10-Q

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission file number 1-13412

Hudson Technologies, Inc. 

(Exact name of registrant as specified in its charter)

New York	13-3641539
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1 Blue Hill Plaza
P.O. Box 1541
Pearl River, New York	10965
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code        (845) 735-6000

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value	HDSN	NASDAQ Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x	Smaller reporting company	x
		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common stock, $0.01 par value	42,664,275 shares
Class	Outstanding at August 1, 2020

Hudson Technologies, Inc.

Index

Part	Item		Page
Part I.	Financial Information
	Item 1	- Financial Statements
		- Consolidated Balance Sheets (unaudited)	3
		- Consolidated Statements of Operations (unaudited)	4
		- Consolidated Statements of Stockholders’ Equity (unaudited)	5
		- Consolidated Statements of Cash Flows (unaudited)	6
		- Notes to the Consolidated Financial Statements (unaudited)	7
	Item 2	- Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
	Item 3	- Quantitative and Qualitative Disclosures About Market Risk	34
	Item 4	- Controls and Procedures	34
Part II.	Other Information		35
	Item 1A	- Risk Factors	35
	Item 6	- Exhibits	35
	Signatures		36

2

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)

	June 30,			December 31,
	2020			2019
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	7,850		$	2,600
Trade accounts receivable – net		25,317			8,061
Inventories – net		48,570			59,238
Prepaid expenses and other current assets		3,622			4,525
Total current assets		85,359			74,424
Property, plant and equipment, less accumulated depreciation		22,108			23,674
Goodwill		47,803			47,803
Intangible assets, less accumulated amortization		24,580			26,012
Right of use asset		7,205			8,048
Other assets		180			192
Total Assets	$	187,235		$	180,153
Liabilities and Stockholders’ Equity
Current liabilities:
Trade accounts payable	$	12,140		$	10,274
Accrued expenses and other current liabilities		19,985			18,120
Accrued payroll		1,537			724
Short-term debt		15,931			14,000
Current maturities of long-term debt		5,743			3,008
Total current liabilities		55,336			46,126
Deferred tax liability		1,238			1,192
Long-term lease liabilities		4,710			5,742
Long-term debt, less current maturities		81,006			81,982
Total Liabilities		142,290			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 42,628,560 at June 30, 2020 and December 31, 2019		426			426
Additional paid-in capital		117,890			117,557
Accumulated deficit		(73,371	)		(72,872	)
Total Stockholders’ Equity		44,945			45,111
Total Liabilities and Stockholders’ Equity	$	187,235		$	180,153

 See Accompanying Notes to the Consolidated Financial Statements.

3

Hudson Technologies, Inc. and Subsidiaries 

Consolidated Statements of Operations

(unaudited)

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

	Three months ended June 30,						Six months ended June 30,
	2020			2019			2020			2019
Revenues	$	47,677		$	56,011		$	84,027		$	90,675
Cost of sales		34,996			58,377			62,999			86,056
Gross profit (loss)		12,681			(2,366	)		21,028			4,619
Operating expenses:
Selling, general and administrative		6,757			6,848			14,022			12,872
Amortization		716			753			1,432			1,474
Total operating expenses		7,473			7,601			15,454			14,346
Operating income (loss)		5,208			(9,967	)		5,574			(9,727	)
Other expense:
Net interest expense		(3,132	)		(4,267	)		(6,446	)		(8,474	)
Other income		8			508			11			508
Total other expense		(3,124	)		(3,759	)		(6,435	)		(7,966	)
Income (loss) before income taxes		2,084			(13,726	)		(861	)		(17,693	)
Income tax (benefit) expense		(302	)		71			(362	)		143
Net income (loss)	$	2,386		$	(13,797	)	$	(499	)	$	(17,836	)
Net income(loss) per common share – Basic	$	0.06		$	(0.32	)	$	(0.01	)	$	(0.42	)
Net income(loss) per common share – Diluted	$	0.06		$	(0.32	)	$	(0.01	)	$	(0.42	)
Weighted average number of shares outstanding – Basic		42,628,560			42,604,189			42,628,560			42,603,315
Weighted average number of shares outstanding – Diluted		42,917,562			42,604,189			42,628,560			42,603,315

See Accompanying Notes to the Consolidated Financial Statements.

4

Hudson Technologies, Inc. and Subsidiaries 

Consolidated Statements of Stockholders' Equity

(unaudited) 

(Amounts in thousands, except for share amounts)

Three Months Ended June 30,

	Common Stock				Additional
	Shares		Amount		Paid-in Capital		Accumulated Deficit			Total
Balance at April 1, 2019		42,602,431	$	426	$	116,096	$	(50,971	)	$	65,551
Issuance of common stock upon exercise of stock options		10,000				9					9
Stock compensation expense		-		-		251		-			251
Net loss		-		-		-		(13,797	)		(13,797	)
Balance at June 30, 2019		42,612,431	$	426	$	116,356	$	(64,768	)	$	52,014
Balance at April 1, 2020		42,628,560		426		117,682		(75,757	)		42,351
Stock compensation expense		-		-		208		-			208
Net income		-		-		-		2,386			2,386
Balance at June 30, 2020		42,628,560		426		117,890		(73,371	)		44,945

See Accompanying Notes to the Consolidated Financial Statements.

Six Months Ended June 30,

	Common Stock				Additional
	Shares		Amount		Paid-in Capital		Accumulated Deficit			Total
Balance at January 1, 2019		42,602,431	$	426	$	115,719	$	(46,932	)	$	69,213
Issuance of common stock upon exercise of stock options		10,000		-		9		-			9
Stock compensation expense		-		-		628		-			628
Net loss		-		-		-		(17,836	)		(17,836	)
Balance at June 30, 2019		42,612,431	$	426	$	116,356	$	(64,768	)	$	52,014
Balance at January 1, 2020		42,628,560		426		117,557		(72,872	)		45,111
Stock compensation expense		-		-		333		-			333
Net loss		-		-		-		(499	)		(499	)
Balance at June 30, 2020		42,628,560		426		117,890		(73,371	)		44,945

See Accompanying Notes to the Consolidated Financial Statements.

5

Hudson Technologies, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)

(Amounts in thousands)

	Six months ended June 30,
	2020			2019
Cash flows from operating activities:
Net loss	$	(499	)	$	(17,836	)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Depreciation		2,156			2,154
Amortization of intangible assets		1,432			1,474
Amortization of lease right of use asset, net		15			39
Non-cash operating lease expense		—			(502	)
Lower of cost or net realizable value reserve		(2,163	)		1,991
Allowance for doubtful accounts		427			(507	)
Stock compensation expense		333			628
Amortization of deferred finance costs		526			618
Deferred tax (benefit) expense		46			143
Changes in assets and liabilities:
Trade accounts receivable		(17,683	)		(13,478	)
Inventories		12,831			24,724
Prepaid and other assets		805			(1,749	)
Accounts payable and accrued expenses		4,338			(789	)
Cash provided by (used in) operating activities		2,564			(3,090	)
Cash flows from investing activities:
Additions to property, plant, and equipment		(590	)		(279	)
Cash used in investing activities		(590	)		(279	)
Cash flows from financing activities:
Proceeds from issuance of common stock		—			9
Borrowing of short-term debt – net		1,931			4,000
Borrowing – Paycheck Protection Program		2,475			—
Repayment of long-term debt		(1,130	)		(1,610	)
Cash provided by financing activities		3,276			2,399
Increase (decrease) in cash and cash equivalents		5,250			(970	)
Cash and cash equivalents at beginning of period		2,600			2,272
Cash and cash equivalents at end of period	$	7,850		$	1,302
Supplemental Disclosure of Cash Flow Information:
Cash paid during period for interest	$	5,997		$	7,894
Cash (refund) paid for income taxes – net	$	(58	)	$	8

See Accompanying Notes to the Consolidated Financial Statements.

6

Hudson Technologies, Inc. and Subsidiaries 

Notes to the Consolidated Financial Statements

Note 1 - Summary of Significant Accounting Policies

Business

Hudson Technologies, Inc., incorporated under the laws of New York on January 11, 1991, is a refrigerant services company providing innovative solutions to recurring problems within the refrigeration industry. The Company’s operations consist of one reportable segment. The Company's products and services are primarily used in commercial air conditioning, industrial processing and refrigeration systems, and include refrigerant and industrial gas sales, refrigerant management services consisting primarily of reclamation of refrigerants and RefrigerantSide® Services performed at a customer's site, consisting of system decontamination to remove moisture, oils and other contaminants. In addition, the Company’s SmartEnergy OPS® service is a web-based real time continuous monitoring service applicable to a facility’s refrigeration systems and other energy systems. The Company’s Chiller Chemistry® and Chill Smart® services are also predictive and diagnostic service offerings. As a component of the Company’s products and services, the Company also generates carbon offset projects. The Company operates principally through its wholly-owned 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 six months ended June 30, 2020, the effects of a novel strain of coronavirus ("COVID-19") pandemic and the related actions by governments around the world to attempt to contain the spread of the virus have materially impacted the global economy. While it is difficult to predict the full scale of the 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.

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. Operating results for the six-month period ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

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

Consolidation

The consolidated financial statements represent all companies of which Hudson directly or indirectly has majority ownership or otherwise controls. Significant intercompany accounts and transactions have been eliminated. The Company's consolidated financial statements include the accounts of wholly-owned subsidiaries Hudson Holdings, Inc., Hudson Technologies Company and Aspen Refrigerants, Inc. (“ARI”). The Company does not present a statement of comprehensive income (loss) as its comprehensive income (loss) is the same as its net income (loss).

7

Fair Value of Financial Instruments

The carrying values of financial instruments including cash, trade accounts receivable and trade accounts payable approximate fair value at June 30, 2020 and December 31, 2019, because of the relatively short maturity of these instruments. The carrying value of debt approximates fair value, due to the variable rate nature of the debt, as of June 30, 2020 and December 31, 2019.

Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of temporary cash investments and trade accounts receivable. The Company maintains its temporary cash investments in highly-rated financial institutions and, at times, the balances exceed FDIC insurance coverage. The Company’s trade accounts receivable are primarily due from companies throughout the United States. The Company reviews each customer’s credit history before extending credit.

The Company establishes an allowance for 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 balances. The Company adjusts its reserves based on factors that affect the collectability of the accounts receivable.

For the six month period ended June 30, 2020 there was one customer accounting for 12% of the Company’s revenues and at June 30, 2020 there were $2.0 million of accounts receivable from this customer.

For the six month period ended June 30, 2019, there was one customer accounting for 13% of the Company’s revenues and at June 30, 2019 there were $2.8 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.

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.

8

Goodwill

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

Beginning in 2017, the Company adopted, on a prospective basis, ASU No. 2017-04, which simplifies the accounting for goodwill impairment by eliminating Step 2 of the prior goodwill impairment test that required a hypothetical purchase price allocation to measure goodwill impairment. Under the new standard, a company will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value.

An impairment charge would be recognized when the carrying amount exceeds the estimated fair value of a reporting unit. These impairment evaluations use many assumptions and estimates in determining an impairment loss, including certain assumptions and estimates related to future earnings. If the Company does not achieve its earnings objectives, the assumptions and estimates underlying these impairment evaluations could be adversely affected, which could result in an asset impairment charge that would negatively impact operating results. In 2019, due to a significant selling price correction leading to unfavorable market conditions, the Company performed a quantitative test by weighing the results of an income-based valuation technique, the discounted cash flows method, and a market-based valuation technique, to determine 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 or the six months ended June 30, 2020.

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, 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 $10.3 million and $9.5 million at June 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.

9

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

In July 2016 the Company was awarded, as prime contractor, a five-year contract, including a five-year renewal option, by the United States Defense Logistics Agency (“DLA”) for the management, supply, and sale of refrigerants, compressed gases, cylinders and related services. Due to the contract containing multiple performance obligations, the Company assessed the arrangement in accordance with ASC 606. The Company determined that the sale of refrigerants and the management services provided under the contract each have stand-alone value. Accordingly, the performance obligations related to the sale of refrigerants is satisfied at a point in time, mainly when the customer receives and obtains control of the product. The performance obligation related to management service revenue is satisfied over time and revenue is recognized on a straight-line basis over the term of the arrangement as the management services are provided.

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

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-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company  has evaluated its options under the carryback provision and expects that it will result 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 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 $1,621,000 increase in allowable interest expense, which in turn results in an increase to our net operating losses of $1,621,000 in the quarter ended June 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.

10

As of June 30, 2020, the Company had NOLs of approximately $45.0 million, of which $39.6 million have no expiration date and $5.4 million expire through 2023. As of June 30, 2020, the Company had state tax NOLs of approximately $24.1 million expiring in various years. We review the likelihood that we will realize the benefit of our deferred tax assets, and therefore the need for valuation allowances, on an annual basis in the fourth quarter of the year, and more frequently if events indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results are considered, along with all other available positive and negative evidence.

Concluding that a valuation allowance is not required is difficult when there is significant negative evidence that is objective and verifiable, such as cumulative losses in recent years. We utilize a rolling twelve quarters of pre-tax income or loss adjusted for significant permanent book to tax differences, as well as non-recurring items, as a measure of our cumulative results in recent years. Based on our assessment as of December 31, 2018 and 2019, we concluded that due to the uncertainty that the deferred tax assets will not be fully realized in the future, we recorded a valuation allowance of approximately $11.3 million during 2018, and due to additional losses, increased the valuation allowance through 2019 and June 30, 2020, with an ending balance of $17.8 million as of June 30, 2020.

The Company evaluates uncertain tax positions, if any, by determining if it is more likely than not to be sustained upon examination by the taxing authorities. As of June 30, 2020, and December 31, 2019, 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) per share. The reconciliation of shares used to determine net income (loss) per share is as follows (dollars in thousands, unaudited):

	Three Months ended June 30,					Six Months ended June 30,
	2020		2019			2020			2019
Net income (loss)	$	2,386	$	(13,797	)	$	(499	)	$	(17,836	)
Weighted average number of shares – basic		42,628,560		42,604,189			42,628,560			42,603,315
Shares underlying options		289,002		--			--			--
Weighted average number of shares – diluted		42,917,562		42,604,189			42,628,560			42,603,315

During the three month periods ended June 30, 2020 and 2019, certain options aggregating 5,282,377 and 4,690,197 shares, respectively, have been excluded from the calculation of diluted shares, due to the fact that their effect would be anti-dilutive.

During the six month periods ended June 30, 2020 and 2019, certain options aggregating 7,042,377 and 4,690,197 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.

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

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

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

The Company is subject to various legal proceedings. The Company assesses the merit and potential liability associated with each of these proceedings. In addition, the Company estimates potential liability, if any, related to these matters. To the extent that these estimates are not accurate, or circumstances change in the future, the Company could realize liabilities, which could have a material adverse effect on its operating results and its financial position.

Impairment of Long-lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less the cost to sell.

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 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.

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Note 2 - Fair Value

ASC Subtopic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based upon observable inputs used in the valuation techniques, the Company is required to provide information according to the fair value hierarchy.

The fair value hierarchy ranks the quality and reliability of the information used to determine fair values into three broad levels as follows:

Level 1: Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2: Valuations for assets and liabilities traded in less active dealer or broker markets.  Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.

Level 3: Valuations for assets and liabilities include certain unobservable inputs in the assumptions and projections used in determining the fair value assigned to such assets or liabilities.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Note 3 - Inventories

Inventories consist of the following:

	June 30, 2020			December 31, 2019
(in thousands)	(unaudited)
Refrigerant and cylinders	$	59,477		$	72,088
Less:  net realizable value adjustments		(10,907	)		(12,850	)
Total	$	48,570		$	59,238

Note 4 - Property, plant and equipment

Elements of property, plant and equipment are as follows:

	June 30, 2020		December 31, 2019		Estimated Lives
(in thousands)	(unaudited)
Property, plant and equipment
- Land	$	1,255	$	1,255
- Land improvements		319		319	6-10 years
- Buildings		1,446		1,446	25-39 years
- Building improvements		3,072		3,045	25-39 years
- Cylinders		13,237		13,273	15-30 years
- Equipment		25,138		24,953	3-10 years
- Equipment under capital lease		315		315	5-7 years
- Vehicles		1,574		1,574	3-5 years
- Lab and computer equipment, software		3,103		3,077	2-8 years
- Furniture & fixtures		679		679	5-10 years
- Leasehold improvements		852		842	3-5 years
- Equipment under construction		451		73
Subtotal		51,441		50,851
Accumulated depreciation		29,333		27,177
Total	$	22,108	$	23,674

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Depreciation expense for the six months ended June 30, 2020 and 2019 was $2.1 million for both periods.

Note 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 expense 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 June 30, 2020.

Maturity of Lease Payments	June 30, 2020
(in thousands)
-2020 (remaining)	$	1,701
-2021		2,039
-2022		1,106
-2023		955
-Thereafter		3,860
Total undiscounted operating lease payments		9,661
Less imputed interest		(2,383	)
Present value of operating lease liabilities	$	7,278

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Balance Sheet Classification

Current lease liabilities (recorded in Accrued expenses and other current liabilities)	$	2,568
Long-term lease liabilities		4,710
Total operating lease liabilities	$	7,278

Other Information

Weighted-average remaining term for operating leases	5.35 years
Weighted-average discount rate for operating leases	8.76	%

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 $1.5 million during the six months ended June 30, 2020 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 no goodwill impairment losses recognized for the period ended June 30, 2020 and year ended December 31, 2019. Based on the results of the impairment assessments of goodwill and intangible assets performed, management concluded that the fair value of the Company’s goodwill exceeds the carrying value and that there are no impairment indicators related to intangible assets.

At June 30, 2020 and December 31, 2019 the Company had $47.8 million of goodwill.

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

			June 30, 2020						December 31, 2019
			(Unaudited)
	Amortization		Gross						Gross
	Period		Carrying		Accumulated				Carrying		Accumulated
(in thousands)	(in years)		Amount		Amortization		Net		Amount		Amortization		Net
Intangible assets with determinable lives
Patents		5	$	386	$	385	$	1	$	386	$	383	$	3
Covenant not to compete		6 - 10		1,270		860		410		1,270		783		487
Customer relationships		10 - 12		31,560		7,837		23,723		31,560		6,506		25,054
Above market leases		13		567		121		446		567		99		468
Totals identifiable intangible assets			$	33,783	$	9,203	$	24,580	$	33,783	$	7,771	$	26,012

Amortization expense for the six months ended June 30, 2020 and 2019 was $1.4 million and $1.5 million, respectively. 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.

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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 six month periods ended June 30, 2020 and 2019, share-based compensation expense of $0.3 million and $0.6 million, respectively, are reflected in selling, general and administrative expenses in the consolidated Statements of Operations.

Share-based awards have historically been made as stock options, and recently also as stock grants, issued pursuant to the terms of the Company’s stock option and stock incentive plans, (collectively, the “Plans”), described below. The Plans may be administered by the Board of Directors or the Compensation Committee of the Board or by another committee appointed by the Board from among its members as provided in the Plans. Presently, the Plans are administered by the Company’s Compensation Committee of the Board of Directors. As of June 30, 2020, there were 3,077,400 shares of the Company’s common stock available 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.

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.

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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 0 and 284,800 shares of common stock granted during the six-month periods ended June 30, 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
-Cancelled		(527,820	)	$	1.23
-Exercised		(10,000	)	$	0.89
-Granted		3,164,800		$	0.79
Outstanding at December 31, 2019 and June 30, 2020		7,042,377		$	1.01

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

	Number of Shares		Weighted Average Remaining Contractual Life	Weighted Average Exercise Price
Options outstanding and vested		6,699,877	2.9 years	$	1.03

The intrinsic value of options outstanding at June 30, 2020 and December 31, 2019 were $0.8 million and $0.7 million, respectively.

The intrinsic value of options unvested at June 30, 2020 and December 31, 2019 were $0.1 million and $0.3 million, respectively.

The intrinsic value of options exercised during the six months ended June 30, 2020 and 2019 were $0 and $11,100, respectively.

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Note 8 - Short-term and Long-term debt

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

	June 30, 2020			December 31, 2019
(in thousands)	(unaudited)
Short-term & long-term debt
Short-term debt:
- Revolving credit line and other debt	$	15,931		$	14,000
- Loan from Paycheck Protection Program- current		1,238			-
- Capital lease obligation- current		7			-
- Term loan facility - current		4,498			3,008
Subtotal		21,674			17,008
Long-term debt:
- Term Loan Facility- net of current portion of long-term debt		82,491			85,115
- Loan from Paycheck Protection Program- net of current portion		1,237			-
- Capital lease obligations		-			3
- Less: deferred financing costs on term loan		(2,722	)		(3,136	)
Subtotal		81,006			81,982
Total short-term & long-term debt	$	102,680		$	98,990

Revolving Credit Facility

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

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

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

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

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

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

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

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

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

Term Loan Facility

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

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

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

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.

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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 June 30, 2020 and December 31, 2019, the TLR was approximately 7.24 to 1 and 11.22 to 1, respectively.

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

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

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

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

The Fourth Amendment waived financial covenant defaults at June 30, 2019 and September 30, 2019 and amended the Term Loan Credit and Security Agreement dated October 10, 2017 (as previously amended, the “Term Loan Facility”) to reset the maximum Total Leverage Ratio covenant contained in the Term Loan Facility at the indicated dates as follows: (i) September 30, 2019 - 15.67:1.00; (ii) December 31, 2019 – 14.54:1.00; (iii) March 31, 2020 – 16.57:1.00; (iv) June 30, 2020 – 10.87:1.00; (v) September 30, 2020 – 8.89:1.00; (vi) December 31, 2020 – 8.89:1.00; (vii) March 31, 2021 – 7.75:1.00; (viii) June 30, 2021 – 7.03:1.00; (ix) September 30, 2021 – 6.08:1.00; and (x) December 31, 2021 – 5:36:1.00. The Fourth Amendment also reset the minimum liquidity requirement (consisting of cash plus undrawn availability on the Borrowers’ revolving loan facility) of $5 million, measured monthly. Furthermore, the Fourth Amendment added a minimum LTM Adjusted EBITDA covenant as of the indicated dates as follows: (i) September 30, 2019 - $7.887 million; (ii) December 31, 2019 – $7.954 million; (iii) March 31, 2020 – $7.359 million; (iv) June 30, 2020 – $11.745 million; (v) September 30, 2020 – $12.021 million; (vi) December 31, 2020 – $12.300 million; (vii) March 31, 2021 –$14.295 million; (viii) June 30, 2021 – $14.566 million; (ix) September 30, 2021 – $15.431 million; and (x) December 31, 2021 – $16.267 million.

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

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

The Fourth Amendment also adds 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.

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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 First, Second, Third, 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 first three amendments were a modification of the original term loan agreement for accounting purposes. As a result, the Company capitalized an additional $1.0 million of deferred financing costs in connection with the Second Amendment, which are being amortized over the remaining term. 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 June 30, 2020.

CARES Act Loan

On April 23, 2020 the Company received a loan in the amount of $2.475 million from Meridian Bank under the Paycheck Protection Program (“PPP”) pursuant to the CARES Act. The loan has a term of two years, is unsecured, and bears interest at a fixed rate of one percent per annum, with the first six months of principal and interest deferred. As a result of the COVID-19 pandemic, in applying for the loan the Company made a good faith assertion based upon the degree of uncertainty introduced to the capital markets and the industries affecting the Company's customers and the Company's dependency to curtail expenses to fund ongoing operations.  The PPP loan proceeds have been used in part to help offset payroll costs as stipulated in the legislation. All or a portion of the PPP loan may be forgiven by the U.S. Small Business Administration (“SBA”) upon application by the Company and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs and other covered areas, such as rent payments, mortgage interest and utilities, as applicable. The Company intends to comply with the loan forgiveness provisions in the legislation, however, there are no assurances that the Company will obtain full forgiveness of the loan based on current guidelines.

Vehicle and Equipment Loans

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

Capital Lease Obligations

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

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

Twelve Month Period Ending June 30,	Amount
(in thousands)
-2021	$	4,505
-2022		5,248
-2023		5,248
-2024		71,995
-Thereafter		—
Total	$	86,996

Note 9- Gain Contingency

On June 23, 2020, Kevin J. Zugibe, Chairman of the Board and Chief Executive Officer of the Company, passed away unexpectedly. The Company is currently evaluating a company-owned life insurance policy, with a face value of $1,000,000, to determine how much, if any, of the proceeds, will be awarded to the Company. Any potential future proceeds received by the Company will be recorded if and only when received.

Note 10 – 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 has served the Company in a consulting role. From May 6, 2019 through December 31, 2019, Mr. Mandracchia received a monthly consulting fee of $10,000 and such fee was increased to $12,000 per month effective January 1, 2020. During the period January 1, 2019 through May 3, 2019, Mr. Mandracchia was paid base salary of $94,656 and was issued a stock option to purchase 25,000 shares of Company common stock at an exercise price of $1.70 per share. Mr. Mandracchia is the brother-in-law of Kevin J. Zugibe, the Company’s former Chairman of the Board and Chief Executive Officer.

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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, 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.

Impact of COVID-19 Pandemic

During the six months ended June 30, 2020, the effects of a novel strain of coronavirus ("COVID-19") pandemic and the related actions by governments around the world to attempt to contain the spread of the virus have materially impacted the global economy.

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

• To ensure the health and safety of Hudson employees

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

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

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

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

- Keeping all plants open, while maintaining proper safety standards

- Directing all office personnel to work remotely, efficiently and safely

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

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

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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.

Although we are experiencing a time 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.

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 impairment by eliminating Step 2 of the prior goodwill impairment test that required a hypothetical purchase price allocation to measure goodwill impairment. Under the new standard, a company will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value.

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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 or the six months ended June 30, 2020.

Other Intangibles

Intangibles with determinable lives are amortized over the estimated useful lives of the assets currently ranging from 2 to 13 years. The Company reviews these useful lives annually to determine that they reflect future realizable value.

Income Taxes

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company  has evaluated its options under the carryback provision and expects that it will result 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 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 $1,621,000 increase in allowable interest expense, which in turn results in an increase to our net operating losses of $1,621,000 in the quarter ended June 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 June 30, 2020, the Company had NOLs of approximately $45.0 million, of which $39.6 million have no expiration date and $5.4 million expire through 2023. As of June 30, 2020, the Company had state tax NOLs of approximately $24.1 million expiring in various years. We review the likelihood that we will realize the benefit of our deferred tax assets, and therefore the need for valuation allowances, on an annual basis in the fourth quarter of the year, and more frequently if events indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results are considered, along with all other available positive and negative evidence.

Concluding that a valuation allowance is not required is difficult when there is significant negative evidence that is objective and verifiable, such as cumulative losses in recent years. We utilize a rolling twelve quarters of pre-tax income or loss adjusted for significant permanent book to tax differences, as well as non-recurring items, as a measure of our cumulative results in recent years. Based on our assessment as of December 31, 2018 and 2019, we concluded that due to the uncertainty that the deferred tax assets will not be fully realized in the future, we recorded a valuation allowance of approximately $11.3 million during 2018, and due to additional losses, increased the valuation allowance through 2019 and June 30, 2020, with an ending balance of $17.8 million as of June 30, 2020.

Overview

Sales of refrigerants continue to represent a significant majority of the Company’s revenues. The Company’s refrigerant sales are primarily HCFC and HFC based refrigerants and to a lesser extent CFC based refrigerants that are no longer manufactured. Currently the Company purchases virgin HCFC and HFC refrigerants and reclaimable HCFC, HFC and CFC refrigerants from suppliers and its customers.

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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 June 30, 2020 as compared to the three-month period ended June 30, 2019

Revenues for the three-month period ended June 30, 2020 were $47.7 million, a decrease of $8.3 million or 15% from the $56.0 million reported during the comparable 2019 period. Refrigerant volume declined by approximately 26%, partially offset by an 11% increase in pricing during the second quarter of 2020 when compared to the comparable period in 2019. 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 three-month period ended June 30, 2020 was $35.0 million or 73% of sales. The cost of sales for the three-month period ended June 30, 2019 was $58.4 million or 104% of sales. In 2019 and 2020, the Company has reduced its inventory cost by selling off higher cost layers of inventory. 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 both the three-month period ended June 30, 2020 and 2019 was $6.8 million. SG&A savings in reduced payroll-related expenses were offset by higher professional fees in 2020, mainly due to fees relating to the Chief Restructuring Officer, as required by the Fourth Amendment to the Term Loan Facility. Based on performance metrics achieved through the first two quarters of 2020, the Company will no longer be required to retain a Chief Restructuring Officer and will no longer incur such fees starting in August 2020.

Amortization expense for the three-month periods ended June 30, 2020 and 2019 was $0.7 million and $0.8 million, respectively.

Other expense for the three-month period ended June 30, 2020 was $3.1 million, compared to the $3.8 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.

The income tax benefit for the three-month period ended June 30, 2020 was $0.3 million compared to income tax expense of $0.1 million for the three month period ended June 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 June 30, 2020.

The net income for the three-month period ended June 30, 2020 was $2.4 million, an increase of $16.2 million from the $13.8 million of net loss reported during the comparable 2019 period, primarily due to reduced cost of sales and interest expense, partially offset by reduced revenues, as described above.

Six month period ended June 30, 2020 as compared to the six month period ended June 30, 2019

Revenues for the six month period ended June 30, 2020 were $84.0 million, a decrease of $6.7 million or 7% from the $90.7 million reported during the comparable 2019 period. Refrigerant volume declined by 10%, partially offset by a 3% increase in the average selling price of refrigerants. 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 six-month period ended June 30, 2020 was $63.0 million or 75% of sales. The cost of sales for the six-month period ended June 30, 2019 was $86.1 million or 95% 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 six-month period ended June 30, 2020 were $14.0 million, an increase of $1.1 million from the $12.9 million reported during the comparable 2019 period. The increase in SG&A was due to increased non-recurring professional fees, mainly relating to the services of the Chief Restructuring Officer, and a higher allowance for doubtful accounts.

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Amortization expense for the six-month period ended June 30, 2020 and 2019 was $1.4 million and $1.5 million, respectively.

Other expense for the six-month period ended June 30, 2020 was $6.4 million, compared to the $8.0 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.

The income tax benefit for the six-month period ended June 30, 2020 was $0.4 million compared to income tax expense of $0.1 million for the six month period ended June 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 June 30, 2020.

The net loss for the six-month period ended June 30, 2020 was $0.5 million, a decrease of $17.3 million from the $17.8 million of net loss reported during the comparable 2019 period, primarily due to reduced cost of sales and interest expense, partially offset by reduced revenues, as described above.

Liquidity and Capital Resources

At June 30, 2020, the Company had working capital, which represents current assets less current liabilities, of $30.0 million, an increase of $1.7 million from the working capital of $28.3 million at December 31, 2019. The increase in working capital is primarily attributable to timing of accounts receivable, inventory and debt.

Inventory and trade receivables are principal components of current assets. At June 30, 2020, the Company had inventories of $48.6 million, a decrease of $10.6 million from $59.2 million at December 31, 2019. The decrease in the inventory balance is primarily due to the sale of refrigerants and the timing and availability of inventory purchases. The Company’s ability to sell and replace its inventory on a timely basis and the prices at which it can be sold are subject, among other things, to current market conditions and the nature of supplier or customer arrangements and the Company’s ability to source CFC based refrigerants (which are no longer being produced), HCFC refrigerants (which are currently being phased down leading to a full phase out of virgin production), or non-CFC based refrigerants. At June 30, 2020, the Company had trade receivables, net of allowance for doubtful accounts, of $25.3 million, an increase of $17.2 million from $8.1 million at December 31, 2019, mainly due to seasonal factors and 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 six-month period ended June 30, 2020 was $2.6 million, when compared to net cash used in operating activities of $3.1 million for the comparable 2019 period. The variance is primarily due to timing of accounts receivable and inventory balances.

Net cash used in investing activities for the six-month period ended June 30, 2020 was $0.6 million compared with net cash used in investing activities of $0.3 million for the comparable 2019 period.

Net cash provided by financing activities for the six-month period ended June 30, 2020 was $3.3 million compared with net cash provided by financing activities of $2.4 million for the comparable 2019 period. The Company borrowed $2.1 million less from its revolver facility during the first six months of 2020 when compared to the first six months of 2019, but also had a $7.9 million cash balance at June 30, 2020 when compared to a $1.3 million cash balance at June 30, 2019. In addition, the Company received a loan of approximately $2.5 million pursuant to the PPP during the second quarter of 2020. The Company expects that almost the entire balance will be forgiven, but the process is not expected to be finalized until the end of 2020.

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At June 30, 2020, cash and cash equivalents were $7.9 million, or approximately $5.3 million higher than the $2.6 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.

Revolving Credit Facility

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

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

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

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

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

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

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

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

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

Term Loan Facility

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

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

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

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 June 30, 2020 and December 31, 2019, the TLR was approximately 7.24 to 1 and 11.22 to 1, respectively.

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

29

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

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

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

The Fourth Amendment waived financial covenant defaults at June 30, 2019 and September 30, 2019 and amended the Term Loan Credit and Security Agreement dated October 10, 2017 (as previously amended, the “Term Loan Facility”) to reset the maximum Total Leverage Ratio covenant contained in the Term Loan Facility at the indicated dates as follows: (i) September 30, 2019 - 15.67:1.00; (ii) December 31, 2019 – 14.54:1.00; (iii) March 31, 2020 – 16.57:1.00; (iv) June 30, 2020 – 10.87:1.00; (v) September 30, 2020 – 8.89:1.00; (vi) December 31, 2020 – 8.89:1.00; (vii) March 31, 2021 – 7.75:1.00; (viii) June 30, 2021 – 7.03:1.00; (ix) September 30, 2021 – 6.08:1.00; and (x) December 31, 2021 – 5:36:1.00. The Fourth Amendment also reset the minimum liquidity requirement (consisting of cash plus undrawn availability on the Borrowers’ revolving loan facility) of $5 million, measured monthly. Furthermore, the Fourth Amendment added a minimum LTM Adjusted EBITDA covenant as of the indicated dates as follows: (i) September 30, 2019 - $7.887 million; (ii) December 31, 2019 – $7.954 million; (iii) March 31, 2020 – $7.359 million; (iv) June 30, 2020 – $11.745 million; (v) September 30, 2020 – $12.021 million; (vi) December 31, 2020 – $12.300 million; (vii) March 31, 2021 –$14.295 million; (viii) June 30, 2021 – $14.566 million; (ix) September 30, 2021 – $15.431 million; and (x) December 31, 2021 – $16.267 million.

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

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

The Fourth Amendment also adds 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.

30

The Company evaluated the First, Second, Third, 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 first three amendments were a modification of the original term loan agreement for accounting purposes. As a result, the Company capitalized an additional $1.0 million of deferred financing costs in connection with the Second Amendment, which are being amortized over the remaining term. 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 June 30, 2020.

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

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

CARES Act Loan

On April 23, 2020 the Company received a loan in the amount of $2.475 million from Meridian Bank under the Paycheck Protection Program (“PPP”) pursuant to the CARES Act. The loan has a term of two years, is unsecured, and bears interest at a fixed rate of one percent per annum, with the first six months of principal and interest deferred. As a result of the COVID-19 pandemic, in applying for the loan the Company made a good faith assertion based upon the degree of uncertainty introduced to the capital markets and the industries affecting the Company's customers and the Company's dependency to curtail expenses to fund ongoing operations.  The PPP loan proceeds have been used in part to help offset payroll costs as stipulated in the legislation. All or a portion of the PPP loan may be forgiven by the U.S. Small Business Administration (“SBA”) upon application by the Company and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs and other covered areas, such as rent payments, mortgage interest and utilities, as applicable. The Company intends to comply with the loan forgiveness provisions in the legislation, however, there are no assurances that the Company will obtain full forgiveness of the loan based on current guidelines.

Inflation

Inflation has not historically had a material impact on the Company’s operations.

Reliance on Suppliers and Customers

The Company participates in an industry that is highly regulated, and changes in the regulations affecting our business could affect our operating results. Currently the Company purchases virgin HCFC and HFC refrigerants and reclaimable, primarily HCFC and CFC, refrigerants from suppliers and its customers. Under the Clean Air Act, the phase-down of future production of certain virgin HCFC refrigerants commenced in 2010 and has been fully phased out by 2020, and production of all virgin HCFC refrigerants is scheduled to be phased out by the year 2030. To the extent that the Company is unable to source sufficient quantities of refrigerants or is unable to obtain refrigerants on commercially reasonable terms or experiences a decline in demand and/or price for refrigerants sold by it, the Company could realize reductions in revenue from refrigerant sales, which could have a material adverse effect on the Company’s operating results and financial position.

31

For the six month period ended June 30, 2020 there was one customer accounting for 12% of the Company’s revenues, and at June 30, 2020 there were $2.0 million of accounts receivable from this customer.

For the six month period ended June 30, 2019, there was one customer accounting for 13% of the Company’s revenues, and at June 30, 2019 there were $2.8 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.

Seasonality and Weather Conditions and Fluctuations in Operating Results

The Company’s operating results vary from period to period as a result of weather conditions, requirements of potential customers, non-recurring refrigerant and service sales, availability and price of refrigerant products (virgin or reclaimable), changes in reclamation technology and regulations, timing in introduction and/or retrofit or replacement of refrigeration equipment, the rate of expansion of the Company’s operations, and by other factors. The Company’s business is seasonal in nature with peak sales of refrigerants occurring in the first nine months of each year. During past years, the seasonal decrease in sales of refrigerants has resulted in losses particularly in the fourth quarter of the year. In addition, to the extent that there is unseasonably cool weather throughout the spring and summer months, which would adversely affect the demand for refrigerants, there would be a corresponding negative impact on the Company. Delays or inability in securing adequate supplies of refrigerants at peak demand periods, lack of refrigerant demand, increased expenses, declining refrigerant prices and a loss of a principal customer could result in significant losses. There can be no assurance that the foregoing factors will not occur and result in a material adverse effect on the Company’s financial position and significant losses. The Company believes that to a lesser extent there is a similar seasonal element to RefrigerantSide® Service revenues as refrigerant sales.

Off-Balance Sheet Arrangements

None.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which revises guidance for the accounting for credit losses on financial instruments within its scope, and in November 2018, issued ASU No. 2018-19 and in April 2019, issued ASU No. 2019-04 and in May 2019, issued ASU No. 2019-05, and in November 2019, issued ASU No. 2019-11, which 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.

32

Item 3 - Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Sensitivity

We are exposed to market risk from fluctuations in interest rates on the Wells Fargo Facility and on the Term Loan Facility. The Wells Fargo Facility is a $60,000,000 secured facility, and the Term Loan Facility has a balance of $86,988,500 as of June 30, 2020.

There was a $15,930,892 outstanding balance on the Wells Fargo Facility as of June 30, 2020. Future interest rate changes on our borrowing under the Wells Fargo Facility may have an impact on our consolidated results of operations.

There was an $86,988,500 outstanding balance on the Term Loan Facility as of June 30, 2020. Future interest rate changes on our borrowing under the Term Loans may have an impact on our consolidated results of operations.

If the loan bearing interest rate changed by 1%, the annual effect on interest expense would be approximately $1.0 million as of June 30, 2020.

Refrigerant Market

We are also exposed to market risk from fluctuations in the demand, price and availability of refrigerants. To the extent that the Company is unable to source sufficient quantities of refrigerants or is unable to obtain refrigerants on commercially reasonable terms or experiences a decline in demand and/or price for refrigerants sold by the Company, the Company could realize reductions in revenue from refrigerant sales or write-downs of inventory, which could have a material adverse effect on our consolidated results of operations.

Item 4 - Controls and Procedures

Disclosure Controls and Procedures

The Company, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Because of the inherent limitations in all control systems, any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Furthermore, the Company’s controls and procedures can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control and misstatements due to error or fraud may occur and not be detected on a timely basis.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended June 30, 2020 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

33

PART II – OTHER INFORMATION

Item 1A – Risk Factors

Please refer to the Risk Factors Section in Part I, Item 1A of the Company’s Form 10-K for the year ended December 31, 2019. There have been no material changes to such matters during the quarter ended June 30, 2020, except for the following:

The COVID-19 pandemic may have certain negative impacts on our business and a material adverse effect on our results of operations, financial condition and cash flows.

The public health crisis caused by the COVID-19 pandemic and the measures being taken by governments, businesses, including us, and the public at large to limit COVID-19's spread may have certain negative impacts on our business including, without limitation, the following:

• We may experience a decrease in sales due to the COVID-19 pandemic. In particular, sales of our products to customers, such as schools, offices and government facilities, which have shut down, have been negatively impacted.   If the COVID-19 pandemic intensifies and expands geographically, its negative impacts on our sales and collectability of receivables could be more prolonged and may become more severe.

• Although we have not experienced this in the first half of 2020, future potential disruptions in supply chains may place constraints on our ability to source refrigerants, which may increase our processing costs.

• Governmental authorities in the United States and throughout the world may continue to increase or impose new income taxes or indirect taxes, or revise interpretations of existing tax rules and regulations, as a means of financing the costs of stimulus and other measures enacted or taken, or that may be enacted or taken in the future, to protect populations and economies from the impact of the COVID-19 pandemic. Such actions could have an adverse effect on our results of operations and cash flows.

• As a result of the COVID-19 pandemic, including related governmental guidance or directives, we have required most office-based employees to work remotely. We may experience reductions in productivity and disruptions to our business routines while our remote work policy remains in place.

• Actions we have taken or may take, or decisions we have made or may make, as a consequence of the COVID-19 pandemic may result in legal claims or litigation against us.

Any of the negative impacts of the COVID-19 pandemic, including those described above, alone or in combination with others, may have a material adverse effect on our results of operations, financial condition and cash flows. Any of these negative impacts, alone or in combination with others, could exacerbate many of the risk factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2019. The full extent to which the COVID-19 pandemic will negatively affect our results of operations, financial condition and cash flows will depend on future developments that are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.

Item 6 - Exhibits

Exhibit Number	Description
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101 Interactive Data Files Pursuant to Rule 405 of Regulation S-T

34

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

	HUDSON TECHNOLOGIES, INC.
By:	/s/ Brian F. Coleman	August 5, 2020
	Brian F. Coleman	Date
	Chairman of the Board, President and Chief Executive Officer

By:	/s/ Nat Krishnamurti	August 5, 2020
	Nat Krishnamurti	Date
	Chief Financial Officer

35

EX-31.1

Exhibit 31.1:

Hudson Technologies, Inc.

Certification of Principal Executive Officer

I, Brian F. Coleman, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Hudson Technologies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 5, 2020

/s/ Brian F. Coleman

Brian F. Coleman

Chairman of the Board, President and Chief Executive Officer

EX-31.2

Exhibit 31.2:

Hudson Technologies, Inc.

Certification of Principal Financial Officer

I, Nat Krishnamurti, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Hudson Technologies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 5, 2020

/s/ Nat Krishnamurti

Nat Krishnamurti

Chief Financial Officer

EX-32.1

Exhibit 32.1:

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Hudson Technologies, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brian F. Coleman, as Chairman of the Board, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Brian F. Coleman

Brian F. Coleman

Chairman of the Board, President and Chief Executive Officer

August 5, 2020

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Hudson Technologies, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Nat Krishnamurti, as Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Nat Krishnamurti

Nat Krishnamurti

Chief Financial Officer

August 5, 2020

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Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Trading Symbol	HDSN
Entity Common Stock, Shares Outstanding		42,664,275
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Small Business	true

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Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Current assets:
Cash and cash equivalents	$ 7,850	$ 2,600
Trade accounts receivable - net	25,317	8,061
Inventories - net	48,570	59,238
Prepaid expenses and other current assets	3,622	4,525
Total current assets	85,359	74,424
Property, plant and equipment, less accumulated depreciation	22,108	23,674
Goodwill	47,803	47,803
Intangible assets, less accumulated amortization	24,580	26,012
Right of use asset	7,205	8,048
Other assets	180	192
Total Assets	187,235	180,153
Current liabilities:
Trade accounts payable	12,140	10,274
Accrued expenses and other current liabilities	19,985	18,120
Accrued payroll	1,537	724
Short-term debt	15,931	14,000
Current maturities of long-term debt	5,743	3,008
Total current liabilities	55,336	46,126
Deferred tax liability	1,238	1,192
Long-term lease liabilities	4,710	5,742
Long-term debt, less current maturities	81,006	81,982
Total Liabilities	142,290	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	0	0
Common stock, $0.01 par value; shares authorized 100,000,000; issued and outstanding 42,628,560 at June 30, 2020 and December 31, 2019	426	426
Additional paid-in capital	117,890	117,557
Accumulated deficit	(73,371)	(72,872)
Total Stockholders' Equity	44,945	45,111
Total Liabilities and Stockholders' Equity	$ 187,235	$ 180,153

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Consolidated Balance Sheets (Parenthetical) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	100,000,000	100,000,000
Common stock, issued	42,628,560	42,628,560
Common stock, outstanding	42,628,560	42,628,560
Preferred Stock
Preferred stock, shares authorized	5,000,000	5,000,000
Series A Convertible Preferred Stock
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, liquidation preference value	$ 100.000	$ 100.000
Preferred stock, shares authorized	150,000	150,000
Preferred stock, issued	0	0
Preferred stock, outstanding	0	0

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Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Consolidated Statements of Operations
Revenues	$ 47,677	$ 56,011	$ 84,027	$ 90,675
Cost of sales	34,996	58,377	62,999	86,056
Gross profit (loss)	12,681	(2,366)	21,028	4,619
Operating expenses:
Selling, general and administrative	6,757	6,848	14,022	12,872
Amortization	716	753	1,432	1,474
Total operating expenses	7,473	7,601	15,454	14,346
Operating income (loss)	5,208	(9,967)	5,574	(9,727)
Other expense:
Net interest expense	(3,132)	(4,267)	(6,446)	(8,474)
Other income	8	508	11	508
Total other expense	(3,124)	(3,759)	(6,435)	(7,966)
Income (loss) before income taxes	2,084	(13,726)	(861)	(17,693)
Income tax (benefit) expense	(302)	71	(362)	143
Net income (loss)	$ 2,386	$ (13,797)	$ (499)	$ (17,836)
Net income (loss) per common share - Basic	$ 0.06	$ (0.32)	$ (0.01)	$ (0.42)
Net income (loss) per common share - Diluted	$ 0.06	$ (0.32)	$ (0.01)	$ (0.42)
Weighted average number of shares outstanding - Basic	42,628,560	42,604,189	42,628,560	42,603,315
Weighted average number of shares outstanding - Diluted	42,917,562	42,604,189	42,628,560	42,603,315

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Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Deficit [Member]	Total
Balance at Dec. 31, 2018	$ 426	$ 115,719	$ (46,932)	$ 69,213
Balance (in shares) at Dec. 31, 2018	42,602,431
Issuance of common stock upon exercise of stock options		9		9
Issuance of common stock upon exercise of stock options (in shares)	10,000
Stock compensation expense		628		628
Net loss			(17,836)	(17,836)
Balance at Jun. 30, 2019	$ 426	116,356	(64,768)	52,014
Balance (in shares) at Jun. 30, 2019	42,612,431
Balance at Dec. 31, 2018	$ 426	115,719	(46,932)	$ 69,213
Balance (in shares) at Dec. 31, 2018	42,602,431
Issuance of common stock upon exercise of stock options (in shares)				10,000
Balance at Dec. 31, 2019	$ 426	117,557	(72,872)	$ 45,111
Balance (in shares) at Dec. 31, 2019	42,628,560
Balance at Mar. 31, 2019	$ 426	116,096	(50,971)	65,551
Balance (in shares) at Mar. 31, 2019	42,602,431
Issuance of common stock upon exercise of stock options		9		9
Issuance of common stock upon exercise of stock options (in shares)	10,000
Stock compensation expense		251		251
Net loss			(13,797)	(13,797)
Balance at Jun. 30, 2019	$ 426	116,356	(64,768)	52,014
Balance (in shares) at Jun. 30, 2019	42,612,431
Balance at Dec. 31, 2019	$ 426	117,557	(72,872)	45,111
Balance (in shares) at Dec. 31, 2019	42,628,560
Stock compensation expense	$ 0	333	0	333
Stock compensation expense (in shares)	0
Net loss			(499)	(499)
Balance at Jun. 30, 2020	$ 426	117,890	(73,371)	44,945
Balance (in shares) at Jun. 30, 2020	42,628,560
Balance at Mar. 31, 2020	$ 426	117,682	(75,757)	42,351
Balance (in shares) at Mar. 31, 2020	42,628,560
Stock compensation expense		208		208
Net loss			2,386	2,386
Balance at Jun. 30, 2020	$ 426	$ 117,890	$ (73,371)	$ 44,945
Balance (in shares) at Jun. 30, 2020	42,628,560

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Cash flows from operating activities:
Net loss	$ (499)	$ (17,836)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Depreciation	2,156	2,154
Amortization of intangible assets	1,432	1,474
Non-cash operating lease expense	15	39
Noncash adjustment of cylinder deposits		(502)
Lower of cost or net realizable value reserve	(2,163)	1,991
Allowance for doubtful accounts	427	(507)
Stock compensation expense	333	628
Amortization of deferred finance costs	526	618
Deferred tax (benefit) expense	46	143
Changes in assets and liabilities:
Trade accounts receivable	(17,683)	(13,478)
Inventories	12,831	24,724
Prepaid and other assets	805	(1,749)
Accounts payable and accrued expenses	4,338	(789)
Cash provided by (used in) operating activities	2,564	(3,090)
Cash flows from investing activities:
Additions to property, plant, and equipment	(590)	(279)
Cash used in investing activities	(590)	(279)
Cash flows from financing activities:
Proceeds from issuance of common stock		9
Borrowing of short-term debt - net	1,931	4,000
Borrowing - Paycheck Protection Program	2,475	0
Repayment of long-term debt	(1,130)	(1,610)
Cash provided by financing activities	3,276	2,399
Increase (decrease) in cash and cash equivalents	5,250	(970)
Cash and cash equivalents at beginning of period	2,600	2,272
Cash and cash equivalents at end of period	7,850	1,302
Supplemental Disclosure of Cash Flow Information:
Cash paid during period for interest	5,997	7,894
Cash (refund) paid for income taxes- net	$ (58)	$ 8

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2020

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Note 1 - Summary of Significant Accounting Policies

Business

Hudson Technologies, Inc., incorporated under the laws of New York on January 11, 1991, is a refrigerant services company providing innovative solutions to recurring problems within the refrigeration industry. The Company’s operations consist of one reportable segment. The Company’s products and services are primarily used in commercial air conditioning, industrial processing and refrigeration systems, and include refrigerant and industrial gas sales, refrigerant management services consisting primarily of reclamation of refrigerants and RefrigerantSide® Services performed at a customer’s site, consisting of system decontamination to remove moisture, oils and other contaminants. In addition, the Company’s SmartEnergy OPS® service is a web-based real time continuous monitoring service applicable to a facility’s refrigeration systems and other energy systems. The Company’s Chiller Chemistry® and Chill Smart® services are also predictive and diagnostic service offerings. As a component of the Company’s products and services, the Company also generates carbon offset projects. The Company operates principally through its wholly-owned 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 six months ended June 30, 2020, the effects of a novel strain of coronavirus ("COVID-19") pandemic and the related actions by governments around the world to attempt to contain the spread of the virus have materially impacted the global economy.

While it is difficult to predict the full scale of the 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.

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. Operating results for the six-month period ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

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

Consolidation

The consolidated financial statements represent all companies of which Hudson directly or indirectly has majority ownership or otherwise controls. Significant intercompany accounts and transactions have been eliminated. The Company’s consolidated financial statements include the accounts of wholly-owned subsidiaries Hudson Holdings, Inc., Hudson Technologies Company and Aspen Refrigerants, Inc. (“ARI”). 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 June 30, 2020 and December 31, 2019, because of the relatively short maturity of these instruments. The carrying value of debt approximates fair value, due to the variable rate nature of the debt, as of June 30, 2020 and December 31, 2019.

Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of temporary cash investments and trade accounts receivable. The Company maintains its temporary cash investments in highly-rated financial institutions and, at times, the balances exceed FDIC insurance coverage. The Company’s trade accounts receivable are primarily due from companies throughout the United States. The Company reviews each customer’s credit history before extending credit.

The Company establishes an allowance for 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 balances. The Company adjusts its reserves based on factors that affect the collectability of the accounts receivable.

For the six month period ended June 30, 2020 there was one customer accounting for 12% of the Company’s revenues and at June 30, 2020 there were $2.0 million of accounts receivable from this customer.

For the six month period ended June 30, 2019, there was one customer accounting for 13% of the Company’s revenues and at June 30, 2019 there were $2.8 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.

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. Other intangible assets that meet certain criteria are amortized over their estimated useful lives.

Beginning in 2017, the Company adopted, on a prospective basis, ASU No. 2017-04, which simplifies the accounting for goodwill impairment by eliminating Step 2 of the prior goodwill impairment test that required a hypothetical purchase price allocation to measure goodwill impairment. Under the new standard, a company will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value.

An impairment charge would be recognized when the carrying amount exceeds the estimated fair value of a reporting unit. These impairment evaluations use many assumptions and estimates in determining an impairment loss, including certain assumptions and estimates related to future earnings. If the Company does not achieve its earnings objectives, the assumptions and estimates underlying these impairment evaluations could be adversely affected, which could result in an asset impairment charge that would negatively impact operating results. In 2019, due to a significant selling price correction leading to unfavorable market conditions, the Company performed a quantitative test by weighing the results of an income-based valuation technique, the discounted cash flows method, and a market-based valuation technique, to determine 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 or the six months ended June 30, 2020.

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, 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 $10.3 million and $9.5 million at June 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.

In July 2016 the Company was awarded, as prime contractor, a five-year contract, including a five-year renewal option, by the United States Defense Logistics Agency (“DLA”) for the management, supply, and sale of refrigerants, compressed gases, cylinders and related services. Due to the contract containing multiple performance obligations, the Company assessed the arrangement in accordance with ASC 606. The Company determined that the sale of refrigerants and the management services provided under the contract each have stand-alone value. Accordingly, the performance obligations related to the sale of refrigerants is satisfied at a point in time, mainly when the customer receives and obtains control of the product. The performance obligation related to management service revenue is satisfied over time and revenue is recognized on a straight-line basis over the term of the arrangement as the management services are provided.

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

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-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company has evaluated its options under the carryback provision and expects that it will result 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 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 $1,621,000 increase in allowable interest expense, which in turn results in an increase to our net operating losses of $1,621,000 in the quarter ended June 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 June 30, 2020, the Company had NOLs of approximately $45.0 million, of which $39.6 million have no expiration date and $5.4 million expire through 2023. As of June 30, 2020, the Company had state tax NOLs of approximately $24.1 million expiring in various years. We review the likelihood that we will realize the benefit of our deferred tax assets, and therefore the need for valuation allowances, on an annual basis in the fourth quarter of the year, and more frequently if events indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results are considered, along with all other available positive and negative evidence.

Concluding that a valuation allowance is not required is difficult when there is significant negative evidence that is objective and verifiable, such as cumulative losses in recent years. We utilize a rolling twelve quarters of pre-tax income or loss adjusted for significant permanent book to tax differences, as well as non-recurring items, as a measure of our cumulative results in recent years. Based on our assessment as of December 31, 2018 and 2019, we concluded that due to the uncertainty that the deferred tax assets will not be fully realized in the future, we recorded a valuation allowance of approximately $11.3 million during 2018, and due to additional losses, increased the valuation allowance through 2019 and June 30, 2020, with an ending balance of $17.8 million as of June 30, 2020.

The Company evaluates uncertain tax positions, if any, by determining if it is more likely than not to be sustained upon examination by the taxing authorities. As of June 30, 2020, and December 31, 2019, 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) per share. The reconciliation of shares used to determine net income (loss) per share is as follows (dollars in thousands, unaudited):

	Three Months				Six Months
	ended June 30,				ended June 30,
	2020		2019		2020		2019
Net income (loss)	$	2,386	$	(13,797)	$	(499)	$	(17,836)
Weighted average number of shares - basic		42,628,560		42,604,189		42,628,560		42,603,315
Shares underlying options		289,002		—		—		—
Weighted average number of shares - diluted		42,917,562		42,604,189		42,628,560		42,603,315

During the three month periods ended June 30, 2020 and 2019, certain options aggregating 5,282,377 and 4,690,197 shares, respectively, have been excluded from the calculation of diluted shares, due to the fact that their effect would be anti-dilutive.

During the six month periods ended June 30, 2020 and 2019, certain options aggregating 7,042,377 and 4,690,197 shares, respectively, have been excluded from the calculation of diluted shares, due to the fact that their effect would be anti-dilutive.

Estimates and Risks

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

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

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

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

The Company is subject to various legal proceedings. The Company assesses the merit and potential liability associated with each of these proceedings. In addition, the Company estimates potential liability, if any, related to these matters. To the extent that these estimates are not accurate, or circumstances change in the future, the Company could realize liabilities, which could have a material adverse effect on its operating results and its financial position.

Impairment of Long-lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less the cost to sell.

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 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.

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Fair Value

6 Months Ended

Jun. 30, 2020

Fair Value

Fair Value

Note 2 - Fair Value

ASC Subtopic 820‑10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based upon observable inputs used in the valuation techniques, the Company is required to provide information according to the fair value hierarchy.

The fair value hierarchy ranks the quality and reliability of the information used to determine fair values into three broad levels as follows:

Level 1: Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2: Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.

Level 3: Valuations for assets and liabilities include certain unobservable inputs in the assumptions and projections used in determining the fair value assigned to such assets or liabilities.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

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Inventories

6 Months Ended

Jun. 30, 2020

Inventories

Inventories

Note 3 - Inventories

Inventories consist of the following:

	June 30,		December 31,
	2020		2019
(in thousands)	(unaudited)
Refrigerant and cylinders	$	59,477	$	72,088
Less:  net realizable value adjustments		(10,907)		(12,850)
Total	$	48,570	$	59,238

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Property, plant and equipment

6 Months Ended

Jun. 30, 2020

Property, plant and equipment

Property, plant and equipment

Note 4 - Property, plant and equipment

Elements of property, plant and equipment are as follows:

	June 30,		December 31,		Estimated
	2020		2019		Lives
(in thousands)	(unaudited)
Property, plant and equipment
- Land	$	1,255	$	1,255
- Land improvements		319		319	6-10 years
- Buildings		1,446		1,446	25-39 years
- Building improvements		3,072		3,045	25-39 years
- Cylinders		13,237		13,273	15-30 years
- Equipment		25,138		24,953	3-10 years
- Equipment under capital lease		315		315	5-7 years
- Vehicles		1,574		1,574	3-5 years
- Lab and computer equipment, software		3,103		3,077	2-8 years
- Furniture & fixtures		679		679	5-10 years
- Leasehold improvements		852		842	3-5 years
- Equipment under construction		451		73
Subtotal		51,441		50,851
Accumulated depreciation		29,333		27,177
Total	$	22,108	$	23,674

Depreciation expense for the six months ended June 30, 2020 and 2019 was $2.1 million for both periods.

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Leases

6 Months Ended

Jun. 30, 2020

Leases

Leases

Note 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 expense 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 June 30, 2020.

Maturity of Lease Payments	June 30, 2020
(in thousands)
‑2020 (remaining)	$	1,701
‑2021		2,039
‑2022		1,106
‑2023		955
-Thereafter		3,860
Total undiscounted operating lease payments		9,661
Less imputed interest		(2,383)
Present value of operating lease liabilities	$	7,278

Balance Sheet Classification

Current lease liabilities (recorded in Accrued expenses and other current liabilities)	$	2,568
Long-term lease liabilities		4,710
Total operating lease liabilities	$	7,278

Other Information

Weighted-average remaining term for operating leases	5.35	years
Weighted -average discount rate for operating leases	8.76	%

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 $1.5 million during the six months ended June 30, 2020 and is included in operating cash flows.

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Goodwill and intangible assets

6 Months Ended

Jun. 30, 2020

Goodwill and intangible assets

Goodwill and intangible assets

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 no goodwill impairment losses recognized for the period ended June 30, 2020 and year ended December 31, 2019. Based on the results of the impairment assessments of goodwill and intangible assets performed, management concluded that the fair value of the Company’s goodwill exceeds the carrying value and that there are no impairment indicators related to intangible assets.

At June 30, 2020 and December 31, 2019 the Company had $47.8 million of goodwill.

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

		June 30, 2020						December 31, 2019
		(Unaudited)
	Amortization	Gross						Gross
	Period	Carrying		Accumulated				Carrying		Accumulated
(in thousands)	(in years)	Amount		Amortization			Net	Amount		Amortization			Net
Intangible assets with determinable lives
Patents	5	$	386	$	385	$	1	$	386	$	383	$	3
Covenant not to compete	6 - 10		1,270		860		410		1,270		783		487
Customer relationships	10 - 12		31,560		7,837		23,723		31,560		6,506		25,054
Above market leases	13		567		121		446		567		99		468
Totals identifiable intangible assets		$	33,783	$	9,203	$	24,580	$	33,783	$	7,771	$	26,012

Amortization expense for the six months ended June 30, 2020 and 2019 was $1.4 million and $1.5 million, respectively. 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.

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Share-based compensation

6 Months Ended

Jun. 30, 2020

Share-based compensation

Share-based compensation

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 six month periods ended June 30, 2020 and 2019, share-based compensation expense of $0.3 million and $0.6 million, respectively, are reflected in selling, general and administrative expenses in the consolidated Statements of Operations.

Share-based awards have historically been made as stock options, and recently also as stock grants, issued pursuant to the terms of the Company’s stock option and stock incentive plans, (collectively, the “Plans”), described below. The Plans may be administered by the Board of Directors or the Compensation Committee of the Board or by another committee appointed by the Board from among its members as provided in the Plans. Presently, the Plans are administered by the Company’s Compensation Committee of the Board of Directors. As of June 30, 2020, there were 3,077,400 shares of the Company’s common stock available 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.

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 0 and 284,800 shares of common stock granted during the six-month periods ended June 30, 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:

		Weighted
		Average
		Exercise
Stock Option Totals	Shares	Price
Outstanding at January 1, 2019	4,415,397	$	1.20
-Cancelled	(527,820)	$	1.23
-Exercised	(10,000)	$	0.89
-Granted	3,164,800	$	0.79
Outstanding at December 31, 2019 and June 30, 2020	7,042,377	$	1.01

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

		Weighted
		Average		Weighted
		Remaining		Average
	Number of	Contractual		Exercise
	Shares	Life		Price
Options outstanding and vested	6,699,877	2.9	years	$	1.03

The intrinsic value of options outstanding at June 30, 2020 and December 31, 2019 were $0.8 million and $0.7 million, respectively.

The intrinsic value of options unvested at June 30, 2020 and December 31, 2019 were $0.1 million and $0.3 million, respectively.

The intrinsic value of options exercised during the six months ended June 30, 2020 and 2019 were $0 and $11,100, respectively.

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Short-term and Long-term debt

6 Months Ended

Jun. 30, 2020

Short-term and Long-term debt

Short-term and Long-term debt

Note 8 - Short-term and Long-term debt

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

	June 30,		December 31,
	2020		2019
(in thousands)		(unaudited)
Short-term & long-term debt
Short-term debt:
- Revolving credit line and other debt	$	15,931	$	14,000
- Loan from Paycheck Protection Program- current		1,238		—
- Capital lease obligation- current		7		—
- Term loan facility- current		4,498		3,008
Subtotal		21,674		17,008
Long-term debt:
- Term Loan Facility- net of current portion of long-term debt		82,491		85,115
- Loan from Paycheck Protection Program- net of current portion		1,237		—
- Capital lease obligations		—		3
- Less: deferred financing costs on term loan		(2,722)		(3,136)
Subtotal		81,006		81,982
Total short-term & long-term debt	$	102,680	$	98,990

Revolving Credit Facility

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

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

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

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

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

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

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

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

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

Term Loan Facility

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

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

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

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

The Term Loan Facility contains a financial covenant requiring the Company to maintain a specified total leverage ratio (“TLR”), tested as of the last day of the fiscal quarter. The TLR (as defined in the Term Loan Facility) is the ratio of (a) funded debt as of such day to (b) EBITDA for the four consecutive fiscal quarters ending on the last day of such fiscal quarter. Funded debt (as defined in the Term Loan Facility) includes amounts borrowed under the Wells Fargo Facility and the Term Loan Facility as well as capitalized lease obligations and other indebtedness for borrowed money maturing more than one year from the date of creation thereof. As of June 30, 2020 and December 31, 2019, the TLR was approximately 7.24 to 1 and 11.22 to 1, respectively.

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

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

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

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

The Fourth Amendment waived financial covenant defaults at June 30, 2019 and September 30, 2019 and amended the Term Loan Credit and Security Agreement dated October 10, 2017 (as previously amended, the “Term Loan Facility”) to reset the maximum Total Leverage Ratio covenant contained in the Term Loan Facility at the indicated dates as follows: (i) September 30, 2019 - 15.67:1.00; (ii) December 31, 2019 – 14.54:1.00; (iii) March 31, 2020 – 16.57:1.00; (iv) June 30, 2020 – 10.87:1.00; (v) September 30, 2020 – 8.89:1.00; (vi) December 31, 2020 – 8.89:1.00; (vii) March 31, 2021 – 7.75:1.00; (viii) June 30, 2021 – 7.03:1.00; (ix) September 30, 2021 – 6.08:1.00; and (x) December 31, 2021 – 5:36:1.00. The Fourth Amendment also reset the minimum liquidity requirement (consisting of cash plus undrawn availability on the Borrowers’ revolving loan facility) of $5 million, measured monthly. Furthermore, the Fourth Amendment added a minimum LTM Adjusted EBITDA covenant as of the indicated dates as follows: (i) September 30, 2019 - $7.887 million; (ii) December 31, 2019 – $7.954 million; (iii) March 31, 2020 – $7.359 million; (iv) June 30, 2020 – $11.745 million; (v) September 30, 2020 – $12.021 million;  (vi) December 31, 2020 – $12.300  million; (vii) March 31, 2021 –$14.295 million; (viii) June 30, 2021 – $14.566 million; (ix) September 30, 2021 – $15.431 million; and (x) December 31, 2021 – $16.267 million.

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

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

The Fourth Amendment also adds 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 First, Second, Third, 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 first three amendments were a modification of the original term loan agreement for accounting purposes. As a result, the Company capitalized an additional $1.0 million of deferred financing costs in connection with the Second Amendment, which are being amortized over the remaining term. 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 June 30, 2020.

CARES Act Loan

On April 23, 2020 the Company received a loan in the amount of $2.475 million from Meridian Bank under the Paycheck Protection Program (“PPP”) pursuant to the CARES Act. The loan has a term of two years, is unsecured, and bears interest at a fixed rate of one percent per annum, with the first six months of principal and interest deferred. As a result of the COVID-19 pandemic, in applying for the loan the Company made a good faith assertion based upon the degree of uncertainty introduced to the capital markets and the industries affecting the Company's customers and the Company's dependency to curtail expenses to fund ongoing operations. The PPP loan proceeds have been used in part to help offset payroll costs as stipulated in the legislation. All or a portion of the PPP loan may be forgiven by the U.S. Small Business Administration (“SBA”) upon application by the Company and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs and other covered areas, such as rent payments, mortgage interest and utilities, as applicable. The Company intends to comply with the loan forgiveness provisions in the legislation, however, there are no assurances that the Company will obtain full forgiveness of the loan based on current guidelines.

Vehicle and Equipment Loans

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

Capital Lease Obligations

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

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

Twelve Month Period Ending June 30,	Amount
(in thousands)
‑2021	$	4,505
‑2022		5,248
‑2023		5,248
‑2024		71,995
‑Thereafter		—
Total	$	86,996

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Gain Contingency

6 Months Ended

Jun. 30, 2020

Gain Contingency

Gain Contingency

Note 9- Gain Contingency

On June 23, 2020, Kevin J. Zugibe, Chairman of the Board and Chief Executive Officer of the Company, passed away unexpectedly. The Company is currently evaluating a company-owned life insurance policy, with a face value of $1,000,000, to determine how much, if any, of the proceeds, will be awarded to the Company. Any potential future proceeds received by the Company will be recorded if and only when received.

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Related Party Transactions

6 Months Ended

Jun. 30, 2020

Related Party Transactions

Related Party Transactions

Note 10 – 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 has served the Company in a consulting role. From May 6, 2019 through December 31, 2019, Mr. Mandracchia received a monthly consulting fee of $10,000 and such fee was increased to $12,000 per month effective January 1, 2020. During the period January 1, 2019 through May 3, 2019, Mr. Mandracchia was paid base salary of $94,656 and was issued a stock option to purchase 25,000 shares of Company common stock at an exercise price of $1.70 per share. Mr. Mandracchia is the brother-in-law of Kevin J. Zugibe, the Company’s former Chairman of the Board and Chief Executive Officer.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2020

Summary of Significant Accounting Policies

Business

Business

Hudson Technologies, Inc., incorporated under the laws of New York on January 11, 1991, is a refrigerant services company providing innovative solutions to recurring problems within the refrigeration industry. The Company’s operations consist of one reportable segment. The Company’s products and services are primarily used in commercial air conditioning, industrial processing and refrigeration systems, and include refrigerant and industrial gas sales, refrigerant management services consisting primarily of reclamation of refrigerants and RefrigerantSide® Services performed at a customer’s site, consisting of system decontamination to remove moisture, oils and other contaminants. In addition, the Company’s SmartEnergy OPS® service is a web-based real time continuous monitoring service applicable to a facility’s refrigeration systems and other energy systems. The Company’s Chiller Chemistry® and Chill Smart® services are also predictive and diagnostic service offerings. As a component of the Company’s products and services, the Company also generates carbon offset projects. The Company operates principally through its wholly-owned 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 six months ended June 30, 2020, the effects of a novel strain of coronavirus ("COVID-19") pandemic and the related actions by governments around the world to attempt to contain the spread of the virus have materially impacted the global economy.

While it is difficult to predict the full scale of the 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.

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. Operating results for the six-month period ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

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

Consolidation

Consolidation

The consolidated financial statements represent all companies of which Hudson directly or indirectly has majority ownership or otherwise controls. Significant intercompany accounts and transactions have been eliminated. The Company’s consolidated financial statements include the accounts of wholly-owned subsidiaries Hudson Holdings, Inc., Hudson Technologies Company and Aspen Refrigerants, Inc. (“ARI”). 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

Fair Value of Financial Instruments

The carrying values of financial instruments including cash, trade accounts receivable and trade accounts payable approximate fair value at June 30, 2020 and December 31, 2019, because of the relatively short maturity of these instruments. The carrying value of debt approximates fair value, due to the variable rate nature of the debt, as of June 30, 2020 and December 31, 2019.

Credit Risk

Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of temporary cash investments and trade accounts receivable. The Company maintains its temporary cash investments in highly-rated financial institutions and, at times, the balances exceed FDIC insurance coverage. The Company’s trade accounts receivable are primarily due from companies throughout the United States. The Company reviews each customer’s credit history before extending credit.

The Company establishes an allowance for 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 balances. The Company adjusts its reserves based on factors that affect the collectability of the accounts receivable.

For the six month period ended June 30, 2020 there was one customer accounting for 12% of the Company’s revenues and at June 30, 2020 there were $2.0 million of accounts receivable from this customer.

For the six month period ended June 30, 2019, there was one customer accounting for 13% of the Company’s revenues and at June 30, 2019 there were $2.8 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

Cash and Cash Equivalents

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

Inventories

Inventories

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

Property, Plant and Equipment

Property, Plant and Equipment

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

Goodwill

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

Beginning in 2017, the Company adopted, on a prospective basis, ASU No. 2017-04, which simplifies the accounting for goodwill impairment by eliminating Step 2 of the prior goodwill impairment test that required a hypothetical purchase price allocation to measure goodwill impairment. Under the new standard, a company will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value.

An impairment charge would be recognized when the carrying amount exceeds the estimated fair value of a reporting unit. These impairment evaluations use many assumptions and estimates in determining an impairment loss, including certain assumptions and estimates related to future earnings. If the Company does not achieve its earnings objectives, the assumptions and estimates underlying these impairment evaluations could be adversely affected, which could result in an asset impairment charge that would negatively impact operating results. In 2019, due to a significant selling price correction leading to unfavorable market conditions, the Company performed a quantitative test by weighing the results of an income-based valuation technique, the discounted cash flows method, and a market-based valuation technique, to determine 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 or the six months ended June 30, 2020.

Leases

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

Cylinder Deposit Liability

The cylinder deposit liability, which is included in Accrued expenses and other current liabilities on the Company’s Balance Sheet, represents the amount due to customers for the return of refillable cylinders.  ARI charges its customers cylinder deposits upon the shipment of refrigerant gases that are contained in refillable cylinders.  The amount charged to the customer by ARI approximates the cost of a new cylinder of the same size.  Upon return of a cylinder, this liability is reduced.  The cylinder deposit liability was assumed as part of the ARI acquisition and the balance was $10.3 million and $9.5 million at June 30, 2020 and December 31, 2019, respectively.

Revenues and Cost of Sales

Revenues and Cost of Sales

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

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

In July 2016 the Company was awarded, as prime contractor, a five-year contract, including a five-year renewal option, by the United States Defense Logistics Agency (“DLA”) for the management, supply, and sale of refrigerants, compressed gases, cylinders and related services. Due to the contract containing multiple performance obligations, the Company assessed the arrangement in accordance with ASC 606. The Company determined that the sale of refrigerants and the management services provided under the contract each have stand-alone value. Accordingly, the performance obligations related to the sale of refrigerants is satisfied at a point in time, mainly when the customer receives and obtains control of the product. The performance obligation related to management service revenue is satisfied over time and revenue is recognized on a straight-line basis over the term of the arrangement as the management services are provided.

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

Income Taxes

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-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company has evaluated its options under the carryback provision and expects that it will result 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 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 $1,621,000 increase in allowable interest expense, which in turn results in an increase to our net operating losses of $1,621,000 in the quarter ended June 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 June 30, 2020, the Company had NOLs of approximately $45.0 million, of which $39.6 million have no expiration date and $5.4 million expire through 2023. As of June 30, 2020, the Company had state tax NOLs of approximately $24.1 million expiring in various years. We review the likelihood that we will realize the benefit of our deferred tax assets, and therefore the need for valuation allowances, on an annual basis in the fourth quarter of the year, and more frequently if events indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results are considered, along with all other available positive and negative evidence.

Concluding that a valuation allowance is not required is difficult when there is significant negative evidence that is objective and verifiable, such as cumulative losses in recent years. We utilize a rolling twelve quarters of pre-tax income or loss adjusted for significant permanent book to tax differences, as well as non-recurring items, as a measure of our cumulative results in recent years. Based on our assessment as of December 31, 2018 and 2019, we concluded that due to the uncertainty that the deferred tax assets will not be fully realized in the future, we recorded a valuation allowance of approximately $11.3 million during 2018, and due to additional losses, increased the valuation allowance through 2019 and June 30, 2020, with an ending balance of $17.8 million as of June 30, 2020.

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

Net Income (Loss) per Common and Equivalent Shares

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

	Three Months				Six Months
	ended June 30,				ended June 30,
	2020		2019		2020		2019
Net income (loss)	$	2,386	$	(13,797)	$	(499)	$	(17,836)
Weighted average number of shares - basic		42,628,560		42,604,189		42,628,560		42,603,315
Shares underlying options		289,002		—		—		—
Weighted average number of shares - diluted		42,917,562		42,604,189		42,628,560		42,603,315

During the three month periods ended June 30, 2020 and 2019, certain options aggregating 5,282,377 and 4,690,197 shares, respectively, have been excluded from the calculation of diluted shares, due to the fact that their effect would be anti-dilutive.

During the six month periods ended June 30, 2020 and 2019, certain options aggregating 7,042,377 and 4,690,197 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

Estimates and Risks

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

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

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

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

The Company is subject to various legal proceedings. The Company assesses the merit and potential liability associated with each of these proceedings. In addition, the Company estimates potential liability, if any, related to these matters. To the extent that these estimates are not accurate, or circumstances change in the future, the Company could realize liabilities, which could have a material adverse effect on its operating results and its financial position.

Impairment of Long-lived Assets

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

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 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.

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Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2020

Summary of Significant Accounting Policies

Schedule of reconciliation of shares used to determine net loss per share

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

	Three Months				Six Months
	ended June 30,				ended June 30,
	2020		2019		2020		2019
Net income (loss)	$	2,386	$	(13,797)	$	(499)	$	(17,836)
Weighted average number of shares - basic		42,628,560		42,604,189		42,628,560		42,603,315
Shares underlying options		289,002		—		—		—
Weighted average number of shares - diluted		42,917,562		42,604,189		42,628,560		42,603,315

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Inventories (Tables)

6 Months Ended

Jun. 30, 2020

Inventories

Schedule of inventories

Inventories consist of the following:

	June 30,		December 31,
	2020		2019
(in thousands)	(unaudited)
Refrigerant and cylinders	$	59,477	$	72,088
Less:  net realizable value adjustments		(10,907)		(12,850)
Total	$	48,570	$	59,238

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Property, plant and equipment (Tables)

6 Months Ended

Jun. 30, 2020

Property, plant and equipment

Schedule of elements of property, plant and equipment

Elements of property, plant and equipment are as follows:

	June 30,		December 31,		Estimated
	2020		2019		Lives
(in thousands)	(unaudited)
Property, plant and equipment
- Land	$	1,255	$	1,255
- Land improvements		319		319	6-10 years
- Buildings		1,446		1,446	25-39 years
- Building improvements		3,072		3,045	25-39 years
- Cylinders		13,237		13,273	15-30 years
- Equipment		25,138		24,953	3-10 years
- Equipment under capital lease		315		315	5-7 years
- Vehicles		1,574		1,574	3-5 years
- Lab and computer equipment, software		3,103		3,077	2-8 years
- Furniture & fixtures		679		679	5-10 years
- Leasehold improvements		852		842	3-5 years
- Equipment under construction		451		73
Subtotal		51,441		50,851
Accumulated depreciation		29,333		27,177
Total	$	22,108	$	23,674

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Leases (Tables)

6 Months Ended

Jun. 30, 2020

Leases

Schedule of maturity of lease payments

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

Maturity of Lease Payments	June 30, 2020
(in thousands)
‑2020 (remaining)	$	1,701
‑2021		2,039
‑2022		1,106
‑2023		955
-Thereafter		3,860
Total undiscounted operating lease payments		9,661
Less imputed interest		(2,383)
Present value of operating lease liabilities	$	7,278

Schedule of balance sheet classification of lease liabilities

Current lease liabilities (recorded in Accrued expenses and other current liabilities)	$	2,568
Long-term lease liabilities		4,710
Total operating lease liabilities	$	7,278

Schedule of other information of operating leases

Weighted-average remaining term for operating leases	5.35	years
Weighted -average discount rate for operating leases	8.76	%

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Goodwill and intangible assets (Tables)

6 Months Ended

Jun. 30, 2020

Goodwill and intangible assets

Schedule of company's other intangible assets

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

		June 30, 2020						December 31, 2019
		(Unaudited)
	Amortization	Gross						Gross
	Period	Carrying		Accumulated				Carrying		Accumulated
(in thousands)	(in years)	Amount		Amortization			Net	Amount		Amortization			Net
Intangible assets with determinable lives
Patents	5	$	386	$	385	$	1	$	386	$	383	$	3
Covenant not to compete	6 - 10		1,270		860		410		1,270		783		487
Customer relationships	10 - 12		31,560		7,837		23,723		31,560		6,506		25,054
Above market leases	13		567		121		446		567		99		468
Totals identifiable intangible assets		$	33,783	$	9,203	$	24,580	$	33,783	$	7,771	$	26,012

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Share-based compensation (Tables)

6 Months Ended

Jun. 30, 2020

Share-based compensation

Schedule of company's stock option plan

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

		Weighted
		Average
		Exercise
Stock Option Totals	Shares	Price
Outstanding at January 1, 2019	4,415,397	$	1.20
-Cancelled	(527,820)	$	1.23
-Exercised	(10,000)	$	0.89
-Granted	3,164,800	$	0.79
Outstanding at December 31, 2019 and June 30, 2020	7,042,377	$	1.01

Schedule of weighted average contractual life and exercise price

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

		Weighted
		Average		Weighted
		Remaining		Average
	Number of	Contractual		Exercise
	Shares	Life		Price
Options outstanding and vested	6,699,877	2.9	years	$	1.03

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Short-term and Long-term debt (Tables)

6 Months Ended

Jun. 30, 2020

Short-term and Long-term debt

Schedule of short-term and long-term debt

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

	June 30,		December 31,
	2020		2019
(in thousands)		(unaudited)
Short-term & long-term debt
Short-term debt:
- Revolving credit line and other debt	$	15,931	$	14,000
- Loan from Paycheck Protection Program- current		1,238		—
- Capital lease obligation- current		7		—
- Term loan facility- current		4,498		3,008
Subtotal		21,674		17,008
Long-term debt:
- Term Loan Facility- net of current portion of long-term debt		82,491		85,115
- Loan from Paycheck Protection Program- net of current portion		1,237		—
- Capital lease obligations		—		3
- Less: deferred financing costs on term loan		(2,722)		(3,136)
Subtotal		81,006		81,982
Total short-term & long-term debt	$	102,680	$	98,990

Schedule of maturities of long-term debt and capital lease obligations

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

Twelve Month Period Ending June 30,	Amount
(in thousands)
‑2021	$	4,505
‑2022		5,248
‑2023		5,248
‑2024		71,995
‑Thereafter		—
Total	$	86,996

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Summary of Significant Accounting Policies - Summary of reconciliation of shares used to determine net loss per share (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Summary of Significant Accounting Policies
Net income (loss)	$ 2,386	$ (13,797)	$ (499)	$ (17,836)
Weighted average number of shares - basic	42,628,560	42,604,189	42,628,560	42,603,315
Shares underlying options	289,002
Weighted average number of shares - diluted	42,917,562	42,604,189	42,628,560	42,603,315

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Summary of Significant Accounting Policies - Additional Information (Details)			3 Months Ended		6 Months Ended		12 Months Ended
	Mar. 27, 2020 USD ($)	Mar. 26, 2020	Jun. 30, 2020 USD ($) shares	Jun. 30, 2019 USD ($) shares	Jun. 30, 2020 USD ($) segment shares	Jun. 30, 2019 USD ($) shares	Dec. 31, 2019 USD ($)	Jan. 01, 2019 USD ($)	Dec. 31, 2018 USD ($)
Significant Accounting Policies [Line Items]
Number of Reportable Segments | segment					1
Options and warrants excluded from the calculation of diluted shares | shares			5,282,377	4,690,197	7,042,377	4,690,197
Additional tax benefit related to the alternative minimum tax refund			$ 380,000
Operating Loss Carryforwards			45,000,000		$ 45,000,000
Deferred Tax Assets, Valuation Allowance									$ 11,300,000
Valuation Allowance, Deferred Tax Asset, Increase (Decrease), Amount					17,800,000
Goodwill impairment loss					0		$ 0
Cylinder deposit liability					10,300,000		9,500,000
Operating Lease, Right-of-Use Asset			7,205,000		7,205,000		$ 8,048,000
Operating Lease, Liability			7,278,000		7,278,000
No Expiration [Member]
Significant Accounting Policies [Line Items]
Operating Loss Carryforwards			39,600,000		39,600,000
Expiration Through 2023
Significant Accounting Policies [Line Items]
Operating Loss Carryforwards			5,400,000		5,400,000
State and Local Jurisdiction [Member]
Significant Accounting Policies [Line Items]
Operating Loss Carryforwards			24,100,000		$ 24,100,000
ASU Topic 842 [Member]
Significant Accounting Policies [Line Items]
Operating Lease, Right-of-Use Asset								$ 8,100,000
Operating Lease, Liability								$ 8,100,000
Customer Concentration Risk [Member] | One Customer | Revenue from Contract with Customer [Member]
Significant Accounting Policies [Line Items]
Concentration Risk, Percentage					12.00%	13.00%
Customer Concentration Risk [Member] | One Customer | Accounts Receivable
Significant Accounting Policies [Line Items]
Accounts Receivable, net			2,000,000	$ 2,800,000	$ 2,000,000	$ 2,800,000
CARES Act
Significant Accounting Policies [Line Items]
Percent of taxable income offset for taxable years beginning before 2021	100.00%
Preliminary tax benefit related to the alternative minimum tax refund					47,000
Percent of adjusted taxable income	50.00%	30.00%
Increase in allowable interest expense	$ 1,621,000
Operating Loss Carryforwards			$ 1,621,000		$ 1,621,000

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Inventories (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Inventories
Refrigerants and cylinders	$ 59,477	$ 72,088
Less: net realizable value adjustments	(10,907)	(12,850)
Total	$ 48,570	$ 59,238

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Property, plant and equipment - Summary of Elements of property, plant and equipment (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 51,441	$ 50,851
Accumulated depreciation	29,333	27,177
Total	22,108	23,674
Land
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	1,255	1,255
Land improvements
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 319	319
Land improvements | Minimum
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Estimated Lives	6 years
Land improvements | Maximum
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Estimated Lives	10 years
Buildings
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 1,446	1,446
Buildings | Minimum
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Estimated Lives	25 years
Buildings | Maximum
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Estimated Lives	39 years
Building improvements
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 3,072	3,045
Building improvements | Minimum
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Estimated Lives	25 years
Building improvements | Maximum
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Estimated Lives	39 years
Cylinders
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 13,237	13,273
Cylinders | Minimum
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Estimated Lives	15 years
Cylinders | Maximum
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Estimated Lives	30 years
Equipment
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 25,138	24,953
Equipment | Minimum
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Estimated Lives	3 years
Equipment | Maximum
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Estimated Lives	10 years
Equipment under capital lease
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 315	315
Equipment under capital lease | Minimum
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Estimated Lives	5 years
Equipment under capital lease | Maximum
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Estimated Lives	7 years
Vehicles
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 1,574	1,574
Vehicles | Minimum
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Estimated Lives	3 years
Vehicles | Maximum
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Estimated Lives	5 years
Lab and computer equipment, software
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 3,103	3,077
Lab and computer equipment, software | Minimum
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Estimated Lives	2 years
Lab and computer equipment, software | Maximum
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Estimated Lives	8 years
Furniture & fixtures
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 679	679
Furniture & fixtures | Minimum
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Estimated Lives	5 years
Furniture & fixtures | Maximum
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Estimated Lives	10 years
Leasehold improvements
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 852	842
Leasehold improvements | Minimum
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Estimated Lives	3 years
Leasehold improvements | Maximum
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Estimated Lives	5 years
Equipment under construction
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 451	$ 73

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Property, plant and equipment - Additional Information (Details) - USD ($) $ in Millions	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Property, plant and equipment
Depreciation	$ 2.1	$ 2.1

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Leases - Maturity of lease payments (Details) $ in Thousands	Jun. 30, 2020 USD ($)
Leases
2020 (remaining)	$ 1,701
2021	2,039
2022	1,106
2023	955
-Thereafter	3,860
Total undiscounted operating lease payments	9,661
Less imputed interest	(2,383)
Present value of operating lease liabilities	$ 7,278

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Leases - Balance Sheet Classification and Other Information (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Balance Sheet Classification [Abstract]
Long-term lease liabilities	$ 4,710	$ 5,742
Total operating lease liabilities	$ 7,278
Other Information [Abstract]
Weighted-average remaining term for operating leases	5 years 4 months 6 days
Weighted -average discount rate for operating leases	8.76%
Accounts Payable and Accrued Liabilities [Member]
Balance Sheet Classification [Abstract]
Current lease liabilities (recorded in Accrued expenses and other current liabilities)	$ 2,568

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Leases - Additional Information (Details) $ in Millions	6 Months Ended
	Jun. 30, 2020 USD ($)
Leases
Lessee, Operating Lease, Term of Contract	11 years
Operating Lease, initial right-of-use asset	$ 8.1
operating lease liabilities	$ 1.5

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Goodwill and intangible assets - Company's other intangible assets (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 33,783	$ 33,783
Accumulated amortization	9,203	7,771
Net	$ 24,580	26,012
Patents [Member]
Finite-Lived Intangible Assets [Line Items]
Amortization Period (in years)	5 years
Gross Carrying Amount	$ 386	386
Accumulated amortization	385	383
Net	1	3
Covenant not to compete [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	1,270	1,270
Accumulated amortization	860	783
Net	$ 410	487
Covenant not to compete [Member] | Maximum
Finite-Lived Intangible Assets [Line Items]
Amortization Period (in years)	10 years
Covenant not to compete [Member] | Minimum
Finite-Lived Intangible Assets [Line Items]
Amortization Period (in years)	6 years
Customer relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 31,560	31,560
Accumulated amortization	7,837	6,506
Net	$ 23,723	25,054
Customer relationships [Member] | Maximum
Finite-Lived Intangible Assets [Line Items]
Amortization Period (in years)	12 years
Customer relationships [Member] | Minimum
Finite-Lived Intangible Assets [Line Items]
Amortization Period (in years)	10 years
Above market leases [Member]
Finite-Lived Intangible Assets [Line Items]
Amortization Period (in years)	13 years
Gross Carrying Amount	$ 567	567
Accumulated amortization	121	99
Net	$ 446	$ 468

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Goodwill and intangible assets - Additional Information (Details) - USD ($)	6 Months Ended		12 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Goodwill and intangible assets
Goodwill impairment loss	$ 0		$ 0
Goodwill	47,803,000		$ 47,803,000
Amortization of Intangible Assets	$ 1,432,000	$ 1,474,000

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Share-based compensation - Summary of Status of Company's Stock Option Plan (Details) - $ / shares	6 Months Ended		12 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Shares
Outstanding at beginning of period		4,415,397	4,415,397
-Cancelled			(527,820)
-Exercised			(10,000)
-Granted	0	284,800	3,164,800
Outstanding at end of period	7,042,377
Weighted Average Exercise Price
Outstanding at beginning of period		$ 1.20	$ 1.20
-Cancelled			1.23
-Exercised			0.89
-Granted			$ 0.79
Outstanding at end of period	$ 1.01

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Share-based compensation - Weighted Average Contractual Life and Exercise Price (Details)	6 Months Ended
	Jun. 30, 2020 $ / shares shares
Number of Options
Options outstanding and vested | shares | shares	6,699,877
Weighted Average Remaining Contractual Life
Weighted Average Remaining Contractual Life Options outstanding and vested	2 years 10 months 24 days
Weighted Average Exercise Price
Weighted Average Exercise Price, Options outstanding and vested | $ / shares | $ / shares	$ 1.03

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Share-based compensation - Additional Information (Details) - USD ($)	6 Months Ended		12 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019	Jun. 11, 2020	Jun. 07, 2018	Sep. 17, 2014
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share based compensation expense	$ 300,000	$ 600,000
Common stock reserved for issuance	3,077,400
Options granted	0	284,800	3,164,800
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value	$ 800,000		$ 700,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value	100,000		$ 300,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value	$ 0	$ 11,100,000
Stock option vesting period	2 years
Minimum
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Contractual term	3 years
Maximum
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Contractual term	10 years
2014 Stock Incentive Plan
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Common stock reserved for issuance						3,000,000
Share-based compensation arrangement by share based payment award percentage of fair market Person holding more then 10% voting stock						$ 110
2018 Stock Incentive Plan
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Common stock reserved for issuance					4,000,000
Share-based compensation arrangement by share based payment award percentage of fair market Person holding more then 10% voting stock					$ 110
2020 Stock Incentive Plan
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Common stock reserved for issuance				3,000,000
Share-based compensation arrangement by share based payment award percentage of fair market Person holding more then 10% voting stock				$ 110

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Short-term and long-term debt (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Short-term debt:
- Revolving credit line and other debt	$ 15,931	$ 14,000
- Loan from Paycheck Protection Program- current	1,238
- Capital lease obligation- current	7
- Term loan facility-current	4,498	3,008
Subtotal	21,674	17,008
Long-term debt:
Term Loan Facility- net of current portion of long-term debt	82,491	85,115
- Loan from Paycheck Protection Program- net of current portion	1,237
- Capital lease obligations		3
- Less: deferred financing costs on term loan	(2,722)	(3,136)
Subtotal	81,006	81,982
Total short-term & long-term debt	$ 102,680	$ 98,990

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Short-term and long-term debt - Maturities of long-term debt and capital lease obligations (Details) $ in Thousands	Jun. 30, 2020 USD ($)
Short-term and Long-term debt
-2021	$ 4,505
-2022	5,248
-2023	5,248
-2024	71,995
Total	$ 86,996

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Short-term and long-term debt - Additional Information (Details)				1 Months Ended										6 Months Ended	12 Months Ended
	Apr. 23, 2020 USD ($)	Dec. 19, 2019 USD ($)	Oct. 10, 2017 USD ($)	Dec. 31, 2021 USD ($)	Sep. 30, 2021 USD ($)	Jun. 30, 2021 USD ($)	Mar. 31, 2021 USD ($)	Dec. 31, 2020 USD ($)	Sep. 30, 2020 USD ($)	Jun. 30, 2020 USD ($)	Mar. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)	Sep. 30, 2019 USD ($)	Jun. 30, 2020 USD ($)	Dec. 31, 2019
Paycheck Protection Program [Member] | CARES Act Loan [Member]
Debt Instrument, Interest Rate, Stated Percentage	1.00%
Unsecured loan	$ 2,475,000
Term of unforgiven loan	2 years
Deferral term of unforgiven loan	6 years
TLR [Member]
Total Leverage Ratio														7.24%	11.22%
Term Loan Facility [Member]
Amendment fee (as a percent)														0.50%
First Amendment
Line of Credit Facility, Maximum Borrowing Capacity	$ 2,500,000
Fourth Amendment
Principal repayment														$ 14,000,000
Total Leverage Ratio					6.08%	7.03%	7.75%	8.89%	8.89%	10.87%	16.57%	14.54%	15.67%
Minimum Aggregate Undrawn Availability Excess Cash Flow Calculation										$ 5,000,000				$ 5,000,000
Last twelve months adjusted earnings before interest, tax, depreciation and amortization				$ 16,267,000	$ 15,431,000	$ 14,566,000	$ 14,295,000	$ 12,300,000	$ 12,021,000	$ 11,745,000	$ 7,359,000	$ 7,954,000	$ 7,887,000
Threshold period after trigger event the entity shall commence transaction														6 months
Threshold period after trigger event the entity shall consummate transaction														18 months
Fourth Amendment | Effective March 31, 2020 [Member]
Principal repayment											$ 562,000
Fourth Amendment | Effective December 31, 2020 [Member]
Principal repayment														$ 1,312,000
Fourth Amendment | Through March 31, 2020 [Member]
Amendment fee (as a percent)														0.50%
Fourth Amendment | From April 1, 2020 through March 31, 2021 [Member]
Amendment fee (as a percent)														2.50%
Fourth Amendment | From April 1, 2021 and thereafter [Member]
Amendment fee (as a percent)														5.00%
Fifth Amendment To Term Loan Credit And Security Agreement [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 2,500,000
Vehicle and Equipment Loans
Line of Credit Facility, Expiration Period														60 months
Vehicle and Equipment Loans | Minimum
Interest rate description under PNC facility														0.0%
Vehicle and Equipment Loans | Maximum
Interest rate description under PNC facility														8.3%
Term Loan
Debt Instrument, Face Amount			$ 105,000,000
Term Loan | Euro Dollar
Debt Instrument, Basis Spread on Variable Rate			10.25%
Debt Instrument, Interest Rate, Stated Percentage			3.00%
Term Loan | Second Amendment
Deferred Financing Costs														$ 1,000,000
Term Loan | Fourth Amendment
Deferred Financing Costs														$ 500,000
Domestic Rate Loans [Member] | Amended And Restated Revolving Credit And Security Agreement | London Interbank Offered Rate Daily Libor [Member]
Debt Instrument, Basis Spread on Variable Rate														1.00%
Domestic Rate Loans [Member] | Amended And Restated Revolving Credit And Security Agreement | Federal Funds Purchased [Member]
Debt Instrument, Basis Spread on Variable Rate														0.50%
Domestic Rate Loans [Member] | Minimum | Amended And Restated Revolving Credit And Security Agreement
Additional interest percentage										1.25%				1.25%
Domestic Rate Loans [Member] | Maximum | Amended And Restated Revolving Credit And Security Agreement
Additional interest percentage										1.75%				1.75%
Eurodollar Rate Loans [Member] | Minimum | Amended And Restated Revolving Credit And Security Agreement | Euro Dollar
Debt Instrument, Basis Spread on Variable Rate														2.25%
Eurodollar Rate Loans [Member] | Maximum | Amended And Restated Revolving Credit And Security Agreement | Euro Dollar
Debt Instrument, Basis Spread on Variable Rate														2.75%
Wells Fargo | Amended And Restated Revolving Credit And Security Agreement
Line of Credit Facility, Maximum Borrowing Capacity		$ 60,000,000
Wells Fargo | Swing Line Loan [Member]
Line of Credit Facility, Maximum Borrowing Capacity		5,000,000
Wells Fargo | Letter of Credit [Member]
Line of Credit Facility, Maximum Borrowing Capacity		2,000,000
Wells Fargo | Revolving Credit Facility
Minimum amount to be derived from availability		3,000,000
Minimum aggregate undrawn loan availability		$ 7,500,000
Wells Fargo | Revolving Credit Facility | FCCR [Member]
Fixed Charges Coverage Ratio		1.00
Period for FCCR covenant		2 months
Revolver Guaranty and Security Agreement | Wells Fargo
Right to dominion over certain borrower's bank accounts														$ 9,000,000

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Gain Contingency (Details)	Jun. 30, 2020 USD ($)
Board Of Directors Chairman And Chief Executive Officer
Gain Contingencies [Line Items]
Company-owned life insurance policy, face value	$ 1,000,000

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Related Party Transactions (Details) - Stephen P. Mandracchia - USD ($)		4 Months Ended	8 Months Ended
	Jan. 01, 2020	May 03, 2019	Dec. 31, 2019
Related Party Transaction [Line Items]
Monthly consulting fee	$ 12,000		$ 10,000
Base salary		$ 94,656
Stock option to purchase		25,000
Common stock at an exercise price		$ 1.70