Part I – FINANCIAL INFORMATION

Item 1 - Financial Statements

Hudson Technologies, Inc. and Subsidiaries

Consolidated Balance Sheets

(Amounts in thousands, except for share and par value amounts)

September 30, December 31,
2020 2019
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 9,235 $ 2,600
Trade accounts receivable – net 14,703 8,061
Inventories – net 40,374 59,238
Prepaid expenses and other current assets 3,540 4,525
Total current assets 67,852 74,424

Property, plant and equipment, less accumulated depreciation 21,435 23,674
Goodwill 47,803 47,803
Intangible assets, less accumulated amortization 23,865 26,012
Right of use asset 6,719 8,048
Other assets 85 192
Total Assets $ 167,759 $ 180,153

Liabilities and Stockholders’ Equity
Current liabilities:
Trade accounts payable $ 9,534 $ 10,274
Accrued expenses and other current liabilities 19,414 18,120
Accrued payroll 1,574 724
Short-term debt — 14,000
Current maturities of long-term debt 6,903 3,008
Total current liabilities 37,425 46,126
Deferred tax liability 1,297 1,192
Long-term lease liabilities 4,335 5,742
Long-term debt, less current maturities 79,492 81,982
Total Liabilities 122,549 135,042

Commitments and contingencies

Stockholders’ equity:
Preferred stock, shares authorized 5,000,000: Series A Convertible preferred stock, $0.01 par value ($100 liquidation preference value); shares authorized 150,000; none issued or outstanding — —
Common stock, $0.01 par value; shares authorized 100,000,000; issued and outstanding 42,664,274 at September 30, 2020 and 42,628,560 at December 31, 2019 426 426
Additional paid-in capital 118,116 117,557
Accumulated deficit (73,332 ) (72,872 )
Total Stockholders’ Equity 45,210 45,111

Total Liabilities and Stockholders’ Equity $ 167,759 $ 180,153


	September 30,		December 31,
	2021		2020
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	9,503	$	1,348
Trade accounts receivable – net		22,131		9,806
Inventories – net		58,789		44,460
Prepaid expenses and other current assets		10,996		6,528
Total current assets		101,419		62,142

Property, plant and equipment, less accumulated depreciation		20,035		21,910
Goodwill		47,803		47,803
Intangible assets, less accumulated amortization		21,055		23,150
Right of use asset		6,652		6,559
Other assets		169		85
Total Assets	$	197,133	$	161,649

Liabilities and Stockholders’ Equity
Current liabilities:
Trade accounts payable	$	6,696	$	7,644
Accrued expenses and other current liabilities		16,298		8,080
Accrued payroll		2,940		1,394
Cylinder Deposit Liability		12,600		11,337
Short-term debt		7,000		2,000
Current maturities of long-term debt		5,248		7,314
Total current liabilities		50,782		37,769
Deferred tax liability		1,530		1,355
Long-term lease liabilities		3,635		3,927
Long-term debt, less current maturities		74,248		77,976
Total Liabilities		130,195		121,027

Commitments and contingencies

Stockholders’ equity:
Preferred stock, shares authorized 5,000,000: Series A Convertible preferred stock, $0.01 par value ($100 liquidation preference value); shares authorized 150,000; NaN issued or outstanding		—		—
Common stock, $0.01 par value; shares authorized 100,000,000; issued and outstanding 43,959,748 and 43,347,887, respectively		440		433
Additional paid-in capital		118,507		118,269
Accumulated deficit		(52,009)		(78,080)
Total Stockholders’ Equity		66,938		40,622

Total Liabilities and Stockholders’ Equity	$	197,133	$	161,649

See Accompanying Notes to the Consolidated Financial Statements.

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Hudson Technologies, Inc. and Subsidiaries

Consolidated Statements of Operations

(unaudited)

(Amounts in thousands, except for share and per share amounts)

Three months
ended September 30, Nine months
ended September 30,
2020 2019 2020 2019
Revenues $ 41,468 $ 45,631 $ 125,495 $ 136,306
Cost of sales 32,512 37,849 95,511 123,905
Gross profit 8,956 7,782 29,984 12,401

Operating expenses:
Selling, general and administrative 6,162 8,282 20,184 21,154
Amortization 715 742 2,147 2,216
Total operating expenses 6,877 9,024 22,331 23,370

Operating income (loss) 2,079 (1,242 ) 7,653 (10,969 )

Other (expense) income:
Net interest expense (2,966 ) (4,447 ) (9,412 ) (12,921 )
Other income 1,000 8,904 1,011 9,412
Total other (expense) income (1,966 ) 4,457 (8,401 ) (3,509 )

Income (loss) before income taxes 113 3,215 (748 ) (14,478 )

Income tax expense (benefit) 74 548 (288 ) 691

Net income (loss) $ 39 $ 2,667 $ (460 ) $ (15,169 )

Net income (loss) per common share – Basic $ 0.00 $ 0.06 $ (0.01 ) $ (0.36 )
Net income (loss) per common share – Diluted $ 0.00 $ 0.06 $ (0.01 ) $ (0.36 )
Weighted average number of shares outstanding – Basic 42,656,510 42,618,391 42,637,945 42,608,396
Weighted average number of shares outstanding – Diluted 43,680,265 42,618,391 42,637,945 42,608,396


	Three months				Nine months
	ended September 30,				ended September 30,
	2021		2020		2021		2020

Revenues	$	60,645	$	41,468	$	154,973	$	125,495
Cost of sales		36,967		32,512		100,329		95,511
Gross profit		23,678		8,956		54,644		29,984

Operating expenses:
Selling, general and administrative		6,072		6,162		19,586		20,184
Amortization		698		715		2,095		2,147
Total operating expenses		6,770		6,877		21,681		22,331

Operating income		16,908		2,079		32,963		7,653

Other (expense) income:
Net interest expense		(2,843)		(2,966)		(8,532)		(9,412)
Other income		2,475		1,000		2,470		1,011
Total other (expense)		(368)		(1,966)		(6,062)		(8,401)

Income (loss) before income taxes		16,540		113		26,901		(748)

Income tax expense (benefit)		670		74		830		(288)

Net income (loss)	$	15,870	$	39	$	26,071	$	(460)

Net income(loss) per common share – Basic	$	0.36	$	0.00	$	0.60	$	(0.01)
Net income (loss) per common share – Diluted	$	0.34	$	0.00	$	0.56	$	(0.01)
Weighted average number of shares outstanding – Basic		43,870,825		42,656,510		43,576,211		42,637,945
Weighted average number of shares outstanding – Diluted		46,964,522		43,680,265		46,412,691		42,637,945

See Accompanying Notes to the Consolidated Financial Statements.

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Hudson Technologies, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Equity

(unaudited)

(Amounts in thousands, except for share amounts)

Three Months Ended September 30,


	Common Stock			Additional
				Paid-in		Accumulated
	Shares	Amount		Capital		Deficit		Total
Balance at July 1, 2020	42,628,560	$	426	$	117,890	$	(73,371)	$	44,945

Issuance of common stock for services	35,714		—		35		—		35

Stock compensation expense	—		—		191		—		191

Net Income	—		—		—		39		39

Balance at September 30, 2020	42,664,274	$	426	$	118,116	$	(73,332)	$	45,210

Balance at July 1, 2021	43,707,392		437		118,639		(67,879)		51,197

Issuance of common stock upon exercise of stock options	243,826		2		75		—		77

Excess tax benefits from exercise of stock options	—		—		(346)		—		(346)

Issuance of common stock for services	8,530		1		—		—		1

Stock compensation expense	—		—		139		—		139

Net income	—		—		—		15,870		15,870

Balance at September 30, 2021	43,959,748		440		118,507		(52,009)		66,938

See Accompanying Notes to the Consolidated Financial Statements.

5

~~Hudson Technologies, Inc. and Subsidiaries~~

~~Consolidated Statements~~Table of ~~Stockholders' Equity~~Contents

~~(unaudited)~~

~~(Amounts in thousands, except for share amounts)~~

~~Three~~Nine Months Ended September 30,

Common Stock Additional
Paid-in Accumulated
Shares Amount Capital Deficit Total
Balance at July 1, 2019 42,612,431 $ 426 $ 116,356 $ (64,768 ) $ 52,014

Issuance of common stock upon exercise of stock options 16,129 - 10 - 10

Stock compensation expense - - 262 - 262

Net income - - - 2,667 2,667

Balance at September 30, 2019 42,628,560 $ 426 $ 116,628 $ (62,101 ) $ 54,953

Balance at July 1, 2020 42,628,560 426 117,890 (73,371 ) 44,945

Issuance of common stock for services 35,714 - 35 - 35

Stock compensation expense - - 191 - 191

Net income - - - 39 39

Balance at September 30, 2020 42,664,274 426 118,116 (73,332 ) 45,210


	Common Stock			Additional
				Paid-in		Accumulated
	Shares	Amount		Capital		Deficit		Total
Balance at January 1, 2020	42,628,560	$	426	$	117,557	$	(72,872)	$	45,111

Issuance of common stock for services	35,714		—		35		—		35

Stock compensation expense	—		—		524		—		524

Net loss	—		—		—		(460)		(460)

Balance at September 30, 2020	42,664,274	$	426	$	118,116	$	(73,332)	$	45,210

Balance at January 1, 2021	43,347,887		433		118,269		(78,080)		40,622

Issuance of common stock upon exercise of stock options	603,331		6		75		—		81

Excess tax benefits from exercise of stock options	—		—		(346)		—		(346)

Issuance of common stock for services	8,530		1		—		—		1

Stock compensation expense	—		—		509		—		509

Net income	—		—		—		26,071		26,071

Balance at September 30, 2021	43,959,748		440		118,507		(52,009)		66,938

See Accompanying Notes to the Consolidated Financial Statements.

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Hudson Technologies, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

~~Nine Months Ended September 30,~~(unaudited)

Common Stock Additional
Paid-in Accumulated
Shares Amount Capital Deficit Total
Balance at January 1, 2019 42,602,431 $ 426 $ 115,719 $ (46,932 ) $ 69,213

Issuance of common stock upon exercise of stock options 10,000 - 9 - 9

Issuance of common stock for services 16,129 - 10 - 10

Stock compensation expense - - 890 - 890

Net loss - - - (15,169 ) (15,169 )

Balance at September 30, 2019 42,628,560 $ 426 $ 116,628 $ (62,101 ) $ 54,953

Balance at January 1, 2020 42,628,560 426 117,557 (72,872 ) 45,111

Issuance of common stock for services 35,714 - 35 - 35

Stock compensation expense - - 524 - 524

Net loss - - - (460 ) (460 )

Balance at September 30, 2020 42,664,274 426 118,116 (73,332 ) 45,210

(Amounts in thousands)


	Nine months
	ended September 30,
	2021		2020
Cash flows from operating activities:
Net income (loss)	$	26,071	$	(460)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation		2,540		3,235
Amortization of intangible assets		2,095		2,147
Gain on insurance proceeds		—		(1,000)
Forgiveness of Payroll Protection Program Loan		(2,475)		—
Amortization of lease right of use asset, net		5		14
Lower of cost or net realizable value reserve		(2,024)		(3,622)
Allowance for doubtful accounts		23		724
Stock compensation expense		509		559
Amortization of deferred finance costs		841		843
Deferred tax expense		175		104
Changes in assets and liabilities:
Trade accounts receivable		(12,348)		(7,366)
Inventories		(12,305)		22,486
Prepaid and other assets		(4,771)		873
Income tax receivable		1,039		(351)
Accounts payable, accrued expenses and other current liabilities		8,649		1,664
Cash provided by operating activities		8,024		19,850

Cash flows from investing activities:
Additions to property, plant, and equipment		(665)		(996)
Proceeds from Insurance Policy		—		1,000
Cash (used in) provided by investing activities		(665)		4

Cash flows from financing activities:
Proceeds from issuance of common stock		(264)		—
Borrowing - Paycheck Protection Program		—		2,475
Borrowing of short-term debt		5,000		(14,000)
Repayment of long-term debt		(3,940)		(1,694)
Cash provided by (used in) financing activities		796		(13,219)

Increase in cash and cash equivalents		8,155		6,635
Cash and cash equivalents at beginning of period		1,348		2,600
Cash and cash equivalents at end of period	$	9,503	$	9,235

Supplemental Disclosure of Cash Flow Information:
Cash paid during period for interest	$	7,635	$	8,745

Refund received for income taxes – net	$	(278)	$	(41)

See Accompanying Notes to the Consolidated Financial Statements.

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Hudson Technologies, Inc. and Subsidiaries

~~Consolidated Statements of Cash Flows~~

~~(unaudited)~~

~~(Amounts in thousands)~~

Nine months
ended September 30,
2020 2019
Cash flows from operating activities:
Net loss $ (460 ) $ (15,169 )
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation 3,235 3,235
Amortization of intangible assets 2,147 2,216
Gain on insurance proceeds
(1,000 ) —
Write-off of intangible assets — 507
Amortization of lease right of use asset, net 14 49
Non-cash adjustment of cylinder deposits — (502 )
Lower of cost or net realizable value reserve (3,622 ) 488
Allowance for doubtful accounts 724 (407 )
Stock compensation expense 559 900
Amortization of deferred finance costs 843 932
Deferred tax expense 104 691
Changes in assets and liabilities:
Trade accounts receivable (7,366 ) (5,293 )
Inventories 22,486 42,131
Prepaid and other assets 873 133
Income tax receivable (351 ) —
Accounts payable and accrued expenses 1,664 (619 )
Cash provided by operating activities 19,850 29,292

Cash flows from investing activities:
Additions to property, plant, and equipment (996 ) (930 )
Proceeds from Insurance Policy 1,000 —
Cash provided by (used in) investing activities 4 (930 )

Cash flows from financing activities:
Proceeds from issuance of common stock — 9
Borrowing – Paycheck Protection Program 2,475 —
Repayment of short-term debt (14,000 ) (13,817 )
Repayment of long-term debt (1,694 ) (2,140 )
Cash used in financing activities (13,219 ) (15,948 )

Increase in cash and cash equivalents 6,635 12,414
Cash and cash equivalents at beginning of period 2,600 2,272
Cash and cash equivalents at end of period $ 9,235 $ 14,686

Supplemental Disclosure of Cash Flow Information:
Cash paid during period for interest $ 8,745 $ 11,607

Refund received for income taxes – net $ (41 ) $ (124 )

~~See Accompanying Notes to the Consolidated Financial Statements.~~

~~Hudson Technologies, Inc. and Subsidiaries~~

Notes to the Consolidated Financial Statements

Note 1 - Summary of Significant Accounting Policies

Business

Hudson Technologies, Inc., incorporated under the laws of New York on January 11, 1991, is a refrigerant services company providing innovative solutions to recurring problems within the refrigeration industry. The Company’s operations consist of ~~one~~1 reportable segment. The Company operates principally through its wholly-owned subsidiary, Hudson Technologies Company, and Aspen Refrigerants (“Aspen” or “ARI”), a division of Hudson Technologies Company. Unless the context requires otherwise, references to the “Company”, “Hudson”, “we”, “us”, “our”, or similar pronouns refer to Hudson Technologies, Inc. and its subsidiaries.

The Company 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 first in the United States and 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. ~~In addition, the~~

The Company’s SmartEnergy OPS® service is a web-based real time continuous monitoring service applicable to a facility’s refrigeration systems and other energy systems. The Company’s Chiller Chemistry® and Chill Smart® services are also predictive and diagnostic service offerings. As a component of the Company’s products and services, the Company also generates carbon offset projects. The Company operates principally through its wholly-owned subsidiaries, Hudson Technologies Company and Aspen Refrigerants, Inc. Unless the context requires otherwise, references to the “Company”, “Hudson”, “we", “us”, “our”, or similar pronouns refer to Hudson Technologies, Inc. and its subsidiaries.

During the year ended December 31, 2020 and continuing through the nine months ended September 30, ~~2020,~~2021, the effects of a novel strain of coronavirus ~~("COVID-19"~~(“COVID-19”) pandemic and the related actions by governments around the world to attempt to contain the spread of the virus have materially impacted the global economy. While it is difficult to predict the full scale of the ongoing impact of the COVID-19 outbreak and business disruption, the Company has been taking actions to address the impact of the pandemic, such as working closely with our customers, reducing our expenses and monitoring liquidity. The impact of the pandemic and the corresponding actions were reflected into our judgments, assumptions and estimates to prepare the financial statements. As of the date of this filing, there has been no material impact on our ability to procure or distribute our products and services. However, if the duration of the COVID-19 pandemic is longer and the operational impact is greater than estimated, the judgments, assumptions and estimates will be updated and could result in different results in the future.

In preparing the accompanying consolidated financial statements, and in accordance with Accounting Standards Codification (“ASC”) 855-10 “Subsequent Events”, the Company’s management has evaluated subsequent events through the date that the financial statements were filed.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and with the instructions of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. The financial information included in this quarterly report should be read in conjunction with the Company’s audited financial statements and related notes thereto for the year ended December 31, ~~2019.~~2020. Operating results for the nine-month period ended September 30, ~~2020~~2021 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2020.~~

2021. Certain comparative figures have been reclassified to conform to the current year presentation.

In the opinion of management, all estimates and adjustments considered necessary for a fair presentation have been included and all such adjustments were normal and recurring.

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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 and Aspen Refrigerants, Inc. (“ARI”).~~Company. The Company does not present a statement of comprehensive income (loss) as its comprehensive income (loss) is the same as its net income (loss).

Fair Value of Financial Instruments

The carrying values of financial instruments including cash, trade accounts receivable and ~~trade~~ accounts payable approximate fair value at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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 September 30, ~~2020~~2021 and December 31, ~~2019.~~2020. 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~~Company's trade accounts receivable are primarily due from companies throughout the United States. The Company reviews each ~~customer’s~~customer's credit history before extending credit.

The Company establishes an allowance for doubtful accounts based on factors associated with the credit risk of specific accounts, historical trends, and other information. The carrying value of the Company’s accounts receivable is reduced by the established allowance for doubtful accounts. The allowance for doubtful accounts includes any accounts receivable balances that are determined to be uncollectible, along with a general reserve for the remaining accounts receivable balances. The Company adjusts its reserves based on factors that affect the collectability of the accounts ~~receivable.~~receivable balances. At September 30, 2021, the Company had trade receivables of $23.8 million, and allowance for doubtful accounts of $1.7 million, resulting in net accounts receivable of $22.1 million.

For the nine month period ended September 30, 2021 there was one customer accounting for 10% of the Company’s revenues and at September 30, 2021 there were $3.0 million of accounts receivable from this customer. For the nine month period ended September 30, 2020 there was one customer accounting for 13% of the Company’s revenues and at September 30, 2020 there were $2.0 million of accounts receivable from this customer. For the nine month period ended September 30, 2019, there was one customer accounting for 13% of the Company’s revenues and at September 30, 2019 there were $3.3 million of accounts receivable from this customer.

The loss of a principal customer or a decline in the economic prospects of and/or a reduction in purchases of the Company’s products or services by any such customer could have a material adverse effect on the Company’s operating results and financial position.

Cash and Cash Equivalents

Temporary investments with original maturities of ninety days or less are included in cash and cash equivalents.

Inventories

Inventories, consisting primarily of refrigerant products available for sale, are stated at the lower of cost, on a first-in first-out basis, or net realizable value. Where the market price of inventory is less than the related cost, the Company may be required to write down its inventory through a lower of cost or net realizable value adjustment, the impact of which would be reflected in cost of sales on the Consolidated Statements of Operations. Any such adjustment would be based on management’s judgment regarding future demand and market conditions and analysis of historical experience.

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Property, Plant and Equipment

Property, plant and equipment are stated at cost, including internally manufactured equipment. The cost to complete equipment that is under construction is not considered to be material to the Company's financial position. Provision for depreciation is recorded (for financial reporting purposes) using the straight-line method over the useful lives of the respective assets. Leasehold improvements are amortized on a straight-line basis over the shorter of economic life or terms of the respective leases. Costs of maintenance and repairs are charged to expense when incurred.

Due to the specialized nature of the Company's business, it is possible that the Company's estimates of equipment useful life periods may change in the future.

Goodwill

The Company has made acquisitions that included a significant amount of goodwill and other intangible assets. The Company applies the purchase method of accounting for acquisitions, which among other things, requires the recognition of goodwill (which represents the excess of the purchase price of the acquisition over the fair value of the net assets acquired and identified intangible assets). We test our goodwill for impairment on an annual basis (the first day of the fourth quarter) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of an asset below its carrying value. Goodwill is tested for impairment at the reporting unit level. The Company has one reporting unit at September 30, 2021. Other intangible assets that meet certain criteria are amortized over their estimated useful lives.

~~Beginning in 2017, the Company adopted, on a prospective basis, ASU No. 2017-04, which simplifies the accounting for goodwill~~An impairment by eliminating Step 2 of the prior goodwill impairment test that required a hypothetical purchase price allocation to measure goodwill impairment. Under the new standard, a company will record an impairment charge 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. In 2019, due to a significant selling price correction leading to unfavorable market conditions, the Company performed a quantitative test by weighing the results of an income-based valuation technique, the discounted cash flows method, and a market-based valuation technique, to determine its fair value. The Company initially established a forecast of the estimated future net cash flows, which were then discounted to their present value using a market rate of return.

There were no0 goodwill impairment losses recognized in ~~2019~~2020 or the nine months ended September 30, ~~2020.~~2021.

~~Leases~~

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), as amended, which generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. In July 2018, the FASB issued ASU No. 2018-11, Leases – Targeted Improvements, as an update to the previously-issued guidance. This update added a transition option which allows for the recognition of a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption without recasting the financial statements in periods prior to adoption. The Company has used the modified retrospective transition approach in ASU No. 2018-11 and applied the new lease requirements through a cumulative-effect adjustment in the period of adoption. The Company elected the package of practical expedients permitted under the transition guidance, which allows it to carryforward its historical lease classification, its assessment on whether a contract is or contains a lease, and its initial direct costs for any leases that existed prior to adoption of the new standard. The Company also elected to combine lease and non-lease components and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of operations on a straight-line basis over the lease term. The Company recorded approximately $8.1 million as total right-of-use assets and total lease liabilities on its consolidated balance sheet as of January 1, 2019. The Company’s accounting for finance leases remained substantially unchanged.

Cylinder Deposit Liability

The cylinder deposit liability, which is included in Accrued expenses and other current liabilities on the Company’s ~~balance sheet,~~Balance Sheet, represents the amount due to customers for the return of refillable cylinders. ARI charges its customers cylinder deposits upon the shipment of refrigerant gases that are contained in refillable cylinders. The amount charged to the customer by ARI approximates the cost of a new cylinder of the same size. Upon return of a cylinder, this liability is reduced. ~~The cylinder deposit liability was assumed as part of the ARI acquisition and the balance was $10.4 million and $9.5 million at September 30, 2020 and December 31, 2019, respectively.~~

Revenues and Cost of Sales

The Company’s products and services are primarily used in commercial air conditioning, industrial processing and refrigeration systems. Most of the Company’s revenues are realized from the sale of refrigerant and industrial gases and related products. The Company also generates revenue from refrigerant management services performed at a customer’s site and in-house. The Company conducts its business primarily within the US.

The Company applies the FASB’s guidance on revenue recognition, which requires the Company to recognize revenue in an amount that reflects the consideration to which the Company expects to be entitled in exchange for goods or services transferred to its customers. In most instances, the Company’s contract with a customer is the customer’s purchase order and the sales price to the customer is fixed. For certain customers, the Company may also enter into a sales agreement outlining a framework of terms and conditions applicable to future purchase orders received from that customer. Because the Company’s contracts with customers are typically for a single customer purchase order, the duration of the contract is usually less than one year. The Company’s performance obligations related to product sales are satisfied at a point in time, which may occur upon shipment of the product or receipt by the customer, depending on the terms of the arrangement.

The Company’s performance obligations related to reclamation and RefrigerantSide® services are generally satisfied at a point in time when ~~the~~ service is performed. Accordingly revenues are recorded upon the shipment of the product, or in certain instances upon receipt by the customer, or the completion of the service.

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In July 2016 the Company was 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, supply, and sale of refrigerants, compressed gases, cylinders and related services. Due to the contract containing multiple performance obligations, the Company assessed the arrangement in accordance with ASC 606. The Company determined that the sale of refrigerants and the management services provided under the contract each have stand-alone value. Accordingly, the performance obligations related to the sale of refrigerants is satisfied at a point in time, mainly when the customer receives and obtains control of the product. The performance obligation related to management service revenue is satisfied over time and revenue is recognized on a straight-line basis over the term of the arrangement as the management services are provided.

Cost of sales is recorded based on the cost of products shipped or services performed and related direct operating costs of the Company’s facilities. In general, the Company performs shipping and handling services for its customers in connection with the delivery of refrigerant and other products. The Company elected to implement ASC 606-10-25-18B, whereby the Company accounts for such shipping and handling as activities to fulfill the promise to transfer the good. To the extent that the Company charges its customers shipping fees, such amounts are included as a component of revenue and the corresponding costs are included as a component of cost of sales.

Income Taxes

The Company is taxed at statutory corporate income tax rates after adjusting income reported for financial statement purposes for certain items. Current income tax expense (benefit) reflects the tax results of revenues and expenses currently taxable or deductible. The Company utilizes the asset and liability method of accounting for deferred income taxes, which provides for the recognition of deferred tax assets or liabilities, based on enacted tax rates and laws, for the differences between the financial and income tax reporting bases of assets and liabilities.

The tax benefit associated with the Company’s net operating loss carry forwards (“NOLs”) is recognized to the extent that the Company expects to realize future taxable income. As a result of a prior “change in control”, as defined by the Internal Revenue Service, the Company’s ability to utilize its existing NOLs is subject to certain annual limitations. To the extent that the Company utilizes its NOLs, it will not pay tax on such income. However, to the extent that the Company’s net income, if any, exceeds the annual NOL limitation, it will pay income taxes based on the then existing statutory rates. In addition, certain states either do not allow or limit NOLs and as such the Company will be liable for certain state income taxes.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the ~~COVID-~~19COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. Further, starting in 2021, the 100% NOL utilization reverts back to the pre-CARES Act limitation of 80% of taxable income. The Company has evaluated its options under the carryback provision and ~~expects that it will result~~filed a claim for refund, resulting in a cash benefit. Further, the CARES Act accelerates the refund of the alternative minimum tax credits to allow a full refund of any remaining credit amount in taxable years beginning in 2019. The credits were originally fully refundable in taxable years beginning in 2021. As a result, the Company has ~~booked~~recorded a preliminary $47,000 tax benefit related to the alternative minimum tax refund in the quarter ended March 31, 2020 and an additional $380,000 in the quarter ended June 30, 2020. Finally, the CARES Act contains modifications on the limitation of business interest for tax years beginning in 2019 and 2020. The modifications to Section 163(j) increase the allowable business interest deduction from 30% of adjusted taxable income to 50% of adjusted taxable income. This modification results in a $2,231,000 increase in allowable interest expense, which in turn results in an increase to our net operating losses of $2,231,000 in the nine months ended September 30, 2020. However, the impact of the additional interest expense did not impact our income tax provision since the increase in the deferred tax asset for net operating losses was offset by an increase to the valuation allowance.

As of September 30, ~~2020,~~2021, the Company had NOLs of approximately ~~$44.7~~$29.8 million, of which ~~$39.3 million~~none have noan expiration ~~date and $5.4 million expire through 2023.~~date. As of September 30, ~~2020,~~2021, the Company had state tax NOLs of approximately ~~$23.6~~$16.5 million expiring in various years. We review the likelihood that we will realize the benefit of our deferred tax assets, and therefore the need for valuation allowances, on an annual basis in the fourth quarter of the year, and more frequently if events indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results are considered, along with all other available positive and negative evidence.

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Concluding that a valuation allowance is not required is difficult when there is significant negative evidence that is objective and verifiable, such as cumulative losses in recent years. We utilize a rolling twelve quarters of pre-tax income or loss adjusted for significant permanent book to tax differences, as well as non-recurring items, as a measure of our cumulative results in recent years. Based on our assessment as of December 31, 2018, 2019, 2020 and ~~2019,~~September 30, 2021, we concluded that due to the uncertainty that the deferred tax assets will not be fully realized in the future, we recorded a valuation allowance of approximately $11.3 million during 2018, and due to additional losses, increased the valuation allowance through 2019 and 2020 to $19.0 million. For the quarter ended September 30, ~~2020, with~~2021, and due to a net income position that resulted in the utilization of gross net operating losses of $16.3 million, the valuation allowance was reduced by ($4.9) million, resulting in an ending valuation allowance balance of ~~$18.0~~$14.1 million as of September 30, ~~2020.~~

2021.

The Company evaluates uncertain tax positions, if any, by determining if it is more likely than not to be sustained upon examination by the taxing authorities. As of September 30, ~~2020,~~2021 and December 31, ~~2019,~~2020, the Company believes it had no uncertain tax positions.

~~Net~~ Income (Loss) 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 ~~net income (loss)~~loss per share. The reconciliation of shares used to determine net ~~income (loss)~~loss per share is as follows (dollars in thousands, unaudited):

Three Months
ended September 30, Nine Months
ended September 30,
2020 2019 2020 2019
Net income (loss) $ 39 $ 2,667 $ (460 ) $ (15,169 )

Weighted average number of shares – basic 42,656,510 42,618,391 42,637,945 42,608,396
Weighted average number of shares –diluted 43,680,265 42,618,391 42,637,945 42,608,396


	Three Months				Nine Months
	ended September 30,				ended September 30,
	2021		2020		2021		2020
Net income (loss)	$	15,870	$	39	$	26,071	$	(460)

Weighted average number of shares - basic		43,870,825		42,656,510		43,576,211		42,637,945
Weighted average number of shares – diluted		46,964,522		43,680,265		46,412,691		42,637,945

During the three month periods ended September 30, ~~2020~~2021 and ~~2019,~~2020, certain options aggregating ~~7,043,259~~28,276 and ~~4,807,377~~7,043,259 shares, respectively, have been excluded from the calculation of diluted shares, due to the fact that their effect would be anti-dilutive.

During the nine month periods ended September 30, ~~2020~~2021 and ~~2019,~~2020, certain options aggregating ~~7,043,259~~59,119 and ~~4,807,377~~7,043,259 shares, respectively, have been excluded from the calculation of diluted shares, due to the fact that their effect would be anti-dilutive.

Estimates and Risks

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires the use of estimates and assumptions that affect the amounts reported in these financial statements and footnotes. The Company considers these accounting estimates to be critical in the preparation of the accompanying consolidated financial statements. The Company uses information available at the time the estimates are made. However, these estimates could change materially if different information or assumptions were used including potential impact of COVID-19 uncertainties. Additionally, these estimates may not ultimately reflect the actual amounts of the final transactions that occur. The Company utilizes both internal and external sources to evaluate potential current and future liabilities for various commitments and contingencies. In the event that the assumptions or conditions change in the future, the estimates could differ from the original estimates.

Several of the Company's accounting policies involve significant judgments, uncertainties and estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. To the extent that actual results differ from management's judgments and estimates, there could be a material adverse effect on the Company. On a continuous basis, the Company evaluates its estimates, including, but not limited to, those estimates related to its allowance for doubtful accounts, inventory reserves, goodwill and valuation allowance for the deferred tax assets relating to its NOLs and commitments and contingencies. With respect to trade accounts receivable, the Company estimates the necessary allowance for doubtful accounts based on both historical and anticipated trends of payment history and the ability of the customer to fulfill its obligations. For inventory, the Company evaluates both current and anticipated sales prices of its products to determine if a write down of inventory to net realizable value is necessary. In determining the Company’s valuation allowance for its deferred tax assets, the Company assesses its ability to generate taxable income in the future.

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The Company participates in an industry that is highly regulated, and changes in the regulations affecting its business could affect its operating results. Currently the Company purchases virgin hydrochlorofluorocarbon (“HCFC”) and hydrofluorocarbon (“HFC”) refrigerants and reclaimable, primarily HCFC, HFC and chlorofluorocarbon (“CFC”), refrigerants from suppliers and its customers.

To the extent that the Company is unable to source sufficient quantities of refrigerants or is unable to obtain refrigerants on commercially reasonable terms or experiences a decline in demand and/or price for refrigerants sold by the Company, the Company could realize reductions in revenue from refrigerant sales, which could have a material adverse effect on its operating results and its financial position.

The 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 September 30, 2021.

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.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which revises guidance for the accounting for credit losses on financial instruments within its scope, and in November 2018, issued ASU No. 2018-19 and in April 2019, issued ASU No. 2019-04 and in May 2019, issued ASU No. 2019-05, and in November 2019, issued ASU No. 2019-11, which each amended the standard. The new standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. The new approach to estimating credit losses (referred to as the current expected credit losses model) applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, net investments in leases and off-balance-sheet credit exposures. This ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. Entities are required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is still evaluating the impact of this ASU.

In March 2020, the FASB issued ASU 2020-04, which provides relief from accounting analysis and impacts that may otherwise be required for modifications to agreements necessitated by reference rate reform. It also provides optional expedients to enable the continuance of hedge accounting where certain hedging relationships are impacted by reference rate reform. This optional guidance is effective immediately, and available to be used through December 31, 2022. We are assessing the impact that reference rate reform and the related adoption of this guidance will have on our financial statements.

In August 2020, the FASB issued ASU 2020-06, ~~"Debt-Debt~~“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"~~Equity”, which is intended to simplify the accounting for convertible instruments by removing certain separation models in Subtopic 470-20, Debt-Debt with Conversion and Other Options, for convertible instruments. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. We are currently in the process of evaluating the effects of the provisions of ASU 2020-06 on our financial statements.

Note 2 - Fair Value

ASC Subtopic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company often utilizes certain assumptions that market

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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 - Inventories

Inventories consist of the following:

	September 30, 2020			December 31, 2019

							September 30,		December 31,
							2021		2020
							(unaudited)
(in thousands)	(unaudited)
Refrigerant and cylinders	$	49,602		$	72,088		$	65,889	$	53,593
Less: net realizable value adjustments		(9,228	)		(12,850	)		(7,100)		(9,133)
Total	$	40,374		$	59,238		$	58,789	$	44,460

Note 4 - Property, plant and equipment

Elements of property, plant and equipment are as follows:

	September 30, 2020		December 31, 2019		Estimated Lives

						September 30,		December 31,		Estimated
						2021		2020		Lives
(in thousands)	(unaudited)					(unaudited)
Property, plant and equipment
- Land	$	1,255	$	1,255		$	1,255	$	1,255
- Land improvements		319		319	6-10 years		319		319	6-10 years
- Buildings		1,446		1,446	25-39 years		1,446		1,446	25-39 years
- Building improvements		3,072		3,045	25-39 years		3,099		3,072	25-39 years
- Cylinders		13,336		13,273	15-30 years		13,305		13,624	15-30 years
- Equipment		25,138		24,953	3-10 years		25,221		25,138	3-10 years
- Equipment under capital lease		315		315	5-7 years		315		315	5-7 years
- Vehicles		1,574		1,574	3-5 years		1,740		1,537	3-5 years
- Lab and computer equipment, software		3,103		3,077	2-8 years		3,103		3,103	2-8 years
- Furniture & fixtures		679		679	5-10 years		679		679	5-10 years
- Leasehold improvements		852		842	3-5 years		852		852	3-5 years
- Equipment under construction		758		73			1,615		944
Subtotal		51,847		50,851			52,949		52,284
Accumulated depreciation		30,412		27,177			32,914		30,374
Total	$	21,435	$	23,674		$	20,035	$	21,910

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Depreciation expense for the nine months ended September 30, 2021 and 2020 was $2.5 million and ~~2019 was~~ $3.2 million, ~~for both periods.~~respectively.

Note 5-5 - 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 us to carry forward our historical lease classification, our assessment on whether a contract contains a lease, and our initial direct costs for any leases that existed prior to the adoption of the new standard. We also elected to combine lease and non-lease components and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of operations on a straight line basis over the lease term. The Company’s lease agreements do not contain any material residual value, guarantees or material restrictive covenants.

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.

~~Lease~~Operating lease expense of $2.5 million and $2.2 million, for the nine months ended September 30, 2021 and 2020, respectively, is included in Selling, general and administrative expenses on the consolidated statements of operations.

The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s operating leases as of September 30, ~~2020.~~2021.


	September 30,
Maturity of Lease Payments	2021
	(unaudited)
(in thousands)
-2021 (remaining)	$	1,454
-2022		1,415
-2023		1,412
-2024		1,027
-Thereafter		2,932
Total undiscounted operating lease payments		8,240
Less imputed interest		(1,512)
Present value of operating lease liabilities	$	6,728

Maturity of Lease Payments September 30,
2020
(in thousands)
-2020 (remaining) $ 1,216
-2021 2,039
-2022 1,106
-2023 955
-Thereafter 3,860
Total undiscounted operating lease payments 9,176
Less imputed interest (2,383 )
Present value of operating lease liabilities $ 6,793

Balance Sheet Classification


			September 30,
			2021
Current lease liabilities (recorded in Accrued expenses and other current liabilities)	$	2,458	$	3,093
Long-term lease liabilities		4,335		3,635
Total operating lease liabilities	$	6,793	$	6,728

Other Information


	September 30,
	2021
Weighted-average remaining term for operating leases	4.31	~~5.15~~ years
Weighted-average discount rate for operating leases	8.22	~~8.77~~	%

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Cash Flows

~~An initial right-of-use asset of $8.1 million was recognized as a non-cash asset addition with the adoption of the new lease accounting standard.~~ Cash paid for amounts included in the present value of operating lease liabilities was ~~$2.2~~$2.5 million during the nine months ended September 30, ~~2020~~2021 and is included in operating cash flows.

Note 6 - Goodwill and intangible assets

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in business combinations accounted for under the purchase method of accounting. In both 2018 and 2019, due to a significant selling price correction leading to unfavorable market conditions, the Company performed a quantitative test by weighing the results of an income-based valuation technique, the discounted cash flows method, and a market-based valuation technique, to determine its reporting units’ fair values.

There were no0 goodwill impairment losses recognized for the nine month period ended September 30, ~~2020~~2021 and year ended December 31, ~~2019.~~2020. 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 September 30, ~~2020~~2021 and December 31, ~~2019~~2020 the Company had $47.8 million of goodwill.

The Company’s other intangible assets consist of the following:

			September 30, 2020						December 31, 2019
			(Unaudited)
	Amortization		Gross						Gross
	Period		Carrying		Accumulated				Carrying		Accumulated

																September 30, 2021						December 31, 2020
																(unaudited)
															Amortization	Gross						Gross
															Period	Carrying		Accumulated				Carrying		Accumulated
(in thousands)	(in years)		Amount		Amortization		Net		Amount		Amortization		Net		(in years)	Amount		Amortization			Net	Amount		Amortization			Net
Intangible assets with determinable lives
Patents		5	$	386	$	386	$	-	$	386	$	383	$	3
Covenant not to compete		6 - 10		1,270		898		372		1,270		783		487	6 - 10		1,270		1,002		268		1,270		937		333
Customer relationships		10 - 12		31,560		8,502		23,058		31,560		6,506		25,054	10 - 12		31,560		11,163		20,397		31,560		9,167		22,393
Above market leases		13		567		132		435		567		99		468	13		567		177		390		567		143		424
Totals identifiable intangible assets			$	33,783	$	9,918	$	23,865	$	33,783	$	7,771	$	26,012
Total identifiable intangible assets																$	33,397	$	12,342	$	21,055	$	33,397	$	10,247	$	23,150

Amortization expense for the nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 was $2.1 million ~~and $2.2 million, respectively.~~for both periods. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.

Note 7 - 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 (net of estimated forfeitures) over the requisite service period. For the nine ~~month~~months periods ended September 30, ~~2020~~2021 and ~~2019,~~2020, share-based compensation expense of ~~$0.6~~$0.5 million and ~~$0.9~~$0.6 million, respectively, are reflected in ~~selling,~~Selling, general and administrative expenses in the consolidated ~~statements~~Statements of ~~operations.~~

Operations.

Share-based awards have historically been made as stock options, and recently also as stock grants, issued pursuant to the terms of the Company’s stock option and stock incentive plans (collectively, the “Plans”), described below. The Plans may be administered by the Board of Directors or the Compensation Committee of the Board or by another committee appointed by the Board from among its members as provided in the Plans. Presently, the Plans are administered by the Company’s Compensation Committee of the Board of Directors. As of September 30, ~~2020,~~2021 there were ~~2,786,986~~3,739,235 shares of the Company’s common stock available under the Plans for issuance for future stock option grants or other stock based awards.

Stock option awards, which allow the recipient to purchase shares of the Company’s common stock at a fixed price, are typically granted at an exercise price equal to the Company’s stock price at the date of grant. Typically, the Company’s stock option awards have vested from immediately to two years from the grant date and have had a contractual term ranging from three to ten years. ISOs granted under the Plans may not be granted at a price less than the fair market value of the common stock on the date of grant (or 110% of fair market value in the case of persons holding 10% or more of the voting stock of the Company). Nonqualified options granted under the Plans may not be granted at a price less than the fair market value of the common stock. Options granted under the Plans expire not more than ten years from the date of grant (five years in the case of ISOs granted to persons holding 10% or more of the voting stock of the Company).

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Effective September 17, 2014, the Company adopted its 2014 Stock Incentive Plan (“2014 Plan”) pursuant to which 3,000,000 shares of common stock were reserved for issuance (i) upon the exercise of options, designated as either ISOs under the Code or nonqualified options, or (ii) as stock, deferred stock or other stock-based awards. ISOs may be granted under the 2014 Plan to employees and officers of the Company. Non-qualified options, stock, deferred stock or other stock-based awards may be granted to consultants, directors (whether or not they are employees), employees or officers of the Company. Stock appreciation rights may also be issued in tandem with stock options. Unless the 2014 Plan is sooner terminated, the ability to grant options or other awards under the 2014 Plan will expire on September 17, 2024.

ISOs granted under the 2014 Plan may not be granted at a price less than the fair market value of the common stock on the date of grant (or 110% of fair market value in the case of persons holding 10% or more of the voting stock of the Company). Nonqualified options granted under the 2014 Plan may not be granted at a price less than the fair market value of the common stock. Options granted under the 2014 Plan expire not more than ten years from the date of grant (five years in the case of ISOs granted to persons holding 10% or more of the voting stock of the Company).

Effective 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.

ISOs granted under the 2018 Plan may not be granted at a price less than the fair market value of the common stock on the date of grant (or 110% of fair market value in the case of persons holding 10% or more of the voting stock of the Company). Nonqualified options granted under the 2018 Plan may not be granted at a price less than the fair market value of the common stock. Options granted under the 2018 Plan expire not more than ten years from the date of grant (five years in the case of ISOs granted to persons holding 10% or more of the voting stock of the Company).

Effective 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.

ISOs granted under the 2020 Plan may not be granted at a price less than the fair market value of the common stock on the date of grant (or 110% of fair market value in the case of persons holding 10% or more of the voting stock of the Company). Nonqualified options granted under the 2020 Plan may not be granted at a price less than the fair market value of the common stock. Options granted under the 2020 Plan expire not more than ten years from the date of grant (five years in the case of ISOs granted to persons holding 10% or more of the voting stock of the Company).

All stock options have been granted to employees and non-employees at exercise prices equal to or in excess of the market value on the date of the grant.

The Company determines the fair value of share-based awards at the grant date by using the Black-Scholes option-pricing model, and is incorporating the simplified method to compute expected lives of share-based awards. There were options to purchase ~~254,700~~463,754 and ~~524,800~~254,700 shares of common stock granted during the nine-month periods ended September 30, 2021 and 2020, ~~and 2019,~~ respectively.

A summary of the activity for stock options issued under the Company’s Plans for the indicated periods is presented below:

Stock Option Totals	Shares			Weighted Average Exercise Price
Outstanding at January 1, 2019		4,415,397		$	1.20

							Weighted
							Average
							Exercise
Stock Option Plan Totals						Shares	Price
Outstanding at December 31, 2019						7,042,377	$	1.01
-Cancelled		(527,820	)	$	1.23	0	$	0
-Exercised		(10,000	)	$	0.89	(1,967,562)	$	0.91
-Granted		3,164,800		$	0.79	254,700	$	1.11
Outstanding at December 31, 2019		7,042,377		$	1.01
Outstanding at December 31, 2020						5,329,515	$	1.06
-Cancelled						(107,447)		2.11
-Exercised						(1,373,905)	$	1.23
-Granted		254,700		$	1.11	463,754	$	1.71
Outstanding at September 30, 2020		7,297,077		$	1.02
Outstanding at September 30, 2021, unaudited						4,311,917	$	1.04

The following is the weighted average contractual life in years and the weighted average exercise price at September 30, ~~2020~~2021 of:

Number of
Shares
Weighted
Average
Remaining
Contractual
Life

Weighted
Average
Exercise
Price

Options outstanding and vested 7,043,259 2.8 years $ 1.02


		Weighted
		Average		Weighted
		Remaining		Average
	Number of	Contractual		Exercise
	Options	Life		Price
Options outstanding and vested	4,311,917	3.8	years	$	1.04

The intrinsic value of options outstanding at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 were ~~$1.4~~$10.7 million and $0.7 million, respectively.

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The intrinsic value of options unvested at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 were ~~$0.1 million~~$5,700 and ~~$0.3 million,~~$0, respectively.

The intrinsic value of options exercised during the nine months ended September 30, 2021 and 2020 were $2.1 million and ~~2019 were~~ $0, ~~and $11,100,~~ respectively.

Note 8 - Short-term and Long-term debt

Elements of short-term and long-term debt are as follows:

	September 30, 2020			December 31, 2019

							September 30,		December 31,
							2021		2020
*(in thousands)*	(unaudited)							(unaudited)
Short-term & long-term debt
Short-term debt:
- Revolving credit line and other debt	$	-		$	14,000
- Revolving credit line							$	7,000	$	2,000
- Loan from Paycheck Protection Program- current		1,650			-			0		2,062
- Capital lease obligation- current		5			-			0		4
- Term loan facility - current		5,248			3,008
- Term loan facility – current								5,248		5,248
Subtotal		6,903			17,008			12,248		9,314
Long-term debt:
- Term Loan Facility- net of current portion of long-term debt		81,179			85,115
- Term loan facility- net of current portion of long-term debt								75,931		79,867
- Loan from Paycheck Protection Program- net of current portion		825			-			0		413
- Capital lease obligations		-			3
- Less: deferred financing costs on term loan		(2,512	)		(3,136	)		(1,683)		(2,304)
Subtotal		79,492			81,982			74,248		77,976


Total short-term & long-term debt	$	86,395		$	98,990		$	86,496	$	87,290

Revolving Credit Facility

On December 19, 2019, Hudson Technologies Company (“HTC”), Hudson Holdings, Inc. (“Holdings”) and Aspen Refrigerants, Inc. (“ARI”), as borrowers (collectively, the “Borrowers”), and Hudson Technologies, Inc. (the “Company”) as a guarantor, became obligated under a Credit Agreement (the “Wells Fargo Facility”) with Wells Fargo Bank, as administrative agent and lender (“Agent” or “Wells Fargo”) and such other lenders as may thereafter become a party to the Wells Fargo Facility.

Under the terms of the Wells Fargo Facility, the Borrowers may borrow, from time to time, up to $60 million at any time consisting of revolving loans in a maximum amount up to the lesser of $60 million and a borrowing base that is calculated based on the outstanding amount of the Borrowers’ eligible receivables and eligible inventory, as described in the Wells Fargo Facility. The Wells Fargo Facility also contains a sublimit of $5 million for swing line loans and $2 million for letters of credit.

Amounts borrowed under the Wells Fargo Facility were used by the Borrowers to repay existing revolving indebtedness under its prior revolving credit facility, repay certain principal amounts under the Term Loan Facility (as defined below), and may be used for working capital needs, certain permitted acquisitions, and to reimburse drawings under letters of credit.

Interest on loans under the Wells Fargo Facility is payable in arrears on the first day of each month. Interest charges with respect to loans are computed on the actual principal amount of loans outstanding during the month at a rate per annum equal to (A) with respect to Base Rate loans, the sum of (i) a rate per annum equal to the higher of (1) the federal funds rate plus 0.5%, (2) one month LIBOR plus 1.0%, and (3) the prime commercial lending rate of Wells Fargo, plus (ii) between 1.25% and 1.75% depending on average monthly undrawn availability and (B) with respect to LIBOR rate loans, the sum of the LIBOR rate plus between 2.25% and 2.75% depending on average monthly undrawn availability.

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In connection with the closing of the Wells Fargo Facility, the Company also entered into a Guaranty and Security Agreement, dated as of December 19, 2019 (the “Revolver Guaranty and Security Agreement”), pursuant to which the Company and certain subsidiaries unconditionally guaranteed the payment and performance of all obligations owing by the Borrowers to Wells Fargo, as Agent for the benefit of the revolving lenders. Pursuant to the Revolver Guaranty and Security Agreement, the Borrowers, the Company and ~~ten~~certain other subsidiaries granted to the Agent, for the benefit of the Wells Fargo Facility lenders, a security interest in substantially all of their respective assets, including receivables, equipment, general intangibles (including intellectual property), inventory, subsidiary stock, real property, and certain other assets. The Revolver Guaranty and Security Agreement also provides that the Agent shall receive the right to dominion over certain of the Borrowers’ bank accounts in the event of an Event of Default under the Wells Fargo Facility, or if undrawn availability under the Wells Fargo Facility falls below $9 million at any time.

The Wells Fargo Facility contains a financial covenant requiring the Company to maintain at all times minimum liquidity (defined as availability under the Wells Fargo Facility plus unrestricted cash) of at least $5 million, of which at least $3 million must be derived from availability. The Wells Fargo Facility also contains a springing covenant, which takes effect only upon a failure to maintain undrawn availability of at least $7.5 million, requiring the Company to maintain a Fixed Charge Coverage Ratio (FCCR) of not less than 1.00 to 1.00, as of the end of each trailing period of twelve consecutive fiscal months commencing with the month prior to the triggering of the covenant. The FCCR (as defined in the Wells Fargo Facility) is the ratio of (a) EBITDA for such period, minus unfinanced capital expenditures made during such period, to (b) the aggregate amount of (i) interest expense required to be paid (other than interest paid-in-kind, amortization of financing fees, and other non-cash interest expense) during such period, (ii) scheduled principal payments (but excluding principal payments relating to outstanding revolving loans under the Wells Fargo Facility), (iii) all net federal, state, and local income taxes required to be paid during such period (provided, that any tax refunds received shall be applied to the period in which the cash outlay for such taxes was made), (iv) all restricted payments paid (as defined in the Wells Fargo Facility) during such period, and (v) to the extent not otherwise deducted from EBITDA for such period, all payments required to be made during such period in respect of any funding deficiency or funding shortfall with respect to any pension plan. The FCCR covenant ceases after the Borrowers have been in compliance therewith for two consecutive months.

The Wells Fargo Facility also contains customary non-financial covenants relating to the Company and the Borrowers, including limitations on 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. The Wells Fargo Facility also contains certain covenants contained in the Fourth Amendment to the Term Loan Facility described below.

On April 23, 2020, the Borrowers, the Company and its subsidiaries entered into a First Amendment to Credit Agreement with Wells Fargo (the “First Amendment”). The First Amendment authorized the Company and its subsidiaries to incur up to $2.5 million of indebtedness under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and contained other provisions relating to the treatment of such proceeds and any potential debt forgiveness, under the Wells Fargo Facility.

The commitments under the Wells Fargo Facility will expire and the full outstanding principal amount of the loans, together with accrued and unpaid interest, are due and payable in full on December 19, 2022, unless the commitments are terminated and the outstanding principal amount of the loans are accelerated sooner following an event of default.

Term Loan Facility

On October 10, 2017, HTC, Holdings, and ARI, as borrowers, and the Company, as guarantor, became obligated under a Term Loan Credit and Security Agreement (as amended, the “Term Loan Facility”) with U.S. Bank National Association, as administrative agent and collateral agent (“Term Loan Agent”) and funds advised by FS Investments and such other lenders as may thereafter become a party to the Term Loan Facility (the “Term Loan Lenders”).

Under the terms of the Term Loan Facility, the Borrowers immediately borrowed $105 million pursuant to a term loan (the “Term Loan”).

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The Term Loan matures on October 10, 2023. Interest on the Term Loan is generally payable on the earlier of the last day of the interest period applicable to such Eurodollar rate loan and the last day of the Term Loan Facility, as applicable. Interest is payable at the rate per annum of the Eurodollar Rate (as defined in the Term Loan Facility) plus 10.25%. The Borrowers have the option of paying 3.00% interest per annum in kind by adding such amount to the principal of the Term Loans during no more than five fiscal quarters during the term of the Term Loan Facility.

Borrowers and the Company granted to the Term Loan Agent, for the benefit of the Term Loan Lenders, a security interest in substantially all of their respective assets, including receivables, equipment, general intangibles (including intellectual property), inventory, subsidiary stock, real property, and certain other assets.

The Term Loan Facility contains a financial covenant requiring the Company to maintain a specified total leverage ratio (“TLR”), tested as of the last day of the fiscal quarter. The TLR (as defined in the Term Loan Facility) is the ratio of (a) funded debt as of such day to (b) EBITDA for the four consecutive fiscal quarters ending on the last day of such fiscal quarter. Funded debt (as defined in the Term Loan Facility) includes amounts borrowed under the Wells Fargo Facility and the Term Loan Facility as well as capitalized lease obligations and other indebtedness for borrowed money maturing more than one year from the date of creation thereof. As of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the TLR was approximately ~~5.79~~2.35 to 1 and ~~11.22~~5.84 to 1, respectively.

The Term Loan Facility also contains customary non-financial covenants relating to the Company and the Borrowers, including limitations on their ability to pay dividends on common stock or preferred stock, and also includes certain events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other obligations, events of bankruptcy and insolvency, certain ERISA events, judgments in excess of specified amounts, impairments to guarantees and a change of control.

In connection with the closing of the Term Loan Facility, the Company also entered into a Guaranty and Suretyship Agreement, dated as of October 10, 2017 (the “Term Loan Guarantee”), pursuant to which the Company affirmed its unconditional guarantee of the payment and performance of all obligations owing by the Borrowers to the Term Loan Agent, as agent for the benefit of the Term Loan Lenders.

The Term Loan Agent and the Agent have entered into an intercreditor agreement governing the relative priority of their security interests granted by the Borrowers and the Guarantor in the collateral, providing that the Agent shall have a first priority security interest in the accounts receivable, inventory, deposit accounts and certain other assets (the “Revolving Credit Priority Collateral”) and the Term Loan Agent shall have a first priority security interest in the equipment, real property, capital stock of subsidiaries and certain other assets (the “Term Loan Priority Collateral”).

On December 19, 2019, HTC, Holdings and ARI as borrowers and the Company as a guarantor, entered into a Waiver and Fourth Amendment to Term Loan Credit and Security Agreement (the “Fourth Amendment”) with U.S. Bank National Association, as collateral agent and administrative agent, and the various lenders thereunder.

The Fourth Amendment waived financial covenant defaults at June 30, 2019 and September 30, 2019 and amended the Term Loan Credit and Security Agreement dated October 10, 2017 (as previously amended, the “Term Loan Facility”) to reset the maximum Total Leverage Ratio covenant contained in the Term Loan Facility at the indicated dates as follows: (i) September 30, 2019 - 15.67:1.00; (ii) December 31, 2019 – 14.54:1.00; (iii) March 31, 2020 – 16.57:1.00; (iv) June 30, 2020 – 10.87:1.00; (v) September 30, 2020 – 8.89:1.00; (vi) December 31, 2020 – 8.89:1.00; (vii) March 31, 2021 – 7.75:1.00; (viii) June 30, 2021 – 7.03:1.00; (ix) September 30, 2021 – 6.08:1.00; and (x) December 31, 2021 – 5.36:1.00. The Fourth Amendment also reset the minimum liquidity requirement (consisting of cash plus undrawn availability on the Borrowers’ revolving loan facility) of $5 million, measured monthly. Furthermore, the Fourth Amendment added a minimum LTM Adjusted EBITDA covenant as of the indicated dates as follows: (i) September 30, 2019 - $7.887 million; (ii) December 31, 2019 – $7.954 million; (iii) March 31, 2020 – $7.359 million; (iv) June 30, 2020 – $11.745 million; (v) September 30, 2020 – $12.021 million; (vi) December 31, 2020 – $12.300 million; (vii) March 31, 2021 –$14.295 million; (viii) June 30, 2021 – $14.566 million; (ix) September 30, 2021 – $15.431 million; and (x) December 31, 2021 – $16.267 million.

The Fourth Amendment also (i) continues the limitation on acquisitions and dividends, (ii) required a principal repayment of $14,000,000 upon execution of the Fourth Amendment and (iii) ~~increases~~increased the scheduled quarterly principal repayments to $562,000 effective March 31, 2020 and $1,312,000 effective December 31, 2020.

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The Fourth Amendment also terminated the exit fee payable to the term loan lenders, which would have been payable in full in cash upon the earlier to occur of (x) repayment in full of the term loans, or (y) any acceleration of the term loans. In lieu of the exit fee, the Fourth Amendment reinstated a prepayment premium equal to the following percentages of the principal amount prepaid, depending upon the date of prepayment: (i) through March 31, 2020 – 0.50%; (ii) from April 1, 2020 through March 31, 2021 – 2.50%; and (iii) from April 1, 2021 and thereafter – 5.00%.

The Fourth Amendment also ~~adds~~added a new covenant providing that in the event of a breach of a financial covenant contained in the Term Loan Facility or any failure to make a required principal repayment (a “Trigger Event”), then on or prior to six months after a Trigger Event, the Company shall commence a process to (x) sell its businesses and/or assets, and/or (y) consummate a refinancing transaction with respect to the Term Loan Facility (a “Transaction”), in each case, subject to enumerated time milestones contained in the Fourth Amendment, and which requires that Transaction shall, in any event, be consummated on or prior to the eighteen (18) month anniversary of the Trigger Event.

As closing conditions to the execution and delivery of the Fourth Amendment, the Company was required to: (i) amend its Bylaws in a manner acceptable to the Term Loan Facility lenders; (ii) appoint two new independent directors to the board of directors (the “Special Directors”); and (iii) pay an amendment fee of 0.50% of the amount of the outstanding loans under the Term Loan Facility.

On April 23, 2020, HTC, Holdings and ARI as borrowers and the Company as a guarantor, entered into a Fifth Amendment to Term Loan Credit and Security Agreement (the “Fifth Amendment”) with U.S. Bank National Association, as collateral agent and administrative agent, and the various lenders thereunder. The Fifth Amendment authorized the Company and its subsidiaries to incur up to $2.5 million of indebtedness under the CARES Act and contained other provisions relating to the treatment of such proceeds and any potential debt forgiveness, under the Term Loan Facility.

The Company evaluated the Fourth and Fifth Amendments in accordance with the provisions of Accounting Standards Codification (“ASC”) 470, Debt, to determine if the Amendments were (1) a troubled debt restructuring, and if not, (2) a modification or an extinguishment of debt. The Company concluded that the Fourth Amendment was a troubled debt restructuring for accounting purposes due to the removal of the exit fee; as such, the Company capitalized an additional $0.5 million of deferred financing costs, which are being amortized over the remaining term. The future undiscounted cash flows of the term loan, as amended, exceeded the carrying value, and accordingly, no gain was recognized and no adjustment was made to the carrying value of the debt.

The Company was in compliance with all covenants, under the Wells Fargo Facility and the Term Loan Facility, as amended, as of September 30, ~~2020.~~2021.

The Company’s ability to comply with these covenants in future quarters may be affected by events beyond the Company’s control, including general economic conditions, weather conditions, regulations and refrigerant pricing. Therefore, we cannot make any assurance that we will continue to be in compliance during future periods.

The Company believes that it will be able to satisfy its working capital requirements for the foreseeable future from anticipated cash flows from operations and available funds under the Wells Fargo Facility. Any unanticipated expenses, including, but not limited to, an increase in the cost of refrigerants purchased by the Company, an increase in operating expenses or failure to achieve expected revenues from the Company’s RefrigerantSide® Services and/or refrigerant sales or additional expansion or acquisition costs that may arise in the future would adversely affect the Company’s future capital needs. There can be no assurance that the Company’s proposed or future plans will be successful, and as such, the Company may require additional capital sooner than anticipated, which capital may not be available on acceptable terms, or at all.

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CARES Act Loan

On April 23, 2020 the Company received a loan in the amount of $2.475 million from Meridian Bank under the Paycheck Protection Program (“PPP”) pursuant to the CARES Act. The loan has a term of two years, is unsecured, and bears interest at a fixed rate of ~~one~~1 percent per annum, with the first ~~six~~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 have been used in part to help offset payroll costs as stipulated in the legislation. All or a portion of the PPP loan may be forgiven by the U.S. Small Business Administration (“SBA”) upon application by the Company and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs and other covered areas, such as rent payments, mortgage interest and utilities, as applicable. ~~The Company intends to comply with~~During the ~~loan forgiveness provisions in the legislation, however, there are no assurances that~~third quarter of 2021, the Company ~~will obtain full~~received forgiveness of the loan ~~based on current guidelines.~~from the SBA, resulting in $2.475 million of Other Income recorded in the Company’s Consolidated Statements of Operations.

Vehicle and Equipment Loans

The Company has from time to time entered into various vehicle and equipment loans. These loans were payable in 60 monthly payments through ~~June 2020~~July 2021 and bore interest ranging from 0.0% to 8.3%. All such loans have been repaid in full at September 30, ~~2020.~~2021.

Capital Lease Obligations

The Company rents certain equipment with a de minimis net book value at September 30, ~~2020~~2021 under leases which have been classified as capital leases.

Scheduled maturities of the Company’s long-term debt and capital lease obligations are as follows:

Twelve Month Period Ending September 30,	Amount

Years ended September 30,			Amount
*(in thousands)*
-2021	$	5,253
-2022		5,248	$	5,248
-2023		5,248		5,248
-2024		70,683		70,683
-Thereafter		—

Total	$	86,432	$	81,179

~~Note 9- Other Income~~

On June 23, 2020, Kevin J. Zugibe, Chairman of the Board and Chief Executive Officer of the Company, passed away unexpectedly. During the third quarter of 2020, the Company received $1 million of key man life insurance proceeds and accordingly recorded the amount as Other Income in its Consolidated Statement of Operations.

In August 2019, the Company received $8.9 million of cash pursuant to the settlement of a working capital adjustment dispute arising from the acquisition of Aspen Refrigerants, Inc. in October 2017. In addition, during the second quarter of 2019, the Company recorded approximately $0.5 million of other income relating to a change in estimate of its cylinder deposit liability account.

Note 109 – Related Party Transactions

Stephen P. Mandracchia served as Vice President – Legal and Regulatory and Secretary of the Company through May 3, 2019 and since that date served the Company in a consulting role through August 31, 2020. From May 6, 2019 through December 31, 2019, Mr. Mandracchia received a monthly consulting fee of $10,000 and such fee was increased to $12,000 per month effective January 1, 2020. During the period January 1, 2019 through May 3, 2019, Mr. Mandracchia was paid base salary of $94,656 and was issued a stock option to purchase 25,000 shares of Company common stock at an exercise price of $1.70 per share. Mr. Mandracchia is the brother-in-law of the deceased Kevin J. Zugibe, the Company’s former Chairman of the Board and Chief Executive Officer. Effective September 1, 2020, Mr. Mandracchia became a member of the Company’s Board of Directors.

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Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain statements, contained in this section and elsewhere in this Form 10-Q, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve a number of known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, changes in the laws and regulations affecting the industry, changes in the demand and price for refrigerants (including unfavorable market conditions adversely affecting the demand for, and the price of refrigerants), the Company’s ability to source refrigerants, regulatory and economic factors, seasonality, competition, litigation, the nature of supplier or customer arrangements that become available to the Company in the future, adverse weather conditions, possible technological obsolescence of existing products and services, possible reduction in the carrying value of long-lived assets, estimates of the useful life of its assets, potential environmental liability, customer concentration, the ability to obtain financing, the ability to meet financial covenants under our financing facilities, any delays or interruptions in bringing products and services to market, the timely availability of any requisite permits and authorizations from governmental entities and third parties as well as factors relating to doing business outside the United States, including changes in the laws, regulations, policies, and political, financial and economic conditions, including inflation, interest and currency exchange rates, of countries in which the Company may seek to conduct business, the Company’s ability to successfully integrate any assets it acquires from third parties into its operations, the impact of the current COVID-19 pandemic, and other risks detailed in the Company’s Form 10-K for the year ended December 31, ~~2019,~~2020, 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.

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.

AIM Act

On September 23, 2021, the United States Environmental Protection Agency (“EPA”) issued the final rule establishing the framework to allocate allowances for virgin production and consumption of HFCs. The EPA is responsible for the administration of the HFC phase down enacted by Congress under the American Innovation and Manufacturing Act of 2020 (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, and

3)

facilitate the transition to next-generation technologies.

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Congress also required that EPA shall consider ways to promote reclamation in all phases of its implementation of the AIM Act. The final rule introduces a stepdown of 10% from baseline levels and a subsequent allowance rule must establish a cumulative 40% reduction in the baseline for 2024. Hudson received an allocation allowance for calendar year 2022 equal to approximately 3 million Metric Tons Exchange Value Equivalents, or 1% of the total HFC consumption, with allowances for 2023 and beyond to be determined at a later date. Reclamation will be critical to maintaining necessary HFC supply levels to ensure an orderly phasedown.

Impact of COVID-19 Pandemic

During the year ended December 31, 2020 and continuing through the nine months ended September 30, ~~2020,~~2021, the effects of a novel strain of coronavirus ~~("COVID-19"~~(“COVID-19”) pandemic and the related actions by governments around the world to attempt to contain the spread of the virus have materially impacted the global economy.

In response to the COVID-19 outbreak and business disruption, we have four primary priorities:

•●	To ensure the health and safety of Hudson employees

●
•	To keep our products in supply and to maintain the quality and safety of our products

●
•	To best serve our customers across all channels as they adapt to the shifting demands of consumers during the crisis

●
•	To best position ourselves to emerge strong when this crisis ends

We operate in a “critical infrastructure industry” and are an essential business as defined by the United States government as we procure, process, service and deliver refrigerants to the government and wholesale and retail organizations, which also service both residential homes and commercial institutions throughout the United States. While the conditions in the United States and the economy have ~~worsened,~~been impacted, we have been effectively running our operations, including the following:

-

Keeping all plants open, while maintaining proper safety standards

-

Directing all office personnel to work remotely, efficiently and safely

-

Maintaining ongoing relationships and business with existing customers and vendors in the supply chain

As of the date of this filing, we have activated our contingency plans. We have deployed national and regional teams to monitor the rapidly evolving situation and recommend risk mitigation actions; we have implemented travel restrictions; and we are following social distancing practices. We are endeavoring to follow guidance from authorities and health officials including, but not limited to, requiring associates to wear masks and other protective clothing as appropriate, and implementing additional cleaning and sanitization routines at system facilities.

During times of crisis, business continuity and adapting to the needs of our customers is critical. We have developed systemwide knowledge-sharing routines and processes which include the management of any supply chain challenges. As of the date of this filing, there has been no material impact on our ability to procure or distribute our products and services. We are moving with speed to best serve our customers impacted by COVID-19 and to ensure adequate inventory levels in key channels. We have shifted to more remote and paperless options for customer payments and receipts, including ACH payments.

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~~Although we are experiencing a time~~Table of crisis, we are not losing sight of long-term opportunities for our business. We believe that we will come out of this situation a better and stronger company by driving our long-term strategies, responding to changing consumer behavior and capitalizing on new opportunities created by the crisis.Contents

Critical Accounting Policies

The Company's discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Several of the Company's accounting policies involve significant judgments, uncertainties and estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. To the extent that actual results differ from management's judgments and estimates, there could be a material adverse effect on the Company. On a continuous basis, the Company evaluates its estimates, including, but not limited to, those estimates related to its inventory reserves, and valuation allowance for the deferred tax assets relating to its net operating loss carry forwards (“NOLs”) and goodwill and intangible assets.

Inventory

For inventory, the Company evaluates both current and anticipated sales prices of its products to determine if a write down of inventory to net realizable value is necessary. Net realizable value represents the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion and disposal. The determination if a write-down to net realizable value is necessary is primarily affected by the market prices for the refrigerant gases we sell. Commodity prices generally are affected by a wide range of factors beyond our control, including weather, seasonality, the availability and adequacy of supply, government regulation and policies and general political and economic conditions. At any time, our inventory levels may be substantial.

Goodwill

The Company has made acquisitions that included a significant amount of goodwill and other intangible assets. The Company applies the purchase method of accounting for acquisitions, which among other things, requires the recognition of goodwill (which represents the excess of the purchase price of the acquisition over the fair value of the net assets acquired and identified intangible assets). We test our goodwill for impairment on an annual basis (the first day of the fourth quarter) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of an asset below its carrying value. Other intangible assets that meet certain criteria are amortized over their estimated useful lives.

~~Beginning in 2017, the Company adopted, on a prospective basis, ASU No. 2017-04, which simplifies the accounting for goodwill~~An impairment by eliminating Step 2 of the prior goodwill impairment test that required a hypothetical purchase price allocation to measure goodwill impairment. Under the new standard, a company will record an impairment charge 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. In 2019, due to a significant selling price correction leading to unfavorable market conditions, the Company performed a quantitative test by weighing the results of an income-based valuation technique, the discounted cash flows method, and a market-based valuation technique, to determine its fair value. The Company initially established a forecast of the estimated future net cash flows, which were then discounted to their present value using a market rate of return.

There were no goodwill impairment losses recognized in ~~2019~~2020 or the nine months ended September 30, ~~2020.~~2021.

Other Intangibles

Intangibles with determinable lives are amortized over the estimated useful lives of the assets currently ranging from 26 to 13 years. The Company reviews these useful lives annually to determine that they reflect future realizable value.

Income Taxes

The Company is taxed at statutory corporate income tax rates after adjusting income reported for financial statement purposes for certain items. Current income tax expense (benefit) reflects the tax results of revenues and expenses currently taxable or deductible. The Company utilizes the asset and liability method of accounting for deferred income taxes, which provides for the recognition of deferred tax assets or liabilities, based on enacted tax rates and laws, for the differences between the financial and income tax reporting bases of assets and liabilities.

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. To the extent that the Company utilizes its NOLs, it will not pay tax on such income. However, to the extent that the Company’s net income, if any, exceeds the annual NOL limitation, it will pay income taxes based on the then

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existing statutory rates. In addition, certain states either do not allow or limit NOLs and as such the Company will be liable for certain state income taxes.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the ~~COVID-~~19COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. Further, starting in 2021, the 100% NOL utilization reverts back to the pre-CARES Act limitation of 80% of taxable income. The Company has evaluated its options under the carryback provision and ~~expects that it will result~~filed a claim for refund, resulting in a cash benefit. Further, the CARES Act accelerates the refund of the alternative minimum tax credits to allow a full refund of any remaining credit amount in taxable years beginning in 2019. The credits were originally fully refundable in taxable years beginning in 2021. As a result, the Company has ~~booked~~recorded a preliminary $47,000 tax benefit related to the alternative minimum tax refund in the quarter ended March 31, 2020 and an additional $380,000 in the quarter ended June 30, 2020. Finally, the CARES Act contains modifications on the limitation of business interest for tax years beginning in 2019 and 2020. The modifications to Section 163(j) increase the allowable business interest deduction from 30% of adjusted taxable income to 50% of adjusted taxable income. This modification results in a $2,231,000 increase in allowable interest expense, which in turn results in an increase to our net operating losses of $2,231,000 in the nine months ended September 30, 2020. However, the impact of the additional interest expense did not impact our income tax provision since the increase in the deferred tax asset for net operating losses was offset by an increase to the valuation allowance.

As of September 30, ~~2020,~~2021, the Company had NOLs of approximately ~~$45.5~~$29.8 million, of which ~~$40.1 million~~none have noan expiration ~~date and $5.4 million expire through 2023.~~date. As of September 30, ~~2020,~~2021, the Company had state tax NOLs of approximately ~~$23.6~~$16.5 million expiring in various years. We review the likelihood that we will realize the benefit of our deferred tax assets, and therefore the need for valuation allowances, on an annual basis in the fourth quarter of the year, and more frequently if events indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results are considered, along with all other available positive and negative evidence.

Concluding that a valuation allowance is not required is difficult when there is significant negative evidence that is objective and verifiable, such as cumulative losses in recent years. We utilize a rolling twelve quarters of pre-tax income or loss adjusted for significant permanent book to tax differences, as well as non-recurring items, as a measure of our cumulative results in recent years. Based on our assessment as of December 31, 2018, 2019, 2020 and ~~2019,~~September 30, 2021, we concluded that due to the uncertainty that the deferred tax assets will not be fully realized in the future, we recorded a valuation allowance of approximately $11.3 million during 2018, and due to additional losses, increased the valuation allowance through 2019 and 2020 to $19.0 million. For the quarter ended September 30, ~~2020, with~~2021, and due to a net income position that resulted in the utilization of gross net operating losses of $16.3 million, the valuation allowance was reduced by ($4.9) million, resulting in an ending valuation allowance balance of ~~$18.0~~$14.1 million as of September 30, ~~2020.~~2021.

~~Overview~~

~~Sales~~The Company evaluates uncertain tax positions, if any, by determining if it is more likely than not to be sustained upon examination by the taxing authorities. As of ~~refrigerants continue to represent a significant majority of the Company’s revenues. The Company’s refrigerant sales are primarily HCFC~~September 30, 2021 and ~~HFC based refrigerants and to a lesser extent CFC based refrigerants that are no longer manufactured. Currently~~December 31, 2020, the Company ~~purchases virgin HCFC and HFC refrigerants and reclaimable HCFC, HFC and CFC refrigerants from suppliers and its customers.~~believes it had no uncertain tax positions.

In July 2016 the Company was awarded, as prime contractor, a five-year contract, including a five-year renewal option, by the United States Defense Logistics Agency (“DLA”) for the management, supply, and sale of refrigerants, compressed gases, cylinders and related terms.

Results of Operations

Three-month period ended September 30, ~~2020~~2021 as compared to the three-month period ended September 30, ~~2019~~

2020

Revenues for the three-month period ended September 30, ~~2020~~2021 were ~~$41.5~~$60.6 million, ~~a decrease~~an increase of ~~$4.1~~$19.1 million or 9%46.0% from the ~~$45.6~~$41.5 million reported during the comparable ~~2019~~2020 period. ~~Most~~The increase was mainly attributable to higher selling prices of ~~the variance is due to a decline~~certain refrigerants sold, partially offset by reduced volume. Starting in ~~volume. During the~~late March 2020, ~~period,~~ the COVID-19 virus pandemic ~~and the associated effect on~~negatively impacted our economy, including the closures to public venues, such as office buildings, gyms, schools and universities across the U.S., which negatively impacted our end markets and overall demand for refrigerants.

Cost of sales for the three-month period ended September 30, 2021 was $37.0 million or 61% of sales. The cost of sales for the three-month period ended September 30, 2020 was $32.5 million or 78% of sales. The reduction in the cost of sales percentage from 78% to 61% is primarily due to higher selling prices and lower costs of certain refrigerants sold during the third quarter of 2021 when compared to the third quarter of 2020. Gross margin for the three-month period ended September 30, ~~2019~~2021 was $37.8 million or 83% of sales. In 2019 and 2020, the Company has reduced its inventory cost by selling off higher cost layers of inventory. During the prior year period, the Company’s performance was negativelypositively impacted by the ~~challenging pricing environment affecting the industry and the market.~~

sell down of tiers of lower cost refrigerant inventory.

Selling, general and administrative (“SG&A”) expenses for the three-month period ended September 30, ~~2020~~2021 were ~~$6.2~~$6.1 million, a decrease of ~~$2.1~~$0.1 million from the ~~$8.3~~$6.2 million reported during comparable ~~2019~~2020 period. The variance is mainly due to reduced professional fees, payroll costs, sales commission, travel and credit card processing fees. Based on performance metrics achieved through the first two quarters of 2020, the Company no longer was required to retain a Chief Restructuring Officer starting in August 2020.

Amortization expense for both of the three-month periods ended September 30, ~~2020~~2021 and ~~2019~~2020 was $0.7 million.

Other expense for the three-month period ended September 30, ~~2020~~2021 was ~~$2.0~~$0.4 million, compared to the ~~$4.5~~$2.0 million of other ~~income~~expense reported during the comparable ~~2019~~2020 period. Interest expense was lower due to reduced debt resulting from the Company paying down ~~$14 million~~

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principal of its term loan ~~debt in December 2019. On June 23,~~debt. Other income for the three-month period ended September 30, 2021 was $2.5 million related to the forgiveness of the PPP Loan. Other income for the three-month period ended September 30, 2020 was $1.0 million relating to the receipt of key man life insurance proceeds from the unexpected passing of Kevin J. Zugibe, Chairman of the Board and Chief Executive Officer of the Company passed away unexpectedly. During the third quarter of 2020, the Company received $1,000,000 of key man life insurance proceeds. In August 2019, the Company received $8.9 million of cash pursuant to the settlement of a working capital adjustment dispute arising from the acquisition of Aspen Refrigerants, Inc. in October 2017.

at that time.

The income tax expense for the three-month period ended September 30, 2021 was $0.7 million compared to the income tax expense of $0.1 million for the three-month period ended September 30, 2020. Income tax expense for federal and state income tax purposes was determined by applying statutory income tax rates to pre-tax income after adjusting for certain items. As discussed previously, we concluded that due to the uncertainty that the deferred tax assets will not be fully realized in the future, we recorded a full valuation allowance as of September 30, 2021.

Net income for the three-month period ended September 30, 2021 was $15.9 million, a increase of $15.9 million from the $0.0 million of net income reported during the comparable 2020 period. The increase in net income was primarily due to increased revenues, reduced cost of certain refrigerants and interest expense, as previously discussed.

Nine month period ended September 30, 2021 as compared to the nine month period ended September 30, 2020

Revenues for the nine month period ended September 30, 2021 were $155.0 million, an increase of $29.5 million or 23.5% from the $125.5 million reported during the comparable 2020 period. The increase was mainly attributable to higher selling prices of certain refrigerants sold, partially offset by reduced volume. Starting in late March 2020, the COVID-19 virus pandemic negatively impacted our economy, including the closures to public venues, such as office buildings, gyms, schools and universities across the U.S., which negatively impacted our end markets and overall demand for refrigerants.

Cost of sales for the nine-month period ended September 30, 2021 was $100.3 million or 65% of sales. The cost of sales for the nine-month period ended September 30, 2020 was ~~$0.1~~$95.5 million or 76% of sales. The reduction in the cost of sales percentage from 76% to 65% is primarily due to higher selling prices and lower costs of certain refrigerants sold during the first nine months of 2021 when compared to the first nine months of 2020. Gross margin for the nine-month period ended September 30, 2021 was positively impacted by the sell down of tiers of lower cost refrigerant inventory.

Selling, general and administrative (“SG&A”) expenses for the nine-month period ended September 30, 2021 were $19.6 million, a decrease of $0.6 million from the $20.2 million reported during the comparable 2020 period. The reduction in SG&A was primarily due to reduced non-recurring professional fees.

Amortization expense for both nine-month periods ended September 30, 2021 and 2020 was $2.1 million.

Other expense for the nine-month period ended September 30, 2021 was $6.1 million, compared to the $8.4 million of other expense reported during the comparable 2020 period. Interest expense was lower due to reduced debt resulting from the Company paying down principal of its term loan debt. Other income for the nine-month period ended September 30, 2021 was $2.5 million related to the forgiveness of the PPP Loan. Other income for the nine-month period ended September 30, 2020 was $1.0 million relating to the receipt of key man life insurance proceeds from the unexpected passing of Kevin J. Zugibe, Chairman of the Board and Chief Executive Officer of the Company at that time.

The income tax expense for the nine-month period ended September 30, 2021 was $0.8 million compared to income tax ~~expense~~benefit of ~~$0.5~~$0.3 million for the ~~three~~nine month period ended September 30, ~~2019.~~2020. For ~~2020~~2021 and ~~2019,~~2020, income tax expense for federal and state income tax purposes was determined by applying statutory income tax rates to pre-tax income after adjusting for certain items. As discussed previously, we concluded that due to the uncertainty that the deferred tax assets will not be fully realized in the future, we have recorded a full valuation allowance as of September 30, ~~2020.~~2021.

~~The net~~Net income for the three-month period ended September 30, 2020 was $0.0 million, a decrease of $2.7 million from the $2.7 million of net income reported during the comparable 2019 period, primarily due to reduced revenue and other income, partially offset by reduced SG&A and interest expense, as described above.

~~Nine month period ended September 30, 2020 as compared to the nine month period ended September 30, 2019~~

Revenues for the nine month period ended September 30, 2020 were $125.5 million, a decrease of $10.8 million or 8% from the $136.3 million reported during the comparable 2019 period. Most of the variance is due to a decline in volume. During the 2020 period, the COVID-19 virus pandemic and the associated effect on our economy, including the closures to public venues, such as office buildings, gyms, schools and universities across the U.S., negatively impacted our end markets and overall demand for refrigerants.

~~Cost of sales~~ for the nine-month period ended September 30, ~~2020~~2021 was ~~$95.5~~$26.1 million, ~~or 76%~~an increase of sales. The cost of sales for the nine-month period ended September 30, 2019 was $123.9 million or 91% of sales. In 2019 and 2020, the Company has reduced its inventory cost by selling off higher cost layers of inventory to achieve greater gross profit. During the three month period ended June 30, 2019, the Company recorded a lower of cost or net realizable value adjustment to its inventory of $9.2 million, mainly due to declines in selling prices of certain refrigerants at that time.

~~Selling, general and administrative (“SG&A”) expenses for the nine-month period ended September 30, 2020 were $20.2 million, a decrease of $1.0~~$26.6 million from the ~~$21.2 million reported during the comparable 2019 period. The decrease in SG&A was due to reduced payroll costs, sales commission, travel and credit card processing fees.~~

~~Amortization expense for the nine-month period ended September 30, 2020 and 2019 was $2.1 million and $2.2 million, respectively.~~

Other expense for the nine-month period ended September 30, 2020 was $8.4 million, compared to the $3.5 million reported during the comparable 2019 period. Interest expense was lower due to reduced debt resulting from the Company paying down $14 million of principal of its term loan debt in December 2019. On June 23, 2020, Kevin J. Zugibe, Chairman of the Board and Chief Executive Officer of the Company, passed away unexpectedly. During the third quarter of 2020, the Company received $1 million of key man life insurance proceeds. In August 2019, the Company received $8.9 million of cash pursuant to the settlement of a working capital adjustment dispute arising from the acquisition of Aspen Refrigerants, Inc. in October 2017.

The income tax benefit for the nine-month period ended September 30, 2020 was $0.3 million compared to income tax expense of $0.7 million for the nine month period ended September 30, 2019. For 2020 and 2019, income tax expense for federal and state income tax purposes was determined by applying statutory income tax rates to pre-tax income after adjusting for certain items. As discussed previously, we concluded that due to the uncertainty that the deferred tax assets will not be fully realized in the future, we have recorded a full valuation allowance as of September 30, 2020.

~~The net loss for the nine-month period ended September 30, 2020 was~~ $0.5 ~~million, a decrease of $14.7 million from the $15.2~~ million of net loss reported during the comparable ~~2019~~2020 period, primarily due to ~~the lower of cost or net realizable value adjustment in 2019, improved gross margins,~~higher revenues, reduced SG&A, and reduced interest expense, ~~partially offset by reduced revenue and other income,~~ as described above.

Liquidity and Capital Resources

At September 30, ~~2020,~~2021, the Company had working capital, which represents current assets less current liabilities, of ~~$30.4~~$50.6 million, an increase of ~~$2.1~~$26.2 million from the working capital of ~~$28.3~~$24.4 million at December 31, ~~2019.~~2020. The increase in working capital is primarily attributable to ~~improved cash flows and the~~ timing of borrowings, accounts receivable ~~inventory~~ and ~~debt.~~inventory.

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Inventory and trade receivables are principal components of current assets. At September 30, ~~2020,~~2021, the Company had inventories of ~~$40.4~~$58.8 million, ~~a decrease~~an increase of ~~$18.8~~$14.3 million from ~~$59.2~~$44.5 million at December 31, ~~2019.~~2020. The ~~decrease~~increase in the inventory balance is primarily due to the ~~sale of refrigerants and the~~ timing and availability of inventory ~~purchases.~~purchases and the sale of refrigerants. 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)~~, HCFC~~ and HFC refrigerants (which are currently in the process of being phased ~~down leading to a full phase out of virgin production), or non-CFC based refrigerants.~~down). At September 30, ~~2020,~~2021, the Company had trade receivables, net of allowance for doubtful accounts, of ~~$14.7~~$22.1 million, an increase of ~~$6.6~~$12.3 million from ~~$8.1~~$9.8 million at December 31, ~~2019,~~2020, mainly due to ~~seasonal factors.~~increased sales. The Company’s trade receivables are concentrated with various wholesalers, brokers, contractors and end-users within the refrigeration industry that are primarily located in the continental United States. The Company has historically financed its working capital requirements through cash flows from operations, the issuance of debt and equity securities, and bank borrowings.

Net cash provided by operating activities for the nine-month period ended September 30, ~~2020~~2021 was ~~$19.9~~$8.0 million, when compared to net cash provided by operating activities of ~~$29.3~~$19.9 million for the comparable ~~2019~~2020 period. ~~As mentioned previously, in August 2019, the Company received $8.9 million~~The variance is primarily due to timing of ~~cash pursuant to the settlement of a working capital adjustment dispute arising from the acquisition of Aspen Refrigerants, Inc. in October 2017.~~

accounts receivable and inventory balances as we increased sales and replenished inventory during 2021.

Net cash ~~provided by~~used in investing activities for the nine-month period ended September 30, ~~2020~~2021 was ~~$0.0~~$0.7 million compared with net cash ~~used in~~provided by investing activities of ~~$0.9~~$0.0 million for the comparable ~~2019~~2020 period. As ~~described above, key man life~~mentioned previously, the Company received $1.0 million of insurance proceeds during the third quarter of ~~$1.0 million were offset by capital expenditures incurred in~~2020 pursuant to the ~~ordinary course~~unexpected passing of ~~business, mainly in our plant facilities.~~

its founder and CEO at that time.

Net cash ~~used~~provided by financing activities for the nine-month period ended September 30, ~~2020~~2021 was ~~$13.2~~$0.8 million compared with net cash used byin financing activities of ~~$15.9~~$13.2 million for the comparable ~~2019~~2020 period. The ~~Company received a loan of approximately $2.5 million pursuant~~variance is mainly due to borrowings under the ~~PPP~~revolving credit facility to purchase inventory during ~~the second quarter of 2020. The Company expects that almost the entire balance will be forgiven, but the process is not expected to be finalized until the end of 2020.~~

2021.

At September 30, ~~2020,~~2021, cash and cash equivalents were ~~$9.2~~$9.5 million, or approximately ~~$6.6~~$8.2 million higher than the ~~$2.6~~$1.3 million of cash and cash equivalents at December 31, ~~2019, mainly due to increased cash flow from operations and funds received pursuant to the PPP loan.~~

2020.

Revolving Credit Facility

On December 19, 2019, Hudson Technologies Company (“HTC”), Hudson Holdings, Inc. (“Holdings”) and Aspen Refrigerants, Inc. (“ARI”), as borrowers (collectively, the “Borrowers”), and Hudson Technologies, Inc. (the “Company”) as a guarantor, became obligated under a Credit Agreement (the “Wells Fargo Facility”) with Wells Fargo Bank, as administrative agent and lender (“Agent” or “Wells Fargo”) and such other lenders as may thereafter become a party to the Wells Fargo Facility.

Under the terms of the Wells Fargo Facility, the Borrowers may borrow, from time to time, up to $60 million at any time consisting of revolving loans in a maximum amount up to the lesser of $60 million and a borrowing base that is calculated based on the outstanding amount of the Borrowers’ eligible receivables and eligible inventory, as described in the Wells Fargo Facility. The Wells Fargo Facility also contains a sublimit of $5 million for swing line loans and $2 million for letters of credit.

Amounts borrowed under the Wells Fargo Facility were used by the Borrowers to repay existing revolving indebtedness under its prior revolving credit facility, repay certain principal amounts under the Term Loan Facility (as defined below), and may be used for working capital needs, certain permitted acquisitions, and to reimburse drawings under letters of credit.

Interest on loans under the Wells Fargo Facility is payable in arrears on the first day of each month. Interest charges with respect to loans are computed on the actual principal amount of loans outstanding during the month at a rate per annum equal to (A) with respect to Base Rate loans, the sum of (i) a rate per annum equal to the higher of (1) the federal funds rate plus 0.5%, (2) one month LIBOR plus 1.0%, and (3) the prime commercial lending rate of Wells Fargo, plus (ii) between 1.25% and 1.75% depending on average monthly undrawn availability and (B) with respect to LIBOR rate loans, the sum of the LIBOR rate plus between 2.25% and 2.75% depending on average monthly undrawn availability.

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In connection with the closing of the Wells Fargo Facility, the Company also entered into a Guaranty and Security Agreement, dated as of December 19, 2019 (the “Revolver Guaranty and Security Agreement”), pursuant to which the Company and certain subsidiaries unconditionally guaranteed the payment and performance of all obligations owing by the Borrowers to Wells Fargo, as Agent for the benefit of the revolving lenders. Pursuant to the Revolver Guaranty and Security Agreement, the Borrowers, the Company and ~~ten~~certain other subsidiaries granted to the Agent, for the benefit of the Wells Fargo Facility lenders, a security interest in substantially all of their respective assets, including receivables, equipment, general intangibles (including intellectual property), inventory, subsidiary stock, real property, and certain other assets. The Revolver Guaranty and Security Agreement also provides that the Agent shall receive the right to dominion over certain of the Borrowers’ bank accounts in the event of an Event of Default under the Wells Fargo Facility, or if undrawn availability under the Wells Fargo Facility falls below $9 million at any time.

The Wells Fargo Facility contains a financial covenant requiring the Company to maintain at all times minimum liquidity (defined as availability under the Wells Fargo Facility plus unrestricted cash) of at least $5 million, of which at least $3 million must be derived from availability. The Wells Fargo Facility also contains a springing covenant, which takes effect only upon a failure to maintain undrawn availability of at least $7.5 million, requiring the Company to maintain a Fixed Charge Coverage Ratio (FCCR) of not less than 1.00 to 1.00, as of the end of each trailing period of twelve consecutive fiscal months commencing with the month prior to the triggering of the covenant. The FCCR (as defined in the Wells Fargo Facility) is the ratio of (a) EBITDA for such period, minus unfinanced capital expenditures made during such period, to (b) the aggregate amount of (i) interest expense required to be paid (other than interest paid-in-kind, amortization of financing fees, and other non-cash interest expense) during such period, (ii) scheduled principal payments (but excluding principal payments relating to outstanding revolving loans under the Wells Fargo Facility), (iii) all net federal, state, and local income taxes required to be paid during such period (provided, that any tax refunds received shall be applied to the period in which the cash outlay for such taxes was made), (iv) all restricted payments paid (as defined in the Wells Fargo Facility) during such period, and (v) to the extent not otherwise deducted from EBITDA for such period, all payments required to be made during such period in respect of any funding deficiency or funding shortfall with respect to any pension plan. The FCCR covenant ceases after the Borrowers have been in compliance therewith for two consecutive months.

The Wells Fargo Facility also contains customary non-financial covenants relating to the Company and the Borrowers, including limitations on 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. The Wells Fargo Facility also contains certain covenants contained in the Fourth Amendment to the Term Loan Facility described below.

On April 23, 2020, the Borrowers, the Company and its subsidiaries entered into a First Amendment to Credit Agreement with Wells Fargo (the “First Amendment”). The First Amendment authorized the Company and its subsidiaries to incur up to $2.5 million of indebtedness under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and contained other provisions relating to the treatment of such proceeds and any potential debt forgiveness, under the Wells Fargo Facility.

The commitments under the Wells Fargo Facility will expire and the full outstanding principal amount of the loans, together with accrued and unpaid interest, are due and payable in full on December 19, 2022, unless the commitments are terminated and the outstanding principal amount of the loans are accelerated sooner following an event of default.

Term Loan Facility

On October 10, 2017, HTC, Holdings, and ARI, as borrowers, and the Company, as guarantor, became obligated under a Term Loan Credit and Security Agreement (as amended, the “Term Loan Facility”) with U.S. Bank National Association, as administrative agent and collateral agent (“Term Loan Agent”) and funds advised by FS Investments and such other lenders as may thereafter become a party to the Term Loan Facility (the “Term Loan Lenders”).

Under the terms of the Term Loan Facility, the Borrowers immediately borrowed $105 million pursuant to a term loan (the “Term Loan”).

The Term Loan matures on October 10, 2023. Interest on the Term Loan is generally payable on the earlier of the last day of the interest period applicable to such Eurodollar rate loan and the last day of the Term Loan Facility, as applicable. Interest is payable at the rate per annum of the Eurodollar Rate (as defined in the Term Loan Facility) plus 10.25%. The Borrowers have the option of paying 3.00% interest per annum in kind by adding such amount to the principal of the Term Loans during no more than five fiscal quarters during the term of the Term Loan Facility.

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