UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
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 registrant as specified in its charter)
New York
(State or Other Jurisdiction of Incorporation or Organization)
13-3641539
(I.R.S. Employer Identification No.)
P.O. Box 1541
One Blue Hill Plaza
Pearl River, New York
(Address of Principal Executive Offices)
10965
(Zip Code)
Registrant’s telephone number, including area code (845) 735-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Common stock, $0.01 par value
HDSN
Name of each exchange on which
registered
The NASDAQ Stock Market LLC (NASDAQ
Capital Market)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act ☐ Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act ☐ Yes ☒ No
Indicate by check mark whether the registrant (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 12 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 past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an
emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ☐
Non-accelerated filer ☒
Accelerated filer
☐
Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
The aggregate market value of registrant’s common stock held by non-affiliates at June 30, 2020 was approximately $37,335,882. As of March 1, 2021,
there were 43,347,887 shares of the registrant’s common stock outstanding.
Portions of the Registrant's Proxy Statement for its Annual Meeting of Stockholders to be held on June 10, 2021, are incorporated by reference in Part III of
this Report. Except as expressly incorporated by reference, the Registrant's Proxy Statement shall not be deemed to be part of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE:
Part
Part I.
Part II.
Hudson Technologies, Inc.
Index
Item
Item 1 -
Business
Item 1A -
Risk Factors
Item 1B - Unresolved Staff Comments
Item 2 -
Item 3 -
Item 4 -
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 5 -
Item 6 -
Item 7 -
Item 7A - Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Item 8 -
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9 -
Item 9A -
Controls and Procedures
Item 9B - Other Information
Part III.
Item 10 -
Item 11 -
Item 12 -
Item 13 -
Item 14 -
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Part IV.
Item 15 -
Item 16 -
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
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Item 1. Business
General
Part I
Hudson Technologies, Inc. (“Hudson”, the “Company”), 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. Hudson has proven, reliable programs that meet customer refrigerant
needs by providing environmentally sustainable solutions from initial sale of refrigerant gas through recovery, reclamation and reuse, peak operating
performance of equipment through energy efficiency and emergency air conditioning and refrigeration system repair, to final refrigerant disposal and
carbon credit trading.
The Company’s operations consist of one reportable segment. The Company's products and services are primarily used in commercial air conditioning,
industrial processing and refrigeration systems, and include refrigerant and industrial gas sales, refrigerant management services consisting primarily of
reclamation of refrigerants and RefrigerantSide® Services performed at a customer's site, consisting of system decontamination to remove moisture, oils
and other contaminants. In addition, the Company’s SmartEnergy OPS® service is a web-based real time continuous monitoring service applicable to a
facility’s refrigeration systems and other energy systems. The Company’s Chiller Chemistry® and Chill Smart® services are also predictive and diagnostic
service offerings. As a component of the Company’s products and services, the Company also participates in the generation of carbon offset projects. The
Company operates principally through its wholly-owned subsidiary, Hudson Technologies Company, and Aspen Refrigerants (“Aspen” or “ARI”), a
division of Hudson Technologies Company. Unless the context requires otherwise, references to the “Company”, “Hudson”, “we", “us”, “our”, or similar
pronouns refer to Hudson Technologies, Inc. and its subsidiaries.
The Company's executive offices are located at One Blue Hill Plaza, Pearl River, New York and its telephone number is (845) 735-6000. The Company
maintains a website at www.hudsontech.com, the contents of which are not incorporated into this filing.
Industry Background
The Company participates in an industry that is highly regulated, and changes in the regulations affecting our business could affect our operating results.
Currently the Company purchases virgin, hydrochlorofluorocarbon (“HCFC”) and hydrofluorocarbon (“HFC”) refrigerants and reclaimable, primarily
HCFC, HFC and chlorofluorocarbon (“CFC”) refrigerants from suppliers and its customers. Effective January 1, 1996, the Clean Air Act, as amended (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 established production and consumption allowances for
HCFC refrigerants and which imposed limitations on the importation of certain virgin HCFC refrigerants. Under the Act, production of certain virgin
HCFC refrigerants was phased out on December 31, 2019 and production of all virgin HCFC refrigerants is scheduled to be phased out by 2030.
The Act, and the federal regulations enacted under authority of the Act, have mandated and/or promoted responsible use practices in the air conditioning
and refrigeration industry, which are intended to minimize the release of refrigerants into the atmosphere and encourage the recovery and re-use of
refrigerants. The Act prohibits the venting of CFC, HFC and HCFC refrigerants, and prohibits and/or phases down the production of CFC and HCFC
refrigerants.
The Act also mandates the recovery of CFC and HCFC refrigerants and also promotes and encourages re-use and reclamation of CFC and HCFC
refrigerants. Under the Act, owners, operators and companies servicing cooling equipment utilizing CFC and HCFC refrigerants are responsible for the
integrity of the systems regardless of the refrigerant being used. In November 2016, the EPA issued a final rule extending these requirements to HFCs and
to certain other refrigerants that are approved by the EPA as alternatives for CFC and HCFC refrigerants (the “608 Rule”).
HFC refrigerants are used as substitutes for CFC and HCFC refrigerants in certain applications. As a result of the increasing restrictions and limitations on
the production and use of CFC and HCFC refrigerants, various sectors of the air conditioning and refrigeration industry have been replacing or modifying
equipment that utilize CFC and HCFC refrigerants and have been transitioning to equipment that utilize HFC refrigerants and hydrofluoro-olefins
(“HFO”). HFC refrigerants are not ozone depleting chemicals and are not currently regulated under the Act. However, certain HFC refrigerants are highly
weighted greenhouse gases that are believed to contribute to global warming and climate change and, as a result, are now subject to various state
regulations relating to the sale, use and emissions of HFC refrigerants. The Company expects that HFC refrigerants eventually will be replaced by HFOs or
other types of products with lower global warming potentials.
In October 2016, more than 200 countries, including the United States, agreed to amend the Montreal Protocol to phase down production of HFCs by 85%
by 2047. The amendment establishes timetables for all developed and developing countries to freeze and then reduce production and use of HFCs, with the
first reductions by developed countries in 2019. The amendment became effective January 1, 2019 as more than twenty countries have ratified the
amendment.
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In December 2020, legislation was enacted in the United States that will require the phasedown of virgin production of HFCs, which will also increase
opportunities for reclamation of HFCs.
Products and Services
Sustainability
The Company provides a complete offering of refrigerant management services, which primarily include reclamation of refrigerants, laboratory testing
through the Company’s laboratory, which has been certified by the Air Conditioning, Heating and Refrigeration Institute (“AHRI”), and banking (storage)
services tailored to individual customer requirements. The Company also separates “crossed” (i.e. commingled) refrigerants and provides re-usable cylinder
refurbishment and hydrostatic testing services.
From its inception, the Company has sold refrigerants, and has provided refrigerant reclamation and refrigerant management services that are designed to
recover and reuse refrigerants, thereby protecting the environment from release of refrigerants to the atmosphere and the corresponding ozone depletion
and global warming impact. The reclamation process allows the refrigerant to be re-used thereby eliminating the need to destroy or manufacture additional
refrigerant and eliminating the corresponding impact to the environment associated with the destruction and manufacturing. The Company believes it is the
largest refrigerant reclaimer in the United States. In addition, the Company is pursuing potential opportunities for the creation and monetization of verified
emission reductions.
The Company has also created alternative solutions to reactive and preventative maintenance procedures that are performed on commercial and industrial
refrigeration systems. These services, known as RefrigerantSide® Services, complement the Company’s refrigerant sales and refrigerant reclamation and
management services. The Company has also developed SmartEnergy OPS® that identifies inefficiencies in the operation of air conditioning and
refrigeration systems and assists companies to improve the energy efficiency of their systems and save operating costs and improve system reliability.
Refrigerant and Industrial Gas Sales
The Company sells reclaimed and virgin (new) refrigerants to a variety of customers in the air conditioning and refrigeration industry. The Company
continues to sell reclaimed CFC based refrigerants, which are no longer manufactured. Virgin refrigerants are purchased by the Company from several
suppliers and resold by the Company. Additionally, the Company regularly purchases used or contaminated refrigerants, from many different sources,
which refrigerants are then reclaimed using the Company's high speed proprietary reclamation equipment, its proprietary Zugibeast® system, and then are
resold by the Company.
The Company also sells industrial gases to a variety of industry customers, predominantly to users in or involved with the US Military. In July 2016, the
Company was awarded, as prime contractor, a five-year fixed price contract, including a five-year renewal option, awarded to it by the United States
Defense Logistics Agency (“DLA”) for the management and supply of refrigerants, compressed gases, cylinders and related items to US Military
commands and installations, Federal civilian agencies and foreign militaries. Primary users include the US Army, Navy, Air Force, Marine Corps and
Coast Guard.
Carbon Offset Projects
CFC refrigerants are ozone depleting substances and are also highly weighted greenhouse gases that contribute to global warming and climate change. The
destruction of CFC refrigerants may be eligible for verified emission reductions that can be converted and monetized into carbon offset credits, which then
can be traded in the emerging carbon offset markets. The Company is pursuing opportunities to acquire CFC refrigerants and is developing relationships
within the emerging environmental markets in order to develop opportunities for the creation and monetization of verified emission reductions from the
destruction of CFC refrigerants.
In October 2015, the American Carbon Registry (“ACR”) established a methodology to provide, among other things, a quantification framework for the
creation of carbon offset credits for the use of certified reclaimed HFC refrigerants. The Company is pursuing opportunities to acquire HFC refrigerants
and is developing relationships within the emerging environmental markets in order to develop opportunities for the creation and monetization of verified
emission reductions from the reclamation of HFC refrigerants.
RefrigerantSide® Services
The Company provides decontamination and recovery services that are performed at a customer's site through the use of portable, high volume, high-speed
proprietary equipment, including the patented Zugibeast® system. Certain of these RefrigerantSide® Services, which encompass system decontamination,
and refrigerant recovery and reclamation, are also proprietary and are covered by process patents.
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In addition to the decontamination and recovery services previously described, the Company also provides predictive and diagnostic services for its
customers. The Company offers diagnostic services that are intended to predict potential problems in air conditioning and refrigeration systems before they
occur. The Company’s Chiller Chemistry® offering integrates several fluid tests of an operating system and the corresponding laboratory results into an
engineering report providing its customers with an understanding of the current condition of the fluids, the cause for any abnormal findings and the
potential consequences if the abnormal findings are not remediated. Fluid Chemistry®, an abbreviated version of the Company’s Chiller Chemistry®
offering, is designed to quickly identify systems that require further examination.
The Company has also been awarded several US patents for its SmartEnergy OPS®, which is a system for measuring, modifying and improving the
efficiency of energy systems, including air conditioning and refrigeration systems, in industrial and commercial applications. This service is a web-based
real time continuous monitoring service applicable to a facility’s chiller plant systems. The SmartEnergy OPS® offering enables customers to monitor and
improve their chiller plant performance and proactively identify and correct system inefficiencies. SmartEnergy OPS® is able to identify specific
inefficiencies in the operation of chiller plant systems and, when used with Hudson’s RefrigerantSide ® Services, can increase the efficiency of the
operating systems thereby reducing energy usage and costs. Improving the system efficiency reduces power consumption thereby directly reducing CO 2
emissions at the power plants or onsite. Lastly, the Company’s ChillSmart® offering, which combines the system optimization with the Company’s
Chiller Chemistry ® offering, provides a snapshot of a packaged chiller’s operating efficiency and health. ChillSmart® provides a very effective predictive
maintenance tool and helps our customers to identify the operating chillers that cause higher operating costs.
The Company’s engineers who developed and support SmartEnergy OPS® are recognized as Energy Experts and Qualified Best Practices Specialists by
the United States Department of Energy (“DOE”) in the areas of Steam and Process Heating under the DOE “Best Practices” program, and are the Lead
International Energy Experts for steam, chillers and refrigeration systems for the United Nations Industrial Development Organization (“UNIDO”). The
Company’s staff have trained more than 4,000 industrial plant personnel in the US and internationally and have developed, and are currently delivering,
training curriculums in 12 different countries. The Company’s staff have completed more than 200 industrial ESAs in the US and internationally.
Strategic Alliances
The Company purchases refrigerants from a variety of manufacturers, wholesalers, distributors, bulk gas brokers and from other sources within the air
conditioning, refrigeration and automotive aftermarket industries, and on corresponding demand for refrigerants.
Suppliers
The Company purchases refrigerants from a variety of manufacturers, wholesalers, distributors, bulk gas brokers and from other sources within the air
conditioning, refrigeration and automotive aftermarket industries, and on corresponding demand for refrigerants.
Customers
The Company provides its products and services to commercial, industrial and governmental customers, as well as to refrigerant wholesalers, distributors,
contractors and to refrigeration equipment manufacturers. Agreements with larger customers generally provide for standardized pricing for specified
services. The Company generates sales by customer purchase order on a real-time basis and therefore does not carry a backlog of sales.
For the year ended December 31, 2020, one customer accounted for 14% of the Company’s revenues and at December 31, 2020, there were $2.9 million of
outstanding receivables from this customer. For the year ended December 31, 2019, one customer accounted for 14% of the Company’s revenues and at
December 31, 2019, there were $1.8 million of outstanding receivables from this customer.
Marketing
Marketing programs are conducted through the efforts of the Company's executive officers, Company sales personnel, and third parties. Hudson employs
various marketing methods, including direct mailings, telemarketing, technical bulletins, in-person solicitation, print advertising, response to quotation
requests and the internet through the Company’s websites (www.hudsontech.com and www.ASPENRefrigerants.com). Information on the Company's
websites are not part of this report.
5
The Company's sales personnel are compensated on a combination of a base salary and commission. The Company's executive officers devote significant
time and effort to customer relationships.
Competition
The Company competes primarily on the basis of the performance of its proprietary high volume, high-speed equipment used in its operations, the breadth
of services offered by the Company, including proprietary RefrigerantSide® Services and other on-site services, and price, particularly with respect to
refrigerant sales.
The Company competes with numerous regional and national companies that market reclaimed and virgin refrigerants and provide refrigerant reclamation
services. Certain of these competitors may possess greater financial, marketing, distribution and other resources for the sale and distribution of refrigerants
than the Company.
Hudson's RefrigerantSide® Services provide solutions to certain problems within the refrigeration industry and, as such, the demand and market
acceptance for these services are subject to uncertainty. Competition for these services primarily consists of traditional methods of solving the industry's
problems. The Company’s marketing strategy is to educate the marketplace that its alternative solutions are available and that RefrigerantSide® Services
are superior to traditional methods.
Risk Management
The Company carries insurance coverage that it considers sufficient to protect the Company's assets and operations. The Company attempts to operate in a
professional and prudent manner and to reduce potential liability risks through specific risk management efforts, including ongoing employee training.
The refrigerant industry involves potentially significant risks of statutory and common law liability for environmental damage and personal injury. The
Company, and in certain instances, its officers, directors and employees, may be subject to claims arising from the Company's on-site or off-site services,
including the improper release, spillage, misuse or mishandling of refrigerants classified as hazardous or non-hazardous substances or materials. The
Company may be held strictly liable for damages, which could be substantial, regardless of whether it exercised due care and complied with all relevant
laws and regulations.
Hudson maintains environmental impairment insurance of $10,000,000 per occurrence, and $10,000,000 annual aggregate, for events occurring subsequent
to November 1996.
Government Regulation
The business of refrigerant and industrial gas sales, reclamation and management is subject to extensive, stringent and frequently changing federal, state
and local laws and substantial regulation under these laws by governmental agencies, including the EPA, the United States Occupational Safety and Health
Administration (“OSHA”) and the United States Department of Transportation (“DOT”).
Among other things, these regulatory authorities impose requirements which regulate the handling, packaging, labeling, transportation and disposal of
hazardous and non-hazardous materials and the health and safety of workers, and require the Company and, in certain instances, its employees, to obtain
and maintain licenses in connection with its operations. This extensive regulatory framework imposes significant compliance burdens and risks on the
Company.
Hudson and its customers are subject to the requirements of the Act, and the regulations promulgated thereunder by the EPA, which make it unlawful for
any person in the course of maintaining, servicing, repairing, and disposing of air conditioning or refrigeration equipment, to knowingly vent or otherwise
release or dispose of ozone depleting substances, and non-ozone depleting substitutes, used as refrigerants.
Pursuant to the Act, reclaimed refrigerant must satisfy the same purity standards as newly manufactured, virgin refrigerants in accordance with standards
established by AHRI prior to resale to a person other than the owner of the equipment from which it was recovered. The EPA administers a certification
program pursuant to which applicants certify to reclaim refrigerants in compliance with AHRI standards. The Company is one of only four certified
refrigerant testing laboratories in the United States under AHRI’s laboratory certification program, which is a voluntary program that certifies the ability of
a laboratory to test refrigerant in accordance with the AHRI 700 standard. In addition, the EPA has established a mandatory certification program for air
conditioning and refrigeration technicians. Hudson's technicians have applied for or obtained such certification.
The Company may also be subject to regulations adopted by the EPA which impose reporting requirements arising out of the importation of certain
HCFCs, and arising out of the importation, purchase, production, use and/or emissions of certain greenhouse gases, including HFCs.
6
The Company is also subject to regulations adopted by the DOT which classify most refrigerants and industrial gases handled by the Company as
hazardous materials or substances and imposes requirements for handling, packaging, labeling and transporting refrigerants and which regulate the use and
operation of the Company’s commercial motor vehicles used in the Company’s business.
The Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), requires facilities that treat, store or dispose of hazardous wastes to comply
with certain operating standards. Before transportation and disposal of hazardous wastes off-site, generators of such waste must package and label their
shipments consistent with detailed regulations and prepare a manifest identifying the material and stating its destination. The transporter must deliver the
hazardous waste in accordance with the manifest to a facility with an appropriate RCRA permit. Under RCRA, impurities removed from refrigerants
consisting of oils mixed with water and other contaminants are not presumed to be hazardous waste.
The Emergency Planning and Community Right-to-Know Act of 1986, as amended, requires the annual reporting by the Company of Emergency and
Hazardous Chemical Inventories (Tier II reports) to the various states in which the Company operates and requires the Company to file annual Toxic
Chemical Release Inventory Forms with the EPA.
The Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), establishes liability for clean-up costs and
environmental damages to current and former facility owners and operators, as well as persons who transport or arrange for transportation of hazardous
substances. Almost all states have similar statutes regulating the handling and storage of hazardous substances, hazardous wastes and non-hazardous
wastes. Many such statutes impose requirements that are more stringent than their federal counterparts. The Company could be subject to substantial
liability under these statutes to private parties and government entities, in some instances without any fault, for fines, remediation costs and environmental
damage, as a result of the mishandling, release, or existence of any hazardous substances at any of its facilities.
The Occupational Safety and Health Act of 1970, as amended mandates requirements for a safe work place for employees and special procedures and
measures for the handling of certain hazardous and toxic substances. State laws, in certain circumstances, mandate additional measures for facilities
handling specified materials. The Company is also subject to regulations adopted by the California Air Resources Board which impose certain reporting
requirements arising out of the reclamation and sale of refrigerants that takes place within the State of California.
The Company believes that it is in material compliance with all applicable regulations material to its business operations.
Quality Assurance & Environmental Compliance
The Company utilizes in-house quality and regulatory compliance control procedures. Hudson maintains its own analytical testing laboratories, which are
AHRI certified, to assure that reclaimed refrigerants comply with AHRI purity standards and employs portable testing equipment when performing on-site
services to verify certain quality specifications. The Company employs twelve persons engaged full-time in quality control and to monitor the Company's
operations for regulatory compliance.
Human Capital Resources
On March 8, 2021, the Company had 221 full time employees including air conditioning and refrigeration technicians, chemists, engineers, sales and
administrative personnel. None of the Company's employees are represented by a union. The Company believes it has good relations with its employees.
Patents and Proprietary Information
The Company holds several U.S. and foreign patents, as well as pending patent applications, related to certain RefrigerantSide® Services and supporting
systems developed by the Company for systems and processes for measuring and improving the efficiency of refrigeration systems, and for certain
refrigerant recycling and reclamation technologies. These patents will expire between January 2023 and July 2035.
There can be no assurance as to the breadth or degree of protection that patents may afford the Company, that any patent applications will result in issued
patents or that patents will not be circumvented or invalidated. Technological development in the refrigerant industry may result in extensive patent filings
and a rapid rate of issuance of new patents. Although the Company believes that its existing patents and the Company's equipment do not and will not
infringe upon existing patents or violate proprietary rights of others, it is possible that the Company's existing patent rights may not be valid or that
infringement of existing or future patents or violations of proprietary rights of others may occur. In the event the Company's equipment or processes
infringe, or are alleged to infringe, patents or other proprietary rights of others, the Company may be required to modify the design of its equipment or
processes, obtain a license or defend a possible patent infringement action. There can be no assurance that the Company will have the financial or other
resources necessary to enforce or defend a patent infringement or proprietary rights violation action or that the Company will not become liable for
damages.
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The Company also relies on trade secrets and proprietary know-how, and employs various methods to protect its technology. However, such methods may
not afford complete protection and there can be no assurance that others will not independently develop such know-how or obtain access to the Company's
know-how, concepts, ideas and documentation. Failure to protect its trade secrets could have a material adverse effect on the Company.
SEC Filings
The Company makes available on its internet website copies of its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, and amendments thereto, as soon as reasonably practicable after they are filed with the Securities and Exchange Commission.
Item 1A. Risk Factors
There are many important factors, including those discussed below (and above as described under “Patents and Proprietary Information”), that have
affected, and in the future could affect Hudson’s business including, but not limited to, the factors discussed below, which should be reviewed carefully
together with the other information contained in this report. Some of the factors are beyond Hudson’s control and future trends are difficult to predict.
Risks Related to Business Strategy and Operations
Our existing and future debt obligations could impair our liquidity and financial condition.
Our existing credit facilities, consisting of an asset-based lending facility of up to $60 million from Wells Fargo Bank, National Association (“Wells Fargo
Bank”) and a term loan of $85 million from funds advised by FS Investments, are secured by substantially all of our assets and the Wells Fargo Bank
facility contains formulas that limit the amount of our future borrowings under that facility. Moreover, the terms of our credit facilities also include
financial and negative covenants that, among other things, may limit our ability to incur additional indebtedness. If we violate any loan covenants and do
not obtain a waiver from our lenders, our indebtedness under the credit facilities would become immediately due and payable, and the lenders could
foreclose on their security, which could materially adversely affect our business and future financial condition and could require us to curtail or otherwise
cease our existing operations.
Our revenues, results of operations and cash flows could be materially and adversely affected by changes in commodity prices.
Our revenues, results of operations and cash flows are affected by market prices for refrigerant gases. Commodity prices generally are affected by a wide
range of factors beyond our control, including weather, seasonality, the availability and adequacy of supply, government regulation and policies and general
political and economic conditions. We are exposed to fluctuating commodity prices as the result of our inventory of various refrigerant gases. At any time,
our inventory levels may be substantial. During 2019, there were $9.2 million of non-cash charges for inventory adjustments of our refrigerant gases due to
a decline in refrigerant gas prices. Further declines in refrigerant gas prices could result in additional inventory adjustments and impairment charges. We
have processes in place to monitor exposures to these risks and engage in strategies to manage these risks. If these controls and strategies are not successful
in mitigating our exposure to these fluctuations, we could be materially and adversely affected.
Our business has been impacted by the COVID-19 pandemic.
The public health crisis caused by the COVID-19 pandemic and the measures being taken by governments, businesses, including us, and the public at large
to limit COVID-19's spread may have certain negative impacts on our business including, without limitation, the following:
•
•
•
We may experience a further decrease in sales due to the COVID-19 pandemic. In particular, sales of our products to customers, such as schools,
offices and government facilities, which have shut down, have been negatively impacted. If the COVID-19 pandemic intensifies and expands
geographically, its negative impacts on our sales and collectability of receivables could be more prolonged and may become more severe.
Although we have not experienced this during 2020, future potential disruptions in supply chains may place constraints on our ability to source
refrigerants, which may increase our processing costs.
Governmental authorities in the United States and throughout the world may continue to increase or impose new income taxes or indirect taxes, or
revise interpretations of existing tax rules and regulations, as a means of financing the costs of stimulus and other measures enacted or taken, or
that may be enacted or taken in the future, to protect populations and economies from the impact of the COVID-19 pandemic. Such actions could
have an adverse effect on our results of operations and cash flows.
8
•
•
As a result of the COVID-19 pandemic, including related governmental guidance or directives, we have required most office-based employees to
work remotely. We may experience reductions in productivity and disruptions to our business routines while our remote work policy remains in
place.
Actions we have taken or may take, or decisions we have made or may make, as a consequence of the COVID-19 pandemic may result in legal
claims or litigation against us.
Any of the negative impacts of the COVID-19 pandemic, including those described above, alone or in combination with others, may have a material
adverse effect on our results of operations, financial condition and cash flows. The full extent to which the COVID-19 pandemic will negatively affect our
results of operations, financial condition and cash flows will depend on future developments that are highly uncertain and cannot be predicted, including
the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.
We may need additional financing to satisfy our future capital requirements, which may not be readily available to us.
Our capital requirements may be significant in the future. We may incur additional expenses in the development and implementation of our operations. Due
to fluctuations in the price, demand and availability of new refrigerants, our existing credit facility with Wells Fargo Bank that expires in December 2022
may not in the future be sufficient to provide all of the capital that we need to acquire and manage our inventories of new refrigerant. As a result, we may
be required to seek additional equity or debt financing in order to develop our RefrigerantSide® Services business, our refrigerant sales business and our
other businesses. We have no current arrangements with respect to, or sources of, additional financing other than our existing credit facility and term loan.
There can be no assurance that we will be able to obtain any additional financing on terms acceptable to us or at all. Our inability to obtain financing, if and
when needed, could materially adversely affect our business and future financial condition and could require us to curtail or otherwise cease our existing
operations.
Adverse weather or economic downturn could adversely impact our financial results.
Our business could be negatively impacted by adverse weather or economic downturns. Weather is a significant factor in determining market demand for
the refrigerants sold by us, and to a lesser extent, our RefrigerantSide® Services. Unusually cool temperatures in the spring and summer tend to depress
demand for, and price of, refrigerants we sell. Protracted periods of cooler than normal spring and summer weather could result in a substantial reduction in
our sales which could adversely affect our financial position as well as our results of operations. An economic downturn could cause customers to postpone
or cancel purchases of the Company’s products or services. Either or both of these conditions could have severe negative implications to our business that
may exacerbate many of the risk factors we identified in this report but not limited, to the following:
Liquidity
These conditions could reduce our liquidity, which could have a negative impact on our financial condition and results of operations.
Demand
These conditions could lower the demand and/or price for our product and services, which would have a negative impact on our results of operations.
Financial Covenants
These conditions could impact our ability to meet our loan covenants which, if we are unable to obtain a waiver from our lenders, could materially
adversely affect our business and future financial condition and could require us to curtail or otherwise cease our existing operations.
Our business is impacted by customer concentration.
In July 2016, we were awarded, as prime contractor, a five-year fixed price contract, including a five-year renewal option, by the United States Defense
Logistics Agency (“DLA”) for the management and supply of refrigerants, compressed gases, cylinders and related items to US Military commands and
installations, Federal civilian agencies and foreign militaries. Our contract with DLA expires in July 2021 unless the five-year renewal option is exercised
by DLA. Although we expect that DLA will renew the agreement, there can be no assurance that the agreement will be renewed. For the years ended
December 31, 2020 and 2019, the DLA accounted for 14% of our revenues. The loss of DLA as a customer could have a material adverse effect on our
financial position and results of operations.
9
Risks Related to Regulatory and Environmental Matters
The nature of our business exposes us to potential liability.
The refrigerant recovery and reclamation industry involves potentially significant risks of statutory and common law liability for environmental damage
and personal injury. We, and in certain instances, our officers, directors and employees, may be subject to claims arising from our on-site or off-site
services, including the improper release, spillage, misuse or mishandling of refrigerants classified as hazardous or non-hazardous substances or materials.
We may be strictly liable for damages, which could be substantial, regardless of whether we exercised due care and complied with all relevant laws and
regulations. Our current insurance coverage may not be sufficient to cover potential claims, and adequate levels of insurance coverage may not be available
in the future at a reasonable cost. A partially or completely uninsured claim against us, if successful and of sufficient magnitude would have a material
adverse effect on our business and financial condition.
Our business and financial condition is substantially dependent on the sale and continued environmental regulation of refrigerants.
Our business and prospects are largely dependent upon continued regulation of the use and disposition of refrigerants. Changes in government regulations
relating to the emission of refrigerants into the atmosphere could have a material adverse effect on us. Failure by government authorities to otherwise
continue to enforce existing regulations or significant relaxation of regulatory requirements could also adversely affect demand for our services and
products.
Our business is subject to significant regulatory compliance burdens.
The refrigerant reclamation and management business is subject to extensive, stringent and frequently changing federal, state and local laws and substantial
regulation under these laws by governmental agencies, including the EPA, the OSHA and DOT. Although we believe that we are in material compliance
with all applicable regulations material to our business operations, amendments to existing statutes and regulations or adoption of new statutes and
regulations that affect the marketing and sale of refrigerant could require us to continually alter our methods of operation and/or discontinue the sale of
certain of our products resulting in costs to us that could be substantial. We may not be able, for financial or other reasons, to comply with applicable laws,
regulations and permit requirements, particularly as we seek to enter into new geographic markets. Our failure to comply with applicable laws, rules or
regulations or permit requirements could subject us to civil remedies, including substantial fines, penalties and injunctions, as well as possible criminal
sanctions, which would, if of significant magnitude, materially adversely impact our operations and future financial condition.
A number of factors could negatively impact the price and/or availability of refrigerants, which would, in turn, adversely affect our business and
financial condition.
Refrigerant sales continue to represent a significant majority of our revenues. Therefore, our business is substantially dependent on the availability of both
new and used refrigerants in large quantities, which may be affected by several factors including, without limitation: (i) commercial production and
consumption limitations imposed by the Act and legislative limitations and ban on HCFC refrigerants; (ii) the amendment to the Montreal Protocol, if
ratified, and any legislation and regulation enacted to implement the amendment, could impose limitations on production and consumption of HFC
refrigerants; (iii) introduction of new refrigerants and air conditioning and refrigeration equipment; (iv) price competition resulting from additional market
entrants; (v) changes in government regulation on the use and production of refrigerants; and (vi) reduction in price and/or demand for refrigerants. We do
not maintain firm agreements with any of our suppliers of refrigerants and we do not hold allowances permitting us to purchase and import HCFC
refrigerants from abroad. Sufficient amounts of new and/or used refrigerants may not be available to us in the future, particularly as a result of the further
phase down of HCFC production, or may not be available on commercially reasonable terms. Additionally, we may be subject to price fluctuations,
periodic delays or shortages of new and/or used refrigerants. Our failure to obtain and resell sufficient quantities of virgin refrigerants on commercially
reasonable terms, or at all, or to obtain, reclaim and resell sufficient quantities of used refrigerants would have a material adverse effect on our operating
margins and results of operations.
Issues relating to potential global warming and climate change could have an impact on our business.
Refrigerants are considered to be strong greenhouse gases that are believed to contribute to global warming and climate change and are now subject to
various state and federal regulations relating to the sale, use and emissions of refrigerants. Current and future global warming and climate change or related
legislation and/or regulations may impose additional compliance burdens on us and on our customers and suppliers which could potentially result in
increased administrative costs, decreased demand in the marketplace for our products, and/or increased costs for our supplies and products. In addition, an
amendment to the Montreal Protocol has established timetables for all developed and developing countries to freeze and then reduce production and use of
HFCs by 85% by 2047, with the first reductions by developed countries in 2019. The amendment became effective January 1, 2019. In December 2020,
legislation was enacted in the United States that will require the phasedown of virgin production of HFCs.
Risks Related to Our Common Stock and Other General Risks
As a result of competition, and the strength of some of our competitors in the market, we may not be able to compete effectively.
The markets for our services and products are highly competitive. We compete with numerous regional and national companies which provide refrigerant
recovery and reclamation services, as well as companies which market and deal in new and reclaimed alternative refrigerants, including certain of our
suppliers, some of which possess greater financial, marketing, distribution and other resources than us. We also compete with numerous manufacturers of
refrigerant recovery and reclamation equipment. Certain of these competitors have established reputations for success in the service of air conditioning and
refrigeration systems. We may not be able to compete successfully, particularly as we seek to enter into new markets.
10
We have the ability to designate and issue preferred stock, which may have rights, preferences and privileges greater than Hudson’s common stock and
which could impede a subsequent change in control of us.
Our Certificate of Incorporation authorizes our Board of Directors to issue up to 5,000,000 shares of “blank check” preferred stock and to fix the rights,
preferences, privileges and restrictions, including voting rights, of these shares, without further shareholder approval. The rights of the holders of our
common stock will be subject to, and may be adversely affected by, the rights of holders of any additional preferred stock that may be issued by us in the
future. Our ability to issue preferred stock without shareholder approval could have the effect of making it more difficult for a third party to acquire a
majority of our voting stock, thereby delaying, deferring or preventing a change in control of us.
If our common stock were delisted from NASDAQ it could be subject to “penny stock” rules which would negatively impact its liquidity and our
shareholders’ ability to sell their shares.
Our common stock is currently listed on the NASDAQ Capital Market. We must comply with numerous NASDAQ Marketplace rules in order to continue
the listing of our common stock on NASDAQ. There can be no assurance that we can continue to meet the rules required to maintain the NASDAQ listing
of our common stock. If we are unable to maintain our listing on NASDAQ, the market liquidity of our common stock may be severely limited.
Our management has significant control over our affairs.
Currently, our officers and directors collectively beneficially own approximately 14% of our outstanding common stock. Accordingly, our officers and
directors are in a position to significantly affect major corporate transactions and the election of our directors. There is no provision for cumulative voting
for our directors.
We may fail to successfully integrate any additional acquisitions made by us into our operations.
As part of our business strategy, we may look for opportunities to grow by acquiring other product lines, technologies or facilities that complement or
expand our existing business. We may be unable to identify additional suitable acquisition candidates or negotiate acceptable terms. In addition, we may
not be able to successfully integrate any assets, liabilities, customers, systems or management personnel we may acquire into our operations and we may
not be able to realize related revenue synergies and cost savings within expected time frames. There can be no assurance that we will be able to
successfully integrate any prior or future acquisition.
Our information technology systems, processes, and sites may suffer interruptions, failures, or attacks which could affect our ability to conduct
business.
Our information technology systems provide critical data connectivity, information and services for internal and external users. These include, among other
things, processing transactions, summarizing and reporting results of operations, complying with regulatory, legal or tax requirements, storing project
information and other processes necessary to manage the business. Our systems and technologies, or those of third parties on which we rely, could fail or
become unreliable due to equipment failures, software viruses, cyber threats, terrorist acts, natural disasters, power failures or other causes. Cybersecurity
threats are evolving and include, but are not limited to, malicious software, cyber espionage, attempts to gain unauthorized access to our sensitive
information, including that of our customers, suppliers, and subcontractors, and other electronic security breaches that could lead to disruptions in mission
critical systems, unauthorized release of confidential or otherwise protected information, and corruption of data. Although we utilize various procedures
and controls to monitor and mitigate these threats, there can be no assurance that these procedures and controls will be sufficient to prevent security threats
from materializing. If any of these events were to materialize, the costs related to cyber or other security threats or disruptions may not be fully insured or
indemnified and could have a material adverse effect on our reputation, operating results, and financial condition.
11
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The Company’s headquarters are located in a multi-tenant building in Pearl River, New York, which houses the Company’ executive officers, its
accounting and administrative staff, and its information technology staff and equipment, and the Company also maintains administrative and sales offices
in Long Island City, New York. The Company’s key reclamation, processing and cylinder refurbishment facilities are located in Champaign, Illinois and
Smyrna, Georgia. The Company also sells industrial gases out of facilities located in Escondido, California and in Champaign, Illinois. The Company
maintains smaller reclamation and cylinder refurbishing facilities in Ontario, California. The Company also maintains four smaller service depots for the
performance of its RefrigerantSide® Services and maintains three sales and telemarketing offices.
Hudson’s key operational facilities are as follows:
Location
Pearl River, New York
Champaign, Illinois
Champaign, Illinois
Smyrna, Georgia
Smyrna, Georgia
Long Island City, New York
Escondido, California
Ontario, California
Tulsa, Oklahoma
Item 3. Legal Proceedings
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Owned or Leased
Leased
Owned
Leased
Company headquarters and administrative offices
Reclamation and separation of refrigerants and cylinder refurbishment
Refrigerant packaging, cylinder refurbishment, RefrigerantSide® Service depot, refrigerant
Description
Leased
Owned
Leased
Leased
Leased
Leased
and industrial gases storage
Reclamation and separation of refrigerants and cylinder refurbishment center
Refrigerant storage
Administrative, sales and marketing offices, refrigerant storage & shipping
Refrigerant and Industrial gas storage and cylinder refurbishment center
Refrigerant reclamation and cylinder refurbishment center
Energy services
12
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The Company's common stock trades on the NASDAQ Capital Market under the symbol “HDSN”.
Part II
The number of record holders of the Company's common stock was approximately 110 as of March 12, 2021. The Company believes that there are
approximately 4,000 beneficial owners of its common stock.
To date, the Company has not declared or paid any cash dividends on its common stock. The payment of dividends, if any, in the future is within the
discretion of the Board of Directors and will depend upon the Company's earnings, its capital requirements and financial condition, borrowing covenants,
and other relevant factors. The Company presently intends to retain all earnings, if any, to finance the Company's operations and development of its
business and does not expect to declare or pay any cash dividends on its common stock in the foreseeable future. In addition, the Company has a credit
facility with Wells Fargo Bank, National Association and a separate term loan that, among other things, restrict the Company's ability to declare or pay any
cash dividends on its capital stock.
Item 6. Selected Financial Data
Not required.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Certain statements, contained in this section and elsewhere in this Form 10-K, constitute “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements involve a number of known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, changes in the laws and regulations
affecting the industry, changes in the demand and price for refrigerants (including unfavorable market conditions adversely affecting the demand for, and
the price of refrigerants), the Company's ability to source refrigerants, regulatory and economic factors, seasonality, competition, litigation, the nature of
supplier or customer arrangements that become available to the Company in the future, adverse weather conditions, possible technological obsolescence of
existing products and services, possible reduction in the carrying value of long-lived assets, estimates of the useful life of its assets, potential environmental
liability, customer concentration, the ability to obtain financing, the ability to meet financial covenants under our financing facilities, any delays or
interruptions in bringing products and services to market, the timely availability of any requisite permits and authorizations from governmental entities and
third parties as well as factors relating to doing business outside the United States, including changes in the laws, regulations, policies, and political,
financial and economic conditions, including inflation, interest and currency exchange rates, of countries in which the Company may seek to conduct
business, and integration of any other assets it acquires from third parties into its operations, and other risks detailed in this report and in the Company’s
other subsequent filings with the Securities and Exchange Commission (“SEC”). The words “believe”, “expect”, “anticipate”, “may”, “plan”, “should” and
similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date the statement was made.
13
Impact of COVID-19 Pandemic
During the year ended December 31, 2020, the effects of a novel strain of coronavirus ("COVID-19") pandemic and the related actions by governments
around the world to attempt to contain the spread of the virus have materially impacted the global economy.
In response to the COVID-19 outbreak and business disruption, we have four primary priorities:
•
•
•
•
To ensure the health and safety of Hudson employees
To keep our products in supply and to maintain the quality and safety of our products
To best serve our customers across all channels as they adapt to the shifting demands of consumers during the crisis
To best position ourselves to emerge strong when this crisis ends
We operate in a “critical infrastructure industry” and are an essential business as defined by the United States government as we procure, process, service
and deliver refrigerants to the government and wholesale and retail organizations, which also service both residential homes and commercial institutions
throughout the United States. While the conditions in the United States and the economy have worsened, we have been effectively running our operations,
including the following:
-
-
Keeping all plants open, while maintaining proper safety standards
Directing all office personnel to work remotely, efficiently and safely
- Maintaining ongoing relationships and business with existing customers and vendors in the supply chain
As of the date of this filing, we have activated our contingency plans. We have deployed national and regional teams to monitor the rapidly evolving
situation and recommend risk mitigation actions; we have implemented travel restrictions; and we are following social distancing practices. We are
endeavoring to follow guidance from authorities and health officials including, but not limited to, requiring associates to wear masks and other protective
clothing as appropriate, and implementing additional cleaning and sanitization routines at system facilities.
During times of crisis, business continuity and adapting to the needs of our customers is critical. We have developed systemwide knowledge-sharing
routines and processes which include the management of any supply chain challenges. As of the date of this filing, there has been no material impact on our
ability to procure or distribute our products and services. We are moving with speed to best serve our customers impacted by COVID-19 and to ensure
adequate inventory levels in key channels. We have shifted to more remote and paperless options for customer payments and receipts, including ACH
payments.
Critical Accounting Policies
The Company's discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements
requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure
of contingent assets and liabilities. Several of the Company's accounting policies involve significant judgments, uncertainties and estimates. 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 inventory reserves,
valuation allowance for the deferred tax assets relating to its net operating loss carry forwards (“NOLs”) and goodwill and intangible assets.
Inventory
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. Net realizable value represents the estimated selling price in the ordinary course of business, less reasonably predictable costs of
completion and disposal. The determination if a write-down to net realizable value is necessary is primarily affected by the market prices for the refrigerant
gases we sell. Commodity prices generally are affected by a wide range of factors beyond our control, including weather, seasonality, the availability and
adequacy of supply, government regulation and policies and general political and economic conditions. At any time, our inventory levels may be
substantial.
14
During 2019, the Company recorded a lower of cost or net realizable value adjustment of $9.2 million to its inventory resulting from a challenging pricing
environment affecting the refrigerant gas industry. Further declines in refrigerant gas prices could result in additional inventory net realizable value
adjustments. Pricing has stabilized and increased in 2020 so no such adjustment was required in 2020.
Goodwill
The Company has made acquisitions that included a significant amount of goodwill and other intangible assets. The Company applies the purchase method
of accounting for acquisitions, which among other things, requires the recognition of goodwill (which represents the excess of the purchase price of the
acquisition over the fair value of the net assets acquired and identified intangible assets). We test our goodwill for impairment on an annual basis (the first
day of the fourth quarter) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of an
asset below its carrying value. Other intangible assets that meet certain criteria are amortized over their estimated useful lives.
Beginning in 2017, the Company adopted, on a prospective basis, ASU No. 2017-04, which simplifies the accounting for goodwill impairment by
eliminating Step 2 of the prior goodwill impairment test that required a hypothetical purchase price allocation to measure goodwill impairment. Under the
new standard, a company records an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. An impairment charge
would be recognized when the carrying amount exceeds the estimated fair value of a reporting unit. These impairment evaluations use many assumptions
and estimates in determining an impairment loss, including certain assumptions and estimates related to future earnings. If the Company does not achieve
its earnings objectives, the assumptions and estimates underlying these impairment evaluations could be adversely affected, which could result in an asset
impairment charge that would negatively impact operating results.
In 2019, due to a significant selling price correction leading to unfavorable market conditions, the Company performed a quantitative test by weighing the
results of an income-based valuation technique (the discounted cash flows method) and a market-based valuation technique to determine the fair value of
its reporting unit. The Company also performed a similar quantitative test for its annual impairment testing date in 2020.
The discounted cash flow methodology included: (i) management's estimates, such as discount rates, terminal growth rates, and projections of revenue,
operating margin and cash flows and (ii) assumptions related to general economic and market conditions, including inherent uncertainties regarding the
projected impact of the COVID-19 pandemic. The Company initially established a forecast of the estimated future net cash flows, which were then
discounted to their present value. The market-based valuation technique utilizes market multiple assumptions for comparable companies to estimate the fair
value of the reporting unit.
There were no goodwill impairment losses recognized in any of the two years ended December 31, 2020 and 2019.
Other Intangibles
Intangibles with determinable lives are amortized over the estimated useful lives of the assets currently ranging from 3 to 13 years. The Company reviews
these useful lives annually to determine that they reflect future realizable value.
Income Taxes
The Company is taxed at statutory corporate income tax rates after adjusting income reported for financial statement purposes for certain items. Current
income tax expense (benefit) reflects the tax results of revenues and expenses currently taxable or deductible. The Company utilizes the asset and liability
method of accounting for deferred income taxes, which provides for the recognition of deferred tax assets or liabilities, based on enacted tax rates and laws,
for the differences between the financial and income tax reporting bases of assets and liabilities.
15
The tax benefit associated with the Company’s net operating loss carry forwards (“NOLs”) is recognized to the extent that the Company expects to realize
future taxable income. As a result of a prior “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. To the extent that the Company utilizes its NOLs, it will not pay tax on such income. However, to the extent
that the Company’s net income, if any, exceeds the annual NOL limitation, it will pay income taxes based on the then existing statutory rates. In addition,
certain states either do not allow or limit NOLs and as such the Company will be liable for certain state income taxes.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The
CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In
addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund
of previously paid income taxes. The Company has evaluated its options under the carryback provision and filed a claim for refund, resulting in a cash
benefit. Further, the CARES Act accelerates the refund of the alternative minimum tax credits to allow a full refund of any remaining credit amount in
taxable years beginning in 2019. The credits were originally fully refundable in taxable years beginning in 2021. As a result, the Company has recorded a
preliminary $47,000 tax benefit related to the alternative minimum tax refund in the quarter ended March 31, 2020 and an additional $380,000 in the
quarter ended June 30, 2020. Finally, the CARES Act contains modifications on the limitation of business interest for tax years beginning in 2019 and
2020. The modifications to Section 163(j) increase the allowable business interest deduction from 30% of adjusted taxable income to 50% of adjusted
taxable income. This modification results in a $2,154,000 increase in allowable interest expense, which in turn results in an increase to our net operating
losses of $2,154,000 in the year ended December 31, 2020. However, the impact of the additional interest expense did not impact our income tax provision
since the increase in the deferred tax asset for net operating losses was offset by an increase to the valuation allowance.
As of December 31, 2020, the Company had NOLs of approximately $46.1 million, of which $40.7 million have no expiration date and $5.4 million expire
through 2023. As of December 31, 2020, the Company had state tax NOLs of approximately $31.2 million expiring in various years. We review the
likelihood that we will realize the benefit of our deferred tax assets, and therefore the need for valuation allowances, on an annual basis in the fourth quarter
of the year, and more frequently if events indicate that a review is required. In determining the requirement for a valuation allowance, the historical and
projected financial results are considered, along with all other available positive and negative evidence.
Concluding that a valuation allowance is not required is difficult when there is significant negative evidence that is objective and verifiable, such as
cumulative losses in recent years. We utilize a rolling twelve quarters of pre-tax income or loss adjusted for significant permanent book to tax differences,
as well as non-recurring items, as a measure of our cumulative results in recent years. Based on our assessment as of December 31, 2018 and 2019, we
concluded that due to the uncertainty that the deferred tax assets will not be fully realized in the future, we recorded a valuation allowance of approximately
$11.3 million during 2018, and due to additional losses, increased the valuation allowance through 2019 and December 31, 2020, with an ending balance of
$19.0 million as of December 31, 2020.
The Company evaluates uncertain tax positions, if any, by determining if it is more likely than not to be sustained upon examination by the taxing
authorities. As of December 31, 2020 and December 31, 2019, the Company believes it had no uncertain tax positions.
Overview
Sales of refrigerants continue to represent a significant majority of the Company’s revenues.
In July 2016 the Company was awarded, as prime contractor, a five-year contract, including a five-year renewal option, by the United States Defense
Logistics Agency (“DLA”) for the management, supply, and sale of refrigerants, compressed gases, cylinders and related terms.
Results of Operations
Year ended December 31, 2020 as compared to the year ended December 31, 2019
Revenues for the year ended December 31, 2020 were $147.6 million, a reduction of $14.5 million or 9% from the $162.1 million reported during the
comparable 2019 period. Most of the variance is due to a decline in volume. During the 2020 period, the COVID-19 virus pandemic and the associated
effect on our economy, including the closures to public venues, such as office buildings, gyms, schools and universities across the U.S., negatively
impacted our end markets and overall demand for refrigerants.
Cost of sales for the year ended December 31, 2020 was $112.2 million or 76% of sales. Cost of sales for the year ended December 31, 2019 was $144.9
million or 89% of sales. In 2020, the Company has reduced its inventory cost by selling off higher cost layers of inventory to achieve greater gross profit.
During the three month period ended June 30, 2019, the Company recorded a lower of cost or net realizable value adjustment to its inventory of $9.2
million, mainly due to declines in selling prices of certain refrigerants at that time.
Selling, general and administrative (“SG&A”) expenses for the year ended December 31, 2020 were $26.6 million, a reduction of $3.4 million from the
$30.0 million reported during the comparable 2019 period. The decrease in SG&A was due to reduced professional fees, stock compensation expense, sales
commission and payroll expense.
Amortization expense was $2.9 million during both 2020 and 2019, respectively.
Other expense for 2020 was $11.3 million, compared to the $9.5 million of other expense reported during the comparable 2019 period. Interest expense was
$6.6 million lower in 2020 when compared to 2019 primarily due to reduced debt resulting from the Company paying down $14 million of principal of its
term loan debt in December 2019. On June 23, 2020, Kevin J. Zugibe, Chairman of the Board and Chief Executive Officer of the Company, passed away
unexpectedly; during the third quarter of 2020, the Company received $1 million of key man life insurance proceeds. In August 2019, the Company
received $8.9 million of cash pursuant to the settlement of a working capital adjustment dispute arising from the acquisition of Aspen Refrigerants, Inc. in
October 2017.
Income tax benefit for 2020 was $0.2 million compared to income tax expense of $0.7 million for 2019. For 2020 and 2019, income tax expense for federal
and state income tax purposes was determined by applying statutory income tax rates to pre-tax income after adjusting for certain items. As discussed
previously, we concluded that due to the uncertainty that the deferred tax assets will not be fully realized in the future, we have recorded a full valuation
allowance as of December 31, 2020.
16
The net loss for the year ended December 31, 2020 was $5.2 million, compared to $25.9 million of net loss reported during the comparable 2019 period.
The reduction in net loss is primarily due to a lower of cost or net realizable value adjustment in 2019, improved gross margins, reduced SG&A and interest
expense, partially offset by reduced revenue and other income, as described above.
Liquidity and Capital Resources
At December 31, 2020, the Company had working capital, which represents current assets less current liabilities, of $24.4 million, a decrease of $3.9
million from the working capital of $28.3 million at December 31, 2019. The decrease in working capital is primarily attributable to reduced inventory
levels, as described above, offset by a $12 million paydown of revolving loans.
Inventory and trade receivables are principal components of current assets. At December 31, 2020, the Company had inventory of $44.5 million, a decrease
of $14.7 million from $59.2 million at December 31, 2019. The decrease in the inventory balance is primarily due to the sale of refrigerants and the timing
and availability of inventory purchases. The Company’s ability to sell and replace its inventory on a timely basis and the prices at which it can be sold are
subject, among other things, to current market conditions and the nature of supplier or customer arrangements and the Company’s ability to source CFC
based refrigerants (which are no longer being produced), HCFC refrigerants (which are currently being phased down leading to a full phase out of virgin
production), or non-CFC based refrigerants. At December 31, 2020, the Company had trade receivables, net of allowance for doubtful accounts, of $9.8
million, an increase of $1.7 million from $8.1 million at December 31, 2019. The Company’s trade receivables are concentrated with various wholesalers,
brokers, contractors and end-users within the refrigeration industry that are primarily located in the continental United States. The Company has historically
financed its working capital requirements through cash flows from operations, the issuance of debt and equity securities, and bank borrowings.
Net cash provided by operating activities for the year ended December 31, 2020 was $11.7 million, a reduction of $22.1 million compared to the net cash
provided by operating activities of $33.8 million for the comparable 2019 period. As mentioned previously, in August 2019, the Company received $8.9
million of cash pursuant to the settlement of a working capital adjustment dispute arising from the acquisition of Aspen Refrigerants, Inc. in October 2017.
Net cash used in investing activities for 2020 and 2019 was $0.5 million and $1.0 million, respectively. As described above, key man life insurance
proceeds of $1.0 million were offset by capital expenditures incurred in the ordinary course of business, mainly in our plant facilities.
Net cash used in financing activities for 2020 and 2019 was $12.5 million and $32.5 million, respectively. The Company received a loan of approximately
$2.5 million pursuant to the PPP during the second quarter of 2020. The Company expects that almost the entire balance will be forgiven, but the process is
not expected to be finalized until the first half of 2021. As described above, the Company received an $8.9 million cash settlement of a working capital
adjustment, which it utilized to pay down debt in 2019.
At December 31, 2020, cash and cash equivalents were $1.3 million, or approximately $1.3 million lower than the $2.6 million of cash and cash
equivalents at December 31, 2019. The variance is mainly due to timing of payments, receipts and additional paydown of the revolver balance.
Revolving Credit Facility
On December 19, 2019, Hudson Technologies Company (“HTC”), Hudson Holdings, Inc. (“Holdings”) and Aspen Refrigerants, Inc. (“ARI”), as borrowers
(collectively, the “Borrowers”), and Hudson Technologies, Inc. (the “Company”) as a guarantor, became obligated under a Credit Agreement (the “Wells
Fargo Facility”) with Wells Fargo Bank, as administrative agent and lender (“Agent” or “Wells Fargo”) and such other lenders as may thereafter become a
party to the Wells Fargo Facility.
Under the terms of the Wells Fargo Facility, the Borrowers may borrow, from time to time, up to $60 million at any time consisting of revolving loans in a
maximum amount up to the lesser of $60 million and a borrowing base that is calculated based on the outstanding amount of the Borrowers’ eligible
receivables and eligible inventory, as described in the Wells Fargo Facility. The Wells Fargo Facility also contains a sublimit of $5 million for swing line
loans and $2 million for letters of credit.
Amounts borrowed under the Wells Fargo Facility were used by the Borrowers to repay existing revolving indebtedness under its prior revolving credit
facility, repay certain principal amounts under the Term Loan Facility (as defined below), and may be used for working capital needs, certain permitted
acquisitions, and to reimburse drawings under letters of credit.
Interest on loans under the Wells Fargo Facility is payable in arrears on the first day of each month. Interest charges with respect to loans are computed on
the actual principal amount of loans outstanding during the month at a rate per annum equal to (A) with respect to Base Rate loans, the sum of (i) a rate per
annum equal to the higher of (1) the federal funds rate plus 0.5%, (2) one month LIBOR plus 1.0%, and (3) the prime commercial lending rate of Wells
Fargo, plus (ii) between 1.25% and 1.75% depending on average monthly undrawn availability and (B) with respect to LIBOR rate loans, the sum of the
LIBOR rate plus between 2.25% and 2.75% depending on average monthly undrawn availability.
17
In connection with the closing of the Wells Fargo Facility, the Company also entered into a Guaranty and Security Agreement, dated as of December 19,
2019 (the “Revolver Guaranty and Security Agreement”), pursuant to which the Company and certain subsidiaries unconditionally guaranteed the payment
and performance of all obligations owing by Borrowers to Wells Fargo, as Agent for the benefit of the revolving lenders. Pursuant to the Revolver
Guaranty and Security Agreement, Borrowers, the Company and ten other subsidiaries granted to the Agent, for the benefit of the Wells Fargo Facility
lenders, a security interest in substantially all of their respective assets, including receivables, equipment, general intangibles (including intellectual
property), inventory, subsidiary stock, real property, and certain other assets. The Revolver Guaranty and Security Agreement also provides that the Agent
shall receive the right to dominion over certain of the Borrowers’ bank accounts in the event of an Event of Default under the Wells Fargo Facility, or if
undrawn availability under the Wells Fargo Facility falls below $9 million at any time.
The Wells Fargo Facility contains a financial covenant requiring the Company to maintain at all times minimum liquidity (defined as availability under the
Wells Fargo Facility plus unrestricted cash) of at least $5 million, of which at least $3 million must be derived from availability. The Wells Fargo Facility
also contains a springing covenant, which takes effect only upon a failure to maintain undrawn availability of at least $7.5 million, requiring the Company
to maintain a Fixed Charge Coverage Ratio (FCCR) of not less than 1.00 to 1.00, as of the end of each trailing period of twelve consecutive fiscal months
commencing with the month prior to the triggering of the covenant. The FCCR (as defined in the Wells Fargo Facility) is the ratio of (a) EBITDA for such
period, minus unfinanced capital expenditures made during such period, to (b) the aggregate amount of (i) interest expense required to be paid (other than
interest paid-in-kind, amortization of financing fees, and other non-cash interest expense) during such period, (ii) scheduled principal payments (but
excluding principal payments relating to outstanding revolving loans under the Wells Fargo Facility), (iii) all net federal, state, and local income taxes
required to be paid during such period (provided, that any tax refunds received shall be applied to the period in which the cash outlay for such taxes was
made), (iv) all restricted payments paid (as defined in the Wells Fargo Facility) during such period, and (v) to the extent not otherwise deducted from
EBITDA for such period, all payments required to be made during such period in respect of any funding deficiency or funding shortfall with respect to any
pension plan. The FCCR covenant ceases after the Borrowers have been in compliance therewith for two consecutive months.
The Wells Fargo Facility also contains customary non-financial covenants relating to the Company and the Borrowers, including limitations on Borrowers’
ability to pay dividends on common stock or preferred stock, and also includes certain events of default, including payment defaults, breaches of
representations and warranties, covenant defaults, cross-defaults to other obligations, events of bankruptcy and insolvency, certain ERISA events,
judgments in excess of specified amounts, impairments to guarantees and a change of control. The Wells Fargo Facility also contains certain covenants
contained in the Fourth Amendment to the Term Loan Facility described below.
On April 23, 2020, the Borrowers, the Company and its subsidiaries entered into a First Amendment to Credit Agreement with Wells Fargo (the “First
Amendment”). The First Amendment authorized the Company and its subsidiaries to incur up to $2.5 million of indebtedness under the Coronavirus Aid,
Relief, and Economic Security Act (the “CARES Act”) and contained other provisions relating to the treatment of such proceeds and any potential debt
forgiveness, under the Wells Fargo Facility.
The commitments under the Wells Fargo Facility will expire and the full outstanding principal amount of the loans, together with accrued and unpaid
interest, are due and payable in full on December 19, 2022, unless the commitments are terminated and the outstanding principal amount of the loans are
accelerated sooner following an event of default.
Term Loan Facility
On October 10, 2017, HTC, Holdings, and ARI, as borrowers, and the Company, as guarantor, became obligated under a Term Loan Credit and Security
Agreement (as amended, the “Term Loan Facility”) with U.S. Bank National Association, as administrative agent and collateral agent (“Term Loan Agent”)
and funds advised by FS Investments and such other lenders as may thereafter become a party to the Term Loan Facility (the “Term Loan Lenders”).
Under the terms of the Term Loan Facility, the Borrowers immediately borrowed $105 million pursuant to a term loan (the “Term Loan”).
The Term Loan matures on October 10, 2023. Interest on the Term Loan is generally payable on the earlier of the last day of the interest period applicable
to such Eurodollar rate loan and the last day of the Term Loan Facility, as applicable. Interest is payable at the rate per annum of the Eurodollar Rate (as
defined in the Term Loan Facility) plus 10.25%. The Borrowers have the option of paying 3.00% interest per annum in kind by adding such amount to the
principal of the Term Loans during no more than five fiscal quarters during the term of the Term Loan Facility.
18
Borrowers and the Company granted to the Term Loan Agent, for the benefit of the Term Loan Lenders, a security interest in substantially all of their
respective assets, including receivables, equipment, general intangibles (including intellectual property), inventory, subsidiary stock, real property, and
certain other assets.
The Term Loan Facility contains a financial covenant requiring the Company to maintain a specified total leverage ratio (“TLR”), tested as of the last day
of the fiscal quarter. The TLR (as defined in the Term Loan Facility) is the ratio of (a) funded debt as of such day to (b) EBITDA for the four consecutive
fiscal quarters ending on the last day of such fiscal quarter. Funded debt (as defined in the Term Loan Facility) includes amounts borrowed under the Wells
Fargo Facility and the Term Loan Facility as well as capitalized lease obligations and other indebtedness for borrowed money maturing more than one year
from the date of creation thereof. As of December 31, 2020 and 2019, the TLR was approximately 5.84 to 1 and 11.22 to 1, respectively.
The Term Loan Facility also contains customary non-financial covenants relating to the Company and the Borrowers, including limitations on their ability
to pay dividends on common stock or preferred stock, and also includes certain events of default, including payment defaults, breaches of representations
and warranties, covenant defaults, cross-defaults to other obligations, events of bankruptcy and insolvency, certain ERISA events, judgments in excess of
specified amounts, impairments to guarantees and a change of control.
In connection with the closing of the Term Loan Facility, the Company also entered into a Guaranty and Suretyship Agreement, dated as of October 10,
2017 (the “Term Loan Guarantee”), pursuant to which the Company affirmed its unconditional guarantee of the payment and performance of all obligations
owing by Borrowers to Term Loan Agent, as agent for the benefit of the Term Loan Lenders.
The Term Loan Agent and the Agent have entered into an intercreditor agreement governing the relative priority of their security interests granted by the
Borrowers and the Guarantor in the collateral, providing that the Agent shall have a first priority security interest in the accounts receivable, inventory,
deposit accounts and certain other assets (the “Revolving Credit Priority Collateral”) and the Term Loan Agent shall have a first priority security interest in
the equipment, real property, capital stock of subsidiaries and certain other assets (the “Term Loan Priority Collateral”).
On December 19, 2019, HTC, Holdings and ARI as borrowers and the Company as a guarantor, entered into a Waiver and Fourth Amendment to Term
Loan Credit and Security Agreement (the “Fourth Amendment”) with U.S. Bank National Association, as collateral agent and administrative agent, and the
various lenders thereunder.
The Fourth Amendment waived financial covenant defaults at June 30, 2019 and September 30, 2019 and amended the Term Loan Credit and Security
Agreement dated October 10, 2017 (as previously amended, the “Term Loan Facility”) to reset the maximum Total Leverage Ratio covenant contained in
the Term Loan Facility at the indicated dates as follows: (i) September 30, 2019 - 15.67:1.00; (ii) December 31, 2019 – 14.54:1.00; (iii) March 31, 2020 –
16.57:1.00; (iv) June 30, 2020 – 10.87:1.00; (v) September 30, 2020 – 8.89:1.00; (vi) December 31, 2020 – 8.89:1.00; (vii) March 31, 2021 – 7.75:1.00;
(viii) June 30, 2021 – 7.03:1.00; (ix) September 30, 2021 – 6.08:1.00; and (x) December 31, 2021 – 5.36:1.00. The Fourth Amendment also reset the
minimum liquidity requirement (consisting of cash plus undrawn availability on the Borrowers’ revolving loan facility) of $5 million, measured monthly.
Furthermore, the Fourth Amendment added a minimum LTM Adjusted EBITDA covenant as of the indicated dates as follows: (i) September 30, 2019 -
$7.887 million; (ii) December 31, 2019 – $7.954 million; (iii) March 31, 2020 – $7.359 million; (iv) June 30, 2020 – $11.745 million; (v) September 30,
2020 – $12.021 million; (vi) December 31, 2020 – $12.300 million; (vii) March 31, 2021 –$14.295 million; (viii) June 30, 2021 – $14.566 million;
(ix) September 30, 2021 – $15.431 million; and (x) December 31, 2021 – $16.267 million.
The Fourth Amendment also (i) continues the limitation on acquisitions and dividends, (ii) required a principal repayment of $14,000,000 upon execution
of the Fourth Amendment and (iii) increases the scheduled quarterly principal repayments to $562,000 effective March 31, 2020 and $1,312,000 effective
December 31, 2020.
The Fourth Amendment also terminated the exit fee payable to the term loan lenders, which would have been payable in full in cash upon the earlier to
occur of (x) repayment in full of the term loans, or (y) any acceleration of the term loans. In lieu of the exit fee, the Fourth Amendment reinstated a
prepayment premium equal to the following percentages of the principal amount prepaid, depending upon the date of prepayment: (i) through March 31,
2020 – 0.50%; (ii) from April 1, 2020 through March 31, 2021 – 2.50%; and (iii) from April 1, 2021 and thereafter – 5.00%.
The Fourth Amendment also added a new covenant providing that in the event of a breach of a financial covenant contained in the Term Loan Facility or
any failure to make a required principal repayment (a “Trigger Event”), then on or prior to six months after a Trigger Event, the Company shall commence
a process to (x) sell its businesses and/or assets, and/or (y) consummate a refinancing transaction with respect to the Term Loan Facility (a “Transaction”),
in each case, subject to enumerated time milestones contained in the Fourth Amendment, and which requires that Transaction shall, in any event, be
consummated on or prior to the eighteen (18) month anniversary of the Trigger Event.
19
As closing conditions to the execution and delivery of the Fourth Amendment, the Company was required to: (i) amend its Bylaws in a manner acceptable
to the Term Loan Facility lenders; (ii) appoint two new independent directors to the board of directors (the “Special Directors”); and (iii) pay an
amendment fee of 0.50% of the amount of the outstanding loans under the Term Loan Facility.
On April 23, 2020, HTC, Holdings and ARI as borrowers and the Company as a guarantor, entered into a Fifth Amendment to Term Loan Credit and
Security Agreement (the “Fifth Amendment”) with U.S. Bank National Association, as collateral agent and administrative agent, and the various lenders
thereunder. The Fifth Amendment authorized the Company and its subsidiaries to incur up to $2.5 million of indebtedness under the CARES Act and
contained other provisions relating to the treatment of such proceeds and any potential debt forgiveness, under the Term Loan Facility.
The Company evaluated the Fourth and Fifth Amendments in accordance with the provisions of Accounting Standards Codification (“ASC”) 470, Debt, to
determine if the Amendments were (1) a troubled debt restructuring, and if not, (2) a modification or an extinguishment of debt. The Company concluded
that the Fourth Amendment was a troubled debt restructuring for accounting purposes due to the removal of the exit fee; as such, the Company capitalized
an additional $0.5 million of deferred financing costs, which are being amortized over the remaining term. The future undiscounted cash flows of the term
loan, as amended, exceeded the carrying value, and accordingly, no gain was recognized and no adjustment was made to the carrying value of the debt.
The Company was in compliance with all covenants, under the Wells Fargo Facility and the Term Loan Facility, as amended, as of December 31, 2020.
The Company’s ability to comply with these covenants in future quarters may be affected by events beyond the Company’s control, including general
economic conditions, weather conditions, regulations and refrigerant pricing. Therefore, we cannot make any assurance that we will continue to be in
compliance during future periods.
The Company believes that it will be able to satisfy its working capital requirements for the foreseeable future from anticipated cash flows from operations
and available funds under the Wells Fargo Facility. Any unanticipated expenses, including, but not limited to, an increase in the cost of refrigerants
purchased by the Company, an increase in operating expenses or failure to achieve expected revenues from the Company’s RefrigerantSide® Services
and/or refrigerant sales or additional expansion or acquisition costs that may arise in the future would adversely affect the Company’s future capital needs.
There can be no assurance that the Company’s proposed or future plans will be successful, and as such, the Company may require additional capital sooner
than anticipated, which capital may not be available on acceptable terms, or at all.
CARES Act Loan
On April 23, 2020 the Company received a loan in the amount of $2.475 million from Meridian Bank under the Paycheck Protection Program (“PPP”)
pursuant to the CARES Act. The loan has a term of two years, is unsecured, and bears interest at a fixed rate of one percent per annum, with the first six
months of principal and interest deferred. As a result of the COVID-19 pandemic, in applying for the loan the Company made a good faith assertion based
upon the degree of uncertainty introduced to the capital markets and the industries affecting the Company's customers and the Company's dependency to
curtail expenses to fund ongoing operations. The PPP loan proceeds have been used in part to help offset payroll costs as stipulated in the legislation. All
or a portion of the PPP loan may be forgiven by the U.S. Small Business Administration (“SBA”) upon application by the Company and upon
documentation of expenditures in accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented
payroll costs and other covered areas, such as rent payments, mortgage interest and utilities, as applicable. The Company has applied for loan forgiveness
and intends to comply with the loan forgiveness provisions in the legislation, however, there are no assurances that the Company will obtain full
forgiveness of the loan based on current guidelines.
Inflation
Inflation has not historically had a material impact on the Company's operations.
Reliance on Suppliers and Customers
The Company participates in an industry that is highly regulated, and changes in the regulations affecting our business could affect our operating results.
Currently the Company purchases virgin HCFC and HFC refrigerants and reclaimable, primarily HCFC and CFC, refrigerants from suppliers and its
customers. Under the Act the phase-down of future production of certain virgin HCFC refrigerants commenced in 2010 and has been fully phased out by
the year 2020, and production of all virgin HCFC refrigerants is scheduled to be phased out by the year 2030. 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 sold by it, the Company could realize reductions in revenue from refrigerant sales, which could have a material adverse effect on the
Company’s operating results and financial position.
20
For the year ended December 31, 2020, one customer accounted for 14% of the Company’s revenues; no other customer accounted for more than 10% of
the Company’s revenues. At December 31, 2020, there were $2.9 million of outstanding receivables from this customer. For the year ended December 31,
2019, one customer accounted for 14% of the Company’s revenues; no other customer accounted for more than 10% of the Company’s revenues. At
December 31, 2019, there were $1.8 million of outstanding receivables from this customer.
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 a material adverse effect on the Company's operating results and financial position.
Seasonality and Weather Conditions 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 and service sales, availability and price of refrigerant products (virgin or reclaimable), changes in reclamation technology and regulations,
timing in introduction and/or retrofit or replacement of refrigeration equipment, the rate of expansion of the Company's operations, and by other factors.
The Company's business is seasonal in nature with peak sales of refrigerants occurring in the first nine months of each year. During past years, the seasonal
decrease in sales of refrigerants has resulted in losses particularly in the fourth quarter of the year. In addition, to the extent that there is unseasonably cool
weather throughout the spring and summer months, which would adversely affect the demand for refrigerants, there would be a corresponding negative
impact on the Company. Delays or inability in securing adequate supplies of refrigerants at peak demand periods, lack of refrigerant demand, increased
expenses, declining refrigerant prices and a loss of a principal customer could result in significant losses. There can be no assurance that the foregoing
factors will not occur and result in a material adverse effect on the Company's financial position and significant losses. The Company believes that to a
lesser extent there is a similar seasonal element to RefrigerantSide® Service revenues as refrigerant sales.
Off-Balance Sheet Arrangements
None.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which revises guidance for the accounting for
credit losses on financial instruments within its scope, and in November 2018, issued ASU No. 2018-19 and in April 2019, issued ASU No. 2019-04 and in
May 2019, issued ASU No. 2019-05, and in November 2019, issued ASU No. 2019-11, which each amended the standard. The new standard introduces an
approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-
sale debt securities. The new approach to estimating credit losses (referred to as the current expected credit losses model) applies to most financial assets
measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, net investments in
leases and off-balance-sheet credit exposures. This ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within
those fiscal years, with early adoption permitted. Entities are required to apply the standard’s provisions as a cumulative-effect adjustment to retained
earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is still evaluating the impact of this ASU.
In March 2020, the FASB issued ASU 2020-04, which provides relief from accounting analysis and impacts that may otherwise be required for
modifications to agreements necessitated by reference rate reform. It also provides optional expedients to enable the continuance of hedge accounting
where certain hedging relationships are impacted by reference rate reform. This optional guidance is effective immediately, and available to be used
through December 31, 2022. We are assessing the impact that reference rate reform and the related adoption of this guidance will have on our financial
statements.
In August 2020, the FASB issued ASU 2020-06, "Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-
Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity", which is intended
to simplify the accounting for convertible instruments by removing certain separation models in Subtopic 470-20, Debt-Debt with Conversion and Other
Options, for convertible instruments. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after
December 15, 2021, with early adoption permitted. We are currently in the process of evaluating the effects of the provisions of ASU 2020-06 on our
financial statements.
21
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Sensitivity
We are exposed to market risk from fluctuations in interest rates on the Wells Fargo Facility and on the Term Loan Facility. The Wells Fargo Facility is a
$60,000,000 secured facility, and the Term Loan Facility provides for Term Loans of $85,114,500 as of December 31, 2020.
There was a $2,000,000 outstanding balance on the Wells Fargo Facility as of December 31, 2020. Future interest rate changes on our borrowing under the
Wells Fargo Facility may have an impact on our consolidated results of operations.
There was an $85,114,500 outstanding balance on the Term Loan Facility as of December 31, 2020. Future interest rate changes on our borrowing under
the Term Loans may have an impact on our consolidated results of operations.
If the loan bearing interest rate changed by 1%, the annual effect on interest expense would be approximately $0.9 million as of December 31, 2020.
Refrigerant Market
We are also exposed to market risk from fluctuations in the demand, price and availability of refrigerants. 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 sold by the Company, the Company could realize reductions in revenue from refrigerant sales or write downs of inventory, which
could have a material adverse effect on our consolidated results of operations.
Item 8. Financial Statements and Supplementary Data
The financial statements appear in a separate section of this report following Part IV.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not Applicable.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
The Company, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities
Exchange Act of 1934, as amended (“Exchange Act”), as of the end of the period covered by this report. Based on that evaluation, the Chief Executive
Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective and provided reasonable
assurance that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to
the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding
required disclosure. Because of the inherent limitations in all control systems, any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating
the cost-benefit relationship of possible controls and procedures. Furthermore, the Company’s controls and procedures can be circumvented by the
individual acts of some persons, by collusion of two or more people or by management override of the control and misstatements due to error or fraud may
occur and not be detected on a timely basis.
Changes in Internal Control over Financial Reporting
As required by Rule 13a-15(d) of the Exchange Act, our management, including our principal executive officer and our principal financial officer,
conducted an evaluation of the internal control over financial reporting to determine whether any changes occurred during the quarter ended December 31,
2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, our
principal executive officer and principal financial officer concluded there were no such changes.
Management’s Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company as defined
in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance to the
Company’s management and board of directors regarding the preparation and fair presentation of published financial statements and the reliability of
financial reporting.
22
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
The Company’s Chief Executive Officer and Chief Financial Officer have assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2020. In making this assessment, the Company’s Chief Executive Officer and Chief Financial Officer have used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework (2013).
Based on our assessment, the Company’s Chief Executive Officer and Chief Financial Officer believe that, as of December 31, 2020, the Company’s
internal control over financial reporting is effective based on those criteria.
Due to our filing status as a non-accelerated filer, BDO USA, LLP, the independent registered public accounting firm which audits our financial statements,
was not required to provide an attestation report on our internal control over financial reporting as of December 31, 2020.
Item 9B. Other Information
None.
23
Item 10. Directors, Executive Officers and Corporate Governance
Part III
Reference is made to the disclosure required by Items 401, 405, 406, and 407(c)(3), (d)(4), and (d)(5) of Regulation S-K to be contained in the Registrant's
definitive proxy statement to be mailed to stockholders on or about April 28, 2021, and to be filed with the Securities and Exchange Commission.
Item 11. Executive Compensation
Reference is made to the disclosure required by Items 402 and 407(e)(4) and (e)(5) of Regulation S-K to be contained in the Registrant's definitive proxy
statement to be mailed to stockholders on or about April 28, 2021, and to be filed with the Securities and Exchange Commission.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Reference is made to the disclosure required by Item 403 of Regulation S-K to be contained in the Registrant's definitive proxy statement to be mailed to
stockholders on or about April 28, 2021, and to be filed with the Securities Exchange Commission.
Equity Compensation Plans
The following table provides certain information with respect to all of Hudson’s equity compensation plans as of December 31, 2020.
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans
(excluding
securities
reflected
in column (a))
(c)
4,070,936
Number of
securities to be
issued upon
exercise of
outstanding
options
(a)
5,329,515
Weighted-average
exercise
price of
outstanding
options
(b)
$
1.06
Plan Category
Equity compensation plans approved by security holders
Item 13. Certain Relationships and Related Transactions, and Director Independence
Reference is made to the disclosure required by Items 404 and 407(a) of Regulation S-K to be contained in the Registrant's definitive proxy statement to be
mailed to stockholders on or about April 28, 2021, and to be filed with the Securities and Exchange Commission.
Item 14. Principal Accountant Fees and Services
Reference is made to the proposal regarding the approval of the Registrant's independent registered public accounting firm to be contained in the
Registrant's definitive proxy statement to be mailed to stockholders on or about April 28, 2021, and to be filed with the Securities and Exchange
Commission.
24
Part IV
Item 15.
(A)(1)
(A)(2)
(A)(3)
Exhibits and Financial Statement Schedules
Financial Statements
The consolidated financial statements of Hudson Technologies, Inc. appear after Item 16 of this report
Financial Statement Schedules
None
Exhibits
2.1 Stock Purchase Agreement, dated August 9, 2017, by and among Hudson Technologies, Inc., Hudson Holdings, Inc. and Airgas, Inc. (17)
3.1 Certificate of Incorporation and Amendment. (1)
3.2 Amendment to Certificate of Incorporation, dated July 20, 1994. (1)
3.3 Amendment to Certificate of Incorporation, dated October 26, 1994. (1)
3.4 Certificate of Amendment of the Certificate of Incorporation dated March 16, 1999. (2)
3.5 Certificate of Correction of the Certificate of Amendment dated March 25, 1999. (2)
3.6 Certificate of Amendment of the Certificate of Incorporation dated March 29, 1999. (2)
3.7 Certificate of Amendment of the Certificate of Incorporation dated February 16, 2001. (3)
3.8 Certificate of Amendment of the Certificate of Incorporation dated March 20, 2002. (4)
3.9 Amendment to Certificate of Incorporation dated January 3, 2003. (5)
3.10 Amended and Restated By-Laws adopted December 18, 2019. (28)
3.11 Certificate of Amendment of the Certificate of Incorporation dated September 15, 2015. (14)
4.1 Description of Equity Securities. (33)
10.1 2004 Stock Incentive Plan. (7)*
10.2 Amended and Restated Employment Agreement with Kevin J. Zugibe, as amended. (9)*
10.3 Agreement with Brian F. Coleman, as amended. (9)*
10.4 2008 Stock Incentive Plan. (8)*
10.5 Form of Incentive Stock Option Agreement under the 2008 Stock Incentive Plan with full vesting upon issuance. (9)*
10.6 Form of Incentive Stock Option Agreement under the 2008 Stock Incentive Plan with options vesting in equal installments over two year
period. (9)*
10.7 Form of Non-Incentive Stock Option Agreement under the 2008 Stock Incentive Plan with full vesting upon issuance. (9)*
10.8 Form of Non-Incentive Stock Option Agreement under the 2008 Stock Incentive Plan with options vesting in equal installments over two
year period. (9)*
10.9 First Amendment to Amended and Restated Employment Agreement with Kevin J. Zugibe, dated December 30, 2008. (9)*
10.10 Long Term Care Insurance Plan Summary. (10)*
10.11 Amendment No. 1 to the Hudson Technologies, Inc. 2008 Stock Incentive Plan adopted October 22, 2013. (11) *
10.12 2014 Stock Incentive Plan (12)*
10.13 Form of Incentive Stock Option Agreement under the 2014 Stock Incentive Plan with full vesting upon issuance. (13)*
10.14 Form of Incentive Stock Option Agreement under the 2014 Stock Incentive Plan with options vesting in equal installments over two year
period. (13)*
10.15 Form of Non-Incentive Stock Option Agreement under the 2014 Stock Incentive Plan with full vesting upon issuance. (13)*
10.16 Form of Non-Incentive Stock Option Agreement under the 2014 Stock Incentive Plan with options vesting in equal installments over two
year period. (13)*
10.17 Form of Incentive Barrier Stock Option Agreement under the 2014 Stock Incentive Plan with full vesting upon issuance. (13)*
10.18 Form of Non-Incentive Barrier Stock Option Agreement under the 2014 Stock Incentive Plan with full vesting upon issuance. (13)*
10.19 Form of Incentive Barrier Stock Option Agreement under the 2008 Stock Incentive Plan with full vesting upon issuance. (13)*
25
10.20 Form of Non-Incentive Barrier Stock Option Agreement under the 2008 Stock Incentive Plan with full vesting upon issuance. (13)*
10.21 Second Amended and Restated Employment Agreement with Kevin J. Zugibe. (15)*
10.22 Amended and Restated Agreement with Brian Coleman (15)*
10.23 Agreement, dated September 5, 2016, between Hudson Technologies, Inc. and Nat Krishnamurti. (16)*
10.24 Term Loan Credit and Security Agreement dated October 10, 2017 with U.S. Bank National Association as Administrative Agent and
Collateral Agent for the Term Lenders (18)
10.25 Guaranty and Suretyship Agreement dated October 10, 2017 by Hudson Technologies, Inc. (18)
10.26 2018 Stock Incentive Plan (19)*
10.27 Form of Incentive Stock Option Agreement under the 2018 Stock Incentive Plan with full vesting upon issuance (25)*
10.28 Form of Incentive Stock Option Agreement under the 2018 Stock Incentive Plan with vesting in equal installments over a specified of time.
(25)*
10.29 Form of Non-Qualified Stock Option Agreement under the 2018 Stock Incentive Plan with full vesting upon issuances (25)*
10.30 Form of Non-Qualified Stock Option Agreement under the 2018 Stock Incentive Plan with vesting in equal installments over a specified
period of time. (25)*
10.31 Form of Non-Qualified Stock Option Agreement under the 2018 Stock Incentive Plan with conditional vesting provisions. (25)*
10.32 Waiver and Second Amendment to Term Loan Credit and Security Agreement (20)
10.33 Extension Letter dated October 15, 2018 (21)
10.34 Second Extension Letter dated November 14, 2018 (22)
10.35 Third Extension Letter dated November 21, 2018 (23)
10.36 Waiver and Third Amendment to Term Loan and Security Agreement (24)
10.37 Joinder to Term Loan Credit and Security Agreement and Other Documents (26)
10.38 Third Amended and Restated Employment Agreement dated as of September 20, 2019 between the Registrant and Kevin J. Zugibe (27)*
10.39 Second Amended and Restated Agreement dated as of September 20, 2019 between the Registrant and Brian F. Coleman (27)*
10.40 Amended and Restated Agreement dated as of September 20, 2019 between the Registrant and Nat Krishnamurti (27)*
10.41 Credit Agreement dated December 19, 2019 by and among Wells Fargo Bank, National Association, as Agent, the Lenders that are parties
thereto, Hudson Technologies, Inc. and the Borrowers Described Therein (28)
10.42 Guaranty and Security Agreement dated December 19, 2019 by and among the Grantors named therein and Wells Fargo Bank, National
Association, as Agent (28)
10.43 Waiver and Fourth Amendment to Term Loan and Credit and Security Agreement dated December 19, 2019 (28)
10.44 Fourth Amended and Restated Employment Agreement dated December 19, 2019 between the Registrant and Kevin J. Zugibe (28)*
10.45 Third Amended and Restated Agreement dated December 19, 2019 between the Registrant and Brian F. Coleman (28)*
10.46 First Amendment to Credit Agreement dated April 23, 2020 with Wells Fargo Bank, National Association (29)
10.47 Fifth Amendment to Term Loan and Credit and Security Agreement dated April 23, 2020 (29)
10.48 Fourth Amended and Restated Agreement dated as of June 24, 2020 between the Registrant and Brian F. Coleman (30)*
10.49 Agreement dated September 14, 2020 between the Company and Kenneth Gaglione (31)*
10.50 Amended and Restated Agreement dated September 30, 2019 between the Company and Kathleen L. Houghton (31)*
10.51 Hudson Technologies, Inc. 2020 Stock Incentive Plan (32)*
10.52 Form of Incentive Stock Option Agreement under the 2020 Stock Incentive Plan with full vesting upon issuance (34)*
10.53 Form of Incentive Stock Option Agreement under the 2020 Stock Incentive Plan with vesting in equal installments over a specified period of
time (34)*
10.54 Form of Non-Qualified Stock Option Agreement under the 2020 Stock Incentive Plan with full vesting upon issuance (34)*
10.55 Form of Non-Qualified Stock Option Agreement under the 2020 Stock Incentive Plan with vesting in equal installments over a specified
period of time (34)*
10.56 Form of Non-Qualified Stock Option Agreement under the 2020 Stock Incentive Plan with conditional vesting provisions (34)*
14 Code of Business Conduct and Ethics. (6)
21 Subsidiaries of the Company. (34)
23.1 Consent of BDO USA, LLP. (34)
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (34)
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (34)
32.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of
2002. (34)
32.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of
2002. (34)
101 Interactive data file pursuant to Rule 405 of Regulation S-T. (34)
(1) Incorporated by reference to the comparable exhibit filed with the Company's Registration Statement on Form SB-2 (No. 33-80279-NY).
(2) Incorporated by reference to the comparable exhibit filed with the Company's Quarterly Report on Form 10-QSB for the quarter ended June
30, 1999.
(3) Incorporated by reference to the comparable exhibit filed with the Company's Annual Report on Form 10-KSB for the year ended December
31, 2000.
26
(4) Incorporated by reference to the comparable exhibit filed with the Company’s Annual Report on Form 10-KSB for the year ended December
31, 2001.
(5) Incorporated by reference to the comparable exhibit filed with the Company's Annual Report on Form 10-KSB for the year ended December
31, 2002.
(6) Incorporated by reference to the comparable exhibit filed with the Company’s Current Report on Form 8-K, for the event dated March 3,
2005, and filed May 31, 2005.
(7) Incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement on Schedule 14A filed August 18, 2004 .
(8) Incorporated by reference to Appendix I to the Company’s Definitive Proxy Statement on Schedule 14A filed July 29, 2008.
(9) Incorporated by reference to the comparable exhibit filed with the Company’s Annual Report on Form 10-K for the year ended December 31,
2008.
(10) Incorporated by reference to the comparable exhibit filed with the Company’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2012.
(11) Incorporated by reference to the comparable exhibit filed with the Company’s Annual Report on Form 10-K for the year ended December 31,
2013.
(12) Incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement on Schedule 14A filed August 12, 2014.
(13) Incorporated by reference to the comparable exhibit filed with the Company’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2014.
(14) Incorporated by reference to the comparable exhibit filed with the Company’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2015.
(15) Incorporated by reference to the comparable exhibit filed with the Company Annual Report on form 10-K for the year ended December 31,
2015.
(16) Incorporated by reference to the comparable exhibit filed with the Company’s Current Report on Form 8-K filed September 9, 2016.
(17) Incorporated by reference to the comparable exhibit filed with the Company’s Current Report on Form 8-K filed August 9, 2017.
(18) Incorporated by reference to the comparable exhibit filed with the Company’s Current Report on Form 8-K filed October 11, 2017.
(19) Incorporated by reference to the comparable exhibit filed with the Company’s Registration Statement on Form S-8 filed December 21, 2018.
(20) Incorporated by reference to the comparable exhibit filed with the Company’s Current Report on Form 8-K filed August 15, 2018.
(21) Incorporated by reference to the comparable exhibit filed with the Company’s Current Report on Form 8-K filed October 16, 2018.
(22) Incorporated by reference to the comparable exhibit filed with the Company’s Current Report on Form 8-K filed November 15, 2018.
(23) Incorporated by reference to the comparable exhibit filed with the Company’s Current Report on Form 8-K filed November 23, 2018.
(24) Incorporated by reference to the comparable exhibit filed with the Company’s Current Report on Form 8-K filed December 3, 2018.
(25) Incorporated by reference to the comparable exhibit filed with the Company’s Annual Report on Form 10-K for the year ended December 31,
2018.
(26) Incorporated by reference to the comparable exhibit filed with the Company’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2019.
(27) Incorporated by reference to the comparable exhibit filed with the Company’s Current Report on Form 8-K filed September 23, 2019.
(28) Incorporated by reference to the comparable exhibit filed with the Company’s Current Report on Form 8-K filed December 20, 2019.
(29) Incorporated by reference to the comparable exhibit filed with the Company’s Quarterly Report on Form 10-Q filed May 15, 2020.
(30) Incorporated by reference to the comparable exhibit filed with the Company’s Current Report on Form 8-K filed July 20, 2020.
(31) Incorporated by reference to the comparable exhibit filed with the Company’s Current Report on Form 8-K filed September 16, 2020.
(32) Incorporated by reference to the comparable exhibit filed with the Company’s Registration Statement on Form S-8 filed June 30, 2020.
(33) Incorporated by reference to the comparable exhibit filed with the Company’s Annual Report on Form 10-K filed March 13, 2020.
(34) Filed herewith.
(*) Denotes Management Compensation Plan, agreement or arrangement.
Item 16. Form 10-K Summary
None.
27
Hudson Technologies, Inc.
Consolidated Financial Statements
Contents
Report of Independent Registered Public Accounting Firm
Audited Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations for the years ended December 31, 2020 and December 31, 2019
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2020 and December 31, 2019
Consolidated Statements of Cash Flows for the years ended December 31, 2020 and December 31, 2019
Notes to the Consolidated Financial Statements
29
30
31
32
33
34
28
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Hudson Technologies, Inc.
Pearl River, NY
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Hudson Technologies, Inc. (the “Company”) as of December 31, 2020 and 2019, the
related consolidated statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2020, and
the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of
the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Impairment Assessment
As described in Note 1 and 8 to the Company’s consolidated financial statements, the Company’s goodwill balance as of December 31, 2020 was $47.8
million. Goodwill is tested for impairment at the reporting unit level. The Company has one reporting unit at December 31, 2020. Goodwill is tested for
impairment annually on the first day of the fourth quarter or more frequently if an event occurs or circumstances change that would make it more likely
than not that the fair value of the reporting unit is less than its carrying amount. The Company utilizes a weighted combination of the income approach and
the market approach to determine the fair value of its reporting unit. Significant management estimates and assumptions are required to evaluate the
comparable publicly traded companies used to derive the market multiples and the forecasts of future revenue, operating margins and discount rates.
Additional uncertainty existed in the forecasts due to the COVID-19 pandemic impact on the economic environment.
We identified the determination of the fair value of the reporting unit as it relates to goodwill impairment assessment as a critical audit matter. Under the
market approach, the reporting unit’s fair value was estimated using market multiple assumptions for comparable companies. Under the income approach, a
discounted cash flow methodology was used that included: (i) management’s estimates, such as discount rates, terminal growth rates, and projections of
revenue, operating margin and cash flows and (ii) assumptions related to general economic and market conditions, including inherent uncertainties
regarding the projected impact of the COVID-19 pandemic. These estimates and assumptions require significant management judgment due to their highly
subjective nature. Changes in these assumptions could have a significant impact on the fair value of the reporting unit and the amount of goodwill
impairment (if any). Auditing these elements involved especially challenging auditor judgment in evaluating the reasonableness of management’s
assumptions, including the extent of specialized skill or knowledge needed.
The primary procedures we performed to address this critical audit matter included:
·
Evaluating the appropriateness of the methodologies and reasonableness of assumptions used by management in determining the fair value of the
reporting unit, including:
o With respect to the market approach, assessing the appropriateness of the approach and evaluating the reasonableness of the comparable
companies and market multiples selected for the reporting unit.
o With respect to the income approach, evaluating the appropriateness of the approach and the methodology and the reasonableness of
assumptions used through: (i) assessing actual results against management’s historical forecasts, underlying business strategies and
management’s growth plans and (ii) evaluating reasonableness of forecasts with evidence obtained in other areas of the audit, including
projected impact of the COVID-19 pandemic on the industry and the forecasted recovery period for the industry.
·
Utilizing personnel with specialized knowledge and skill of valuation techniques to assist in: (i) evaluating the appropriateness of the
methodologies and the valuation models utilized by management to determine the fair values of the reporting unit, and (ii) assessing the
reasonableness of certain assumptions incorporated into the valuation models including terminal growth rates and discount rates.
/s/ BDO USA, LLP
We have served as the Company's auditor since 1994.
Stamford, CT
March 12, 2021
29
Hudson Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(Amounts in thousands, except for share and par value amounts)
Assets
Current assets:
Cash and cash equivalents
Trade accounts receivable – net
Inventories
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, less accumulated depreciation
Goodwill
Intangible assets, less accumulated amortization
Right of use asset
Other assets
Total Assets
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable
Accrued expenses and other current liabilities
Accrued payroll
Current maturities of long-term debt
Short-term debt
Total current liabilities
Deferred tax liability
Long-term lease liabilities
Long-term debt, less current maturities, net of deferred financing costs
Total Liabilities
Commitments and contingencies
Stockholders' equity:
Preferred stock, shares authorized 5,000,000: Series A Convertible preferred stock, $0.01 par value ($100
liquidation preference value); shares authorized 150,000; none issued or outstanding
Common stock, $0.01 par value; shares authorized 100,000,000; issued and outstanding: 43,347,887 and
42,628,560, respectively
Additional paid-in capital
Accumulated deficit
Total Stockholders' Equity
$
$
$
December 31,
2020
2019
1,348 $
9,806
44,460
6,528
62,142
21,910
47,803
23,150
6,559
85
161,649 $
7,644 $
19,417
1,394
7,314
2,000
37,769
1,355
3,927
77,976
121,027
2,600
8,061
59,238
4,525
74,424
23,674
47,803
26,012
8,048
192
180,153
10,274
18,120
724
3,008
14,000
46,126
1,192
5,742
81,982
135,042
—
—
433
118,269
(78,080)
40,622
426
117,557
(72,872)
45,111
Total Liabilities and Stockholders' Equity
$
161,649 $
180,153
See Accompanying Notes to the Consolidated Financial Statements.
30
Hudson Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
(Amounts in thousands, except for share and per share amounts)
Revenues
Cost of sales
Gross profit
Operating expenses:
Selling, general and administrative
Amortization
Total operating expenses
Operating income (loss)
Other expense:
Interest expense
Other income
Total other expense
Loss before income taxes
Income tax (benefit) expense
Net loss
Net loss per common share – Basic
Net loss per common share – Diluted
Weighted average number of shares outstanding – Basic
Weighted average number of shares outstanding – Diluted
See Accompanying Notes to the Consolidated Financial Statements.
31
$
$
$
$
For the years ended December
31,
2020
2019
147,605 $
112,195
35,410
162,059
144,894
17,165
26,644
2,862
29,506
30,018
2,931
32,949
5,904
(15,784)
(12,330)
1,033
(11,297)
(18,911)
9,411
(9,500)
(5,393)
(25,284)
(185)
656
(5,208) $
(25,940)
(0.12) $
(0.12) $
(0.61)
(0.61)
42,710,381
42,613,478
42,710,381
42,613,478
Hudson Technologies, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Amounts in thousands, except for share amounts)
Common Stock
Shares
Amount
Additional
Paid-in Capital
Retained
Earnings
(Accumulated
Deficit)
Total
Balance at January 1, 2019
42,602,431 $
426 $
115,719 $
(46,932) $
69,213
Issuance of common stock upon exercise of stock options
Issuance of common stock for services
Value of share-based arrangements
Net loss
10,000
16,129
—
—
—
—
—
—
9
10
—
—
9
10
1,819
—
1,819
—
(25,940)
(25,940)
Balance at December 31, 2019
42,628,560 $
426 $
117,557 $
(72,872) $
45,111
Issuance of common stock upon exercise of stock options
Issuance of common stock for services
Value of share-based arrangements
Net loss
683,613
35,714
—
—
7
—
—
—
56
35
621
—
—
—
63
35
621
—
(5,208)
(5,208)
Balance at December 31, 2020
43,347,887 $
433 $
118,269 $
(78,080) $
40,622
See Accompanying Notes to the Consolidated Financial Statements.
32
Hudson Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Amounts in thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation
Amortization of intangible assets
Gain on insurance proceeds
Lower of cost or net realizable value inventory adjustment
Allowance for doubtful accounts
Amortization of deferred finance cost
Value of share-based payment arrangements
Write-off of intangible assets
Deferred tax expense
Non-cash adjustment of cylinder deposits
Changes in assets and liabilities:
Trade accounts receivable
Inventories
Prepaid and other assets
Lease obligations
Income taxes receivable/payable
Accounts payable and accrued expenses
Cash provided by operating activities
Cash flows from investing activities:
Additions to property, plant and equipment
Proceeds from insurance policy
Cash used in investing activities
Cash flows from financing activities:
Net proceeds from issuances of common stock and exercises of stock options
Borrowing- Paycheck Protection Program
Payment of deferred financing costs
Repayment of short-term debt – net
Repayment of long-term debt
Cash used in financing activities
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information:
Cash paid during period for interest
Refund received for income taxes- net
See Accompanying Notes to the Consolidated Financial Statements
33
For the years ended December
31,
2020
2019
$
(5,208) $
(25,940)
3,234
2,862
(1,000)
(3,935)
880
1,127
656
—
163
—
(2,625)
18,713
(2,192)
12
(300)
(700)
11,687
(1,470)
1,000
(470)
63
2,475
—
(12,000)
(3,007)
(12,469)
(1,252)
2,600
1,348 $
4,185
2,932
—
(740)
(76)
2,791
1,829
507
749
(502)
6,080
43,464
(579)
58
108
(1,045)
33,821
(1,011)
—
(1,011)
9
—
(1,346)
(15,000)
(16,145)
(32,482)
328
2,272
2,600
11,380 $
(48) $
15,162
(202)
$
$
$
Hudson Technologies, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
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 operations consist of one reportable segment. The Company's products and services
are primarily used in commercial air conditioning, industrial processing and refrigeration systems, and include refrigerant and industrial gas sales,
refrigerant management services consisting primarily of reclamation of refrigerants and RefrigerantSide® Services performed at a customer's site,
consisting of system decontamination to remove moisture, oils and other contaminants. In addition, the Company’s SmartEnergy OPS® service is a web-
based real time continuous monitoring service applicable to a facility’s refrigeration systems and other energy systems. The Company’s Chiller Chemistry®
and Chill Smart® services are also predictive and diagnostic service offerings. As a component of the Company’s products and services, the Company also
generates carbon offset projects. The Company operates principally through its wholly-owned subsidiary, Hudson Technologies Company, and Aspen
Refrigerants (“Aspen” or “ARI”), a division of Hudson Technologies Company. Unless the context requires otherwise, references to the “Company”,
“Hudson”, “we", “us”, “our”, or similar pronouns refer to Hudson Technologies, Inc. and its subsidiaries.
During the year ended December 31, 2020, the effects of a novel strain of coronavirus ("COVID-19") pandemic and the related actions by governments
around the world to attempt to contain the spread of the virus have materially impacted the global economy. While it is difficult to predict the full scale of
the ongoing impact of the COVID-19 outbreak and business disruption, the Company has been taking actions to address the impact of the pandemic, such
as working closely with our customers, reducing our expenses and monitoring liquidity. The impact of the pandemic and the corresponding actions were
reflected into our judgments, assumptions and estimates to prepare the financial statements. As of the date of this filing, there has been no material impact
on our ability to procure or distribute our products and services. However, if the duration of the COVID-19 pandemic is longer and the operational impact
is greater than estimated, the judgments, assumptions and estimates will be updated and could result in different results in the future.
In preparing the accompanying consolidated financial statements, and in accordance with Accounting Standards Codification (“ASC”) 855-10 “Subsequent
Events”, the Company’s management has evaluated subsequent events through the date that the financial statements were filed.
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, which have been prepared in accordance with accounting principles generally accepted in the United States,
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. The Company does not present a statement of comprehensive income (loss) as its comprehensive
income (loss) is the same as its net income (loss).
Fair Value of Financial Instruments
The carrying values of financial instruments including cash, trade accounts receivable and accounts payable approximate fair value at December 31, 2020
and December 31, 2019, because of the relatively short maturity of these instruments. The carrying value of debt approximates fair value, due to the
variable rate nature of the debt, as of December 31, 2020 and December 31, 2019. Please see Note 2 for further details.
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 receivable are primarily due from companies throughout the United States. The Company reviews each
customer's credit history before extending credit.
34
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 year ended December 31, 2020, one customer accounted for 14% of the Company’s revenues and at December 31, 2020, there were $2.9 million of
outstanding receivables from this customer. For the year ended December 31, 2019, one customer accounted for 14% of the Company’s revenues and at
December 31, 2019, there were $1.8 million of outstanding receivables from this customer.
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 a material adverse effect on the Company's operating results and financial position.
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 net realizable value.
Where the market price of inventory is less than the related cost, the Company may be required to write down its inventory through a lower of cost or net
realizable value adjustment, the impact of which would be reflected in cost of sales on the Consolidated Statements of Operations. Any such adjustment
would be based on management’s judgment regarding future demand and market conditions and analysis of historical experience.
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.
Goodwill
The Company has made acquisitions that included a significant amount of goodwill and other intangible assets. The Company applies the purchase method
of accounting for acquisitions, which among other things, requires the recognition of goodwill (which represents the excess of the purchase price of the
acquisition over the fair value of the net assets acquired and identified intangible assets). We test our goodwill for impairment on an annual basis (the first
day of the fourth quarter) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of an
asset below its carrying value. Goodwill is tested for impairment at the reporting unit level. The Company has one reporting unit at December 31, 2020.
Other intangible assets that meet certain criteria are amortized over their estimated useful lives.
Beginning in 2017, the Company adopted, on a prospective basis, ASU No. 2017-04, which simplifies the accounting for goodwill impairment by
eliminating Step 2 of the prior goodwill impairment test that required a hypothetical purchase price allocation to measure goodwill impairment. Under the
new standard, a company will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value.
An impairment charge would be recognized when the carrying amount exceeds the estimated fair value of a reporting unit. These impairment evaluations
use many assumptions and estimates in determining an impairment loss, including certain assumptions and estimates related to future earnings. If the
Company does not achieve its earnings objectives, the assumptions and estimates underlying these impairment evaluations could be adversely affected,
which could result in an asset impairment charge that would negatively impact operating results.
In 2019, due to a significant selling price correction leading to unfavorable market conditions, the Company performed a quantitative test by weighing the
results of an income-based valuation technique (the discounted cash flows method) and a market-based valuation technique, to determine the fair value of
its reporting unit. The Company also performed a similar quantitative test for its annual impairment testing date in 2020.
The discounted cash flow methodology included: (i) management's estimates, such as discount rates, terminal growth rates, and projections of revenue,
operating margin and cash flows and (ii) assumptions related to general economic and market conditions, including inherent uncertainties regarding the
projected impact of the COVID-19 pandemic. The Company initially established a forecast of the estimated future net cash flows, which were then
discounted to their present value. The market-based valuation technique utilizes market multiple assumptions for comparable companies to estimate the fair
value of the reporting unit.
There were no goodwill impairment losses recognized in 2019 or 2020.
35
Leases
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), as amended, which generally requires
lessees to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet and to provide enhanced disclosures
surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. In July 2018, the FASB issued ASU No. 2018-11, Leases
– Targeted Improvements, as an update to the previously-issued guidance. This update added a transition option which allows for the recognition of a
cumulative effect adjustment to the opening balance of retained earnings in the period of adoption without recasting the financial statements in periods
prior to adoption. The Company has used the modified retrospective transition approach in ASU No. 2018-11 and applied the new lease requirements
through a cumulative-effect adjustment in the period of adoption. The Company elected the package of practical expedients permitted under the transition
guidance, which allows it to carryforward its historical lease classification, its assessment on whether a contract is or contains a lease, and its initial direct
costs for any leases that existed prior to adoption of the new standard. The Company also elected to combine lease and non-lease components and to keep
leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of
operations on a straight-line basis over the lease term. The Company recorded approximately $8.1 million as total right-of-use assets and total lease
liabilities on its consolidated balance sheet as of January 1, 2019. The Company’s accounting for finance leases remained substantially unchanged. Please
see Note 6 for further details and current balances.
Cylinder Deposit Liability
The cylinder deposit liability, which is included in Accrued expenses and other current liabilities on the Company’s Balance Sheet, represents the amount
due to customers for the return of refillable cylinders. ARI charges its customers cylinder deposits upon the shipment of refrigerant gases that are
contained in refillable cylinders. The amount charged to the customer by ARI approximates the cost of a new cylinder of the same size. Upon return of a
cylinder, this liability is reduced. The cylinder deposit liability was assumed as part of the ARI acquisition and the balance was $10.8 million and $9.5
million at December 31, 2020 and 2019, respectively.
Revenues and Cost of Sales
The Company’s products and services are primarily used in commercial air conditioning, industrial processing and refrigeration systems. Most of the
Company’s revenues are realized from the sale of refrigerant and industrial gases and related products. The Company also generates revenue from
refrigerant management services performed at a customer’s site and in-house. The Company conducts its business primarily within the US.
The Company applies the FASB’s guidance on revenue recognition, which requires the Company to recognize revenue in an amount that reflects the
consideration to which the Company expects to be entitled in exchange for goods or services transferred to its customers. In most instances, the Company’s
contract with a customer is the customer’s purchase order and the sales price to the customer is fixed. For certain customers, the Company may also enter
into a sales agreement outlining a framework of terms and conditions applicable to future purchase orders received from that customer. Because the
Company’s contracts with customers are typically for a single customer purchase order, the duration of the contract is usually less than one year. The
Company’s performance obligations related to product sales are satisfied at a point in time, which may occur upon shipment of the product or receipt by the
customer, depending on the terms of the arrangement. The Company’s performance obligations related to reclamation and RefrigerantSide® services are
generally satisfied at a point in time when the service is performed. Accordingly revenues are recorded upon the shipment of the product, or in certain
instances upon receipt by the customer, or the completion of the service.
In July 2016 the Company was awarded, as prime contractor, a five-year contract, including a five-year renewal option, by the United States Defense
Logistics Agency (“DLA”) for the management, supply, and sale of refrigerants, compressed gases, cylinders and related services. Due to the contract
containing multiple performance obligations, the Company assessed the arrangement in accordance with ASC 606. The Company determined that the sale
of refrigerants and the management services provided under the contract each have stand-alone value. Accordingly, the performance obligations related to
the sale of refrigerants is satisfied at a point in time, mainly when the customer receives and obtains control of the product. The performance obligation
related to management service revenue is satisfied over time and revenue is recognized on a straight-line basis over the term of the arrangement as the
management services are provided.
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. In
general, the Company performs shipping and handling services for its customers in connection with the delivery of refrigerant and other products. The
Company elected to implement ASC 606-10-25-18B, whereby the Company accounts for such shipping and handling as activities to fulfill the promise to
transfer the good. 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.
36
The Company's revenues are derived from Product and related sales and RefrigerantSide® Services revenues. The revenues for each of these lines are as
follows:
Years Ended December 31,
(in thousands)
Product and related sales
RefrigerantSide ® Services
Total
Income Taxes
2020
2019
$
$
143,210 $
4,395
147,605 $
157,512
4,547
162,059
The Company is taxed at statutory corporate income tax rates after adjusting income reported for financial statement purposes for certain items. Current
income tax expense (benefit) reflects the tax results of revenues and expenses currently taxable or deductible. The Company utilizes the asset and liability
method of accounting for deferred income taxes, which provides for the recognition of deferred tax assets or liabilities, based on enacted tax rates and laws,
for the differences between the financial and income tax reporting bases of assets and liabilities.
The tax benefit associated with the Company’s net operating loss carry forwards (“NOLs”) is recognized to the extent that the Company expects to realize
future taxable income. As a result of a prior “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. To the extent that the Company utilizes its NOLs, it will not pay tax on such income. However, to the extent
that the Company’s net income, if any, exceeds the annual NOL limitation, it will pay income taxes based on the then existing statutory rates. In addition,
certain states either do not allow or limit NOLs and as such the Company will be liable for certain state income taxes.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The
CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In
addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund
of previously paid income taxes. The Company has evaluated its options under the carryback provision and filed a claim for refund, resulting in a cash
benefit. Further, the CARES Act accelerates the refund of the alternative minimum tax credits to allow a full refund of any remaining credit amount in
taxable years beginning in 2019. The credits were originally fully refundable in taxable years beginning in 2021. As a result, the Company has recorded a
preliminary $47,000 tax benefit related to the alternative minimum tax refund in the quarter ended March 31, 2020 and an additional $380,000 in the
quarter ended June 30, 2020. Finally, the CARES Act contains modifications on the limitation of business interest for tax years beginning in 2019 and
2020. The modifications to Section 163(j) increase the allowable business interest deduction from 30% of adjusted taxable income to 50% of adjusted
taxable income. This modification results in a $2,154,000 increase in allowable interest expense, which in turn results in an increase to our net operating
losses of $2,154,000 in the year ended December 31, 2020. However, the impact of the additional interest expense did not impact our income tax provision
since the increase in the deferred tax asset for net operating losses was offset by an increase to the valuation allowance.
As of December 31, 2020, the Company had NOLs of approximately $46.1 million, of which $40.7 million have no expiration date and $5.4 million expire
through 2023. As of December 31, 2020, the Company had state tax NOLs of approximately $31.2 million expiring in various years. We review the
likelihood that we will realize the benefit of our deferred tax assets, and therefore the need for valuation allowances, on an annual basis in the fourth quarter
of the year, and more frequently if events indicate that a review is required. In determining the requirement for a valuation allowance, the historical and
projected financial results are considered, along with all other available positive and negative evidence.
Concluding that a valuation allowance is not required is difficult when there is significant negative evidence that is objective and verifiable, such as
cumulative losses in recent years. We utilize a rolling twelve quarters of pre-tax income or loss adjusted for significant permanent book to tax differences,
as well as non-recurring items, as a measure of our cumulative results in recent years. Based on our assessment as of December 31, 2019 and 2020, we
concluded that due to the uncertainty that the deferred tax assets will not be fully realized in the future, we recorded a valuation allowance of approximately
$11.3 million during 2018, and due to additional losses, increased the valuation allowance through 2019 and December 31, 2020, with an ending balance of
$19.0 million as of December 31, 2020.
The Company evaluates uncertain tax positions, if any, by determining if it is more likely than not to be sustained upon examination by the taxing
authorities. As of December 31, 2020 and December 31, 2019, the Company believes it had no uncertain tax positions.
37
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):
Net loss
Weighted average number of shares – basic
Shares underlying options
Weighted average number of shares outstanding – diluted
Years ended
December 31,
2020
$
(5,208) $
2019
(25,940)
42,710,381 42,613,478
---
---
42,710,381 42,613,478
During the years ended December 31, 2020 and 2019, certain options aggregating 5,329,515 and 7,042,377 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 the use of estimates and
assumptions that affect the amounts reported in these financial statements and footnotes. The Company considers these accounting estimates to be critical
in the preparation of the accompanying consolidated financial statements. The Company uses information available at the time the estimates are made.
However, these estimates could change materially if different information or assumptions were used including potential impact of COVID-19 uncertainties.
Additionally, these estimates may not ultimately reflect the actual amounts of the final transactions that occur. 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 estimates. 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,
goodwill and valuation allowance for the deferred tax assets relating to its NOLs and commitments and contingencies. With respect to trade 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, and changes in the regulations affecting its business could affect its operating results.
Currently the Company purchases virgin hydrochlorofluorocarbon (“HCFC”) and hydrofluorocarbon (“HFC”) refrigerants and reclaimable, primarily
HCFC, HFC and chlorofluorocarbon (“CFC”), refrigerants from suppliers and its customers.
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 sold by the Company, the Company could realize reductions in revenue from refrigerant
sales, which could have a material adverse effect on its operating results and its financial position.
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 could have a material adverse effect on its 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.
38
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which revises guidance for the accounting for
credit losses on financial instruments within its scope, and in November 2018, issued ASU No. 2018-19 and in April 2019, issued ASU No. 2019-04 and in
May 2019, issued ASU No. 2019-05, and in November 2019, issued ASU No. 2019-11, which each amended the standard. The new standard introduces an
approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-
sale debt securities. The new approach to estimating credit losses (referred to as the current expected credit losses model) applies to most financial assets
measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, net investments in
leases and off-balance-sheet credit exposures. This ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within
those fiscal years, with early adoption permitted. Entities are required to apply the standard’s provisions as a cumulative-effect adjustment to retained
earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is still evaluating the impact of this ASU.
In March 2020, the FASB issued ASU 2020-04, which provides relief from accounting analysis and impacts that may otherwise be required for
modifications to agreements necessitated by reference rate reform. It also provides optional expedients to enable the continuance of hedge accounting
where certain hedging relationships are impacted by reference rate reform. This optional guidance is effective immediately, and available to be used
through December 31, 2022. We are assessing the impact that reference rate reform and the related adoption of this guidance will have on our financial
statements.
In August 2020, the FASB issued ASU 2020-06, "Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-
Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity", which is intended
to simplify the accounting for convertible instruments by removing certain separation models in Subtopic 470-20, Debt-Debt with Conversion and Other
Options, for convertible instruments. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after
December 15, 2021, with early adoption permitted. We are currently in the process of evaluating the effects of the provisions of ASU 2020-06 on our
financial statements.
Note 2- Fair Value
ASC Subtopic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The Company often utilizes certain assumptions that market participants would use in pricing the asset or
liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-
corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the
use of unobservable inputs. Based upon observable inputs used in the valuation techniques, the Company is required to provide information according to
the fair value hierarchy.
The fair value hierarchy ranks the quality and reliability of the information used to determine fair values into three broad levels as follows:
Level 1: Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical
assets or liabilities.
Level 2: Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for
identical or similar assets or liabilities.
Level 3: Valuations for assets and liabilities include certain unobservable inputs in the assumptions and projections used in determining the fair value
assigned to such assets or liabilities.
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair
value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its
entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers
factors specific to the asset or liability.
39
Note 3 - Trade accounts receivable – net
At December 31, 2020 and 2019, trade accounts receivable are net of reserves for doubtful accounts of $1.6 million and $0.7 million, respectively. The
following table represents the activity occurring in the reserves for doubtful accounts in 2020 and 2019.
(in thousands)
2020
2019
Note 4- Inventories
Inventories consist of the following:
(in thousands)
Refrigerants and cylinders
Less: net realizable value adjustments
Total
Note 5 - Property, plant and equipment
Elements of property, plant and equipment are as follows:
December 31 ,
(in thousands)
Property, plant and equipment
- Land
- Land improvements
- Buildings
- Building improvements
- Cylinders
- Equipment
- Equipment under capital lease
- Vehicles
- Lab and computer equipment, software
- Furniture & fixtures
- Leasehold improvements
- Equipment under construction
Subtotal
Accumulated depreciation
Total
Beginning
Balance
at January 1
Net additions
charged to
Operations
Deductions
and Other
$
$
710 $
1,178 $
880 $
(76) $
Ending Balance
at December 31
1,597
710
7 $
(392) $
December 31,
2020
December 31,
2019
$
$
53,593 $
(9,133)
44,460 $
72,088
(12,850)
59,238
Estimated
Lives
6-10 years
25-39 years
25-39 years
15-30 years
3-10 years
5-7 years
3-5 years
2-8 years
5-10 years
3-5 years
2020
2019
$
$
1,255 $
319
1,446
3,072
13,624
25,138
315
1,537
3,103
679
852
944
52,284
30,374
21,910 $
1,255
319
1,446
3,045
13,273
24,953
315
1,574
3,077
679
842
73
50,851
27,177
23,674
Depreciation expense for the years ended December 31, 2020 and 2019 was $3.2 million and $4.2 million, respectively, of which $1.7 million and $2.7
million, respectively, were included as cost of sales in the Company’s Consolidated Statements of Operations.
Note 6 - Leases
The Company has various lease agreements with terms up to 11 years, including leases of buildings and various equipment. Some leases include options to
purchase, terminate or extend for one or more years. These options are included in the lease term when it is reasonably certain that the option will be
exercised.
At inception, the Company determines if an arrangement contains a lease and whether that lease meets the classification criteria of a finance or operating
lease. Some of the Company’s lease arrangements contain lease components (e.g. minimum rent payments) and non-lease components (e.g. common area
maintenance, charges, utilities and property taxes). The Company elected the package of practical expedients permitted under the transition guidance,
which allows it to carry forward its historical lease classification, its assessment on whether a contract contains a lease, and its initial direct costs for any
leases that existed prior to the adoption of the new standard. The Company also elected to combine lease and non-lease components and to keep leases with
an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of operations on a
straight line basis over the lease term. The Company’s lease agreements do not contain any material residual value, guarantees or material restrictive
covenants.
40
Operating leases are included in Right of use asset, Accrued expenses and other current liabilities, and Long-term lease liabilities on the consolidated
balance sheets. These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease
term using the Company’s secured incremental borrowing rates or implicit rates, when readily determinable. Short-term operating leases, which have an
initial term of 12 months or less, are not recorded on the balance sheet. Lease expense for operating leases is recognized on a straight-line basis over the
lease term. Variable lease expense is recognized in the period in which the obligation for those payments is incurred.
Operating lease expense of $3.0 million and $2.8 million, for the years ended December 31, 2020 and 2019, respectively, is included in Selling, general and
administrative expenses on the consolidated statements of operations.
The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s operating leases as of
December 31, 2020.
Maturity of Lease Payments
(in thousands)
-2021
-2022
-2023
-2024
-Thereafter
Total undiscounted operating lease payments
Less imputed interest
Present value of operating lease liabilities
Balance Sheet Classification
December 31, 2020
2,282
1,117
969
943
2,984
8,295
(1,665)
6,630
$
December 31 ,
Current lease liabilities (recorded in Accrued expenses and other current liabilities)
Long-term lease liabilities
Total operating lease liabilities
2020
2019
2,703 $
3,927
6,630 $
2,364
5,742
8,106
$
$
Other Information
December 31 ,
Weighted-average remaining term for operating leases
Weighted-average discount rate for operating leases
Cash Flows
2020
4.86 years
2019
5.77 years
8.78%
8.74%
Cash paid for amounts included in the present value of operating lease liabilities for the years ended December 31, 2020 and 2019 was $3.0 million and
$2.8 million and is included in operating cash flows.
Note 7 - Income taxes
Loss before income taxes for the years ended December 31, 2020 and 2019 was $5.4 million and $25.3 million, respectively. Income tax expense (benefit)
for the years ended December 31, 2020 and 2019 was ($0.2) million and $0.7 million, respectively. The income tax expense for each of the years ended
December 31, 2020 and 2019 was for federal and state income tax at statutory rates applied to the adjusted pre-tax income for each of the periods.
The following summarizes the (benefit) / provision for income taxes:
Years Ended December 31,
(in thousands)
Current:
Federal
State and local
Deferred:
Federal
State and local
(Benefit) expense for income taxes
2020
2019
$
$
(428) $
80
(348)
80
83
163
(185) $
(124)
31
(93)
366
383
749
656
41
Reconciliation of the Company's actual tax rate to the U.S. Federal statutory rate is as follows:
Years ended December 31,
Income tax rates
- Statutory U.S. federal rate
- State income taxes, net of federal benefit
- Excess tax benefits related to stock compensation
- AMT credit and NOL Carryback
- Lobbying
- Meals & Entertainment
- Officer’s Life Insurance
- Change in valuation allowance
Total
2020
2019
21%
0%
0%
8%
(1)%
(1)%
4%
(28)%
3%
21%
0%
0%
1%
0%
—
0%
(25)%
(3)%
As of December 31, 2020, the Company had NOLs of approximately $46.1 million, of which $40.7 million have no expiration date (subject to annual
limitations of 80% of tax earnings) and $5.4 million expire through 2023 (subject to annual limitations of approximately $1.3 million). As of December 31,
2020, the Company had state tax NOLs of approximately $31.2 million expiring in various years.
Deferred income tax represents the tax effect of the differences between the book and tax bases of assets and liabilities. The net deferred income tax assets
(liabilities) consisted of the following at:
December 31,
(in thousands)
- Depreciation & amortization
- Reserves for doubtful accounts
- Inventory reserve
- Non qualified stock options
- Net operating losses
- AMT credit
- Deferred interest
- Deferred bonus
- Valuation allowance
Total
$
2020
2019
(7,424) $
324
1,408
1,219
11,963
—
10,114
74
(19,033)
(1,355)
(4,899)
163
2,083
965
11,016
47
8,351
—
(18,918)
(1,192)
We review the likelihood that we will realize the benefit of our deferred tax assets, and therefore the need for valuation allowances, on an annual basis in
the fourth quarter of the year, and more frequently if events indicate that a review is required. In determining the requirement for a valuation allowance, the
historical and projected financial results are considered, along with all other available positive and negative evidence.
Concluding that a valuation allowance is not required is difficult when there is significant negative evidence that is objective and verifiable, such as
cumulative losses in recent years. We utilize a rolling twelve quarters of pre-tax income or loss adjusted for significant permanent book to tax differences,
as well as non-recurring items, as a measure of our cumulative results in recent years. Based on our assessment as of December 31, 2018 and 2019, we
concluded that due to the uncertainty that the deferred tax assets will not be fully realized in the future, we recorded a valuation allowance of approximately
$11.3 million during 2018, and due to additional losses, increased the valuation allowance through 2019 and December 31, 2020, with an ending balance of
$19.0 million as of December 31, 2020.
The Company’s 2016 and prior federal tax years have been closed. The Company operates in many states throughout the United States and, as of
December 31, 2019, the state statutes of limitations remain open for tax years subsequent to 2015. The Company recognizes interest and penalties, if any,
relating to income taxes as a component of the provision for income taxes.
42
Note 8 – Goodwill and intangible assets
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in business combinations accounted for under the
purchase method of accounting. In both 2019 and 2020, due to a significant selling price correction leading to unfavorable market conditions, the Company
performed a quantitative test by weighing the results of an income-based valuation technique, the discounted cash flows method, and a market-based
valuation technique to determine its reporting units’ fair values.
There were no goodwill impairment losses recognized for the years ended December 31, 2020 and 2019. Based on the results of the impairment
assessments of goodwill and intangible assets performed, management concluded that the fair value of the Company’s goodwill exceeds the carrying value
and that there are no impairment indicators related to intangible assets.
At December 31, 2020 and December 31, 2019 the Company had $47.8 million of goodwill.
The Company’s other intangible assets consist of the following:
December 31,
(in thousands)
Intangible assets with determinable lives
Patents
Covenant not to compete
Customer relationships
Above market leases
Licenses
Totals identifiable intangible assets
2020
2019
Amortization Gross
Period
(in years)
Carrying Accumulated
Amount Amortization Net
Gross
Carrying Accumulated
Amount Amortization Net
386 $
5 $
1,270
6 – 10
3 – 12 31,560
567
1,000
$ 34,783 $
13
10
386 $
937
386 $
— $
1,270
333
9,167 22,393 31,560
424
567
143
1,000
1,000
—
11,633 $ 23,150 $ 34,783 $
383 $
783
3
487
6,506 25,054
468
99
1,000
—
8,771 $ 26,012
The amortization of intangible assets for the years ended December 31, 2020 and 2019, were $2.9 million and $2.9 million respectively. Future estimated
amortization expense is as follows: 2021 - $2.8 million, 2022 - $2.8 million, 2023 - $2.8 million, 2024- $2.8 million, 2025-$2.5 million and thereafter -
$9.5 million.
Note 9 - Short-term and long-term debt
Elements of short-term and long-term debt are as follows:
December 31,
(in thousands)
Short-term & long-term debt
Short-term debt:
- Revolving credit line and other debt
- Loan from Paycheck Protection Program- current
- Capital lease obligation- current
- Term loan facility - current
Subtotal
Long-term debt:
- Term loan facility- net of current portion of long-term debt
- Loan from Paycheck Protection Program- net of current portion
- Capital lease obligations
- Less: deferred financing costs on term loan
Subtotal
2020
2019
$
2,000 $
2,062
4
5,248
9,314
79,867
413
-
(2,304)
77,976
14,000
-
-
3,008
17,008
85,115
-
3
(3,136)
81,982
Total short-term & long-term debt
$
87,290 $
98,990
43
Revolving Credit Facility
On December 19, 2019, Hudson Technologies Company (“HTC”), Hudson Holdings, Inc. (“Holdings”) and Aspen Refrigerants, Inc. (“ARI”), as borrowers
(collectively, the “Borrowers”), and Hudson Technologies, Inc. (the “Company”) as a guarantor, became obligated under a Credit Agreement (the “Wells
Fargo Facility”) with Wells Fargo Bank, as administrative agent and lender (“Agent” or “Wells Fargo”) and such other lenders as may thereafter become a
party to the Wells Fargo Facility.
Under the terms of the Wells Fargo Facility, the Borrowers may borrow, from time to time, up to $60 million at any time consisting of revolving loans in a
maximum amount up to the lesser of $60 million and a borrowing base that is calculated based on the outstanding amount of the Borrowers’ eligible
receivables and eligible inventory, as described in the Wells Fargo Facility. The Wells Fargo Facility also contains a sublimit of $5 million for swing line
loans and $2 million for letters of credit.
Amounts borrowed under the Wells Fargo Facility were used by the Borrowers to repay existing revolving indebtedness under its prior revolving credit
facility, repay certain principal amounts under the Term Loan Facility (as defined below), and may be used for working capital needs, certain permitted
acquisitions, and to reimburse drawings under letters of credit.
Interest on loans under the Wells Fargo Facility is payable in arrears on the first day of each month. Interest charges with respect to loans are computed on
the actual principal amount of loans outstanding during the month at a rate per annum equal to (A) with respect to Base Rate loans, the sum of (i) a rate per
annum equal to the higher of (1) the federal funds rate plus 0.5%, (2) one month LIBOR plus 1.0%, and (3) the prime commercial lending rate of Wells
Fargo, plus (ii) between 1.25% and 1.75% depending on average monthly undrawn availability and (B) with respect to LIBOR rate loans, the sum of the
LIBOR rate plus between 2.25% and 2.75% depending on average monthly undrawn availability.
In connection with the closing of the Wells Fargo Facility, the Company also entered into a Guaranty and Security Agreement, dated as of December 19,
2019 (the “Revolver Guaranty and Security Agreement”), pursuant to which the Company and certain subsidiaries unconditionally guaranteed the payment
and performance of all obligations owing by Borrowers to Wells Fargo, as Agent for the benefit of the revolving lenders. Pursuant to the Revolver
Guaranty and Security Agreement, Borrowers, the Company and ten other subsidiaries granted to the Agent, for the benefit of the Wells Fargo Facility
lenders, a security interest in substantially all of their respective assets, including receivables, equipment, general intangibles (including intellectual
property), inventory, subsidiary stock, real property, and certain other assets. The Revolver Guaranty and Security Agreement also provides that the Agent
shall receive the right to dominion over certain of the Borrowers’ bank accounts in the event of an Event of Default under the Wells Fargo Facility, or if
undrawn availability under the Wells Fargo Facility falls below $9 million at any time.
The Wells Fargo Facility contains a financial covenant requiring the Company to maintain at all times minimum liquidity (defined as availability under the
Wells Fargo Facility plus unrestricted cash) of at least $5 million, of which at least $3 million must be derived from availability. The Wells Fargo Facility
also contains a springing covenant, which takes effect only upon a failure to maintain undrawn availability of at least $7.5 million, requiring the Company
to maintain a Fixed Charge Coverage Ratio (FCCR) of not less than 1.00 to 1.00, as of the end of each trailing period of twelve consecutive fiscal months
commencing with the month prior to the triggering of the covenant. The FCCR (as defined in the Wells Fargo Facility) is the ratio of (a) EBITDA for such
period, minus unfinanced capital expenditures made during such period, to (b) the aggregate amount of (i) interest expense required to be paid (other than
interest paid-in-kind, amortization of financing fees, and other non-cash interest expense) during such period, (ii) scheduled principal payments (but
excluding principal payments relating to outstanding revolving loans under the Wells Fargo Facility), (iii) all net federal, state, and local income taxes
required to be paid during such period (provided, that any tax refunds received shall be applied to the period in which the cash outlay for such taxes was
made), (iv) all restricted payments paid (as defined in the Wells Fargo Facility) during such period, and (v) to the extent not otherwise deducted from
EBITDA for such period, all payments required to be made during such period in respect of any funding deficiency or funding shortfall with respect to any
pension plan. The FCCR covenant ceases after the Borrowers have been in compliance therewith for two consecutive months.
The Wells Fargo Facility also contains customary non-financial covenants relating to the Company and the Borrowers, including limitations on Borrowers’
ability to pay dividends on common stock or preferred stock, and also includes certain events of default, including payment defaults, breaches of
representations and warranties, covenant defaults, cross-defaults to other obligations, events of bankruptcy and insolvency, certain ERISA events,
judgments in excess of specified amounts, impairments to guarantees and a change of control. The Wells Fargo Facility also contains certain covenants
contained in the Fourth Amendment to the Term Loan Facility described below.
On April 23, 2020, the Borrowers, the Company and its subsidiaries entered into a First Amendment to Credit Agreement with Wells Fargo (the “First
Amendment”). The First Amendment authorized the Company and its subsidiaries to incur up to $2.5 million of indebtedness under the Coronavirus Aid,
Relief, and Economic Security Act (the “CARES Act”) and contained other provisions relating to the treatment of such proceeds and any potential debt
forgiveness, under the Wells Fargo Facility.
44
The commitments under the Wells Fargo Facility will expire and the full outstanding principal amount of the loans, together with accrued and unpaid
interest, are due and payable in full on December 19, 2022, unless the commitments are terminated and the outstanding principal amount of the loans are
accelerated sooner following an event of default.
Term Loan Facility
On October 10, 2017, HTC, Holdings, and ARI, as borrowers, and the Company, as guarantor, became obligated under a Term Loan Credit and Security
Agreement (as amended, the “Term Loan Facility”) with U.S. Bank National Association, as administrative agent and collateral agent (“Term Loan Agent”)
and funds advised by FS Investments and such other lenders as may thereafter become a party to the Term Loan Facility (the “Term Loan Lenders”).
Under the terms of the Term Loan Facility, the Borrowers immediately borrowed $105 million pursuant to a term loan (the “Term Loan”).
The Term Loan matures on October 10, 2023. Interest on the Term Loan is generally payable on the earlier of the last day of the interest period applicable
to such Eurodollar rate loan and the last day of the Term Loan Facility, as applicable. Interest is payable at the rate per annum of the Eurodollar Rate (as
defined in the Term Loan Facility) plus 10.25%. The Borrowers have the option of paying 3.00% interest per annum in kind by adding such amount to the
principal of the Term Loans during no more than five fiscal quarters during the term of the Term Loan Facility.
Borrowers and the Company granted to the Term Loan Agent, for the benefit of the Term Loan Lenders, a security interest in substantially all of their
respective assets, including receivables, equipment, general intangibles (including intellectual property), inventory, subsidiary stock, real property, and
certain other assets.
The Term Loan Facility contains a financial covenant requiring the Company to maintain a specified total leverage ratio (“TLR”), tested as of the last day
of the fiscal quarter. The TLR (as defined in the Term Loan Facility) is the ratio of (a) funded debt as of such day to (b) EBITDA for the four consecutive
fiscal quarters ending on the last day of such fiscal quarter. Funded debt (as defined in the Term Loan Facility) includes amounts borrowed under the Wells
Fargo Facility and the Term Loan Facility as well as capitalized lease obligations and other indebtedness for borrowed money maturing more than one year
from the date of creation thereof. As of December 31, 2020 and 2019, the TLR was approximately 5.84 to 1 and 11.22 to 1, respectively.
The Term Loan Facility also contains customary non-financial covenants relating to the Company and the Borrowers, including limitations on their ability
to pay dividends on common stock or preferred stock, and also includes certain events of default, including payment defaults, breaches of representations
and warranties, covenant defaults, cross-defaults to other obligations, events of bankruptcy and insolvency, certain ERISA events, judgments in excess of
specified amounts, impairments to guarantees and a change of control.
In connection with the closing of the Term Loan Facility, the Company also entered into a Guaranty and Suretyship Agreement, dated as of October 10,
2017 (the “Term Loan Guarantee”), pursuant to which the Company affirmed its unconditional guarantee of the payment and performance of all obligations
owing by Borrowers to Term Loan Agent, as agent for the benefit of the Term Loan Lenders.
The Term Loan Agent and the Agent have entered into an intercreditor agreement governing the relative priority of their security interests granted by the
Borrowers and the Guarantor in the collateral, providing that the Agent shall have a first priority security interest in the accounts receivable, inventory,
deposit accounts and certain other assets (the “Revolving Credit Priority Collateral”) and the Term Loan Agent shall have a first priority security interest in
the equipment, real property, capital stock of subsidiaries and certain other assets (the “Term Loan Priority Collateral”).
On December 19, 2019, HTC, Holdings and ARI as borrowers and the Company as a guarantor, entered into a Waiver and Fourth Amendment to Term
Loan Credit and Security Agreement (the “Fourth Amendment”) with U.S. Bank National Association, as collateral agent and administrative agent, and the
various lenders thereunder.
The Fourth Amendment waived financial covenant defaults at June 30, 2019 and September 30, 2019 and amended the Term Loan Credit and Security
Agreement dated October 10, 2017 (as previously amended, the “Term Loan Facility”) to reset the maximum Total Leverage Ratio covenant contained in
the Term Loan Facility at the indicated dates as follows: (i) September 30, 2019 - 15.67:1.00; (ii) December 31, 2019 – 14.54:1.00; (iii) March 31, 2020 –
16.57:1.00; (iv) June 30, 2020 – 10.87:1.00; (v) September 30, 2020 – 8.89:1.00; (vi) December 31, 2020 – 8.89:1.00; (vii) March 31, 2021 – 7.75:1.00;
(viii) June 30, 2021 – 7.03:1.00; (ix) September 30, 2021 – 6.08:1.00; and (x) December 31, 2021 – 5.36:1.00. The Fourth Amendment also reset the
minimum liquidity requirement (consisting of cash plus undrawn availability on the Borrowers’ revolving loan facility) of $5 million, measured monthly.
Furthermore, the Fourth Amendment added a minimum LTM Adjusted EBITDA covenant as of the indicated dates as follows: (i) September 30, 2019 -
$7.887 million; (ii) December 31, 2019 – $7.954 million; (iii) March 31, 2020 – $7.359 million; (iv) June 30, 2020 – $11.745 million; (v) September 30,
2020 – $12.021 million; (vi) December 31, 2020 – $12.300 million; (vii) March 31, 2021 –$14.295 million; (viii) June 30, 2021 – $14.566 million;
(ix) September 30, 2021 – $15.431 million; and (x) December 31, 2021 – $16.267 million.
45
The Fourth Amendment also (i) continues the limitation on acquisitions and dividends, (ii) required a principal repayment of $14,000,000 upon execution
of the Fourth Amendment and (iii) increases the scheduled quarterly principal repayments to $562,000 effective March 31, 2020 and $1,312,000 effective
December 31, 2020.
The Fourth Amendment also terminated the exit fee payable to the term loan lenders, which would have been payable in full in cash upon the earlier to
occur of (x) repayment in full of the term loans, or (y) any acceleration of the term loans. In lieu of the exit fee, the Fourth Amendment reinstated a
prepayment premium equal to the following percentages of the principal amount prepaid, depending upon the date of prepayment: (i) through March 31,
2020 – 0.50%; (ii) from April 1, 2020 through March 31, 2021 – 2.50%; and (iii) from April 1, 2021 and thereafter – 5.00%.
The Fourth Amendment also added a new covenant providing that in the event of a breach of a financial covenant contained in the Term Loan Facility or
any failure to make a required principal repayment (a “Trigger Event”), then on or prior to six months after a Trigger Event, the Company shall commence
a process to (x) sell its businesses and/or assets, and/or (y) consummate a refinancing transaction with respect to the Term Loan Facility (a “Transaction”),
in each case, subject to enumerated time milestones contained in the Fourth Amendment, and which requires that Transaction shall, in any event, be
consummated on or prior to the eighteen (18) month anniversary of the Trigger Event.
As closing conditions to the execution and delivery of the Fourth Amendment, the Company was required to: (i) amend its Bylaws in a manner acceptable
to the Term Loan Facility lenders; (ii) appoint two new independent directors to the board of directors (the “Special Directors”); and (iii) pay an
amendment fee of 0.50% of the amount of the outstanding loans under the Term Loan Facility.
On April 23, 2020, HTC, Holdings and ARI as borrowers and the Company as a guarantor, entered into a Fifth Amendment to Term Loan Credit and
Security Agreement (the “Fifth Amendment”) with U.S. Bank National Association, as collateral agent and administrative agent, and the various lenders
thereunder. The Fifth Amendment authorized the Company and its subsidiaries to incur up to $2.5 million of indebtedness under the CARES Act and
contained other provisions relating to the treatment of such proceeds and any potential debt forgiveness, under the Term Loan Facility.
The Company evaluated the Fourth and Fifth Amendments in accordance with the provisions of Accounting Standards Codification (“ASC”) 470, Debt, to
determine if the Amendments were (1) a troubled debt restructuring, and if not, (2) a modification or an extinguishment of debt. The Company concluded
that the Fourth Amendment was a troubled debt restructuring for accounting purposes due to the removal of the exit fee; as such, the Company capitalized
an additional $0.5 million of deferred financing costs, which are being amortized over the remaining term. The future undiscounted cash flows of the term
loan, as amended, exceeded the carrying value, and accordingly, no gain was recognized and no adjustment was made to the carrying value of the debt.
The Company was in compliance with all covenants, under the Wells Fargo Facility and the Term Loan Facility, as amended, as of December 31, 2020.
The Company’s ability to comply with these covenants in future quarters may be affected by events beyond the Company’s control, including general
economic conditions, weather conditions, regulations and refrigerant pricing. Therefore, we cannot make any assurance that we will continue to be in
compliance during future periods.
The Company believes that it will be able to satisfy its working capital requirements for the foreseeable future from anticipated cash flows from operations
and available funds under the Wells Fargo Facility. Any unanticipated expenses, including, but not limited to, an increase in the cost of refrigerants
purchased by the Company, an increase in operating expenses or failure to achieve expected revenues from the Company’s RefrigerantSide® Services
and/or refrigerant sales or additional expansion or acquisition costs that may arise in the future would adversely affect the Company’s future capital needs.
There can be no assurance that the Company’s proposed or future plans will be successful, and as such, the Company may require additional capital sooner
than anticipated, which capital may not be available on acceptable terms, or at all.
CARES Act Loan
On April 23, 2020 the Company received a loan in the amount of $2.475 million from Meridian Bank under the Paycheck Protection Program (“PPP”)
pursuant to the CARES Act. The loan has a term of two years, is unsecured, and bears interest at a fixed rate of one percent per annum, with the first six
months of principal and interest deferred. As a result of the COVID-19 pandemic, in applying for the loan the Company made a good faith assertion based
upon the degree of uncertainty introduced to the capital markets and the industries affecting the Company's customers and the Company's dependency to
curtail expenses to fund ongoing operations. The PPP loan proceeds have been used in part to help offset payroll costs as stipulated in the legislation. All
or a portion of the PPP loan may be forgiven by the U.S. Small Business Administration (“SBA”) upon application by the Company and upon
documentation of expenditures in accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented
payroll costs and other covered areas, such as rent payments, mortgage interest and utilities, as applicable. The Company has applied for loan forgiveness
and intends to comply with the loan forgiveness provisions in the legislation, however, there are no assurances that the Company will obtain full
forgiveness of the loan based on current guidelines.
46
Vehicle and Equipment Loans
The Company has from time to time entered into various vehicle and equipment loans. These loans were payable in 60 monthly payments through
June 2020 and bore interest ranging from 0.0% to 8.3%. All such loans have been repaid in full at December 31, 2020.
Capital Lease Obligations
The Company rents certain equipment with a de minimis net book value at December 31, 2020 under leases which have been classified as capital leases.
Scheduled maturities of the Company's long-term debt and capital lease obligations are as follows:
Years ended December 31,
(in thousands)
-2021
-2022
-2023
-2024
-2025
Thereafter
Total
Note 10 - Commitments and contingencies
Rents and operating leases
Amount
5,251
5,248
74,620
--
--
--
85,119
$
$
The Company utilizes leased facilities and operates equipment under non-cancelable operating leases through July 2030. Below is a table of key properties:
Properties
Location
Auburn, Washington
Baton Rouge, Louisiana
Champaign, Illinois
Champaign, Illinois (2nd location)
Charlotte, North Carolina
Escondido, California
Hampstead, New Hampshire
Long Beach, California
Long Island City, New York
Ontario, California
Pearl River, New York
Riverside, California
Rantoul, Illinois
Smyrna, Georgia
Stony Point, New York
Annual
Rent
Lease
Expiration
Date
60,000 Month to Month
24,600 Month to Month
654,000
305,000
31,000
219,000
33,000
27,600
815,000
110,400
150,000
12/2024
9/2021
5/2021
6/2022
8/2022
2/2022
7/2021
12/2021
12/2021
27,000 Month to Month
36,000
465,000
105,000
2/2021
7/2030
6/2021
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
The Company rents properties and various equipment under operating leases. Operating lease expense for the years ended December 31, 2020 and 2019
totaled approximately $3.0 million and $2.8 million. In addition to the properties above, the Company does at times utilize public warehouse space on a
month to month basis. The Company typically enters into short-term leases for the facilities and wherever possible extends the expiration date of such
leases.
47
Note 11 - Share-Based Compensation
Share-based compensation represents the cost related to share-based awards, typically stock options or stock grants, 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 over the requisite service period. For the years ended December 31, 2020 and
2019, the share-based compensation expense of $0.7 million and $1.8 million, respectively, is reflected in General and administrative expenses in the
consolidated Statements of Operations.
Share-based awards have historically been made as stock options, and recently also as stock grants, issued pursuant to the terms of the Company’s stock
option and stock incentive plans, (collectively, the “Plans”), described below. The Plans may be administered by the Board of Directors or the
Compensation 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 the Company’s Compensation Committee of the Board of Directors. As of December 31, 2020 there were 4,070,936 shares of the
Company’s common stock available under the Plans for issuance for future stock option grants or other stock based awards.
Stock option 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 vested from immediately to two years
from the grant date and have had a contractual term ranging from three to ten years.
ISOs granted under the Plans 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 Plans may not be granted at
a price less than the fair market value of the common stock. Options granted under the Plans 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 September 17, 2014, the Company adopted its 2014 Stock Incentive Plan (“2014 Plan”) pursuant to which 3,000,000 shares of common stock
were reserved for issuance (i) upon the exercise of options, designated as either ISOs under the Code or nonqualified options, or (ii) as stock, deferred stock
or other stock-based awards. ISOs may be granted under the 2014 Plan to employees and officers of the Company. Non-qualified options, 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 2014 Plan is sooner terminated, the ability to grant options or other
awards under the 2014 Plan will expire on September 17, 2024.
Effective June 7, 2018, the Company adopted its 2018 Stock Incentive Plan (“2018 Plan”) pursuant to which 4,000,000 shares of common stock were
reserved for issuance (i) upon the exercise of options, designated as either ISOs under the Code or nonqualified options, or (ii) as stock, deferred stock or
other stock-based awards. ISOs may be granted under the 2018 Plan to employees and officers of the Company. Non-qualified options, 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 2018 Plan is sooner terminated, the ability to grant options or other
awards under the 2018 Plan will expire on June 7, 2028.
Effective June 11, 2020, the Company adopted its 2020 Stock Incentive Plan (“2020 Plan”) pursuant to which 3,000,000 shares of common stock were
reserved for issuance (i) upon the exercise of options, designated as either ISOs under the Code or nonqualified options, or (ii) as stock, deferred stock or
other stock-based awards. ISOs may be granted under the 2020 Plan to employees and officers of the Company. Non-qualified options, 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 2020 Plan is sooner terminated, the ability to grant options or other
awards under the 2020 Plan will expire on June 11, 2030.
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 has utilized the
“simplified” method, as prescribed by the SEC’s Staff Accounting Bulletin (“SAB”) No.110, Share-Based Payment, to compute expected lives of share
based awards with the following weighted-average assumptions:
48
Years ended
December 31,
Assumptions
Dividend yield
Risk free interest rate
Expected volatility
Expected lives
2020
2019
0%
0.27%-0.29%
101%-103%
2.75-5 years
0%
1.43%-2.47%
65%-76%
3-5 years
A summary of the activity for the Company's Plans for the indicated periods is presented below:
Stock Option Plan Totals
Outstanding at December 31, 2018
-Cancelled
-Exercised
-Granted
Outstanding at December 31, 2019
-Cancelled
-Exercised
-Granted
Outstanding at December 31, 2020
Weighted
Average
Exercise Price
1.20
1.23
0.89
0.79
1.01
--
0.91
1.11
1.06
Shares
4,415,397 $
(527,820) $
(10,000) $
3,164,800 $
7,042,377 $
-- $
(1,967,562) $
254,700 $
5,329,515 $
Options to purchase 254,700 shares were granted in 2020, of which 187,132 shares vested in 2020, and 67,568 will vest in 2021.
The following is the weighted average contractual life in years and the weighted average exercise price at December 31, 2020 and 2019 of:
December 31, 2020
December 31, 2019
Options outstanding
Options vested
Options unvested
Options outstanding
Options vested
Options unvested
Weighted
Average
Remaining
Contractual
Life
Weighted
Average
Exercise Price
1.06
1.05
1.23
3.55 $
3.54 $
4.71 $
Number of
Options
5,329,515
5,261,947
67,568
Weighted
Average
Remaining
Contractual
Life
5.0 years $
4.0 years $
10.0 years $
Weighted
Average
Exercise Price
1.01
1.06
0.75
Number of
Options
7,042,377
5,922,377
1,120,000
The intrinsic values of options outstanding at December 31, 2020 and 2019 are $0.7 million and $0.7 million, respectively.
The intrinsic value of options unvested at December 31, 2020 and 2019 are $0.0 million and $0.3 million, respectively.
The intrinsic values of options vested and exercised during the years ended 2020 and 2019 were as follows:
Intrinsic value of options vested
Intrinsic value of options exercised
2020
2019
$
$
393,952 $
843,893 $
436,000
11,100
49
Note 12 – Other income
On June 23, 2020, Kevin J. Zugibe, Chairman of the Board and Chief Executive Officer of the Company, passed away unexpectedly. During the third
quarter of 2020, the Company received $1 million of key man life insurance proceeds and accordingly recorded the amount as Other income in its
Consolidated Statement of Operations.
In August 2019, the Company received $8.9 million of cash pursuant to the settlement of a working capital adjustment dispute arising from the acquisition
of Aspen Refrigerants, Inc. in October 2017. In addition, during the second quarter of 2019, the Company recorded approximately $0.5 million of Other
income relating to a change in estimate of its cylinder deposit liability account.
Note 13 – Related Party Transactions
Stephen P. Mandracchia served as Vice President – Legal and Regulatory and Secretary of the Company through May 3, 2019 and since that date served the
Company in a consulting role through August 31, 2020. From May 6, 2019 through December 31, 2019, Mr. Mandracchia received a monthly consulting
fee of $10,000 and such fee was increased to $12,000 per month effective January 1, 2020. During the period January 1, 2019 through May 3, 2019,
Mr. Mandracchia was paid base salary of $94,656 and was issued a stock option to purchase 25,000 shares of Company common stock at an exercise price
of $1.70 per share. Mr. Mandracchia is the brother-in-law of Kevin J. Zugibe, the Company’s former Chairman of the Board and Chief Executive Officer.
Effective September 1, 2020, Mr. Mandracchia became a member of the Company’s Board of Directors.
50
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SIGNATURES
HUDSON TECHNOLOGIES, INC.
By:
/s/ Brian F. Coleman
Brian F. Coleman, Chairman and Chief Executive Officer
Date: March 12, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature
Title
/s/ Brian F. Coleman
Chairman of the Board, President and Chief Executive Officer
(Principal Executive Officer)
Date
March 12, 2021
Chief Financial Officer (Principal Financial and Accounting Officer)
March 12, 2021
Brian F. Coleman
/s/ Nat Krishnamurti
Nat Krishnamurti
/s/ Vincent P. Abbatecola
Vincent P. Abbatecola
/s/ Richard D. Caruso
Richard D. Caruso
/s/ Jill K. Frizzley
Jill K. Frizzley
Director
Director
Director
/s/ Stephen P. Mandracchia
Stephen P. Mandracchia
Director
/s/ Dominic J. Monetta
Dominic J. Monetta
/s/ Otto C. Morch
Otto C. Morch
/s/ Richard Parrillo
Richard Parrillo
/s/ Eric A. Prouty
Eric A. Prouty
Director
Director
Director
Director
51
March 12, 2021
March 12, 2021
March 12, 2021
March 12, 2021
March 12, 2021
March 12, 2021
March 12, 2021
March 12, 2021
Exhibit 10.52
INCENTIVE STOCK OPTION AGREEMENT
HUDSON TECHNOLOGIES, INC.
AGREEMENT made as of the (insert date) (the "Grant Date") between Hudson Technologies, Inc. (the "Company"), a New York
corporation, having a principal place of business at PO Box 1541, One Blue Hill Plaza, 14th Floor, Pearl River, New York 10965, and (insert name of
Grantee) (the "Grantee").
WHEREAS, the Company desires to grant to the Grantee an Incentive Stock Option to purchase shares of its common stock, par value
$.01 per share (the "Shares"), under and for the purposes of the 2020 Stock Incentive Plan of the Company (the "Plan") pursuant to the terms thereof;
WHEREAS, the Company and the Grantee understand and agree that unless otherwise defined herein any terms used herein have the
same meanings as in the Plan.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the
parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to the Grantee the right and option to purchase all or any part of an aggregate of
(insert number of shares) shares of Common Stock, $.01 par value, on the terms and conditions and subject to all the limitations set forth herein and in the
Plan, which is incorporated herein by reference (the "Option"). The Grantee acknowledges receipt of a copy of the Plan.
2. Purchase Price. The purchase price of the Shares covered by the Option shall be $(insert price per share) per share.
3. Exercise of Option. The Option granted hereby shall vest and be exercisable in full as of the Grant Date.
4. Term of Option. The option shall terminate (insert term) years from the date of this Agreement, but shall be subject to earlier
termination as provided herein or in the Plan.
In the event that the Grantee’s employment is terminated for Cause or the Grantee voluntarily terminates employment without the consent
of the Company, the Options granted under this Agreement, to the extent not theretofore exercised, shall automatically terminate as of the date of
termination of the Grantee’s employment.
If the Grantee ceases to be employed by the Company for any reason other than death, disability, termination for Cause, or voluntary
termination by the Grantee without the consent of the Company, the Option may be exercised at any time within three (3) months after the date the Grantee
ceases to be an employee, but in any event not later than the date on which the Option terminates under this Agreement. In such event, the Option shall be
exercisable only to the extent that the right to purchase Shares under this Agreement and the Plan has vested and is in effect at the date of such cessation of
employment.
1
In the event of termination of employment due to disability of the Grantee (as determined by the Board of Directors of the Company or
the Compensation and Stock Option Committee of the Company, as the case may be, and as to the fact and date of which the Grantee is notified by the
Board or that Committee, as the case may be, in writing), the Option shall be exercisable within one (1) year after the date of such termination of
employment, but in any event not later than the date on which the Option terminates under this Agreement. In such event, the Option shall be exercisable to
the extent that the right to purchase the Shares hereunder has vested on the date of such cessation of employment.
In the event of the death of the Grantee while an employee of the Company or within three (3) months after the termination of
employment (other than termination for Cause, disability or voluntary termination by the Grantee without consent of the Company), the Option shall be
exercisable to the extent exercisable but not exercised as of the date of death and in such event, the Option must be exercised, if at all, within one (1) year
after the date of death of the Grantee, but in any event not later than the date on which the Option terminates under this Agreement.
For purposes hereof, “Business Day” shall mean any day except Saturday, Sunday and any day which shall be a legal holiday or a day on
which banking institutions in the State of New York generally are authorized or required by law or other government actions to close.
5. Non-Assignability. The Option shall not be transferable by the Grantee otherwise than by will or by the laws of descent and
distribution and shall be exercisable, during the Grantee's lifetime, only by the Grantee. The Option shall not be assigned, pledged or hypothecated in any
way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of the Option or of any rights granted hereunder contrary to the provisions of this Section 5, or the levy of any
attachment or similar process upon the Option or such right, shall be null and void.
6. Exercise of Option and Issue of Shares. The Option may be exercised in whole or in part (to the extent that it is exercisable in
accordance with its terms) by giving written notice to the Company, together with the tender of the Option price. Such written notice shall be signed by the
person exercising the Option, shall state the number of Shares with respect to which the Option is being exercised, shall contain any warranty required by
Section 7 below and shall otherwise comply with the terms and conditions of this Agreement and the Plan. The Company shall pay all original issue taxes
with respect to the issue of the Shares pursuant hereto and all other fees and expenses necessarily incurred by the Company in connection herewith. Except
as specifically set forth herein, the Grantee acknowledges that any income or other taxes due from him or her with respect to this Option or the Shares
issuable pursuant to this Option shall be the responsibility of the Grantee. The Grantee of this Option shall have rights as a shareholder only with respect to
any Shares covered by the Option after due exercise of the Option and tender of the full exercise price for the Shares being purchased pursuant to such
exercise.
2
7. Purchase for Investment. Unless the offering and sale of the Shares to be issued upon the particular exercise of the Option shall
have been effectively registered under the Securities Act of 1933, as now in force or hereafter amended, or any successor legislation (the "Act"), the
Company shall be under no obligation to issue the Shares covered by such exercise unless and until the following conditions have been fulfilled:
(a) The person(s) who exercise the Option shall warrant to the Company, at the time of such exercise, that such person(s) are acquiring
such Shares for his or her own account, for investment and not with a view to, or for sale in connection with, the distribution of any such Shares, in which
event the person(s) acquiring such Shares shall be bound by the provisions of the following legend which shall be endorsed upon the certificate(s)
evidencing their option Shares issued pursuant to such exercise:
"The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"). Such shares
may not be sold, transferred or otherwise disposed of unless they have first been registered under the Act or, unless, in the opinion of
counsel satisfactory to the Company's counsel, such registration is not required."
(b) The Company shall have received an opinion of its counsel that the Shares may be issued upon such particular exercise in
compliance with the Act without registration thereunder. Without limiting the generality of the foregoing, the Company may delay issuance of the Shares
until completion of any action or obtaining of any consent, which the Company deems necessary under any applicable law (including without limitation
state securities or "blue sky" laws).
8. Notices. Any notices required or permitted by the terms of this Agreement or the Plan shall be given by hand delivery, overnight
courier service, or registered or certified mail, return receipt requested, and sent, if to the Company, at its principal executive offices, and if to the Grantee,
at the Grantee’s most current residence address as reflected in the records of the Company or to such other address or addresses of which notice in the same
manner has previously been given. Any such notice shall be deemed to have been given when received in accordance with the foregoing provisions. Either
party hereto may change the address of which notices shall be given by providing the other party hereto with written notice of such change.
9. Governing Law. This Agreement shall be construed and enforced in accordance with the law of the State of New York.
10. Benefit of Agreement. This Agreement shall be for the benefit of and shall be binding upon the heirs, executors, administrators and
successors of the parties hereto.
3
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Grantee has hereunto set
his or her hand, all as of the day and year first above written.
HUDSON TECHNOLOGIES, INC.
(insert name and title of Company officer)
(insert Grantee’s name), Grantee
4
Exhibit 10.53
INCENTIVE STOCK OPTION AGREEMENT
HUDSON TECHNOLOGIES, INC.
AGREEMENT made as of the (insert date) (the "Grant Date") between Hudson Technologies, Inc. (the "Company"), a New York
corporation, having a principal place of business at PO Box 1541, One Blue Hill Plaza, 14th Floor, Pearl River, New York 10965, and (insert name of
Grantee) (the "Grantee").
WHEREAS, the Company desires to grant to the Grantee an Incentive Stock Option to purchase shares of its common stock, par value
$.01 per share (the "Shares"), under and for the purposes of the 2020 Stock Incentive Plan of the Company (the "Plan") pursuant to the terms thereof;
WHEREAS, the Company and the Grantee understand and agree that unless otherwise defined herein any terms used herein have the
same meanings as in the Plan.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the
parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to the Grantee the right and option to purchase all or any part of an aggregate of
(insert number of shares) shares of Common Stock, $.01 par value, on the terms and conditions and subject to all the limitations set forth herein and in the
Plan, which is incorporated herein by reference (the "Option"). The Grantee acknowledges receipt of a copy of the Plan.
2. Purchase Price. The purchase price of the Shares covered by the Option shall be $(insert price per share) per share.
3. Exercise of Option. The Options granted hereby shall vest and be exercisable as follows:
Amount
insert
Date Vested*
Date Exercisable*
1/1/__
4/1/__
7/1/__
10/1/__
1/1/__
4/1/__
7/1/__
1/1/__
4/1/__
7/1/__
10/1/__
1/1/__
4/1/__
7/1/__
* illustrative of typical vesting schedule, where options vest quarterly over two years.
1
4. Term of Option. The option shall terminate (insert term) years from the date of this Agreement, but shall be subject to earlier
termination as provided herein or in the Plan.
In the event that the Grantee’s employment is terminated for Cause or the Grantee voluntarily terminates employment without the consent
of the Company, the Options granted under this Agreement, to the extent not theretofore exercised, shall automatically terminate as of the date of
termination of the Grantee’s employment.
If the Grantee ceases to be employed by the Company for any reason other than death, disability, termination for Cause, or voluntary
termination by the Grantee without the consent of the Company, the Option may be exercised at any time within three (3) months after the date the Grantee
ceases to be an employee, but in any event not later than the date on which the Option terminates under this Agreement. In such event, the Option shall be
exercisable only to the extent that the right to purchase Shares under this Agreement and the Plan has vested and is in effect at the date of such cessation of
employment.
In the event of termination of employment due to disability of the Grantee (as determined by the Board of Directors of the Company or
the Compensation and Stock Option Committee of the Company, as the case may be, and as to the fact and date of which the Grantee is notified by the
Board or that Committee, as the case may be, in writing), the Option shall be exercisable within one (1) year after the date of such termination of
employment, but in any event not later than the date on which the Option terminates under this Agreement. In such event, the Option shall be exercisable to
the extent that the right to purchase the Shares hereunder has vested on the date of such cessation of employment.
In the event of the death of the Grantee while an employee of the Company or within three (3) months after the termination of
employment (other than termination for Cause, disability or voluntary termination by the Grantee without consent of the Company), the Option shall be
exercisable to the extent exercisable but not exercised as of the date of death and in such event, the Option must be exercised, if at all, within one (1) year
after the date of death of the Grantee, but in any event not later than the date on which the Option terminates under this Agreement.
For purposes hereof, “Business Day” shall mean any day except Saturday, Sunday and any day which shall be a legal holiday or a day on
which banking institutions in the State of New York generally are authorized or required by law or other government actions to close.
5. Non-Assignability. The Option shall not be transferable by the Grantee otherwise than by will or by the laws of descent and
distribution and shall be exercisable, during the Grantee's lifetime, only by the Grantee. The Option shall not be assigned, pledged or hypothecated in any
way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of the Option or of any rights granted hereunder contrary to the provisions of this Section 5, or the levy of any
attachment or similar process upon the Option or such right, shall be null and void.
2
6. Exercise of Option and Issue of Shares. The Option may be exercised in whole or in part (to the extent that it is exercisable in
accordance with its terms) by giving written notice to the Company, together with the tender of the Option price. Such written notice shall be signed by the
person exercising the Option, shall state the number of Shares with respect to which the Option is being exercised, shall contain any warranty required by
Section 7 below and shall otherwise comply with the terms and conditions of this Agreement and the Plan. The Company shall pay all original issue taxes
with respect to the issue of the Shares pursuant hereto and all other fees and expenses necessarily incurred by the Company in connection herewith. Except
as specifically set forth herein, the Grantee acknowledges that any income or other taxes due from him or her with respect to this Option or the Shares
issuable pursuant to this Option shall be the responsibility of the Grantee. The Grantee of this Option shall have rights as a shareholder only with respect to
any Shares covered by the Option after due exercise of the Option and tender of the full exercise price for the Shares being purchased pursuant to such
exercise.
7. Purchase for Investment. Unless the offering and sale of the Shares to be issued upon the particular exercise of the Option shall
have been effectively registered under the Securities Act of 1933, as now in force or hereafter amended, or any successor legislation (the "Act"), the
Company shall be under no obligation to issue the Shares covered by such exercise unless and until the following conditions have been fulfilled:
(a) The person(s) who exercise the Option shall warrant to the Company, at the time of such exercise, that such person(s) are acquiring
such Shares for his or her own account, for investment and not with a view to, or for sale in connection with, the distribution of any such Shares, in which
event the person(s) acquiring such Shares shall be bound by the provisions of the following legend which shall be endorsed upon the certificate(s)
evidencing their option Shares issued pursuant to such exercise:
"The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"). Such shares
may not be sold, transferred or otherwise disposed of unless they have first been registered under the Act or, unless, in the opinion of
counsel satisfactory to the Company's counsel, such registration is not required."
(b) The Company shall have received an opinion of its counsel that the Shares may be issued upon such particular exercise in
compliance with the Act without registration thereunder. Without limiting the generality of the foregoing, the Company may delay issuance of the Shares
until completion of any action or obtaining of any consent, which the Company deems necessary under any applicable law (including without limitation
state securities or "blue sky" laws).
8. Notices. Any notices required or permitted by the terms of this Agreement or the Plan shall be given by hand delivery, overnight
courier service, or registered or certified mail, return receipt requested, and sent, if to the Company, at its principal executive offices, and if to the Grantee,
at the Grantee’s most current residence address as reflected in the records of the Company or to such other address or addresses of which notice in the same
manner has previously been given. Any such notice shall be deemed to have been given when received in accordance with the foregoing provisions. Either
party hereto may change the address of which notices shall be given by providing the other party hereto with written notice of such change.
3
9. Governing Law. This Agreement shall be construed and enforced in accordance with the law of the State of New York.
10. Benefit of Agreement. This Agreement shall be for the benefit of and shall be binding upon the heirs, executors, administrators and
successors of the parties hereto.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Grantee has hereunto set
his or her hand, all as of the day and year first above written.
HUDSON TECHNOLOGIES, INC.
(insert name and title of Company officer)
(insert Grantee’s name), Grantee
4
Exhibit 10.54
NON-QUALIFIED STOCK OPTION AGREEMENT
HUDSON TECHNOLOGIES, INC.
AGREEMENT made as of (insert date) (the "Grant Date") between Hudson Technologies, Inc. (the "Company"), a New York
corporation, having a principal place of business at PO Box 1541, One Blue Hill Plaza, 14th Floor, Pearl River, New York 10965, and (insert name of
Grantee) (the "Grantee").
WHEREAS, the Company desires to grant to the Grantee a Non-Qualified Option to purchase shares of its common stock, par value $.01
per share (the "Shares"), under and pursuant to the Company’s 2020 Stock Incentive Plan (the “Plan”);
WHEREAS, the Company and the Grantee understand and agree that unless otherwise defined herein any terms used herein have the
same meanings as in the Plan.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the
parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to the Grantee the right and option to purchase all or any part of an aggregate of
(Insert number of shares) shares of its Common Stock, $.01 par value, on the terms and conditions and subject to all the limitations set forth herein and in
the Plan, which is incorporated herein by reference (the "Option"). The Grantee acknowledges receipt of a copy of the Plan.
2. Purchase Price. The purchase price of the Shares covered by the Option shall be $(insert option price) per share.
3. Exercise of Option. The Options granted hereby shall vest and be exercisable in full as of the Grant Date.
4. Term of Option. The option shall terminate (insert term) years from the date of this Agreement. In the event of the death of the
Grantee, the Option shall be exercisable to the extent exercisable but not exercised as of the date of death and, in such event, the Option must be exercised,
if at all, within one (1) year after the date of death of the Grantee or, if earlier, within the originally prescribed term of the Option.
For purposes hereof, “Business Day” shall mean any day except Saturday, Sunday and any day which shall be a legal holiday or a day on
which banking institutions in the State of New York generally are authorized or required by law or other government actions to close.
5. Non-Assignability. The Option shall not be transferable by the Grantee otherwise than by will or by the laws of descent and
distribution and shall be exercisable, during the Grantee's lifetime, only by the Grantee. The Option shall not be assigned, pledged or hypothecated in any
way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of the Option or of any rights granted hereunder contrary to the provisions of this Section 5, or the levy of any
attachment or similar process upon the Option or such right, shall be null and void.
1
6. Exercise of Option and Issue of Shares. The Option may be exercised in whole or in part (to the extent that it is exercisable in
accordance with its terms) by giving written notice to the Company, together with the tender of the Option price. Such written notice shall be signed by the
person exercising the Option, shall state the number of Shares with respect to which the Option is being exercised, shall contain any warranty required by
Section 7 below and shall otherwise comply with the terms and conditions of this Agreement and the Plan. The Company shall pay all original issue taxes
with respect to the issue of the Shares pursuant hereto and all other fees and expenses necessarily incurred by the Company in connection herewith. Except
as specifically set forth herein, the Grantee acknowledges that any income or other taxes due from him or her with respect to this Option or the Shares
issuable pursuant to this Option shall be the responsibility of the Grantee. The Grantee of this Option shall have rights as a shareholder only with respect to
any Shares covered by the Option after due exercise of the Option and tender of the full exercise price for the Shares being purchased pursuant to such
exercise.
7. Purchase for Investment. Unless the offering and sale of the Shares to be issued upon the particular exercise of the Option shall
have been effectively registered under the Securities Act of 1933, as now in force or hereafter amended, or any successor legislation (the "Act"), the
Company shall be under no obligation to issue the Shares covered by such exercise unless and until the following conditions have been fulfilled:
(a) The person(s) who exercise the Option shall warrant to the Company, at the time of such exercise, that such person(s) are acquiring
such Shares for his or her own account, for investment and not with a view to, or for sale in connection with, the distribution of any such Shares, in which
event the person(s) acquiring such Shares shall be bound by the provisions of the following legend which shall be endorsed upon the certificate(s)
evidencing their option Shares issued pursuant to such exercise:
"The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"). Such shares
may not be sold, transferred or otherwise disposed of unless they have first been registered under the Act or, unless, in the opinion of
counsel satisfactory to the Company's counsel, such registration is not required."
(b) The Company shall have received an opinion of its counsel that the Shares may be issued upon such particular exercise in
compliance with the Act without registration thereunder. Without limiting the generality of the foregoing, the Company may delay issuance of the Shares
until completion of any action or obtaining of any consent, which the Company deems necessary under any applicable law (including without limitation
state securities or "blue sky" laws).
8. Notices. Any notices required or permitted by the terms of this Agreement or the Plan shall be given by hand delivery, overnight
courier service, or registered or certified mail, return receipt requested, and sent, if to the Company, at its principal executive offices, and if to the Grantee,
at the Grantee’s most current residence address as reflected in the records of the Company or to such other address or addresses of which notice in the same
manner has previously been given. Any such notice shall be deemed to have been given when received in accordance with the foregoing provisions. Either
party hereto may change the address of which notices shall be given by providing the other party hereto with written notice of such change.
2
9. Governing Law. This Agreement shall be construed and enforced in accordance with the law of the State of New York.
10. Benefit of Agreement. This Agreement shall be for the benefit of and shall be binding upon the heirs, executors, administrators and
successors of the parties hereto.
hereunto set his or her hand, all as of the day and year first above written.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Grantee has
HUDSON TECHNOLOGIES, INC.
(Insert name & title of Company Officer)
(Insert name) Grantee
3
Exhibit 10.55
NON-QUALIFIED STOCK OPTION AGREEMENT
HUDSON TECHNOLOGIES, INC.
AGREEMENT made as of (insert date) (the "Grant Date") between Hudson Technologies, Inc. (the "Company"), a New York
corporation, having a principal place of business at PO Box 1541, One Blue Hill Plaza, 14th Floor, Pearl River, New York 10965, and (insert name of
Grantee) (the "Grantee").
WHEREAS, the Company desires to grant to the Grantee a Non-Qualified Option to purchase shares of its common stock, par value $.01
per share (the "Shares"), under and pursuant to the Company’s 2020 Stock Incentive Plan (the “Plan”);
WHEREAS, the Company and the Grantee understand and agree that unless otherwise defined herein any terms used herein have the
same meanings as in the Plan.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the
parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to the Grantee the right and option to purchase all or any part of an aggregate of
(Insert number of shares) shares of its Common Stock, $.01 par value, on the terms and conditions and subject to all the limitations set forth herein and in
the Plan, which is incorporated herein by reference (the "Option"). The Grantee acknowledges receipt of a copy of the Plan.
2. Purchase Price. The purchase price of the Shares covered by the Option shall be $(insert option price) per share.
3. The Options granted hereby shall vest and be exercisable as follows:
Amount
insert
Date Vested*
Date Exercisable*
1/1/__
4/1/__
7/1/__
10/1/__
1/1/__
4/1/__
7/1/__
1/1/__
4/1/__
7/1/__
10/1/__
1/1/__
4/1/__
7/1/__
* illustrative of typical vesting schedule, where options vest quarterly over two years.
4. Term of Option. The option shall terminate (insert term) years from the date of this Agreement. In the event of the death of the
Grantee, the Option shall be exercisable to the extent exercisable but not exercised as of the date of death and, in such event, the Option must be exercised,
if at all, within one (1) year after the date of death of the Grantee or, if earlier, within the originally prescribed term of the Option.
1
For purposes hereof, “Business Day” shall mean any day except Saturday, Sunday and any day which shall be a legal holiday or a day on
which banking institutions in the State of New York generally are authorized or required by law or other government actions to close.
5. Non-Assignability. The Option shall not be transferable by the Grantee otherwise than by will or by the laws of descent and
distribution and shall be exercisable, during the Grantee's lifetime, only by the Grantee. The Option shall not be assigned, pledged or hypothecated in any
way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of the Option or of any rights granted hereunder contrary to the provisions of this Section 5, or the levy of any
attachment or similar process upon the Option or such right, shall be null and void.
6. Exercise of Option and Issue of Shares. The Option may be exercised in whole or in part (to the extent that it is exercisable in
accordance with its terms) by giving written notice to the Company, together with the tender of the Option price. Such written notice shall be signed by the
person exercising the Option, shall state the number of Shares with respect to which the Option is being exercised, shall contain any warranty required by
Section 7 below and shall otherwise comply with the terms and conditions of this Agreement and the Plan. The Company shall pay all original issue taxes
with respect to the issue of the Shares pursuant hereto and all other fees and expenses necessarily incurred by the Company in connection herewith. Except
as specifically set forth herein, the Grantee acknowledges that any income or other taxes due from him or her with respect to this Option or the Shares
issuable pursuant to this Option shall be the responsibility of the Grantee. The Grantee of this Option shall have rights as a shareholder only with respect to
any Shares covered by the Option after due exercise of the Option and tender of the full exercise price for the Shares being purchased pursuant to such
exercise.
7. Purchase for Investment. Unless the offering and sale of the Shares to be issued upon the particular exercise of the Option shall
have been effectively registered under the Securities Act of 1933, as now in force or hereafter amended, or any successor legislation (the "Act"), the
Company shall be under no obligation to issue the Shares covered by such exercise unless and until the following conditions have been fulfilled:
(a) The person(s) who exercise the Option shall warrant to the Company, at the time of such exercise, that such person(s) are acquiring
such Shares for his or her own account, for investment and not with a view to, or for sale in connection with, the distribution of any such Shares, in which
event the person(s) acquiring such Shares shall be bound by the provisions of the following legend which shall be endorsed upon the certificate(s)
evidencing their option Shares issued pursuant to such exercise:
"The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"). Such shares
may not be sold, transferred or otherwise disposed of unless they have first been registered under the Act or, unless, in the opinion of
counsel satisfactory to the Company's counsel, such registration is not required."
2
(b) The Company shall have received an opinion of its counsel that the Shares may be issued upon such particular exercise in
compliance with the Act without registration thereunder. Without limiting the generality of the foregoing, the Company may delay issuance of the Shares
until completion of any action or obtaining of any consent, which the Company deems necessary under any applicable law (including without limitation
state securities or "blue sky" laws).
8. Notices. Any notices required or permitted by the terms of this Agreement or the Plan shall be given by hand delivery, overnight
courier service, or registered or certified mail, return receipt requested, and sent, if to the Company, at its principal executive offices, and if to the Grantee,
at the Grantee’s most current residence address as reflected in the records of the Company or to such other address or addresses of which notice in the same
manner has previously been given. Any such notice shall be deemed to have been given when received in accordance with the foregoing provisions. Either
party hereto may change the address of which notices shall be given by providing the other party hereto with written notice of such change.
9. Governing Law. This Agreement shall be construed and enforced in accordance with the law of the State of New York.
10. Benefit of Agreement. This Agreement shall be for the benefit of and shall be binding upon the heirs, executors, administrators and
successors of the parties hereto.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Grantee has
hereunto set his or her hand, all as of the day and year first above written.
HUDSON TECHNOLOGIES, INC.
(Insert name & title of Company Officer)
(insert name), Grantee
3
Exhibit 10.56
NON-QUALIFIED STOCK OPTION AGREEMENT
HUDSON TECHNOLOGIES, INC.
AGREEMENT made as of (grant date) (the "Grant Date") between Hudson Technologies, Inc. (the "Company"), a New York
corporation, having a principal place of business at PO Box 1541, One Blue Hill Plaza, 14th Floor, Pearl River, New York 10965, and (insert name of
Grantee) (the "Grantee").
WHEREAS, the Company desires to grant to the Grantee a Non-Qualified Option to purchase shares of its common stock, par value $.01
per share (the "Shares"), under and pursuant to the Company’s 2020 Stock Incentive Plan (the “Plan”);
WHEREAS, the Company and the Grantee understand and agree that unless otherwise defined herein any terms used herein have the
same meanings as in the Plan.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the
parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to the Grantee the right and option to purchase all or any part of an aggregate of
(Insert number of shares) shares of its Common Stock, $.01 par value, on the terms and conditions and subject to all the limitations set forth herein and in
the Plan, which is incorporated herein by reference (the "Option"). The Grantee acknowledges receipt of a copy of the Plan.
2. Purchase Price. The purchase price of the Shares covered by the Option shall be $(insert option price) per share.
3. Vesting of Options. The Option granted hereby shall vest quarterly in four (4) equal quarterly installments of ________,
commencing with the quarter ending ______, 20__ and each subsequent quarter in 20___ through the quarter ending ___________, 20__. Each quarterly
vesting shall occur on the date of, and shall be conditioned upon (insert conditions to vesting)
4. Term of Option. The option shall terminate three (3) years from the date of this Agreement. In the event of the death of the Grantee,
the Option shall be exercisable to the extent exercisable but not exercised as of the date of death and, in such event, the Option must be exercised, if at all,
within one (1) year after the date of death of the Grantee or, if earlier, within the originally prescribed term of the Option.
For purposes hereof, “Business Day” shall mean any day except Saturday, Sunday and any day which shall be a legal holiday or a day on
which banking institutions in the State of New York generally are authorized or required by law or other government actions to close.
5. Non-Assignability. The Option shall not be transferable by the Grantee otherwise than by will or by the laws of descent and
distribution and shall be exercisable, during the Grantee's lifetime, only by the Grantee. The Option shall not be assigned, pledged or hypothecated in any
way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of the Option or of any rights granted hereunder contrary to the provisions of this Section 5, or the levy of any
attachment or similar process upon the Option or such right, shall be null and void.
1
6. Exercise of Option and Issue of Shares. The Option may be exercised in whole or in part (to the extent that it is exercisable in
accordance with its terms) by giving written notice to the Company, together with the tender of the Option price. Such written notice shall be signed by the
person exercising the Option, shall state the number of Shares with respect to which the Option is being exercised, shall contain any warranty required by
Section 7 below and shall otherwise comply with the terms and conditions of this Agreement and the Plan. The Company shall pay all original issue taxes
with respect to the issue of the Shares pursuant hereto and all other fees and expenses necessarily incurred by the Company in connection herewith. Except
as specifically set forth herein, the Grantee acknowledges that any income or other taxes due from him or her with respect to this Option or the Shares
issuable pursuant to this Option shall be the responsibility of the Grantee. The Grantee of this Option shall have rights as a shareholder only with respect to
any Shares covered by the Option after due exercise of the Option and tender of the full exercise price for the Shares being purchased pursuant to such
exercise.
7. Purchase for Investment. Unless the offering and sale of the Shares to be issued upon the particular exercise of the Option shall
have been effectively registered under the Securities Act of 1933, as now in force or hereafter amended, or any successor legislation (the "Act"), the
Company shall be under no obligation to issue the Shares covered by such exercise unless and until the following conditions have been fulfilled:
(a) The person(s) who exercise the Option shall warrant to the Company, at the time of such exercise, that such person(s) are acquiring
such Shares for his or her own account, for investment and not with a view to, or for sale in connection with, the distribution of any such Shares, in which
event the person(s) acquiring such Shares shall be bound by the provisions of the following legend which shall be endorsed upon the certificate(s)
evidencing their option Shares issued pursuant to such exercise:
"The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"). Such shares
may not be sold, transferred or otherwise disposed of unless they have first been registered under the Act or, unless, in the opinion of
counsel satisfactory to the Company's counsel, such registration is not required."
(b) The Company shall have received an opinion of its counsel that the Shares may be issued upon such particular exercise in
compliance with the Act without registration thereunder. Without limiting the generality of the foregoing, the Company may delay issuance of the Shares
until completion of any action or obtaining of any consent, which the Company deems necessary under any applicable law (including without limitation
state securities or "blue sky" laws).
2
8. Notices. Any notices required or permitted by the terms of this Agreement or the Plan shall be given by hand delivery, overnight
courier service, or registered or certified mail, return receipt requested, and sent, if to the Company, at its principal executive offices, and if to the Grantee,
at the Grantee’s most current residence address as reflected in the records of the Company or to such other address or addresses of which notice in the same
manner has previously been given. Any such notice shall be deemed to have been given when received in accordance with the foregoing provisions. Either
party hereto may change the address of which notices shall be given by providing the other party hereto with written notice of such change.
9. Governing Law. This Agreement shall be construed and enforced in accordance with the law of the State of New York.
10. Benefit of Agreement. This Agreement shall be for the benefit of and shall be binding upon the heirs, executors, administrators and
successors of the parties hereto.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Grantee has
hereunto set his or her hand, all as of the day and year first above written.
HUDSON TECHNOLOGIES, INC.
By:
Name:
Title:
(Insert name) Grantee
3
Exhibit 21:
Subsidiaries of the Registrant
Hudson Technologies Company incorporated in the State of Delaware
Hudson Holdings, Inc. incorporated in the State of Nevada
Glacier International, Inc. incorporated in the State of New York
Glacier Trading Corp., incorporated in the State of New York
HFC International, Inc., incorporated in the State of New York
HFC Traders, Inc., incorporated in the State of New York
RGIT Trading Corp., incorporated in the State of New York
RCTI Corp., incorporated in the State of New York
RCTI Trading, Inc., incorporated in the State of New York
RGIT, Inc.,incorporated in the State of New York
RGT Enterprises, Inc., incorporated in the State of New York
RCT International, Inc., incorporated in the State of New York
CCNY International, Inc. incorporated in the State of New York
CCNY Traders, Inc. incorporated in the State of New York
CCS Trading, Inc. incorporated in the State of New York
NYCCS Trading Corp. incorporated in the State of New York
RRC International, Inc. incorporated in the State of New York
RRC Technical Corp. incorporated in the State of New York
RRCA Corp. incorporated in the State of New York
RRCA Enterprises, Inc. incorporated in the State of New York
RRI Enterprises, Inc. incorporated in the State of New York
RRI Trading Corp. incorporated in the State of New York
1
Exhibit 23.1:
Hudson Technologies, Inc.
Pearl River, New York
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-129057, No. 333-164650, No.333-202955, No.
333-228971 and No. 333-239561) and Registration Statement on Form S-3 (No. 333-251646) of Hudson Technologies, Inc. of our report dated March 12,
2021 relating to the consolidated financial statements which appears in this Annual Report on Form 10-K.
/s/ BDO USA, LLP
Stamford, CT
March 12, 2021
1
Exhibit 31.1:
I, Brian F. Coleman, certify that:
Hudson Technologies, Inc.
Certification of Principal Executive Officer
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Hudson Technologies, Inc.;
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;
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;
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)
b)
c)
d)
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;
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;
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
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)
b)
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
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.
Date: March 12, 2021
/s/ Brian F. Coleman
Brian F. Coleman
Chief Executive Officer and Chairman of the Board
Exhibit 31.2:
I, Nat Krishnamurti, certify that:
Hudson Technologies, Inc.
Certification of Principal Financial Officer
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Hudson Technologies, Inc.;
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;
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;
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)
b)
c)
d)
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;
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;
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
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)
b)
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
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.
Date: March 12, 2021
/s/ Nat Krishnamurti
Nat Krishnamurti
Chief Financial Officer
Exhibit 32.1:
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Hudson Technologies, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2020 as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), I, Brian F. Coleman, as Chief Executive Officer and Chairman of the Board of
the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my
knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
/s/ Brian F. Coleman
Brian F. Coleman
Chief Executive Officer and Chairman of the Board
March 12, 2021
Exhibit 32.2:
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Hudson Technologies, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2020 as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), I, Nat Krishnamurti, as Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
/s/ Nat Krishnamurti
Nat Krishnamurti
Chief Financial Officer
March 12, 2021