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Management's Discussion of Results of Operations (Excerpts)

For purposes of readability, Zenith attempts to strip out all tables in excerpts from the Management Discussion. That information is contained elsewhere in our articles. The idea of this summary is simply to review how well we believe Management does its reporting. Also, this highlights what Management believes is important.

In our Decision Matrix at the end of each article, a company with 0 to 2 gets a "-1", and 3 to 5 gets a "+1."

On a scale of 0 to 5, 5 being best, Zenith rates this company's Management's Discussion as a 5.


Overview



Sales of refrigerants continue to represent a significant majority of the 
Company’s revenues. The Company’s refrigerant sales are primarily HCFC and HFC 
based refrigerants and to a lesser extent CFC based refrigerants that are no 
longer manufactured. Currently the Company purchases virgin HCFC and HFC 
refrigerants and reclaimable HCFC, HFC and CFC refrigerants from suppliers and 
its customers. 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, 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. 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. In October 2014, the EPA published the Final Rule providing 
further reductions in the production and consumption allowances for virgin HCFC 
refrigerants for the years 2015 through 2019. In the Final Rule, the EPA has 
established a linear annual phase down schedule for the production or 
importation of virgin HCFC-22 that started at approximately 22 million pounds 
in 2015 and is being reduced by approximately 4.5 million pounds each year and 
ends at zero in 2020. In October 2016, more than 200 countries, including the 
United States, agreed to amend the Montreal Protocol to phase down production 
of HFCs by 85% between now and 2047. The amendment establishes timetables for 
all developed and developing countries to freeze and then reduce production 
levels and use of HFCs, with the first reductions by developed countries 
starting in 2019.



The Company has created and developed a service offering known as 
RefrigerantSide® Services. RefrigerantSide® Services are sold to contractors 
and end-users whose refrigeration systems are used in commercial air 
conditioning and industrial processing. These services are offered in addition 
to refrigerant sales and the Company's traditional refrigerant management 
services, which consist primarily of reclamation of refrigerants. The Company 
has created a network of service depots that provide a full range of the 
Company's RefrigerantSide® Services to facilitate the growth and development of 
its service offerings.



The Company focuses its sales and marketing efforts for its RefrigerantSide® 
Services on customers who the Company believes most readily appreciate and 
understand the value that is provided by its RefrigerantSide® Services 
offering. In pursuing its sales and marketing strategy, the Company offers its 
RefrigerantSide® Services to customers in the following industries: 
petrochemical, pharmaceutical, industrial power, manufacturing, commercial 
facility and property management and maritime. The Company may incur additional 
expenses as it further develops and markets its RefrigerantSide® Services 
offering.



Results of Operations



Three month period ended September 30, 2017 as compared to the three month 
period ended September 30, 2016



Revenues for the three month period ended September 30, 2017 were $24.7 
million, a decrease of $10.2 million or 29% from the $34.9 million reported 
during the comparable 2016 period primarily due to a decline in refrigerant and 
related revenues. The decline in refrigerant and related revenues was mainly 
attributable to a decrease in the selling price per pound of certain 
refrigerants sold, which accounted for a decrease in revenues of $6.5 million, 
and a decrease in the number pounds of certain refrigerants sold, which 
accounted for a decrease in revenues of $3.7 million.




Cost of sales for the three month period ended September 30, 2017 was $19.6 
million or 79% of sales. The cost of sales for the three month period ended 
September 30, 2016 was $22.9 million or 66% of sales. The increase in the cost 
of sales percentage from 66% for the three month period ended September 30, 
2016 to 79% for the three month period ended September 30, 2017 is primarily 
due to the decrease in the selling price per pound of certain refrigerants sold 
for the three month period ended September 30, 2017 compared to the same period 
in 2016.



Operating expenses for the three month period ended September 30, 2017 were 
$3.6 million, a decrease of $0.4 million from the $4.0 million reported during 
the comparable 2016 period. The decrease in operating expenses is primarily due 
to higher stock compensation expense, earnout liability and professional fees 
in 2016, which was mainly offset by $1.0 million of nonrecurring fees relating 
to the acquisition of ARI incurred during the third quarter of 2017.




Interest expense, for the three month period ended September 30, 2017 was less 
than $0.1 million, compared to the $0.3 million reported during the comparable 
2016 period. As a result of the paydown of the PNC Facility and December 2016 
public offering during the fourth quarter of 2016, the Company incurred lower 
interest expense in the third quarter of 2017 when compared to the same period 
in 2016.



Income tax expense (benefit) for the three month period ended September 30, 
2017 was a (benefit) of $0.7 million compared to income tax expense for the 
three-month period ended June 30, 2016 of $3.0 million. The benefit in 2017 
arose from $1.2 million of excess tax benefits relating to nonqualified stock 
option exercises during the third quarter of 2017.



Net income for the three month period ended September 30, 2017 was $2.1 
million, a decrease of $2.7 million from the $4.8 million net income reported 
during the comparable 2016 period, primarily due to the decrease in revenues 
partially offset by a decrease in operating expenses and income tax expense.



Nine month period ended September 30, 2017 as compared to the Nine month period 
ended September 30, 2016



Revenues for the nine month period ended September 30, 2017 were $115.8 
million, an increase of $18.1 million or 18% from the $97.7 million reported 
during the comparable 2016 period. The increase in refrigerant and related 
revenues was mainly attributable to an increase in the selling price per pound 
of certain refrigerants sold, which accounted for an increase in revenues of 
$13.5 million, as well as an increase in the number of pounds of certain 
refrigerants sold, which accounted for an increase in revenues of $4.6 million.




Cost of sales for the nine month period ended September 30, 2017 was $80.8 
million or 70% of sales. The cost of sales for the nine month period ended 
September 30, 2016 was $67.6 million or 69% of sales. The increase in the cost 
of sales percentage from 69% for the nine month period ended September 30, 2016 
to 70% for the nine month period ended September 30, 2017 is primarily due to 
the increase in the cost per pound of certain refrigerants sold for the nine 
month period ended September 30, 2017 compared to the same period in 2016.



Operating expenses for the nine month period ended September 30, 2017 were 
$10.2 million, an increase of $1.3 million from the $8.9 million during the 
comparable 2016 period. The increase in operating expenses is primarily due to 
$2.4 million of nonrecurring acquisition and related fees relating to the 
acquisition of ARI, which was consummated on October 10, 2017 offset by a 
decrease in stock compensation expense and earnout liability in 2017 compared 
to 2016.




Interest expense for the nine month period ended September 30, 2017 was $0.2 
million compared to the $0.9 million reported during the comparable 2016 
period. As a result of the paydown of the PNC Facility and December 2016 public 
offering during the fourth quarter of 2016, the Company incurred lower interest 
expense during the first nine months of 2017 when compared to the same period 
in 2016.



Income tax expense for the nine month period ended September 30, 2017 was $8.2 
million compared to income tax expense for the nine month period ended 
September 30, 2016 of $7.7 million due to higher income for the period. The 
benefit in 2017 arose from $1.2 million of excess tax benefits relating to 
nonqualified stock option exercises during the third quarter of 2017.



Net income for the nine month period ended September 30, 2017 was $16.4 
million, an increase of $3.8 million from the $12.6 million net income reported 
during the comparable 2016 period, primarily due to the increase in revenues 
partially offset by an increase in operating expenses and income tax expense.



Liquidity and Capital Resources



At September 30, 2017, the Company had working capital, which represents 
current assets less current liabilities, of $115.2 million, an increase of 
$17.3 million from the working capital of $97.9 million at December 31, 2016. 
The increase in working capital is primarily attributable to increased net 
income during the period.



Inventory and trade receivables are principal components of current assets. At 
September 30, 2017, the Company had inventories of $63.8 million, a decrease of 
$4.8 million from $68.6 million at December 31, 2016. The decrease in the 
inventory balance is primarily due to the timing and availability of inventory 
purchases and the sale of refrigerants. The Company's ability to sell and 
replace its inventory on a timely basis and the prices at which it can be sold 
are subject, among other things, to current market conditions and the nature of 
supplier or customer arrangements and the Company's ability to source CFC based 
refrigerants (which are no longer being produced), HCFC refrigerants (which are 
currently being phased down leading to a full phase out of virgin production), 
or non-CFC based refrigerants. At September 30, 2017, the Company had trade 
receivables, net of allowance for doubtful accounts, of $13.9 million, an 
increase of $9.1 million from $4.8 million at December 31, 2016. The Company's 
trade receivables are concentrated with various wholesalers, brokers, 
contractors and end-users within the refrigeration industry that are primarily 
located in the continental United States.



The Company has historically financed its working capital requirements through 
cash flows from operations, the issuance of debt and equity securities, and 
bank borrowings.



At September 30, 2017, cash and cash equivalents was $44.0 million, or 
approximately $10.1 million higher than the $33.9 million of cash and cash 
equivalents at December 31, 2016.



Net cash provided by operating activities for the nine month period ended 
September 30, 2017, was $12.1 million compared with net cash provided by 
operating activities of $7.4 million for the comparable 2016 period. Net cash 
provided by operating activities in the 2017 period was primarily attributable 
to an increase in net income as well as timing in the Company’s accounts 
receivable and prepaid expenses.



Net cash used in investing activities for the nine month period ended September 
30, 2017, was $0.9 million compared with net cash used by investing activities 
of $0.9 million for the comparable 2016 period. The net cash used by investing 
activities for the 2017 and 2016 periods was primarily related to investment in 
general purpose equipment for the Company’s Champaign, Illinois facility.



Net cash used in financing activities for the nine month period ended September 
30, 2017, was $1.2 million compared with net cash used in financing activities 
of $3.8 million for the comparable 2016 period. During the third quarter of 
2017, the Company made $1.2 million of tax payments for withholdings related to 
settlements of stock option awards. During the fourth quarter of 2016, the 
Company raised capital in a public offering and paid off the PNC Facility 
resulting in lower interest payments when compared to the same period in 2016. 
No additional borrowings were drawn during the first three quarters of 2017. 
During the first half of 2017, the Company also paid its final earnout relating 
to the 2015 acquisition of a supplier of refrigerants and compressed gases.



The Company continues to assess its capital expenditure needs. The Company may, 
to the extent necessary, continue to utilize its cash balances to purchase 
equipment primarily for its operations.



Acquisition of ARI



On October 10, 2017, the Company and its wholly-owned subsidiary, Hudson 
Holdings, Inc. (“Holdings”) completed the acquisition (the “Acquisition”) from 
Airgas, Inc. (“Airgas”) of all of the outstanding stock of Airgas-Refrigerants, 
Inc., a Delaware corporation (“ARI”).



At closing, Holdings paid net cash consideration to Airgas of approximately 
$209 million, which includes preliminary post-closing adjustments relating to: 
(i) changes in the net working capital of ARI as of the closing relative to a 
net working capital target, (ii) the actual amount of specified types of R-22 
refrigerant inventory on hand at closing relative to a target amount thereof, 
and (iii) other consideration pursuant to the Stock Purchase Agreement.



The cash consideration paid by Holdings at closing was financed with available 
cash balances, plus $80 million of borrowings under an enhanced asset based 
lending facility of $150 million from PNC Bank and a new term loan of $105 
million from funds advised by FS Investments and sub-advised by GSO Capital 
Partners LP.



Amendment and Restatement of Revolving Credit Facility



On October 10, 2017, Hudson Technologies Company (“HTC”), an indirect 
subsidiary of the Company, and HTC’s affiliates Hudson Holdings, Inc. and 
Airgas-Refrigerants, Inc., as borrowers (collectively, the “Borrowers”), and 
the Company as a guarantor, became obligated under an Amended and Restated 
Revolving Credit and Security Agreement (the “PNC Facility”) with PNC Bank, 
National Association, as administrative agent, collateral agent and lender 
(“Agent” or “PNC”), PNC Capital Markets LLC as lead arranger and sole 
bookrunner, and such other lenders as may thereafter become a party to the PNC 
Facility. The PNC Facility amended and restated HTC’s existing credit facility 
with PNC.



Under the terms of the PNC Facility, the Borrowers may borrow, from time to 
time, up to $150 million at any time consisting of revolving loans in a maximum 
amount up to the lesser of $150 million and a borrowing base that is calculated 
based on the outstanding amount of the Borrowers’ eligible receivables and 
eligible inventory, as described in the PNC Facility. The PNC Facility also 
contains a sublimit of $15 million for swing line loans and $5 million for 
letters of credit.



Amounts borrowed under the PNC Facility were used by the Borrowers to 
consummate the acquisition of ARI and for working capital needs, certain 
permitted future acquisitions, and to reimburse drawings under letters of 
credit. At October 10, 2017, total borrowings under the PNC Facility were $80 
million.



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. 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 0.5% and (3) the daily LIBOR plus 1.0%, plus (ii) between 0.50% 
and 1.00% depending on average quarterly undrawn availability and (B) with 
respect to Eurodollar rate loans, the sum of the Eurodollar rate plus between 
1.50% and 2.00% depending on average quarterly undrawn availability.



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



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



The 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 October 10, 2022, unless the commitments are 
terminated and the outstanding principal amount of the loans are accelerated 
sooner following an event of default.



In connection with the closing of the PNC Facility, the Company also entered 
into an Amended and Restated Guaranty and Suretyship Agreement, dated as of 
October 10, 2017 (the “Revolver Guarantee”), pursuant to which the Company 
affirmed its unconditional guarantee of the payment and performance of all 
obligations owing by Borrowers to PNC, as Agent for the benefit of the 
revolving lenders.



New Term Loan Facility



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



Under the terms of the Term Loan Facility, the Borrowers have immediately 
borrowed $105 million pursuant to a term loan (the “Initial Term Loan”) and may 
borrow up to an additional $25 million for a period of eighteen months after 
closing to fund additional permitted acquisitions (the “Delayed Draw 
Commitment”, and together with the Initial Term Loan, the “Term Loans”).



The Term Loans mature on October 10, 2023. Principal payments on the Term Loans 
are required on a quarterly basis, commencing with the quarter ending March 31, 
2018, in the amount of 1% of the original principal amount of the outstanding 
Term Loans per annum. The Term Loan Facility also requires annual payments of 
up to 50% of Excess Cash Flow (as defined in the Term Loan Facility) depending 
upon the Company’s Total Leverage Ratio (as defined in the Term Loan Facility) 
for the applicable year. The Term Loan Facility also requires mandatory 
prepayments of the Term Loans in the event of certain asset dispositions, debt 
issuances, and casualty and condemnation events. The Term Loans may be prepaid 
at the option of the Borrowers at par in an amount up to $30 million. 
Additional prepayments are permitted after the first anniversary of the closing 
date subject to a prepayment premium of 3% in year two, 1% in year three and 
zero in year four and thereafter.



Interest on the Term Loans is generally payable on the earlier of the last day 
of the interest period applicable to such Eurodollar rate loan and the last day 
of the Term Loan Facility, as applicable. Interest is payable at the rate per 
annum of LIBOR plus 7.25%. The Borrowers have the option of paying 3.00% 
interest per annum in kind by adding such amount to the principal of the Term 
Loans during no more than five fiscal quarters during the term of the Term Loan 
Facility.



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



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



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



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



Bank Credit Line Prior to Acquisition of ARI



On June 22, 2012, a subsidiary of Hudson entered into a Revolving Credit, Term 
Loan and Security Agreement with PNC Bank, National Association, as agent 
(“Agent” or “PNC”), and such other lenders as may thereafter become a party to 
the PNC Facility. The Maximum Loan Amount (as defined in the PNC Facility) at 
September 30, 2017 was $50,000,000, and the Maximum Revolving Advance Amount 
(as defined in the PNC Facility) was $46,000,000. In December 2016, the Company 
repaid all of its debt under the PNC Facility, with approximately $50 million 
of availability under the revolving line of credit at September 30, 2017. In 
addition, there is a $130,000 outstanding letter of credit under the PNC 
Facility at September 30, 2017. The Termination Date of the Facility (as 
defined in the PNC Facility) was June 30, 2020.



Under the terms of the original PNC Facility, as amended by the First Amendment 
to the PNC Facility, dated February 15, 2013, Hudson could initially 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 could be used by Hudson for working 
capital needs and to reimburse drawings under letters of credit.



Interest on loans under the PNC Facility was 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 defined in the PNC 
Facility) or, for Eurodollar Rate Loans (as defined in the PNC Facility) 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. Interest charges with respect to loans were 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 (as defined in the PNC 
Facility), the sum of the Alternate Base Rate (as defined in the PNC Facility) 
plus one half of one percent (.50%) and (B) with respect to Eurodollar Rate 
Loans, the sum of the Eurodollar Rate plus two and one quarter of one percent 
(2.25%).



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 contained 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 included 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 contained 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 was 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 distributions 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 meant 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 July 1, 2015, the Company entered into an amendment to the PNC Facility (the 
“2015 PNC Amendment”). The 2015 PNC Amendment redefined the “Revolving Interest 
Rate” as well as the “Term Loan Rate” (as defined in the PNC Facility) as 
follows:



“Revolving Interest Rate” shall mean an interest rate per annum equal to (a) 
the sum of the Alternate Base Rate (as defined in the PNC Facility) plus one 
half of one percent (.50%) with respect to Domestic Rate Loans and (b) the sum 
of the Eurodollar Rate plus two and one quarter of one percent (2.25%) with 
respect to the Eurodollar Rate Loans.



“Term Loan Rate” shall mean an interest rate per annum equal to (a) the sum of 
the Alternate Base Rate plus one half of one percent (.50%) with respect to the 
Domestic Rate Loans and (b) the sum of the Eurodollar Rate plus two and one 
quarter of one percent (2.25%) with respect to Eurodollar Rate Loans.



On April 8, 2016, the Company entered into an amendment to the PNC Facility 
(the “2016 PNC Amendment”). Pursuant to the 2016 PNC Amendment, the Maximum 
Loan Amount (as defined in the PNC Facility) increased from $40,000,000 to 
$50,000,000, and the Maximum Revolving Advance Amount (as defined in the PNC 
Facility) was increased from $36,000,000 to $46,000,000. Additionally, pursuant 
to the 2016 PNC Amendment the Termination Date of the Facility (as defined in 
the PNC Facility) was extended to June 30, 2020.



The Company was in compliance with all covenants, under the PNC Facility as of 
September 30, 2017.



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.



December 2016 Public Offering



On December 8, 2016 the Company entered into an Underwriting Agreement with two 
investment banking firms for themselves and as representatives for two other 
investment banking firms (collectively, the “Underwriters”), in connection with 
an underwritten offering (the “Offering”) of 6,428,571 shares of the Company’s 
common stock, par value $0.01 per share (the “Firm Shares”). Pursuant to the 
Underwriting Agreement, the Company agreed to sell to the Underwriters, and the 
Underwriters agreed to purchase from the Company, an aggregate of 6,428,571 
shares of common stock and also granted the Underwriters a 30 day option to 
purchase up to 964,285 additional shares of its common stock to cover 
over-allotments, if any. The Company also agreed to reimburse certain expenses 
incurred by the Underwriters in the Offering.



The closing of the Offering was held on December 14, 2016, at which time the 
Company sold 7,392,856 shares of its common stock to the Underwriters 
(including 964,285 shares to cover over-allotments) at a price to the public of 
$7.00 per share, less underwriting discounts and commissions, and received 
gross proceeds of $51.7 million. The Company incurred approximately $3.3 
million of transaction fees in connection with the Offering, resulting in net 
proceeds of $48.4 million.



Inflation



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



Reliance on Suppliers and Customers



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



For the nine month period ended September 30, 2017, two customers each 
accounted for 10% or more of the Company’s revenues and, in the aggregate these 
two customers accounted for 37% of the Company’s revenues. At September 30, 
2017, there were $4.3 million in outstanding receivables from these customers.



For the nine month period ended September 30, 2016, two customers each 
accounted for 10% or more of the Company’s revenues and, in the aggregate these 
two customers accounted for 33% of the Company’s revenues. At September 30, 
2016, 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.



Seasonality and Weather Conditions and Fluctuations in Operating Results



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



Recent Accounting Pronouncements



In January 2017, the FASB issued Accounting Standards Update ("ASU") No. 
2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for 
Goodwill Impairment” (ASU 2017-04) which simplifies the accounting for goodwill 
impairment by eliminating Step 2 of the current goodwill impairment test which 
requires a hypothetical purchase price allocation to measure goodwill 
impairment. Under the new standard, a company will record an impairment charge 
based on the excess of a reporting unit’s carrying amount over its fair value. 
ASU 2017-04 does not change the guidance on completing Step 1 of the goodwill 
impairment test and still allows a company to perform the optional qualitative 
goodwill impairment assessment before determining whether to proceed to Step 1. 
The standard is effective for annual and interim goodwill impairment tests in 
fiscal years beginning after December 15, 2019 with early adoption permitted 
for any impairment test performed on testing dates after January 1, 2017. The 
Company adopted this standard on January 1, 2017 and will apply its guidance on 
future impairment assessments.



In August 2016, the FASB issued ASU No. 2016-15, "Classification of Certain 
Cash Receipts and Cash Payments." This ASU addresses eight specific cash flow 
issues with the objective of eliminating the existing diversity in practice. 
The amendments in this ASU are effective for public business entities for 
fiscal years beginning after December 15, 2017, and for interim periods 
therein, with early adoption permitted. We elected to early adopt ASU 2016-15 
as of December 31, 2016, and the adoption did not have a material impact on the 
presentation of the statement of cash flows.



In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit 
Losses." This ASU requires an organization to measure all expected credit 
losses for financial assets held at the reporting date based on historical 
experience, current conditions, and reasonable and supportable forecasts. 
Financial institutions and other organizations will now use forward-looking 
information to better inform their credit loss estimates. The amendments in 
this ASU are effective for fiscal years beginning after December 15, 2019, and 
for interim periods therein. The Company does not expect the amended standard 
to have a material impact on the Company’s results of operations.



In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee 
Share-Based Payment Accounting.” Excess tax benefits and deficiencies will be 
recognized in the consolidated statement of earnings rather than capital in 
excess of par value of stock on a prospective basis. A policy election will be 
available to account for forfeitures as they occur, with the cumulative effect 
of the change recognized as an adjustment to retained earnings at the date of 
adoption. Excess tax benefits within the consolidated statement of cash flows 
will be presented as an operating activity (prospective or retrospective 
application) and cash payments to tax authorities in connection with shares 
withheld for statutory tax withholding requirements will be presented as a 
financing activity (retrospective application). The guidance is effective 
beginning in 2017. Adoption of ASU No. 2016-09 did not have a material impact 
on the Company’s consolidated financial statements.



In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." The new 
standard establishes a right-of-use ("ROU") model that requires a lessee to 
record a ROU asset and a lease liability on the balance sheet for all leases 
with terms longer than 12 months. Leases will be classified as either finance 
or operating, with classification affecting the pattern of expense recognition 
in the statement of operations. This ASU is effective for fiscal years 
beginning after December 15, 2018, including interim periods within those 
fiscal years and early adoption is permitted. A modified retrospective 
transition approach is required for capital and operating leases existing at, 
or entered into after, the beginning of the earliest comparative period 
presented in the financial statements, with certain practical expedients 
available. At a minimum, adoption of ASU 2016-02 will require recording a ROU 
asset and a lease liability on the Company's consolidated balance sheet; 
however, the Company is still currently evaluating the impact on its 
consolidated financial statements.



In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740) - 
Balance Sheet Classification of Deferred Taxes”. ASU 2015-17 requires that 
deferred tax liabilities and assets be classified as noncurrent in a classified 
statement of financial position. The amendments in ASU 2015-17 apply to all 
entities that present a classified statement of financial position. The current 
requirement that deferred tax liabilities and assets of a tax-paying component 
of an entity be offset and presented as a single amount is not affected. For 
public business entities, the amendments in ASU 2015-17 are effective for 
financial statements issued for annual periods beginning after December 15, 
2016, and interim periods within those annual periods. The Company elected to 
early adopt ASU 2015-17 prospectively in the fourth quarter of 2016. As a 
result, all deferred tax assets and liabilities have been presented as 
noncurrent on the consolidated balance sheet as of December 31, 2016. There was 
no impact on its results of operations as a result of the adoption of ASU 
2015-17.



In September 2015, the FASB issued Accounting Standards Update No. 2015-16, 
“Business Combinations (Topic 805): Simplifying the Accounting for 
Measurement-Period Adjustments”, or ASU 2015-16. This amendment requires the 
acquirer in a business combination to recognize in the reporting period in 
which adjustment amounts are determined, any adjustments to provisional amounts 
that are identified during the measurement period, calculated as if the 
accounting had been completed at the acquisition date. Prior to the issuance of 
ASU 2015-16, an acquirer was required to restate prior period financial 
statements as of the acquisition date for adjustments to provisional amounts. 
The amendments in ASU 2015-16 are to be applied prospectively upon adoption. 
The Company adopted ASU 2015-16 in the fourth quarter of 2016. The adoption of 
the provisions of ASU 2015-16 did not have a material impact on its results of 
operations or financial position.



In May 2014, the FASB issued Accounting Standards Update ("ASU") 2014-09, 
"Revenue from Contracts with Customers (Topic 606)." The new revenue 
recognition standard provides a five-step analysis to determine when and how 
revenue is recognized. The standard requires that a company recognizes revenue 
to depict the transfer of promised goods or services to customers in an amount 
that reflects the consideration to which a company expects to be entitled in 
exchange for those goods or services. This ASU is effective for annual periods 
beginning after December 15, 2017 and will be applied retrospectively to each 
period presented or as a cumulative-effect adjustment as of the date of 
adoption.

The Company expects to apply the modified retrospective method. As described 
further in Note 9, the Company acquired ARI in October 2017, and accordingly, 
the Company is in the process of assessing the revenue practices of the 
acquired business. Based on the evaluation performed to date, and excluding 
ARI, the Company does not expect the impact relating to the adoption of this 
standard to be material to the financial statements. It will result in expanded 
disclosure, including, related to the Company’s revenue streams, identification 
of performance obligations and significant judgments made to apply the new 
standard. However, the Company has not finalized its assessment at this time.



Quantitative and Qualitative Disclosures About Market Risk



Interest Rate Sensitivity



We are exposed to market risk from fluctuations in interest rates on the PNC 
Facility. The PNC Facility is a $50,000,000 secured facility. 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 June 30, 2017, 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 (as defined in the PNC Facility), the sum of the 
Alternate Base Rate (as defined in the PNC Facility) plus one half of one 
percent (.50%) and (B) with respect to Eurodollar Rate Loans, the sum of the 
Eurodollar Rate plus two and one quarter of one percent (2.25%). The 
outstanding balance on the PNC Facility as of September 30, 2017 was $0. Future 
interest rate changes on our borrowing under the PNC Facility and the new term 
Loan Facility may have an impact on our consolidated results of operations.



Refrigerant Market



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