Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 2023
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.)
300 Tice Boulevard
Suite 290
Woodcliff Lake, New Jersey
(Address of Principal Executive Offices)
07677
(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
Common stock, $0.01 par value
Trading Symbol(s)
Name of each exchange on which registered
HDSN
The NASDAQ Stock Market LLC (NASDAQ Capital Market)
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
Securities registered pursuant to Section 12(g) of the Act: None
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. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to
previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive
officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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, 2023 was approximately $417,114,994.
As of March 14, 2024, there were 45,510,925 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant’s Proxy Statement for its Annual Meeting of Stockholders to be held on June 12, 2024, 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.
Table of Contents
Part
Part I.
Business
Item 1-
Item 1A- Risk Factors
Item 1B - Unresolved Staff Comments
Item 1C - Cybersecurity
Item 2 - Properties
Item 3 - Legal Proceedings
Item 4 - Mine Safety Disclosures
Hudson Technologies, Inc.
Index
Item
Part II.
Item 5 - Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
[Reserved]
Item 6 -
Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A - Quantitative and Qualitative Disclosures About Market Risk
Item 8 - Financial Statements and Supplementary Data
Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A - Controls and Procedures
Item 9B - Other Information
Item 9C - Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Part III.
Item 10 - Directors, Executive Officers and Corporate Governance
Item 11 - Executive Compensation
Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13 - Certain Relationships and Related Transactions, and Director Independence
Item 14 - Principal Accountant Fees and Services
Part IV.
Item 15 - Exhibits and Financial Statement Schedules
Item 16 - Form 10-K Summary
Signatures
2
Page
3
9
13
13
14
15
15
15
16
17
23
23
23
26
26
26
26
26
26
26
26
27
29
56
Table of Contents
Item 1. Business
General
Part I
Hudson Technologies, Inc. (“Hudson” or 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.
RefrigerantSide® Services consists of system decontamination to remove moisture, oils and other contaminants intended to restore
systems to designed capacity.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.
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 300 Tice Boulevard, Suite 290, Woodcliff Lake, New Jersey 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 and reclaimable hydrofluoro-olefin (“HFO”) and hydrofluorocarbon (“HFC”)
refrigerants and reclaimable, primarily hydrochlorofluorocarbon (“HCFC”) 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 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”).
3
Table of Contents
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 or HFO refrigerants. 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, as well as federal restrictions on the production and consumption of HFCs under the AIM Act (as set forth below). 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 197 countries have ratified the amendment.
AIM Act
The United States Environmental Protection Agency (“EPA”) issued several final rules establishing the framework to allocate allowances
for virgin production and consumption of hydrofluorocarbon refrigerants (“HFCs”) that currently provide allowances through 2028. The
EPA is responsible for the administration of the HFC phase down enacted by Congress under the AIM Act.
The AIM Act directs the EPA to address the reduction in virgin HFCs and provides authority to do so in three respects:
1) phase down the production and consumption of listed HFCs,
2) manage these HFCs and their substitutes including reclamation of refrigerants, and
3)
facilitate the transition to next-generation technologies.
Congress required that the EPA consider ways to promote reclamation in all phases of its implementation of the AIM Act. The AIM Act
introduced a stepdown of 10% from baseline levels in 2022 and 2023, and establishes a cumulative 40% reduction in the baseline for
2024. Hudson received allocation allowances for calendar years 2022, 2023 and 2024 equal to approximately 3 million, 3 million and 1.9
million Metric Tons Exchange Value Equivalents, respectively, per year, or approximately 1% of the total HFC consumption.
Reclamation will be critical to maintaining necessary HFC supply levels to ensure an orderly phasedown. Reclamation is not subject to
the allowance system or restricted from use.
On October 6, 2023, the EPA announced the latest actions to phase down HFCs under the AIM Act:
1) Finalization of the Technology Transition Rule- The first new action is a final rule to accelerate the ongoing transition to more
efficient and climate-safe technologies in new refrigeration, heating and cooling systems and other products by restricting the
use of HFCs where alternatives are already available. The rule, which applies to both imported and domestically manufactured
products, bans HFCs in certain equipment and sets a limit on the global warming potentials (GWPs) of the HFCs that can be
used in each subsector, with compliance dates ranging from 2025 to 2028.
In December 2023, the EPA announced an interim final rule on this matter, which provides an additional year, until January 1,
2026, for the installation of new residential and light commercial A/C and heat pump systems that use components
manufactured or imported prior to January 1, 2025. Importantly, to qualify for the extended compliance deadline, all
components of a system using the higher GWP HFC must be manufactured or imported prior to January 1, 2025.
2) Proposed Refrigerant Management Rule- The second action is a proposed rule to better manage and reuse existing HFCs,
including by reducing wasteful leaks from equipment and supporting HFC recycling and reclamation. The proposed rule, which
is expected to be finalized during the third quarter of 2024, includes requirements for repairing leaky equipment, use of
automatic leak detection systems on large refrigeration systems, use of reclaimed HFCs for certain applications, recovery of
HFCs from cylinders before their disposal, and a container tracking system.
4
Table of Contents
Products and Services
Sustainability
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 and supporting the circular economy. 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 participates in the creation and monetization of verified emission reductions
utilizing third party protocols.
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.
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, reduce the system’s energy
consumption and improve the system’s operating performance, and complement the Company’s refrigerant sales and refrigerant
reclamation and management services. These services also preserve system refrigerant charges, reducing the need for manufacture of
additional refrigerant.
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 and certain HCFC based refrigerants, which are no longer manufactured, and HFC’s,
which are being phased down as discussed above. The Company purchases virgin refrigerants, such as HFC’s and HFO’s, 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 contract, together with a five-year renewal option which was
exercised in July 2021, by the United States Defense Logistics Agency (“DLA”) for the management, supply, and sale of refrigerants,
compressed gases, cylinders and related services.
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 proprietary 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.
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,
process cooling 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.
5
Table of Contents
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.
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
implement 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
implement opportunities for the creation and monetization of verified emission reductions from the reclamation of HFC 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.
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, 2023, there was one customer accounting for greater than 10% of the Company’s revenues and one
customer accounted for over 10% of the outstanding accounts receivable at December 31, 2023. For the year ended December 31, 2022,
there was no customer that accounted for 10% of the Company’s revenues, but one customer accounted for over 10% of the outstanding
accounts receivable at December 31, 2022. For the year ended December 31, 2021, one customer accounted for 10% of the Company’s
revenues and one customer accounted for over 10% of the outstanding accounts receivable at December 31, 2021.
6
Table of Contents
Strategic Relationships
Hudson announced the following strategic relationships:
In, January 2022, Hudson entered into an agreement with AprilAire, the leading provider of professional grade healthy air
solutions for homes, to meet the requirements of the recently finalized California Air Resources Board (CARB) Regulation
Order for Reclaimed Refrigerant Use for Manufacturers of AC Equipment. Hudson will supply reclaimed refrigerant to
AprilAire for use in its range of healthy indoor air quality solutions.
In, August 2022, Hudson entered into an agreement with Lennox International Inc., a global leader in energy-efficient
climate-control solutions, to align their efforts to meet the CARB Regulation Order for Certified Reclaimed Refrigerant
Use Requirements for Manufacturers of AC Equipment. Under the agreement, Hudson will be the exclusive supplier of
certified reclaimed refrigerants to Lennox for the aftermarket support of their residential HVAC systems.
-
-
Marketing
Marketing programs are conducted through the efforts of the Company’s executive officers, marketing personnel and Company sales
personnel. Hudson employs various marketing methods, including digital marketing, segment targeted outreach, social media, trade and
industry events, webinars, in-person solicitation, print advertising, response to quotation requests and the internet through the Company’s
website (www.hudsontech.com). Information on the Company’s website is not part of this report.
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 periodic
maintenance and repair 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 in the aggregate.
7
Table of Contents
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 Clean Air Act and the AIM 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 has two 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, purchase, production, use and/or emissions of certain greenhouse gases, including HFCs.
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.
8
Table of Contents
The Company believes that it is in material compliance with all applicable regulations that are 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 February 1, 2024, the Company had 237 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 December
2024 and December 2036.
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.
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 “Business-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.
9
Table of Contents
Risks Related to Business Strategy and Operations
Our existing and future debt obligations could impair our liquidity and financial condition.
Our existing credit facility, consisting of an asset-based lending facility of up to $75 million from Wells Fargo Bank, National
Association (“Wells Fargo Bank”) and other lenders, is secured by substantially all of our assets and contains formulas that limit the
amount of our future borrowings under that facility. Moreover, the terms of our credit facility also includes 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. 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.
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 led by Wells
Fargo Bank that expires in March 2027 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. 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.
10
Table of Contents
Our business is impacted by customer concentration.
In July 2016, we were awarded, as prime contractor, a five-year contract, including a five-year renewal option (which has been
exercised), 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 2026. For the years ended December 31, 2023, 2022 and 2021, the DLA accounted for 18%, 8% and 10% of our
revenues. The loss of DLA as a customer could have a material adverse effect on our financial position and results of operations.
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.
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.
11
Table of Contents
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, the AIM Act, and any legislation and regulation enacted to implement the amendment, imposes
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. 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 HFC 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, AIM Act
legislation was enacted in the United States that requires 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.
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.
12
Table of Contents
Our management has significant control over our affairs.
Currently, our officers and directors collectively beneficially own approximately 7.8% 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.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Risk Management and Strategy
Our corporate information technology, communication networks, enterprise applications, accounting and financial reporting platforms,
and related systems, and those that we offer to our customers are necessary for the operation of our business. We use these systems,
among others, to manage our customer and vendor relationships, for internal communications, for accounting to operate record-keeping
functions, and for many other key aspects of our business. Our business operations rely on the secure collection, storage, transmission,
and other processing of proprietary, confidential, and sensitive data.
We have implemented and maintain various information security processes designed to identify, assess and manage material risks from
cybersecurity threats to our critical computer networks, third-party hosted services, communications systems, hardware and software, and
our critical data, including intellectual property, confidential information that is proprietary, strategic or competitive in nature, and tenant
data (“Information Systems and Data”).
We rely on a multidisciplinary team, including our information security function, legal department, management, and third-party service
providers, as described further below, to identify, assess, and manage cybersecurity threats and risks. We identify and assess risks from
cybersecurity threats by monitoring and evaluating our threat environment and our risk profile using various methods including, for
example, using manual and automated tools, subscribing to reports and services that identify cybersecurity threats, analyzing reports of
threats and threat actors, conducting scans of the threat environment, evaluating our industry’s risk profile, utilizing internal and external
audits, and conducting threat and vulnerability assessments.
Depending on the environment, we implement and maintain various technical, physical, and organizational measures, processes,
standards, and/or policies designed to manage and mitigate material risks from cybersecurity threats to our Information Systems and
Data, including risk assessments, incident detection and response, vulnerability management, disaster recovery and business continuity
plans, internal controls within our accounting and financial reporting functions, encryption of data, network security controls, access
controls, physical security, asset management, systems monitoring, vendor risk management program, employee training, and penetration
testing.
We work with third parties from time to time that assist us to identify, assess, and manage cybersecurity risks, including professional
services firms, consulting firms, threat intelligence service providers, and penetration testing firms.
To operate our business, we utilize certain third-party service providers to perform a variety of functions. We seek to engage reliable,
reputable service providers that maintain cybersecurity programs. Depending on the nature of the services provided, the sensitivity and
quantity of information processed, and the identity of the service provider, our vendor management process may include reviewing the
cybersecurity practices of such provider, contractually imposing obligations on the provider, conducting security assessments, and
conducting periodic reassessments during their engagement.
13
Table of Contents
We are not aware of any risks from cybersecurity threats, including as a result of any cybersecurity incidents, which have materially
affected or are reasonably likely to materially affect our Company, including our business strategy, results of operations, or financial
condition.
Governance
Our full Board oversees the Company’s enterprise risk management process, including the management of risks arising from
cybersecurity threats. The Board receives regular presentations and reports from management who are responsible for managing and
assessing cybersecurity risks, which address a wide range of topics including recent developments, evolving standards, vulnerability
assessments, third-party and independent reviews, the threat environment, technological trends and information security considerations.
The Board also receives prompt and timely information regarding any cybersecurity incident that meets established reporting thresholds,
as well as ongoing updates regarding any such incident until it has been addressed.
Management plays a crucial role in assessing and managing material risks from cybersecurity threats. At the management level, the
Company’s cybersecurity risk management and strategy is led by its Director of IT, who reports to the CFO. The qualifications of the
Director of IT include over 25 years of IT management, cybersecurity, and information governance experience. The Director of IT is
regularly informed about the latest developments in cybersecurity, including emerging threats and technologies to adapt security
measures accordingly. This ongoing knowledge acquisition is crucial for the effective prevention, detection, mitigation, and remediation
of cybersecurity incidents. Management’s role includes:
● Risk Assessment: Management conducts annual cybersecurity risk assessments to identify and evaluate potential threats and
vulnerabilities. Management considers the likelihood and potential impact of various cybersecurity risks, considering the
Company’s assets, systems, and operations, to prioritize mitigation efforts.
● Cybersecurity Policies and Procedures: Management reviews and approves the Company’s cybersecurity policies and
procedures and communicates these policies and procedures to all employees to ensure adherence to established security
protocols.
● Compliance with Regulations: Management implements and maintains compliance with relevant cybersecurity regulations and
standards applicable to the Company.
● Budgeting and Resource Allocation: Management reviews budgets for cybersecurity initiatives and ensures that adequate
resources are allocated to address cybersecurity risks and that investments in cybersecurity align with the Company’s risk
tolerance and strategic objectives.
The Director of IT is promptly informed of potential cybersecurity risks, threats, and vulnerabilities by the Company’s IT Helpdesk.
Once an incident has been identified, the Director of IT and the IT network security team assess the criticality and impact of the incident
on the Company’s business operations. The Director of IT then formulates and oversees a response to contain, eradicate and resolve
incidents in accordance with the Company’s incident response plan. Management is responsible for reporting incidents to the appropriate
authorities as necessary and engaging the senior leadership on all material incidents.
Item 2. Properties
The Company’s headquarters are located in a multi-tenant building in Woodcliff Lake, New Jersey, which houses the Company’s
executive officers, its accounting and administrative staff, and its information technology staff and equipment. The Company’s key
reclamation, processing and cylinder refurbishment facilities are located in Champaign, Illinois, Smyrna, Georgia and Ontario,
California. 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.
14
Table of Contents
Hudson’s key operational facilities are as follows:
Owned or Leased
Description
Leased
Owned
Leased
Leased
Owned
Leased
Leased
Company headquarters and administrative offices
Reclamation and separation of refrigerants and cylinder refurbishment
Refrigerant packaging, cylinder refurbishment, RefrigerantSide® Service
depot, refrigerant and industrial gases storage
Reclamation and separation of refrigerants and cylinder refurbishment center
Refrigerant storage
Refrigerant and Industrial gas storage and cylinder refurbishment center
Refrigerant reclamation and cylinder refurbishment center
Location
Woodcliff Lake, New Jersey
Champaign, Illinois
Champaign, Illinois
Smyrna, Georgia
Smyrna, Georgia
Escondido, California
Ontario, California
Item 3. Legal Proceedings
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Part II
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”.
The number of record holders of the Company’s common stock was approximately 87 as of March 8, 2024. 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 among other things,
restricts the Company’s ability to declare or pay any cash dividends on its capital stock.
Stock Price Performance Graph
The following graph illustrates a comparison of the total cumulative five-year stockholder return of a $100 investment in our common
stock on December 31, 2018, to two indices: the NASDAQ Composite Index and the Nasdaq Industrial Index. The stockholder return
shown in the graph below is not necessarily indicative of future performance, and we do not make or endorse any predictions as to future
stockholder returns.
15
Table of Contents
The above Stock Price Performance Graph and related information shall not be deemed “soliciting material” or to be “filed” with the
Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities
Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference
into such filing.
Item 6. [Reserved]
Not applicable.
16
Table of Contents
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 facility, 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, the Company’s ability
to successfully integrate any 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.
Critical Accounting Estimates
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, 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 and fluctuate, which will materially
impact our estimates of net realizable value.
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.
17
Table of Contents
An impairment charge is recorded 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.
There were no goodwill impairment losses recognized in any of the three years ended December 31, 2023, 2022 and 2021.
Overview
The Company is a leading provider of sustainable refrigerant products and services to the Heating Ventilation Air Conditioning and
Refrigeration (“HVACR”) industry. For nearly three decades, we have demonstrated our commitment to our customers and the
environment by becoming one of the United States’ largest refrigerant reclaimers through multimillion dollar investments in the plants
and advanced separation technology required to recover a wide variety of refrigerants and restoring them to Air-Conditioning, Heating,
and Refrigeration Institute (“AHRI”) standard for reuse as certified EMERALD Refrigerants™.
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.
Sales of refrigerants continue to represent a significant majority of the Company’s revenues.
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 which
has been exercised, 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. Our contract with DLA expires
in July 2026.
Results of Operations
Year ended December 31, 2023 as compared to the year ended December 31, 2022
Revenues for the year ended December 31, 2023 were $289.0 million, a decrease of $36.2 million or 11% from the $325.2 million
reported during the comparable 2022 period. The decrease was mainly attributable to lower selling prices of certain refrigerants sold,
partially offset by increase in revenues from our DLA and carbon credit programs.
Cost of sales for the year ended December 31, 2023 was $177.5 million or 61% of sales. Cost of sales for the year ended December 31,
2022 was $162.3 million or 50% of sales. The increase in the cost of sales percentage from 61% to 50% is primarily due to the lower
selling prices of certain refrigerants sold, as described above.
Selling, general and administrative (“SG&A”) expenses for the year ended December 31, 2023 were $30.5 million, an increase of $1.9
million from the $28.6 million reported during the comparable 2022 period. The increase in SG&A was primarily due to an increased
number of employees and stock compensation.
Amortization expense was $2.8 million during 2023 and 2022, respectively.
Other expense for 2023 was $8.4 million, compared to the $14.3 million of other expense reported during the comparable 2022 period.
During the third quarter of 2023, the Company repaid in full the remaining $32.5 million principal balance outstanding under its Term
Loan Facility. In conjunction with this payoff, the Company recorded a non-cash write off of $3.4 million of deferred financing costs.
Similarly, during the first quarter of 2022, the Company recorded a non-cash write off of $4.7 million of deferred financing cost.
Excluding these write offs, total interest expense for the year 2023 decreased by $4.7 million from the comparable 2022 period.
18
Table of Contents
Income tax expense for 2023 was $17.6 million compared to income tax expense of $13.4 million for 2022. The key drivers of increased
income tax expense are the reversal of valuation allowance during 2022 for federal NOLs that were fully utilized and can no longer
reduce taxable income. 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.
The net income for the year ended December 31, 2023 was $52.2 million, a decrease of $51.6 million from the $103.8 million of net
income reported during the comparable 2022 period, primarily due to lower revenues, higher cost of sales and a higher tax rate, as
described above.
Year ended December 31, 2022 as compared to the year ended December 31, 2021
Management’s discussion and analysis of the year ended December 31, 2022 as compared to the year ended December 31, 2021 is
contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2023.
Liquidity and Capital Resources
At December 31, 2023, the Company had working capital, which represents current assets less current liabilities, of $146.4 million, an
increase of $22.2 million from the working capital of $124.2 million at December 31, 2022. The increase in working capital is primarily
attributable to continued profitability and the timing of borrowings, accounts receivable and inventory.
Inventory and trade receivables are principal components of current assets. At December 31, 2023, the Company had inventory of $154.5
million, an increase of $9.1 million from $145.4 million at December 31, 2022. 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 and HCFC based refrigerants (which are no longer being
produced) and HFC refrigerants (virgin production currently in the process of being phased down) and HFO refrigerants.
At December 31, 2023, the Company had trade receivables, net of credit losses, of $25.2 million, an increase of $4.3 million from $20.9
million at December 31, 2022, mainly due to timing. The Company typically generates its most significant revenue during the second
and third quarters of any given year. 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, debt, and the issuance of equity securities.
Net cash provided by operating activities for the year ended December 31, 2023 was $58.5 million, when compared to the net cash
provided by operating activities of $62.8 million for the comparable 2022 period. As discussed above, selling prices of certain
refrigerants declined in 2023. Another contributory factor was the timing of accounts receivable and inventory balances.
Net cash used in investing activities for 2023 was $3.6 million when compared to the net cash used in investing activities of $3.7 million
for the comparable 2022 period.
Net cash used in financing activities for 2023 was $47.8 million, compared with net cash used in financing activities of $57.4 million for
2022. The Company refinanced its term loan debt during the first quarter of 2022, as described below, and paid off its remaining $32.5
million term loan debt during the third quarter of 2023.
At December 31, 2023, cash and cash equivalents were $12.4 million, or approximately $7.1 million higher than the $5.3 million of cash
and cash equivalents at December 31, 2022.
Revolving Credit Facility
On March 2, 2022, Hudson Technologies Company (“HTC”) and Hudson Holdings, Inc. (“Holdings”), as borrowers (collectively, the
“Borrowers”), and Hudson Technologies, Inc. (the “Company”) as a guarantor, entered into an Amended and Restated Credit Agreement
(the “Amended Wells Fargo Facility”) with Wells Fargo Bank, National Association, as administrative agent and lender (“Agent” or
“Wells Fargo”) and such other lenders as have or may thereafter become a party to the Amended Wells Fargo Facility. The Amended
Wells Fargo facility amended and restated the prior Wells Fargo Facility entered into on December 19, 2019.
19
Table of Contents
Under the terms of the Amended Wells Fargo Facility, the Borrowers: (i) immediately borrowed $15 million in the form of a “first in last
out” term loan (the “FILO Tranche”) and (ii) may borrow from time to time, up to $75 million at any time consisting of revolving loans
(the “Revolving Loans”) in a maximum amount up to the lesser of $75 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 Amended Wells Fargo Facility. The
Amended Wells Fargo Facility also contains a sublimit of $9 million for swing line loans and $2 million for letters of credit. The
Company currently has a $0.9 million letter of credit outstanding. The FILO Tranche was repaid in full in July 2023 and may not be
reborrowed.
Amounts borrowed under the Amended Wells Fargo Facility may be used for working capital needs, certain permitted acquisitions, and
to reimburse drawings under letters of credit.
Interest under the Amended Wells Fargo Facility is payable in arrears on the first day of each month. Interest charges with respect to
Revolving Loans are computed on the actual principal amount of Revolving Loans outstanding 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) 1.0%, (2) the federal funds rate plus 0.5%, (3) one
month term SOFR plus 1.0%, and (4) 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 SOFR loans, the sum of the applicable SOFR rate plus between 2.36%
and 2.86% depending on average quarterly undrawn availability. Interest charges with respect to the FILO Tranche were computed on the
actual principal amount of FILO Tranche loans outstanding at a rate per annum equal to (A) with respect to Base Rate FILO Tranche
loans, the sum of (i) a rate per annum equal to the higher of (1) 1.0%, (2) the federal funds rate plus 0.5%, (3) one month term SOFR plus
1.0%, and (4) the prime commercial lending rate of Wells Fargo, plus (ii) 6.5% and (B) with respect to SOFR FILO Tranche loans, the
sum of the applicable SOFR rate plus 7.50%. The Amended Wells Fargo Facility also includes a monthly unused line fee ranging from
0.35% to 0.75% per annum determined based upon the level of average Revolving Loans outstanding during the immediately preceding
month measured against the total Revolving Loans that may be borrowed under the Amended Wells Fargo Facility.
In connection with the closing of the Amended Wells Fargo Facility, the Company also entered into a First Amendment to Guaranty and
Security Agreement, dated as of March 2, 2022 (the “Amended Revolver Guaranty and Security Agreement”), pursuant to which the
Company and certain subsidiaries are continuing to unconditionally guarantee 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 Amended Revolver Guaranty and Security
Agreement, Borrowers, the Company and certain other subsidiaries are continuing to grant 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 Amended Wells Fargo Facility contains a financial covenant requiring the Company to maintain at all times minimum liquidity
(defined as availability under the Amended Wells Fargo Facility plus unrestricted cash) of at least $5 million, of which at least $3 million
must be derived from availability. The Amended Wells Fargo Facility also contains a springing covenant, which takes effect only upon a
failure to maintain undrawn availability of at least $11.25 million or upon an election by the Borrowers to increase the inventory
component of the borrowing base, 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 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 Amended 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 Amended 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 Amended Wells Fargo Facility also contains customary non-financial covenants relating to the Company and the Borrowers,
including limitations on the 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.
20
Table of Contents
The Company evaluated the Amended Wells Fargo Facility in accordance with the provisions of ASC 470-50 to determine if the
amendment was a modification or an extinguishment of debt and concluded that the amendment was a modification of the original
revolving credit facility for accounting purposes. As a result, the Company capitalized an additional $0.9 million of deferred financing
costs in connection with the amendment, which, along with the $0.2 million of remaining deferred financing costs of the original
revolving facility, is being amortized over the five year term of the Amended Wells Fargo Facility.
The commitments under the Amended 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 March 2, 2027, unless the commitments are terminated and the
outstanding principal amount of the loans are accelerated sooner following an event of default or in the event of certain other cross-
defaults.
Termination of 2022 Term Loan Facility
On March 2, 2022, Hudson Technologies Company (“HTC”), an indirect subsidiary of Hudson Technologies, Inc. (the “Company”), and
the Company’s subsidiary Hudson Holdings, Inc., as borrowers (collectively, the “Borrowers”), and the Company, as guarantor, became
obligated under a Credit Agreement (the “Term Loan Facility”) with TCW Asset Management Company LLC, as administrative agent
(“Term Loan Agent”) and the lender parties thereto (the “Term Loan Lenders”).
Under the terms of the Term Loan Facility, the Borrowers immediately borrowed $85 million pursuant to a term loan (the “Term Loan”),
which had a maturity date in March 2027. Amounts borrowed under the Term Loan Facility were used by the Borrowers to repay the
outstanding principal amount and related fees and expenses under the Prior Term Loan Facility (as defined below) and for other
corporate purposes. The Company paid approximately $4.3 million of term loan deferred financing costs.
During the third quarter of 2023, the Company repaid in full the remaining principal balance outstanding under the Term Loan Facility
and the FILO Tranche.
Termination of Prior Term Loan Facility
In conjunction with entry into the new Term Loan Facility as described above, on March 2, 2022 the Company’s then-existing term
loans, as amended (the “Prior Term Loan Facility”), which had a principal balance of approximately $63.9 million after payment of a
$16.0 million excess cash flow amount thereunder, were repaid in full, together with associated required lender fees and expenses of $3.3
million, and the Prior Term Loan Facility was terminated. The termination of the Prior Term Loan Facility constituted an extinguishment
of debt, which resulted in the Company recording an additional $4.6 million of interest expense during the first quarter of 2022, which
included the aforementioned $3.3 million of prior lender fees and expenses and $1.3 million of pre-existing deferred financing costs from
the Prior Term Loan Facility.
The Company was in compliance with all covenants under the Amended Wells Fargo Facility as of December 31, 2023.
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 Amended 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.
21
Table of Contents
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 had a term of two years, was unsecured, and bore interest at a fixed rate of one
percent per annum, with the first nine 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 were used in part to help offset payroll costs as stipulated in the legislation. All or a portion of the PPP loan could 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. During the third quarter of 2021, the
Company received forgiveness of the loan from the SBA, resulting in $2.475 million of Other income recorded in the Company’s
Consolidated Income Statements.
Inflation
Inflation, historically or the recent increase, has not 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 Clean Air 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.
For the year ended December 31, 2023, there was one customer accounting for greater than 10% of the Company’s revenues and one
customer accounted for over 10% of the outstanding accounts receivable at December 31, 2023. For the year ended December 31, 2022,
there was no customer accounted for 10% of the Company’s revenues but one customer accounted for over 10% of the outstanding
accounts receivable at December 31, 2022. For the year ended December 31, 2021, one customer accounted for 10% of the Company’s
revenues and one customer accounted for over 10% of the outstanding accounts receivable at December 31, 2021.
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.
22
Table of Contents
Recent Accounting Pronouncements
See recent accounting pronouncements set forth in Note 1 of the financial statements contained in this report and commitments and
contingencies noted in Note 11 thereof.
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 Amended Wells Fargo Facility. The Amended Wells Fargo
Facility is a $75 million secured facility with a $0.0 million outstanding balance as of December 31, 2023. Future interest rate changes on
our borrowing under the Amended Wells Fargo Facility may have an impact on our consolidated results of operations.
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, 2023 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.
23
Table of Contents
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.
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, 2023. 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, 2023, the Company’s internal control over financial reporting is effective based on
those criteria.
BDO USA, P.C., the independent registered public accounting firm which audits our financial statements, has provided an attestation
report on our internal control over financial reporting as of December 31, 2023.
24
Table of Contents
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Hudson Technologies, Inc.
Woodcliff Lake, New Jersey
Opinion on Internal Control over Financial Reporting
We have audited Hudson Technologies, Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2023 based
on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”),
the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of income,
stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and our
report dated March 14, 2024 expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ BDO USA, P.C.
Stamford, Connecticut
March 14, 2024
25
Table of Contents
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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), (d)(5) and 408(b) of Regulation S-K to be
contained in the Registrant’s definitive proxy statement to be mailed to stockholders on or about April 26, 2024, 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 26, 2024, 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 26, 2024, 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, 2023.
Number of
securities to
be
issued upon
exercise of
outstanding
options and stock appreciation rights
(a)
Weighted-
average
exercise
price of
outstanding
options
(b)
2,647,435
$
3.31
Number of
securities
remaining
available for
future
issuance
under equity
compensation
plans
(excluding
securities
reflected
in column
(a))
(c)
4,341,463
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 26, 2024, 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 26, 2024, and to be filed with the
Securities and Exchange Commission.
26
Table of Contents
Part IV
Item 15.
(A)(1) Financial Statements
Exhibits and Financial Statement Schedules
The consolidated financial statements of Hudson Technologies, Inc. appear after Item 16 of this report
(A)(2) Financial Statement Schedules
None
(A)(3) Exhibits
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. (26)
3.11 Certificate of Amendment of the Certificate of Incorporation dated September 15, 2015. (14)
4.1 Description of Equity Securities. (24)
10.1
2004 Stock Incentive Plan. (7)*
10.2 Agreement with Brian F. Coleman, as amended. (9)*
10.3
10.4 Form of Incentive Stock Option Agreement under the 2008 Stock Incentive Plan with full vesting upon issuance. (9)*
10.5 Form of Incentive Stock Option Agreement under the 2008 Stock Incentive Plan with options vesting in equal
2008 Stock Incentive Plan. (8)*
installments over two year period. (9)*
10.6 Form of Non-Incentive Stock Option Agreement under the 2008 Stock Incentive Plan with full vesting upon issuance.
(9)*
10.7 Form of Non-Incentive Stock Option Agreement under the 2008 Stock Incentive Plan with options vesting in equal
installments over two year period. (9)*
10.8 Long Term Care Insurance Plan Summary. (10)*
10.9 Amendment No. 1 to the Hudson Technologies, Inc. 2008 Stock Incentive Plan adopted October 22, 2013. (11) *
2014 Stock Incentive Plan (12)*
10.10
10.11 Form of Incentive Stock Option Agreement under the 2014 Stock Incentive Plan with full vesting upon issuance. (13)*
10.12 Form of Incentive Stock Option Agreement under the 2014 Stock Incentive Plan with options vesting in equal
installments over two year period. (13)*
10.13 Form of Non-Incentive Stock Option Agreement under the 2014 Stock Incentive Plan with full vesting upon issuance.
(13)*
10.14 Form of Non-Incentive Stock Option Agreement under the 2014 Stock Incentive Plan with options vesting in equal
installments over two year period. (13)*
10.15 Form of Incentive Barrier Stock Option Agreement under the 2014 Stock Incentive Plan with full vesting upon issuance.
(13)*
10.16 Form of Non-Incentive Barrier Stock Option Agreement under the 2014 Stock Incentive Plan with full vesting upon
issuance. (13)*
10.17 Form of Incentive Barrier Stock Option Agreement under the 2008 Stock Incentive Plan with full vesting upon issuance.
(13)*
10.18 Form of Non-Incentive Barrier Stock Option Agreement under the 2008 Stock Incentive Plan with full vesting upon
issuance. (13)*
10.19 Amended and Restated Agreement with Brian Coleman (15)*
10.20 Agreement, dated September 5, 2016, between Hudson Technologies, Inc. and Nat Krishnamurti. (16)*
10.21
10.22 Form of Incentive Stock Option Agreement under the 2018 Stock Incentive Plan with full vesting upon issuance (18)*
10.23 Form of Incentive Stock Option Agreement under the 2018 Stock Incentive Plan with vesting in equal installments over a
2018 Stock Incentive Plan (17)*
specified of time. (18)*
27
Table of Contents
10.24
10.25
10.26
10.27
Form of Non-Qualified Stock Option Agreement under the 2018 Stock Incentive Plan with full vesting upon issuances (18)*
Form of Non-Qualified Stock Option Agreement under the 2018 Stock Incentive Plan with vesting in equal installments
over a specified period of time. (18)*
Form of Non-Qualified Stock Option Agreement under the 2018 Stock Incentive Plan with conditional vesting provisions.
(18)*
Second Amended and Restated Agreement dated as of September 20, 2019 between the Registrant and Brian F. Coleman
(19)*
10.28 Amended and Restated Agreement dated as of September 20, 2019 between the Registrant and Nat Krishnamurti (19)*
10.29 Third Amended and Restated Agreement dated December 19, 2019 between the Registrant and Brian F. Coleman (20)*
10.30
Fourth Amended and Restated Agreement dated as of June 24, 2020 between the Registrant and Brian F. Coleman (21)*
10.31 Amended and Restated Agreement dated September 30, 2019 between the Company and Kathleen L. Houghton (22)*
10.32 Hudson Technologies, Inc. 2020 Stock Incentive Plan (23)*
10.33
10.34
Form of Incentive Stock Option Agreement under the 2020 Stock Incentive Plan with full vesting upon issuance (25)*
Form of Incentive Stock Option Agreement under the 2020 Stock Incentive Plan with vesting in equal installments over a
specified period of time (25)*
Form of Non-Qualified Stock Option Agreement under the 2020 Stock Incentive Plan with full vesting upon issuance (25)*
Form of Non-Qualified Stock Option Agreement under the 2020 Stock Incentive Plan with vesting in equal installments
over a specified period of time (25)*
Form of Non-Qualified Stock Option Agreement under the 2020 Stock Incentive Plan with conditional vesting provisions
(25)*
10.35
10.36
10.37
10.38 Amended and Restated Credit Agreement dated March 2, 2022 by and among Wells Fargo Bank, National Association, as
Agent, Hudson Technologies, Inc., and the Borrowers and Lenders party thereto (26)
First Amendment to Guaranty and Security Agreement dated March 2, 2022 by and among the Grantors named therein and
Wells Fargo Bank, National Association, as Agent (26)
Form of Stock Appreciation Rights Award Agreement (27)
10.39
10.40
14 Code of Business Conduct and Ethics. (6)
Subsidiaries of the Company. (28)
21
23.1 Consent of BDO USA, P.C. (28)
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (28)
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (28)
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. (28)
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. (28)
97 Hudson Technologies, Inc. Clawback Policy (28)
101
(1)
Interactive data file pursuant to Rule 405 of Regulation S-T. (28)
Incorporated by reference to the comparable exhibit filed with the Company’s Registration Statement on Form SB-2 (No.
33-80279-NY).
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.
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.
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.
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.
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.
Incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement on Schedule 14A filed August 18,
2004.
Incorporated by reference to Appendix I to the Company’s Definitive Proxy Statement on Schedule 14A filed July 29, 2008.
(2)
(3)
(4)
(5)
(6)
(7)
(8)
28
Table of Contents
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
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.
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.
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.
Incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement on Schedule 14A filed August 12,
2014.
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.
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.
Incorporated by reference to the comparable exhibit filed with the Company Annual Report on form 10-K for the year ended
December 31, 2015.
Incorporated by reference to the comparable exhibit filed with the Company’s Current Report on Form 8-K filed September
9, 2016.
Incorporated by reference to the comparable exhibit filed with the Company’s Registration Statement on Form S-8 filed
December 21, 2018.
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.
Incorporated by reference to the comparable exhibit filed with the Company’s Current Report on Form 8-K filed September
23, 2019.
Incorporated by reference to the comparable exhibit filed with the Company’s Current Report on Form 8-K filed December
20, 2019.
Incorporated by reference to the comparable exhibit filed with the Company’s Current Report on Form 8-K filed July 20,
2020.
Incorporated by reference to the comparable exhibit filed with the Company’s Current Report on Form 8-K filed September
16, 2020.
Incorporated by reference to the comparable exhibit filed with the Company’s Registration Statement on Form S-8 filed June
30, 2020.
Incorporated by reference to the comparable exhibit filed with the Company’s Annual Report on Form 10-K filed March 13,
2020.
Incorporated by reference to the comparable exhibit filed with the Company’s Annual Report on Form 10-K filed March 12,
2021.
Incorporated by reference to the comparable exhibit filed with the Company’s Current Report on Form 8-K filed March 3,
2022.
Incorporated by reference to the comparable exhibit filed with the Company’s Annual Report on Form 10-K filed March 24,
2022.
(28) Filed herewith.
(*) Denotes Management Compensation Plan, agreement or arrangement.
Item 16. Form 10-K Summary
None.
29
Table of Contents
Hudson Technologies, Inc.
Consolidated Financial Statements
Contents
Report of Independent Registered Public Accounting Firm (BDO USA, P.C. Stamford, Connecticut, PCAOB ID # 243)
Audited Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Income Statements for the years ended December 31, 2023, December 31, 2022 and December 31, 2021
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2023, December 31, 2022 and December
31, 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2023, December 31, 2022 and December 31, 2021
Notes to the Consolidated Financial Statements
31
33
34
35
36
37
30
Table of Contents
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Hudson Technologies, Inc.
Woodcliff Lake, New Jersey
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Hudson Technologies, Inc. (the “Company”) as of December 31, 2023
and 2022, the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period
ended December 31, 2023, 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, 2023 and
2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity
with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”),
the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our
report dated March 14, 2024 expressed an unqualified opinion thereon.
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.
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: (i) relates to accounts or disclosures that are
material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The
communication of the 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.
Inventory Valuation – Assessment of Net Realizable Value
As described in Notes 1 and 4 to the consolidated financial statements, inventories total approximately $154.5 million as of December
31, 2023. 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 the cost of sales
on the Consolidated Income Statements. Any such adjustment would be based on management’s judgements regarding future demand
and market conditions and analysis of historical experience.
31
Table of Contents
We identified assessment of net realizable value of certain inventories as a critical audit matter. Determining whether the Company may
be required to write down its inventory through a lower of cost or net realizable value adjustment based on future demand, market
conditions and analysis of historical experience requires significant judgment due to the subjectivity of these assumptions. Auditing these
elements involved especially challenging and subjective auditor judgement due to the nature of the audit effort required to address these
matters.
The primary procedures we performed to address this critical audit matter included evaluating the reasonableness of the judgments
regarding future demand, market conditions and analysis of historical experience of certain inventories by:
● Evaluating the consistency of current, historical, and subsequent pricing of inventory to the cost of inventory on hand at
December 31, 2023.
● Evaluating the consistency of the judgments with the company’s objectives and strategies.
/s/ BDO USA, P.C.
We have served as the Company’s auditor since 1994
Stamford, Connecticut
March 14, 2024
32
Table of Contents
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
Income tax receivable
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
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:
$
$
$
December 31,
2023
2022
$
$
$
12,446
25,169
154,450
5,438
7,492
204,995
19,375
47,803
14,771
6,591
3,137
296,672
23,399
31,537
3,615
—
58,551
4,558
4,790
—
67,899
5,295
20,872
145,377
—
5,289
176,833
20,568
47,803
17,564
7,339
2,386
272,493
14,165
27,908
6,303
4,250
52,626
244
5,763
38,985
97,618
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:
45,502,380 and 45,287,619 respectively
Additional paid-in capital
Retained earnings
Total Stockholders’ Equity
455
118,091
110,227
228,773
453
116,442
57,980
174,875
Total Liabilities and Stockholders’ Equity
$
296,672
$
272,493
See Accompanying Notes to the Consolidated Financial Statements.
33
Table of Contents
Hudson Technologies, Inc. and Subsidiaries
Consolidated Income Statements
(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
Other (expense) income:
Interest expense
Other income
Total other expense
Income before income taxes
Income tax expense
Net income
Net income per common share – Basic
Net income per common share – Diluted
$
For the years ended December 31,
2022
325,225
162,332
162,893
2023
289,025
177,518
111,507
$
$
2021
192,748
121,084
71,664
30,542
2,793
33,335
28,591
2,793
31,384
26,566
2,793
29,359
78,172
131,509
42,305
(8,352)
(14,327)
—
—
(8,352)
(14,327)
(11,376)
2,470
(8,906)
69,820
117,182
33,399
17,573
13,381
1,140
$
$
$
52,247
1.15
1.10
$
$
$
103,801
2.31
2.20
$
$
$
32,259
0.74
0.69
Weighted average number of shares outstanding – Basic
45,385,433
44,990,104
43,765,443
Weighted average number of shares outstanding – Diluted
47,338,231
47,109,018
46,640,822
See Accompanying Notes to the Consolidated Financial Statements.
34
Table of Contents
Hudson Technologies, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(Amounts in thousands, except for share amounts)
Balance at January 1, 2021
Common Stock
Shares
Amount
Additional
Paid-in Capital
43,347,887
$
433
$
118,269
Retained
Earnings
(Accumulated
Deficit)
(78,080) $
$
Total
40,622
Issuance of common stock upon exercise of stock options
1,398,979
Excess tax benefits from exercise of stock options
Issuance of common stock for services
—
12,059
14
—
1
187
—
201
(2,655)
—
(2,655)
—
—
Share-based compensation
—
—
511
—
Net income
—
—
—
32,259
32,259
Balance at December 31, 2021
44,758,925
$
448
$
116,312
$
(45,821) $
70,939
Issuance of common stock upon exercise of stock options
519,749
Excess tax benefits from exercise of stock options
Issuance of common stock for services
—
8,945
5
—
177
(969)
—
182
—
(969)
—
—
—
Share-based compensation
—
—
922
—
Net income
—
—
—
103,801
103,801
Balance at December 31, 2022
45,287,619
$
453
$
116,442
$
57,980
$ 174,875
Issuance of common stock upon exercise of stock options
214,761
Excess tax benefits from exercise of stock options
Share-based compensation
Net income
—
—
—
2
—
—
—
37
(694)
2,306
—
—
—
39
(694)
2,306
—
52,247
52,247
Balance at December 31, 2023
45,502,380
$
455
$
118,091
$ 110,227
$ 228,773
See Accompanying Notes to the Consolidated Financial Statements.
35
1
511
—
922
Table of Contents
Hudson Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Amounts in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to cash provided by (used in) operating activities:
$
52,247
$
103,801
$
32,259
For the years ended December 31,
2022
2021
2023
Depreciation
Amortization of intangible assets
Impairment of long lived assets
Forgiveness of Payroll Protection Program loan
Lower of cost or net realizable value inventory adjustment
Allowance for doubtful accounts
Amortization of deferred finance cost
Loss on extinguishment of debt
Share based compensation
Deferred tax expense
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 (used in) operating activities
Cash flows from investing activities:
Additions to property, plant, and equipment
Cash used in investing activities
Cash flows from financing activities:
Net proceeds from issuances of common stock and exercises of stock options
Excess tax benefits from exercise of stock options
Payment of deferred financing cost
Borrowing of short-term debt - net
Proceeds from long term debt
Repayment of long-term debt
Cash (used in) provided by financing activities
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
Cash paid for income taxes
Property and equipment included in accrued expenses and other current liabilities
2,989
2,793
2,120
—
(2,259)
659
726
3,427
2,306
4,314
(4,957)
(6,814)
(3,182)
—
(5,277)
9,455
58,547
3,184
2,793
—
—
1,837
474
1,086
4,665
922
(1,449)
(7,123)
(53,070)
1,782
17
(630)
4,526
62,815
3,387
2,793
—
(2,475)
(2,806)
44
1,125
—
511
337
(4,461)
(46,878)
(2,120)
4
674
16,378
(1,228)
(3,580)
(3,580)
(3,659)
(3,659)
(1,922)
(1,922)
39
(694)
—
—
—
182
(969)
(8,512)
—
100,000
(148,054)
(57,353)
(47,161)
(47,816)
7,151
5,295
12,446
4,475
18,536
337
$
$
$
$
1,803
3,492
5,295
11,702
15,460
—
$
$
$
$
$
$
201
(2,655)
—
13,000
—
(5,252)
5,294
2,144
1,348
3,492
10,157
128
—
See Accompanying Notes to the Consolidated Financial Statements
36
Table of Contents
Hudson Technologies, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
Business
Hudson Technologies, Inc. (“Hudson” or 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.
RefrigerantSide® Services consist of system decontamination to remove moisture, oils and other contaminants intended to restore
systems to designed capacity. 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.
Unless the context requires otherwise, references to the “Company”, “Hudson”, “we”, “us”, “our”, or similar pronouns refer to Hudson
Technologies, Inc. and its subsidiaries.
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.
AIM Act
The United States Environmental Protection Agency (“EPA”) issued several final rules establishing the framework to allocate allowances
for virgin production and consumption of hydrofluorocarbon refrigerants (“HFCs”) that currently provide allowances through 2028. The
EPA is responsible for the administration of the HFC phase down enacted by Congress under the AIM Act.
The AIM Act directs the EPA to address the reduction in virgin HFCs and provides authority to do so in three respects:
1) phase down the production and consumption of listed HFCs,
2) manage these HFCs and their substitutes including reclamation of refrigerants, and
3)
facilitate the transition to next-generation technologies.
Congress required that the EPA consider ways to promote reclamation in all phases of its implementation of the AIM Act. The AIM Act
introduced a stepdown of 10% from baseline levels in 2022 and 2023, and establishes a cumulative 40% reduction in the baseline for
2024. Hudson received allocation allowances for calendar years 2022 and 2023 equal to approximately 3 million Metric Tons Exchange
Value Equivalents per year, or approximately 1% of the total HFC consumption, with allowances for future periods to be determined at a
later date. Reclamation will be critical to maintaining necessary HFC supply levels to ensure an orderly phasedown. Reclamation is not
subject to the allowance system or restricted from use.
On October 6, 2023, the EPA announced the latest actions to phase down HFCs under the AIM Act:
1) Finalization of the Technology Transition Rule - The first new action is a final rule to accelerate the ongoing transition to more
efficient and climate-safe technologies in new refrigeration, heating and cooling systems and other products by restricting the
use of HFCs where alternatives are already available. The rule, which applies to both imported and domestically manufactured
products, bans HFCs in certain equipment and sets a limit on the global warming potentials (GWPs) of the HFCs that can be
used in each subsector, with compliance dates ranging from 2025 to 2028.
37
Table of Contents
In December 2023, the EPA announced an interim final rule on this matter, which provides an additional year, until January 1,
2026, for the installation of new residential and light commercial air conditioning systems and heat pump systems that use
components manufactured or imported prior to January 1, 2025. Importantly, to qualify for the extended compliance deadline,
all components of a system using the higher Global Warming Potential (GWP) HFC must be manufactured or imported prior to
January 1, 2025.
2) Proposed Refrigerant Management Rule - The second action is a proposed rule (subject to further comments) to better manage
and reuse existing HFCs, including by reducing wasteful leaks from equipment and supporting HFC recycling and reclamation.
The proposed rule, which is expected to be finalized during the third quarter of 2024, includes requirements for repairing leaky
equipment, use of automatic leak detection systems on large refrigeration systems, use of reclaimed HFCs for certain
applications, recovery of HFCs from cylinders before their disposal, and a container tracking system.
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 as its comprehensive income is the same as its net income.
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, 2023 and December 31, 2022, 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, 2022. 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.
The Company establishes an allowance for credit losses. In accordance with the “expected credit loss” model, the carrying amount of
accounts receivable is reduced by a valuation allowance that reflects the Company’s best estimate of the amounts that it does not expect
to collect. In addition to reviewing delinquent accounts receivable, the Company considers many factors in estimating its reserve,
including types of customers and their credit worthiness, experience and historical data adjusted for current conditions.
The carrying value of the Company’s accounts receivable is reduced by the established allowance for credit losses. 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, 2023, there was one customer accounting for greater than 10% of the Company’s revenues and one
customer accounted for over 10% of the outstanding accounts receivable at December 31, 2023. For the year ended December 31, 2022,
there was no customer that accounted for 10% of the Company’s revenues but one customer accounted for over 10% of the outstanding
accounts receivable at December 31, 2022. For the year ended December 31, 2021, one customer accounted for 10% of the Company’s
revenues and one customer accounted for over 10% of the outstanding accounts receivable at December 31, 2021.
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.
38
Table of Contents
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 Income Statements. 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 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). The
Company tests its goodwill for impairment annually on a qualitative or quantitative 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. When performing the annual impairment test, the Company
has the option of first performing a qualitative assessment, which requires management to make assumptions affecting a reporting unit, to
determine the existence of events and circumstances that would lead to a determination that it is more likely than not that the fair value of
a reporting unit is less than its carrying amount. If such a conclusion is reached, the Company is then required to perform a quantitative
impairment assessment of goodwill. The Company has one reporting unit at December 31, 2023. Other intangible assets that meet certain
criteria are amortized over their estimated useful lives.
An impairment charge is recorded 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.
During the fourth quarter of 2023, the Company completed its annual impairment test as of October 1 and determined in its qualitative
assessment that it is more likely than not that the fair value of the reporting unit is greater than its carrying amount, resulting in no
goodwill impairment. There can be no assurances that future sustained declines in macroeconomic or business conditions affecting our
industry will not occur, which could result in goodwill impairment charges in future periods.
There were no goodwill impairment losses recognized in 2023, 2022 or 2021.
Leases
The Company determines if an arrangement contains a lease at inception. An arrangement contains a lease if it implicitly or explicitly
identifies an asset to use and conveys the right to control the use of the identified asset in exchange for consideration. As a lessee, the
Company includes operating leases in operating lease right-of-use (“ROU”) assets, operating lease liabilities, and non-current operating
lease liabilities in its consolidated balance sheets.
Finance leases are included in property and equipment in the consolidated balance sheets.
39
Table of Contents
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s
obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized upon commencement
of the lease based on the present value of the lease payments over the lease term. As most of the Company’s leases do not provide an
implicit interest rate, the Company generally uses its incremental borrowing rate based on the estimated rate of interest for fully
collateralized and fully amortizing borrowings over a similar term of the lease payments and commencement date to determine the
present value of lease payments. When readily determinable, the Company uses the implicit rate. The Company’s lease terms include
options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease
payments is recognized on a straight-line basis over the lease term. Expenses associated with operating leases and finance leases are
included in selling, general and administrative within the consolidated statement of income.
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. The Company charges its customers cylinder deposits upon
the shipment of refrigerant gases that are contained in refillable cylinders. The amount charged to the customer by the Company
approximates the cost of a new cylinder of the same size. Upon return of a cylinder, this liability is reduced. The cylinder deposit liability
balance was $17.2 million and $13.6 million at December 31, 2023 and 2022, 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,which has been
exercised through July 2026, by the United States Defense Logistics Agency (“DLA”) for the management, supply, and sale of
refrigerants, compressed gases, cylinders and related services. The Company determined that the sale of refrigerants and the management
services provided 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. For the years ended December 31, 2023, 2022 and 2021 management services revenue were $2.4
million, $2.3 million, and $2.2 million respectively.
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.
40
Table of Contents
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
2023
2022
2021
$ 281,954
7,071
$ 289,025
$ 319,019
6,206
$ 325,225
$ 187,799
4,949
$ 192,748
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 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.
During the year ended December 31, 2022, the Company concluded that its deferred tax assets were more likely than not to become
realizable. The Company fully reversed its existing valuation allowance of $15.1 million, with $11.6 million reversed during the first and
second quarters of 2022, and the remaining $3.5 million through the third and fourth quarters of 2022. The conclusion that a valuation
allowance was no longer needed was based on the achievement of three years of cumulative pre-tax income, the utilization of the
Company’s $29.3 million federal NOLs, which comprised a majority of the Company’s deferred tax assets, combined with estimates of
future years’ pre-tax income that were sufficient to realize the remaining deferred tax assets.
For the year ended December 31, 2023 the Company had no federal NOLs, as the Company utilized all of its remaining federal NOLs
during the year ended December 31, 2022. For the year ended December 31, 2023, the Company had state tax NOLs of approximately
$1.8 million, expiring in various years. We review the likelihood that we will realize the benefit of our deferred tax assets on a quarterly
basis.
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. For the years ended December 31, 2023 and December 31, 2022, the Company believes it had no uncertain tax
positions.
Income per Common and Equivalent Shares
If dilutive, common equivalent shares (common shares assuming exercise of options) utilizing the treasury stock method are considered
in the presentation of diluted income per share. The reconciliation of shares used to determine net income per share is as follows (dollars
in thousands):
Net income
$
52,247
2023
Years ended December 31,
2022
103,801
$
$
2021
32,259
Weighted average number of shares – basic
Shares underlying options
Weighted average number of shares outstanding – diluted
45,385,433
1,952,798
47,338,231
44,990,104
2,118,914
47,109,018
43,765,443
2,875,379
46,640,822
During the years ended December 31, 2023, 2022 and 2021, certain options aggregating 17,172, 28,467 and 2,583,523 shares,
respectively, have been excluded from the calculation of diluted shares, due to the fact that their effect would be anti-dilutive.
41
Table of Contents
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. 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
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.
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 hydrofluorocarbon (“HFC”) and hydrofluroolefin (“HFO”) refrigerants and
reclaimable, primarily hydrochlorofluorocarbons (“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 process of sourcing refrigerants includes various procurement costs, such as freight, processing, insurance, and
other costs, relating to the delivery of refrigerants. As a result of the recently noted global supply chain issues, the Company determined
it could be exposed to incremental costs related to these refrigerant purchases. These costs represent the Company’s initial estimate that
are possibly subject to finalization in future periods and are recorded in accrued expenses and other current liabilities on the consolidated
balance sheet as of December 31, 2023.
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.
Capitalized Software Development Costs
Capitalized internal-use software costs consist of costs to purchase and develop software. For software to be used solely to meet internal
needs and for cloud-based applications used to deliver our services, we capitalize costs incurred during the application development stage
and include such costs within property and equipment, net within our consolidated balance sheets.
42
Table of Contents
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 adopted
ASU No. 2016-13 on January 1, 2023. The adoption of ASU No. 2016-13 did not have a material impact on its results of operations or
financial position.
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, 2022, with early adoption permitted. The Company adopted
ASU 2020-06 on January 1, 2023. The adoption of ASU 2020-06 did not have a material impact on its results of operations or financial
position.
In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, “Income Taxes (Topic 740):
Improvements to Income Tax Disclosures,” which requires public business entities to disclose additional information in specified
categories with respect to the reconciliation of the effective tax rate to the statutory rate for federal, state, and foreign income taxes. It
also requires greater detail about individual reconciling items in the rate reconciliation to the extent the impact of those items exceeds a
specified threshold. In addition to new disclosures associated with the rate reconciliation, the ASU requires information pertaining to
taxes paid (net of refunds received) to be disaggregated for federal, state, and foreign taxes and further disaggregated for specific
jurisdictions to the extent the related amounts exceed a quantitative threshold. The ASU also describes items that need to be
disaggregated based on their nature, which is determined by reference to the item’s fundamental or essential characteristics, such as the
transaction or event that triggered the establishment of the reconciling item and the activity with which the reconciling item is associated.
The ASU eliminates the historic requirement that entities disclose information concerning unrecognized tax benefits having a reasonable
possibility of significantly increasing or decreasing in the 12 months following the reporting date. This ASU is effective for annual
periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or
made available for issuance. This ASU should be applied on a prospective basis; however, retrospective application is permitted. The
Company is currently evaluating the impact that ASU 2023 – 09 will have on its consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segments,” which
aims to improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all
public entities to enable investors to develop more decision-useful financial analyses. Currently, Topic 280 requires that a public entity
disclose certain information about its reportable segments. For example, a public entity is required to report a measure of segment profit
or loss that the CODM uses to assess segment performance and make decisions about allocating resources. Topic 280 also requires other
specified segment items and amounts, such as depreciation, amortization, and depletion expense, to be disclosed under certain
circumstances. The amendments in this ASU do not change or remove those disclosure requirements and do not change how a public
entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its
reportable segments. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years
beginning after December 15, 2024. Early adoption is permitted. The Company does not expect that the requirements of ASU 2023 – 07
will have a material impact on its consolidated financial statements.
43
Table of Contents
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.
Note 3 - Trade accounts receivable – net
The opening and closing balance of the company’s accounts receivable is as follows:
(in thousands)
2023
2022
Beginning
Balance
at January 1
20,872
14,223
$
$
$
$
Increase
(Decrease),
Net
4,297
6,649
Ending Balance
at December 31
25,169
20,872
$
$
At December 31, 2023 and 2022, trade accounts receivable are net of reserves for allowance for credit losses of $2.0 million and $1.9
million, respectively. The following table represents the activity occurring in the reserves for allowance for credit losses in 2023 and
2022.
(in thousands)
2023
2022
Note 4- Inventories
Inventories consist of the following:
(in thousands)
Refrigerants and cylinders
Less: net realizable value adjustments
Total
Beginning
Balance
at January 1
Net additions
charged to
Operations
Deductions
and Other
$
$
1,927
1,584
$
$
659
474
$
$
(592)
(131)
Ending Balance
at December 31
1,994
1,927
$
$
December 31,
2023
December 31,
2022
$
$
159,654
(5,204)
154,450
$
$
152,840
(7,463)
145,377
44
Table of Contents
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
- Construction-in-Progress
Subtotal
Less: Accumulated depreciation
Total
2023
2022
Estimated
Lives
$
$
1,255
319
1,446
3,467
13,220
29,397
315
1,790
3,233
933
865
2,844
59,084
(39,709)
19,375
$
$
1,255
319
1,446
3,396
13,315
27,258
315
1,773
3,103
840
852
3,533
57,405
(36,837)
20,568
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
Depreciation expense for the years ended December 31, 2023, 2022 and 2021 was $3.0 million, $3.2 million and $3.4 million,
respectively, of which $2.0 million, $2.0 million and $1.9 million, respectively, were included as cost of sales in the Company’s
Consolidated Income Statements.
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 income statements 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.
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 $1.7 million, $2.6 million and $3.1 million, for the years ended December 31, 2023, 2022 and 2021,
respectively, is included in Selling, general and administrative expenses on the consolidated income statements.
45
Table of Contents
The following table presents information about the amount and timing of cash flows arising from the Company’s operating leases as of
December 31, 2023.
Maturity of Lease Payments
(in thousands)
-2024
-2025
-2026
-2027
-2028
-Thereafter
Total undiscounted operating lease payments
Less imputed interest
Present value of operating lease liabilities
Balance Sheet Classification
December 31, 2023
1,914
1,663
1,500
1,043
656
823
7,599
(911)
6,688
$
December 31,
Current lease liabilities (recorded in Accrued expenses and other current liabilities)
Long-term lease liabilities
Total operating lease liabilities
2023
2022
$
$
1,898
4,790
6,688
$
$
1,663
5,763
7,426
Other Information
December 31,
Weighted-average remaining term for operating leases
Weighted-average discount rate for operating leases
Supplemental cash flow and non-cash information related to leases
December 31,
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flow from operating leases
Right -of-use assets obtained in exchange for new operating lease liabilities
Note 7 - Income taxes
2023
2022
2.92 years
8.27 %
3.60 years
8.21 %
2023
2022
$
$
1,782
1,020
$
$
2,588
2,659
Income tax expense for the years ended December 31, 2023, 2022 and 2021 was $17.6 million, $13.4 million and $1.1 million,
respectively. The income tax expense (benefit) for each of the years ended December 31, 2023, 2022 and 2021 were provided for federal
and state income tax at statutory rates applied to the pre-tax income (loss) for each of the periods.
46
Table of Contents
The following summarizes the provision for income taxes:
Years Ended December 31,
(in thousands)
Current:
Federal
State and local
Deferred:
Federal
State and local
Expense for income taxes
2023
2022
2021
$ 10,319
2,940
13,259
$ 11,995
2,835
14,830
3,667
647
4,314
$ 17,573
(323)
(1,126)
(1,449)
$ 13,381
$
$
453
350
803
267
70
337
1,140
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
- 162m limitation
- PPP Benefit
- Change in valuation allowance
- Other true-up
Total
2023
2022
2021
21 %
4 %
(1)%
1 %
0 %
0 %
0 %
25 %
21 %
4 %
(1)%
1 %
0 %
(13)%
(1)%
11 %
21 %
0 %
(4)%
—
(2)%
(12)%
—
3 %
For the year ended December 31, 2023, the Company had no federal NOLs carryforward. For the year ended December 31, 2023, the
Company had state tax NOL carryforwards of approximately $1.8 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)
Deferred tax assets (liabilities):
- Reserve for doubtful accounts
- Inventory reserve
-Non qualified stock options
- Deferred interest
- Accrued expenses
Total Deferred income tax assets
Deferred tax liabilities:
- Depreciation and amortization
Total deferred tax liabilities
Net deferred tax liabilities
$
$
$
2023
2022
$
497
687
529
—
82
1,795
$
500
1,045
383
2,637
107
4,672
(6,353)
(6,353)
(4,558) $
(4,916)
(4,916)
(244)
We review the likelihood that we will realize the benefit of our deferred tax assets, and therefore the need for valuation allowances, on a
quarterly basis. 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.
47
Table of Contents
The Company’s 2019 and prior federal tax years have been closed. The Company operates in many states throughout the United States
and, as of December 31, 2023, the state statutes of limitations remain open for tax years subsequent to 2018. The Company recognizes
interest and penalties, if any, relating to income taxes as a component of the provision for income taxes.
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.
There were no goodwill impairment losses recognized for the years ended December 31, 2023, 2022 and 2021.
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, 2023 and December 31, 2022 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
Covenant not to compete
Customer relationships
Above market leases
Total identifiable intangible assets
Amortization
Period
(in years)
Gross
Carrying
Amount
Accumulated
Amortization
Net
Gross
Carrying
Amount
Accumulated
Amortization
Net
2023
2022
6 – 10
3 – 12
13
$
870
31,560
567
$ 32,997
$
$
798
17,151
277
18,226
72
14,409
290
$ 14,771
$
870
31,560
567
$ 32,997
$
$
710
14,491
232
15,433
160
17,069
335
17,564
$
The amortization of intangible assets for the years ended December 31, 2023, 2022 and 2021, were $2.8 million. Future estimated
amortization expense is as follows: 2024 - $2.8 million, 2025 - $2.5 million, 2026- $2.5 million, 2027- $2.5 million, 2028-$2.5 million
and thereafter - $1.9 million.
Note 9 – Accrued expenses and other current liabilities
Elements of Accrued expenses and other current liabilities are as follows:
December 31,
(in thousands)
Accrued expenses
Cylinder deposits
Lease obligations
Other current liabilities
Total
2023
2022
$
$
12,256
17,225
1,893
163
31,537
$
$
11,696
13,638
1,669
905
27,908
48
Table of Contents
Note 10 - 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
- Term loan facility - current
Subtotal
Long-term debt:
- Term loan facility- net of current portion of long-term debt
- FILO term loan
- Less: deferred financing costs on term loan
Subtotal
2023
2022
$
— $
—
—
—
—
—
—
—
4,250
4,250
27,563
15,000
(3,578)
38,985
Total short-term & long-term debt
$
— $
43,235
Revolving Credit Facility
On March 2, 2022, Hudson Technologies Company (“HTC”) and Hudson Holdings, Inc. (“Holdings”), as borrowers (collectively, the
“Borrowers”), and Hudson Technologies, Inc (the “Company”) as a guarantor, entered into an Amended and Restated Credit Agreement
(the “Amended Wells Fargo Facility”) with Wells Fargo Bank, National Association, as administrative agent and lender (“Agent” or
“Wells Fargo”) and such other lenders as have or may thereafter become a party to the Amended Wells Fargo Facility. The Amended
Wells Fargo facility amended and restated the prior Wells Fargo Facility entered into on December 19, 2019.
Under the terms of the Amended Wells Fargo Facility, the Borrowers: (i) immediately borrowed $15 million in the form of a “first in last
out” term loan (the “FILO Tranche”) and (ii) may borrow from time to time, up to $75 million at any time consisting of revolving loans
(the “Revolving Loans”) in a maximum amount up to the lesser of $75 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 Amended Wells Fargo Facility. The
Amended Wells Fargo Facility also contains a sublimit of $9 million for swing line loans and $2 million for letters of credit. The
Company currently has a $0.9 million letter of credit outstanding. The FILO Tranche was repaid in full in July 2023 and may not be
reborrowed.
Amounts borrowed under the Amended Wells Fargo Facility may be used for working capital needs, certain permitted acquisitions, and
to reimburse drawings under letters of credit.
Interest under the Amended Wells Fargo Facility is payable in arrears on the first day of each month. Interest charges with respect to
Revolving Loans are computed on the actual principal amount of Revolving Loans outstanding 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) 1.0%, (2) the federal funds rate plus 0.5%, (3) one
month term SOFR plus 1.0%, and (4) 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 SOFR loans, the sum of the applicable SOFR rate plus between 2.36%
and 2.86% depending on average quarterly undrawn availability. Interest charges with respect to the FILO Tranche were computed on the
actual principal amount of FILO Tranche loans outstanding at a rate per annum equal to (A) with respect to Base Rate FILO Tranche
loans, the sum of (i) a rate per annum equal to the higher of (1) 1.0%, (2) the federal funds rate plus 0.5%, (3) one month term SOFR plus
1.0%, and (4) the prime commercial lending rate of Wells Fargo, plus (ii) 6.5% and (B) with respect to SOFR FILO Tranche loans, the
sum of the applicable SOFR rate plus 7.50%. The Amended Wells Fargo Facility also includes a monthly unused line fee ranging from
0.35% to 0.75% per annum determined based upon the level of average Revolving Loans outstanding during the immediately preceding
month measured against the total Revolving Loans that may be borrowed under the Amended Wells Fargo Facility.
49
Table of Contents
In connection with the closing of the Amended Wells Fargo Facility, the Company also entered into a First Amendment to Guaranty and
Security Agreement, dated as of March 2, 2022 (the “Amended Revolver Guaranty and Security Agreement”), pursuant to which the
Company and certain subsidiaries are continuing to unconditionally guarantee 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 Amended Revolver Guaranty and Security
Agreement, Borrowers, the Company and certain other subsidiaries are continuing to grant 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 Amended Wells Fargo Facility contains a financial covenant requiring the Company to maintain at all times minimum liquidity
(defined as availability under the Amended Wells Fargo Facility plus unrestricted cash) of at least $5 million, of which at least $3 million
must be derived from availability. The Amended Wells Fargo Facility also contains a springing covenant, which takes effect only upon a
failure to maintain undrawn availability of at least $11.25 million or upon an election by the Borrowers to increase the inventory
component of the borrowing base, 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 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 Amended 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 Amended 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 Amended 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 Company evaluated the Amended Wells Fargo Facility in accordance with the provisions of ASC 470 to determine if the amendment
was a modification or an extinguishment of debt and concluded that the amendment was a modification of the original revolving credit
facility for accounting purposes. As a result, the Company capitalized an additional $0.9 million of deferred financing costs in
connection with the amendment, which, along with the $0.2 million of remaining deferred financing costs of the original revolving
facility, is being amortized over the five year term of the Amended Wells Fargo Facility.
The commitments under the Amended 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 March 2, 2027, unless the commitments are terminated and the
outstanding principal amount of the loans are accelerated sooner following an event of default or in the event of certain other cross-
defaults.
Termination of 2022 Term Loan Facility
On March 2, 2022, Hudson Technologies Company (“HTC”), an indirect subsidiary of Hudson Technologies, Inc. (the “Company”), and
the Company’s subsidiary Hudson Holdings, Inc., as borrowers (collectively, the “Borrowers”), and the Company, as guarantor, became
obligated under a Credit Agreement (the “Term Loan Facility”) with TCW Asset Management Company LLC, as administrative agent
(“Term Loan Agent”) and the lender parties thereto (the “Term Loan Lenders”).
Under the terms of the Term Loan Facility, the Borrowers immediately borrowed $85 million pursuant to a term loan (the “Term Loan”),
which had a maturity date in March 2027. Amounts borrowed under the Term Loan Facility were used by the Borrowers to repay the
outstanding principal amount and related fees and expenses under the Prior Term Loan Facility (as defined below) and for other
corporate purposes. The Company paid approximately $4.3 million of term loan deferred financing costs.
50
Table of Contents
During the third quarter of 2023, the Company repaid in full the remaining $32.5 million principal balance outstanding under its Term
Loan Facility and the FILO Tranche. In conjunction with this payoff, the Company recorded $3.4 million of interest which included a
non-cash write off of $3.1 million deferred financing costs and $0.3 million of other expense and fees.
Termination of Prior Term Loan Facility
In conjunction with entry into the new Term Loan Facility as described above, on March 2, 2022 the Company’s then-existing term
loans, as amended (the “Prior Term Loan Facility”), which had a principal balance of approximately $63.9 million after payment of a
$16.0 million excess cash flow amount thereunder, were repaid in full, together with associated required lender fees and expenses of $3.3
million, and the Prior Term Loan Facility was terminated. The termination of the Prior Term Loan Facility constituted an extinguishment
of debt, which resulted in the Company recording an additional $4.6 million of interest expense during the first quarter of 2022, which
included the aforementioned $3.3 million of prior lender fees and expenses and $1.3 million of pre-existing deferred financing costs from
the Prior Term Loan Facility.
The Company was in compliance with all covenants under the Amended Wells Fargo Facility as of December 31, 2023.
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, the Company cannot make
any assurance that it 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 Amended 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 had a term of two years, was unsecured, and bore interest at a fixed rate of one
percent per annum, with the first nine 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 were used in part to help offset payroll costs as stipulated in the legislation. All or a portion of the PPP loan could 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. During the third quarter of 2021, the
Company received forgiveness of the loan from the SBA, resulting in $2.475 million of Other income recorded in the Company’s
Consolidated Income Statements.
51
Table of Contents
Note 11 - Commitments and contingencies
Rents and operating leases
The Company utilizes leased facilities and operates equipment under non-cancelable operating leases through July 2030. Below is a table
of key properties:
Location
Baton Rouge, Louisiana
Champaign, Illinois
Champaign, Illinois (2nd location)
Charlotte, North Carolina
Escondido, California
Long Beach, California
Ontario, California
Riverside, California
Rantoul, Illinois
Smyrna, Georgia
Stony Point, New York
Woodcliff Lake, New Jersey
*
Lease was renewed on March 1, 2024.
Lease
Expiration
Date
5/2024
12/2024
9/2026
5/2025
6/2027
2/2024*
12/2024
Annual
Rent
$ 30,000
$ 609,000
$ 349,000
$ 38,000
$ 238,000
$ 28,800
$ 174,000
$ 27,000 Month to Month
$ 36,000 Month to Month
$ 492,000
$ 118,000
$ 236,000
7/2030
6/2026
8/2027
The Company rents properties and various equipment under operating leases. Operating lease expense for the years ended December 31,
2023, 2022 and 2021 totaled approximately $1.7 million, $2.6 million and $3.1 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.
Note 12 - 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, 2023, 2022 and 2021, the share-based compensation expense of $2.3 million, $0.9
million and $0.5 million, respectively, is reflected in Selling, general and administrative expenses in the consolidated Income Statements.
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, 2023 there were 4,341,463 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. Incentive Stock
Options (“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).
52
Table of Contents
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. Incentive Stock Options (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. The Company has opted to use the simplified method for stock options because
management believes that the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to
estimate the expected term. The Company records forfeitures and cancellations as they occur. The following are the weighted-average
assumptions:
Year ended
December 31,
Assumptions
Dividend yield
Risk free interest rate
Expected volatility
Expected lives
2023
2022
2021
0 %
3.69%-4.89 %
71.73%-94 %
0 %
0 %
1.84%-4.27 % 0.29%-0.85 %
91%-94 % 90%-101 %
1.5-2.0 years
1.5-2.75 years
2.5-5 years
The expected stock price volatility is based on the implied volatilities from traded options on our stock, historical volatility of our stock
and other factors.
53
Table of Contents
A summary of the activity for the Company’s Plans for the indicated periods is presented below:
Stock Options and Stock Appreciation Rights
Outstanding at December 31, 2020
-Cancelled
-Exercised
-Granted (1)
Outstanding at December 31, 2021
-Cancelled
-Exercised
-Granted (2)
Outstanding at December 31, 2022
-Cancelled
-Exercised
-Granted (3)
Outstanding at December 31, 2023
Weighted
Average
Exercise Price
Shares
1.06
5,329,515
$
2.02
(133,257) $
1.16
(3,076,489) $
1.82
$
484,254
1.03
$
2,604,023
3.75
(11,781) $
1.15
(583,273) $
4.33
$
381,181
1.51
$
2,390,150
5.67
(48,268) $
2.68
(296,973) $
10.02
$
602,526
3.31
$
2,647,435
(1) Options to purchase 463,754 shares were granted in 2021, all of which were vested immediately in 2021. In addition, 20,500 stock
appreciation rights were granted in December 2021 with a six- month vesting period.
(2) Options to purchase 381,181 shares were granted in 2022, of which options to purchase 40,588 shares vested immediately in 2022
and the remainder vested 50% immediately and 50% one year after the date of the grants.
(3) Options to purchase 584,826 shares were granted in 2023, of which options to purchase 337,727 shares vested immediately in 2023
and the remainder vested 50% immediately and 50% one year after the date of the grants. In addition, 17,700 stock appreciation rights
were granted in January 2023 with a six- month vesting period.
The following is the weighted average contractual life in years and the weighted average exercise price at December 31, 2023 and 2022
of:
Options outstanding and vested
December 31, 2023
Options outstanding and vested
December 31, 2022
Weighted
Average
Remaining
Contractual
Life (Years) Exercise Price
2.60
$
Weighted
Average
4.47
Number of
Options
2,400,336
Weighted
Average
Remaining
Contractual
Life(Years)
5.39
Number of
Options
2,218,799
Weighted
Average
Exercise Price
1.33
$
54
Table of Contents
The intrinsic values of options outstanding at December 31, 2023 and 2022 are $26.9 million and $20.6 million, respectively.
The intrinsic value of options unvested at December 31, 2023 and 2022 are $0.8 million and $1.1 million, respectively. As of
December 31, 2023 there was $0.9 million unrecognized share based compensation expense related to non-vested options.
The intrinsic values of options vested and exercised during the years ended December 31, 2023, 2022 and 2021 were as follows:
Intrinsic value of options vested
Intrinsic value of options exercised
Note 13 – Benefit Plan
2023
$ 2,886,080
$ 2,565,056
2022
$ 1,249,506
$ 4,051,422
2021
$ 1,481,858
$ 7,088,578
The Company maintains a 401(k)-benefit plan for its employees, which generally allows participants to make contributions via salary
deductions up to allowable Internal Revenue Service limits on a tax-deferred basis. Such deductions may be matched in part by
discretionary contributions by the Company. The matching contributions for 2023, 2022 and 2021 were $561,852, $472,002, and
$281,586, respectively.
55
Table of Contents
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 14, 2024
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
/s/ Brian F. Coleman
Brian F. Coleman
/s/ Nat Krishnamurti
Nat Krishnamurti
/s/ Vincent P. Abbatecola
Vincent P. Abbatecola
/s/ Nicole Bulgarino
Nicole Bulgarino
/s/ Kathleen L. Houghton
Kathleen L. Houghton
/s/ Loan Mansy
Loan Mansy
/s/ Richard Parrillo
Richard Parrillo
/s/ Eric A. Prouty
Eric A. Prouty
Title
Chairman of the Board, President and Chief Executive Officer (Principal
Executive Officer)
Date
March 14, 2024
Chief Financial Officer (Principal Financial and Accounting Officer)
March 14, 2024
Director
Director
Director
Director
Director
Director
56
March 14, 2024
March 14, 2024
March 14, 2024
March 14, 2024
March 14, 2024
March 14, 2024
Hudson Technologies Company incorporated in the State of Delaware
Subsidiaries of the Registrant
Exhibit 21:
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
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
Hudson Technologies, Inc.
Woodcliff Lake, New Jersey
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333- 269221) and Form S-8 (No.
333-129057, No. 333-164650, No. 333-202955, No. 333-228971 and No. 333-239561) of Hudson Technologies, Inc. (the Company) of
our reports dated March 14, 2024 relating to the consolidated financial statements and the effectiveness of the Company’s internal control
over financial reporting, which appear in this Annual Report on Form 10-K.
/s/ BDO USA, P.C.
Stamford, CT
March 14, 2024
Exhibit 31.1:
Hudson Technologies, Inc.
Certification of Principal Executive Officer
I, Brian F. Coleman, certify that:
1.
I have reviewed this annual report on Form 10-K of Hudson Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: March 14, 2024
/s/ Brian F. Coleman
Brian F. Coleman
Chief Executive Officer and Chairman of the Board
Exhibit 31.2:
Hudson Technologies, Inc.
Certification of Principal Financial Officer
I, Nat Krishnamurti, certify that:
1.
I have reviewed this annual report on Form 10-K of Hudson Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: March 14, 2024
/s/ Nat Krishnamurti
Nat Krishnamurti
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1:
In connection with the Annual Report of Hudson Technologies, Inc. (the “Company”) on Form 10-K for the period ended December 31,
2023 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) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ Brian F. Coleman
Brian F. Coleman
Chief Executive Officer and Chairman of the Board
March 14, 2024
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2:
In connection with the Annual Report of Hudson Technologies, Inc. (the “Company”) on Form 10-K for the period ended December 31,
2023 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) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ Nat Krishnamurti
Nat Krishnamurti
Chief Financial Officer
March 14, 2024
HUDSON TECHNOLOGIES, INC.
CLAWBACK POLICY
Exhibit 97
The Board of Directors (the “Board”) of Hudson Technologies, Inc. (the “Company”) believes that it is in the best interests of the
Company and its shareholders to adopt this Clawback Policy (the “Policy”), which provides for the recovery of certain incentive
compensation in the event of an Accounting Restatement (as defined below). This Policy is designed to comply with, and shall be
interpreted to be consistent with, Section 10D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Rule 10D-1
promulgated under the Exchange Act (“Rule 10D-1”) and Nasdaq Listing Rule 5608 (the “Listing Standards”).
1.
Administration
Except as specifically set forth herein, this Policy shall be administered by the Board or, if so designated by the Board, a committee
thereof (the Board or such committee charged with administration of this Policy, the “Administrator”). The Administrator is authorized
to interpret and construe this Policy and to make all determinations necessary, appropriate or advisable for the administration of this
Policy. Any determinations made by the Administrator shall be final and binding on all affected individuals and need not be uniform with
respect to each individual covered by the Policy. In the administration of this Policy, the Administrator is authorized and directed to
consult with the full Board or such other committees of the Board, such as the Audit Committee or the Compensation Committee, as may
be necessary or appropriate as to matters within the scope of such other committee’s responsibility and authority. Subject to any
limitation at applicable law, the Administrator may authorize and empower any officer or employee of the Company to take any and all
actions necessary or appropriate to carry out the purpose and intent of this Policy (other than with respect to any recovery under this
Policy involving such officer or employee).
2.
Definitions
As used in this Policy, the following definitions shall apply:
“Accounting Restatement” means an accounting restatement of the Company’s financial statements due to the Company’s
material noncompliance with any financial reporting requirement under the securities laws, including any required accounting
restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements, or
that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.
“Applicable Period” means the three completed fiscal years immediately preceding the date on which the Company is
required to prepare an Accounting Restatement, as well as any transition period (that results from a change in the Company’s fiscal year)
within or immediately following those three completed fiscal years (except that a transition period that comprises a period of at least nine
months shall count as a completed fiscal year). The “date on
1
which the Company is required to prepare an Accounting Restatement” is the earlier to occur of (a) the date the Board, the Audit
Committee or the Chief Financial Officer concludes, or reasonably should have concluded, that the Company is required to prepare an
Accounting Restatement or (b) the date a court, regulator or other legally authorized body directs the Company to prepare an Accounting
Restatement, in each case regardless of if or when the restated financial statements are filed.
“Covered Executives” means the Company’s current and former executive officers, as determined by the Administrator in
accordance with the definition of executive officer set forth in Rule 10D-1 and the Listing Standards, which are defined as follows: the
Company’s president, principal financial officer, principal accounting officer (or if there is no such accounting officer, the controller),
any vice president of the issuer in charge of a principal business unit, division or function (such as sales, administration or finance), any
other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the
Company.
“Erroneously Awarded Compensation” has the meaning set forth in Section 5 of this Policy.
A “Financial Reporting Measure” is any measure that is determined and presented in accordance with the accounting
principles used in preparing the Company’s financial statements, and any measure that is derived wholly or in part from such measure.
Financial Reporting Measures include but are not limited to the following (and any measures derived from the following): Company
stock price; total shareholder return (“TSR”); revenues; net income; operating income; profitability of one or more reportable segments;
financial ratios (e.g., accounts receivable turnover and inventory turnover rates); earnings before interest, taxes, depreciation and
amortization (“EBITDA”); funds from operations and adjusted funds from operations; liquidity measures (e.g., working capital,
operating cash flow); return measures (e.g., return on invested capital, return on assets); earnings measures (e.g., earnings per share);
sales per square foot or same store sales, where sales is subject to an Accounting Restatement; revenue per user, or average revenue per
user, where revenue is subject to an Accounting Restatement; cost per employee, where cost is subject to an Accounting Restatement;
any of such financial reporting measures relative to a peer group, where the Company’s financial reporting measure is subject to an
Accounting Restatement; and tax basis income. A Financial Reporting Measure need not be presented within the Company’s financial
statements or included in a filing with the Securities Exchange Commission.
“Incentive-Based Compensation” means any compensation that is granted, earned or vested based wholly or in part upon
the attainment of a Financial Reporting Measure. Incentive-Based Compensation is “received” for purposes of this Policy in the
Company’s fiscal period during which the Financial Reporting Measure specified in the Incentive-Based Compensation award is
attained, even if the payment or grant of such Incentive-Based Compensation occurs after the end of that period.
3.
Covered Executives; Incentive-Based Compensation
2
This Policy applies to Incentive-Based Compensation received by a Covered Executive (a) after beginning services as a Covered
Executive; (b) if that person served as a Covered Executive at any time during the performance period for such Incentive-Based
Compensation; and (c) while the Company had a listed class of securities on a national securities exchange.
4.
Required Recoupment of Erroneously Awarded Compensation in the Event of an Accounting Restatement
In the event the Company is required to prepare an Accounting Restatement, the Company shall promptly recoup the amount of any
Erroneously Awarded Compensation received by any Covered Executive, as calculated pursuant to Section 5 hereof, during the
Applicable Period.
5.
Erroneously Awarded Compensation: Amount Subject to Recovery
The amount of “Erroneously Awarded Compensation” subject to recovery under the Policy, as determined by the Administrator, is the
amount of Incentive-Based Compensation received by the Covered Executive that exceeds the amount of Incentive-Based Compensation
that would have been received by the Covered Executive had it been determined based on the restated amounts.
Erroneously Awarded Compensation shall be computed by the Administrator without regard to any taxes paid by the Covered Executive
in respect of the Erroneously Awarded Compensation.
By way of example, with respect to any compensation plans or programs that take into account Incentive-Based Compensation, the
amount of Erroneously Awarded Compensation subject to recovery hereunder includes, but is not limited to, the amount contributed to
any notional account based on Erroneously Awarded Compensation and any earnings accrued to date on that notional amount.
For Incentive-Based Compensation based on stock price or TSR: (a) the Administrator shall determine the amount of Erroneously
Awarded Compensation based on a reasonable estimate of the effect of the Accounting Restatement on the stock price or TSR upon
which the Incentive-Based Compensation was received; and (b) the Company shall maintain documentation of the determination of that
reasonable estimate and provide such documentation to The Nasdaq Stock Market (“Nasdaq”).
6.
Method of Recoupment
The Administrator shall determine, in its sole discretion, the timing and method for promptly recouping Erroneously Awarded
Compensation hereunder, which may include without limitation (a) seeking reimbursement of all or part of any cash or equity-based
award, (b) cancelling prior cash or equity-based awards, whether vested or unvested or paid or unpaid, (c) cancelling or offsetting against
any planned future cash or equity-based awards, (d) forfeiture of deferred compensation, subject to compliance with Section 409A of the
Internal Revenue Code and the regulations promulgated thereunder and (e) any other method authorized by applicable law or contract.
Subject to compliance with any applicable law, the Administrator may affect recovery under this Policy from any amount otherwise
payable to the Covered Executive, including
3
amounts payable to such individual under any otherwise applicable Company plan or program, including base salary, bonuses or
commissions and compensation previously deferred by the Covered Executive.
The Company is authorized and directed pursuant to this Policy to recoup Erroneously Awarded Compensation in compliance with this
Policy unless the Compensation Committee of the Board has determined that recovery would be impracticable solely for the following
limited reasons, and subject to the following procedural and disclosure requirements:
●
●
●
The direct expense paid to a third party to assist in enforcing the Policy would exceed the amount to be recovered.
Before concluding that it would be impracticable to recover any amount of Erroneously Awarded Compensation based
on expense of enforcement, the Administrator must make a reasonable attempt to recover such erroneously awarded
compensation, document such reasonable attempt(s) to recover and provide that documentation to Nasdaq;
Recovery would violate home country law of the issuer where that law was adopted prior to November 28, 2022.
Before concluding that it would be impracticable to recover any amount of Erroneously Awarded Compensation based
on violation of home country law of the issuer, the Administrator must satisfy the applicable opinion and disclosure
requirements of Rule 10D-1 and the Listing Standards; or
Recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to
employees of the Company, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and
regulations thereunder.
7.
No Indemnification of Covered Executives
Notwithstanding the terms of any indemnification or insurance policy or any contractual arrangement with any Covered Executive that
may be interpreted to the contrary, the Company shall not indemnify any Covered Executives against the loss of any Erroneously
Awarded Compensation, including any payment or reimbursement for the cost of third-party insurance purchased by any Covered
Executives to fund potential clawback obligations under this Policy.
8.
Administrator Indemnification
Any members of the Administrator, and any other members of the Board who assist in the administration of this Policy, shall not be
personally liable for any action, determination or interpretation made with respect to this Policy and shall be fully indemnified by the
Company to the fullest extent under applicable law and Company policy with respect to any such action, determination or interpretation.
The foregoing sentence shall not limit any other rights to indemnification of the members of the Board under applicable law or Company
policy.
9.
Effective Date; Retroactive Application
This Policy shall be effective as of October 2, 2023 (the “Effective Date”). The terms of this Policy shall apply to any Incentive-Based
Compensation that is received by Covered Executives
4
on or after the Effective Date, even if such Incentive-Based Compensation was approved, awarded, granted or paid to Covered
Executives prior to the Effective Date. Without limiting the generality of Section 6 hereof, and subject to applicable law, the
Administrator may affect recovery under this Policy from any amount of compensation approved, awarded, granted, payable or paid to
the Covered Executive prior to, on or after the Effective Date.
10.
Amendment; Termination
The Board may amend, modify, supplement, rescind or replace all or any portion of this Policy at any time and from time to time in its
discretion, and shall amend this Policy as it deems necessary to comply with applicable law or any rules or standards adopted by a
national securities exchange on which the Company’s securities are listed.
11. Other Recoupment Rights; Company Claims
The Board intends that this Policy shall be applied to the fullest extent of the law. Any right of recoupment under this Policy is in
addition to, and not in lieu of, any other remedies or rights of recoupment that may be available to the Company under applicable law or
pursuant to the terms of any similar policy in any employment agreement, equity award agreement, or similar agreement and any other
legal remedies available to the Company.
Nothing contained in this Policy, and no recoupment or recovery as contemplated by this Policy, shall limit any claims, damages or other
legal remedies the Company or any of its affiliates may have against a Covered Executive arising out of or resulting from any actions or
omissions by the Covered Executive.
12.
Successors
This Policy shall be binding and enforceable against all Covered Executives and their beneficiaries, heirs, executors, administrators or
other legal representatives.
13.
Exhibit Filing Requirement
A copy of this Policy and any amendments thereto shall be posted on the Company’s website and filed as an exhibit to the Company’s
annual report on Form 10-K.
5