Part I
Item 1.
Business
General
Hudson Technologies, Inc., incorporated under the laws of New York on January 11, 1991, is a refrigerant services company providing innovative solutions to recurring problems within the refrigeration industry.
The Company's products and services are primarily used in commercial air conditioning, industrial processing and refrigeration systems, and include (i) refrigerant sales, (ii) refrigerant management services consisting primarily of reclamation of refrigerants and (iii) RefrigerantSide® Services performed at a customer's site, consisting of system decontamination to remove moisture, oils and other contaminants.
In addition, RefrigerantSide® Services include predictive and diagnostic services for industrial and commercial refrigeration applications, which are designed to predict potential catastrophic problems and identify inefficiencies in an operating system.
The Company’s Chiller Chemistry®, Chill Smart®, Fluid Chemistry® and Performance Optimization are predictive and diagnostic service offerings. As a component of the Company’s products and services, the Company also participates in the generation of carbon offset projects.
See
“Carbon Offset Projects.”
The Company operates principally through its wholly-owned subsidiary, Hudson Technologies Company.
Unless the context requires otherwise, references to the “Company”, “Hudson”, “we", “us”, “our”, or similar pronouns refer to Hudson Technologies, Inc. and its subsidiaries.
The Company's executive offices are located at One Blue Hill Plaza, Pearl River, New York and its telephone number is (845) 735-6000.
Industry Background
The Company participates in an industry that is highly regulated, and changes in the regulations affecting our business could affect our operating results.
Currently the Company purchases virgin, hydro chlorofluorocarbon (“HCFC”) and hydro fluorocarbon (“HFC”) refrigerants and reclaimable, primarily HCFC and chlorofluorocarbon (“CFC”), refrigerants from suppliers and its customers.
Effective January 1, 1996, the Clean Air Act, as amended (the “Act”) prohibited the production of virgin CFC refrigerants and limited the production of virgin HCFC refrigerants.
Effective January 2004, the Act further limited the production of virgin HCFC refrigerants and federal regulations were enacted which established production and consumption allowances for HCFC refrigerants and which imposed limitations on the importation of certain virgin HCFC refrigerants. Under the Act, production of certain virgin HCFC refrigerants is scheduled to be phased out during the period 2010 through 2020, and production of all virgin HCFC refrigerants is scheduled to be phased out by 2030.
Additionally, effective January 1, 2010, the Act further limited the production of virgin HCFC refrigerants and, in December 2009, the Environmental Protection Agency (“EPA”) published a final rule (the “2009 Rule”) which limited the total pounds of virgin HCFC refrigerants that could be produced and imported for the years 2010 through 2014 to levels which, based upon the EPA’s estimates, would require as much as 20% of the service demand for existing equipment to be met by reclaimed or recycled HCFC refrigerants.
As a result of litigation, the 2009 Rule was vacated, and in April 2013, the EPA issued a final rule providing for further reductions in the production and importation of HCFC refrigerants in the years 2013 and 2014 when compared to the reductions originally established in the 2009 Rule (the “April 2013 Rule”).
In December 2013, a proposed rule was issued by the EPA to address production and consumption allowances for HCFC refrigerants for the years 2015 through 2019.
A final rule to address production and consumption allowances for the years 2015 through 2019 has not yet been issued by the EPA. See
“Recent Developments.”
Under the Act, production of certain virgin HCFC refrigerants is scheduled to be phased out by the year 2020, and production of all HCFC refrigerants is scheduled to be phased out by 2030.
HFC refrigerants are used as substitutes for CFC and HCFC refrigerants in certain applications.
As a result of the increasing restrictions and limitations on the production and use of CFC and HCFC refrigerants, various segments of the air conditioning and refrigeration industry have been replacing or modifying equipment that utilize CFC and HCFC refrigerants and have been transitioning to equipment that utilize HFC refrigerants and a certain type of HFC’s known as hydrofluoro-olefins (“HFO”). HFC refrigerants are not ozone depleting chemicals and are not currently regulated under the Act.
However, certain HFC refrigerants are highly weighted greenhouse gases that are believed to contribute to global warming and climate change and, as a result, are now subject to various state and federal regulations relating to the sale, use and emissions of HFC refrigerants.
In addition, federal legislation has been proposed that, if enacted, would impose limitations on the production and importation of certain virgin HFC refrigerants. The Company expects that HFC refrigerants eventually will be replaced by HFOs or other types of products with low global warming potentials.
The Act, and the federal regulations enacted under authority of the Act, have mandated and/or promoted responsible use practices in the air conditioning and refrigeration industry, which are intended to minimize the release of refrigerants into the atmosphere and encourage the recovery and re-use of refrigerants.
In addition to prohibiting the venting of CFC and HCFC refrigerants, and prohibiting and/or phasing down the production of CFC and HCFC refrigerants, the Act mandates the recovery of these refrigerants and also promotes and encourages re-use and reclamation of CFC and HCFC refrigerants.
Under the Act, owners, operators and companies servicing cooling equipment are responsible for the integrity of the systems regardless of the refrigerant being used.
Products and Services
From its inception, the Company has sold refrigerants, and has provided refrigerant reclamation and management services that are designed to recover and reuse refrigerants, thereby protecting the environment from release to the atmosphere and the corresponding ozone depletion and global warming impact. The reclamation process allows the refrigerant to be re-used thereby eliminating the need to destroy or manufacture additional refrigerant and eliminating the corresponding impact to the environment associated with the destruction and manufacturing.
The Company believes it is the largest refrigerant reclaimer in the United States.
Additionally, the Company has created alternative solutions to reactive and preventative maintenance procedures that are performed on commercial and industrial refrigeration systems.
These services, known as RefrigerantSide® Services, complement the Company’s refrigerant sales and refrigerant reclamation and management services.
The Company has also developed Performance Optimization services that identify inefficiencies in the operation of air conditioning and refrigeration systems and assists companies to improve the efficiency of their systems and save energy.
In addition, the Company is pursuing potential opportunities for the creation and monetization of verified emission reductions.
See
“Carbon Offset Projects”.
Refrigerant Sales
The Company sells reclaimed and virgin (new) refrigerants to a variety of customers in various segments of the air conditioning and refrigeration industry. The Company continues to sell reclaimed CFC based refrigerants, which are no longer manufactured. Virgin, non-CFC refrigerants, including HCFC and HFC refrigerants, are purchased by the Company from several suppliers and resold by the Company, typically at wholesale.
Additionally, the Company regularly purchases used or contaminated refrigerants, some of which are CFC based, from many different sources, which refrigerants are then reclaimed using the Company's high speed proprietary reclamation equipment, its proprietary Zugibeast® system, and then are resold by the Company.
Refrigerant Management Services
The Company provides a complete offering of refrigerant management services, which primarily include reclamation of refrigerants, laboratory testing through the Company’s laboratory, which has been certified by the Air Conditioning, Heating and Refrigeration Institute (“AHRI”), and banking (storage) services tailored to individual customer requirements.
Hudson also separates “crossed” (i.e. commingled) refrigerants and provides re-usable cylinder refurbishment and hydrostatic testing services.
RefrigerantSide® Services
The Company provides decontamination and recovery services that are performed at a customer's site through the use of portable, high volume, high-speed proprietary equipment, including the patented Zugibeast® system.
Certain of these RefrigerantSide® Services, which encompass system decontamination, and refrigerant recovery and reclamation are also proprietary and are covered by process patents.
In addition to the decontamination and recovery services previously described, the Company also provides predictive and diagnostic services for its customers.
The Company offers diagnostic services that are intended to predict potential problems in air conditioning and refrigeration systems before they occur.
The Company’s Chiller Chemistry® offering integrates several fluid tests of an operating system and the corresponding laboratory results into an engineering report providing its customers with an understanding of the current condition of the fluids, the cause for any abnormal findings and the potential consequences if the abnormal findings are not remediated.
Fluid Chemistry®, an abbreviated version of the Company’s Chiller Chemistry® offering, is designed to quickly identify systems that require further examination.
The Company also delivers global energy services (“GES”) offerings to large industrial and commercial companies both in the United States and internationally. A large portion of its (“GES”) business involves the performance of
“investment grade” Energy Savings Assessments (“ESAs”) for process and utility systems including steam, refrigeration and process cooling, process heating, waste heat recovery, and combined heat and power systems. These assessments can identify significant energy and cost savings projects for customers that lead to a direct reduction in carbon dioxide (“CO
2
”) emissions from the site or from the power plants.
The Company’s (“GES”) division is staffed by engineers that are recognized as Energy Experts and Qualified Best Practices Specialists by the United States Department of Energy (“DOE”) in the areas of Steam and Process Heating under the DOE “Best Practices” program, and are the Lead International Energy Experts for steam systems for the United Nations Industrial Development Organization.
The Company’s staff have trained more than 2,500 industrial plant personnel in the US and internationally, and have developed and are currently delivering training curriculums in 10 different countries.
The Company has also been awarded several US patents for its Performance Monitoring & Optimization System (“PMOS”), which is a system for measuring, modifying and improving the efficiency of energy systems, including air conditioning and refrigeration systems, in industrial and commercial applications. The Company’s PMOS is able to identify specific inefficiencies in the operation of refrigeration systems and, when used with Hudson’s RefrigerantSide
®
Services, can increase the efficiency of the operating systems thereby reducing energy usage and costs. Improving the system efficiency reduces power consumption thereby directly reducing CO
2
emissions at the power plants or onsite.
In addition, the Company’s ChillSmart
®
offering, which combines the PMOS methodology with the Company’s Chiller Chemistry
®
offering, provides a snapshot of a packaged chiller’s operating efficiency and health. ChillSmart® provides a very effective predictive maintenance tool and helps our customers to identify the operating chillers that cause higher operating costs. In November 2012, the Company acquired proprietary EffTrack™ chiller efficiency software to complement the Company’s ChillSmart® offering and to enable customers to monitor and improve chiller performance and proactively identify and correct system inefficiencies.
Carbon Offset Projects
CFC refrigerants are ozone depleting substances and are also highly weighted greenhouse gases that contribute to global warming and climate change.
The destruction of CFC refrigerants may be eligible for verified emission reductions that can be converted and monetized into carbon offset credits that may be traded in the emerging carbon offset markets.
The Company is pursuing opportunities to acquire CFC refrigerants and is developing relationships within the emerging environmental markets in order to develop opportunities for the creation and monetization of verified emission reductions from the destruction of CFC refrigerants.
Hudson's Network
Hudson operates from a network of facilities located in:
|
Auburn, Washington
|
—RefrigerantSide® Service depot
|
|
Baton Rouge, Louisiana
|
—RefrigerantSide® Service depot
|
|
Champaign, Illinois
|
—Reclamation and separation of refrigerants and cylinder refurbishment center; RefrigerantSide® Service depot
|
|
Charlotte, North Carolina
|
—RefrigerantSide® Service depot
|
|
Stony Point, New York
|
—RefrigerantSide® Service depot
|
|
Pearl River, New York
|
—Company headquarters and administrative offices
|
|
Pottsboro, Texas
|
—Telemarketing office
|
|
Hampstead, New Hampshire
|
—Telemarketing office
|
|
Tulsa, Oklahoma
|
—Energy and Carbon Services
|
Strategic Alliances
The Company believes that the international market for refrigerant reclamation, sales and services is equal in size to the United States market for those sales and services. The Company has Alliances in Europe and South Africa, and over time, the Company expects to introduce its technology and offerings to several other geographies around the world.
Suppliers
The Company's financial performance and its ability to sell refrigerants is in part dependent on its ability to obtain sufficient quantities of virgin, non-CFC based refrigerants, and of reclaimable CFC and non-CFC based, refrigerants from manufacturers, wholesalers, distributors, bulk gas brokers and from other sources within the air conditioning, refrigeration and automotive aftermarket industries, and on corresponding demand for refrigerants.
The Company's refrigerant sales include CFC based refrigerants, which are no longer manufactured.
Additionally, the Company's refrigerant sales include non-CFC based refrigerants, including HCFC and HFC refrigerants, which are the most-widely used refrigerants.
Effective January 1, 1996, the Act limited the production of virgin HCFC refrigerants, which production was further limited in January 2004.
Federal regulations enacted in January 2004 established production and consumption allowances for HCFCs and imposed limitations on the importation of certain virgin HCFC refrigerants.
Additionally, effective January 1, 2010, the Act further limited the production of virgin HCFC refrigerants, and in December 2009 the EPA published the 2009 Rule which limited the total pounds of virgin HCFC refrigerants that could be produced and imported for the years 2010 through 2014 to levels which, based upon the EPA’s estimates, would require as much as 20% of the service demand for existing equipment to be met by reclaimed or recycled HCFC refrigerants.
As a result of litigation, the 2009 Rule was vacated, and in April 2013 the EPA issued the April 2013 Rule providing for further reductions in the production and importation of HCFC refrigerants in the years 2013 and 2014 when compared to the reductions originally established in the 2009 Rule.
In December 2013, a proposed rule was issued by the EPA to address production and consumption allowances for HCFC refrigerants for the years 2015 through 2019.
A final rule to address production and consumption allowances for the years 2015 through 2019 has not yet been issued by the EPA. See
“Recent Developments.”
Under the Act, production of certain virgin HCFC refrigerants is scheduled to be phased out by the year 2020 and production of all virgin HCFC refrigerants is scheduled to be phased out by 2030.
The limitations imposed by and under the Act may limit supplies of virgin refrigerants for the foreseeable future or cause a significant increase in the price of virgin HCFC refrigerants.
Customers
The Company provides its services to commercial, industrial and governmental customers, as well as to refrigerant wholesalers, distributors, contractors and to refrigeration equipment manufacturers.
Agreements with larger customers generally provide for standardized pricing for specified services.
For the year ended December 31, 2013, two customers each accounted for 10% or more of the Company’s revenues and, in the aggregate these two customers accounted for 23% of the Company’s revenues. At December 31, 2013, there were $344,000 in outstanding receivables from these customers.
For the year ended December 31, 2012, two customers each accounted for 10% or more of the Company’s revenues and, in the aggregate these two customers accounted for 28% of the Company’s revenues. At December 31, 2012, there were no outstanding receivables from these customers.
Marketing
Marketing programs are conducted through the efforts of the Company's executive officers, Company sales personnel, and third parties.
Hudson employs various marketing methods, including direct mailings, technical bulletins, in-person solicitation, print advertising, response to quotation requests and the internet through the Company’s website (
www.hudsontech.com
).
Information in the Company's website is not part of this report.
The Company's sales personnel are compensated on a combination of a base salary and commission.
The Company's executive officers devote significant time and effort to customer relationships.
Competition
The Company competes primarily on the basis of the performance of its proprietary high volume, high-speed equipment used in its operations, the breadth of services offered by the Company, including proprietary RefrigerantSide® Services and other on-site services, and price, particularly with respect to refrigerant sales.
The Company competes with numerous regional and national companies that market reclaimed and virgin refrigerants and provide refrigerant reclamation services.
Certain of these competitors possess greater financial, marketing, distribution and other resources for the sale and distribution of refrigerants than the Company and, in some instances, serve a more extensive geographic area than the Company.
Hudson's RefrigerantSide® Services provide new and innovative solutions to certain problems within the refrigeration industry and, as such, the demand and market acceptance for these services are subject to uncertainty.
Competition for these services primarily consists of traditional methods of solving the industry's problems.
The Company’s marketing strategy is to educate the marketplace that its alternative solutions are available and that RefrigerantSide® Services are superior to traditional methods.
The market acceptance for these services is subject to uncertainty.
Insurance
The Company carries insurance coverage that it considers sufficient to protect the Company's assets and operations.
The Company currently maintains general commercial liability insurance and excess liability coverage for claims up to $11,000,000 per occurrence and $12,000,000 in the aggregate.
The Company attempts to operate in a professional and prudent manner and to reduce potential liability risks through specific risk management efforts, including ongoing employee training.
The refrigerant industry involves potentially significant risks of statutory and common law liability for environmental damage and personal injury.
The Company, and in certain instances, its officers, directors and employees, may be subject to claims arising from the Company's on-site or off-site services, including the improper release, spillage, misuse or mishandling of refrigerants classified as hazardous or non-hazardous substances or materials.
The Company may be held strictly liable for damages, which could be substantial, regardless of whether it exercised due care and complied with all relevant laws and regulations.
Hudson maintains environmental impairment insurance of $10,000,000 per occurrence, and $10,000,000 annual aggregate, for events occurring subsequent to November 1996.
Government Regulation
The business of refrigerant sales, reclamation and management is subject to extensive, stringent and frequently changing federal, state and local laws and substantial regulation under these laws by governmental agencies, including the EPA, the United States Occupational Safety and Health Administration (“OSHA”) and the United States Department of Transportation (“DOT”).
Among other things, these regulatory authorities impose requirements which regulate the handling, packaging, labeling, transportation and disposal of hazardous and non-hazardous materials and the health and safety of workers, and require the Company and, in certain instances, its employees, to obtain and maintain licenses in connection with its operations.
This extensive regulatory framework imposes significant compliance burdens and risks on the Company.
Hudson and its customers are subject to the requirements of the Act, and the regulations promulgated thereunder by the EPA, which make it unlawful for any person in the course of maintaining, servicing, repairing, and disposing of air conditioning or refrigeration equipment, to knowingly vent or otherwise release or dispose of ozone depleting substances, and non-ozone depleting substitutes, used as refrigerants.
Pursuant to the Act, reclaimed refrigerant must satisfy the same purity standards as newly manufactured, virgin refrigerants in accordance with standards established by AHRI prior to resale to a person other than the owner of the equipment from which it was recovered.
The EPA administers a certification program pursuant to which applicants certify to reclaim refrigerants in compliance with AHRI standards.
The Company is one of only three certified refrigerant testing laboratories under AHRI’s laboratory certification program, which is a voluntary program that certifies the ability of a laboratory to test refrigerant in accordance with the AHRI 700 standard.
In addition, the EPA has established a mandatory certification program for air conditioning and refrigeration technicians.
Hudson's technicians have applied for or obtained such certification.
The Company may also be subject to regulations adopted by the EPA which impose certain reporting requirements arising out of the importation of certain HCFCs, and arising out of the importation, purchase, production, use and/or emissions of certain greenhouse gases, including HFCs.
The Company is also subject to regulations adopted by the DOT which classify most refrigerants handled by the Company as hazardous materials or substances and imposes requirements for handling, packaging, labeling and transporting refrigerants and which regulate the use and operation of the Company’s commercial motor vehicles used in the Company’s business.
The Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), requires facilities that treat, store or dispose of hazardous wastes to comply with certain operating standards.
Before transportation and disposal of hazardous wastes off-site, generators of such waste must package and label their shipments consistent with detailed regulations and prepare a manifest identifying the material and stating its destination.
The transporter must deliver the hazardous waste in accordance with the manifest to a facility with an appropriate RCRA permit.
Under RCRA, impurities removed from refrigerants consisting of oils mixed with water and other contaminants are not presumed to be hazardous waste.
The Emergency Planning and Community Right-to-Know Act of 1986, as amended requires the annual reporting by the Company of Emergency and Hazardous Chemical Inventories (Tier II reports) to the various states in which the Company operates and requires the Company to file annual Toxic Chemical Release Inventory Forms with the EPA.
The Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), establishes liability for clean-up costs and environmental damages to current and former facility owners and operators, as well as persons who transport or arrange for transportation of hazardous substances.
Almost all states have similar statutes regulating the handling and storage of hazardous substances, hazardous wastes and non-hazardous wastes.
Many such statutes impose requirements that are more stringent than their federal counterparts.
The Company could be subject to substantial liability under these statutes to private parties and government entities, in some instances without any fault, for fines, remediation costs and environmental damage, as a result of the mishandling, release, or existence of any hazardous substances at any of its facilities.
The Occupational Safety and Health Act of 1970, as amended mandates requirements for a safe work place for employees and special procedures and measures for the handling of certain hazardous and toxic substances.
State laws, in certain circumstances, mandate additional measures for facilities handling specified materials.
The Company believes that it is in compliance with all material regulations relating to its material business operations.
Quality Assurance & Environmental Compliance
The Company utilizes in-house quality and regulatory compliance control procedures.
Hudson maintains its own analytical testing laboratory, which is AHRI certified, to assure that reclaimed refrigerants comply with AHRI purity standards and employs portable testing equipment when performing on-site services to verify certain quality specifications.
The Company employs five persons engaged full-time in quality control and to monitor the Company's operations for regulatory compliance.
Employees
The Company has 91 full and 2 part time employees including air conditioning and refrigeration technicians, chemists, engineers, sales and administrative personnel.
None of the Company's employees are represented by a union.
The Company believes that its employee relations are good.
Patents and Proprietary Information
The Company holds a United States patent and seventeen foreign patents and has patent applications pending in two other foreign countries, all relating to the high-speed equipment, components and process to reclaim refrigerants. The Company also holds a registered trademark for its Zugibeast®.
The United States patent will expire in May 2014 and the foreign patents will expire between May 2014 and December 2014.
The Company also holds several U.S. and foreign patents, as well as pending patent applications, related to certain RefrigerantSide® Services and supporting systems developed by the Company for certain systems and processes for measuring and improving the efficiency of refrigeration systems, and for certain refrigerant recycling and reclamation technologies.
These patents will expire between February 2017 and April 2032.
The Company believes that patent protection is important to its business.
There can be no assurance as to the breadth or degree of protection that patents may afford the Company, that any patent applications will result in issued patents or that patents will not be circumvented or invalidated.
Technological development in the refrigerant industry may result in extensive patent filings and a rapid rate of issuance of new patents.
Although the Company believes that its existing patents and the Company's equipment do not and will not infringe upon existing patents or violate proprietary rights of others, it is possible that the Company's existing patent rights may not be valid or that infringement of existing or future patents or violations of proprietary rights of others may occur.
In the event the Company's equipment or processes infringe, or are alleged to infringe, patents or other proprietary rights of others, the Company may be required to modify the design of its equipment or processes, obtain a license or defend a possible patent infringement action.
There can be no assurance that the Company will have the financial or other resources necessary to enforce or defend a patent infringement or proprietary rights violation action or that the Company will not become liable for damages.
The Company also relies on trade secrets and proprietary know-how, and employs various methods to protect its technology.
However, such methods may not afford complete protection and there can be no assurance that others will not independently develop such know-how or obtain access to the Company's know-how, concepts, ideas and documentation.
Failure to protect its trade secrets could have a material adverse effect on the Company.
Recent Developments
In April 2013, the EPA issued the April 2013 Rule providing for further reduction in the production and importation of HCFC refrigerants in the years 2013 and 2014 when compared to the reductions originally established in the 2009 Rule.
The April 2013 Rule allows for the production or importation of 63 million and 51 million pounds of HCFC-22 in 2013 and 2014, respectively. In December 2013, a proposed rule was issued by the EPA to address production and consumption allowances for HCFC refrigerants for the years 2015 through 2019 (the “Period”).
In the proposed rule, the EPA discusses several alternatives for the phase down of HCFC-22 during the Period, and identifies a preferred approach that would implement a linear draw down for the production or importation of HCFC-22 that would start at 30 million pounds in 2015 and reduce by approximately 6 million pounds each year and end at zero in 2020.
A final rule to address production and consumption allowances for the years 2015 through 2019 has not yet been issued by the EPA.
The Company expects that a final rule establishing the actual number of pounds for the entire Period will be issued in 2014.
Item 1A.
Risk Factors
There are many important factors, including those discussed below (and above as described under “Patents and Proprietary Information”),
that have affected, and in the future could affect Hudson’s business including, but not limited to, the factors discussed below, which should be reviewed carefully together with the other information contained in this report.
Some of the factors are beyond Hudson’s control and future trends are difficult to predict.
Our existing and future debt obligations could impair our liquidity and financial condition.
Our existing credit facility, which currently expires in June 2015, is secured by substantially all of our assets and contains formulas that limit the amount of our borrowings under the facility.
Moreover, the terms of our credit facility also include negative covenants that, among other things, may limit our ability to incur additional indebtedness. If we violate any loan covenants and do not obtain a waiver from our lender, our indebtedness under the credit facility would become immediately due and payable, and the lender could foreclose on its security, which could materially adversely affect our business and future financial condition and could require us to curtail or otherwise cease our existing operations.
We may need additional financing to satisfy our future capital requirements, which may not be readily available to us
.
Our capital requirements may be significant in the future.
In the future, we may incur additional expenses in the development and implementation of our operations.
Due to fluctuations in the price, demand and availability of new refrigerants, our existing credit facility that expires in June 2015 may not in the future be sufficient to provide all of the capital that we need to acquire and manage our inventories of new refrigerant.
As a result, we may be required to seek additional equity or debt financing in order to develop our RefrigerantSide® Services business our refrigerant sales business and our other businesses.
We have no current arrangements with respect to, or sources of, additional financing other than our existing credit facility.
There can be no assurance that we will be able to obtain any additional financing on terms acceptable to us or at all.
Our inability to obtain financing, if and when needed, could materially adversely affect our business and future financial condition and could require us to curtail or otherwise cease our existing operations.
Adverse weather or economic downturn could adversely impact our financial results
Our business could be negatively impacted by adverse weather or economic downturns.
Weather is a significant factor in determining market demand for the refrigerants sold by us, and to a lesser extent, our RefrigerantSide® Services. Unusually cooler temperatures in the spring and summer tend to depress demand for, and price of, refrigerants we sell. Protracted periods of cooler than normal spring and summer weather could result in a substantial reduction in our sales which could adversely affect our financial position as well as our results of operations.
An economic downturn could cause customers to postpone or cancel purchases of the Company’s products or services.
Either or both of these conditions could have severe negative implications to our business that may exacerbate many of the risk factors we identified in this report but not limited, to the following:
Liquidity
These conditions could reduce our liquidity and this could have a negative impact on our financial condition and results of operations.
Demand
These conditions could lower the demand and/or price for our product and services, which would have a negative impact on our results of operation.
The nature of our business exposes us to potential liability.
The refrigerant recovery and reclamation industry involves potentially significant risks of statutory and common law liability for environmental damage and personal injury.
We, and in certain instances, our officers, directors and employees, may be subject to claims arising from our on-site or off-site services, including the improper release, spillage, misuse or mishandling of refrigerants classified as hazardous or non-hazardous substances or materials.
We may be strictly liable for damages, which could be substantial, regardless of whether we exercised due care and complied with all relevant laws and regulations.
Our current insurance coverage may not be sufficient to cover potential claims, and adequate levels of insurance coverage may not be available in the future at a reasonable cost.
A partially or completely uninsured claim against us, if successful and of sufficient magnitude would have a material adverse effect on our business and financial condition.
Our business and financial condition is substantially dependent on the sale and continued environmental regulation of refrigerants.
Our business and prospects are largely dependent upon continued regulation of the use and disposition of refrigerants.
Changes in government regulations relating to the emission of refrigerants into the atmosphere could have a material adverse effect on us.
Failure by government authorities to otherwise continue to enforce existing regulations or significant relaxation of regulatory requirements could also adversely affect demand for our services and products.
Our business is subject to significant regulatory compliance burdens.
The refrigerant reclamation and management business is subject to extensive, stringent and frequently changing federal, state and local laws and substantial regulation under these laws by governmental agencies, including the EPA, the OSHA and DOT.
Although we believe that we are in substantial compliance with all material regulations relating to our material business operations, amendments to existing statutes and regulations or adoption of new statutes and regulations which affect the marketing and sale of refrigerant could require us to continually alter our methods of operation and/or discontinue the sale of certain of our products resulting in costs to us that could be substantial.
We may not be able, for financial or other reasons, to comply with applicable laws, regulations and permit requirements, particularly as we seek to enter into new geographic markets.
Our failure to comply with applicable laws, rules or regulations or permit requirements could subject us to civil remedies, including substantial fines, penalties and injunctions, as well as possible criminal sanctions, which would, if of significant magnitude, materially adversely impact our operations and future financial condition.
As a result of competition, and the strength of some of our competitors in the market, we may not be able to compete effectively.
The markets for our services and products are highly competitive.
We compete with numerous regional and national companies which provide refrigerant recovery and reclamation services, as well as companies which market and deal in new and reclaimed alternative refrigerants, including certain of our suppliers, some of which possess greater financial, marketing, distribution and other resources than us.
We also compete with numerous manufacturers of refrigerant recovery and reclamation equipment.
Certain of these competitors have established reputations for success in the service of air conditioning and refrigeration systems.
We may not be able to compete successfully, particularly as we seek to enter into new markets.
A number of factors could negatively impact the price and/or availability of refrigerants, which would, in turn, adversely affect our business and financial condition.
Refrigerant sales continue to represent a significant portion of our revenues.
Therefore, our business is substantially dependent on the availability of both new and used refrigerants in large quantities, which may be affected by several factors including, without limitations: (i) commercial production and consumption limitations imposed by the Act and legislative limitations and ban on HCFC refrigerants; (ii) the ban on production of CFC based refrigerants under the Act; (iii) the proposed legislation which, if enacted, could impose limitations on production and consumption of HFC refrigerants; (iv) introduction of new refrigerants and air conditioning and refrigeration equipment; (v) price competition resulting from additional market entrants; (vi) changes in government regulation on the use and production of refrigerants; and (vii) reduction in demand for refrigerants.
We do not maintain firm agreements with any of our suppliers of refrigerants and we do not hold allowances permitting us to purchase and import HCFC refrigerants abroad.
Sufficient amounts of new and/or used refrigerants may not be available to us in the future, particularly as a result of the further phase down of HCFC production, or may not be available on commercially reasonable terms.
Additionally, we may be subject to price fluctuations, periodic delays or shortages of new and/or used refrigerants.
Our failure to obtain and resell sufficient quantities of virgin refrigerants on commercially reasonable terms, or at all, or to obtain, reclaim and resell sufficient quantities of used refrigerants would have a material adverse effect on our operating margins and results of operations.
Issues relating to potential global warming and climate change could have an impact on our business.
Refrigerants are considered to be strong greenhouse gases that are believed to contribute to global warming and climate change and are now subject to various state and federal regulations relating to the sale, use and emissions of refrigerants.
In addition, federal legislation has been proposed that, if enacted, would impose limitations on the production and importation of certain virgin HFC refrigerants, and current and future global warming and climate change or related legislation and/or regulations may impose additional compliance burdens on us and on our customers and suppliers which could potentially result in increased administrative costs, decreased demand in the marketplace for our products, and/or increased costs for our supplies and products.
The loss of key management personnel would adversely impact our business.
Our success is largely dependent upon the efforts of our Chief Executive Officer and Chairman. The loss of his services would have a material adverse effect on our business and prospects.
We have the ability to designate and issue preferred stock, which may have rights, preferences and privileges greater than Hudson’s common stock and which could impede a subsequent change in control of us.
Our Certificate of Incorporation authorizes our Board of Directors to issue up to 5,000,000 shares of “blank check” preferred stock and to fix the rights, preferences, privileges and restrictions, including voting rights, of these shares, without further shareholder approval.
The rights of the holders of our common stock will be subject to, and may be adversely affected by, the rights of holders of any additional preferred stock that may be issued by us in the future.
Our ability to issue preferred stock without shareholder approval could have the effect of making it more difficult for a third party to acquire a majority of our voting stock, thereby delaying, deferring or preventing a change in control of us.
If our common stock were delisted from NASDAQ it would be subject to “penny stock” rules which could negatively impact its liquidity and our shareholders’ ability to sell their shares.
Our common stock is currently listed on the NASDAQ Capital Market.
We must comply with numerous NASDAQ MarketPlace rules in order to continue the listing of our common stock on NASDAQ.
There can be no assurance that we can continue to meet the rules required to maintain the NASDAQ listing of our common stock.
If we are unable to maintain our listing on NASDAQ, the market liquidity of our common stock may be severely limited.
Our management effectively controls our affairs.
Currently, our officers and directors collectively own approximately 26% of our outstanding common stock.
Accordingly, our officers and directors are in a position to significantly effect, and potentially fully control us and the election of our directors.
There is no provision for cumulative voting for our directors.
We may fail to successfully integrate any acquisitions made by us into our operations.
As part of our business strategy, we may look for opportunities to grow by acquiring other product lines, technologies or facilities that complement or expand our existing business.
We may be unable to identify suitable acquisition candidates or negotiate acceptable terms.
In addition, we may not be able to successfully integrate any assets, liabilities, customers, systems or management personnel we may acquire into our operations and we may not be able to realize related revenue synergies and cost savings within expected time frames.
There can be no assurance that we will be able to successfully integrate any acquisition we do make.
Item 1B.
Unresolved Staff Comments
Not Applicable
Item 2.
Properties
The Company's Auburn, Washington depot facility is a 3,000 square foot facility located in a multi-tenant building leased from an unaffiliated third party at an annual rental of $27,000 pursuant to a month to month rental agreement.
The Company's Baton Rouge, Louisiana depot facility is a 1,800 square foot facility located in a multi-tenant building leased from an unaffiliated third party at an annual rental of $15,000 pursuant to an arrangement expiring in February 2015.
The Company's Champaign, Illinois facility is located in a 48,000 square foot building, which was purchased by the Company in May 2005 for $999,999.
On June 1, 2012, the Company entered into a mortgage note with Busey Bank for $855,000.
The note bears interest at the fixed rate of 4% per annum, amortizing over 60 months and maturing on June 1, 2017.
The mortgage note is secured by the Company’s land and building located in Champaign, Illinois. As of December 31, 2013, the Company has $603,000 outstanding under this mortgage and the annual real estate taxes on this facility are approximately $42,000.
The Company has established a second facility in Champaign, Illinois, which is a 76,000 square foot facility located in an approximately 130,000 square foot building.
The building is leased from an unaffiliated third party at an annual rental of $327,000, pursuant to an arrangement expiring in December 2014.
The Company's Charlotte, North Carolina depot facility is an 8,500 square foot facility located in a multi-tenant building leased from an unaffiliated third party at an annual rental of $62,000 pursuant to an agreement expiring in March 2016.
The Company’s Stony Point, New York depot facility is an 18,000 square foot facility located in a multi-tenant building leased from an unaffiliated third party at an annual rental of $116,000 pursuant to an agreement expiring in June 2016.
The Company's headquarters are located in a 4,200 square foot office facility located in a multi-tenant building in Pearl River, New York.
The building is leased from an unaffiliated third party at an annual rental of $93,000 pursuant to an agreement expiring in August 2018.
The Company’s Pottsboro, Texas telemarketing facility is located in a 1,350 square foot office facility located in a multi-tenant building leased from an unaffiliated third party at an annual rental of $18,000 pursuant to an agreement expiring in August 2014.
The Company's Hampstead, New Hampshire telemarketing facility is located in a 1,600 square foot office facility located in a multi-tenant building leased from an unaffiliated third party at an annual rental of $28,000 pursuant to an agreement expiring in August 2017.
The Company’s Tulsa, Oklahoma energy and carbon services facility is located in a 2,304 square foot office facility located in a multi-tenant building leased from an unaffiliated third party at an annual rental of $26,000 which includes our share of operating expenses.
This lease expires December 2014.
In addition to the above leases, the Company from time to time utilizes public warehouse space on a month to month basis.
The Company typically enters into short-term leases for its facilities and whenever possible extends the expiration date of such leases. The Company believes that its insurance policies are adequate to protect the Company’s property.
Item 3.
Legal Proceedings
On April 1, 1999, the Company reported a release of approximately 7,800 lbs. of R-11 refrigerant (the “1999 Release”), at its former leased facility in Hillburn, NY (the “Hillburn Facility”), which the Company vacated in June 2006. A failed hose connection to one of the Company's outdoor storage tanks allowed liquid R-11 refrigerant (“R-11”) to discharge from the tank into the concrete secondary containment area in which the subject tank was located.
Between April 1999 and May 1999, with the approval of the New York State Department of Environmental Conservation (“DEC”), the Company constructed and put into operation a remediation system to remove R-11 levels in the groundwater under and around the Hillburn Facility.
In September 2000, the Company signed an Order on Consent with the DEC, which was amended in May 2001, whereby the Company agreed to operate the remediation system and perform monthly testing at the Hillburn Facility until remaining groundwater contamination has been effectively abated.
In July 2005, the DEC approved a modification of the Order on Consent to reduce the frequency of testing from monthly to quarterly.
Additionally, in March 2013, the DEC approved a further modification of the Order on Consent to modify the operation of the remediation system and to further reduce the frequency and scope of testing.
The Company is continuing to operate the remediation system pursuant to the approved modifications to that Order on Consent.
Based upon the
most recent modifications to the Order on Consent, as of December 31, 2013, the Company accrued, as an expense in its consolidated financial statements, the costs that the Company believes it will incur in connection with its compliance with the Order of Consent through December 31, 2018.
There can be no assurance that additional testing will not be required or that the Company will not incur additional costs and such costs in excess of the Company’s estimate may have a material adverse effect on the Company financial condition or results of operations.
In May 2000, the Hillburn Facility, as a result of the 1999 Release, was nominated by the EPA for listing on the National Priorities List (“NPL”) pursuant to CERCLA.
The Company submitted opposition to the listing within the sixty-day comment period.
In September 2003, the EPA advised the Company that it has no current plans to finalize the process for listing of the Hillburn Facility on the NPL and that the EPA will not withdraw the proposal for listing on the NPL.
The Company has exhausted all insurance proceeds available for the 1999 Release under all applicable policies.
During the years ended December 31, 2013 and 2012, the Company incurred $100,000 and $102,000, respectively, in additional remediation costs in connection with the matters above.
There can be no assurance that the ultimate outcome of the 1999 Release will not have a material adverse effect on the Company's financial condition and results of operations.
There can be no assurance that the EPA will not change its current plans and seek to finalize the process of listing the Hillburn Facility on the NPL, or that the ultimate outcome of such a listing will not have a material adverse effect on the Company's financial condition and results of operations.
Item 4. Mine Safety Disclosures
Not Applicable
Part III
Item 10.
Directors, Executive Officers and Corporate Governance
The information presented below provides information each director has given us about his age, all positions he holds, his principal occupation and his business experience for at least the past five years.
In addition to the information presented below regarding each nominee’s specific experience, qualifications, attributes and skills that led our Board to the conclusion that he should serve as a director, we also believe that all of our directors have a reputation for integrity, honesty and adherence to high ethical standards.
They each have demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment to service to the Company and our Board.
The following table sets forth information with respect to the directors and executive officers of the Company:
|
Name
|
|
Age
|
|
Position
|
|
Kevin J. Zugibe
|
|
50
|
|
Chairman of the Board and Chief Executive Officer
|
|
Brian F. Coleman
|
|
52
|
|
President and Chief Operating Officer, Director
|
|
James R. Buscemi
|
|
60
|
|
Chief Financial Officer
|
|
Charles F. Harkins, Jr.
|
|
52
|
|
Vice President Sales
|
|
Stephen P. Mandracchia
|
|
54
|
|
Vice President Legal and Regulatory and Secretary
|
|
Vincent P. Abbatecola
|
|
67
|
|
Director
|
|
Dominic J. Monetta
|
|
72
|
|
Director
|
|
Otto C. Morch
|
|
80
|
|
Director
|
Kevin J. Zugibe, P.E.,
a founder of the Company, has been Chairman of the Board and Chief Executive Officer of the Company since its inception in 1991.
From May 1987 to May 1994, Mr. Zugibe was employed as a power engineer with Orange and Rockland Utilities, Inc., a major public utility, where he was responsible for all HVAC applications.
Mr. Zugibe is a licensed professional engineer, and from December 1990 to May 1994, he was a member of Kevin J. Zugibe & Associates, a professional engineering firm.
We believe Mr. Zugibe’s qualifications to sit on our Board of Directors include his 27 years of experience in the air conditioning and refrigeration industry including as our founder, our Chairman and Chief Executive Officer for 22 years.
Mr. Zugibe is the brother-in-law of Stephen P. Mandracchia.
Brian F. Coleman
has been a Director of the Company since December 2007, and President and Chief Operating Officer of the Company since August 21, 2001 and served as Chief Financial Officer of the Company from May 1997 until December 2002.
From June 1987 to May 1997, Mr. Coleman was employed by, and since July 1995, was a partner with BDO USA, LLP, the Company's independent registered public accounting firm
.
We believe Mr. Coleman’s qualifications to sit on our Board of Directors include his prior financial and accounting experience obtained as a partner with BDO USA, LLP, and his 17 years of experience in the air conditioning and refrigeration industry including as our President and Chief Operating Officer for the past 11 years.
James R. Buscemi
has been Chief Financial Officer of the Company since December 2002 and served as Corporate Controller from June 1998 until December 2002.
Prior to joining the Company, Mr. Buscemi held various financial positions within Avnet, Inc, including Chief Financial Officer of Avnet's electric motors and component part subsidiary, Brownell Electro, Inc.
Charles F. Harkins, Jr.
has been Vice President of Sales of the Company since December 2003.
Mr. Harkins has served in a variety of capacities since joining the Company in 1992.
Prior to joining the Company, Mr. Harkins served in the U.S. Army for 13 years attaining the rank of Staff Sergeant; he is a graduate of the U.S. Army Engineering School and the U.S. Army Chemical School.
Stephen P. Mandracchia
, a founder of the Company, has been Vice President Legal and Regulatory of the Company since August 2003 and has been Secretary of the Company since April 1995.
Mr. Mandracchia has served in a variety of capacities with the Company since 1993.
Mr. Mandracchia was a member of the law firm of Martin, Vandewalle, Donohue, Mandracchia & McGahan, Great Neck, New York until December 31, 1995 (having been affiliated with such firm since August 1983).
Mr. Mandracchia is the brother in-law of Mr. Zugibe.
Vincent P. Abbatecola
has been a Director of the Company since June 1994.
Mr. Abbatecola is Vice President of Abbey Ice & Spring Water Company, Spring Valley, New York, where he has been employed since May 1971.
He was formerly the Chairman of the International Packaged Ice Association and a trustee of Nyack Hospital.
Mr. Abbatecola serves on the Rockland Board of Governors, the United Hospice of Rockland Board and the St. Thomas Aquinas College President’s Council.
We believe that Mr. Abbatecola’s qualifications to sit on our Board include his business experience obtained as Vice President of Abbey Ice and Spring Water Company, his 20 years of experience in the air conditioning and refrigeration industry by virtue of his service on our Board including as Chairman of the Company’s Audit Committee for 19 years.
Dominic J. Monetta, DPA
has been a Director of the Company since April 1996.
Dr. Monetta has since August 1993, been the President of Resource Alternatives, Inc., a corporate development firm concentrating on resolving technically oriented managerial issues facing chief executive officers and their senior executives.
From December 1991 to May 1993, Dr. Monetta served as the Director of Defense Research and Engineering for Research and Advanced Technology, United States Department of Defense.
From June 1989 to December 1991, Dr. Monetta served as the Director of the Office of New Production Reactors, United States Department of Energy.
Dr. Monetta’s qualifications to sit on our board include his chemical engineering and other management experience obtained as a senior executive for the US Departments of Energy and Defense. Dr. Monetta has 17 years of experience in the air conditioning and refrigeration industry by virtue of his service on our Board and includes his membership on the Company’s Audit Committee for the last 6 years and Occupational, Safety and Environmental Protection Committee for the last 12 years.
Otto C. Morch
has been a Director of the Company since March 1996.
Mr. Morch was a Senior Vice President of Commercial Banking at Provident Savings Bank, F.A. for more than five years until his retirement in December 1997.
We believe that Mr. Morch’s qualifications to sit on our Board include his financial and other experience obtained as a Senior Vice President at Provident Savings Bank, F.A., his 18 years of experience in the air conditioning and refrigeration industry by virtue of his service on our Board including his membership on the Company’s Audit Committee for 18 years.
Hudson
has established a Compensation Committee of the Board of Directors, which is responsible for, among other things, assisting the Board in overseeing Hudson’s executive compensation strategy and reviewing and approving the compensation of our executive officers and for the administration of Hudson’s employee benefit plans. The Compensation Committee is also responsible for reviewing and approving the compensation of the Company’s directors. The executive officers do not determine executive or director compensation but provide information and recommendations to the Compensation Committee upon its request. The Compensation Committee has delegated authority to the Company’s Chief Executive Officer to grant stock options under the Company’s 2004 and 2008 stock incentive plans to employees who are not executive officers of up to a maximum of 10,000 shares per employee and up to an aggregate of 50,000 shares per year. The members of the Committee are Messrs. Abbatecola, Monetta and Morch, each of whom (i) is an “independent” director as defined under the rules of NASDAQ and (ii) qualifies as “outside” directors within the meaning of Internal Revenue Code Section 162(m) and as “non-employee” directors within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended.
Hudson
has an Audit Committee of the Board of Directors, which supervises the audit and financial procedures of Hudson and is responsible for selection of the Company’s independent registered public accountants. The members of the Audit Committee are Messrs. Abbatecola, Monetta and Morch, each of whom is an “independent” director as defined under the rules of NASDAQ.
The Audit Committee does not have a member that qualifies as a “financial expert” under the federal securities laws.
Each of the members of the Audit Committee has been active in the business community and has broad and diverse backgrounds, and financial experience.
Two of the current members have served on Hudson’s Audit Committee and have overseen the financial review by Hudson’s independent auditors for 12 years.
Hudson believes that the current members of the Audit Committee are able to fully and faithfully perform the functions of the Audit Committee and that Hudson does not need to install a “financial expert” on the Audit Committee.
The By-laws of Hudson provide that the Board of Directors is divided into two classes.
Each class is to have a term of two years, with the term of each class expiring in successive years, and is to consist, as nearly as possible, of one-half of the number of directors constituting the entire Board.
The By-laws provide for the number of directors to be fixed by the Board of Directors but in any event, shall be no less than five (5) (subject to decrease by a resolution adopted by the shareholders).
At Hudson’s August 27, 2013 Annual Meeting of the Shareholders, Messrs. Abbatecola, Coleman and Morch were elected as directors to terms of office that will expire at the Annual Meeting of Shareholders to be held in the year 2015.
Messrs. Monetta and Zugibe are currently serving as directors and their terms of office expire at the Annual Meeting of Shareholders to be held in the year 2014.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than 10 percent of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC.
Officers, directors, and greater than 10 percent shareholders are required by SEC regulation to furnish Hudson with copies of all Section 16(a) forms they file.
Based solely on Hudson’s review of copies of such forms received by Hudson, and on representations made to us, we believe that during the year ended December 31, 2013, all filing requirements applicable to all officers, directors and greater than 10% beneficial shareholders were complied with except for (i) late filings made in December 2013 in connection with stock options issued in August 2012 to Messrs. Abbatecola, Monetta and Morch; (ii) late filings made in November 2013 in connection with stock options issued in October 2013 to Messrs. Abbatecola, Monetta and Morch; and (iii) a late filing made in December 2013 in connection with a sale by
Mr. Monetta made in December 2013..
Code of Conduct and Ethics
We have adopted a written code of conduct and ethics that applies to all directors, and employees, including Hudson’s principal executive officer, principal financial officer, principal accounting officer or controller and any persons performing similar functions.
We will provide a copy of its code of ethics to any person without charge upon written request addressed to Hudson Technologies, Inc., One Blue Hill Plaza, PO Box 1541, Pearl River, New York 10965, Attention:
Stephen P. Mandracchia.
Item 11.
Executive Compensation
The following table discloses, for the years indicated, the compensation for our Chief Executive Officer and for our two most highly compensated executive officers, other than the Chief Executive Officer, who were serving as executive officers at the end of the year ended December 31, 2013 and whose total compensation during the year ended December 31, 2013 exceeded $100,000 (the “Named Executives”).
SUMMARY COMPENSATION TABLE
|
Name and
Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($) (3)
|
|
Stock
Awards
($)
|
|
Option
Awards
($) (1)
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
Non-qualified
Deferred
Compensation
Earnings
|
|
All Other
Compensation
($) (4)
|
|
Total
($)
|
|
|
Kevin J. Zugibe,
|
|
2013
|
|
$
|
288,500
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
288,500
|
|
|
Chairman, Chief Executive Officer (2)
|
|
2012
|
|
$
|
264,580
|
|
$
|
264,000
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
528,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian F. Coleman,
|
|
2013
|
|
$
|
212,500
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
9,623
|
|
$
|
222,123
|
|
|
President, Chief Operating Officer, Director (2)
|
|
2012
|
|
$
|
205,465
|
|
$
|
174,000
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
9,623
|
|
$
|
389,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles F. Harkins, Jr.,
|
|
2013
|
|
$
|
191,000
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
8,371
|
|
$
|
199,371
|
|
|
Vice President Sales
|
|
2012
|
|
$
|
187,618
|
|
$
|
145,000
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
8,371
|
|
$
|
340,989
|
|
_____________________________
(1) We utilize the grant date fair value using the Black-Scholes method as described in Note 10 to the Notes to the Consolidated Financial Statements.
(2) Messrs.
Coleman and Zugibe did not receive any compensation for services as a director during the years ended December 31, 2013 and 2012.
(3) Non-Equity Incentive Plan Compensation was earned in 2012, a portion of which was paid in 2012.
The balance was paid in 2013.
(4) Represents payments of annual premiums for long term care insurance purchased for the benefit of the executive officers and, where applicable, the executive officer’s spouse.
Narrative Disclosure to Summary Compensation Table
Employment, Termination, Change of Control and other Agreements
Kevin J. Zugibe.
On October 10, 2006, we entered into an Amended and Restated Employment Agreement with Kevin J. Zugibe, which currently expires in October 2014 and is automatically renewable for successive two year terms unless either party gives notice of termination at least ninety days prior to the expiration date of the then current term.
Pursuant to the agreement, as amended by the First Amendment to Restated Employment Agreement dated December 29, 2008, Mr. Zugibe is receiving an annual base salary of $288,500 with such increases and bonuses as our Board of Directors may determine.
The agreement provides, in the event of Mr. Zugibe's disability, for the continuation of at least 75% of Mr. Zugibe's salary for up to one hundred twenty days after the commencement of his disability.
Mr. Zugibe is also entitled to take up to four weeks of vacation, excluding paid holidays.
As part of the agreement, Mr. Zugibe has agreed to certain covenants and restrictions, which include an agreement that Mr. Zugibe will not compete with us in specified geographic areas for a period of twenty-four months after his termination for any reason.
The agreement also provides that, in the event of his involuntary separation from Hudson without cause, or in the event of his voluntary separation for a good reason as enumerated in the agreement, Mr. Zugibe will receive severance payments, in the form of the continuation of his annual base salary and benefits for a period of twenty-four months, and a lump sum payment equivalent to the highest bonus paid to Mr. Zugibe in the three years prior to his termination, pro-rated to the date of his termination.
We are the beneficiary of a “key-man” insurance policy on the life of Mr. Zugibe in the amount of $1,000,000.
Brian F. Coleman.
On October 10, 2006, we entered into an agreement with Brian F. Coleman, pursuant to which, as amended, Mr. Coleman has agreed to certain covenants and restrictions, which include an agreement that Mr. Coleman will not compete with us in specified geographic areas for a period of eighteen months after his termination for any reason. The agreement provides, in the event of his disability, for the continuation of at least 75% of his salary for up to one hundred twenty days after the commencement of his disability.
The agreement also provides that, in the event of his involuntary separation without cause, or in the event of his voluntary separation for a good reason as enumerated in the agreement, Mr. Coleman will receive severance payments, in the form of the continuation of his annual base salary and benefits for a period of eighteen months, and a lump sum payment equivalent to the highest bonus paid to him in the three years prior to his termination, pro-rated to the date of his termination.
Charles F. Harkins
.
On October 10, 2006, we entered into an agreement with Charles F. Harkins, pursuant to which, as amended, Mr. Harkins has agreed to certain covenants and restrictions, which include an agreement that Mr. Harkins will not compete with us in specified geographic areas for a period of eighteen months after his termination for any reason.
The agreement provides, in the event of his disability, for the continuation of at least 75% of his salary for up to one hundred twenty days after the commencement of his disability.
The agreement also provides that in the event of his involuntary separation without cause, or in the event of his voluntary separation for a good reason as enumerated in the agreement, Mr. Harkins will receive severance payments, in the form of the continuation of his annual base salary and benefits for a period of eighteen months, and a lump sum payment equivalent to the highest bonus paid to him in the three years prior to his termination, pro-rated to the date of his termination.
On December 31, 2012 the independent members of our Board resolved to establish a pool at the end of fiscal year 2013 for the payment of cash awards based upon our 2013 earnings to some or all of the executive officers, as well as to several other of our key employees. The amount of the pool to be established was to be determined by the independent Board members at the end of fiscal year 2013 based upon our achieving earnings in excess of a pre-determined level for fiscal 2013 (the “Benchmark”). At the end of fiscal year 2013, the independent Board members determined not to establish a bonus pool or to make any cash awards to any of the executive officers.
Stock Option Grants or Stock Awards
The Company did not issue stock options, or grant any stock awards to any of the Named Executives in 2013.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table discloses the outstanding option awards held by the Named Executives as of December 31, 2013. Options exercised by the Named Executives during the fiscal year ended December 31, 2013 are set forth in the tables below.
No stock awards have been issued to the Named Executives.
|
Name
|
|
Number of Securities
Underlying Unexercised
Options
(#)
Exercisable
|
|
Option
Exercise
Price
($)
|
|
Option Expiration
Date
|
|
|
Kevin J. Zugibe,
|
|
|
|
|
|
|
|
|
|
|
Chairman, Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93,750
|
|
$
|
1.02
|
|
1/3/2015
|
|
|
|
|
|
18,750
|
|
$
|
0.87
|
|
4/1/2015
|
|
|
|
|
|
18,750
|
|
$
|
0.83
|
|
7/8/2015
|
|
|
|
|
|
18,750
|
|
$
|
2.15
|
|
9/30/2015
|
|
|
|
|
|
123,750
|
|
$
|
1.76
|
|
12/29/2015
|
|
|
|
|
|
35,000
|
|
$
|
1.40
|
|
3/31/2016
|
|
|
|
|
|
9,300
|
|
$
|
1.02
|
|
10/10/2016
|
|
|
|
|
|
195,000
|
|
$
|
0.85
|
|
11/20/2017
|
|
|
|
|
|
78,000
|
|
$
|
1.26
|
|
12/17/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian F. Coleman,
|
|
|
|
|
|
|
|
|
|
|
President, Chief Operating Officer, Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,500
|
|
$
|
1.02
|
|
1/3/2015
|
|
|
|
|
|
12,500
|
|
$
|
0.87
|
|
4/1/2015
|
|
|
|
|
|
12,500
|
|
$
|
0.83
|
|
7/8/2015
|
|
|
|
|
|
12,500
|
|
$
|
2.15
|
|
9/30/2015
|
|
|
|
|
|
82,500
|
|
$
|
1.76
|
|
12/29/2015
|
|
|
|
|
|
32,500
|
|
$
|
1.40
|
|
3/31/2016
|
|
|
|
|
|
8,100
|
|
$
|
1.02
|
|
10/10/2016
|
|
|
|
|
|
180,000
|
|
$
|
0.85
|
|
11/20/2017
|
|
|
|
|
|
75,000
|
|
$
|
1.26
|
|
12/17/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles F. Harkins, Jr.,
|
|
|
|
|
|
|
|
|
|
|
Vice President Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,016
|
|
$
|
1.76
|
|
12/29/2015
|
|
|
|
|
|
23,125
|
|
$
|
1.40
|
|
3/31/2016
|
|
|
Name
|
|
Date of Grant of
Exercised Options
|
|
Number of Shares
purchased upon
Exercise of Options
|
|
Date of
Exercise
|
|
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin J. Zugibe, Chairman,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Executive Officer
|
|
|
3/5/2004
|
|
|
87,500
|
|
3/21/2013
|
|
$
|
1.13
|
|
|
|
|
|
3/31/2004
|
|
|
193,750
|
|
3/21/2013
|
|
$
|
1.15
|
|
|
|
|
|
9/17/2004
|
|
|
18,750
|
|
3/21/2013
|
|
$
|
0.83
|
|
|
|
|
|
10/1/2004
|
|
|
18,750
|
|
3/21/2013
|
|
$
|
0.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian F. Coleman, President,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Operating Officer, Director
|
|
|
3/5/2004
|
|
|
75,000
|
|
3/7/2013
|
|
$
|
1.13
|
|
|
|
|
|
3/31/2004
|
|
|
18,750
|
|
3/7/2013
|
|
$
|
1.15
|
|
|
|
|
|
9/17/2004
|
|
|
12,500
|
|
3/7/2013
|
|
$
|
0.83
|
|
|
|
|
|
10/1/2004
|
|
|
12,500
|
|
3/7/2013
|
|
$
|
0.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles F. Harkins, Jr.,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vice President, Sales
|
|
|
12/19/2005
|
|
|
2,484
|
|
5/21/2013
|
|
$
|
1.76
|
|
|
|
|
|
12/29/2005
|
|
|
8,139
|
|
5/21/2013
|
|
$
|
1.76
|
|
|
|
|
|
10/10/2006
|
|
|
7,900
|
|
5/8/2013
|
|
$
|
1.02
|
|
|
|
|
|
12/17/2009
|
|
|
62,377
|
|
5/21/2013
|
|
$
|
1.26
|
|
Stock Option Plans
1994 Stock Option Plan
We adopted an Employee Stock Option Plan (the “1994 Plan”) effective October 31, 1994 pursuant to which 725,000 shares of our common stock were reserved for issuance upon the exercise of options designated as either (i) options intended to constitute incentive stock options (“ISOs”) under the Internal Revenue Code of 1986, as amended (the “Code”), or (ii) nonqualified options.
ISOs could be granted under the 1994 Plan to our employees and officers.
Non-qualified options could be granted to consultants, directors (whether or not they are employees), our employees or officers.
Effective November 1, 2004, our ability to grant options under the 1994 Plan expired.
All options granted under the 1994 Plan are not transferable during an optionee's lifetime but are transferable at death by will or by the laws of descent and distribution.
In general, upon termination of employment of an optionee, all options granted to such person that are not exercisable on the date of such termination immediately terminate, and any options that are exercisable terminate 90 days following termination of employment.
As of December 31, 2013, we had no options outstanding to purchase shares of our common stock under the 1994 Plan.
1997 Stock Option Plan
We adopted the 1997 Stock Option Plan (the “1997 Plan”) effective June 11, 1997 pursuant to which 2,000,000 shares of our common stock were reserved for issuance upon the exercise of options designated as either (i) ISOs under the Code, or (ii) nonqualified options.
ISOs could be granted under the 1997 Plan to our employees and officers.
Non-qualified options could be granted to consultants, directors (whether or not they are employees), our employees or officers.
Stock appreciation rights could also be issued in tandem with stock options.
Effective June 11, 2007 our ability to grant options under the 1997 Plan expired.
All options granted under the 1997 Plan are not transferable during an optionee's lifetime but are transferable at death by will or by the laws of descent and distribution.
In general, upon termination of employment of an optionee, all options granted to such person that are not exercisable on the date of such termination immediately terminate, and any options that are exercisable terminate 90 days following termination of employment.
As of December 31, 2013, we had options outstanding to purchase 193,710 shares of our common stock under the 1997 Plan.
2004 Stock Incentive Plan
We have adopted the 2004 Stock Incentive Plan (the “2004 Plan”), pursuant to which 2,500,000 shares of our common stock are currently reserved for issuance upon the exercise of options, designated as either (i) ISOs, under the Code or (ii) non-qualified options, or for issuance upon the granting of restricted stock, deferred stock or other stock-based awards.
ISOs may be granted under the 2004 Plan to employees and officers of Hudson.
Non-qualified options, restricted stock, deferred stock or other stock-based awards may be granted to consultants, directors (whether or not they are employees), employees or officers of Hudson.
Stock appreciation rights may also be issued in tandem with stock options.
The 2004 Plan is intended to qualify under Rule 16b-3 under the Exchange Act and is administered by our Compensation Committee of the Board of Directors.
The Committee, within the limitations of the 2004 Plan, determines the persons to whom options will be granted, the number of shares to be covered by each option, whether the options granted are intended to be ISOs, the duration and rate of exercise of each option, the exercise price per share and the manner of exercise and the time, manner and form of payment upon exercise of an option.
In the case of restricted stock, deferred stock or other stock-based awards, the Committee, within the limitations of the 2004 Plan, determines the persons to whom awards will be granted, the number of shares of stock subject to the award, and the restrictions on issuance and transfer of such shares.
Unless the 2004 Plan is sooner terminated, the ability to grant options or other awards under the 2004 Plan will expire on September 10, 2014.
ISOs granted under the 2004 Plan may not be granted at a price less than the fair market value of our common stock on the date of grant (or 110% of fair market value in the case of ISO’s granted to a 10% shareholder).
In the case of ISOs, the aggregate fair market value of shares for which ISOs granted to any employee are exercisable for the first time by such employee during any calendar year (under all of our stock option plans) may not exceed $100,000.
Non-qualified options granted under the 2004 Plan may not be granted at a price less than the fair market value of our common stock.
Options granted under the 2004 Plan will expire not more than ten years from the date of grant (five years in the case of ISOs granted to a 10% shareholder).
Except as otherwise provided by the Committee with respect to non-qualified options, all options, restricted stock, deferred stock or other stock-based awards granted under the 2004 Plan are not transferable during a grantee’s lifetime but are transferable at death by will or by the laws of descent and distribution.
In general, upon termination of employment of a grantee, all options, restricted stock, deferred stock or other stock-based awards granted to such person which are not exercisable on the date of such termination immediately terminate, and any options that are exercisable terminate 90 days following termination of employment.
As of December 31, 2013, we had options outstanding to purchase 1,827,317 shares of common stock and 26,930 shares are reserved for future issuances under the 2004 Plan.
2008 Stock Incentive Plan
We have adopted the 2008 Stock Incentive Plan (the “2008 Plan”), pursuant to which 3,000,000 shares of our common stock are currently reserved for issuance upon the exercise of options, designated as either (i) ISOs, under the Code or (ii) non-qualified options, or for issuance upon the granting of restricted stock, deferred stock or other stock-based awards.
ISOs may be granted under the 2008 Plan to employees and officers of Hudson.
Non-qualified options, restricted stock, deferred stock or other stock-based awards may be granted to consultants, directors (whether or not they are employees), employees or officers of Hudson.
Stock appreciation rights may also be issued in tandem with stock options.
The 2008 Plan is intended to qualify under Rule 16b-3 under the Exchange Act and is administered by our Compensation Committee of the Board of Directors.
The Committee, within the limitations of the 2008 Plan, determines the persons to whom options will be granted, the number of shares to be covered by each option, whether the options granted are intended to be ISOs, the duration and rate of exercise of each option, the exercise price per share and the manner of exercise and the time, manner and form of payment upon exercise of an option.
In the case of restricted stock, deferred stock or other stock-based awards, the Committee, within the limitations of the 2008 Plan, determines the persons to whom awards will be granted, the number of shares of stock subject to the award, and the restrictions on issuance and transfer of such shares.
Unless the 2008 Plan is sooner terminated, the ability to grant options or other awards under the 2008 Plan will expire on June 19, 2018.
ISOs granted under the 2008 Plan may not be granted at a price less than the fair market value of our common stock on the date of grant (or 110% of fair market value in the case of ISO’s granted to a 10% shareholder).
In the case of ISOs, the aggregate fair market value of shares for which ISOs granted to any employee are exercisable for the first time by such employee during any calendar year (under all of our stock option plans) may not exceed $100,000.
Non-qualified options granted under the 2008 Plan may not be granted at a price less than the fair market value of our common stock.
Options granted under the 2008 Plan will expire not more than ten years from the date of grant (five years in the case of ISOs granted to a 10% shareholder).
Except as otherwise provided by the Committee with respect to non-qualified options, all options, restricted stock, deferred stock or other stock-based awards granted under the 2008 Plan are not transferable during a grantee’s lifetime but are transferable at death by will or by the laws of descent and distribution.
In general, upon termination of employment of a grantee, all options, restricted stock, deferred stock or other stock-based awards granted to such person which are not exercisable on the date of such termination immediately terminate, and any options that are exercisable terminate 90 days following termination of employment.
As of December 31, 2013, we had options outstanding to purchase 505,197 shares of common stock and 2,494,803 shares are reserved for future issuances of awards under the 2008 Plan.
Director Compensation
Effective July 1, 2012 non-employee directors receive an annual fee of $38,000 per year, of which $18,000 is to be paid in the form of cash, and $20,000 shall be paid in the form of stock options, and receive reimbursement for out-of-pocket expenses incurred for attendance at meetings of the Board of Directors and Board Committee meetings.
In 2013, non-employee directors each received a total annual fee of $38,000 and reimbursement for out-of-pocket expenses incurred for attendance at meetings of the Board of Directors and Board committee meetings.
The following table discloses the compensation of the non-employee directors who served as our directors during the year ended December 31, 2013.
We reimburse each of our non-employee directors for their reasonable expenses incurred in connection with attending meetings of our board of directors and related committees.
DIRECTOR COMPENSATION
|
Name
|
|
Fees earned
or paid in
cash
|
|
Stock
Awards
|
|
Option
Awards
(1)
|
|
Non-Equity
Incentive Plan
Compensation
|
|
Nonqualified
Deferred
Compensation
Earnings
|
|
All Other
Compensation
|
|
Total
|
|
|
Vincent P.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Abbatecola (2)
|
|
$
|
18,000
|
|
$
|
0
|
|
$
|
20,000
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
38,000
|
|
|
Dominic J.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monetta (2)
|
|
$
|
18,000
|
|
$
|
0
|
|
$
|
20,000
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
38,000
|
|
|
Otto C.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morch (2)
|
|
$
|
18,000
|
|
$
|
0
|
|
$
|
20,000
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
38,000
|
|
__________________________
(1)
We utilize the grant date fair value using the Black-Scholes method as described in Note 10 to the Notes to the Consolidated Financial Statements.
(2)
As of December 31, 2013, Mr. Abbatecola has options to purchase 161,399 shares of common stock outstanding, Mr. Morch has options to purchase 134,399 shares of common stock outstanding, and Dr. Monetta has options to purchase 121,399 shares of common stock outstanding.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth information as of February 28, 2014 based on information obtained from the persons named below, with respect to the beneficial ownership of Hudson’s common stock by (i) each person known by Hudson to be the beneficial owner of more than 5% of Hudson’s outstanding common stock, (ii) the Named Executives, (iii) each director of Hudson, and (iv) all of our directors and executive officers as a group:
BENEFICIAL OWNERSHIP TABLE
|
Title of Class
|
|
Name of Beneficial Owner
|
|
Amount and Nature of
Beneficial Ownership (1)
|
|
|
Percent of Class
|
|
|
Common Stock
|
|
Kevin J. Zugibe
|
|
|
4,635,928
|
(2)
|
|
|
18.05
|
%
|
|
Common Stock
|
|
Brian F. Coleman
|
|
|
845,250
|
(3)
|
|
|
3.31
|
%
|
|
Common Stock
|
|
Charles F. Harkins
|
|
|
73,141
|
(4)
|
|
|
*
|
|
|
Common Stock
|
|
James R. Buscemi
|
|
|
435,055
|
(5)
|
|
|
1.72
|
%
|
|
Common Stock
|
|
Stephen P. Mandracchia
|
|
|
1,951,445
|
(6)
|
|
|
7.68
|
%
|
|
Common Stock
|
|
Vincent P. Abbatecola
|
|
|
201,399
|
(7)
|
|
|
*
|
|
|
Common Stock
|
|
Dominic J. Monetta
|
|
|
221,499
|
(8)
|
|
|
*
|
|
|
Common Stock
|
|
Otto C. Morch
|
|
|
147,699
|
(9)
|
|
|
*
|
|
|
Common Stock
|
|
Marathon Capital Management
|
|
|
1,623,964
|
(10)
|
|
|
6.47
|
%
|
|
Common Stock
|
|
Perritt Captial Management, Inc.
|
|
|
1,524,200
|
(11)
|
|
|
6.07
|
%
|
|
Common Stock
|
|
William Blair & Company, LLC
|
|
|
2,152,938
|
(12)
|
|
|
8.58
|
%
|
|
Common Stock
|
|
All directors and executive officers as a group (Eight Persons)
|
|
|
8,511,416
|
(13)
|
|
|
31.32
|
%
|
* = Less than 1%
_______
(1) A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from February 28, 2014.
Each beneficial owner's percentage ownership is determined by assuming that options and warrants that are held by such person (but not held by any other person) and which are exercisable within 60 days from February 28, 2014 have been exercised.
Unless otherwise noted, Hudson believes that all persons named in the table have sole voting and investment power with respect to all shares of our common stock beneficially owned by them. The address for each beneficial owner, unless otherwise noted, is c/o Hudson Technologies, Inc. at: PO Box 1541, One Blue Hill Plaza, Pearl River, New York 10965.
(2) Includes (i) 93,750 shares which may be purchased at
$1.02 per share; (ii) 18,750 shares which may be purchased at $0.87 per share; (iii) 18,750 shares which may be purchased at $0.83 per share; (iv) 18,750 shares which may be purchased at $2.15 per share; (v) 123,750 shares which may be purchased at $1.76 per share; (vi) 35,000 shares which may be purchased at $1.40 per share; (vii) 9,300 shares which may be purchased at $1.02 per share, (viii) 195,000 shares that may be purchased at $0.85 per share; and (ix) 78,000 shares which may be purchased at $1.26 per share, under immediately exercisable options.
(3) Includes
(i) 62,500 shares which may be purchased at $1.02 per share; (ii) 12,500 shares which may be purchased at $0.87 per share; (iii) 12,500 shares which may be purchased at $0.83 per share; (iv) 12,500 shares which may be purchased at $2.15 per share; (v) 82,500 shares which may be purchased at $1.76 per share; (vi) 32,500 shares which may be purchased at $1.40 per share; (vii) 8,100 shares which may be purchased at $1.02 per share, (viii) 180,000 shares which may be purchased at $0.85 per share; and (ix) 75,000 shares which may be purchased at $1.26 per share, under immediately exercisable options.
(4) Includes (i) 50,016 shares which may be purchased at $1.76 per share; and (ii) 23,125 shares which may be purchased at $1.40 per share, under immediately exercisable options.
(5)
Includes the following shares which may be purchased by Mr. Buscemi upon the exercise of options previously granted to him:
(i) 6,250 shares which may be purchased at $2.15 per share; (ii) 41,250 shares which may be purchased at $1.76 per share; (iii) 16,625 shares which may be purchased at $1.40 per share; (iv) 100,000 shares that may be purchased at $0.85 per share; and (v) 48,000 shares which may be purchased at $1.26 per share, under immediately exercisable options.
(6)
Includes (i) 1,196,045 shares held of record in the name of Mr. Mandracchia’s wife, Theresa Mandracchia, over which Mr. Mandracchia has sole voting power and shared dispositive power, and (ii) the following shares which may be purchased by Mr. Mandracchia upon the exercise of options previously granted to him:
(a) 31,250 shares which may be purchased at $1.02 per share; (b) 6,250 shares which may be purchased at $0.87 per share; (c) 6,250 shares which may be purchased at $0.83 per share; (d) 6,250 shares which may be purchased at $2.15 per share; (e) 51,250 shares which may be purchased at $1.76 per share; (f) 20,750 shares which may be purchased at $1.40 per share; (g) 7,400 shares which may be purchased at $1.02 per share; (h) 125,000 shares that may be purchased at $0.85 per share; and (i) 58,000 shares which may be purchased at $1.26 per share, under immediately exercisable options.
(7)
Includes (i) 40,000 shares which may be purchased at $0.85 per share; (ii) 40,000 shares which may be purchased at $1.21 per share; (iii) 25,000 shares which may be purchased at $1.72 per share; (iv) 25,000 shares that may be purchased at $1.31 per share;
(v) 10,281 shares which may be purchased at $ 3.27 per share; and (vi) 21,118 shares which may be purchased at $1.88 per share under immediately exercisable options.
(8)
Includes (i) 40,000 shares which may be purchased at $1.21 per share; (ii) 25,000 shares which may be purchased at $1.72 per share; (iii) 25,000 shares which may be purchased at $1.31 per share;
(iv) 10,281 shares which may be purchased at $3.27 per share; and (v) 21,118 shares which may be purchased at $1.88 per share under immediately exercisable options
(9) Includes (i) 13,000 shares which may be purchased at $ 0.85 per share; (ii) 40,000 shares which may be purchased at $ 1.21 per share; (iii) 25,000 shares that may be purchased at $1.72 per share; (iv) 25,000 shares which may be purchased at $1.31 per share;
(v) 10,281 shares which may be purchased at $3.27 per share; and (vi) 21,118 shares which may be purchased at $1.88 per share under immediately exercisable options.
(10) Represents aggregate amount of beneficially owned common stock as reported in a Schedule 13G/A filed by Marathon Capital Management, LLC on January 23, 2014.
The address of Marathon Capital Management, LLC is 4 North Park Drive, Suite 106, Hunt Valley, MD
21030.
(11) Represents aggregate amount of beneficially owned common stock as last reported in a Schedule 13G filed by Perritt Capital Management, Inc., Perritt MicroCap Opportunities Fund, Inc. and Perritt Funds, Inc. on February 14, 2014.
The address of Perritt Capital Management, Inc. is 300 South Wacker Drive, Suite 2880, Chicago, Illinois
60606.
(12)
Represents aggregate amount of beneficially owned common stock as reported in a Schedule 13G filed by William Blair & Company, LLC on February 6, 2014.
The address of
William Blair & Company, LLC is 222 W. Adams, Chicago, IL
60606.
(13) Includes exercisable options to purchase 2,084,013 shares of common stock which may be purchased under immediately exercisable options.
Equity Compensation Plan
The following table provides certain information with respect to all of Hudson’s equity compensation plans as of December 31, 2013.
|
|
|
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
|
|
Weighted-average exercise
price of outstanding options,
warrants and rights
|
|
Number of securities remaining
available for future issuance
under equity compensation plans
(excluding securities reflected in
column (a))
|
|
|
Plan Category
|
|
(a)
|
|
(b)
|
|
(c)
|
|
|
Equity compensation plans approved by security holders
|
|
|
2,517,911
|
|
$
|
1.33
|
|
|
2,521,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by security holders (1)
|
|
|
73,500
|
|
$
|
1.44
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,591,411
|
|
$
|
1.33
|
|
|
2,521,733
|
|
__________________________
(1) Includes (i) 73,500 five-year warrants, issued in 2009 to our placement agent in connection with the 2009 Offering (as defined below) exercisable, at $1.4375 per share.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Our Board of Directors is comprised of five members, of which three directors are independent as defined under NASDAQ marketplace rules.
The independent members of the Board are Messrs. Abbatecola, Monetta and Morch.
Messrs. Coleman and Zugibe are not independent as defined under NASDAQ marketplace rules.
The independent members of our Board of Directors determine the compensation of our executive officers.
The Board of Directors has established a Compensation/Stock Option Committee, which is responsible for recommending to the independent directors the compensation of our executive officers and for the administration of our employee benefit plans.
The members of such committee are Messrs. Abbatecola, Monetta and Morch.
In September 2007, the Board established a Nominating Committee consisting of Messrs. Abbatecola, Monetta and Zugibe, and which is responsible for recommending to the independent directors nominees for election to the Board.
Nominations to the Board are made by vote of the independent directors of the Board.
The members of our Audit Committee of our Board of Directors are Messrs. Abbatecola, Monetta, and Morch, all of whom are independent as defined under NASDAQ marketplace rules.
Review, approval or ratification of transactions with related persons
Each year, all of our directors and officers are asked to disclose the existence of family relationships and other related transactions in Director and Officer Questionnaires.
Our Audit Committee is responsible for reviewing and approving or ratifying related-person transactions.
A related person is any executive officer, director or more than 5% stockholder, or any immediate family member of the foregoing persons, or entity owned or controlled by such person.
In addition, pursuant to our Code of Business Conduct and Ethics, all of our employees and directors are required to bring any conflict of interest to the attention of one of the Company’s executive officers or directors.
In determining whether to approve or ratify a related party transaction, the Audit Committee will consider, among other factors it deems appropriate, whether the related party transaction is on terms no less favorable to us than terms generally available to us from an unaffiliated third-party under the same or similar circumstances, and the extent of the related party’s interest in the transaction.
Any transaction which is deemed to be a related party transaction requires the approval, initially by a majority of the non-interested Audit Committee members and finally by a majority of the non-interested Board members.
There are no other written procedures governing any review of related person transactions.
Item 14. Principal Accounting Fees and Services
Audit Fees.
The aggregate fees billed by BDO USA, LLP for professional services rendered for the audits and reviews of the Company's financial statements for the years ended December 31, 2013 and 2012 totaled $179,000 and $169,000, respectively.
Audit-Related Fees.
In 2013 and 2012, the aggregate fees billed by BDO USA, LLP for assurance and related services that are reasonably related to the performance of the audit or review of the Company's financial statements were none.
Tax Fees.
In 2013 and 2012 the aggregate fees billed by BDO USA, LLP for professional services rendered for tax advice totaled $42,000 and $35,000, respectively.
All Other Fees.
In 2013 and 2012, all other fees billed by BDO USA LLP for professional services rendered other than the services described in the paragraphs caption “Audit Fees”, “Audit Related Fees” and “Tax Fees” were none.
The Audit Committee has established its pre-approval policies and procedures, pursuant to which the Audit Committee approved the foregoing audit services provided by BDO USA, LLP in 2013.
Consistent with the Audit Committee's responsibility for engaging the Company’s independent auditors, all audit and permitted non-audit services require pre-approval by the Audit Committee.
The full Audit Committee approves proposed services and fee estimates for these services.
The Audit Committee chairperson or their designee has been designated by the Audit Committee to approve any services arising during the year that were not pre-approved by the Audit Committee.
Services approved by the Audit Committee chairperson are communicated to the full Audit Committee at its next regular meeting and the Audit Committee reviews services and fees for the fiscal year at each such meeting.
Pursuant to these procedures, the Audit Committee approved the foregoing audit services provided by BDO USA, LLP.
Part IV
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 products and services are primarily used in commercial air conditioning, industrial processing and refrigeration systems, including (i) refrigerant sales, (ii) refrigerant management services consisting primarily of reclamation of refrigerants and (iii) RefrigerantSide® Services performed at a customer's site, consisting of system decontamination to remove moisture, oils and other contaminants.
In addition, RefrigerantSide® Services include predictive and diagnostic services for industrial and commercial refrigeration applications, which are designed to predict potential catastrophic problems and identify inefficiencies in an operating system.
The Company’s Chiller Chemistry®, Chill Smart®, Fluid Chemistry®, and Performance Optimization are predictive and diagnostic service offerings.
As a component of the Company’s products and services, the Company also participates in the generation of carbon offset projects.
The Company operates principally through its wholly-owned subsidiary, Hudson Technologies Company. Unless the context requires otherwise, references to the “Company”, “Hudson”, “we”, “us”, “our”, or similar pronouns refer to Hudson Technologies, Inc. and its subsidiaries.
In preparing the accompanying consolidated financial statements, and in accordance with ASC855-10 “Subsequent Events”, the Company’s management has evaluated subsequent events through the date that the financial statements were filed.
In the opinion of management, all estimates and adjustments considered necessary for a fair presentation have been included and all such adjustments were normal and recurring.
Consolidation
The consolidated financial statements represent all companies of which Hudson directly or indirectly has majority ownership or otherwise controls.
Significant intercompany accounts and transactions have been eliminated.
The Company's consolidated financial statements include the accounts of wholly-owned subsidiaries Hudson Holdings, Inc. and Hudson Technologies Company.
Fair value of financial instruments
The carrying values of financial instruments including trade accounts receivable and accounts payable approximate fair value at December 31, 2013 and 2012, because of the relatively short maturity of these instruments.
The carrying value of short and long-term debt approximates fair value, based upon quoted market rates of similar debt issues, as of December 31, 2013 and 2012.
Credit risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of temporary cash investments and trade accounts receivable.
The Company maintains its temporary cash investments in highly-rated financial institutions and, at times, the balances exceed FDIC insurance coverage.
The Company's trade accounts receivables are primarily due from companies throughout the United States.
The Company reviews each customer's credit history before extending credit.
The Company establishes an allowance for doubtful accounts based on factors associated with the credit risk of specific accounts, historical trends, and other information.
The carrying value of the Company’s accounts receivable is reduced by the established allowance for doubtful accounts.
The allowance for doubtful accounts includes any accounts receivable balances that are determined to be uncollectible, along with a general reserve for the remaining accounts receivable balances.
The Company adjusts its reserves based on factors that affect the collectability of the accounts receivable balances.
For the year ended December 31, 2013, two customers each accounted for 10% or more of the Company’s revenues and, in the aggregate these two customers accounted for
23
% of the Company’s revenues. At December 31, 2013, there were $
344,000
in outstanding receivables from these customers.
For the year ended December 31, 2012, two customers each accounted for 10% or more of the Company’s revenues and, in the aggregate these two customers accounted for
28
% of the Company’s revenues. At December 31, 2012, there were no outstanding receivables from these customers.
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 market. 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 market adjustment, the impact of which is reflected in cost of sales on the Consolidated Statements of Operations.
Any such adjustment is based on management’s judgment regarding future demand and market conditions and analysis of historical experience. For the year ended December 31, 2013, the Company recognized a lower of cost or market adjustment to inventory in the amount of $14,700,000.
The LCM inventory adjustment, which significantly increased our
cost of sales, was due to an approximately 50% decline in HCFC-22 refrigerant pricing from April to September 2013 following the issuance of the EPA’s final rule in April 2013.
Property, plant and equipment
Property, plant and equipment are stated at cost, including internally manufactured equipment.
The cost to complete equipment that is under construction is not considered to be material to the Company's financial position.
Provision for depreciation is recorded (for financial reporting purposes) using the straight-line method over the useful lives of the respective assets.
Leasehold improvements are amortized on a straight-line basis over the shorter of economic life or terms of the respective leases.
Costs of maintenance and repairs are charged to expense when incurred.
Due to the specialized nature of the Company's business, it is possible that the Company's estimates of equipment useful life periods may change in the future.
Revenues and cost of sales
Revenues are recorded upon completion of service or product shipment and passage of title to customers in accordance with contractual terms.
The Company evaluates each sale to ensure collectability.
In addition, each sale is based on an arrangement with the customer and the sales price to the buyer is fixed.
License fees are recognized over the period of the license based on the respective performance measurements associated with the license.
Royalty revenues are recognized when earned.
Cost of sales is recorded based on the cost of products shipped or services performed and related direct operating costs of the Company's facilities.
To the extent that the Company charges its customers shipping fees, such amounts are included as a component of revenue and the corresponding costs are included as a component of cost of sales.
The Company's revenues are derived from refrigerant and reclamation sales and RefrigerantSide® Services, including license and royalty revenues.
The revenues for each of these lines are as follows:
|
Years Ended December 31,
|
|
2013
|
|
2012
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Refrigerant and reclamation sales
|
|
$
|
54,293
|
|
$
|
52,220
|
|
|
RefrigerantSide® Services
|
|
|
4,341
|
|
|
4,227
|
|
|
Total
|
|
$
|
58,634
|
|
$
|
56,447
|
|
Income taxes
The Company utilizes the asset and liability method for recording deferred income taxes, which provides for the establishment of deferred tax asset or liability accounts based on the difference between tax and financial reporting bases of certain assets and liabilities. The tax benefit associated with the Company's net operating loss carry forwards (“NOLs”) is recognized to the extent that the Company is expected to recognize future taxable income. The Company assesses the recoverability of its deferred tax assets based on its expectation that it will recognize future taxable income and adjusts its valuation allowance accordingly.
As of December 31, 2013 and 2012, the net deferred tax asset was $6,112,000 and $4,122,000, respectively.
Certain states either do not allow or limit NOLs and as such the Company will be liable for certain state taxes.
To the extent that the Company utilizes its NOLs, it will not pay tax on such income but may be subject to the federal alternative minimum tax.
In addition, to the extent that the Company’s net income, if any, exceeds the annual NOL limitation it will pay income taxes based on existing statutory rates.
Moreover, as a result of a “change in control”, as defined by the Internal Revenue Service, the Company’s ability to utilize its existing NOLs is subject to certain annual limitations.
Approximately $10,600,000 of the Company’s $16,000,000 of NOLs are subject to annual limitations of $1,300,000.
The Company has a current income tax receivable of $ 2,709,000 at December 31, 2013.
This receivable is primarily related to the pre-tax loss for the year ended December 31, 2013.
As a result of an Internal Revenue Service audit, the 2006 and prior federal tax years have been closed.
The Company operates in many states throughout the United States and, as of December 31, 2013, the various states’ statutes of limitations remain open for tax years subsequent to 2008.
The Company recognizes interest and penalties, if any, relating to income taxes as a component of the provision for income taxes.
The IRS recently initiated an examination of the Company’s federal income tax return for the fiscal year 2011.
The Company does not expect the results of this examination to have a material effect on the Company’s financial statements.
The Company evaluates uncertain tax positions, if any, by determining if it is more likely than not to be sustained upon examination by the taxing authorities.
As of December 31, 2013 and 2012, the Company had no uncertain tax positions.
Income per common and equivalent shares
If dilutive, common equivalent shares (common shares assuming exercise of options and warrants) utilizing the treasury stock method are considered in the presentation of diluted earnings per share.
The reconciliation of shares used to determine net income per share is as follows (dollars in thousands):
|
|
|
Years Ended
December 31,
|
|
|
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(5,842)
|
|
$
|
12,801
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares – basic
|
|
|
24,826,101
|
|
|
23,906,706
|
|
|
Shares underlying warrants
|
|
|
0
|
|
|
315,494
|
|
|
Shares underlying options
|
|
|
0
|
|
|
2,131,760
|
|
|
Weighted average number of shares outstanding – diluted
|
|
|
24,826,101
|
|
|
26,353,960
|
|
During the year ended December 31, 2013 and 2012, certain options and warrants aggregating 3,760,161 and no shares, respectively, have been excluded from the calculation of diluted shares, due to the fact that their effect would be anti-dilutive.
Estimates and risks
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect reported amounts of certain assets and liabilities, the disclosure of contingent assets and liabilities, and the results of operations during the reporting period.
Actual results could differ from these estimates.
The Company utilizes both internal and external sources to evaluate potential current and future liabilities for various commitments and contingencies.
In the event that the assumptions or conditions change in the future, the estimates could differ from the original estimates.
Several of the Company's accounting policies involve significant judgments, uncertainties and estimations.
The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Actual results may differ from these estimates under different assumptions or conditions.
To the extent that actual results differ from management's judgments and estimates, there could be a material adverse effect on the Company.
On a continuous basis, the Company evaluates its estimates, including, but not limited to, those estimates related to its allowance for doubtful accounts, inventory reserves, and valuation allowance for the deferred tax assets relating to its NOLs and commitments and contingencies.
With respect to accounts receivable, the Company estimates the necessary allowance for doubtful accounts based on both historical and anticipated trends of payment history and the ability of the customer to fulfill its obligations.
For inventory, the Company evaluates both current and anticipated sales prices of its products to determine if a write down of inventory to net realizable value is necessary. In determining the Company’s valuation allowance for its deferred tax assets, the Company assesses its ability to generate taxable income in the future.
The Company participates in an industry that is highly regulated, and changes in the regulations affecting our business could affect our operating results.
Currently the Company purchases virgin, hydro chlorofluorocarbon (“HCFC”) and hydro fluorocarbon (“HFC”) refrigerants and reclaimable, primarily HCFC and chlorofluorocarbon (“CFC”), refrigerants from suppliers and its customers.
Effective January 1, 1996, the Clean Air Act (the “Act”) prohibited the production of virgin CFC refrigerants and limited the production of virgin HCFC refrigerants.
Effective January 2004, the Act further limited the production of virgin HCFC refrigerants and federal regulations were enacted which established production and consumption allowances for HCFC refrigerants and which imposed limitations on the importation of certain virgin HCFC refrigerants. Under the Act, production of certain virgin HCFC refrigerants is scheduled to be phased out during the period 2010 through 2020, and production of all virgin HCFC refrigerants is scheduled to be phased out by 2030.
Additionally, effective January 1, 2010, the Act further limited the production of virgin HCFC refrigerants, and additional federal regulations have been enacted which imposed further limitation and a phase down on the use, production and importation of virgin HCFC refrigerants for the years 2010 through 2014.
As a result of litigation, the federal regulations implementing the January 2010 phase down schedule were vacated, and in April 2013, the Environmental Protection Agency (“EPA”) published a final rule providing for further reduction in the production of HCFC refrigerants when compared to the reductions established in the January 1, 2010 published rule.
The final rule allows for the production or importation of 63 million and 51 million pounds of HCFC-22 in 2013 and 2014, respectively.
The EPA has not yet issued a proposed or final rule establishing the total pounds of HCFC-22 that can be produced or imported during the years 2015 through 2019.
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 March 2013, the FASB issued ASU No. 2013-05, which amends the guidance in ASC 830, “Foreign Currency Matters”.
ASU No. 2013-05 addresses the accounting for the cumulative translation adjustment (“CTA”) when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity.
This amended guidance is to be applied prospectively and is effective for the Company beginning on January 1, 2014.
The implementation of the amended accounting guidance is not expected to have a material impact on our consolidated financial position or results of operations.
In July 2013, the FASB issued ASU 2013-11, "Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." ASU 2013-11 requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The amendments in this Update are effective for fiscal years (and interim periods within those years) beginning after December 15, 2013. The adoption of ASU 2013-11 is not expected to have a material impact on our results of operations or our financial position.
Reclassification
Certain items in the 2012 financial statements have been reclassified for comparative purposes.
Note 2 - Other income
For the year ended December 31, 2013 there was no other income.
For the year ended December 31, 2012, other income of $
9,000
consisted primarily of miscellaneous income.
Note 3 - Income taxes
Income tax benefit for the year ended December 31, 2013 was $
3,576,000
compared to an income tax provision for the year ended December 31, 2012 of $
1,395,000
. The income tax benefit of $3,576,000 was for federal and state income tax at statutory rates applied to the pre-tax loss for the year ended December 31, 2013 of $
9,418,000
.
During the year ended December 31, 2012, the Company recognized $
5,395,000
in federal and state income tax expense at statutory rates offset by the release during the fourth quarter of 2012 of $
4,000,000
of the Company’s deferred tax asset valuation allowance.
In future periods, the Company will be subject to federal and state income tax expense at statutory tax rates.
The following summarizes the (benefit) / provision for income taxes:
|
Years Ended December 31,
|
|
2013
|
|
2012
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(1,904)
|
|
$
|
1,846
|
|
|
State and local
|
|
|
(224)
|
|
|
585
|
|
|
|
|
|
(2,128)
|
|
|
2,431
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(1,295)
|
|
|
(927)
|
|
|
State and local
|
|
|
(153)
|
|
|
(109)
|
|
|
|
|
|
(1,448)
|
|
|
(1,036)
|
|
|
(Benefit) / Provision for income taxes
|
|
$
|
(3,576)
|
|
$
|
1,395
|
|
Reconciliation of the Company's actual tax rate to the U.S. Federal statutory rate is as follows:
|
Years ended December 31,
|
|
2013
|
|
|
2012
|
|
|
Income tax rates
|
|
|
|
|
|
|
|
|
|
- Statutory U.S. federal rate
|
|
|
34
|
%
|
|
|
34
|
%
|
|
- States, net U.S. benefits
|
|
|
4
|
%
|
|
|
4
|
%
|
|
- Reduction of valuation allowance
|
|
|
0
|
%
|
|
|
(28)
|
%
|
|
Total
|
|
|
38
|
%
|
|
|
10
|
%
|
As of December 31, 2013, the Company had NOL's of approximately $
16,000,000
expiring through 2033, of which $10,600,000,
are subject to an annual limitation of $1,300,000
.
Elements of deferred income tax assets (liabilities) are as follows:
|
December 31,
|
|
2013
|
|
2012
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Deferred tax assets (liabilities)
|
|
|
|
|
|
|
|
|
- Depreciation & amortization
|
|
$
|
(542)
|
|
$
|
(112)
|
|
|
- Reserves for doubtful accounts
|
|
|
86
|
|
|
86
|
|
|
- Inventory reserve
|
|
|
120
|
|
|
148
|
|
|
- NOL
|
|
|
5,906
|
|
|
4,000
|
|
|
Total
|
|
$
|
5,570
|
|
$
|
4,122
|
|
The Company considered its projected future taxable income, and associated annual limitations, in determining the amount of deferred tax assets to recognize.
The Company believes that given the extended time period that it may recognize its deferred tax assets, it is more likely than not it will realize the benefit of these assets prior to their expiration.
Note 4 - Trade accounts receivable - net
At December 31, 2013 and 2012, trade accounts receivable are net of reserves for doubtful accounts of $
227,000
and $
227,000
, respectively.
Note 5- Inventories
Inventories consist of the following:
|
December 31,
|
|
2013
|
|
2012
|
|
|
(in thousands)
|
|
|
|
|
|
|
Refrigerant and cylinders
|
|
$
|
8,238
|
|
$
|
9,893
|
|
|
Packaged refrigerants
|
|
|
25,729
|
|
|
30,274
|
|
|
Total
|
|
$
|
33,967
|
|
$
|
40,167
|
|
Note 6 - Property, plant and equipment
Elements of property, plant and equipment are as follows:
|
December 31,
|
|
2013
|
|
2012
|
|
|
Estimated Lives
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
- Land
|
|
$
|
535
|
|
$
|
535
|
|
|
|
|
|
- Buildings
|
|
|
830
|
|
|
830
|
|
|
39 years
|
|
|
- Building improvements
|
|
|
776
|
|
|
770
|
|
|
39 years
|
|
|
- Equipment
|
|
|
8,560
|
|
|
8,253
|
|
|
3-7 years
|
|
|
- Equipment under capital lease
|
|
|
137
|
|
|
231
|
|
|
5-7 years
|
|
|
- Vehicles
|
|
|
1,258
|
|
|
1,212
|
|
|
5 years
|
|
|
- Lab and computer equipment, software
|
|
|
2,210
|
|
|
2,017
|
|
|
3-5 years
|
|
|
- Furniture & fixtures
|
|
|
249
|
|
|
246
|
|
|
7-8 years
|
|
|
- Leasehold improvements
|
|
|
70
|
|
|
40
|
|
|
3 years
|
|
|
- Equipment under construction
|
|
|
37
|
|
|
96
|
|
|
|
|
|
Subtotal
|
|
|
14,662
|
|
|
14,230
|
|
|
|
|
|
Accumulated depreciation
|
|
|
10,126
|
|
|
9,465
|
|
|
|
|
|
Total
|
|
$
|
4,536
|
|
$
|
4,765
|
|
|
|
|
Depreciation expense for the years ended December 31, 2013 and 2012 was $
779,000
and $
524,000
, respectively.
Note 7 - Short-term and long-term debt
Elements of short-term and long-term debt are as follows:
|
December 31,
|
|
2013
|
|
2012
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Short-term & long-term debt
|
|
|
|
|
|
|
|
|
Short-term debt:
|
|
|
|
|
|
|
|
|
- Bank credit line
|
|
$
|
15,080
|
|
$
|
12,451
|
|
|
- Long-term debt: current
|
|
|
287
|
|
|
285
|
|
|
Subtotal
|
|
|
15,367
|
|
|
12,736
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
- Bank credit line
|
|
|
4,000
|
|
|
4,000
|
|
|
- Building and land mortgage
|
|
|
603
|
|
|
764
|
|
|
- Vehicle and equipment loans
|
|
|
298
|
|
|
327
|
|
|
- Capital lease obligations
|
|
|
57
|
|
|
114
|
|
|
- Less: current maturities
|
|
|
(287)
|
|
|
(285)
|
|
|
Subtotal
|
|
|
4,671
|
|
|
4,920
|
|
|
Total short-term & long-term debt
|
|
$
|
20,038
|
|
$
|
17,656
|
|
Bank Credit Line
On June 22, 2012, a subsidiary of Hudson entered into a Revolving Credit, Term Loan and Security Agreement (the “PNC Facility”) with PNC Bank, National Association, as agent (“Agent” or “PNC”), and such other lenders as may thereafter become a party to the PNC Facility. Under the terms of the PNC Facility, Hudson could initially borrow up to $
27,000,000
consisting of a term loan in the principal amount of $
4,000,000
and revolving loans in a maximum amount up to the lesser of $
23,000,000
and a borrowing base that is calculated based on the outstanding amount of Hudson’s eligible receivables and eligible inventory, as described in the PNC Facility. On February 15, 2013, the PNC Facility was amended.
As a result of this amendment, Hudson may borrow up to a maximum of $
40,000,000
consisting of a term loan in the principal amount of $
4,000,000
and revolving loans in a maximum amount up to $
36,000,000
. Amounts borrowed under the PNC Facility may be used by Hudson for working capital needs and to reimburse drawings under letters of credit.
Fees and expenses relating to the creation of the PNC Facility of approximately $
150,000
are being
amortized over the life of the loan.
At December 31, 2013, total borrowings under the PNC Facility were $
19,080,000
, and there was $
8,349,000
available to borrow under the revolving line of credit. The effective interest rate under the PNC Facility was
3.0
% at December 31, 2013.
Interest on loans under the PNC Facility is payable in arrears on the first day of each month with respect to loans bearing interest at the domestic rate (as set forth in the PNC Facility) and at the end of each interest period with respect to loans bearing interest at the Eurodollar rate (as set forth in the PNC Facility) or, for Eurodollar rate loans with an interest period in excess of three months, at the earlier of (a) each three months from the commencement of such Eurodollar rate loan or (b) the end of the interest period.
As of December 31, 2013, 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 domestic rate loans, the sum of (i) a rate per annum equal to the higher of (1) the base commercial lending rate of PNC, (2) the federal funds open rate plus .5% and (3) the daily LIBOR plus 1%, plus (ii) .5% and (B) with respect to Eurodollar rate loans, the sum of the Eurodollar rate plus 2.75%.
Hudson
granted to PNC, for itself, and as agent for such other lenders as may thereafter become a lender under the PNC Facility, a security interest in Hudson’s receivables, intellectual property, general intangibles, inventory and certain other assets.
The PNC Facility contains certain financial and non-financial covenants relating to Hudson, including limitations on Hudson’s 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 PNC Facility contains a financial covenant to maintain at all times a Fixed Charge Coverage Ratio of not less than 1.10 to 1.00, tested quarterly on a rolling twelve month basis.
Fixed Charge Coverage Ratio is defined in the PNC Facility, with respect to any fiscal period, as the ratio of
(a) EBITDA of Hudson for such period, minus unfinanced capital expenditures (as defined in the PNC Facility) made by Hudson during such period, minus the aggregate amount of cash taxes paid by Hudson during such period, minus the aggregate amount of dividends and distribution made by Hudson during such period, minus the aggregate amount of payments made with cash by Hudson to satisfy soil sampling and reclamation related to environmental cleanup at the Company’s former Hillburn, NY facility during such period (to the extent not already included in the calculation of EBITDA as determined by the Agent) to (b) the aggregate amount of all principal payments due and/or made, except principal payments related to outstanding revolving advances with regard to all funded debt (as defined in the PNC Facility) of Hudson during such period, plus the aggregate interest expense of Hudson during such period.
EBITDA as defined in the PNC Facility shall mean for any period the sum of (i) earnings before interest and taxes for such period plus (ii) depreciation expenses for such period, plus (iii) amortization expenses for such period, plus (iv) non-cash charges.
On October 25, 2013, we entered into the Second Amendment to the PNC Facility (the “Second PNC Amendment”), which among other things, waived our requirement to comply with the minimum fixed charge coverage ratio covenant of
1.10
to
1.00
for the fiscal quarter ended September 30, 2013, required under the PNC Facility.
The covenant waiver was required primarily because of the adverse impact on our results of operations from the significant reduction in the selling price of HCFC-22 following the EPA’s final ruling allowing for the production or importation of
63
million and
51
million pounds of HCFC-22 in 2013 and 2014, respectively.
The amendment suspended the minimum fixed charge ratio covenant until the quarterly period ending March 31, 2015 and set the minimum EBITDA for the quarters ended December 31, 2013 through December 31, 2014, as follows:
|
Period
|
|
Amount
|
|
|
3 month period ended December 31, 2013
|
|
$
|
(2,154,000)
|
|
|
3 month period ending March 31, 2014
|
|
$
|
494,000
|
|
|
6 month period ending June 30, 2014
|
|
$
|
2,035,000
|
|
|
9 month period ending September 30, 2014
|
|
$
|
3,012,000
|
|
|
12 month period ending December 31, 2014
|
|
$
|
1,879,000
|
|
After giving effect to the Second PNC Amendment, as
of December 31, 2013, the Company was in compliance with the EBITDA covenant. EBITDA for the 3 month period ended December 31, 2013 was ($
2,010,000
), which was in compliance with
the amended EBITDA covenant for the period of ($
2,154,000
) by $
144,000
. The EBITDA was calculated as follows:
|
For the 3 months ending December 31, 2013
|
|
|
Net loss
|
|
$
|
(1,530,000)
|
|
|
less: income tax benefit
|
|
|
(934,000)
|
|
|
Loss before income taxes
|
|
|
(2,464,000)
|
|
|
less: interest expense
|
|
|
246,000
|
|
|
less: depreciation and amortization
|
|
|
208,000
|
|
|
|
|
|
|
|
|
Earnings before interest, taxes, depreciation,
and amortization
|
|
$
|
(2,010,000)
|
|
EBITDA, which represents a non-GAAP measurement of certain financial results, does not represent and should not be considered as an alternative to net income or cash provided by operating activities as determined by GAAP.
We make no representation or assertion that EBITDA is indicative of our cash provided by operating activities or results of operations. We have provided a reconciliation of the net loss to EBITDA solely for the purpose of complying with SEC regulations and not as an indication that EBITDA is a substitute measure for income from operations.
After giving effect to the Second PNC Amendment, the Company was in compliance with all covenants
, as amended,
required under the PNC Facility as of December 31, 2013.
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.
Although we expect to remain in
compliance with all covenants in the PNC Facility, as amended, depending on our future operating performance and general economic conditions, we cannot
make any assurance
that we will continue to be in compliance.
The amendment redefines the “Revolving Interest Rate” as well as the “Term Loan Rate” as previously defined in the agreement as follows:
“Revolving Interest Rate” shall mean an interest rate per annum equal to (a) the sum of the Alternate
Base Rate plus one percent
(
1.00
%) with respect to Domestic Rate Loans and (b) the sum of the
Eurodollar Rate plus two and three quarters of one percent
(
2.75
%) with respect to the Eurodollar Rate.
“Term Loan Rate” shall mean an interest rate per annum equal to (a) the sum of the Alternate
Base Rate plus one percent
(
1.00
%) with respect to the Domestic Rate Loans and (b) the sum of the
Eurodollar Rate plus two and three quarters of one percent
(
2.75
%) with respect to Eurodollar Rate Loans.
The commitments under the PNC 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 June 22, 2015, unless the commitments are terminated and the outstanding principal amount of the loans are accelerated sooner following an event of default.
Building and Land Mortgage
On June 1, 2012, the Company entered into a mortgage note with Busey Bank for $
855,000
.
The note bears interest at the fixed rate of
4
% per annum, amortizing over 60 months and maturing on
June 1, 2017
.
The mortgage note is secured by the Company’s land and building located in Champaign,
Illinois. At December 31, 2013 the principal balance of this mortgage note was $
603,000
.
Vehicle and Equipment Loans
The Company had entered into various vehicle and equipment loans.
These loans are payable in 60 monthly payments through March 2017 and bear interest ranging from
2.9
% to
8.9
%.
Scheduled maturities of the Company's long-term debt and capital lease obligations are as follows:
|
Years ended December 31,
|
|
Amount
|
|
|
(in thousands)
|
|
|
|
|
|
- 2014
|
|
$
|
287
|
|
|
- 2015
|
|
|
4,284
|
|
|
- 2016
|
|
|
274
|
|
|
- 2017
|
|
|
113
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,958
|
|
Capital Lease Obligations
The Company rents certain equipment with a net book value of approximately $
60,000
at December 31, 2013 under leases which have been classified as capital leases.
Scheduled future minimum lease payments under capital leases net of interest are as follows:
|
Years ended December 31,
|
|
Amount
|
|
|
(in thousands)
|
|
|
|
|
|
- 2014
|
|
$
|
32
|
|
|
- 2015
|
|
|
22
|
|
|
- 2016
|
|
|
6
|
|
|
|
|
|
60
|
|
|
Less interest expense
|
|
|
(3)
|
|
|
Total
|
|
$
|
57
|
|
Note 8 - Stockholders' equity
On August 5, 2009, the Company sold
1,470,000
shares of its common stock at $
1.15
per share and received net proceeds of approximately $
1,400,000
in a Registered Direct Offering (the “2009 Offering”).
The placement agent for the 2009 Offering, received a warrant to purchase
73,500
shares of common stock at an exercise price of $
1.4375
per share.
The estimated fair value of the warrant was approximately $
48,000
and such warrant was charged to additional paid-in capital as compensation expense.
On July 7, 2010, the Company sold
2,737,500
units, with the aggregate units consisting of
2,737,500
shares of the Company’s common stock and warrants to purchase
1,368,750
shares, at a price of $
2.00
per unit in a registered direct offering (the “2010 Offering”).
The warrants issued as part of the 2010 Offering have an exercise price of $
2.60
per share and are exercisable for a five-year period, which commenced on January 7, 2011. The net proceeds pursuant to the 2010 Offering were approximately $
4,900,000
.
The value of the aggregate number of warrants issued pursuant to the 2010 Offering was approximately $
1,300,000
and such amount was charged as a component of stockholders’ equity to additional paid-in capital.
Effective as of March 4, 2011, the Company re-purchased warrants to purchase
150,000
shares of the Company’s common stock, at a price of $
0.60
per share, which warrants were issued in connection with the 2010 Offering.
On March 7, 2011, the remaining
1,218,750
warrants issued in connection with the 2010 Offering were amended on consent of the holders of more than two-thirds of the remaining warrants, to among other things, extend the expiration date of the warrants to
July 7, 2016
.
On May 17, 2012, the Company issued
20,000
shares of the Company’s common stock to a certain consultant for services, and the Company recognized $74,000 in general and administrative expenses for this service.
On November 9, 2012, the Company issued
133,589
shares of the Company’s common stock, at a price of $
3.743
per share, to EffTec, in connection with the Company’s purchase from EffTec’s subsidiary of its proprietary Efftrack™ software.
Additionally, the
Company also issued
26,716
shares of its common stock, at a price of $
3.743
per share in payment for services performed by the Company’s
advisors. The fair value of these shares of $
100,000
was included as a cost of the software.
Note 9 - Commitments and contingencies
Rents and operating leases
Hudson utilizes leased facilities and operates equipment under non-cancelable operating leases through August 31, 2018 as follows:
Properties
|
Location
|
|
Annual Rent
|
|
Lease Expiration Date
|
|
|
Auburn, Washington
|
|
$
|
27,000
|
|
Month to Month
|
|
|
Baton Rouge, Louisiana
|
|
$
|
15,000
|
|
2/2015
|
|
|
Champaign, Illinois
|
|
$
|
327,000
|
|
12/2014
|
|
|
Charlotte, North Carolina
|
|
$
|
62,000
|
|
3/2016
|
|
|
Hampstead, New Hampshire
|
|
$
|
28,000
|
|
8/2017
|
|
|
Pearl River, New York
|
|
$
|
93,000
|
|
8/2018
|
|
|
Pottsboro, Texas
|
|
$
|
18,000
|
|
8/2014
|
|
|
Stony Point, NY
|
|
$
|
116,000
|
|
6/2016
|
|
|
Tulsa, Oklahoma
|
|
$
|
26,000
|
|
12/2014
|
|
The Company rents properties and various equipment under operating leases.
Rent expense for the years ended December 31, 2013 and 2012 totaled approximately $
650,000
and $
650,000
, respectively.
In addition to the properties above, the Company does at times utilize public warehouse space on a month to month basis. The Company typically enters into short-term leases for the facilities and wherever possible extends the expiration date of such leases.
Future commitments under operating leases are summarized as follows:
|
Years ended December 31,
|
|
Amount
|
|
|
(in thousands)
|
|
|
|
|
|
- 2014
|
|
$
|
785
|
|
|
- 2015
|
|
|
315
|
|
|
-2016
|
|
|
202
|
|
|
-2017
|
|
|
124
|
|
|
-2018
|
|
|
70
|
|
|
Total
|
|
$
|
1,496
|
|
Legal Proceedings
On April 1, 1999, the Company reported a release of approximately 7,800 lbs. of R-11 refrigerant (the “1999 Release”), at its former leased facility in Hillburn, NY (the “Hillburn Facility”), which the Company vacated in June 2006. A failed hose connection to one of the Company's outdoor storage tanks allowed liquid R-11 refrigerant (“R-11”) to discharge from the tank into the concrete secondary containment area in which the subject tank was located.
Between April 1999 and May 1999, with the approval of the New York State Department of Environmental Conservation (“DEC”), the Company constructed and put into operation a remediation system to remove R-11 levels in the groundwater under and around the Hillburn Facility.
In September 2000, the Company signed an Order on Consent with the DEC, which was amended in May 2001, whereby the Company agreed to operate the remediation system and perform monthly testing at the Hillburn Facility until remaining groundwater contamination has been effectively abated.
In July 2005, the DEC approved a modification of the Order on Consent to reduce the frequency of testing from monthly to quarterly.
Additionally, in March 2013, the DEC approved a further modification of the Order on Consent to modify the operation of the remediation system and to further reduce the frequency and scope of testing.
The Company is continuing to operate the remediation system pursuant to the approved modifications to that Order on Consent. Based upon the
most recent modifications to the Order on Consent, as of December 31, 2013, the Company accrued, as an expense in its consolidated financial statements, the costs that the Company believes it will incur in connection with its compliance with the Order of Consent through December 31, 2018.
There can be no assurance that additional testing will not be required or that the Company will not incur additional costs and such costs in excess of the Company’s estimate may have a material adverse effect on the Company financial condition or results of operations.
In May 2000, the Hillburn Facility, as a result of the 1999 Release, was nominated by the United States Environmental Protection Agency (“EPA”) for listing on the National Priorities List (“NPL”) pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”).
The Company submitted opposition to the listing within the sixty-day comment period.
In September 2003, the EPA advised the Company that it has no current plans to finalize the process for listing of the Hillburn Facility on the NPL and that the EPA will not withdraw the proposal for listing on the NPL.
The Company has exhausted all insurance proceeds available for the 1999 Release under all applicable policies.
During the years ended December 31, 2013 and 2012, the Company incurred $
100,000
and $
102,000
, respectively, in additional remediation costs in connection with the matters above.
There can be no assurance that the ultimate outcome of the 1999 Release will not have a material adverse effect on the Company's financial condition and results of operations.
There can be no assurance that the EPA will not change its current plans and seek to finalize the process of listing the Hillburn Facility on the NPL, or that the ultimate outcome of such a listing will not have a material adverse effect on the Company's financial condition and results of operations.
Employment Agreement
The Company has entered into a two-year employment agreement with Kevin J. Zugibe, which currently expires in October 2014 and is automatically renewable for successive two-year terms unless either party gives notice of termination at least ninety days prior to the then expiration date of the then current term.
Pursuant to the agreement, Mr. Zugibe is receiving an annual base salary of $
288,500
with such increases and bonuses as the Company’s Board of Directors may determine.
The Company is the beneficiary of a "key-man" insurance policy on the life of Mr. Zugibe in the amount of $
1,000,000
.
Note 10 - Share-Based compensation
Share-based compensation represents the cost related to share-based awards, typically stock options, granted to employees, non-employees, officers and directors.
Share-based compensation is measured at grant date, based on the estimated aggregate fair value of the award on the grant date, and such amount is charged to compensation expense on a straight-line basis (net of estimated forfeitures) over the requisite service period.
For the years ended December 31, 2013 and 2012, the share-based compensation expense of $
122,000
and $
134,000
, respectively, is reflected in general and administrative expenses in the consolidated income statements.
Share-based awards have historically been stock options issued pursuant to the terms of the Company’s 1994 and 1997 stock option plans and the Company’s 2004 and 2008 stock incentive plans, (collectively, the “Plans”), described below.
The Plans may be administered by the Board of Directors or the Compensation 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.
The Compensation Committee has delegated authority to the Company’s Chief Executive Officer to grant stock options under the Company’s 2004 and 2008 stock incentive plans to employees who are not executive officers of up to a maximum of
10,000
shares per employee and up to an aggregate of
50,000
shares per year.
As of December 31, 2013, the Plans authorized the issuance of stock options to purchase
5,500,000
shares of the Company’s common stock and, as of December 31, 2013 there were
2,636,470
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 generally vested from immediately to two years from the grant date and have had a contractual term ranging from five to ten years
For the years ended December 31, 2013 and 2012, the Company issued
173,354
and
30,843
options, respectively.
As of December 31, 2013, there was $
83,000
of unrecognized compensation cost related to non-vested previously granted option awards.
Effective October 31, 1994, the Company adopted an Employee Stock Option Plan (“1994 Plan”) pursuant to which
725,000
shares of common stock were reserved for issuance upon the exercise of options designated as either (i) options intended to constitute incentive stock options (“ISOs”) under the Internal Revenue Code of 1986, as amended (“Code”), or (ii) nonqualified options.
ISOs could be granted under the 1994 Plan to employees and officers of the Company.
Non-qualified options could be granted to consultants, directors (whether or not they are employees), employees or officers of the Company.
Effective
November 1, 2004
, the Company’s ability to grant options under the 1994 Plan expired.
Effective July 25, 1997, the Company adopted its 1997 Employee Stock Option Plan, which was amended on August 19, 1999, (“1997 Plan”) pursuant to which
2,000,000
shares of common stock were reserved for issuance upon the exercise of options designated as either (i) ISOs under the Code, or (ii) nonqualified options.
ISOs could be granted under the 1997 Plan to employees and officers of the Company.
Non-qualified options could be granted to consultants, directors (whether or not they are employees), employees or officers of the Company.
Stock appreciation rights could also be issued in tandem with stock options.
Effective
June 11, 2007
, the Company’s ability to grant options or stock appreciation rights under the 1997 Plan expired.
Effective September 10, 2004, the Company adopted its 2004 Stock Incentive Plan (“2004 Plan”) pursuant to which
2,500,000
shares of common stock were reserved for issuance upon the exercise of options, designated as either (i) ISOs under the Code, or (ii) nonqualified options, restricted stock, deferred stock or other stock-based awards.
ISOs may be granted under the 2004 Plan to employees and officers of the Company.
Non qualified options, restricted stock, deferred stock or other stock-based awards may be granted to consultants, directors (whether or not they are employees), employees or officers of the Company.
Stock appreciation rights may also be issued in tandem with stock options.
Unless the 2004 Plan is sooner terminated, the ability to grant options or other awards under the 2004 Plan will expire on
September 10, 2014
.
ISOs granted under the 2004 Plan may not be granted at a price less than the fair market value of the common stock on the date of grant (or 110% of fair market value in the case of persons holding 10% or more of the voting stock of the Company).
Nonqualified options granted under the 2004 Plan may not be granted at a price less than the fair market value of the common stock.
Options granted under the 2004 Plan expire not more than ten years from the date of grant (five years in the case of ISOs granted to persons holding 10% or more of the voting stock of the Company).
Effective August 27, 2008, the Company adopted its 2008 Stock Incentive Plan (“2008 Plan”) pursuant to which
3,000,000
shares of common stock were reserved for issuance upon the exercise of options, designated as either (i) ISOs under the Code, or (ii) nonqualified options, restricted stock, deferred stock or other stock-based awards.
ISOs may be granted under the 2008 Plan to employees and officers of the Company.
Non qualified options, restricted stock, deferred stock or other stock-based awards may be granted to consultants, directors (whether or not they are employees), employees or officers of the Company.
Stock appreciation rights may also be issued in tandem with stock options.
Unless the 2008 Plan is sooner terminated, the ability to grant options or other awards under the 2008 Plan will expire on
August 27, 2018
.
ISOs granted under the 2008 Plan may not be granted at a price less than the fair market value of the common stock on the date of grant (or 110% of fair market value in the case of persons holding 10% or more of the voting stock of the Company).
Nonqualified options granted under the 2008 Plan may not be granted at a price less than the fair market value of the common stock.
Options granted under the 2008 Plan expire not more than ten years from the date of grant (five years in the case of ISOs granted to persons holding 10% or more of the voting stock of the Company).
All stock options have been granted to employees and non-employees at exercise prices equal to or in excess of the market value on the date of the grant.
The Company determines the fair value of share based awards at the grant date by using the Black-Scholes option-pricing model, and is incorporating the simplified method to compute expected lives of share based awards with the following weighted-average assumptions:
|
Years Ended December 31,
|
|
2013
|
|
2012
|
|
|
Assumptions
|
|
|
|
|
|
|
Dividend yield
|
|
0
|
%
|
0
|
%
|
|
Risk free interest rate
|
|
.85% - 1.64
|
%
|
1.0
|
%
|
|
Expected volatility
|
|
59% - 76
|
%
|
73
|
%
|
|
Expected lives
|
|
5 years
|
|
5 years
|
|
A summary of the status of the Company's Plans as of December 31, 2013 and 2012 and changes for the periods ending on those dates is presented below:
|
Stock Option Plan Totals
|
|
Shares
|
|
Weighted
Average
Exercise Price
|
|
|
Outstanding at December 31, 2011
|
|
|
3,435,443
|
|
$
|
1.22
|
|
|
• Cancelled
|
|
|
(8,313)
|
|
$
|
1.10
|
|
|
• Exercised
|
|
|
(109,038)
|
|
$
|
1.42
|
|
|
• Granted
|
|
|
30,843
|
|
$
|
3.27
|
|
|
Outstanding at December 31, 2012
|
|
|
3,348,935
|
|
$
|
1.23
|
|
|
• Cancelled
|
|
|
(58,617)
|
|
$
|
1.87
|
|
|
• Exercised
|
|
|
(945,761)
|
|
$
|
1.20
|
|
|
• Granted
|
|
|
173,354
|
|
$
|
2.59
|
|
|
Outstanding at December 31, 2013
|
|
|
2,517,911
|
|
$
|
1.33
|
|
The following is the weighted average contractual life in years and the weighted average exercise price at December 31, 2013 of:
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Number of
|
|
Remaining
|
|
Weighted Average
|
|
|
|
|
Options
|
|
Contractual Life
|
|
Exercise Price
|
|
|
Options outstanding
|
|
|
2,517,911
|
|
|
4.7 years
|
|
$
|
1.33
|
|
|
Options vested
|
|
|
2,470,411
|
|
|
4.7 years
|
|
$
|
1.28
|
|
The following is the intrinsic value at December 31, 2013 of
:
|
Options outstanding
|
|
$
|
6,030,482
|
|
|
Options vested in 2013
|
|
$
|
115,304
|
|
|
Options exercised in 2013
|
|
$
|
2,816,000
|
|
The intrinsic value of options exercised during the year ended December 31, 2012 was $
267,000
.
The following is the weighted average fair value for the twelve month period ended December 31, 2013 of
:
|
Options granted
|
|
$
|
2.59
|
|
|
Options vested
|
|
$
|
2.27
|
|
Note 11- Investment In Affiliates
In July 2011, the Company entered into a joint venture agreement with Safety Hi-Tech S.r.l. (“SHT”) and with the principals of Banini-Binotti Associates (“BB”).
The joint venture created a new entity known as Hudson Technologies Europe, S.r.l. (“HTE”). As of December 31, 2013, the Company has divested itself of this joint venture. This divestiture did not have a material impact on the Company’s results of operations.
In August 2012, the Company entered into a joint venture agreement with SHT. T
he joint venture has created a new entity known as Safety Hi-Tech USA, LLC (“USA”).
The Company and SHT each own
50
% of USA.
USA’s purpose is to develop a business that provides fire suppression and suppressants throughout North America and Mexico.
As of December 31, 2013, the Company has made an investment of $
440,000
.
Operations of the joint venture through December 31, 2013, have been immaterial.