Outstanding at September 30, 2011
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3,437,943 | $ | 1.22 |
Weighted Average
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|||||||||
Number of
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Remaining
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Weighted Average
|
|||||||
Options
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Contractual Life
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Exercise Price
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|||||||
Options outstanding
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3,437,943 |
5.8 years
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$ | 1.22 | |||||
Options vested
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3,422,943 |
5.8 years
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$ | 1.22 |
Options outstanding
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$ | 386,000 | ||
Options vested
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— |
Options vested
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$ | 1.28 |
Twelve Month Period Ended September 30,
|
||||||||||||||||||||||||
Long and short term debt and capital lease obligations:
|
2012
|
2013
|
2014
|
2015
|
2016
|
Total
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||||||||||||||||||
Principal
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$ | 3,821 | $ | 81 | $ | 39 | $ | 19 | $ | 11 | $ | 3,971 | ||||||||||||
Estimated interest (1) (2)
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291 | 7 | 2 | 1 | — | 301 | ||||||||||||||||||
Operating leases
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505 | 233 | 115 | 119 | 116 | 1,088 | ||||||||||||||||||
Total contractual cash obligations
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$ | 4,617 | $ | 321 | $ | 156 | $ | 139 | $ | 127 | $ | 5,360 |
(a)
|
EBITDA, which represents a non-GAAP measurement of certain financial results, is defined in the Facility as total income before interest expense, taxes, depreciation, amortization, and other non-cash expenses (“Adjusted EBITDA”). The Adjusted EBITDA is calculated quarterly on a rolling twelve months basis. Our calculation of Adjusted EBITDA does not represent and should not be considered as an alternative to net income or cash provided by operating activities as determined by GAAP. We make no representation or assertion that Adjusted EBITDA is indicative of our cash provided by operating activities or results of operations nor that Adjusted EBITDA is a substitute measure for income from operations. We have provided a reconciliation of Adjusted EBITDA to net income solely for the purpose of complying with SEC regulations and not as an indication that Adjusted EBITDA is a substitute measure for income from operations.
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(b)
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Tangible net worth is calculated quarterly and is defined as total assets less intangible assets, less total liabilities.
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(c)
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Capital expenditures are compared quarterly on a year to date basis to an annual cap set forth in the Facility.
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31.1
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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31.2
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Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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32.1
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Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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32.2
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Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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101
|
Interactive Data Files Pursuant to Rule 405 of Regulation S-T
|
By:
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/s/ Kevin J. Zugibe
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November 1, 2011
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|
Kevin J. Zugibe
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Date
|
||
Chairman and
|
|||
Chief Executive Officer
|
By:
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/s/ James R. Buscemi
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November 1, 2011
|
|
James R. Buscemi
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Date
|
||
Chief Financial Officer
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Number
|
Exhibit Title | |
31.1
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31.2
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32.1
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
32.2
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
101
|
Interactive Data Files Pursuant to Rule 405 of Regulation S-T
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Hudson Technologies, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ Kevin J. Zugibe
|
Kevin J. Zugibe
|
Chief Executive Officer and
|
Chairman of the Board
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Hudson Technologies, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ James R. Buscemi
|
James R. Buscemi
|
Chief Financial Officer
|
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ Kevin J. Zugibe
|
Kevin J. Zugibe
|
Chief Executive Officer and
|
Chairman of the Board
|
November 1, 2011
|
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ James R. Buscemi
|
James R. Buscemi
|
Chief Financial Officer
|
November 1, 2011
|
Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Trade accounts receivable, allowance for doubtful accounts | $ 290 | $ 220 |
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 50,000,000 | 50,000,000 |
Common stock, issued | 23,780,606 | 23,780,606 |
Common stock, outstanding | 23,780,606 | 23,780,606 |
Preferred Stock | ||
Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
Series A Convertible Preferred stock | ||
Preferred stock, par value | $ 0.01 | $ 0.01 |
Preferred stock, liquidation preference value | $ 100 | $ 100 |
Preferred stock, shares authorized | 150,000 | 150,000 |
Preferred stock, issued | 0 | 0 |
Preferred stock, outstanding | 0 | 0 |
Consolidated Statements of Operations (USD $) In Thousands, except Share data | 3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Revenues | $ 11,935 | $ 7,996 | $ 40,465 | $ 33,133 |
Cost of sales | 10,465 | 6,192 | 32,586 | 26,455 |
Gross Profit | 1,470 | 1,804 | 7,879 | 6,678 |
Operating expenses: | ||||
Selling and marketing | 563 | 541 | 1,660 | 1,545 |
General and administrative | 900 | 865 | 2,693 | 2,457 |
Total operating expenses | 1,463 | 1,406 | 4,353 | 4,002 |
Operating income | 7 | 398 | 3,526 | 2,676 |
Other income (expense): | ||||
Interest expense | (190) | (224) | (707) | (797) |
Interest income | 2 | 6 | 14 | 6 |
Total other income (expense) | (188) | (218) | (693) | (791) |
Income (loss) before income taxes | (181) | 180 | 2,833 | 1,885 |
Income tax expense (benefit) | (68) | (20) | 1,077 | 628 |
Net income (loss) | $ (113) | $ 200 | $ 1,756 | $ 1,257 |
Net income (loss) per common share - Basic | $ 0.00 | $ 0.01 | $ 0.07 | $ 0.06 |
Net income (loss) per common share - Diluted | $ 0.00 | $ 0.01 | $ 0.07 | $ 0.05 |
Weighted average number of shares outstanding - Basic | 23,780,606 | 23,780,606 | 23,780,606 | 21,904,828 |
Weighted average number of shares outstanding - Diluted | 23,780,606 | 25,228,525 | 24,921,835 | 23,363,760 |
Document and Entity Information | 9 Months Ended | |
---|---|---|
Sep. 30, 2011 | Oct. 28, 2011 | |
Document Information [Line Items] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Sep. 30, 2011 | |
Document Fiscal Year Focus | 2011 | |
Document Fiscal Period Focus | Q3 | |
Trading Symbol | HDSN | |
Entity Registrant Name | HUDSON TECHNOLOGIES INC /NY | |
Entity Central Index Key | 0000925528 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 23,780,606 |
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Debt | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Debt |
Note 3 - Debt
On
April 17, 2008, Hudson amended its credit facility with Keltic
Financial Partners, LP and secured participation from Bridge
Healthcare Financial, LLC (“Bridge”) to provide for
borrowings up to $15,000,000 (the
“Facility”). On September 23, 2009,
Keltic Financial Partners II, LP, successor-in-interest to Keltic
Financial Partners, LP (“Keltic”) advised the Company
that it has assumed all of Bridge’s rights under the
Facility. On April 19, 2011 the Company amended
its credit facility with Keltic extending the Facility to June 26,
2012. The Facility consists of a revolving line of
credit and two term loans. Advances under the revolving line of
credit are limited to (i) 85% of eligible trade accounts receivable
and (ii) 55% of eligible inventory. Advances available
to Hudson under the A and B term loans may not exceed $2,500,000
and $4,500,000, respectively. At September 30, 2011, the Facility
bore interest at 6.5%. Substantially all of
Hudson's assets are pledged as collateral for its obligations under
the Facility. In addition, among other things, the
Facility restricts Hudson's ability to declare or pay any cash
dividends on its capital stock. As of September 30,
2011, Hudson had in the aggregate $37,000 of borrowings outstanding
and $7,274,000 available for borrowing under the revolving line of
credit. In addition, as of September 30, 2011, the
Company had $2,750,000 of borrowings outstanding under the A and B
term loans.
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Summary of significant accounting policies |
Note 1 - Summary of significant accounting policies
Business
Hudson
Technologies, Inc., incorporated under the laws of New York on
January 11, 1991, is a refrigerant services company providing
innovative solutions to recurring problems within the refrigeration
industry. The Company's products and services are
primarily used in commercial air conditioning, industrial
processing and refrigeration systems, including (i) refrigerant
sales, (ii) refrigerant management services consisting primarily of
reclamation of refrigerants and (iii) RefrigerantSide®
Services performed at a customer's site, consisting of system
decontamination to remove moisture, oils and other
contaminants. In addition, RefrigerantSide®
Services include predictive and diagnostic services for industrial
and commercial refrigeration applications, which are designed to
predict potential catastrophic problems and identify inefficiencies
in an operating system. The Company’s Chiller
Chemistry®, Chill Smart®, Fluid Chemistry®, and
Performance Optimization are predictive and diagnostic service
offerings. The Company operates through its wholly-owned
subsidiary, Hudson Technologies Company. Unless the context
requires otherwise, reference to the “Company”,
“Hudson”, “we”, “us”,
“our”, or similar pronouns refer to Hudson
Technologies, Inc. and its subsidiaries.
The
accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial statements and with the
instructions of Regulation S-X. 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, 2010. Operating
results for the nine month period ended September 30, 2011 are not
necessarily indicative of the results that may be expected for the
year ending December 31, 2011.
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 Holdings, Inc. and Hudson
Technologies Company.
Fair value of financial instruments
The
carrying values of financial instruments including trade accounts
receivable and accounts payable approximate fair value at September
30, 2011 and December 31, 2010, 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, as of September 30, 2011 and
December 31, 2010.
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 and, at times, the balances exceed FDIC
insurance coverage. The Company's trade accounts
receivables are primarily due from companies throughout the United
States. 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. The carrying
value of the Company’s accounts receivable is reduced by the
established allowance for doubtful accounts. The
allowance for doubtful accounts includes any accounts receivable
balances that are determined to be uncollectible, along with a
general reserve for the remaining accounts receivable
balances. The Company adjusts its reserves based on
factors that affect the collectability of the accounts receivable
balances.
For
the nine months ended September 30, 2011, no one customer accounted
for 10% or more of the Company’s
revenues. For the nine months ended September 30,
2010, no one customer accounted for 10% or more of the
Company’s revenues.
The
loss of a principal customer or a decline in the economic prospects
of and/or a reduction in purchases of the Company's products or
services by any such customer could have an adverse effect on the
Company's future financial position and results of
operations.
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 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. The cost to complete equipment
that is under construction is not considered to be material to the
Company's financial position. 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. Costs of maintenance and repairs
are charged to expense when incurred.
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.
Revenues and cost of sales
Revenues
are recorded upon completion of service or product shipment and
passage of title to customers in accordance with contractual
terms. The Company evaluates each sale to ensure
collectability. In addition, each sale is based on an
arrangement with the customer and the sales price to the buyer is
fixed. License fees are recognized over the period of
the license based on the respective performance measurements
associated with the license. Royalty revenues are
recognized when earned. Cost of sales is recorded based
on the cost of products shipped or services performed and related
direct operating costs of the Company's facilities. To
the extent that the Company charges its customers shipping fees
such amounts are included as a component of revenue and the
corresponding costs are included as a component of cost of
sales.
The
Company's revenues are derived from refrigerant and reclamation
sales and RefrigerantSide® Services, including license and
royalty revenues. The revenues for each of these lines
are as follows:
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. The tax benefit associated with the Company's net
operating loss carryforwards (“NOLs”) is recognized to
the extent that the Company is expected to recognize future taxable
income. The Company assesses the recoverability of its deferred tax
assets based on its expectation that it will recognize future
taxable income and adjusts its valuation allowance
accordingly. As of September 30, 2011 and December 31,
2010, the net deferred tax asset is $2,640,000 and $3,669,000,
respectively.
Certain
states either do not allow or limit NOLs and as such the Company
will be liable for certain state taxes. To the extent
that the Company utilizes its NOLs, it will not pay tax on such
income but may be subject to the federal alternative minimum
tax. In addition, to the extent that the Company’s
net income, if any, exceeds the annual NOL limitation it will pay
income taxes based on existing statutory
rates. Moreover, as a result of a “change in
control”, as defined by the Internal Revenue Service, the
Company’s ability to utilize its existing NOLs is subject to
certain annual limitations. The Company’s NOLs are
subject to annual limitations ranging from $1,300,000 to
$2,500,000.
As
a result of an Internal Revenue Service audit, the 2007 and prior
federal tax years have been closed. The Company operates
in many states throughout the United States and, as of September
30, 2011, the various states’ statutes of limitations remain
open for tax years subsequent to 2004. The Company
recognizes interest and penalties, if any, relating to income taxes
as a component of the provision for income taxes.
Income per common and equivalent shares
If
dilutive, common equivalent shares (common shares assuming exercise
of options and warrants) utilizing the treasury stock method are
considered in the presentation of diluted earnings per
share. The reconciliation of shares used to determine
net income per share is as follows (dollars in thousands,
unaudited):
During
the three month period ended September 30, 2011 and 2010, certain
options and warrants aggregating 4,830,193 and 1,711,875 shares,
respectively, have been excluded from the calculation of diluted
shares, due to the fact that their effect would be
anti-dilutive.
During
the nine month period ended September 30, 2011 and 2010, certain
options and warrants aggregating 1,476,875 and 1,474,375 shares,
respectively, have been excluded from the calculation of diluted
shares, due to the fact that their effect would be
anti-dilutive.
Estimates and risks
The
preparation of financial statements in conformity with generally
accepted accounting principles in the United States 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 utilizes both internal and external sources to evaluate
potential current and future liabilities for various commitments
and contingencies. In the event that the assumptions or
conditions change in the future, the estimates could differ from
the original estimates.
Several
of the Company's accounting policies involve significant judgments,
uncertainties and estimations. The Company bases its
estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the
carrying values of assets and liabilities. Actual
results may differ from these estimates under different assumptions
or conditions. To the extent that actual results differ
from management's judgments and estimates, there could be a
material adverse effect on the Company. On a continuous
basis, the Company evaluates its estimates, including, but not
limited to, those estimates related to its allowance for doubtful
accounts, inventory reserves, valuation allowance for the deferred
tax assets relating to its NOLs and commitments and
contingencies. With respect to accounts receivable, the
Company estimates the necessary allowance for doubtful accounts
based on both historical and anticipated trends of payment history
and the ability of the customer to fulfill its
obligations. For inventory, the Company evaluates both
current and anticipated sales prices of its products to determine
if a write down of inventory to net realizable value is necessary.
In determining the Company’s valuation allowance for its
deferred tax assets, the Company assesses its ability to generate
taxable income in the future.
The
Company participates in an industry that is highly regulated,
changes in which could affect operating
results. Currently the Company purchases virgin,
hydrochlorofluorocarbon (“HCFC”) and hydroflourocarbon
(“HFC”) refrigerants and reclaimable, primarily HCFC
and chlorofluorocarbon (“CFC”), refrigerants from
suppliers and its customers. Effective January 1, 1996,
the Clean Air Act (the “Act”) prohibited the production
of virgin CFC refrigerants and limited the production of virgin
HCFC refrigerants. Effective January 2004, the Act
further limited the production of virgin HCFC refrigerants and
federal regulations were enacted which imposed limitations on the
importation of certain virgin HCFC
refrigerants. Additionally, effective January 1, 2010,
the Act further limited the production of virgin HCFC refrigerants
and additional federal regulations were enacted which imposed
further limitation on the use, production and importation of virgin
HCFC refrigerants. Under the Act, production of certain
virgin HCFC refrigerants is scheduled to be phased out during the
period 2010 through 2020, and production of all virgin HCFC
refrigerants is scheduled to be phased out by
2030. Notwithstanding the limitations under the Act, the
Company believes that sufficient quantities of new and used
refrigerants will continue to be available to it at a reasonable
cost for the foreseeable future. To the extent that the
Company is unable to source sufficient quantities of refrigerants
or is unable to obtain refrigerants on commercially reasonable
terms or experiences a decline in demand and/or price for
refrigerants, the Company could realize reductions in refrigerant
processing and possible loss of revenues, which would have a
material adverse affect on operating results.
The
Company is subject to various legal proceedings. The
Company assesses the merit and potential liability associated with
each of these proceedings. In addition, the Company
estimates potential liability, if any, related to these
matters. To the extent that these estimates are not
accurate, or circumstances change in the future, the Company could
realize liabilities, which would have a material adverse effect on
operating results and its financial position.
Impairment of long-lived assets
The
Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying
amount of the assets to the future net cash flows expected to be
generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair
value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less the
cost to sell.
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Share-based compensation |
Note 2 - Share-based compensation
Share-based
compensation represents the cost related to share-based awards,
typically stock options, granted to employees, non-employees,
officers and directors. Share-based compensation is
measured at grant date, based on the estimated aggregate fair value
of the award on the grant date, and such amount is charged to
compensation expense on a straight-line basis (net of estimated
forfeitures) over the requisite service period. For the
three month period ended September 30, 2011 and 2010, the share
based compensation expense of $56,000 and $150,000, respectively,
is reflected in general and administrative expenses in the
consolidated statements of operations. For the nine
month period ended September 30, 2011 and 2010, the share-based
compensation expense of $66,000 and $170,000, respectively, is
reflected in general and administrative expenses in the
consolidated statements of operations.
Share-based
awards have historically been stock options issued pursuant to the
terms of the Company’s 1994 and 1997 stock option plans and
the Company’s 2004 and 2008 stock incentive plans,
(collectively, the “Plans”), described
below. The Plans may be administered by the Board of
Directors or the Compensation and Stock Option Committee of the
Board, or by another committee appointed by the Board from among
its members as provided in the Plans. Presently, the
Plans are administered by a committee consisting of non-employee
directors. As of September 30, 2011, the Plans
authorized the issuance of stock options to purchase 5,500,000
shares of the Company’s common stock and, as of September 30,
2011 there were 2,659,000 shares of the Company’s common
stock available for issuance for future stock option grants or
other stock based awards.
Stock
options are awards, which allow the recipient to purchase shares of
the Company’s common stock at a fixed price, are typically
granted at an exercise price equal to the Company’s stock
price at the date of grant. Typically, the
Company’s stock option awards have generally vested from
immediately to two years from the grant date and have had a
contractual term ranging from five to ten years.
For
the nine month period ended September 30, 2011 and 2010, the
Company issued 75,000 and 155,000 options,
respectively. At September 30, 2011, there was $7,000 of
unrecognized compensation cost related to non-vested previously
granted option awards.
Effective
October 31, 1994, the Company adopted an Employee Stock Option Plan
(“1994 Plan”) pursuant to which 725,000 shares of
common stock were reserved for issuance upon the exercise of
options designated as either (i) options intended to constitute
incentive stock options (“ISOs”) under the Internal
Revenue Code of 1986, as amended, (“Code”) or (ii)
nonqualified options. ISOs could be granted under the
1994 Plan to employees and officers of the
Company. Non-qualified options could be granted to
consultants, directors (whether or not they are employees),
employees or officers of the Company. Effective November
1, 2004, the Company’s ability to grant options under the
1994 Plan expired.
Effective
July 25, 1997, the Company adopted its 1997 Employee Stock Option
Plan, which was amended on August 19, 1999, (“1997
Plan”) pursuant to which 2,000,000 shares of common stock
were reserved for issuance upon the exercise of options designated
as either (i) ISOs under the Code, or (ii) nonqualified
options. ISOs could be granted under the 1997 Plan to
employees and officers of the Company. Non-qualified
options could be granted to consultants, directors (whether or not
they are employees), employees or officers of the
Company. Stock appreciation rights could also be issued
in tandem with stock options. Effective June 11, 2007,
the Company’s ability to grant options or stock appreciation
rights under the 1997 Plan expired.
Effective
September 10, 2004, the Company adopted its 2004 Stock Incentive
Plan (“2004 Plan”) pursuant to which 2,500,000 shares
of common stock are currently reserved for issuance upon the
exercise of options, designated as either (i) ISOs under the Code,
or (ii) nonqualified options, restricted stock, deferred stock or
other stock-based awards. ISOs may be granted under the
2004 Plan to employees and officers of the Company. Non
qualified options, restricted stock, deferred stock or other
stock-based awards may be granted to consultants, directors
(whether or not they are employees), employees or officers of the
Company. Stock appreciation rights may also be issued in
tandem with stock options. Unless the 2004 Plan is
sooner terminated, the ability to grant options or other awards
under the 2004 Plan will expire on September 10, 2014.
ISOs
granted under the 2004 Plan may not be granted at a price less than
the fair market value of the common stock on the date of grant (or
110% of fair market value in the case of persons holding 10% or
more of the voting stock of the Company). Nonqualified
options granted under the 2004 Plan may not be granted at a price
less than the fair market value of the common
stock. Options granted under the 2004 Plan expire not
more than ten years from the date of grant (five years in the case
of ISOs granted to persons holding 10% or more of the voting stock
of the Company).
Effective
August 27, 2008, the Company adopted its 2008 Stock Incentive Plan
(“2008 Plan”) pursuant to which 3,000,000 shares of
common stock are currently reserved for issuance upon the exercise
of options, designated as either (i) ISOs under the Code, or (ii)
nonqualified options, restricted stock, deferred stock or other
stock-based awards. ISOs may be granted under the 2008
Plan to employees and officers of the Company. Non
qualified options, restricted stock, deferred stock or other
stock-based awards may be granted to consultants, directors
(whether or not they are employees), employees or officers of the
Company. Stock appreciation rights may also be issued in
tandem with stock options. Unless the 2008 Plan is
sooner terminated, the ability to grant options or other awards
under the 2008 Plan will expire on August 27, 2018.
ISOs
granted under the 2008 Plan may not be granted at a price less than
the fair market value of the common stock on the date of grant (or
110% of fair market value in the case of persons holding 10% or
more of the voting stock of the Company). Nonqualified
options granted under the 2008 Plan may not be granted at a price
less than the fair market value of the common
stock. Options granted under the 2008 Plan expire not
more than ten years from the date of grant (five years in the case
of ISOs granted to persons holding 10% or more of the voting stock
of the Company).
All
stock options have been granted to employees and non-employees at
exercise prices equal to or in excess of the market value on the
date of the grant.
The
Company determines the fair value of share based awards at the
grant date by using the Black-Scholes option-pricing model, and is
incorporating the simplified method to compute expected lives of
share based awards with the following weighted-average
assumptions:
A
summary of the status of the Company's Plans as of September 30,
2011 and December 31, 2010 and changes for the periods ending on
those dates is presented below:
The following is the weighted average contractual life in years and
the weighted average exercise price at September 30, 2011
of:
The following is the intrinsic value at September 30, 2011
of:
The
intrinsic value of options exercised during the year ended December
31, 2010 was $139,000.
The following is the weighted average fair value for the nine month
period ended September 30, 2011 of:
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