United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________

FORM 10-Q

______________________________________


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

For the quarterly period ended September 30, ~~2021~~2022


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

For the transition period from to

Commission File Number: 001-37822

______________________________________

Advanced Emissions Solutions, Inc.

(Exact name of registrant as specified in its charter)

______________________________________


Delaware						27-5472457
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

8051 E. Maplewood Ave, Suite 210, Greenwood Village, CO						80111
(Address of principal executive offices)						(Zip Code)

(720) 598-3500
(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

______________________________________

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

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

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

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

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

Class

Trading Symbol

Name of each exchange on which registered

Common stock, par value $0.001 per share

ADES

~~NASDAQ~~Nasdaq Global Market

As of November ~~4, 2021,~~2, 2022, there were ~~18,865,140~~19,110,910 outstanding shares of Advanced Emissions Solutions, Inc. common stock, par value $0.001 per share.

INDEX


		PAGE
PART I. - FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets as of September 30, ~~2021~~2022 and December 31, ~~2020~~2021	1
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, ~~2021~~2022 and September 30, ~~2020~~2021	2
	Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and Nine Months Ended September 30, ~~2021~~2022 and September 30, ~~2020~~2021	3
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2021~~2022 and September 30, ~~2020~~2021	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2623
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4435
Item 4.	Controls and Procedures	4435

PART II. - OTHER INFORMATION

Item 1.	Legal Proceedings	4537
Item 1a.	Risk Factors	4537
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4640
Item 3.	Defaults Upon Senior Securities	4640
Item 4.	Mine Safety Disclosures	4640
Item 5.	Other Information	4640
Item 6.	Exhibits	4741
	Signatures	4842

Part I. – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Advanced Emissions Solutions, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)


		As of					As of
(in thousands, except share data)	(in thousands, except share data)	September 30, 2021		December 31, 2020		(in thousands, except share data)	September 30, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash, cash equivalents and restricted cash		$	72,139	$	30,932
Cash						Cash	$	75,823	$	78,753
Receivables, net	Receivables, net	15,279		13,125		Receivables, net	13,903		12,622
Receivables, related parties	Receivables, related parties	4,165		3,453		Receivables, related parties	—		2,481
Inventories, net	Inventories, net	5,569		9,882		Inventories, net	15,261		7,850
Prepaid expenses and other assets		4,614		4,597
Prepaid expenses and other current assets						Prepaid expenses and other current assets	7,653		6,661

Total current assets	Total current assets	101,766		61,989		Total current assets	112,640		108,367
Restricted cash, long-term	Restricted cash, long-term	10,000		5,000		Restricted cash, long-term	10,000		10,027
Property, plant and equipment, net of accumulated depreciation of $6,600 and $3,340, respectively		30,712		29,433
Intangible assets, net		1,452		1,964
Equity method investments		2,884		7,692
Deferred tax assets, net		1,558		10,604
Property, plant and equipment, net of accumulated depreciation of $10,704 and $7,684, respectively						Property, plant and equipment, net of accumulated depreciation of $10,704 and $7,684, respectively	33,286		30,171
Other long-term assets, net	Other long-term assets, net	33,401		29,989		Other long-term assets, net	29,529		36,871

Total Assets	Total Assets	$	181,773	$	146,671	Total Assets	$	185,455	$	185,436
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable		$	9,125	$	7,849
Accrued payroll and related liabilities		4,498		3,257
Current portion of long-term debt		1,033		18,441
Accounts payable and accrued expenses						Accounts payable and accrued expenses	$	18,652	$	16,486

Current portion of finance lease obligations						Current portion of finance lease obligations	1,182		1,011
Other current liabilities	Other current liabilities	9,866		12,996		Other current liabilities	5,361		5,124

Total current liabilities	Total current liabilities	24,522		42,543		Total current liabilities	25,195		22,621
Long-term debt, net of current portion		3,408		5,445
Long-term finance lease obligations, net of current portion						Long-term finance lease obligations, net of current portion	3,731		3,152

Other long-term liabilities	Other long-term liabilities	12,818		13,473		Other long-term liabilities	13,906		12,362
Total Liabilities	Total Liabilities	40,748		61,461		Total Liabilities	42,832		38,135
Commitments and contingencies (Note 11)		0		0
Commitments and contingencies (Note 8)						Commitments and contingencies (Note 8)
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock: par value of $.001 per share, 50,000,000 shares authorized, none outstanding		—		—
Common stock: par value of $.001 per share, 100,000,000 shares authorized, 23,483,286 and 23,141,284 shares issued, and 18,865,140 and 18,523,138 shares outstanding at September 30, 2021 and December 31, 2020, respectively		23		23
Treasury stock, at cost: 4,618,146 and 4,618,146 shares as of September 30, 2021 and December 31, 2020, respectively		(47,692)		(47,692)
Preferred stock: par value of $.001 per share, 50,000,000 shares authorized, none issued						Preferred stock: par value of $.001 per share, 50,000,000 shares authorized, none issued	—		—
Common stock: par value of $.001 per share, 100,000,000 shares authorized, 23,730,499 and 23,460,212 shares issued, and 19,112,353 and 18,842,066 shares outstanding at September 30, 2022 and December 31, 2021, respectively						Common stock: par value of $.001 per share, 100,000,000 shares authorized, 23,730,499 and 23,460,212 shares issued, and 19,112,353 and 18,842,066 shares outstanding at September 30, 2022 and December 31, 2021, respectively	24		23
Treasury stock, at cost: 4,618,146 and 4,618,146 shares as of September 30, 2022 and December 31, 2021, respectively						Treasury stock, at cost: 4,618,146 and 4,618,146 shares as of September 30, 2022 and December 31, 2021, respectively	(47,692)		(47,692)
Additional paid-in capital	Additional paid-in capital	101,660		100,425		Additional paid-in capital	103,175		102,106
Retained earnings	Retained earnings	87,034		32,454		Retained earnings	87,116		92,864

Total stockholders’ equity		141,025		85,210
Total Stockholders’ Equity						Total Stockholders’ Equity	142,623		147,301
Total Liabilities and Stockholders’ Equity	Total Liabilities and Stockholders’ Equity	$	181,773	$	146,671	Total Liabilities and Stockholders’ Equity	$	185,455	$	185,436

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

Advanced Emissions Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share data)	(in thousands, except per share data)	2021		2020		2021		2020		(in thousands, except per share data)	2022		2021		2022		2021
Revenues:	Revenues:									Revenues:
Consumables	Consumables	$	24,689	$	15,844	$	57,696	$	33,231	Consumables	$	28,437	$	26,693	$	79,578	$	62,642
License royalties, related party	License royalties, related party	4,165		3,627		11,888		9,986		License royalties, related party	—		4,165		—		11,888

Total revenues	Total revenues	28,854		19,471		69,584		43,217		Total revenues	28,437		30,858		79,578		74,530
Operating expenses:	Operating expenses:									Operating expenses:
Consumables cost of revenue, exclusive of depreciation and amortization	Consumables cost of revenue, exclusive of depreciation and amortization	17,952		15,013		43,726		33,920		Consumables cost of revenue, exclusive of depreciation and amortization	21,575		19,956		62,992		48,672

Payroll and benefits	Payroll and benefits	2,637		2,285		8,014		8,839		Payroll and benefits	2,313		2,637		7,458		8,014

Legal and professional fees	Legal and professional fees	1,106		1,321		4,340		4,386		Legal and professional fees	3,668		1,106		7,395		4,340
General and administrative	General and administrative	1,715		1,900		5,223		6,693		General and administrative	1,833		1,715		5,628		5,223
Depreciation, amortization, depletion and accretion	Depreciation, amortization, depletion and accretion	2,145		1,777		6,155		5,807		Depreciation, amortization, depletion and accretion	1,671		2,145		4,765		6,155
Impairment of long-lived assets		—		—		—		26,103
Gain on change in estimate, asset retirement obligation		—		—		(1,942)		—

Loss (gain) on change in estimate, asset retirement obligation										Loss (gain) on change in estimate, asset retirement obligation	—		—		34		(1,942)
Total operating expenses	Total operating expenses	25,555		22,296		65,516		85,748		Total operating expenses	31,060		27,559		88,272		70,462
Operating income (loss)		3,299		(2,825)		4,068		(42,531)
Operating (loss) income										Operating (loss) income	(2,623)		3,299		(8,694)		4,068
Other income (expense):	Other income (expense):									Other income (expense):
Earnings from equity method investments	Earnings from equity method investments	22,195		9,518		61,944		25,959		Earnings from equity method investments	—		22,195		3,222		61,944
Gain on extinguishment of debt	Gain on extinguishment of debt	3,345		—		3,345		—		Gain on extinguishment of debt	—		3,345		—		3,345
Interest expense	Interest expense	(86)		(881)		(1,416)		(3,053)		Interest expense	(83)		(86)		(259)		(1,416)
Other	Other	81		17		652		208		Other	315		81		(19)		652

Total other income	Total other income	25,535		8,654		64,525		23,114		Total other income	232		25,535		2,944		64,525
Income (loss) before income tax expense		28,834		5,829		68,593		(19,417)
Income tax expense		4,581		854		14,013		1,315
Net income (loss)		$	24,253	$	4,975	$	54,580	$	(20,732)
Earnings (loss) per common share (Note 1):
(Loss) income before income tax expense										(Loss) income before income tax expense	(2,391)		28,834		(5,750)		68,593
Income tax (benefit) expense										Income tax (benefit) expense	—		4,581		—		14,013
Net (loss) income										Net (loss) income	$	(2,391)	$	24,253	$	(5,750)	$	54,580
(Loss) earnings per common share (Note 1):										(Loss) earnings per common share (Note 1):
Basic	Basic	$	1.33	$	0.27	$	2.99	$	(1.15)	Basic	$	(0.13)	$	1.33	$	(0.31)	$	2.99
Diluted	Diluted	$	1.31	$	0.27	$	2.96	$	(1.15)	Diluted	$	(0.13)	$	1.31	$	(0.31)	$	2.96
Weighted-average number of common shares outstanding:	Weighted-average number of common shares outstanding:									Weighted-average number of common shares outstanding:
Basic	Basic	18,292		18,093		18,243		18,014		Basic	18,487		18,292		18,435		18,243
Diluted	Diluted	18,489		18,103		18,416		18,014		Diluted	18,487		18,489		18,435		18,416

See Notes to the Condensed Consolidated Financial Statements.

Advanced Emissions Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders' Equity

(Unaudited)

Common Stock Treasury Stock
(Amounts in thousands, except share data) Shares Amount Shares Amount Additional Paid-in Capital Retained Earnings Total Stockholders’
Equity
Balances, January 1, 2021 23,141,284 $ 23 (4,618,146) $ (47,692) $ 100,425 $ 32,454 $ 85,210
Stock-based compensation 381,339 — — — 421 — 421
Repurchase of common shares to satisfy minimum tax withholdings (40,975) — — — (216) — (216)
Net income — — — — — 13,737 13,737
Balances, March 31, 2021 23,481,648 $ 23 (4,618,146) $ (47,692) $ 100,630 $ 46,191 $ 99,152
Stock-based compensation (25,330) — — — 566 — 566
Repurchase of common shares to satisfy minimum tax withholdings (3,833) — — — (25) — (25)
Net income — — — — — 16,590 16,590
Balances, June 30, 2021 23,452,485 $ 23 (4,618,146) $ (47,692) $ 101,171 $ 62,781 $ 116,283
Stock-based compensation 30,801 — — — 489 — 489
Net income — — — — — 24,253 24,253
Balances, September 30, 2021 23,483,286 $ 23 (4,618,146) $ (47,692) $ 101,660 $ 87,034 $ 141,025


	Common Stock			Treasury Stock
(Amounts in thousands, except share data)	Shares	Amount		Shares	Amount		Additional Paid-in Capital		Retained Earnings		Total Stockholders’ Equity
Balances, January 1, 2022	23,460,212	$	23	(4,618,146)	$	(47,692)	$	102,106	$	92,864	$	147,301

Stock-based compensation	323,742	1		—	—		463		—		464


Repurchase of common shares to satisfy minimum tax withholdings	(59,736)	—		—	—		(382)		—		(382)






Net loss	—	—		—	—		—		(3,033)		(3,033)
Balances, March 31, 2022	23,724,218	24		(4,618,146)	(47,692)		102,187		89,831		144,350
Stock-based compensation	(30,459)	—		—	—		484		—		484


Repurchase of common shares to satisfy minimum tax withholdings	(551)	—		—	—		(3)		—		(3)


Net loss	—	—		—	—		—		(326)		(326)
Balances, June 30, 2022	23,693,208	24		(4,618,146)	(47,692)		102,668		89,505		144,505
Stock-based compensation	37,291	—		—	—		507		—		507


Cash dividends canceled on common stock	—	—		—	—		—		2		2

Net loss	—	—		—	—		—		(2,391)		(2,391)
Balances, September 30, 2022	23,730,499	$	24	(4,618,146)	$	(47,692)	$	103,175	$	87,116	$	142,623


		Common Stock			Treasury Stock										Common Stock			Treasury Stock
(Amounts in thousands, except share data)	(Amounts in thousands, except share data)	Shares	Amount		Shares	Amount		Additional Paid-in Capital		Retained Earnings		Total Stockholders’ Equity		(Amounts in thousands, except share data)	Shares	Amount		Shares	Amount		Additional Paid-in Capital		Retained Earnings		Total Stockholders’ Equity
Balances, January 1, 2020		22,960,157	$	23	(4,597,533)	$	(47,533)	$	98,466	$	57,336	$	108,292
Balances, January 1, 2021														Balances, January 1, 2021	23,141,284	$	23	(4,618,146)	$	(47,692)	$	100,425	$	32,454	$	85,210

Stock-based compensation	Stock-based compensation	218,259	—		—	—		506		—		506		Stock-based compensation	381,339	—		—	—		421		—		421

Repurchase of common shares to satisfy minimum tax withholdings	Repurchase of common shares to satisfy minimum tax withholdings	(64,198)	—		—	—		(376)		—		(376)		Repurchase of common shares to satisfy minimum tax withholdings	(40,975)	—		—	—		(216)		—		(216)
Cash dividends declared on common stock		—	—		—	—		—		(4,590)		(4,590)
Repurchase of common shares		—	—		(20,613)	(159)		—		—		(159)
Net loss		—	—		—	—		—		(1,893)		(1,893)
Balances, March 31, 2020		23,114,218	$	23	(4,618,146)	$	(47,692)	$	98,596	$	50,853	$	101,780
Stock-based compensation		(3,549)	—		—	—		1,138		—		1,138

Repurchase of common shares to satisfy minimum tax withholdings		(384)	—		—	—		(2)		—		(2)

Net loss		—	—		—	—		—		(23,814)		(23,814)
Balances, June 30, 2020		23,110,285	$	23	(4,618,146)	$	(47,692)	$	99,732	$	27,039	$	79,102
Net income														Net income	—	—		—	—		—		13,737		13,737
Balances, March 31, 2021														Balances, March 31, 2021	23,481,648	23		(4,618,146)	(47,692)		100,630		46,191		99,152
Stock-based compensation	Stock-based compensation	87,701	—		—	—		426		—		426		Stock-based compensation	(25,330)	—		—	—		566		—		566

Repurchase of common shares to satisfy minimum tax withholdings	Repurchase of common shares to satisfy minimum tax withholdings	(31,953)	—		—	—		(153)		—		(153)		Repurchase of common shares to satisfy minimum tax withholdings	(3,833)	—		—	—		(25)		—		(25)

Net income	Net income	—	—		—	—		—		4,975		4,975		Net income	—	—		—	—		—		16,590		16,590
Balances, September 30, 2020		23,166,033	$	23	(4,618,146)	$	(47,692)	$	100,005	$	32,014	$	84,350
Balances, June 30, 2021														Balances, June 30, 2021	23,452,485	23		(4,618,146)	(47,692)		101,171		62,781		116,283
Stock-based compensation														Stock-based compensation	30,801	—		—	—		489		—		489

Net income														Net income	—	—		—	—		—		24,253		24,253
Balances, September 30, 2021														Balances, September 30, 2021	23,483,286	$	23	(4,618,146)	$	(47,692)	$	101,660	$	87,034	$	141,025

See Notes to the Condensed Consolidated Financial Statements.

Advanced Emissions Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Nine Months Ended September 30,
(in thousands) 2021 2020
Cash flows from operating activities
Net income (loss) $ 54,580 $ (20,732)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Deferred income tax expense 9,046 10,724
Depreciation, amortization, depletion and accretion 6,155 5,807
Gain on extinguishment of debt (3,345) —
Impairment of long-lived assets — 26,103
Operating lease expense 1,481 3,130
Amortization of debt discount and debt issuance costs 945 1,064
Gain on change in estimate, asset retirement obligation (1,942) —
Stock-based compensation expense 1,476 2,070
Earnings from equity method investments (61,944) (25,959)
Other non-cash items, net (352) 45
Changes in operating assets and liabilities:
Receivables and related party receivables (2,835) (1,331)
Prepaid expenses and other assets (16) (9,056)
Inventories, net 3,658 4,688
Other long-term assets, net 2,383 (1,908)
Accounts payable 1,147 (1,123)
Accrued payroll and related liabilities 1,241 1,089
Other current liabilities (3,489) (220)
Operating lease liabilities (2,514) (1,678)
Other long-term liabilities (3,031) (23)
Distributions from equity method investees, return on investment 22,044 42,228
Net cash provided by operating activities 24,688 34,918
Cash flows from investing activities
Distributions from equity method investees in excess of cumulative earnings 44,707 —
Acquisition of property, plant, equipment, and intangible assets, net (5,403) (4,879)
Mine development costs (1,262) (723)
Proceeds from sale of property and equipment 895 —
Net cash provided by (used in) investing activities 38,937 (5,602)
Cash flows from financing activities
Principal payments on term loan (16,000) (18,000)
Principal payments on finance lease obligations (1,085) (1,026)
Dividends paid (92) (4,956)
Repurchase of common shares — (159)
Repurchase of common shares to satisfy tax withholdings (241) (531)
Borrowings from Paycheck Protection Program Loan — 3,305
Net cash used in financing activities (17,418) (21,367)
Increase in Cash and Cash Equivalents and Restricted Cash 46,207 7,949
Cash and Cash Equivalents and Restricted Cash, beginning of period 35,932 17,080
Cash and Cash Equivalents and Restricted Cash, end of period $ 82,139 $ 25,029
Supplemental disclosure of non-cash investing and financing activities:
Acquisition of property, plant and equipment through accounts payable $ 128 $ 446
Dividends payable $ — $ 47


	Nine Months Ended September 30,
(in thousands)	2022		2021
Cash flows from operating activities
Net (loss) income	$	(5,750)	$	54,580
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation, amortization, depletion and accretion	4,765		6,155
Earnings from equity method investments	(3,222)		(61,944)
Operating lease expense	1,953		1,481
Stock-based compensation expense	1,455		1,476
Deferred income tax expense	—		9,046
Amortization of debt discount and debt issuance costs	—		945
Loss (gain) on change in estimate, asset retirement obligation	34		(1,942)
Gain on extinguishment of debt	—		(3,345)






Other non-cash items, net	404		(352)
Changes in operating assets and liabilities:
Receivables and related party receivables	1,199		(2,835)
Prepaid expenses and other assets	(991)		(16)
Inventories, net	(7,222)		3,658



Other long-term assets, net	2,136		(4,009)
Accounts payable and accrued expenses	1,827		2,388
Other current liabilities	(184)		(3,489)
Operating lease liabilities	1,445		3,878




Other long-term liabilities	206		(3,031)
Distributions from equity method investees, return on investment	2,297		22,044
Net cash provided by operating activities	352		24,688
Cash flows from investing activities
Distributions from equity method investees in excess of cumulative earnings	3,316		44,707

Acquisition of property, plant, equipment, and intangible assets, net	(6,178)		(5,403)
Mine development costs	(345)		(1,262)
Proceeds from sale of property and equipment	1,241		895















Net cash (used in) provided by investing activities	(1,966)		38,937
Cash flows from financing activities
Principal payments on finance lease obligations	(913)		(1,085)
Repurchase of common shares to satisfy tax withholdings	(385)		(241)
Dividends paid	(45)		(92)
Principal payments on term loan	—		(16,000)










Net cash used in financing activities	(1,343)		(17,418)
(Decrease) increase in Cash and Restricted Cash	(2,957)		46,207
Cash and Restricted Cash, beginning of period	88,780		35,932
Cash and Restricted Cash, end of period	$	85,823	$	82,139



Supplemental disclosure of non-cash investing and financing activities:
Acquisition of property and equipment through finance lease	$	1,641	$	—



Acquisition of property and equipment through accounts payable	$	339	$	128

See Notes to the Condensed Consolidated Financial Statements.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1 - Basis of Presentation

Nature of Operations

Advanced Emissions Solutions, Inc. ("ADES" or the "Company") is a Delaware corporation with its principal office located in Greenwood Village, Colorado and manufacturing, mining and logistics operations located in Louisiana. The Company is principally engaged in the sale of consumable air and water treatment ~~options~~solutions including activated carbon ("AC") and chemical technologies. The Company's proprietary technologies in the advanced purification technologies ("APT") market enable customers to reduce air and water contaminants, including mercury and other pollutants, to maximize utilization levels and to improve operating efficiencies to meet the challenges of existing and pending ~~emission control~~air quality and water regulations. ~~Through its wholly-owned subsidiary, ADA Carbon Solutions, LLC ("Carbon Solutions"), the~~The Company manufactures and sells AC and other chemicals used to capture and remove contaminants for coal-fired power, ~~plants and~~ industrial and water treatment markets. ~~Carbon Solutions~~The Company also owns an associated lignite mine ~~that~~("Five Forks Mine") which supplies the primary raw material for manufacturing AC.

Through December 31, 2021, the Company generated substantial earnings from its equity ownership in Tinuum Group, LLC ("Tinuum Group") and Tinuum Services, LLC ("Tinuum Services"), both of which are unconsolidated ~~entities, the Company generates substantial earnings.~~entities. Both Tinuum Group ~~provides~~and Tinuum Services ceased material operations effective December 31, 2021 as a result of the expiration of a tax credit program under Internal Revenue Code Section 45 - Production Tax Credit (the "Section 45 Tax Credit Program"). Tinuum Group provided reduction of mercury and nitrogen oxide ("NOx") emissions at select coal-fired power generators through the production and sale of refined coal ("RC") that ~~qualifies~~qualified for tax credits under the ~~Internal Revenue Code ("IRC")~~ Section 45 ~~- Production~~ Tax Credit Program ("Section 45 tax credits"). The Company also ~~earns~~earned royalties for technologies ~~that are~~which were licensed to Tinuum Group and used at certain RC facilities to enhance combustion and ~~reduced~~reduce emissions of NOx and mercury from coal burned to generate electrical power. Tinuum Services ~~operates~~operated and ~~maintains~~maintained the RC facilities under operating and maintenance agreements with Tinuum Group and owners or lessees of the RC facilities. ~~Both~~Presently, both Tinuum Group and Tinuum Services ~~are significantly winding down~~continue to wind-down their operations, ~~due~~and the Company has received what it anticipates to ~~the expected expiration of the Section 45 tax credit period as of December 31, 2021. As such, the Company's earnings and~~be final cash distributions from ~~our RC segment will substantially cease as of December 31, 2021.~~

~~The Company’s sales occur principally in the United States. See Note 17 for additional information regarding the Company's operating segments.~~these entities.

Basis of Presentation

The accompanying Condensed Consolidated Financial Statements of ADES are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") and with Article 10 of Regulation S-X of the Securities and Exchange Commission. In compliance with those instructions, certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.

The unaudited Condensed Consolidated Financial Statements of ADES in this quarterly report ("Quarterly Report") are presented on a consolidated basis and include ADES and its wholly-owned subsidiaries (collectively, the "Company"). Also included within the unaudited Condensed Consolidated Financial Statements are the Company's unconsolidated equity ~~investments:~~investments, Tinuum Group and Tinuum Services, ~~and GWN Manager, LLC ("GWN Manager"),~~ which are accounted for under the equity method of accounting, and Highview Enterprises Limited (the "Highview Investment"), which is accounted for in accordance with U.S. GAAP applicable to equity investments that do not qualify for the equity method of accounting.

Results of operations and cash flows for the interim periods are not necessarily indicative of the results that may be expected for the entire year. All significant intercompany transactions and accounts were eliminated in consolidation for all periods presented in this Quarterly Report.

In the opinion of management, these Condensed Consolidated Financial Statements include all normal and recurring adjustments considered necessary for a fair presentation of the results of operations, financial position, stockholders' equity and cash flows for the interim periods presented. These Condensed Consolidated Financial Statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 (the ~~"2020~~"2021 Form 10-K"). Significant accounting policies disclosed therein have not changed.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed using the ~~two-class method, which is an earnings allocation formula that determines earnings (loss) per share for~~weighted-average number of shares of common stock ~~and any participating securities according to dividend and participating rights in undistributed earnings (losses). Pursuant to U.S. GAAP,~~outstanding during the ~~Company has elected not to separately present basic or diluted earnings per share attributable to participating securities in the Condensed Consolidated Statements of Operations.~~

~~Advanced Emissions Solutions, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

reporting period. Diluted earnings (loss) per share is computed in a manner consistent with that of basic earnings per share, while considering other potentially dilutive securities. For the three and nine months ended September 30, 2022 and 2021, potentially dilutive securities consist of unvested ~~non-participating~~ restricted stock awards ("~~RSA's"~~RSAs")~~, as well as~~ and contingent performance stock units ("~~PSU's"~~PSUs"). ~~For the three~~

Advanced Emissions Solutions, Inc. and ~~nine months ended September 30, 2020, potentially dilutive securities consist of both unvested, participating and non-participating RSA's, as well as outstanding options~~Subsidiaries

Notes to ~~purchase common stock ("Stock Options") and PSU's.~~Condensed Consolidated Financial Statements

The dilutive effect, if any, for non-participating RSA's, Stock Options and PSU's is determined using the greater of dilution as calculated under the treasury stock method or the two-class method. Potentially dilutive securities are excluded from diluted earnings per share when their effect is anti-dilutive. When there is a net loss for a period, all potentially dilutive securities are anti-dilutive and are excluded from the calculation of diluted loss per share for that period.(Unaudited)

The following table sets forth the calculations of basic and diluted (loss) earnings ~~(loss)~~ per share:

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands, except per share amounts) 2021 2020 2021 2020
Net income (loss) $ 24,253 $ 4,975 $ 54,580 $ (20,732)
Less: Dividends and undistributed income (loss) allocated to participating securities — — — (10)
Income (loss) attributable to common stockholders $ 24,253 $ 4,975 $ 54,580 $ (20,722)
Basic weighted-average common shares outstanding 18,292 18,093 18,243 18,014
Add: dilutive effect of equity instruments 197 10 173 —
Diluted weighted-average shares outstanding 18,489 18,103 18,416 18,014
Earnings (loss) per share - basic $ 1.33 $ 0.27 $ 2.99 $ (1.15)
Earnings (loss) per share - diluted $ 1.31 $ 0.27 $ 2.96 $ (1.15)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share amounts)	2022		2021		2022		2021
Net (loss) income	$	(2,391)	$	24,253	$	(5,750)	$	54,580



Basic weighted-average common shares outstanding	18,487		18,292		18,435		18,243
Add: dilutive effect of equity instruments	—		197		—		173


Diluted weighted-average shares outstanding	18,487		18,489		18,435		18,416
(Loss) earnings per share - basic	$	(0.13)	$	1.33	$	(0.31)	$	2.99
(Loss) earnings per share - diluted	$	(0.13)	$	1.31	$	(0.31)	$	2.96

For the three and nine months ended September 30, ~~2021 and 2020,~~2022, potentially dilutive securities ~~convertible to 0 and 0.5~~of 0.8 million and ~~0.1 million and 0.9~~0.7 million shares of common stock, respectively, were outstanding but were not included in the calculation of diluted net ~~income (loss)~~loss per share because the effect would have been anti-dilutive. Further, for the three and nine months ended 2021, potentially dilutive securities of zero and 0.1 million shares of common stock, respectively, were outstanding but were not included in the calculation of diluted net (loss) income per share because the effect would have been anti-dilutive.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. There have been no changes in the Company’s critical accounting estimates from those that were disclosed in the ~~2020~~2021 Form 10-K. Actual results could differ from these estimates.

Due to the coronavirus ("COVID-19") pandemic, there has been uncertainty and disruption in the global economy and financial markets. Additionally, due to COVID-19, overall power generation and coal-fired power demand may decline, which could have a material adverse effect on the Company. The Company is not aware of any specific event or circumstance due to COVID-19 that would require an update to its estimates or judgments or a revision of the carrying values of its assets or liabilities through the date of this Quarterly Report. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

Risks and Uncertainties

The ~~Company’s~~loss of earnings ~~are significantly affected by equity earnings~~and cash distributions from ~~Tinuum Group. As of September 30, 2021, Tinuum Group has 16 invested RC facilities, of which 5 are leased to a single customer. Both~~both Tinuum Group and Tinuum Services ~~are winding down their operations due~~will continue to the expected expiration of the Section 45 tax credit period as of December 31, 2021. As of September 30, 2021, Tinuum Group ceased operating 7 RC facilities, with the remaining RC facilities expected to cease operations during the fourth quarter of 2021. The loss of Tinuum Group's customers, reduction in revenue streams as a result of lease renewals and the expiration of Section 45 tax credits will have a significant adverse impact on Tinuum Group's financial position, results of operations and cash flows, which in turn will have a material adverse impact on the Company’s financial position, results of operations and cash flows.

~~Advanced Emissions Solutions, Inc.~~ For 2022, the Company is principally dependent on operations of its APT business and ~~Subsidiaries~~

~~Notes~~its cash on hand to ~~Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

provide liquidity over the near and long term. The Company's revenues, sales volumes, earnings and cash flows are significantly affected by prices of competing power generation sources such as natural gas and renewable energy. During periods of low natural gas prices, natural gas provides a competitive alternative to coal-fired power generation and therefore, coal consumption may be reduced, which in turn reduces the demand for the Company's products. However, during periods of higher prices for competing power generation sources, there is an increase in coal consumption and thus demand for the Company's products also ~~increase.~~ increases.

In addition, coal consumption and demand for the Company's products are ~~also~~ affected by the demand for electricity, which is higher in the warmer and colder months of the year. As a result, the Company's interim period results are subject to seasonal variations whereby its revenues and cost of revenues tend to be higher in its first and third fiscal quarters compared to its second and fourth fiscal quarters. Abnormal temperatures during the summer and winter months may significantly affect coal consumption and impurities within various municipalities' water sources, and thus impact the demand for the Company's products.

Concentration of credit risk

The Company is exposed to concentrations of credit risk primarily related to cash held at financial institutions and accounts receivable. The Company regularly monitors its credit risk to mitigate the possibility of current and future exposures resulting in a loss. Historically, the losses related to credit risk have been immaterial.

The Company holds cash at two financial institutions as of September 30, 2022. If a financial institution was unable to perform its obligations, the Company would be at risk regarding the amount of cash and investments in excess of the Federal Deposit Insurance Corporation limits (currently $250 thousand) that would be returned to the Company.

The Company evaluates the creditworthiness of its customers prior to entering into an agreement to sell its products and, as necessary, through the life of the customer relationship.

Reclassifications

Certain balances have been reclassified from the prior year to conform to the current year presentation. Such reclassifications had no effect on the Company’s results of operations or financial position in any of the periods presented.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Segments

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by a company's chief operating decision maker ("CODM"), or a decision-making group, in deciding how to allocate resources and in assessing financial performance. As of September 30, 2022, the Company's CODM was the Company's Chief Executive Officer, and the Company concluded that APT was its one reportable segment.

Given the wind-down of Tinuum Group and Tinuum Services and the impact on the Company's financial statements, the Company determined the historical RC segment no longer met the qualitative or quantitative criteria to be considered a reporting segment under U.S. GAAP. As a result, including the method in which the CODM allocates resources, beginning January 1, 2022, the Company determined that it had one reportable segment and therefore has removed its segment disclosures for this Quarterly Report.

New Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in ASU 2016-13 replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates. ASU 2016-13 is effective for "smaller reporting companies" (as defined by the Securities and Exchange Commission) for fiscal years beginning after December 15, 2022, including interim periods within those years, and must be adopted under a modified retrospective method approach. The Company intends to adopt ASU 2016-13 effective January 1, 2023 and is currently evaluating the provisions of this guidance and assessing the impact on its financial statements and ~~disclosures and~~disclosures. The Company does not believe this standard will have a material impact on its financial statements and disclosures.

Note 2 - Proposed Merger

On August 19, 2022, the Company entered into a Transaction Agreement (the "Transaction Agreement") with Elbert Holdings, Inc., a Delaware corporation and wholly owned subsidiary of the Company ("New ADES"), Elbert Merger Sub 1, Inc., a Delaware corporation and wholly owned subsidiary of New ADES ("Merger Sub"), and Arq Limited, a company incorporated under the laws of Jersey ("Arq"), pursuant to which (i) New ADES will acquire 100% of the outstanding equity interests of Arq (the "Arq Share Acquisition"), and (ii) stockholders of ADES will have the right to receive shares of New ADES and either their pro rata share of a $10.0 million aggregate cash payment or additional shares in New ADES ((i) and (ii) collectively, the "Merger").

The transactions contemplated by the Transaction Agreement, including but not limited to the ADES Merger (defined below), the Arq Share Acquisition, and the PIPE Investment (defined below), (collectively, the "Transactions") will occur through multiple steps at the time of closing. First, Merger Sub 1 will be merged into ADES, with ADES surviving as a wholly owned subsidiary of New ADES (the "ADES Merger").

In the ADES Merger, stockholders of the Company will be given the election to exchange each share of common stock of the Company for either (i) 1.11 shares of New ADES common stock plus $0.52 in cash (the "Mixed ADES Consideration") or (ii) 1.22 shares of New ADES common stock (the "All-Stock ADES Consideration," and such conversion rate, the "All Stock Conversion Rate"). Stockholders that do not make an affirmative election to receive the Mixed ADES Consideration or the All-Stock ADES Consideration will receive the All-Stock ADES Consideration in the ADES Merger.

Second, following the completion of the ADES Merger pursuant to a Scheme of Arrangement (the "Scheme of Arrangement") and in accordance with the Laws of the Bailiwick of Jersey, existing shareholders of Arq will transfer all of their equity interests in Arq to New ADES in exchange for an aggregate number of 19,729,235 newly issued shares of New ADES common stock (the "Arq Share Acquisition"). The Scheme of Arrangement will become effective at such time as an act of the Royal Court of Jersey sanctioning the Scheme of Arrangement has been delivered to the Registrar of Companies in Jersey. Concurrently with the execution of the Transaction Agreement, persons holding more than 75% of the voting rights of the Arq shareholders delivered irrevocable voting agreements to Arq and ADES pursuant to which those shareholders agreed to vote in favor of the Scheme of Arrangement.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

In connection with the Transactions, each ADES equity award made or otherwise denominated in shares of the Company’s common stock that is outstanding immediately prior to the ADES Merger will be assumed by New ADES. Such equity awards will continue to have the same terms and conditions of such awards immediately prior to the ADES Merger, except that each equity award will become exercisable for shares of New ADES common stock, and the number of shares subject to such award will be equal to the number of shares of ADES common stock subject to such award multiplied by the All Stock Conversion Rate.

The closing of the Transactions (the "Closing") is conditioned on the absence of any order, law or injunction preventing the consummation of the Transactions; approval for listing of the shares of New ADES common stock issued in the ADES Merger and the Arq Share Acquisition (subject to official notice of issuance) on the Nasdaq Global Market; approval of the Transaction Agreement by holders of a majority of the outstanding common shares of ADES; the approval of the Scheme of Arrangement by resolution of a majority in number of the Arq shareholders representing three-fourths (75%) or more of the voting rights of the Arq shareholders; expiration of the waiting period under the Hart-Scott-Rodino Act; subject to certain qualifications, the accuracy of representations and warranties of the other party set forth in the Transaction Agreement; the performance by the other party in all material respects of its obligations under the Transaction Agreement, and other customary conditions. In addition, ADES’ obligation to consummate the Transactions is conditioned upon the consummation of term debt financing in the amount of $10.0 million provided by a third-party financial institution (the "Debt Financing") and a PIPE Investment in the amount of $20.0 million from current Arq shareholders (the "PIPE Investment").

On August 18, 2022, the ADES Board unanimously approved and adopted the Transaction Agreement and the Transactions and recommends that the ADES shareholders approve and adopt the Transaction Agreement, subject to certain exceptions set forth in the Transaction Agreement.

Assuming the Merger is consummated, the Company has determined that it will be the accounting acquirer.

Note 23 - Customer Supply Agreement

On September 30, 2020, the Company and Norit Activated Carbon - Americas (f/k/a Cabot Norit Americas, Inc.) ("Norit"), ~~("Cabot")~~ entered into a supply agreement (the "Supply Agreement") pursuant to which the Company agreed to sell and deliver to ~~Cabot,~~Norit, and ~~Cabot~~Norit agreed to purchase and accept from the Company certain lignite-based AC products ("Furnace Products").

~~As part~~ The term of the Supply Agreement is for 15 years with 10-year renewal terms that are automatic unless either party provides three years prior notice of intention not to renew before the ~~Company and Cabot agreed to additional terms whereby Cabot~~end of any term.

Under the Supply Agreement, Norit also reimburses the Company for certain capital expenditures incurred by the Company that are necessary to manufacture the Furnace ~~Products, and both the Company and Cabot must mutually agree on these~~Products. Reimbursements are comprised ofrevenues earned from capital expenditures ~~in advance of procurement and commissioning. Capital expenditures~~ incurred that will benefit both the Company and ~~Cabot ("Shared~~Norit (referred to as "Shared Capital") ~~are partially reimbursable by Cabot~~ and ~~recognized as~~ revenues ~~based on a formula contained in the Supply Agreement. Revenues~~earned from and reimbursements of, Shared Capital are recognized and billable, respectively, beginning on the first day of a half year (January 1 and July 1 of a calendar year) following the placed in service date of a Shared Capital asset(s).

~~Capital~~capital expenditures incurred that will benefit ~~Cabot~~Norit exclusively ~~("Specific~~(referred to as "Specific Capital") are fully reimbursable by Cabot and recognized as revenues based on a formula contained in the Supply Agreement. Revenues earned from Specific Capital are recognized beginning on the first day of a half year following the placed in service date of a Specific Capital asset(s). Reimbursements of Specific Capital are billable in quarterly installments beginning on the first day of a half year following the placed in service date of a Specific Capital asset(s). In the event that ~~Cabot~~Norit ceases to make purchases under the Supply Agreement, ~~Cabot~~Norit is obligated to pay the balance of any outstanding ~~amounts~~payments for Specific Capital.

~~Revenues earned~~Further, under the terms of the Supply Agreement, Norit was obligated to pay the Reclamation Reimbursement (defined in Note 4 below) to the Company for $10.2 million of the Reclamation Costs (defined in Note 4 below), inclusive of interest. The Company recorded the Norit Receivable for the Reclamation Reimbursement at its estimated fair value, which was measured using a discounted cash flows valuation model that considered the estimated credit risk associated with the obligor's (Norit's) future performance, which the Company estimated was approximately 1.5%.

On February 25, 2022, the Company received $10.6 million in cash from ~~both Shared Capital and~~Norit (the "Norit Payment") as a result of a change in control provision in the Supply Agreement (the "Change in Control"), which occurred as a result of the sale of Norit by its parent, Cabot Corporation. Under the Change in Control, the Company received from Norit full payment of all amounts outstanding under the Reclamation Reimbursement, payment of all unbilled amounts related to Specific Capital ~~are reported~~for expenditures incurred through February 28, 2022 and payment of $0.8 million related to additional costs due to the third-party operator of Marshall Mine (the "Norit Reclamation Costs"). Under the Reclamation Contract (defined in Note 4 below), the Company was obligated to remit payment for the Norit Reclamation Costs to the third-party operator of Marshall Mine (defined in Note 4 below), and such payment was remitted in March 2022. The Change in Control did not impact any other provisions of the Supply Agreement.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

As of February 25, 2022, the carrying value of the Reclamation Reimbursement was $9.0 million, which included the principal balance, adjusted for accretion of interest and payments made to date. Under the Change in Control, the Company received $8.5 million in cash for full payment of the outstanding Reclamation Reimbursement. The Company concluded that the cash proceeds received represented an early payment of a receivable based on a change in contractual terms and accounted for the difference between the cash proceeds received and the carrying amount of the Reclamation Reimbursement of $0.5 million as a loss for the three months ended March 31, 2022, which is included in the ~~Consumables revenue~~"Other Income (Expense)" line item in the ~~Statements~~Condensed Consolidated Statement of ~~Operations.~~Operations for the nine months ended September 30, 2022.

Also, under the Change in Control, the Company received $1.3 million in advance of revenue to be recognized in future periods related to Specific Capital and recorded this amount as deferred revenue, which is recognized ratably over the remaining contractual term as stipulated in the Supply Agreement.

Note 34 - ~~Acquisition of~~ Marshall Mine

Acquisition

Concurrently with the execution of the Supply Agreement, on September 30, 2020, ~~(the "Acquisition Date"),~~ the Company entered into an agreement to purchase from ~~Cabot~~Norit 100% of the membership interests in Marshall Mine, LLC (the "Marshall Mine ~~Purchase Agreement"~~Acquisition") for a nominal cash purchase price. Marshall Mine, LLC owns a lignite mine located outside of Marshall, Texas (the "Marshall Mine"). The Company concluded that the Marshall Mine did not have any remaining economic reserves and independently determined to immediately commence activities to shutter it. OnAccordingly, on September 30, 2020, the ~~Acquisition Date, the~~ Company and a third party entered into a reclamation contract (the "Reclamation Contract") ~~with a third party that provided a capped cost agreement, subject to certain contingencies, in~~for full reclamation of the ~~amount of approximately $19.7 million plus an obligation to pay certain direct costs estimated~~Marshall Mine, which was expected to be ~~$3.6 million (collectively, the "Reclamation Costs") over the estimated reclamation period of 10 years (the "Reclamation Period").~~completed by 2030. Under the terms of the Supply Agreement, ~~Cabot is~~Norit was obligated to reimburse the Company for $10.2 million ~~of Reclamation Costs~~ (the "Reclamation ~~Reimbursements"~~Reimbursement") for a portion of the total costs incurred under the Reclamation Contract (the "Reclamation Costs"), which ~~are~~was payable semi-annually over 13 years and inclusive of interest. ~~In the event that Cabot has a change~~As discussed in ~~control~~Note 3, on February 25, 2022 as ~~described in the Supply Agreement, all outstanding balances~~part of the ~~Reclamation Reimbursements shall be due and payable~~Change in ~~full. See further discussion of~~Control, Norit fully paid the outstanding amount owed under the Reclamation ~~Costs~~Reimbursement and ~~Reclamation Reimbursements in Note 4.~~has no further liability related to the Marshall Mine.

The Company accounted for the Marshall Mine ~~Purchase Agreement~~Acquisition as an asset acquisition, and it included the acquisition of certain assets ~~that will be consumed~~ and ~~the~~ assumption of certain liabilities ~~that are to be paid in reclamation of the Marshall Mine in addition to~~as well as the incurrence of an obligation for the Reclamation ~~Costs. The Company accounted for~~Costs (the "Marshall Mine ARO"). As of September 30, 2022 and December 31, 2021, the carrying value of the Marshall Mine ~~Purchase Agreement as an asset acquisition.~~ARO was $4.6 million and $6.3 million, respectively.

As the Marshall Mine ~~Purchase Agreement represents~~Acquisition represented a transaction with a customer of net assets acquired and liabilities assumed from ~~Cabot,~~Norit, the Company accounted for the excess of the fair value of liabilities assumed over assets acquired as upfront consideration transferred to a customer, ~~Cabot~~Norit (the "Upfront Customer Consideration"). The amount of the Upfront Customer Consideration was also recognized net of ~~an additional asset recognized in the Marshall Mine Acquisition, which was comprised of a receivable from Cabot (the "Cabot Receivable") for~~ the Reclamation ~~Reimbursements. The Cabot Receivable is further discussed in Note 4.~~

Reimbursement. The total Upfront Customer Consideration is being amortized as a reduction to revenues on a straight-line basis over the expected 15-year contractual period of the Supply Agreement. Amortization of the Upfront Customer Consideration is approximately $0.5 million per year.

Disposition

~~Advanced Emissions Solutions, Inc.~~On September 2, 2022, (the "Agreement Date"), the Company (the "Seller"), entered into a Membership Interest Purchase Agreement (the "Purchase Agreement") with a third party (the "MM Buyer") to sell all of its membership interests in Marshall Mine, LLC to the MM Buyer (the "MM Sale") in exchange for a cash payment to be made by the Seller to the MM Buyer of approximately $2.4 million (the "Purchase Price") and ~~Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~As part~~the assumption by the MM Buyer of certain liabilities of Marshall Mine, LLC. The MM Buyer previously operated the Marshall Mine on behalf of Marshall Mine, LLC and is currently performing reclamation under the Reclamation Contract.

The Purchase Price is subject to adjustments for certain events that may occur during the period from the Agreement Date and the ~~Company assumed liabilities, whose fair value exceeded~~Closing Date (as defined below) as follows: (1) increased or reduced as agreed upon by the ~~fair value~~Seller and the MM Buyer (collectively, the "Parties"); (2) increased or decreased by income, proceeds, receipts and credits earned with respect to the assets and operations of ~~assets acquired. A summary~~Marshall Mine, LLC between signing and closing of the ~~net assets acquired and~~MM Sale, (3) increased by any amounts that are, or under US GAAP should be, accrued as liabilities ~~assumed and the additional assets recorded in the Marshall Mine Purchase Agreement as~~ of the Acquisition Date are shown in the table below. The Company completed additional analysis of the assets acquired and liabilities assumed and recorded adjustments as of December 31, 2020 as shown in the table below.

(in thousands) As Originally Reported Adjustments As Adjusted
Assets acquired:
Receivables $ — $ 513 $ 513
Property, plant and equipment 3,863 — 3,863
Spare parts 100 — 100
Liabilities assumed:
Accounts payable and accrued expenses (673) 160 (513)
Asset retirement obligation (21,328) — (21,328)
Net assets acquired and liabilities assumed from Marshall Mine acquisition (18,038) 673 (17,365)
Cabot Receivable 9,749 — 9,749
Upfront Customer Consideration $ 8,289 $ (673) $ 7,616

~~The Company also evaluated~~ Marshall Mine LLC as a potential variable interest entity ("VIE"), and determined that it was a VIE and the Company was its primary beneficiary. Therefore, the Company consolidates Marshall Mine, LLC's assets and liabilities in its consolidated financial statements.

~~Note 4 - Marshall Mine Asset Retirement Obligation and Cabot Receivable~~

~~Asset Retirement Obligation~~

As of the Acquisition Date, the Company recorded an asset retirement obligation (the "Marshall Mine ARO") for the total Reclamation Costs of $21.3 million as measured at the expected future cash flows of $23.7 million, inclusive of contingency costs, discounted to their present value using a discount rate based on a credit-adjusted, risk-free rate of 7.0%. As of September 30, 2021 and December 31, 2020, the carrying valueclosing of the ~~Marshall Mine ARO was $9.4 million and $18.1 million, respectively.~~

As of June 30, 2021, the Company revised its estimate of future obligations owed for the reclamation of the Marshall Mine primarily based on scope reductions related to future reclamation requirements. As a result, the Company reduced the Marshall Mine ARO by $1.9 millionMM Sale, as ~~of June 30, 2021 and recorded a corresponding gain on change in estimate for the three months ended June 30, 2021. This is included as "Gain on change in estimate, asset retirement obligation"~~more fully described in the ~~Condensed Consolidated Statements of Operations for the nine months ended September 30, 2021.~~

~~Cabot Receivable~~

As of the Acquisition Date, the Company recorded the Cabot Receivable at its estimated fair value of $9.7 million, reflecting a discount rate of approximately 1.5% or $0.5 million. There were no significant related fees or costs associated with the Cabot Receivable. The Company did not elect the fair value option in its initial or subsequent accounting for the Cabot Receivable.

The Cabot Receivable requires Cabot to pay the Reclamation Reimbursements to the Company in the amount of $10.2 million inclusive of interest based on a mutually agreed-upon payment schedule through 2033. Interest is accretedPurchase Agreement; and (4) decreased by agreed amounts which escalate depending on the ~~Cabot Receivable and recognized as interest income. An allowance for the Cabot Receivable asset is assessed periodically, and no allowance was deemed necessary as~~timing of ~~September 30, 2021 and December 31, 2020.~~

~~Surety Bond~~

As the owner of the Marshall Mine, the Company is required to post a surety bond to ensure performance of its reclamation activities. On the Acquisition Date, the Company and a third party entered into a surety bond indemnification agreement (the "Surety Agreement") pursuant to which the Company secured and posted a $30.0 million surety bond (the "Bond") with the local regulatory agency. On June 7, 2021, the third party agreed to reduce the Surety Bond amount to $16.6 million. The Bond will remain in place until the Marshall Mine is fully reclaimed, and may be further reduced in amount from time to time as the Company progresses with its reclamation activities. As of September 30, 2021, the Company was required to post collateral ofclosing if it occurs after January 1, 2023.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~$10.0~~The obligations of the Parties to close the MM Sale (the "Closing Date") is subject to certain events, including (1) obtaining the approval of the Railroad Commission of Texas (the "Commission") for an operating permit in the name of the MM Buyer or an affiliate of the MM Buyer; and (2) the MM Buyer replacing the Seller’s surety bond with a reclamation performance bond, letter of credit or other form of security to which the MM Buyer or an affiliate of the MM Buyer is the principal that is satisfactory to the Commission. The Purchase Agreement may be terminated: (1) by mutual consent of the MM Buyer and the Seller at any time prior to the Closing Date; (2) by the MM Buyer or Seller, if the Closing has not occurred within one year after the Agreement Date, unless the failure of the consummation of the Closing shall be due to the failure of the party wishing to terminate to comply in all material aspects with the agreements and covenants contained therein; (3) if there is a material breach (by either the MM Buyer or Seller) of any representation, warranty, covenant or agreement contained in the Purchase Agreement that is not cured within a specified time frame; and (4) if the MM Sale is prohibited by governmental authority in a final, non-appealable order or applicable law.

As of September 30, 2022, Marshall Mine, LLC had outstanding liabilities of approximately $5.1 million, which the Company expects to be fully discharged upon payment of the Purchase Price. Because the Closing Date is uncertain, primarily due to a date uncertain for the ~~obligations due under~~Parties to receive approval of the ~~Reclamation Contract,~~MM Buyer's operating permit and surety bond by the Commission, the Company is unable to determine the accounting period in which ~~is recorded as long-term restricted cash on~~it will recognize the MM Sale.

The following tables summarize the assets and liabilities of Marshall Mine, LLC and their classification in the Company's Condensed Consolidated Balance ~~Sheet.~~Sheets:


(in thousands)	September 30, 2022		December 31, 2021		Balance sheet component

Cash	$	—	$	914	Current assets
Norit receivable, short-term	—		2,056		Current assets

Restricted cash	10,000		10,027		Non-current assets

Property and equipment, net	—		1,968		Non-current assets
Norit receivable, long-term	—		6,846		Non-current assets

	$	10,000	$	21,811


Accounts payable and accrued liabilities	$	525	$	1,065	Current liabilities
Asset retirement obligation, short-term	418		1,775		Current liabilities
Asset retirement obligation, long-term	4,180		4,546		Non-current liabilities
	$	5,123	$	7,386

Note 5 - ~~COVID-19~~Revenues

~~In March 2020,~~Trade receivables represent an unconditional right to consideration in exchange for goods or services transferred to a customer. The Company invoices its customers in accordance with the ~~federal government passed the Coronavirus Aid, Relief, and Security Act (the "CARES Act"), which provided among other things the creation~~terms of the ~~Paycheck Protection Plan ("PPP"),~~contract. Credit terms are generally net 30 - 45 days from the date of invoice. The timing between the satisfaction of performance obligations and when payment is due from the customer is generally not significant.

Contract liabilities are comprised of deferred revenue, which ~~is sponsored and administered by the U.S. Small Business Administration ("SBA"). On April 20, 2020, the Company executed~~represents an obligation to transfer goods or services to a ~~loan agreement (the "PPP Loan") under the PPP, evidenced by a promissory note, with BOK, NA dba Bank of Oklahoma ("BOK"), providing~~customer for ~~$3.3 million in proceeds,~~ which was funded to the Company on April 21, 2020. The PPP Loan was scheduled to mature on April 21, 2022, unless forgiven subject to terms and conditions established by the SBA. The Company initially recorded the PPP Loan as a debt obligation and accrued interest over its term.

On July 27, 2021, the Company received formal notification in the form of a letter dated July 19, 2021 from BOK that the SBA approved the Company’s PPP Loan forgiveness application for the PPP Loan in the amount of $3.3 million (including accrued interest). For the three and nine months ended September 30, 2021, the Company recorded a gain on extinguishment of the PPP Loan in the amount of $3.3 million in the Condensed Consolidated Statements of Operations, which is included as a component of "Other income (expense)."

The CARES Act also provided for the deferral of payroll tax payments for all payroll taxes incurred through December 31, 2020. The Company elected to defer payments of payroll taxes for the periods allowed under the CARES Act and will repay 50% by December 31, 2021 and 50% by December 31, 2022. As of September 30, 2021, the Company has ~~deferred $0.4 million~~received consideration from the customer and, if deliverable within one year or less, is included in "Other current liabilities" in the Consolidated Balance Sheets and, if deliverable outside of ~~payroll tax payments under~~one year, is included in "Other long-term liabilities" in the ~~CARES Act.~~

~~Note 6 - Equity Method Investments~~

~~Tinuum Group, LLC~~

As of September 30, 2021 and December 31, 2020, the Company's ownership interest in Tinuum Group was 42.5%. Tinuum Group supplies technology equipment and technical services at select coal-fired generators, but its primary purpose is to put into operation facilities that produce and sell RC that lower emissions and also qualify for Section 45 tax credits. The Company concluded that Tinuum Group was a VIE, but the Company does not have the power to direct the activities that most significantly impact Tinuum Group's economic performance, as the voting partners of Tinuum Group have identical voting rights, equity control interests and board control interests, and therefore power is shared. Accordingly, the Company has accounted for its investment in Tinuum Group under the equity method of accounting since inception.Consolidated Balance Sheets.

The following table ~~summarizes~~shows the ~~results of operations of Tinuum Group:~~

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
Gross (loss) profit $ (3,226) $ 101 $ 8,269 $ 11,979
Operating, selling, general and administrative expenses 12,077 13,781 38,308 38,476
Loss from operations (15,303) (13,680) (30,039) (26,497)
Other income (expenses), net 6,027 5,739 10,030 11,526
Loss attributable to noncontrolling interest 34,551 25,023 99,167 63,117
Net income available to members $ 25,275 $ 17,082 $ 79,158 $ 48,146
ADES equity earnings from Tinuum Group $ 19,975 $ 7,260 $ 55,462 $ 20,462

For the three and nine months ended September 30, 2021, the Company recognized earnings from Tinuum Group's net income available to members that were different from its pro-rata share of Tinuum Group's net income available to members, as cash distributions for the three and nine months ended September 30, 2021 exceeded the carrying valuecomponents of the Tinuum Group equity investment. For 2021, the Company expects to recognize such excess contributions as equity method earnings in the period the distributions occur, limited to the carrying value of the Tinuum Group equity investment. For the three and nine months ended September 30, 2020, the Company recognized its pro-rata share of Tinuum Group's net income available to its members for the respective period.Company's Receivables, net:


	As of
(in thousands)	September 30, 2022		December 31, 2021


Trade receivables, net	$	13,824	$	10,476
Other receivables	79		—
Norit Receivable - current	—		2,146
Receivables, net	$	13,903	$	12,622

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~The following tables present~~For the ~~Company's investment balance, equity earnings~~three and ~~cash distributions~~nine months ended September 30, 2022 and 2021, all material performance obligations related to revenues recognized were satisfied at a point in ~~excess~~time. For the three and nine months ended September 30, 2022, approximately 7% and 9%, respectively, of Consumables revenues were generated in Canada, and all other revenues were generated in the ~~investment balance, if any, for~~U.S. For the three and nine months ended September 30, 2021, approximately 8% and ~~2020 (~~12%, respectively, of Consumables revenues were generated in ~~thousands~~Canada, and all other revenues were generated in the U.S.

Note 6 - Inventories, net

The following table summarizes the Company's inventories recorded at the lower of average cost or net realizable value, as of September 30, 2022 and December 31, 2021:


	As of
(in thousands)	September 30, 2022		December 31, 2021
Product inventory, net	$	6,723	$	4,901
Raw material inventory	8,538		2,949

Total inventories, net	$	15,261	$	7,850

Description Date(s) Investment balance ADES equity earnings Cash distributions Memorandum Account: Cash distributions and equity earnings in (excess) of investment balance
Beginning balance 12/31/2020 $ 3,387 $ — $ — $ —
ADES proportionate share of income from Tinuum Group First Quarter 10,755 10,755 — —
Cash distributions from Tinuum Group First Quarter (19,749) — 19,749 —
Adjustment for current year cash distributions in excess of investment balance First Quarter 5,607 5,607 — (5,607)
Total investment balance, equity earnings and cash distributions 3/31/2021 — $ 16,362 $ 19,749 (5,607)
ADES proportionate share of income from Tinuum Group Second Quarter 12,146 $ 12,146 $ — —
Recovery of prior cash distributions in excess of investment balance (prior to cash distributions) Second Quarter (5,607) (5,607) — 5,607
Cash distributions from Tinuum Group Second Quarter (19,125) — 19,125 —
Adjustment for current year cash distributions in excess of investment balance Second Quarter 12,586 12,586 — (12,586)
Total investment balance, equity earnings and cash distributions 6/30/2021 $ — $ 19,125 $ 19,125 $ (12,586)
ADES proportionate share of income from Tinuum Group Third Quarter $ 10,742 $ 10,742 $ — $ —
Recovery of prior cash distributions in excess of investment balance (prior to cash distributions) Third Quarter (12,586) (12,586) — 12,586
Cash distributions from Tinuum Group Third Quarter (19,975) — 19,975 —
Adjustment for current year cash distributions in excess of investment balance Third Quarter 21,819 21,819 0 (21,819)
Total investment balance, equity earnings and cash distributions 9/30/2021 $ — $ 19,975 $ 19,975 $ (21,819)

Note 7 - Leases

The Company's operating and finance lease right-of-use ("ROU") assets and liabilities as of September 30, 2022 and December 31, 2021 consisted of the following items (in thousands):


	As of
Leases	September 30, 2022		December 31, 2021
Operating Leases






Operating lease right-of-use assets, net of accumulated amortization (1)	$	7,610	$	6,000

Operating lease obligations, current	$	2,654	$	2,157
Long-term operating lease obligations	5,127		4,178
Total operating lease obligation	$	7,781	$	6,335

Finance Leases



Finance lease right-of-use assets, net of accumulated amortization (2)	$	2,806	$	1,743

Finance lease obligations, current	$	1,182	$	1,011
Long-term finance lease obligations	3,731		3,152
Total finance lease obligations	$	4,913	$	4,163

(1) Operating lease ROU assets are reported net of accumulated amortization of $3.6 million and $1.9 million as of September 30, 2022 and December 31, 2021, respectively.

(2) Finance lease ROU assets are reported net of accumulated amortization of $1.7 million and $1.1 million as of September 30, 2022 and December 31, 2021, respectively.

Operating leases

ROU assets under operating leases and operating lease liabilities are included in the "Other long-term assets" and "Other current liabilities" and "Other long-term liabilities" line items, respectively, in the Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Description Date(s) Investment balance ADES equity earnings Cash distributions
Beginning balance 12/31/2019 $ 32,280 $ — $ —
ADES proportionate share of income from Tinuum Group First Quarter 6,438 6,438 —
Cash distributions from Tinuum Group First Quarter (13,764) — 13,764
Total investment balance, equity earnings and cash distributions 3/31/2020 24,954 $ 6,438 $ 13,764
ADES proportionate share of income from Tinuum Group Second Quarter $ 6,764 $ 6,764 $ —
Cash distributions from Tinuum Group Second Quarter (13,600) — 13,600
Total investment balance, equity earnings and cash distributions 6/30/2020 18,118 $ 6,764 $ 13,600
ADES proportionate share of income from Tinuum Group Third Quarter $ 7,260 $ 7,260 $ —
Cash distributions from Tinuum Group Third Quarter (7,862) — 7,862
Total investment balance, equity earnings and cash distributions 9/30/2020 $ 17,516 $ 7,260 $ 7,862

~~Tinuum Services, LLC~~

~~The Company has a 50% voting~~Lease expense for operating leases for the three and ~~economic interest in Tinuum Services as of~~nine months ended September 30, ~~2021 and December 31, 2020. The Company determined that Tinuum Services~~2022 was not a VIE and further evaluated it for consolidation under the voting interest model. Because the Company does not own greater than 50% of the outstanding voting shares, either directly or indirectly, it has accounted for its investment in Tinuum Services under the equity method of accounting since inception. As of September 30, 2021 and December 31, 2020, the Company’s investment in Tinuum Services was $2.8$1.2 million and ~~$4.2~~$3.2 million, ~~respectively.~~

~~The following table summarizes~~respectively, of which $1.1 million and $2.9 million, respectively, is included in the ~~results~~"Consumables - cost of ~~operations~~revenue, exclusive of ~~Tinuum Services:~~

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
Gross loss $ (20,389) $ (22,764) $ (61,552) $ (65,441)
Operating, selling, general and administrative expenses 42,346 42,435 144,068 131,703
Loss from operations (62,735) (65,199) (205,620) (197,144)
Other income (expenses), net 3,204 (363) 2,810 (978)
Loss attributable to noncontrolling interest 63,977 70,075 215,779 209,118
Net income $ 4,446 $ 4,513 $ 12,969 $ 10,996
ADES equity earnings from Tinuum Services $ 2,223 $ 2,257 $ 6,485 $ 5,498

~~Included~~depreciation and amortization" line item, and $0.1 million and $0.3 million, respectively, is included in the "General and administrative" line item in the Condensed Consolidated Statements of Operations ~~of Tinuum Services~~for those periods. Lease expense for operating leases for the three and nine months ended September 30, 2021 was $1.1 million and ~~2020 were losses attributable to noncontrolling interests~~$3.1 million, respectively of ~~Tinuum Services' VIE entities,~~ which ~~were eliminated~~$1.0 million and $2.7 million, respectively, is included in the ~~calculations~~"Consumables - cost of ~~Tinuum Services' net income attributable~~revenue, exclusive of depreciation and amortization" line item, and $0.1 million and $0.4 million, respectively, is included in "General and administrative" line item in the Condensed Consolidated Statements of Operations for those periods.

Finance leases

ROU assets under finance leases are included in the "Property, plant and equipment" line item in the Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021. Interest expense related to finance lease obligations and amortization of ROU assets under finance leases are included in the ~~Company's interest.~~"Interest expense" and "Depreciation, amortization, depletion and accretion" line items, respectively, in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021.

Lease financial information as of and for the three and nine months ended September 30, 2022 and 2021 is provided in the following table:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2022		2021		2022			2021
Finance lease cost:
Amortization of right-of-use assets	$	236	$	152	$	607		$	500
Interest on lease liabilities	76		74		240			223

Operating lease cost	805		647		2,389			1,732
Short-term lease cost	373		493		832			1,293
Variable lease cost (1)	5		9		12			30

Total lease cost	$	1,495	$	1,375	$	4,080		$	3,778

Other Information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for finance leases					$	240		$	223
Operating cash flows for operating leases					$	2,118		$	2,514
Financing cash flows for finance leases					$	913		$	1,085
Right-of-use assets obtained in exchange for new finance lease liabilities					$	1,641		$	—
Right-of-use assets obtained in exchange for new operating lease liabilities					$	3,563		$	6,392
Weighted-average remaining lease term - finance leases					2.9 years			3.1 years
Weighted-average remaining lease term - operating leases					4.2 years			3.1 years
Weighted-average discount rate - finance leases					5.9		%	6.4		%
Weighted-average discount rate - operating leases					6.1		%	6.6		%

(1) Primarily includes common area maintenance, property taxes and insurance payable to lessors.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table details the carrying value of the Company's respective equity method investments included in the Equity method investments line item on the Condensed Consolidated Balance Sheets and indicates the Company's maximum exposure to loss:

As of
(in thousands) September 30,
2021 December 31,
2020
Equity method investment in Tinuum Group $ — $ 3,387
Equity method investment in Tinuum Services 2,824 4,242
Equity method investment in other 60 63
Total equity method investments $ 2,884 $ 7,692

The following table details the components of the Company's respective equity method investments included in the Earnings from equity method investments line item on the Condensed Consolidated Statements of Operations:

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
Earnings from Tinuum Group $ 19,975 $ 7,260 $ 55,462 $ 20,462
Earnings from Tinuum Services 2,223 2,257 6,485 5,498
(Loss) earnings from other (3) 1 (3) (1)
Earnings from equity method investments $ 22,195 $ 9,518 $ 61,944 $ 25,959

The following table details the components of the cash distributions from the Company's respective equity method investments included as a component of cash flows from operating activities and investing activities in the Condensed Consolidated Statements of Cash Flows. Distributions from equity method investees are reported in the Condensed Consolidated Statements of Cash Flows as "Distributions from equity method investees, return on investment" within Operating cash flows until such time as the carrying value in an equity method investee company is reduced to zero. Thereafter, such distributions are reported as "distributions in excess of cumulative earnings" as a component of cash flows from investing activities.

Nine Months Ended September 30,
(in thousands) 2021 2020
Distributions from equity method investees, return on investment
Tinuum Group $ 14,142 $ 35,226
Tinuum Services 7,902 7,002
$ 22,044 $ 42,228
Distributions from equity method investees in excess of investment basis
Tinuum Group $ 44,707 $ —
$ 44,707 $ —

Note 78 - ~~Inventories, net~~Commitments and Contingencies

~~The following table summarizes~~Retention Agreements

On May 4, 2022, the Compensation Committee of the Board of Directors and the Board of Directors (the "Board") approved the amendment to retention agreements (the "Retention Agreements" and each a "Retention Agreement"), which had been executed in May 2021, between the Company and its executive officers and certain other key employees in order to maintain the Company's ~~inventories recorded~~business operations while it pursues and executes on its strategic initiatives (the "Amended Retention Agreements"). Under the Amended Retention Agreements, employees will receive (i) 40% of the original amount agreed to in the Retention Agreements ("Retention Pay") in August 2022; (ii) 60% of the Retention Pay on the earliest of (1) the date the employee’s employment is terminated without Cause or for Good Reason (as those terms are defined in the Retention Agreement or the employee’s employment agreement, as applicable), (2) 90 days after a Transaction Date or a Change in Control (as those terms are defined in the Retention Agreement or the employee’s employment agreement, as applicable), or (3) January 18, 2023; and (iii) an additional lump sum payment, ranging from 10% to 40% of the Retention Pay, will also be paid at the ~~lower~~earliest of ~~average cost~~(1) the date the employee’s employment is terminated without Cause or ~~net realizable value~~for Good Reason (as those terms are defined in the Retention Agreement or the employee’s employment agreement, as applicable), (2) 90 days after a Transaction Date or a Change in Control (as those terms are defined in the Retention Agreement or the employee’s employment agreement, as applicable), or (3) in January 2023.

In order to receive the Amended Retention Agreements payments, employees must remain employed at the Company through the dates above. In August 2022, the Company paid out $1.0 million pursuant to the payment terms of the Amended Retention Agreements. As of September 30, ~~2021~~2022, the total cash payable pursuant to the Amended Retention Agreements is $1.1 million and is included in the "Other current liabilities" line item in the Condensed Consolidated Balance Sheet.

Surety Bonds and Restricted Cash

As the owner of the Marshall Mine, the Company is required to post a surety bond with a regulatory commission. As of September 30, 2022 and December 31, ~~2020:~~

As of
(in thousands) September 30, 2021 December 31, 2020
Product inventory, net $ 3,481 $ 8,361
Raw material inventory 2,088 1,521
$ 5,569 $ 9,882

~~Advanced Emissions Solutions, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~Note 8 - Debt Obligations~~

As of
(in thousands) September 30, 2021 December 31, 2020
Finance lease obligations $ 4,441 $ 5,526
PPP Loan — 3,305
Senior Term Loan due December 2021, related party — 16,000
Less: net unamortized debt issuance costs — (465)
Less: net unamortized debt discount — (480)
Senior Term Loan due December 2021, net — 15,055
4,441 23,886
Less: Current maturities (1,033) (18,441)
Total long-term debt $ 3,408 $ 5,445

~~Senior Term Loan~~

~~On December 7, 2018,~~2021, the Company had posted a $16.6 million surety bond (the "MM Surety Bond") which will remain in place until the Marshall Mine is fully reclaimed, and ~~ADA-ES, Inc. ("ADA"), a wholly-owned subsidiary, and certain other subsidiaries~~may be further reduced in amount from time to time as the Company progresses with its reclamation activities.

As the owner of the Five Forks Mine, the Company ~~as guarantors, The Bank~~is required to post a surety bond with a regulatory commission. As of ~~New York Mellon as administrative agent,~~September 30, 2022 and ~~Apollo Credit Strategies Master Fund Ltd and Apollo A-N Credit Fund (Delaware) L.P. (collectively "Apollo")~~December 31, 2021, ~~affiliates of~~the Company had posted a ~~beneficial owner of greater than 5 percent of the Company's common stock and a related party, entered into the Term Loan and Security Agreement (the "Senior Term Loan") in the amount of $70.0~~ $7.5 million ~~less original issue discount of $2.1 million. Proceeds from the Senior Term Loan were used to fund the acquisition of Carbon Solutions. The Company also paid debt issuance costs of $2.0 million~~ surety bond related to the Senior Term Loan. The Senior Term Loan bore interest at a rate equal to 3-month LIBOR (subject to a 1.5% floor) + 4.75% per annum, which was adjusted quarterly to the current 3-month LIBOR rate, and interest was payable quarterly in arrears.

On June 1, 2021 and prior to the Senior Term Loan's maturity date, the Company paid-off in its entirety the Senior Term Loan and all remaining accrued interest through this date. The Company did not incur any prepayment feesperformance requirements associated with the ~~early pay-off.~~

~~Line of Credit~~

In September 2013, ADA, as borrower, and the Company, as guarantor, entered into a line credit (the "Line of Credit") with a bank (the "Lender") for an aggregate borrowing amount of $10.0 million, which was secured by certain amounts due to the Company from certain Tinuum Group RC leases. The Line of Credit has been amended 16 times from the period from December 2, 2013 through September 30, 2021 and included a reduction in the borrowing amount to $5.0 million in September 2018.

On March 23, 2021, ADA, the Company and the Lender entered into an amendment to the Line of Credit (the "Fifteenth Amendment"), which extended the maturity date of the Line of Credit to December 31, 2021 and increased the minimum cash requirement from $5.0 million to $6.0 million.

On July 29, 2021, the Company and the Lender entered into the Sixteenth Amendment (the "Sixteenth Amendment") to the Line of Credit. The Sixteenth Amendment amends certain terms and conditions related to collateral securing the Line of Credit.Five Forks Mine.

As of September 30, ~~2021~~2022 and December 31, ~~2020, there were no outstanding borrowings under the Line of Credit.~~

~~Note 9 - Leases~~

~~As of September 30,~~ 2021, ~~and December 31, 2020,~~ the Company ~~had obligations under finance leases~~posted cash collateral of ~~$4.4~~$10.0 million for both the Marshall Mine and ~~$5.5 million, respectively, and obligations under operating leases of $6.9 million and $3.0 million, respectively. As of September 30, 2021 and December 31, 2020,~~Five Forks Mine as required by the Company had right of use ("ROU") assets, net of accumulated amortization, under finance leases of $1.9 million and $2.4 million, respectively, and ROU assets, net of accumulated amortization, under operating leases of $6.4 million and $1.9 million, respectively.

~~Advanced Emissions Solutions, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~Finance leases~~

~~ROU assets under finance leases and finance lease liabilities are included in Property, plant and equipment and Current portion and Long-term portion of borrowings, respectively, in~~Company's surety bond provider, which is reported as long-term restricted cash on the Condensed Consolidated Balance ~~Sheets as~~Sheets.

Tinuum Group

The Company has certain limited obligations contingent upon future events in connection with the activities of ~~September 30, 2021~~Tinuum Group. The Company, NexGen Refined Coal, LLC ("NexGen") and ~~December 31, 2020. Interest expense~~two entities affiliated with NexGen have provided an affiliate of the Goldman Sachs Group, Inc. with limited guaranties (the "Tinuum Group Party Guaranties") related to ~~finance lease liabilities~~certain losses it may suffer as a result of inaccuracies or breach of representations and amortization of ROU assets under finance leases are included in Interest expense and Depreciation, amortization, depletion and accretion, respectively, in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and September 30, 2020.

~~Operating leases~~

~~ROU assets under operating leases and operating lease liabilities are included in~~ ~~Other long-term assets~~ ~~and~~ ~~Other current liabilities~~ ~~and~~ ~~Other long-term liabilities, respectively, in the Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020.~~

~~Lease expense for operating leases for the three and nine months ended September 30, 2021 was $1.1 million and $3.1 million, respectively, of which $1.0 million and $2.7 million, respectively,~~covenants committed by Tinuum Group. The Company also is included in Consumables - cost of revenue, exclusive of depreciation and amortization, and $0.1 million and $0.4 million, respectively, is included in General and administrative in the Condensed Consolidated Statement of Operations. Lease expense for operating leases for the three and nine months ended September 30, 2020 was $1.1 million and $3.5 million, respectively, of which $1.0 million and $2.9 million, respectively, is included in Consumables - cost of revenue, exclusive of depreciation and amortization, and $0.1 million and $0.6 million, respectively, is included in General and administrative in the Condensed Consolidated Statement of Operations.

~~Lease financial information as of and for the three and nine months ended September 30, 2021 and 2020 is provided in the following table:~~

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
Finance lease cost:
Amortization of right-of-use assets $ 152 $ 258 $ 500 $ 1,237
Interest on lease liabilities 74 88 223 275
Operating lease cost 852 412 1,764 1,941
Short-term lease cost 288 671 1,261 1,377
Variable lease cost (1) 9 10 30 147
Total lease cost $ 1,375 $ 1,439 $ 3,778 $ 4,977
Other Information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases $ 223 $ 275
Operating cash flows from operating leases $ 2,514 $ 1,678
Financing cash flows from finance leases $ 1,085 $ 1,026
Right-of-use assets obtained in exchange for new finance lease liabilities $ — $ 158
Right-of-use assets obtained in exchange for new operating lease liabilities $ 6,392 $ 59
Weighted-average remaining lease term - finance leases 3.1 years 3.7 years
Weighted-average remaining lease term - operating leases 3.1 years 2.0 years
Weighted-average discount rate - finance leases 6.4 % 6.1 %
Weighted-average discount rate - operating leases 6.6 % 8.5 %

~~(1) Primarily includes common area maintenance, property taxes and insurance payable to lessors.~~

~~Note 10 - Revenues~~

~~Trade receivables represent an unconditional right to consideration in exchange for goods or services transferred~~a party to a ~~customer.~~contribution agreement with NexGen under which any party called upon to pay on a Tinuum Group Party Guaranty is entitled to receive contributions from the other party equal to 50% of the amount paid. The Company invoices its customers in accordance with the terms of the contract. Credit terms are generally net 30 from the date of invoice. The timing between the satisfaction of performance obligations and when payment is due from the customer is

~~Advanced Emissions Solutions, Inc. and Subsidiaries~~

~~Notes~~has not recorded a liability or expense provision related to ~~Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~generally not significant. The Company records allowances for doubtful trade receivables when~~this contingent obligation as it believes that it is not probable that ~~the balances~~a loss will ~~not be collected.~~

~~Trade receivables, net~~

~~The following table shows the components of the Company's Trade receivables, net:~~

As of
(in thousands) September 30, 2021 December 31, 2020
Trade receivables $ 13,138 $ 12,241
Less: Allowance for doubtful accounts (5) (37)
Trade receivables, net $ 13,133 $ 12,204

~~Cabot Receivable~~

~~The following table shows the components of the Cabot Receivable:~~

As of
(in thousands) September 30, 2021 December 31, 2020
Receivables, net $ 2,146 $ 921
Other long-term assets, net 6,812 8,852
Total Cabot Receivable $ 8,958 $ 9,773

~~Disaggregation of Revenue and Earnings from Equity Method Investments~~

For the three and nine months ended September 30, 2021 and 2020, all performance obligations related to revenues recognized were satisfied at a point in time. The Company disaggregates its revenues by major components as well as between its 2 reportable segments, which are further discussed in Note 17occur with respect to the ~~Condensed Consolidated Financial Statements. The following tables disaggregate revenues by major component for the three and nine months ended September 30, 2021 and 2020 (in thousands):~~

Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021
Segment Segment
APT RC Total APT RC Total
Revenue component
Consumables $ 24,689 $ — $ 24,689 $ 57,696 $ — $ 57,696
License royalties, related party — 4,165 4,165 — 11,888 11,888
Revenues from customers 24,689 4,165 28,854 57,696 11,888 69,584
Earnings from equity method investments — 22,195 22,195 — 61,944 61,944
Total revenues from customers and earnings from equity method investments $ 24,689 $ 26,360 $ 51,049 $ 57,696 $ 73,832 $ 131,528

~~Advanced Emissions Solutions, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020
Segment Segment
APT RC Total APT RC Total
Revenue component
Consumables $ 15,844 $ — $ 15,844 $ 33,231 $ — $ 33,231
License royalties, related party — 3,627 3,627 — 9,986 9,986
Revenues from customers 15,844 3,627 19,471 33,231 9,986 43,217
Earnings from equity method investments — 9,518 9,518 — 25,959 25,959
Total revenues from customers and earnings from equity method investments $ 15,844 $ 13,145 $ 28,989 $ 33,231 $ 35,945 $ 69,176

~~Note 11 - Commitments and Contingencies~~Tinuum Group Party Guaranties.

Legal Proceedings

The Company is from time to time subject to various pending or threatened legal actions and proceedings, including those that arise in the ordinary course of its business. Such matters are subject to many uncertainties and outcomes, the financial impacts of which are not predictable with assurance and that may not be known for extended periods of time. The Company records a liability in its consolidated financial statements for costs related to claims, settlements and judgments where management has assessed that a loss is probable and an amount can be reasonably estimated. There were no significant legal proceedings as of September 30, ~~2021.~~

~~Restricted Cash~~

As of September 30, 2021 and December 31, 2020, the Company had short-term restricted cash of $6.0 million and $5.0 million, respectively, as required under a minimum cash balance requirement of a Line of Credit covenant, and long-term restricted cash of $10.0 million and $5.0 million, respectively, as required under the Surety Agreement.

~~Other Commitments and Contingencies~~

The Company has certain limited obligations contingent upon future events in connection with the activities of Tinuum Group. The Company, NexGen Refined Coal, LLC ("NexGen") and 2 entities affiliated with NexGen have provided an affiliate of the Goldman Sachs Group, Inc. with limited guaranties (the "Tinuum Group Party Guaranties") related to certain losses it may suffer as a result of inaccuracies or breach of representations and covenants. The Company also is a party to a contribution agreement with NexGen under which any party called upon to pay on a Tinuum Group Party Guaranty is entitled to receive contributions from the other party equal to 50% of the amount paid. The Company has not recorded a liability or expense provision related to this contingent obligation as it believes that it is not probable that a loss will occur with respect to the Tinuum Group Party Guaranties.

~~Retention Agreements~~

The Company entered into agreements with its executive officers and certain other key employees of the organization ("Retention Agreements"). The Retention Agreements are for the benefit of retaining those officers and key employees in order to maintain the Company’s current business operations while it pursues and executes on its strategic initiatives. The Retention Agreements with the executive officers were approved by the Board of Directors on May 5, 2021. The Company is recognizing expense over the expected service period, which is based on certain conditions outlined in the Retention Agreements. As of September 30, 2021, the Company had accrued $0.8 million, which is included in the Accrued payroll and related liabilities line item on the Condensed Consolidated Balance Sheet.2022.

1713

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 9 - Supplemental Financial Information

Supplemental Balance Sheet Information

The following table summarizes the components of Other long-term assets, net as presented in the Condensed Consolidated Balance Sheets:


	As of
(in thousands)	September 30, 2022		December 31, 2021








Other long-term assets, net:
Right of use assets, operating leases, net	$	7,610	$	6,000
Upfront Customer Consideration	6,602		6,982
Mine development costs, net	5,369		5,330
Spare parts, net	5,500		4,598
Mine reclamation asset, net	1,666		1,742
Intangible assets, net	947		1,237
Other	1,835		1,745
Equity method investments	—		2,391
Norit Receivable	—		6,846
Total other long-term assets, net	$	29,529	$	36,871

Spare parts include critical spares required to support plant operations. Parts and supply costs are determined using the lower of cost or estimated replacement cost. Parts are recorded as maintenance expenses in the period in which they are consumed or are capitalized if applicable.

Mine development costs include acquisition costs, the cost of other development work and mitigation costs related to the Five Forks Mine and are depleted over the estimated life of the related mine reserves. The Company performs an evaluation of the recoverability of the carrying value of mine development costs to determine if facts and circumstances indicate that their carrying value may be impaired and if any adjustment is warranted. There were no indicators of impairment as of September 30, 2022. Mine reclamation asset, net represents an asset retirement obligation ("ARO") asset related to the Five Forks Mine and is depreciated over its estimated life.

As of September 30, 2022 and December 31, 2021, Other includes the Highview Investment in the amount of $0.6 million and $0.6 million, respectively, that is carried at cost, less impairment, plus or minus observable changes in price for identical or similar investments of the same issuer. Fair value measurements, if any, represent Level 2 measurements. The Highview Investment is evaluated for indicators of impairment such as an event or change in circumstances that may have a significant adverse effect on the fair value of the investment. There were no changes to the carrying value of the Highview Investment for the three and nine months ended September 30, 2022 as there were no indicators of impairment or observable price changes for identical or similar investments.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table details the components of Other current liabilities and Other long-term liabilities as presented in the Condensed Consolidated Balance Sheets:


	As of
(in thousands)	September 30, 2022		December 31, 2021
Other current liabilities:
Current portion of operating lease obligations	$	2,654	$	2,157
Income and other taxes payable	1,286		807







Other	1,421		2,160
Total other current liabilities	$	5,361	$	5,124
Other long-term liabilities:
Mine reclamation liabilities	$	7,979	$	8,184
Operating lease obligations, long-term	5,127		4,178



Other	800		—
Total other long-term liabilities	$	13,906	$	12,362

The Mine reclamation liability related to the Five Forks Mine is included in Other long-term liabilities. The Mine reclamation liability related to Marshall Mine is included in Other current liabilities and Other long-term liabilities. The Mine reclamation liabilities represent AROs and changes for the three and nine months ended September 30, 2022 and year ended December 31, 2021 were as follows:


	As of
(in thousands)	September 30, 2022		December 31, 2021
Asset retirement obligations, beginning of period	$	9,959	$	21,447

Accretion	460		1,102
Liabilities settled	(2,056)		(10,010)
Changes due to scope and timing of reclamation (1)	34		(2,580)

Asset retirement obligations, end of period	8,397		9,959
Less current portion	418		1,775
Asset retirement obligations, long-term	$	7,979	$	8,184

(1) Represent reductions to the Marshall Mine ARO primarily based on scope reductions related to future reclamation requirements for Marshall Mine. Amounts recorded as changes in estimates in the Statement of Operations for the corresponding periods.

Note 1210 - ~~Stockholders'~~ Equity Method Investments

~~Stock Repurchase Programs~~Tinuum Group, LLC

~~In November 2018,~~As of September 30, 2022 and December 31, 2021, the Company's ~~Board of Directors (the "Board") authorized~~ownership interest in Tinuum Group was 42.5%. Tinuum Group supplied technology equipment and technical services at select coal-fired generators, but its primary purpose was to put into operation facilities that produced and sold RC that lowered emissions and also qualified for Section 45 tax credits. The Company concluded that Tinuum Group was a VIE, but the Company did not have the power to ~~purchase up~~direct the activities that most significantly impacted Tinuum Group's economic performance, as the voting partners of Tinuum Group have identical voting rights, equity control interests and board control interests, and therefore power was shared. Accordingly, the Company accounted for its investment in Tinuum Group under the equity method of accounting since inception.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to ~~$20.0 million~~Condensed Consolidated Financial Statements

(Unaudited)

The following table summarizes the results of ~~its outstanding common stock under a stock repurchase program (the "Stock Repurchase Program"), which was to remain in effect until December 31, 2019 unless otherwise modified by~~operations of Tinuum Group:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2022		2021		2022		2021
Gross (loss) profit	$	—	$	(3,226)	$	964	$	8,269
Operating, selling, general and administrative expenses	457		12,077		4,705		38,308
Loss from operations	(457)		(15,303)		(3,741)		(30,039)
Other income (expenses), net	6		6,027		534		10,030

(Income) loss attributable to noncontrolling interest	—		34,551		(874)		99,167
Net (loss) income available to members	$	(451)	$	25,275	$	(4,081)	$	79,158
ADES equity earnings from Tinuum Group	$	—	$	19,975	$	3,137	$	55,462

For the Board. As of November 2019, $2.9 million remained outstanding related to the Stock Repurchase Program. In November 2019, the Board authorized an incremental $7.1 million to the Stock Repurchase Programnine months ended September 30, 2022 and ~~provided that it will remain in effect until all amounts are utilized or it is otherwise modified by the Board.~~

~~Under the Stock Repurchase Program, for~~ the three and nine months ended September 30, 2021, the Company recognized earnings from Tinuum Group's net (loss) income available to members that were different from its pro-rata share of Tinuum Group's net (loss) income available to members for those periods, as cash distributions for the nine months ended September 30, 2022 and three and nine months ended September 30, 2021 exceeded the carrying value of the Tinuum Group equity investment.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following tables present the Company's investment balance, equity earnings and cash distributions in excess of the investment balance, if any, for the three and nine months ended September 30, 2022 and 2021 (in thousands):


Description	Date(s)	Investment balance		ADES equity earnings		Cash distributions		Memorandum Account: Cash distributions and equity earnings in (excess) of investment balance
Beginning balance	12/31/2021	$	—	$	—	$	—	$	(21,779)

ADES proportionate share of net loss from Tinuum Group	First Quarter	(861)		(861)		—		—
Recovery of prior cash distributions in excess of investment balance (prior to cash distributions)	First Quarter	(21,779)		(21,779)		—		21,779
Cash distributions from Tinuum Group	First Quarter	(1,012)		—		1,012		—
Adjustment for current year cash distributions in excess of investment balance	First Quarter	23,652		23,652		—		(23,652)
Total investment balance, equity earnings and cash distributions	3/31/2022	$	—	$	1,012	$	1,012	$	(23,652)
ADES proportionate share of net loss from Tinuum Group	Second Quarter	(682)		$	(682)	$	—	—
Recovery of prior cash distributions in excess of investment balance (prior to cash distributions)	Second Quarter	(23,652)		(23,652)		—		23,652
Cash distributions from Tinuum Group	Second Quarter	(2,125)		—		2,125		—
Adjustment for current year cash distributions in excess of investment balance	Second Quarter	26,459		26,459		—		(26,459)
Total investment balance, equity earnings and cash distributions	6/30/2022	$	—	$	2,125	$	2,125	$	(26,459)
ADES proportionate share of net loss from Tinuum Group	Third Quarter	(192)		$	(192)	$	—	—
Recovery of prior cash distributions in excess of investment balance (prior to cash distributions)	Third Quarter	(26,459)		(26,459)		—		26,459

Adjustment for current year cash distributions in excess of investment balance	Third Quarter	26,651		26,651				(26,651)
Total investment balance, equity earnings and cash distributions	9/30/2022	$	—	$	—	$	—	$	(26,651)

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)


Description	Date(s)	Investment balance		ADES equity earnings		Cash distributions		Memorandum Account: Cash distributions and equity earnings in (excess) of investment balance
Beginning balance	12/31/2020	$	3,387	$	—	$	—	$	—

ADES proportionate share of net income from Tinuum Group	First Quarter	10,755		10,755		—		—

Cash distributions from Tinuum Group	First Quarter	(19,749)		—		19,749		—
Adjustment for current year cash distributions in excess of investment balance	First Quarter	5,607		5,607		—		(5,607)
Total investment balance, equity earnings and cash distributions	3/31/2021	$	—	$	16,362	$	19,749	$	(5,607)
ADES proportionate share of net income from Tinuum Group	Second Quarter	12,146		$	12,146	$	—	—
Recovery of prior cash distributions in excess of investment balance (prior to cash distributions)	Second Quarter	(5,607)		(5,607)		—		5,607
Cash distributions from Tinuum Group	Second Quarter	(19,125)		—		19,125		—
Adjustment for current year cash distributions in excess of investment balance	Second Quarter	12,586		12,586		—		(12,586)
Total investment balance, equity earnings and cash distributions	6/30/2021	$	—	$	19,125	$	19,125	$	(12,586)
ADES proportionate share of net income from Tinuum Group	Third Quarter	10,742		$	10,742	$	—	—
Recovery of prior cash distributions in excess of investment balance (prior to cash distributions)	Third Quarter	(12,586)		(12,586)		—		12,586
Cash distributions from Tinuum Group	Third Quarter	(19,975)		—		19,975		—
Adjustment for current year cash distributions in excess of investment balance	Third Quarter	21,819		21,819		—		(21,819)
Total investment balance, equity earnings and cash distributions	9/30/2021	$	—	$	19,975	$	19,975	$	(21,819)

Tinuum Services, LLC

As of September 30, 2022 and December 31, 2021, the Company has a 50% voting and economic interest in Tinuum Services. The Company determined that Tinuum Services was not a VIE and further evaluated it for consolidation under the voting interest model. Because the Company did not ~~repurchase any shares.~~ own greater than 50% of the outstanding voting shares, either directly or indirectly, it has accounted for its investment in Tinuum Services under the equity method of accounting since inception. As of September 30, 2022 and December 31, 2021, the Company’s investment in Tinuum Services was zero and $2.4 million, respectively.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table summarizes the results of operations of Tinuum Services:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2022		2021		2022		2021
Gross profit (loss)	$	16	$	(20,389)	$	1,062	$	(61,552)
Operating, selling, general and administrative expenses	68		42,346		2,785		144,068
Loss from operations	(52)		(62,735)		(1,723)		(205,620)
Other income (expenses), net	2		3,204		1,159		2,810
(Income) loss attributable to noncontrolling interest	—		63,977		323		215,779
Net (loss) income	$	(50)	$	4,446	$	(241)	$	12,969
ADES equity earnings from Tinuum Services	$	—	$	2,223	$	84	$	6,485

Included in the Condensed Consolidated Statements of Operations of Tinuum Services for the three and nine months ended September 30, 2022 and 2021 was income (loss) attributable to noncontrolling interests of Tinuum Services' VIE entities, which was eliminated in the calculation of Tinuum Services' net income (loss) attributable to the Company's interest.

For the three and nine months ended September 30, ~~2020,~~2022, the Company ~~purchased zero~~recognized earnings from Tinuum Services' net income (loss) available to members that were different from its pro-rata share of Tinuum Services' net income (loss) available to members for those periods, as cash distributions for the three and ~~20,613 shares, respectively,~~nine months ended September 30, 2022 exceeded the carrying value of ~~its common stock~~the Tinuum Services' equity investment.


Description	Date(s)	Investment balance		ADES equity earnings		Cash distributions		Memorandum Account: Cash distributions and equity earnings in (excess) of investment balance
Beginning balance	12/31/2021	$	2,391	$	—	$	—	$	—

ADES proportionate share of net loss from Tinuum Services	First Quarter	(180)		(180)		—		—

Cash distributions from Tinuum Services	First Quarter	(1,501)		—		1,501		—

Total investment balance, equity earnings and cash distributions	3/31/2022	$	710	$	(180)	$	1,501	$	—
ADES proportionate share of net income from Tinuum Services	Second Quarter	85		$	85	$	—	—

Cash distributions from Tinuum Services	Second Quarter	(974)		—		974		—
Adjustment for current year cash distributions in excess of investment balance	Second Quarter	179		179		—		(179)
Total investment balance, equity earnings and cash distributions	6/30/2022	$	—	$	264	$	974	$	(179)
ADES proportionate share of loss from Tinuum Services	Third Quarter	(25)		$	(25)	$	—	—
Recovery of prior cash distributions in excess of investment balance (prior to cash distributions)	Third Quarter	(179)		(179)		—		179

Adjustment for current year cash distributions in excess of investment balance	Third Quarter	204		204				(204)
Total investment balance, equity earnings and cash distributions	9/30/2022	$	—	$	—	$	—	$	(204)

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)


	As of
(in thousands)	September 30, 2022		December 31, 2021
Equity method investment in Tinuum Services	$	—	$	2,391




Total equity method investments	$	—	$	2,391

The following table details the components of the Company's respective equity method investments included in the "Earnings from equity method investments" line item on the Condensed Consolidated Statements of Operations:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2022		2021		2022		2021
Earnings from Tinuum Group	$	—	$	19,975	$	3,137	$	55,462
Earnings from Tinuum Services	—		2,223		84		6,485
(Loss) earnings from other	—		(3)		1		(3)


Earnings from equity method investments	$	—	$	22,195	$	3,222	$	61,944

The following table details the components of the cash distributions from the Company's respective equity method investments included as a component of ~~zero~~cash flows from operating activities and ~~$0.2 million, respectively, inclusive~~investing activities in the Condensed Consolidated Statements of ~~commissions and fees.~~ Cash Flows. Distributions from equity method investees are reported in the Condensed Consolidated Statements of Cash Flows as "Distributions from equity method investees, return on investment" as a component of cash flows from operations until such time as the carrying value in an equity method investee company is reduced to zero. Thereafter, such distributions are reported as "Distributions from equity method investees in excess of cumulative earnings" as a component of cash flows from investing activities.


	Nine Months Ended September 30,
(in thousands)	2022		2021
Distributions from equity method investees, return on investment
Tinuum Services	$	2,297	$	7,902
Tinuum Group	—		14,142



	$	2,297	$	22,044
Distributions from equity method investees in excess of investment basis
Tinuum Services	$	179	$	—
Tinuum Group	3,137		44,707



	$	3,316	$	44,707

Note 11 - Stockholders' Equity

Stock Repurchase Program

As of September 30, ~~2021,~~2022, the Company had $7.0 million remaining under a stock repurchase program, which will remain in effect until all amounts are utilized or is otherwise modified by the ~~Stock Repurchase Program.~~Board.

Tax Asset Protection Plan

U.S. federal income tax rules, and Section 382 of the Internal Revenue Code in particular, could substantially limit the use of net operating losses and ~~other~~ tax ~~assets~~credits if the Company experiences an "ownership change" (as defined in the Internal Revenue Code). In general, an ownership change occurs if there is a cumulative change in the ownership of the Company by "5 percent stockholders" that exceeds 50 percentage points over a rolling three-year period.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

On May 5, 2017, the Board approved the declaration of a dividend of rights to purchase Series B Junior Participating Preferred Stock for each outstanding share of common stock as part of a tax asset protection plan (the "TAPP") designed to protect the Company’s ability to utilize its net operating losses and tax credits. The TAPP is intended to act as a deterrent to any person acquiring beneficial ownership of 4.99% or more of the Company’s outstanding common stock.

On ~~April 9, 2021,~~March 15, 2022, the Board approved the ~~Fourth~~Fifth Amendment to the TAPP ~~("Fourth~~(the "Fifth Amendment") ~~that~~, which amends the TAPP, as previously amended by the First, Second, Third and ~~Third~~Fourth Amendments that were approved the Board on April 6, 2018, April 5, 2019, April 9, 2020 and April 9, ~~2020,~~2021, respectively. The ~~Fourth~~Fifth Amendment amends the definition of "Final Expiration Date" under the TAPP to extend the duration of the TAPP and makes associated changes in connection therewith. Pursuant to the Fifth Amendment, the Final Expiration Date shall be the close of business on the earlier of (i) December 31, 2023 or (ii) December 31, 2022 if stockholder approval of the Fifth Amendment has not been obtained prior to such date. At the Company's ~~2021~~2022 annual meeting of stockholders, the Company's stockholders approved the ~~Fourth~~Fifth Amendment, thus the Final Expiration Date will be the close of business on December 31, ~~2022.~~2023.

~~Note 13 - Stock-Based Compensation~~

The Company grants equity-based awards to employees, non-employee directors, and consultants that may include, but are not limited to, RSA's, restricted stock units ("RSU's"), performance stock units ("PSU's") and stock options. Stock-based compensation expense related to manufacturing employees and administrative employees is included within the Cost of revenue and Payroll and benefits line items, respectively, in the Condensed Consolidated Statements of Operations. Stock-based compensation expense related to non-employee directors and consultants is included within the General and administrative line item in the Condensed Consolidated Statements of Operations.

~~Total stock-based compensation expense for the three and nine months ended September 30, 2021 and 2020 was as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
RSA expense $ 435 $ 411 $ 1,353 $ 1,892
PSU expense 54 15 123 178
Total stock-based compensation expense $ 489 $ 426 $ 1,476 $ 2,070

~~Advanced Emissions Solutions, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~The amount of unrecognized compensation cost as of September 30, 2021, and the expected weighted-average period over which the cost will be recognized is as follows:~~

As of September 30, 2021
(in thousands) Unrecognized Compensation Cost Expected Weighted-
Average Period of
Recognition (in years)
RSA expense $ 2,558 2.01
PSU expense 438 1.99
Total unrecognized stock-based compensation expense $ 2,996 2.01

~~Restricted Stock~~

Restricted stock is typically granted with vesting terms of three years. The fair value of RSA's and RSU's is determined based on the closing price of the Company’s common stock on the authorization date of the grant multiplied by the number of shares subject to the stock award. Compensation expense for RSA's is generally recognized on a straight-line basis over the entire vesting period.

~~A summary of RSA activity under the Company's various stock compensation plans for the nine months ended September 30, 2021 is presented below:~~

Restricted Stock Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2021 373,860 $ 7.25
Granted 441,109 $ 5.53
Vested (193,624) $ 7.44
Forfeited (54,299) $ 5.80
Non-vested at September 30, 2021 567,046 $ 5.99

~~Performance Share Units~~

Compensation expense is recognized for PSU awards on a straight-line basis over the applicable service period, which is generally three years, based on the estimated fair value at the date of grant using a Monte Carlo simulation model. A summary of PSU activity for the nine months ended September 30, 2021 is presented below:

Units Weighted-Average
Grant Date
Fair Value Aggregate Intrinsic Value (in thousands) Weighted-Average
Remaining
Contractual
Term (in years)
PSU's outstanding, January 1, 2021 50,127 $ 6.17
Granted 62,448 7.09
Vested / Settled — —
Forfeited / Canceled — —
PSU's outstanding, September 30, 2021 112,575 $ 6.68 $ 719 1.99

~~Advanced Emissions Solutions, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Note 1412 - ~~Supplemental Financial Information~~

~~Supplemental Balance Sheet Information~~Stock-Based Compensation

The ~~following table summarizes~~Company grants equity-based awards to employees, non-employee directors and consultants that may include, but are not limited to, RSAs, PSUs, restricted stock units and stock options. Stock-based compensation expense related to manufacturing employees and administrative employees is included within the ~~components~~"Cost of ~~Prepaid expenses~~revenue" and ~~other assets~~"Payroll and ~~Other long-term assets, net as presented~~benefits" line items, respectively, in the Condensed Consolidated ~~Balance Sheets:~~

As of
(in thousands) September 30,
2021 December 31,
2020
Prepaid expenses and other assets:
Prepaid expenses $ 2,370 $ 1,690
Prepaid income taxes and income tax refunds 1,038 1,605
Other 1,206 1,302
$ 4,614 $ 4,597
Other long-term assets, net:
Cabot Receivable (1) $ 6,812 $ 8,852
Upfront Customer Consideration (1) 7,109 7,490
Mine development costs, net 5,291 4,338
Right of use assets, operating leases, net 6,399 1,930
Spare parts, net 4,316 3,727
Mine reclamation asset, net 1,644 1,712
Highview Investment 552 552
Other 1,278 1,388
$ 33,401 $ 29,989

~~(1) See further discussion~~Statements of ~~Upfront Customer Consideration in Note 3~~Operations. Stock-based compensation expense related to non-employee directors and ~~Cabot Receivable in Note 4~~consultants is included within the "General and ~~Note 10.~~

Spare parts include critical spares required to support plant operations. Parts and supply costs are determined using the lower of cost or estimated replacement cost. Parts are recorded as maintenance expensesadministrative" line item in the ~~period in which they are consumed.~~Condensed Consolidated Statements of Operations.

Mine development costs include acquisition costs, the cost of other development work and mitigation costs related to the Five Forks Mine and are depleted over the estimated life of the related mine reserves. The Company performs an evaluation of the recoverability of the carrying value of mine development costs to determine if facts and circumstances indicate that their carrying value may be impaired and if any adjustment is warranted. There were no indicators of impairment as of September 30, 2021. Mine reclamation asset, net represents an asset retirement obligation ("ARO") asset related to the Five Forks Mine and is depreciated over the estimated life of the Five Forks Mine.

The Company holds a long-term investment (the "Highview Investment") in Highview Enterprises Limited ("Highview"), a UK-based developmental stage company specializing in power storage. The Company accounts for the Highview Investment as an investment recorded at cost, less impairment, plus or minus observable changes in price for identical or similar investments of the same issuer.

The Highview Investment is evaluated for indicators of impairment such as an event or change in circumstances that may have a significant adverse effect on the fair value of the investment. There were no changes to the carrying value of the Highview InvestmentTotal stock-based compensation expense for the three and nine months ended September 30, 2022 and 2021 ~~as there were no indicators of impairment or observable price changes for identical or similar investments.~~

~~Advanced Emissions Solutions, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~The following table details the components of Other current liabilities and Other long-term liabilities as presented in the Condensed Consolidated Balance Sheets:~~

As of
(in thousands) September 30,
2021 December 31,
2020
Other current liabilities:
Current portion of operating lease obligations $ 2,289 $ 1,883
Current portion of mine reclamation liability 4,856 9,370
Income and other taxes payable 2,409 1,305
Other current liabilities 312 438
$ 9,866 $ 12,996
Other long-term liabilities:
Mine reclamation liabilities $ 8,028 $ 12,077
Operating lease obligations, long-term 4,582 1,109
Other long-term liabilities 208 287
$ 12,818 $ 13,473

~~The Mine reclamation liability related to the Five Forks Mine is included in Other long-term liabilities. The Mine reclamation liability related to Marshall Mine, which~~ was ~~assumed in the Marshall Mine Acquisition, is included in Other current liabilities and Other long-term liabilities. The Mine reclamation liabilities represent AROs. Changes in the AROs were~~ as follows:

As of
(in thousands) September 30, 2021 December 31, 2020
Asset retirement obligation, beginning of period $ 21,447 $ 2,721
Asset retirement obligation assumed — 21,328
Accretion 901 543
Liabilities settled (7,522) (3,565)
Changes due to scope and timing of reclamation (1,942) 420
Asset retirement obligations, end of period 12,884 21,447
Less current portion 4,856 9,370
Asset retirement obligation, long-term $ 8,028 $ 12,077


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2022		2021		2022		2021
RSA expense	$	420	$	435	$	1,240	$	1,353

PSU expense	87		54		215		123

Total stock-based compensation expense	$	507	$	489	$	1,455	$	1,476

~~As discussed in Note 4,~~The amount of unrecognized compensation cost as of ~~June~~September 30, ~~2021,~~2022, and the ~~Company reduced~~expected weighted-average period over which the ~~Mine reclamation liability related to Marshall Mine by $1.9 million~~cost will be recognized is as follows:


	As of September 30, 2022
(in thousands, expect years)	Unrecognized Compensation Cost		Expected Weighted- Average Period of Recognition (in years)
RSA expense	$	2,767	1.86

PSU expense	648		1.57

Total unrecognized stock-based compensation expense	$	3,415	1.81

Restricted Stock

Restricted stock is typically granted with vesting terms of three years. The fair value of RSAs is determined based on ~~scope reductions for future reclamation requirements. The Company recorded a corresponding gain on change in estimate, which is included in~~ the ~~Condensed Consolidated Statements of Operations for the nine months ended September 30, 2021.~~

~~Supplemental Condensed Consolidated Statements of Operations Information~~

~~The following table details the components of Interest expense in the Condensed Consolidated Statements of Operations:~~

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
Interest on Senior Term Loan $ — $ 339 $ 207 $ 1,453
Debt discount and debt issuance costs — 355 946 1,064
453A interest 3 94 10 254
Other 83 93 253 282
$ 86 $ 881 $ 1,416 $ 3,053

~~Note 15 - Impairment~~

~~As of June 30, 2020 and as part of its periodic review~~closing price of the ~~carrying value~~Company’s common stock on the authorization date of ~~long-lived assets,~~ the ~~Company assessed its long-lived assets~~grant multiplied by the number of shares subject to the stock award. Compensation expense for ~~potential impairment. In assessing impairment of its APT segment's and certain other long-lived asset groups,~~RSAs is generally recognized on a straight-line basis over the entire vesting period.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

A summary of RSA activity under the Company considered factors such as the significant decline in both the APT segment's trailing twelve months revenues and current and future years’ forecasted revenues. These factors were largely due to the significant drop in coal-fired power dispatch that began in 2019 amid historically low prices of alternative power generation sources such as natural gas, leading to an increase in natural gas usage as well as other competing energy sources.

As of June 30, 2020, the Company completed an undiscounted cash flow analysis of its APT segment's long-lived assets (the "Asset Group"), which are comprised of its manufacturing plant (the "Red River Plant") and related assets and its lignite mine assets, and estimated the undiscounted cash flows from the Asset Group at $54.7 million, which was less than the carrying value of the Asset Group of $58.3 million. Accordingly, the Company completed an assessment of the Asset Group’s fair value and estimated the fair value of the Asset Group at $32.2 million. This resulted in an impairment and write-down of the Asset Group (the "Impairment Charge") of $26.1 million as of June 30, 2020, which is reflected as "Impairment of long-lived assets" in the Condensed Consolidated Statements of OperationsCompany's various stock compensation plans for the nine months ended September 30, ~~2020.~~2022 is presented below:

~~The following table summarizes~~


	Restricted Stock	Weighted-Average Grant Date Fair Value

Non-vested at January 1, 2022	531,623	$	5.94
Granted	400,301	$	6.12
Vested	(249,620)	$	6.44
Forfeited	(69,737)	$	5.94
Non-vested at September 30, 2022	612,567	$	5.84

Performance Share Units

Compensation expense is recognized for PSUs on a straight-line basis over the ~~allocation to the Asset Group of the Impairment Charge of $26.1 million recorded as of June 30, 2020:~~


~~(in thousands)~~
~~Property, plant and equipment, net~~	$	~~18,986~~
~~Intangible assets, net~~	~~1,445~~
~~Other long-term assets, net~~	~~5,672~~

~~Total impairment~~	$	~~26,103~~

~~The Company engaged an independent third party to perform the valuation of the Asset Group in order to determine~~applicable service period, which is generally three years, based on the estimated fair value of the Asset Group. This valuation was based on the use of several established valuation models including an expected future discounted cash flow model based on cash flows expected to be generated by market participants discounted at the ~~risk-free rate~~date of ~~interest. Because~~grant using a Monte Carlo simulation model. A summary of PSU activity for the continued future uncertainty surrounding the level of coal-fired dispatch, the impact of volatile natural gas prices and other estimates impacting the expected future cash flow, it is reasonably possible that the expected future cash flows may change in the near term and may result in the Company recording additional impairment of the Asset Group.

~~As of~~nine months ended September 30, ~~2021, the Company determined that there was no additional impairment of the Asset Group.~~2022 is presented below:


	Units	Weighted-Average Grant Date Fair Value		Aggregate Intrinsic Value (in thousands)		Weighted-Average Remaining Contractual Term (in years)
PSU's outstanding, January 1, 2022	88,026	$	6.65
Granted	60,565	9.59
Vested / Settled	—	—
Forfeited / Canceled	—	—
PSU's outstanding, September 30, 2022	148,591	$	7.85	$	406	1.57

Note 1613 - Income Taxes

For the three and nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, the Company's income tax expense and effective tax rates ~~based on forecasted~~were:


	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except for rate)	2022			2021			2022			2021
Income tax (benefit) expense	$	—		$	4,581		$	—		$	14,013
Effective tax rate	—		%	16		%	—		%	14		%

The Company incurred pretax ~~income were:~~

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands, except for rate) 2021 2020 2021 2020
Income tax expense $ 4,581 $ 854 $ 14,013 $ 1,315
Effective tax rate 16 % 15 % 20 % (7) %

loss for the nine months ended September 30, 2022 and expects to incur pretax loss for the year ending December 31, 2022. As a result, the effective rate for the three and nine months ended September 30, 2022 was zero as the resultant tax benefit was offset by a valuation allowance recorded as of September 30, 2022. The effective rate for the three and nine months ended September 30, 2021 was lower than the federal statutory rate primarily from the impact of a decrease in the valuation allowance recorded against deferred tax assets as of September 30, 2021.

The Company assesses ~~the~~a valuation allowance recorded against deferred tax assets at each reporting date. The determination of whether a valuation allowance for deferred tax assets is appropriate requires the evaluation of positive and negative evidence that can be objectively verified. Consideration must be given to all sources of taxable income available to realize deferred tax assets, including, as applicable, the future reversal of existing temporary differences, future taxable income forecasts exclusive of the reversal of temporary differences and carryforwards, taxable income in carryback years and tax planning strategies. In estimating income taxes, the Company assesses the relative merits and risks of the appropriate income tax treatment of transactions taking into account statutory, judicial and regulatory guidance.

~~Note 17 - Business Segment Information~~

~~Advanced Emissions Solutions, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

resources and assess financial performance. As of September 30, 2021, the Company's CODM was the Company's CEO. The Company's operating and reportable segments are identified by products and services provided.

As of September 30, 2021, the Company has 2 reportable segments: (1) Refined Coal ("RC"); and (2) Advanced Purification Technologies ("APT"). Effective December 31, 2020, and as reported in the 2020 Form 10-K, the Company revised its segments to RC and APT, and amounts for the three and nine months ended September 30, 2020 have been recast to conform with the current year presentation. Both Tinuum Group and Tinuum Services are significantly winding down their operations due to the expected expiration of the Section 45 tax credit period as of December 31, 2021. As such, the Company's earnings and distributions from our RC segment will substantially cease as of December 31, 2021.

~~The business segment measurements provided to and evaluated by the CODM are computed in accordance with the principles listed below:~~

•~~The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies in the 2020 Form 10-K.~~

•~~Segment revenues include equity method earnings and losses from the Company's equity method investments.~~

•Segment operating income (loss) includes segment revenues and allocation of certain "Corporate general and administrative expenses," which include Payroll and benefits, General and administrative and Depreciation, amortization, depletion and accretion.

•~~RC segment operating income includes interest expense directly attributable to the RC segment.~~

As of September 30, 2021 and December 31, 2020, substantially all of the Company's material assets are located in the U.S. and substantially all significant customers are U.S. companies. The following table presents the Company's operating segment results for the three and nine months ended September 30, 2021 and 2020:

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
Revenues:
Refined Coal:
Earnings in equity method investments $ 22,195 $ 9,518 $ 61,944 $ 25,959
License royalties, related party 4,165 3,627 11,888 9,986
26,360 13,145 73,832 35,945
Advanced Purification Technologies:
Consumables 24,689 15,844 57,696 33,231
24,689 15,844 57,696 33,231
Total segment reporting revenues 51,049 28,989 131,528 69,176
Adjustments to reconcile to reported revenues:
Earnings in equity method investments (22,195) (9,518) (61,944) (25,959)
Total reported revenues $ 28,854 $ 19,471 $ 69,584 $ 43,217
Segment operating income (loss):
Refined Coal $ 26,341 $ 12,817 $ 73,517 $ 34,454
Advanced Purification Technologies (1) (2) 4,591 (3,280) 4,864 (40,649)
Total segment operating income (loss) $ 30,932 $ 9,537 $ 78,381 $ (6,195)

(1) Included in APT segment operating income (loss) for the three and nine months ended September 30, 2021 and 2020 is $2.0 million and $5.7 million, $1.6 million and $5.4 million, respectively, of depreciation, amortization, depletion and accretion expense on mine and Red River Plant long-lived assets and liabilities and $0.1 million, $0.4 million, zero and zero, respectively, of amortization of Upfront Customer Consideration.

~~(2) Included in APT segment operating income for the nine months ended September 30, 2021 is $1.9 million gain related to the change in the Marshall Mine ARO as of September 30, 2021.~~

~~Advanced Emissions Solutions, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~A reconciliation of reportable segment operating income to consolidated income (loss) before income tax expense is as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
Total reported segment operating income (loss) $ 30,932 $ 9,537 $ 78,381 $ (6,195)
Adjustments to reconcile to income (loss) before income (loss) tax expense attributable to the Company:
Corporate payroll and benefits (690) (587) (2,155) (2,444)
Corporate legal and professional fees (1,024) (1,176) (4,154) (3,850)
Corporate general and administrative (1,011) (1,116) (3,236) (4,273)
Corporate depreciation and amortization (132) (148) (408) (337)
Corporate interest income (expense), net 54 (680) (944) (2,446)
Other income, net 705 (1) 1,109 128
Income (loss) before income tax expense $ 28,834 $ 5,829 $ 68,593 $ (19,417)

Corporate general and administrative expenses include certain costs that benefit the business as a whole but are not directly related to one of the Company's segments. Such costs include, but are not limited to, accounting and human resources staff, information systems costs, legal fees, facility costs, audit fees and corporate governance expenses.

~~A reconciliation of reportable segment assets to consolidated assets is as follows:~~

As of
(in thousands) September 30,
2021 December 31,
2020
Assets:
Refined Coal (1) $ 7,182 $ 11,516
Advanced Purification Technologies (2) 83,862 80,877
Total segment assets 91,044 92,393
All Other and Corporate (3) 90,729 54,278
Consolidated $ 181,773 $ 146,671

~~(1) Includes $2.9 million and $7.7 million of investments in equity method investees as of September 30, 2021 and December 31, 2020,respectively.~~

~~(2) Includes $37.0 million and $34.6 million of long-lived assets, net.~~

~~(3) Includes the Company's deferred tax assets of $1.6 million and $10.6 million as of September 30, 2021 and December 31, 2020,respectively. Also includes Cash, cash equivalents and restricted cash of $82.1 million and $17.2 million as of September 30, 2021 and December 31, 2020.~~

~~Note 18 - Fair Value Measurements~~

~~Fair value of financial instruments~~

The carrying amounts of financial instruments, including cash, cash equivalents and restricted cash, accounts receivable, accounts payable and accrued expenses, approximate fair value due to the short maturity of these instruments. The carrying amounts of the Cabot Receivable and debt obligations approximate fair value based on credit terms and market interest rates currently available for similar instruments. Accordingly, these instruments are not presented in the table below. The following table provides the estimated fair values of the remaining financial instruments:

As of September 30, 2021 As of December 31, 2020
(in thousands) Carrying Value Fair Value Carrying Value Fair Value
Financial Instruments:
Highview Investment $ 552 $ 552 $ 552 $ 552
Highview Obligation $ 226 $ 226 $ 228 $ 228

~~Advanced Emissions Solutions, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~Concentration of credit risk~~

The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents. The Company holds cash and cash equivalents at three financial institutions as of September 30, 2021. If an institution was unable to perform its obligations, the Company would be at risk regarding the amount of cash and investments in excess of the Federal Deposit Insurance Corporation limits (currently $250 thousand) that would be returned to the Company.

~~Assets and Liabilities Measured at Fair Value on a Recurring Basis~~

~~As of September 30, 2021 and December 31, 2020, the Company had no financial instruments carried and measured at fair value on a recurring basis.~~

~~Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis~~

As disclosed in Note 14, the Company accounts for the Highview Investment as an investment recorded at cost, less impairment, plus or minus observable changes in price for identical or similar investments of the same issuer. Fair value measurements, if any, represent either Level 2 or Level 3 measurements.

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

The following discussion and analysis of our financial condition and results of our operations should be read together with the unaudited Condensed Consolidated Financial Statements and notes of Advanced Emissions Solutions, Inc. ("ADES" or the "Company") included elsewhere in Item 1 of Part I ("Item 1") of this Quarterly Report and with the audited consolidated financial statements and the related notes of ADES included in the ~~2020~~2021 Form 10-K.

The results of operations discussed in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" are those of ~~Advanced Emissions Solutions, Inc. ("ADES")~~ADES and its consolidated subsidiaries, collectively, the "Company," "we," "our" or "us."

Overview

We operate two segments: RC and APT. Our RC segment is comprised of our equity ownership in Tinuum Group and Tinuum Services, both of which are unconsolidated entities in which we generate substantial earnings. Tinuum Group provides reduction of mercury and NOx emissions at select coal-fired power generators through the production and sale of RC that qualifies for Section 45 tax credits under IRC Section 45. We benefit from Tinuum Group's production and sale of RC, which generates tax credits, as well as its revenue from selling or leasing RC facilities to tax equity investors. We also earn royalties for technologies that we license to Tinuum Group and are used at certain RC facilities to enhance combustion and reduced emissions of NOx and mercury from coal burned to generate electrical power. Tinuum Services operates and maintains the RC facilities under operating and maintenance agreements with Tinuum Group and owners or lessees of the RC facilities. Both Tinuum Group and Tinuum Services are winding down their operations due to the expected expiration of the Section 45 tax credit period as of December 31, 2021. As of September 30, 2021, Tinuum Group ceased operating seven RC facilities, with the remaining RC facilities expected to cease operations during the fourth quarter of 2021. As such, our earnings and distributions from our RC segment will substantially cease as of December 31, 2021.

~~Our APT segment is primarily operated through Carbon Solutions. We~~ sell consumable products that utilize AC and ~~chemical based~~chemical-based technologies to a broad range of customers, including coal-fired utilities, industrials, water treatment plants, and other diverse markets through a customer supply agreement described below. Our primary products are comprised of AC, which is produced from ~~lignite coal.~~a variety of carbonaceous raw materials. Our AC products include both powdered activated carbon ("PAC") and granular activated carbon ("GAC"). Our proprietary technologies and associated product offerings provide purification solutions to enable our customers to reduce certain contaminants and pollutants to meet the challenges of existing and potential future regulations. Additionally, we own an associated lignite mine ~~that~~which supplies the primary raw material for the manufacturing of our products.

Through December 31, 2021, we generated substantial earnings from our equity investments in Tinuum Group and Tinuum Services. Both entities ceased operations effective December 31, 2021 as a result of the expiration of a tax credit program under the Section 45 Tax Credit Program. Tinuum Group provided reduction of mercury and nitrogen oxide ("NOx") emissions at select coal-fired power generators through the production and sale of refined coal ("RC") which qualified for tax credits under the Section 45 Tax Credit Program ("Section 45 tax credits"). We also earned royalties for technologies that were licensed to Tinuum Group and used at certain RC facilities to enhance combustion and reduced emissions of NOx and mercury from coal burned to generate electrical power. Tinuum Services operated and maintained the RC facilities under operating and maintenance agreements with Tinuum Group and owners or lessees of the RC facilities. Presently, both Tinuum Group and Tinuum Services continue to wind-down their operations, and we have received what we anticipate are the final distributions from these equity-method investments.

Given the wind-down of Tinuum Group and Tinuum Services and the impact on our financial statements, we determined the historical RC segment no longer met the qualitative or quantitative criteria to be considered a reporting segment under U.S. GAAP. As a result, as well as the method in which the chief operating decision maker allocates resources, beginning January 1, 2022, we determined that we had one reportable segment, and therefore have removed segment disclosures for this Quarterly Report.

Drivers of Demand and Key Factors Affecting Profitability

Drivers of demand and key factors affecting our profitability differ by segment. In the RC segment, demand has been driven primarily from investors who purchase or lease RC facilities that qualify under the Section 45 tax credit period, which is expected to expire no later than December 31, 2021. Operating results in RC are ~~affected by: (1) the ability to lease or operate RC facilities; (2) lease renegotiation or termination; and (3) changes in tonnage~~sales of ~~RC due to changing coal-fired dispatch and electricity power generation sources. As discussed above, earnings and distributions from~~ our ~~RC segment will substantially cease as of December 31, 2021 as Tinuum ceases operations at its RC facilities.~~

~~In the APT segment, demand is driven primarily by~~ consumables-based solutions for coal-fired power generation, ~~and other~~ industrials, municipal water customers and ~~since the fourth quarter of 2020, demand from Cabot's customers~~other diverse markets served by Norit, whom we supply through the Supply Agreement as discussed below. ~~Operating~~Our operating results ~~in the APT segment has been~~are influenced by: (1) changes in our manufacturing production and sales volumes; (2) changes in price and product mix; ~~and~~ (3) changes in coal-fired dispatch and electricity power generation ~~sources.~~sources and (4) changes in demand for contaminant removal within water treatment facilities. During the three months ended September 30, ~~2021,~~2022, we have continued to see ~~increases in~~high demand for our AC ~~product.~~products. As such, we continue to purchase inventory to ~~meet~~supplement customer demands in excess of our ~~customer demands.~~production capacity and to achieve our target inventory levels. Although we expect to continue to supplement inventories throughout 2023, we expect those purchases to be at reduced levels compared to 2022.

~~Customer Supply Agreement~~Proposed Merger

~~On September 30, 2020,~~As more fully discussed in Note 2 to the Condensed Consolidated Financial Statements, on August 19, 2022, we and ~~Cabot~~Arq entered into the ~~Supply~~Transaction Agreement, ~~pursuant to~~ which we agreed to sell and deliver to Cabot, and Cabot agreed to purchase and accept from us, Furnace Products. In addition to the sale by us and purchase by Cabot of Furnace Products, we and Cabot have agreed to additional terms whereby Cabot will reimburse us for certain capital expenditures incurred by us that are necessary to manufacture the Furnace Products. Reimbursementsif approved, would combine both companies under New ADES, which will be renamed Advanced Emissions Solutions, Inc. and trade under the ticker symbol ADES. New ADES will acquire 100% of the outstanding equity interests of Arq (the "Arq Share Acquisition"), and our stockholders will receive shares of New ADES and the right to receive either their pro rata share of a $10.0 million aggregate cash payment or additional shares in New ADES.

As part of the ~~form~~Transaction Agreement, we have entered into subscription agreements from existing Arq shareholders for the purchase of ~~revenues earned from capital expenditures incurred that will benefit both us and Cabot (referred to as "Shared Capital"~~$20.0 million of shares of New ADES' common stock (the "PIPE Investment") and ~~capital expenditures incurred that~~a term debt commitment letter for $10.0 million (the "Debt Financing"), both of which will ~~benefit Cabot exclusively (referred to as "Specific Capital").~~fund at Closing.

2623

~~For 2021,~~The Closing is conditioned on the absence of any order, law or injunction preventing the consummation of the Transactions; approval for listing of the shares of New ADES common stock issued to our stockholders and the Arq shareholders (subject to official notice of issuance) on the Nasdaq Global Market; approval of the Transaction Agreement by holders of a majority of the outstanding common shares of ADES; the approval of the Scheme of Arrangement by resolution of a majority in number of the Arq shareholders representing three-fourths (75%) or more of the voting rights of the Arq shareholders; expiration of the waiting period under the Hart-Scott-Rodino Act; subject to certain qualifications, the accuracy of representations and warranties of the other party set forth in the Transaction Agreement; the performance by the other party in all material respects of its obligations under the Transaction Agreement, and other customary conditions. In addition, ADES’ obligation to consummate the Transactions is conditioned upon the consummation Debt Financing and the PIPE Investment.

Arq developed and owns a novel, patent-protected manufacturing process for producing carbon products through remediating coal waste sites. The Merger creates a North American based, integrated environmental technology company with access to diverse growth markets and a competitively advantaged position supported by patent-protected intellectual property ("IP") and products. We believe Arq’s technology and unique, waste-derived feedstock provide significant growth opportunities into high-growth GAC markets as well as large, adjacent markets including, but not limited to, additives to be utilized within the Carbon Black, Asphalt and Marine Fuel markets. The combined company will seek to leverage Arq’s existing strategic partnerships with Peabody, Vitol, Hafnia and Mitsubishi.

The utilization of a waste-derived feedstock results in lower manufacturing emissions and promotes the reclamation of property for future use. Further, with Arq’s feedstock, we ~~have generated material incremental volume~~believe New ADES’ vertically integrated supply chain will enable highly efficient production and ~~lowered unit operating costs at~~distribution of an expanded portfolio of both GAC and PAC products.

We believe the combination of ADES and Arq provides entry into broader, higher performance and higher value AC markets by applying our existing organizational infrastructure, large scale manufacturing capabilities, established distribution network, world-class research, technical support, market-leading sales channels and customer base, while integrating Arq’s unique patent-protected and environmentally sustainable feedstock. The Merger also provides for the optimization of the Red River ~~Plant due~~plant to produce additional GAC products made from Arq’s feedstock, thereby allowing entrance into growing and diverse markets, as well as improving the plant’s economics. We believe this combination provides ADES with end-market opportunities that may not be available to us without more diverse feedstocks and provides economic growth opportunities within AC markets that may not be available without the Merger.

Supply Agreement ~~which~~

On February 25, 2022, we received $10.6 million in ~~turn has increased our gross margins. Further, the Supply Agreement has further expanded our AC products to diverse end-markets that are outside of coal-fired power generation.~~

~~Acquisition of Marshall Mine~~

~~Concurrently with the execution~~cash from Norit as a result of the ~~Supply Agreement, on September 30, 2020, we entered into the Mine Purchase Agreement with Cabot to purchase 100%~~Change in Control, of which $8.5 million represented full payment of the membership interests in Marshall Mine, LLC (the "Marshall Mine Acquisition") for a nominal cash purchase price. Marshall Mine, LLC owns a lignite mine located outside of Marshall, Texas (the "Marshall Mine"). We independently determined to immediately commence activities to shutter the Marshall Mine and have and will continue to incur the associated reclamation costs.

~~In conjunction with the execution of the Supply Agreement and the Mine Purchase Agreement, on September 30, 2020, we entered into the~~outstanding Reclamation Contract with a third party that provides a capped cost, subject to certain contingencies, in the amount of approximately $19.7 million plus an obligation to pay certain direct costs estimated to be $3.6 million (collectively, the "Reclamation Costs") over the estimated reclamation period of 10 years. We are accounting for this obligation as an asset retirement obligation under U.S. GAAP ("ARO"). Under the terms of the Supply Agreement, Cabot is obligated to reimburse us for $10.2 million of Reclamation Costs (the "Reclamation Reimbursements"), which are payable semi-annually over 13 years and inclusive of interest. For the three and nine months ended September 30, 2021, we settled $2.5 million and $7.5 million of Reclamation Costs, respectively.

As the owner of the Marshall Mine, we were required to post a surety bond with a third party to ensure performance of our reclamation activities in the amount of $30.0 million under the Surety Agreement. On June 7, 2021, the third party agreed to reduce the Surety Bond amount to $16.6 million. As of September 30, 2021, we were required to post collateral of $10.0 million in the form of restricted cash for the obligations due under the Reclamation Contract.

~~As of June 30, 2021, we revised our estimate of future obligations owed for reclamation of the Marshall Mine primarily based on scope reductions related to future reclamation requirements.~~Reimbursement. As a result of the Change in Control, we ~~reduced~~recognized a loss of $0.5 million, which is included within the ~~Marshall Mine ARO by $1.9 million as of June 30, 2021 and recorded a corresponding gain on change in estimate~~"Other income (expense)" line item in the Condensed Consolidated ~~Statements~~Statement of ~~Operations~~Operation for the nine months ended September 30, ~~2021.~~

~~Impact of COVID-19~~

~~In March 2020, the World Health Organization declared COVID-19 a global pandemic. We are designated by CISA~~2022. The Change in Control did not impact any other provisions of the ~~Department~~Supply Agreement.

Marshall Mine

On September 2, 2022, we entered into a Purchase Agreement with a third party (the "MM Buyer") to sell all of ~~Homeland Security as a critical infrastructure supplier~~our membership interests in Marshall Mine, LLC to the ~~energy sector. Our operations have been deemed essential~~MM Buyer in exchange for a cash payment to be made by the Seller to the MM Buyer of approximately $2.4 million and ~~therefore, our facilities remained open~~the assumption by the MM Buyer of certain liabilities of Marshall Mine, LLC (the "MM Sale"). The MM Buyer previously operated the Marshall Mine on behalf of Marshall Mine, LLC and ~~our employees employed. We follow~~is currently performing reclamation under the ~~COVID-19 guidelines~~Reclamation Contract. The Purchase Price is subject to adjustments for certain events that may occur during the period from the ~~Centers for Disease Control concerning the health and safety of our personnel. The measures we have taken have resulted in an increase in our personnel costs, operational inefficiencies~~Agreement Date and the ~~incurrence of incremental costs to allow manufacturing operations to continue.~~Closing Date.

The ~~duration and scope~~obligations of the ~~COVID-19 pandemic continues~~Parties to ~~be uncertain. Many parts~~close the MM Sale is subject to certain events, including (1) obtaining the approval of the ~~world are still experiencing high infection rates~~Commission for an operating permit in the name of the MM Buyer or an affiliate of the MM Buyer; and (2) the ~~level and timing~~MM Buyer replacing the Seller’s surety bond with a reclamation performance bond, letter of COVID-19 vaccine distribution will impact the economic recovery and growth. We cannot predict the long-term effects on our business, including our financial position or results of operations, if governmental restrictionscredit or other ~~such directives continue for a prolonged period~~form of ~~time and cause a material negative change in power generation demand, materially disrupt our supply chain, substantially increase our operating costs~~security to which the MM Buyer or ~~limit our ability to serve existing customers and seek new customers.~~

~~In response~~an affiliate of the MM Buyer is the principal that is satisfactory to the COVID-19 outbreak, in March 2020, the federal government passed the CARES Act. The CARES Act provided, among other things, the deferral of payroll tax payments for all payroll taxes incurred through December 31, 2020 and created the Paycheck Protection Program ("PPP"), which is sponsored and administered by the U.S. Small Business Administration ("SBA"). On April 20, 2020, we executed a loan agreement (the "PPP Loan") under the PPP, evidenced by a promissory note, with BOK, NA dba Bank of Oklahoma ("BOK"), providing for $3.3 million in proceeds, which was funded to us on April 21, 2020. In June 2020, the Paycheck Protection Program Flexibility Act of 2020 (the "PPPFA") was signed into law and established the payment dates in the event that amounts borrowed under the PPP are not forgiven. The PPP Loan was scheduled to mature on April 21, 2022, unless forgiven subject to terms and conditions established by the SBA. We recorded the PPP Loan as a debt obligation and accrued interest over its term. See further discussion in "Results of Operations" under this Item 2.

~~We elected to defer payments of payroll taxes for the periods allowed under the CARES Act and will repay 50% by December 31, 2021 and 50% by December 31, 2022.~~Commission. As of September 30, ~~2021, total payroll tax payments deferred under~~2022, Marshall Mine, LLC had outstanding liabilities of approximately $5.1 million, which we expect to be fully discharged upon payment of the ~~CARES Act were $0.4 million.~~Purchase Price. Because the Closing Date is uncertain, primarily due to the uncertain date for the Parties to receive approval of the MM Buyer's operating permit and surety bond by the Commission, we are unable to determine the accounting period in which we will recognize the MM Sale.

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~~Our customers may also be impacted by COVID-19 pandemic as the utilization of energy has changed. We cannot predict the long-term impact on our customers and the subsequent impact on our business.~~

Results of Operations

For the three and nine months ended September 30, ~~2021,~~2022, we recognized net loss of $2.4 million and $5.8 million, respectively, compared to net income of $24.3 million and $54.6 ~~million, respectively, compared to net income of $5.0 million and net loss of $20.7~~ million for the three and nine months ended September 30, ~~2020.~~2021, respectively. The most significant factor impacting results period over period was the decrease in equity earnings from Tinuum Group as the ability to generate Section 45 tax credits, the driver for Tinuum Group's operations, ceased as of December 31, 2021.

The following sections provide additional information regarding these comparable periods. For comparability purposes, the following tables set forth our results of operations for the periods presented in the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report. The ~~period-to-period comparison~~current year period to prior year period comparisons of financial results may not be indicative of financial results to be achieved in future periods.

Comparison of the Three Months Ended September 30, ~~2021~~2022 and ~~2020~~2021

Total Revenue and Cost of Revenue

A summary of the components of our revenues and cost of revenue for the three months ended September 30, ~~2021~~2022 and ~~2020~~2021 is as follows:


		Three Months Ended September 30,				Change					Three Months Ended September 30,				Change
(in thousands, except percentages)	(in thousands, except percentages)	2021		2020		($)		(%)		(in thousands, except percentages)	2022		2021		($)		(%)
Revenues:	Revenues:									Revenues:
Consumables	Consumables	$	24,689	$	15,844	$	8,845	56	%	Consumables	$	28,437	$	26,693	$	1,744	7	%
License royalties, related party	License royalties, related party	4,165		3,627		538		15	%	License royalties, related party	—		4,165		(4,165)		(100)	%

Total revenues	Total revenues	$	28,854	$	19,471	$	9,383	48	%	Total revenues	$	28,437	$	30,858	$	(2,421)	(8)	%
Operating expenses:	Operating expenses:									Operating expenses:
Consumables cost of revenue, exclusive of depreciation and amortization	Consumables cost of revenue, exclusive of depreciation and amortization	$	17,952	$	15,013	$	2,939	20	%	Consumables cost of revenue, exclusive of depreciation and amortization	$	21,575	$	19,956	$	1,619	8	%

Consumables and consumables cost of revenue

For the three months ended September 30, ~~2021,~~2022, consumables revenues increased from the comparable quarter in ~~2020~~2021 primarily ~~from~~driven by higher ~~product~~ volumes sold, which comprised ~~$7.9~~$1.5 million of the total ~~change in consumables revenues.~~change. Product volumes were higher inamong power generation customers primarily due to higher natural gas prices and higher demand for electricity compared to the ~~prior year~~same quarter in 2021, which contributed to increased utilization of coal-fired generation and increased demand for our products. ~~In addition, product sales increased under the Supply Agreement from the prior year quarter as we began product shipments under this agreement beginning in the fourth quarter of 2020.~~ Total consumables revenues also increased due to ~~favorable~~overall higher pricing ~~mix~~ of our products by approximately ~~$1.7 million. Negatively impacting revenues~~$1.5 million from the comparable quarter ~~over quarter~~in 2021. Offsetting these increases to Consumable revenue was ~~less favorable~~unfavorable product mix of approximately ~~$0.8 million.~~$1.3million for the three months ended September 30, 2022 compared to 2021.

Consumables gross margin, exclusive of depreciation and amortization, remained flat for the three months ended September 30, 2022, compared to the corresponding quarter in 2021. For the three months ended September 30, ~~2021, there was an increase in overall energy demand and an increase in natural gas prices compared to the prior quarter, both of which caused an increase in demand for~~2022, our ~~products.~~

Our gross margin, exclusive of depreciation and amortization, increased for the three months ended September 30, 2021 compared to the corresponding quarter in 2020 primarily due to the higher product volumes, which resulted in lower fixed costs per pound. Offsetting these improvements from higher product volumes for the three months ended September 30, 2021,consumables gross margin was negatively impacted by ~~having~~higher prices for key raw materials, transportation, including fuel, and other operational costs to ~~purchase inventory, rather than~~ produce ~~it, due~~and deliver our products, including an increase in the amount of third-party carbons purchased in order to ~~increased~~meet customer demand for our products and ~~high~~supplement the higher operating utilization of the Red River Plant. ~~We expect to continue purchasing inventory for~~Offsetting these negative impacts was an increase in the ~~remainder~~prices of ~~2021 and into~~our products, most of which were in place as of the beginning of April 2022, as ~~a result of lost production in the second~~well as sales volume remaining consistent quarter ~~of 2021, ongoing increased demand for our products~~over quarter, and ~~high Red River Plant utilization.~~incremental positive impact from net electricity generated.

We expect that ~~consumable~~consumables revenues and gross margin will continue to be positively impacted by our product price ~~increase announced in the second quarter of 2021~~increases related to new or renewed contracts and our efforts to ~~improve our customer base and~~ move our product mix to higher margin products. We anticipate that the product price increases will ~~also~~ help offset both the ~~increase~~inflation we are experiencing in many of our operating costs and the higher operating costs from purchasing ~~inventory.~~third-party carbon. We expect consumables cost of revenue and gross margin to be negatively impacted due to routine scheduled maintenance outages planned for the second quarter of 2023.

Consumables revenues continues to be affected by electricity demand driven by seasonal weather and related power generation needs, as well as competitor prices related to alternative power generation sources such as natural ~~gas. According to data provided by the U.S. Energy Information Administration ("EIA"),~~gas and renewables.

License royalties, related party

As discussed above, Tinuum Group ceased operations as of December 31, 2021 and as a result, we did not recognize any revenues from license royalties from Tinuum Group for the three months ended September 30, ~~2021, power generation from coal-fired power dispatch increased approximately 15% compared to the corresponding quarter in 2020.~~2022.

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~~License royalties, related party~~

~~For the three months ended September 30, 2021 and 2020, there were 15.2 million tons and 14.6 million tons, respectively, of RC produced using M-45~~TM ~~and M-45-PC~~TM technologies ("M-45 Technology"), which Tinuum Group licenses from us ("M-45 License"). M-45 License royalties increased for the three months ended September 30, 2021 primarily from higher tonnage compared to the three months ended September 30, 2020. This was primarily a result of an increase quarter over quarter in RC facilities that use the M-45 Technology as well as higher tonnage. Further, these increases attributed to the royalty rate per ton increasing quarter over quarter. Both Tinuum Group and Tinuum Services are winding down their operations due to the expected expiration of the Section 45 tax credit period as of December 31, 2021. As such, we do not expect to earn M-45 License royalties after December 31, 2021.

Additional information related to revenue concentrations and contributions by class and reportable segment can be found within the Business Segments discussion and in Note 17 to the Condensed Consolidated Financial Statements.

Other Operating Expenses

A summary of the components of our operating expenses for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, exclusive of cost of revenue items (presented above), is as follows:


		Three Months Ended September 30,				Change					Three Months Ended September 30,				Change
(in thousands, except percentages)	(in thousands, except percentages)	2021		2020		($)		(%)		(in thousands, except percentages)	2022		2021		($)		(%)
Operating expenses:	Operating expenses:									Operating expenses:
Payroll and benefits	Payroll and benefits	$	2,637	$	2,285	$	352	15	%	Payroll and benefits	$	2,313	$	2,637	$	(324)	(12)	%

Legal and professional fees	Legal and professional fees	1,106		1,321		(215)		(16)	%	Legal and professional fees	3,668		1,106		2,562		232	%
General and administrative	General and administrative	1,715		1,900		(185)		(10)	%	General and administrative	1,833		1,715		118		7	%
Depreciation, amortization, depletion and accretion	Depreciation, amortization, depletion and accretion	2,145		1,777		368		21	%	Depreciation, amortization, depletion and accretion	1,671		2,145		(474)		(22)	%

		$	7,603	$	7,283	$	320	4	%		$	9,485	$	7,603	$	1,882	25	%

Payroll and benefits

Payroll and benefits expenses, which represent costs related to selling, general and administrative personnel, ~~increased~~decreased for the three months ended September 30, ~~2021~~2022 compared to the corresponding quarter in ~~2020~~2021, primarily due to ~~an increase in expense related to the agreements with our executive officers and certain other key employees ("Retention Agreements") of $0.4 million. Offsetting this increase was~~ a decrease in payroll-related expenses of employees as our headcount ~~by approximately $0.1 million. See below for additional information on the Retention Agreements.~~decreased quarter over quarter.

Legal and professional fees

Legal and professional fees ~~decreased~~increased for the three months ended September 30, ~~2021~~2022 compared to the corresponding quarter in ~~2020~~2021 as a result of ~~cost reductions related to professional services of $0.2 million and legal fees of $0.2 million. Offsetting these decreases was~~ an increase in costs incurred related to ~~our strategic alternatives, including~~the Merger, and was comprised mostly of legal and consulting ~~and legal fees of $0.2 million.~~fees.

General and administrative

General and administrative expenses ~~decreased for the three months ended September 30, 2021 compared to the corresponding~~had no significant changes quarter ~~in 2020 primarily due to a reduction of general and administrative expenses of $0.1 million and product development costs of $0.1 million.~~over quarter.

Depreciation, amortization, depletion and accretion

Depreciation and amortization expense ~~increased~~decreased for the three months ended September 30, ~~2021~~2022 compared to the corresponding quarter in ~~2020~~2021 primarily due to ~~an increase~~higher production volumes compared to sales volumes for the three months ended September 30, 2022, resulting in $0.2 million less absorption of depreciation in inventory. Further driving the decrease was a reduction in accretion expense of ~~$0.2~~$0.1 million related to the Marshall Mine ARO and ~~an increase in depreciation~~amortization expense of ~~$0.2~~$0.1 million ~~due~~related to ~~fixed asset additions in the third quarter of 2021.~~patents.

2926

Other Income (Expense), net

A summary of the components of other income (expense), net for the three months ended September 30, ~~2021~~2022 and ~~2020~~2021 is as follows:

Three Months Ended September 30, Change
(in thousands, except percentages) 2021 2020 ($) (%)
Other income (expense):
Earnings from equity method investments $ 22,195 $ 9,518 $ 12,677 133 %
Gain on extinguishment of debt 3,345 — 3,345 *
Interest expense (86) (881) 795 (90) %
Other 81 17 64 376 %
Total other income $ 25,535 $ 8,654 $ 16,881 195 %

* Calculation not meaningful


	Three Months Ended September 30,				Change
(in thousands, except percentages)	2022		2021		($)		(%)
Other income (expense):
Earnings from equity method investments	$	—	$	22,195	$	(22,195)	(100)	%
Gain on extinguishment of debt	—		3,345		(3,345)		(100)
Interest expense	(83)		(86)		3		(3)	%
Other	315		81		234		289	%




Total other income	$	232	$	25,535	$	(25,303)	(99)	%

Earnings from equity method investments

As discussed above, both Tinuum Group and Tinuum Services ceased operations as of December 31, 2021, and as a result we recognized zero earnings from Tinuum Group and Tinuum Services for the three months ended September 30, 2022. The following table details the components of our respective equity method investments included in the Earnings from equity method investments line item in the Condensed Consolidated Statements of Operations:


		Three Months Ended September 30,				Three Months Ended September 30,
(in thousands)	(in thousands)	2021		2020			(in thousands)	2022		2021
Earnings from Tinuum Group	Earnings from Tinuum Group	$	19,975	$	7,260		Earnings from Tinuum Group	$	—	$	19,975
Earnings from Tinuum Services	Earnings from Tinuum Services	2,223		2,257			Earnings from Tinuum Services	—		2,223
(Loss) earnings from other	(Loss) earnings from other	(3)		1			(Loss) earnings from other	—		(3)

Earnings from equity method investments	Earnings from equity method investments	$	22,195	$	9,518		Earnings from equity method investments	$	—	$	22,195

~~Earnings~~For the three months ended September 30, 2022, we did not recognize any equity earnings from ~~equity method investments, and changes related thereto, are impacted by our significant equity method investees:~~ Tinuum Group ~~and~~compared to our proportionate share of Tinuum ~~Services.~~

Group's net loss of $0.2 million for the quarter. For the three months ended September 30, 2021, we recognized $20.0 million in equity earnings from Tinuum Group compared to our proportionate share of Tinuum Group's net income of $10.7 million for the quarter. ~~The~~For both of these quarters, the difference between our pro-rata share of Tinuum Group's net (loss) income and our earnings from the Tinuum Group equity method investment as reported on the Condensed Consolidated Statements of Operations is the result of cumulative distributions received from Tinuum Group being in excess of the carrying value of the investment, and therefore we recognize such excess distributions as equity method earnings in the period the distributions occur.

For the three months ended September 30, ~~2020,~~2022, we did not recognize any equity earnings from Tinuum Services compared to our proportionate share of Tinuum Services' net loss of less than $0.1 million for the quarter. For the three months ended September 30, 2021, we recognized ~~$7.3~~$2.2 million in equity earnings from Tinuum ~~Group,~~Services, which was ~~equal to~~ our proportionate share of Tinuum ~~Group's~~Services' net income of $4.4 million for the ~~respective~~ quarter. The difference between our pro-rata share of Tinuum Services' net loss and our earnings from the Tinuum Services equity method investment as reported on the Condensed Consolidated Statements of Operations is the result of cumulative distributions received from Tinuum Services being in excess of the carrying value of the investment, and therefore we recognize such excess distributions as equity method earnings in the period the distributions occur.

~~See further discussion of quarter over quarter changes in Earnings from Equity Investments in "Business Segments" under this Item.~~ Additional information related to equity method investments is included in Note 610 to the Condensed Consolidated Financial Statements included in ~~Part I -~~ Item 1 of this Report.

For the remainder of 2021, we expect to recognize such excess contributions as equity method earnings in the period the distributions occur, limited to the carrying value of the Tinuum Group equity investment.

Gain on extinguishment of debt

On July 27, 2021, we received formal notification in the form of a letter dated July 19, 2021 from BOK that the SBA approved our PPP Loan forgiveness application for the PPP Loan in the amount of $3.3 million (including accrued interest). For the three months ended September 30, 2021, we recorded a gain on extinguishment of a loan obtained through the ~~PPP Loan~~Paycheck Protection Program (the "PPP Loan"), administered by Small Business Administration ("SBA"), in the amount of $3.3 ~~million in the Condensed Consolidated Statements of Operations, which is included as a component of "Other income (expense)."~~million.

Interest expense

Interest expense had no significant changes quarter over quarter.

3027

~~Interest expense~~Other

~~For~~Other increased for the three months ended September 30, ~~2021, interest expense decreased $0.8 million~~2022 compared to the corresponding quarter in 2021 as a result of a recognizing a gain on the sale of a right of way easement at the Marshall Mine of $0.2 million for the three months ended September 30, 2020 primarily due to a reduction in interest expense related to the Senior Term Loan, as the principal balance was reduced from payments of $22.0 million made during the period from September 30, 2020 to September 30, 2021. Further, the Senior Term Loan was paid-off in its entirety as of June 1, 2021.2022.

Income tax expense

For the three months ended September 30, ~~2021,~~2022, we recorded no income tax expense ~~of $4.6 million~~or benefit compared to income tax expense of ~~$0.1~~$4.6 million for the three months ended September 30, ~~2020. The increase in income tax expense quarter over quarter was~~2021, primarily due to ~~higher~~pretax loss for the three months ended September 30, 2022 of $2.4 million compared to pretax income for the three months ended September 30, 2021 of $28.8 ~~million compared to pretax income~~million. We did not recognize a tax benefit for the three months ended September 30, ~~2020~~2022 related to the pretax loss for this period, as we recorded a valuation allowance as of ~~$5.8 million.~~September 30, 2022 primarily based on our forecast of pretax loss for the year ended December 31, 2022.

Comparison of the Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021

Total Revenue and Cost of Revenue

A summary of the components of our revenues and cost of revenue for the nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 is as follows:


		Nine Months Ended September 30,				Change					Nine Months Ended September 30,				Change
(in thousands, except percentages)	(in thousands, except percentages)	2021		2020		($)		(%)		(in thousands, except percentages)	2022		2021		($)		(%)
Revenues:	Revenues:									Revenues:
Consumables	Consumables	$	57,696	$	33,231	$	24,465	74	%	Consumables	$	79,578	$	62,642	$	16,936	27	%
License royalties, related party	License royalties, related party	11,888		9,986		1,902		19	%	License royalties, related party	—		11,888		(11,888)		(100)	%

Total revenues	Total revenues	$	69,584	$	43,217	$	26,367	61	%	Total revenues	$	79,578	$	74,530	$	5,048	7	%
Operating expenses:	Operating expenses:									Operating expenses:
Consumables cost of revenue, exclusive of depreciation and amortization	Consumables cost of revenue, exclusive of depreciation and amortization	$	43,726	$	33,920	$	9,806	29	%	Consumables cost of revenue, exclusive of depreciation and amortization	$	62,992	$	48,672	$	14,320	29	%

Consumables and consumables cost of revenue

For the nine months ended September 30, ~~2021,~~2022, consumables revenues increased from the comparable period in ~~2020~~2021 primarily driven by higher product volumes, which comprised approximately ~~$22.5~~$11.2 million of the total ~~change~~change. Product volumes in ~~consumables revenues. Product volumes~~2022 were higher in power generation primarily due to higher natural gas prices compared to the prior year period, which contributed to increased demand for our products. ~~In addition, product sales increased under the Supply Agreement from the prior year period as we began product shipments under this agreement beginning in the fourth quarter of 2020.~~ Total consumables revenues also increased due to favorable ~~price impact~~selling prices of our products by approximately ~~$4.6 million. Less~~$4.3 million and favorable product mix ~~negatively impacted consumables revenues period over period by approximately $2.6~~of $0.6 million.

Volumes were positively impacted by seasonal weather and an increase of 3.6% in overall power generation period over period. As well, according to data provided by EIA, power generation from coal-fired power dispatch increased approximately 26% period over period.

~~Our~~Consumables gross margin, exclusive of depreciation and amortization, ~~increased~~decreased for the nine months ended September 30, ~~2021~~2022 compared to the corresponding period in ~~2020 primarily due~~2021. For the nine months ended September 30, 2022, our consumables gross margin was negatively impacted by higher prices for key raw materials, transportation, including fuel, and other operational costs to produce and deliver our products, including an increase in the amount of third-party carbons purchased in order to meet customer demand for our products and supplement the higher operating utilization of the Red River Plant. Offsetting these negative impacts were higher product volumes, which resulted in lower fixed ~~cost~~costs per pound, ~~compared to~~as well as increases in the ~~prior year period. Offsetting higher gross margin~~prices of our products implemented during the first half of 2022, sales volume remaining consistent quarter over quarter and incremental positive impact from ~~higher product volumes~~net electricity generated.

License royalties, related party

As discussed above, Tinuum Group ceased operations as of December 31, 2021 and as a result, for the nine months ended September 30, ~~2021, were additional costs incurred associated with having to purchase inventory and temporary outages at the Red River Plant for the three months ended June 30, 2021.~~

Consumables cost of revenue was negatively impacted for the nine months ended September 30, 2020 due to safety actions taken by us to provide for continued operation of the Red River Plant in response to COVID-19.

~~License royalties, related party~~

For the nine months ended September 30, 2021 and 2020, there were 42.7 million tons and 35.7 million tons, respectively, of RC produced using the M-45 Technology under the M-45 License. This was primarily a result of an increase quarter over quarter in RC facilities that use the M-45 Technology as well as increased tonnage. While tonnage increased period over period, the royalty rate per ton remained the same due to a majority of the RC contracts having fixed lease payments such that increased tonnage2022, we did not ~~result in an incremental increase in earnings.~~recognize any revenues from license royalties from Tinuum Group.

3128

Additional information related to revenue concentrations and contributions by class and reportable segment can be found within the segment discussion below and in Note 17 to the Condensed Consolidated Financial Statements.

Other Operating Expenses

A summary of the components of our operating expenses, exclusive of cost of revenue items (presented above), for the nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 is as follows:

Nine Months Ended September 30, Change
(in thousands, except percentages) 2021 2020 ($) (%)
Operating expenses:
Payroll and benefits $ 8,014 $ 8,839 $ (825) (9) %
Legal and professional fees 4,340 4,386 (46) (1) %
General and administrative 5,223 6,693 (1,470) (22) %
Depreciation, amortization, depletion and accretion 6,155 5,807 348 6 %
Impairment of long-lived assets — 26,103 (26,103) (100) %
Gain on change in estimate, asset retirement obligation (1,942) — (1,942) *
$ 21,790 $ 51,828 $ (30,038) (58) %

* Calculation not meaningful


	Nine Months Ended September 30,				Change
(in thousands, except percentages)	2022		2021		($)		(%)
Operating expenses:
Payroll and benefits	$	7,458	$	8,014	$	(556)	(7)	%

Legal and professional fees	7,395		4,340		3,055		70	%
General and administrative	5,628		5,223		405		8	%
Depreciation, amortization, depletion and accretion	4,765		6,155		(1,390)		(23)	%

Loss (gain) on change in estimate, asset retirement obligation	34		(1,942)		1,976		(102)	%
	$	25,280	$	21,790	$	3,490	16	%

Payroll and benefits

Payroll and benefits expenses decreased for the nine months ended September 30, ~~2021~~2022 compared to the same period in ~~2020~~2021 primarily due to expenses taken during the nine months ended September 30, 2020 of $1.2 million in payroll-related expenses associated with the resignation of a former executive. Additionally, payroll expenses decreased by approximately $0.4 million due to a decrease in payroll-related expenses of employees of approximately $0.8 million as our headcount ~~between the two periods. Offsetting~~decreased period over period. Partially offsetting these decreases was an increase in expense of ~~$0.8~~$0.2 million related to the Amended Retention Agreements.

Legal and professional fees

Legal and professional fees ~~remained relatively flat~~increased for the nine months ended September 30, ~~2021~~2022 compared to the same period in ~~2020~~2021 primarily ~~due to~~as a result of an ~~increases~~increase in ~~consulting fees of $0.1 million and legal fees of $0.3 million offset by a decrease in outsourced IT~~ costs ~~specific~~incurred related to the ~~completion~~Merger, and was comprised mostly of ~~the integration of Carbon Solutions of $0.4 million.~~legal and consulting fees.

General and administrative

General and administrative expenses increased for the nine months ended September 30, 2022 compared to the same period in 2021 primarily due to an increase in rent and occupancy expense of $0.1 million, research and development expense of $0.1 million, travel of $0.1 million and recruiting fees of $0.1 million.

Depreciation, amortization, depletion and accretion

Depreciation and amortization expense decreased for the nine months ended September 30, ~~2021~~2022 compared to the same period in ~~2020~~2021 primarily due to a decrease in product development expenses of approximately $0.8 million related to the Supply Agreement, a decrease in costs incurred due to the sequestration of certain of our employees at the Red River Plant of approximately $0.3 million and reductions in general and administrative expenses, including recruiting and licenses and fees of approximately $0.5 million. Offsetting these decreases was an increase in property taxes of approximately $0.2 million.

~~Depreciation and amortization~~

~~Depreciation and amortization expense increased for the nine months ended September 30, 2021 compared to the same period in 2020~~ due to higher production volumes during the nine months ended September 30, ~~2021,~~2022, resulting in ~~$0.3~~$0.7 million ~~more~~less absorption of depreciation in inventory. Further driving the ~~increase~~decrease was a reduction in accretion expense of ~~$0.7~~$0.4 million related to the reduction of the Marshall Mine ARO compared to prior year period and ~~an increase~~a decrease in amortization expense of ~~$0.1~~$0.3 million related to patents. ~~Offsetting these increases was~~

Loss (gain) on change in estimate, asset retirement obligation

We recorded a ~~reduction~~loss on change in ~~depreciation expense~~estimate of ~~$0.9 million related to~~$34.0 thousand primarily based on a ~~lower depreciable base~~change in the timing of estimated payments for ~~the nine months ended September 30, 2021 as a result~~future reclamation requirements of the ~~Impairment Charge recorded in the second quarter of 2020 that reduced the carrying value of our property, plant, and equipment as of June 30, 2020.~~

~~Impairment of long-lived assets~~

~~As previously discussed, as of June 30, 2020, we recorded the Impairment Charge of $26.1 million,~~Marshall Mine, which is included in the Condensed Consolidated Statements of Operations for the nine months ended September 30, ~~2020.~~2022.

~~Gain on change in estimate, asset retirement obligation~~

~~As previously discussed, we~~We recorded a gain on change in estimate of $1.9 million related to a reduction in scope of our future reclamation efforts of the Marshall Mine, which is included in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2021.

3229

Other Income (Expense), net

A summary of the components of our other income (expense), net for the nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 is as follows:

Nine Months Ended September 30, Change
(in thousands, except percentages) 2021 2020 ($) (%)
Other income (expense):
Earnings from equity method investments $ 61,944 $ 25,959 $ 35,985 139 %
Gain on extinguishment of debt 3,345 — 3,345 *
Interest expense (1,416) (3,053) 1,637 (54) %
Other 652 208 444 213 %
Total other income $ 64,525 $ 23,114 $ 41,411 179 %

* Calculation not meaningful


	Nine Months Ended September 30,				Change
(in thousands, except percentages)	2022		2021		($)		(%)
Other income (expense):
Earnings from equity method investments	$	3,222	$	61,944	$	(58,722)	(95)	%
Gain on extinguishment of debt	—		3,345		(3,345)		(100)
Interest expense	(259)		(1,416)		1,157		(82)	%
Other	(19)		652		(671)		(103)	%




Total other income	$	2,944	$	64,525	$	(61,581)	(95)	%

Earnings from equity method investments

The following table details the components of our respective equity method investments included within the Earnings from equity method investments line item on the Condensed Consolidated Statements of Operations:


		Nine Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	(in thousands)		2021		2020		(in thousands)		2022		2021
Earnings from Tinuum Group	Earnings from Tinuum Group		$	55,462	$	20,462	Earnings from Tinuum Group		$	3,137	$	55,462
Earnings from Tinuum Services	Earnings from Tinuum Services		6,485		5,498		Earnings from Tinuum Services		84		6,485
Loss from other			(3)		(1)
Earnings (loss) from other							Earnings (loss) from other		1		(3)

Earnings from equity method investments	Earnings from equity method investments		$	61,944	$	25,959	Earnings from equity method investments		$	3,222	$	61,944

~~As of~~For the nine months ended September 30, ~~2021 and 2020,~~2022, we recognized $3.1 million in equity earnings from Tinuum Group ~~had 16 and 21 invested RC facilities, respectively, that were generating revenues.~~

compared to our proportionate share of Tinuum Group's net loss of $1.7 million for the period. For the nine months ended September 30, 2021, we recognized $55.5 million in equity earnings from Tinuum Group compared to our proportionate share of Tinuum Group's net income of $33.6 million for the period. ~~The~~For both of these periods, the difference between our pro-rata share of Tinuum Group's net (loss) income and our earnings from Tinuum Group equity method investment as reported on the Condensed Consolidated Statements of Operations is the result of cumulative distributions received from Tinuum Group being in excess of the carrying value of the investment, and therefore we recognize such excess distributions as equity method earnings in the period the distributions occur.

For the nine months ended September 30, ~~2020,~~2022, we recognized ~~$20.5~~$0.1 million in equity earnings from Tinuum ~~Group, which was equal~~Services compared to our proportionate share of Tinuum ~~Group's~~Services' net loss of $0.1 million for this period. The difference between our pro-rata share of Tinuum Services' net loss and our earnings from the Tinuum Services equity method investment as reported on the Condensed Consolidated Statements of Operations is the result of cumulative distributions received from Tinuum Services being in excess of the carrying value of the investment, and therefore we recognize such excess distributions as equity method earnings in the period the distributions occur. For the three months ended September 30, 2021, we recognized $6.5 million in equity earnings from Tinuum Services, which was our proportionate share of Tinuum Services' net income of $13.0 million for the ~~respective period.~~quarter.

See ~~further discussion of period over period changes in Earnings from Equity Investments in "Business Segments" under this Item. Additional~~additional information related to equity method investments is included in Note 610 to the Condensed Consolidated Financial Statements included in Part I - Item 1 of this Report.

Gain on extinguishment of debt

As previously discussed, for the nine months ended September 30, 2021, we recorded a gain on extinguishment of debt ~~related to the SBA approval of the Company's PPP Loan forgiveness application for the PPP Loan~~ in the amount of $3.3 million ~~(including accrued interest).~~related to the SBA forgiveness of the PPP Loan.

Interest expense

For the nine months ended September 30, ~~2021,~~2022, interest expense decreased ~~$1.6~~$1.2 million ~~compared~~primarily due to the pay-off of a senior term loan as of June 1, 2021.

Other

For the nine months ended September 30, ~~2020~~2022, Other is primarily ~~due to interest expense incurred in~~comprised of a loss of $0.5 million recognized on the ~~nine months ended September 30, 2021~~settlement of the Reclamation Reimbursement related to the ~~Senior Term Loan, as~~Change in Control on February 25, 2022, which was partially offset by a gain on sale of right of way easement of $0.2 million at the ~~principal balance was reduced from payments~~Marshall Mine and gain on sale of $22.0 million made during the period from September 30, 2020 to September 30, 2021. The remaining decrease in interest expense related to lower 453A interest from a reduction in the deferred balance related to Section 453A during the period from September 30, 2020 to September 30, 2021.

property plant and equipment of $0.2 million.

Income tax expense

For the nine months ended September 30, ~~2021,~~2022, we recorded no income tax expense ~~of $14.0 million~~or benefit compared to income tax expense of ~~$0.5~~$14.0 million for the nine months ended September 30, ~~2020. The increase in income tax expense period over period was~~2021, primarily due to pretax loss for the nine months ended September 30, 2022 of $5.8 million compared to pretax income for the nine months ended September 30, 2021 of $68.6 ~~million compared to~~million. We did not recognize a ~~pretax loss~~tax benefit for the nine months ended September 30, ~~2020~~2022 related to the pretax loss for this period, as we recorded a valuation allowance as of ~~$19.4 million.~~September 30, 2022 primarily based on our forecast of pretax loss for the year ended December 31, 2022.

Non-GAAP Financial Measures

To supplement our financial information presented in accordance with U.S. GAAP (or "GAAP"), we ~~are providing~~provide non-GAAP measures of certain financial performance. These non-GAAP measures include Consolidated EBITDA ~~Consolidated Adjusted EBITDA, RC Segment EBITDA, RC Segment Adjusted EBITDA, APT Segment EBITDA~~ and ~~APT Segment~~Consolidated Adjusted EBITDA. We have included these non-GAAP measures because management believes that they help to facilitate period to period comparisons of our operating ~~results. We believe the non-GAAP measures~~results and provide useful information to both management and users of the financial statements by excluding certain expenses, gains and losses ~~that~~which may not be indicative of core operating results and business outlook. Management uses these non-GAAP measures in evaluating the performance of our business.

These non-GAAP measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. These measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures.

We define Consolidated EBITDA as net income (loss) adjusted for the impact of the following items that are either non-cash or that we do not consider representative of our ongoing operating performance: depreciation, amortization, depletion, accretion, amortization of upfront customer consideration, ~~that~~which was recorded ~~as a component of~~in conjunction with the Marshall Mine Acquisition ("Upfront Customer Consideration"), interest expense, net and income ~~tax expense.~~taxes. We define Consolidated Adjusted EBITDA as Consolidated EBITDA reduced by the non-cash impact of equity earnings from equity method investments ~~gain on change in estimate of asset retirement obligations~~ and gain on extinguishment of debt, ~~and~~ increased by cash distributions from equity method investments, loss on early settlement of the Norit Receivable and ~~impairment~~the change in ARO as a result of ~~long-lived assets.~~a change in estimate. Because Consolidated Adjusted EBITDA omits certain non-cash items, we believe that the measure is less susceptible to variances that affect our operating performance.

We define APT Segment EBITDA (loss) as APT Segment Operating Income (loss) adjusted for the impact of the following items that are either non-cash or that we do not consider representative of our ongoing operating performance: depreciation, amortization, depletion, accretion and interest expense, net and amortization of Upfront Customer Consideration. We define APT Segment Adjusted EBITDA (loss) as APT Segment EBITDA (loss) reduced by gain on change in estimate of asset retirement obligations and gain on extinguishment of debt and increased by impairment of long-lived assets.

We define RC Segment EBITDA as RC Segment operating income adjusted for the impact of the following items that are either non-cash or that we do not consider representative of our ongoing operating performance: depreciation, amortization, depletion, accretion and interest expense. We define RC Segment Adjusted EBITDA as RC Segment EBITDA reduced by the non-cash impact of equity earnings from equity method investments and gain on extinguishment of debt and increased by cash distributions from equity method investments.

When used in conjunction with GAAP financial measures, we believe these non-GAAP measures are supplemental measures of operating performance ~~that~~which explain our operating performance for our ~~period to period~~period-to-period comparisons and against our competitors' performance. Generally, we believe these non-GAAP measures are less susceptible to variances that affect our operating performance results.

We expect the adjustments to Consolidated ~~Adjusted~~ EBITDA and ~~APT Segment~~Consolidated Adjusted EBITDA in future periods will be generally similar. These non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analyzing our results as reported under GAAP.

Consolidated EBITDA and Adjusted EBITDA


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021		2022		2021
Net income (loss)		$	24,253	$	4,975	$	54,580	$	(20,732)
Net (loss) income										Net (loss) income	$	(2,391)	$	24,253	$	(5,750)	$	54,580
Depreciation, amortization, depletion and accretion	Depreciation, amortization, depletion and accretion	2,145		1,777		6,155		5,807		Depreciation, amortization, depletion and accretion	1,671		2,145		4,765		6,155
Amortization of Upfront Customer Consideration	Amortization of Upfront Customer Consideration	127		—		381		—		Amortization of Upfront Customer Consideration	127		127		381		381
Interest expense, net	Interest expense, net	25		862		1,188		2,974		Interest expense, net	44		25		163		1,188
Income tax expense	Income tax expense	4,581		854		14,013		1,315		Income tax expense	—		4,581		—		14,013
Consolidated EBITDA (loss)		31,131		8,468		76,317		(10,636)
Consolidated ( EBITDA loss) EBITDA										Consolidated ( EBITDA loss) EBITDA	(549)		31,131		(441)		76,317
Cash distributions from equity method investees	Cash distributions from equity method investees	22,875		9,712		66,751		42,228		Cash distributions from equity method investees	—		22,875		5,613		66,751
Equity earnings	Equity earnings	(22,195)		(9,518)		(61,944)		(25,959)		Equity earnings	—		(22,195)		(3,222)		(61,944)
Gain on extinguishment of debt	Gain on extinguishment of debt	(3,345)		—		(3,345)		—		Gain on extinguishment of debt	—		(3,345)		—		(3,345)
Gain on change in estimate, asset retirement obligation		—		—		(1,942)		—
Impairment		—		—		—		26,103
Consolidated Adjusted EBITDA		$	28,466	$	8,662	$	75,837	$	31,736
Loss (gain) on change in estimate, asset retirement obligation										Loss (gain) on change in estimate, asset retirement obligation			—		34		(1,942)
Loss on early settlement of Norit Receivable										Loss on early settlement of Norit Receivable	—		—		535		—
Consolidated (Adjusted EBITDA loss) Adjusted EBITDA										Consolidated (Adjusted EBITDA loss) Adjusted EBITDA	$	(549)	$	28,466	$	2,519	$	75,837

~~Business Segments~~

As of September 30, 2021, we have two reportable segments: (1) RC and (2) APT. The business segment measurements provided to and evaluated by our chief operating decision maker are computed in accordance with the principles listed below:

•~~The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies in the 2020 Form 10-K.~~

•~~Segment revenues include equity method earnings and losses from our equity method investments.~~

•Segment operating income (loss) includes segment revenues and allocation of certain "Corporate general and administrative expenses," which include Payroll and benefits, Rent and occupancy, Legal and professional fees, and General and administrative.

•~~RC segment operating income includes interest expense directly attributable to the RC segment.~~

~~The principal products and services of our segments are:~~

1.~~RC - Our RC segment derives its earnings from equity method investments as well as royalty payment streams and other revenues related to enhanced combustion of and reduced emissions of both NO~~X and mercury from the burning of coal. Our equity method investments related to the RC segment primarily include Tinuum Group and Tinuum Services. Segment revenues include our equity method earnings (losses) from our equity method investments and M-45 License royalties earned from Tinuum Group. These earnings are included in the Earnings from equity method investments and License royalties, related party line items in the Condensed Consolidated Statements of Operations. Key drivers to the RC segment performance are the produced and sold RC from both operating and retained RC facilities, royalty-bearing tonnage and the number of operating (leased or sold) and retained RC facilities. These key drivers impact our earnings and cash distributions from equity method investments. Both Tinuum Group and Tinuum Services are winding down their operations due to the expected expiration of the Section 45 tax credit period as of December 31, 2021. As such, our earnings and distributions from our RC segment will substantially cease as of December 31, 2021.

2.APT - Our APT segment includes revenues and related expenses from the sale of our AC and chemical products, which are used to purify coal-fired utilities, industrials, water treatment plants and other markets. For the purification of air and gases, one of the uses of AC is to reduce mercury emissions and other air contaminants, specifically at coal-fired power generators and other industrial companies. These amounts are included within the Consumables and respective cost of revenue line items in the Condensed Consolidated Statements of Operations.

Management uses segment operating income (loss) to measure profitability and performance at the segment level. Management believes segment operating income (loss) provides investors with a useful measure of our operating performance and underlying trends of the businesses. Segment operating income (loss) may not be indicative of our overall consolidated performance and therefore, should be read in conjunction with our Condensed Consolidated Statements of Operations.

~~The following table presents our operating segment results for the three and nine months ended September 30, 2021 and 2020:~~

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
Revenues:
Refined Coal:
Earnings in equity method investments $ 22,195 $ 9,518 $ 61,944 $ 25,959
License royalties, related party 4,165 3,627 11,888 9,986
26,360 13,145 73,832 35,945
Advanced Purification Technologies:
Consumables 24,689 15,844 57,696 33,231
24,689 15,844 57,696 33,231
Total segment reporting revenues 51,049 28,989 131,528 69,176
Adjustments to reconcile to reported revenues:
Earnings in equity method investments (22,195) (9,518) (61,944) (25,959)
Total reported revenues $ 28,854 $ 19,471 $ 69,584 $ 43,217
Segment operating income (loss):
Refined Coal $ 26,341 $ 12,817 $ 73,517 $ 34,454
Advanced Purification Technologies 4,591 (3,280) 4,864 (40,649)
Total segment operating income (loss) $ 30,932 $ 9,537 $ 78,381 $ (6,195)

~~The following table details the segment revenues of our respective equity method investments:~~

~~For the three months ended September 30, 2021 and September 30, 2020~~

RC earnings increased primarily due to an increase in equity earnings in Tinuum Group for the three months ended September 30, 2021 compared to the corresponding quarter in 2020 due to higher production volume driven by increases in overall power generation demand and high competitor prices related to alternative power generation sources such as natural gas. Also, this increase was driven by higher RC facility count for the majority of the three months ended September 30, 2021 compared to the corresponding quarter in 2020.

For the three months ended September 30, 2021, earnings from Tinuum Services decreased compared to the corresponding quarter in 2020 primarily due to a decrease in the number of operating RC facilities in which Tinuum Services provided operating and maintenance services, offset by an increase in tonnage quarter over quarter.

RC earnings related to M-45 License royalties increased for the three months ended September 30, 2021 compared to the corresponding quarter in 2020 due to higher tonnage quarter over quarter, which was primarily a result of an increase in RC facilities that use the M-45 Technology. The increase in tonnage as well as the additional RC facilities attributed to the royalty rate per ton increasing quarter over quarter.

~~For the nine months ended September 30, 2021 and September 30, 2020~~

RC earnings increased primarily due to an increase in equity earnings in Tinuum Group for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to increases in overall power generation demand and higher production volume driven by high competitor prices related to alternative power generation sources such as natural gas. Also, this increase was driven by higher RC facility count for the majority of the nine months ended September 30, 2021 compared to the corresponding period in 2020. Further, for the nine months ended September 30, 2020, we recognized equity earnings from Tinuum Group equal to our proportionate share of Tinuum Group's net income for the period, which was less than cash distributions received for the same period.

For the nine months ended September 30, 2021, earnings from Tinuum Services increased compared to the nine months ended September 30, 2020 primarily due to an increase in tonnage period over period and an increase in the number of operating RC facilities in which Tinuum Services provided operating and maintenance services for the majority of the nine months ended September 30, 2021 compared to the corresponding period in 2020.

RC earnings related to M-45 License royalties increased for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 due to an increase period over period in RC facilities that use the M-45 Technology as well as increased tonnage. While tonnage increased period over period, the royalty rate per ton remained the same due to a majority of the RC contracts having fixed lease payments such that increased tonnages did not result in an incremental increase in earnings.

~~Outlook~~

Both Tinuum Group and Tinuum Services are winding down their operations due to the expected expiration of the Section 45 tax credit period as of December 31, 2021. During the third quarter of 2021, Tinuum Group ceased operating six RC facilities, with a total of seven RC facilities that have ceased operating in 2021. The remaining RC facilities are expected to cease operations during the fourth quarter of 2021. The loss of equity earnings, distributions and M-45 License royalties beginning in 2022 will have a material adverse effect on our financial condition and consolidated operating results compared to historical periods. Earnings in the RC segment for 2021 will continue to be impacted by coal-fired dispatch. As a result of the wind-down in both Tinuum Group's and Tinuum Services' operations occurring through the remainder of 2021, we expect our earnings in both entities to be lower in 2021 compared to 2020. However, in 2021, cash distributions should substantially exceed earnings.

~~RC Segment EBITDA and Adjusted EBITDA~~

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
RC Segment operating income $ 26,341 $ 12,817 $ 73,517 $ 34,454
Depreciation, amortization, depletion and accretion 9 26 41 84
Interest expense 4 94 11 254
RC Segment EBITDA 26,354 12,937 73,569 34,792
Cash distributions from equity method investees 22,875 9,712 66,751 42,228
Equity earnings (22,195) (9,518) (61,944) (25,959)
Gain on extinguishment of debt (97) — (97) —
RC Segment Adjusted EBITDA $ 26,937 $ 13,131 $ 78,279 $ 51,061

~~APT~~

~~Discussion of revenues derived from our APT segment and costs related thereto are included above in our consolidated results.~~

~~For the three months ended September 30, 2021 and September 30, 2020~~

APT segment operating income increased for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to increases in consumables revenues and associated gross margins for the three months ended September 30, 2021, which were driven by increases in volume and product mix quarter over quarter. Our gross margins, exclusive of depreciation and amortization, increased primarily due to the higher volumes that resulted in a lower fixed cost per pound compared to the three months ended September 30, 2020.

~~For the nine months ended September 30, 2021 and September 30, 2020~~

APT segment operating income increased for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to the Impairment Charge of $26.1 million recorded for the nine months ended September

30, 2020. Further, during the nine months ended September 30, 2021 consumable revenues and associated gross margins increased, driven by an increase in volume period over period, specifically products sold under the Supply Agreement, as well as an increase in demand for our products by our current customer base and from new customers.

During the nine months ended September 30, 2020, we incurred costs of $0.4 million related to sequestration of certain of our employees at the Red River Plant. These costs included hazardous pay, lodging expense and other related costs for 60 days.

~~Outlook~~

Based on current market estimates, we believe that the APT segment will continue to be affected by power generation and the pricing of other sources, including natural gas and renewable energy, as well as weather throughout the U.S. For the remainder of 2021, we expect other power generation sources to have higher prices than in previous quarters and that we will continue to see higher demand for our products. Further, in 2021 and beyond, we expect demand from our current customers to be strong based on current market trends and that the Supply Agreement will continue to play a significant role in diversifying our product mix into markets outside of power generation.

~~APT Segment Adjusted EBITDA (Loss)~~

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
APT Segment operating income (loss) $ 4,591 $ (3,280) $ 4,864 $ (40,649)
Depreciation, amortization, depletion and accretion 2,004 1,603 5,706 5,386
Amortization of Upfront Customer Consideration 127 — 381 —
Interest expense, net 75 88 233 275
APT Segment EBITDA (loss) $ 6,797 $ (1,589) $ 11,184 $ (34,988)
Gain on extinguishment of debt (2,562) — (2,562) —
Gain on change in estimate, asset retirement obligation (1) — — (1,942) —
Impairment — — — 26,103
APT Segment Adjusted EBITDA (loss) $ 4,235 $ (1,589) $ 6,680 $ (8,885)

~~(1) Included in APT segment operating income for the nine months ended September 30, 2021 is a $1.9 million gain related to the change in the Marshall Mine ARO as of September 30, 2021.~~

3932

Liquidity and Capital Resources

~~Overview of~~Current Resources and Factors Affecting Our Liquidity

For the nine months ended September 30, 2021, our liquidity position was positively affected primarily from distributions from Tinuum Group and Tinuum Services and M-45 License royalty payments from Tinuum Group.

As of September 30, ~~2021,~~2022, our principal sources of liquidity ~~include:~~included:

•cash on hand, excluding restricted cash of ~~$16.0~~$10.0 million pledged as collateral under ~~the Line of Credit and Surety Agreement requirements;~~

•~~distributions from Tinuum Group and Tinuum Services;~~

•~~M-45 License royalty payments from Tinuum Group;~~

•~~operations of the APT segment;~~a surety bond agreement; and

•~~the Line of Credit.~~our operations.

As of September 30, ~~2021,~~2022, our principal uses of liquidity ~~include:~~included:

•our business operating ~~expenses, including federal~~expenses;

•capital and ~~state tax payments;~~spare parts expenditures;

•payments on our lease obligations; and

•payments of ~~ARO liabilities~~AROs associated with the Five Forks Mine and Marshall Mine.

Due to the expiration of the Section 45 tax credit period as of December 31, 2021 and the resultant wind down of Tinuum Group's and Tinuum Services' operations in 2022, distributions from Tinuum Group and Tinuum Services are no longer a significant source of liquidity.

Tinuum Group and Tinuum Services Distributions

The following table summarizes the cash distributions from our equity method investments ~~that most significantly affected~~

~~our consolidated cash flow results~~ for the nine months ended September 30, ~~2021~~2022 and ~~2020:~~2021:


		Nine Months Ended September 30,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2022		2021
Tinuum Services						Tinuum Services	$	2,476	$	7,902
Tinuum Group	Tinuum Group	$	58,849	$	35,226	Tinuum Group	3,137		58,849
Tinuum Services		7,902		7,002

Distributions from equity method investees	Distributions from equity method investees	$	66,751	$	42,228	Distributions from equity method investees	$	5,613	$	66,751

Cash distributions from Tinuum ~~Group~~ for the nine months ended September 30, ~~2021 increased~~2022 decreased by ~~$23.6~~$61.1 million compared to the nine months ended September 30, ~~2020~~2021 primarily due to higher production volume driven by high competitor prices related to alternative power generation sources such as natural gas. Also, this increase was driven by higher RC facility count for the majority of the nine months ended September 30, 2021 compared to the corresponding period in 2020.

~~Future cash flows from Tinuum are expected to range from $12 million to $14 million. The key drivers in achieving these future cash flows are based on the following:~~

•~~16 invested facilities as of September 30, 2021 and inclusive of all net Tinuum cash flows (distributions and license~~

~~royalties), offset by estimated federal and state income tax payments.~~

~~Expected future cash flows from Tinuum Group are based on the following key assumptions:~~

•~~Tinuum Group continues to not operate retained facilities through the scheduled end date;~~

•~~Tinuum Group does not have material unexpected expenditures related to remediation costs; and~~

•~~Coal-fired power generation remains consistent with contractual expectations.~~

~~Both~~ Tinuum Group and Tinuum Services ~~are winding down their~~ceasing material operations ~~due to the expected expiration of the Section 45 tax credit period~~ as of December 31, 2021. As of September 30, 2021, Tinuum Group ceased operating seven RC facilities in 2021, with the remaining RC facilities expected to cease operations during the fourth quarter of 2021. As such, our distributions from our RC segment are expected to decline during the fourth quarter of 2021 and will substantially cease as of December 31, 2021. Pending final remediation of Tinuum Group’s RC facilities and wind-down of Tinuum operations that is expected to occur in 2022, we expect final cash distributions in 2022.

~~PPP Loan~~

On July 27, 2021, we received formal notification in the form of a letter dated July 19, 2021 from BOK that the SBA approved the forgiveness of our PPP Loan forgiveness application for the PPP Loan in the amount of $3.3 million (including accrued interest). For the three and nine months ended September 30, 2021, the Company recorded a gain on extinguishment of the PPP Loan in the amount of $3.3 million in the Condensed Consolidated Statements of Operations, which is included as a component of "Other income (expense)."

Our business has been classified as an essential business, and therefore we continue to operate on a modified basis to comply with governmental restrictions and public health authority guidelines. In April 2020, we sequestered approximately 60 employees to continue to run the Red River Plant and build-up inventory in order to supply our customers. This resulted in additional costs as the sequestered employees received hazard pay. We used proceeds from the PPP Loan to fund our payroll costs.

~~Senior Term Loan~~

On December 7, 2018, we and ADA-ES, Inc. ("ADA"), a wholly-owned subsidiary, and certain other subsidiaries of the Company as guarantors, The Bank of New York Mellon as administrative agent, and Apollo Credit Strategies Master Fund Ltd and Apollo A-N Credit Fund (Delaware) L.P. (collectively "Apollo”), affiliates of a beneficial owner of greater than five percent of our common stock and a related party, entered into the Senior Term Loan in the amount of $70.0 million, less original issue discount of $2.1 million. Proceeds from the Senior Term Loan were used to fund the acquisition of Carbon Solutions. We also paid debt issuance costs of $2.0 million related to the Senior Term Loan. The Senior Term Loan bore interest at a rate equal to 3-month LIBOR (subject to a 1.5% floor) + 4.75% per annum, which was adjusted quarterly to the current 3-month LIBOR rate, and interest was payable quarterly in arrears. The Senior Term Loan was secured by substantially all the assets of the Company, including the cash flows from the Tinuum Entities, but excluding our equity interests in the Tinuum entities.

On June 1, 2021 and prior to the Senior Term Loan's maturity date, we paid-off in its entirety the Senior Term Loan and all remaining accrued interest through this date. We did not incur any prepayment fees associated with the early pay-off.

~~Line of Credit~~

In September 2013, ADA, as borrower, and us, as guarantor, entered into the Line of Credit with the Lender for an aggregate borrowing amount of $10.0 million, which was secured by certain amounts due to us from certain Tinuum Group RC leases. The Line of Credit has been amended 16 times from the period from December 2, 2013 through September 30, 2021 and included a reduction in the borrowing amount to $5.0 million in September 2018.

On March 23, 2021, we and the Lender entered into an amendment to the Line of Credit (the "Fifteenth Amendment"), which extended the maturity date of the Line of Credit to December 31, 2021 and increased the minimum cash requirement from $5.0 million to $6.0 million. On July 29, 2021, we and the Lender entered into the Sixteenth Amendment (the "Sixteenth Amendment") to the Line of Credit. The Sixteenth Amendment amends certain terms and conditions related to collateral securing the Line of Credit.

~~As of September 30, 2021, we have $1.7 million of borrowing availability and no outstanding borrowings under the Line of Credit.~~

~~Stock Repurchases and Dividends~~

In November 2018, the Board authorized us to purchase up to $20.0 million of our outstanding common stock under a stock repurchase program (the "Stock Repurchase Program"), which was to remain in effect until December 31, 2019 unless otherwise modified by the Board. As of November 2019, $2.9 million remained outstanding related to the Stock Repurchase Program. In November 2019, the Board authorized an incremental $7.1 million to the Stock Repurchase Program and provided that it will remain in effect until all amounts are utilized or it is otherwise modified by the Board.

Under the Stock Repurchase Program, for the three and nine months ended September 30, 2021, we did not repurchase any shares. For the three and nine months ended September 30, 2020, we purchased zero and 20,613 shares, respectively, of our common stock for cash of zero and $0.2 million, respectively, inclusive of commissions and fees. As of September 30, 2021, we had $7.0 million remaining under the Stock Repurchase Program.

~~For the nine months ended September 30, 2021 and 2020, we declared and paid quarterly cash dividends to stockholders of zero and $5.0 million, respectively.~~

~~Liquidity Outlook~~

Our ability to continue to generate sufficient cash flow required to meet ongoing operational needs and obligations, and make potential future dividend payments and share repurchases depends upon several factors. These include: (1) executing on our contracts and initiatives; (2) receiving expected M-45 License royalty payments from Tinuum Group and distributions from Tinuum Group and Tinuum Services through the end of 2021 before they cease as expected; and (3) increasing our share of the market for APT consumables, including expanding our overall AC business into additional adjacent markets and improving our customer and product mix.

For the remainder of 2021, our primary sources of liquidity are expected to be distributions from Tinuum Group and Tinuum Services and M-45 License royalty payments from Tinuum Group. We expect that our cash on hand as of December 31, 2021 will provide sufficient liquidity to fund operations for 2022. For 2021, we expect to spend $9.8 million in capital expenditures compared to $7.1 million incurred in 2020. This increase is primarily the result of product specific capital related to the Supply Agreement, which is estimated to be $0.7 million for the fourth quarter of 2021, and routine scheduled maintenance outages, which occurred in the second quarter of 2021.

As of June 30, 2021, we entered into the Retention Agreements, which are for the purpose of retaining officers and key employees in order to maintain our current business operations while we pursue and execute on our strategic initiatives. The total amount due at time of payment pursuant to the Retention Agreements is $2.4 million, which will be a future use of cash.

Due to the expected expiration of the Section 45 tax period as of December 31, 2021 and the resultant wind down of Tinuum Group's and Tinuum Services' operations by the end of 2021, distributions from Tinuum Group will no longer be a material source of liquidity after 2021.

For 2022 and beyond, our primary sources of liquidity are expected to be from cash on hand and through our ongoing operations of our APT segment. We believe the Supply Agreement will provide material incremental volume and lower operating cost efficiencies of the Red River Plant, providing additional sources of operating cash flows in the future. Full and partial reimbursements on capital expenditures from Cabot will offset our uses of investing cash flows. Further, we intend to fund the remaining portion of the Reclamation Costs from cash on hand as well as cash generated from the Supply Agreement. We believe that as reclamation activities occur and the related bonded amounts required under the Surety Agreement are able to be reduced, there may be an opportunity to further reduce the collateral requirement. In 2022 and beyond, our annual capital expenditures, exclusive of any capital specifically procured for Cabot under the Supply Agreement, are expected to average approximately $5.0 million.

~~Sources and Uses of~~ Cash Flows

Nine Months Ended September 30, ~~2021~~2022 vs. Nine Months Ended September 30, ~~2020~~2021

Cash ~~cash equivalents~~ and restricted cash ~~increased~~decreased from ~~$35.9~~$88.8 million as of December 31, ~~2020~~2021 to ~~$82.1~~$85.8 million as of September 30, ~~2021.~~2022. The following table summarizes our cash flows for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively:


		Nine Months Ended September 30,							Nine Months Ended September 30,
(in thousands)	(in thousands)	2021		2020		Change		(in thousands)	2022		2021		Change
Cash and cash equivalents and restricted cash provided by (used in):

Cash and restricted cash provided by (used in):								Cash and restricted cash provided by (used in):

Operating activities	Operating activities	$	24,688	$	34,918	$	(10,230)	Operating activities	$	352	$	24,688	$	(24,336)

Investing activities	Investing activities	38,937		(5,602)		44,539		Investing activities	(1,966)		38,937		(40,903)

Financing activities	Financing activities	(17,418)		(21,367)		3,949		Financing activities	(1,343)		(17,418)		16,075
Net change in cash and cash equivalents and restricted cash		$	46,207	$	7,949	$	38,258
Net change in cash and restricted cash								Net change in cash and restricted cash	$	(2,957)	$	46,207	$	(49,164)

Cash flow from operating activities

Cash flows provided by operating activities for the nine months ended September 30, ~~2021~~2022 decreased by ~~$10.2~~$24.3 million compared to the nine months ended September 30, ~~2020.~~2021. The ~~net~~ decrease was primarily attributable to a net ~~decrease in non-cash adjustments~~loss of $5.8 million for the nine months ended September 30, 2022 compared to ~~reconcile~~ net income ~~(loss) to net cash provided by operating activities, which totaled $71.5 million. Specifically, the net decrease~~of $54.6 million for the nine months ended September 30, 2021, ~~compared to the nine months ended September 30, 2020 consisted of decreases~~a decrease in ~~Earnings from equity method investees of $36.0 million, Impairment of long-lived assets of $26.1 million,~~ Deferred income tax expense of ~~$1.7~~$9.0 million, ~~and an increase in Gain on extinguishment of debt of $3.3 million. Also contributing to the net decrease in cash flows provided by operating activities period over period was~~ a decrease in Distributions from equity method investees, return on investment of ~~$20.2~~$19.7 million and an increase in net working capital of $5.1 million. Offsetting the net decrease in cash flows provided by operating activities for the nine months ended September 30, ~~2021~~2022 compared to the nine months ended September 30, ~~2020 was a~~2021 were decreases in Earnings from equity method investments of $58.7 million, Other long-term assets, net of $6.1 million, primarily from the Norit Payment in settlement of the Reclamation Reimbursement, and the non-cash gain recognized from the change in ~~net income~~estimate of ~~$75.3 million for~~ the ~~nine months ended September 30, 2021 as a result~~Marshall Mine ARO of ~~net loss recognized for the nine months ended September 30, 2020.~~$2.0 million.

Cash flow from investing activities

Cash flows provided by (used in) investing activities decreased for the nine months ended September 30, ~~2021~~2022 compared to the nine months ended September 30, ~~2020 increased~~2021 by ~~$44.5~~$40.9 million primarily ~~from~~as a result of a decrease in distributions from equity earnings in excess of cumulative ~~earnings.~~

earnings of $41.4 million. Offsetting the net decrease in cash flows provided by (used in) investing activities was an increase in property, plant and equipment additions of $0.8 million.

Cash flow from financing activities

Cash flows used in financing activities for the nine months ended September 30, ~~2021~~2022 compared to the nine months ended September 30, ~~2020~~2021 decreased by ~~$3.9~~$16.1 million primarily from ~~decreases~~a decrease in principal loan repayments on ~~the Senior Term Loan of $2.0 million, dividends paid of $4.9 million and repurchases of common shares of $0.2 million. Offsetting these decreases in cash flows used in financing activities was~~ a ~~decrease in cash flows provided by financing activities related to proceeds received from the PPP Loan of $3.3 million for the nine months ended September 30, 2020.~~senior term loan.

~~Contractual Obligations~~Material Cash Requirements

For the nine months ended September 30, ~~2021 ,~~2022, there were no material changes to our contractual obligations outside of the ordinary course of business from those reported as of December 31, ~~2020, except~~2021. We expect that our cash on hand as of September 30, 2022 will provide sufficient liquidity to fund operations for ~~a reduction~~the next 12 months.

Capital Expenditures

For 2022, we expect to incur $11.4 million in capital expenditures compared to $7.6 million incurred in 2021. This increase is primarily the result of forecasted capital improvements to the Red River Plant of approximately $4.4 million, product specific capital expenditures related to the Supply Agreement of approximately $0.7 million and scheduled maintenance improvements. We expect to fund all capital expenditures for 2022 from cash on hand.

Retention Agreements

In August 2022, the Company paid out $1.0 million pursuant to the payment terms of the Amended Retention Agreements. As of September 30, 2022, the remaining outstanding amount due under the Amended Retention Agreements is $1.1 million.

Five Forks Mine and Marshall Mine ~~ARO of $1.9 million as of June 30, 2021 based on revised estimates from a reduction in scope of the reclamation work.~~

~~Off-Balance Sheet Arrangements~~Obligations

As of September 30, ~~2021,~~2022, we had outstanding surety bonds ofwith regulatory commissions totaling $24.1 million related to ~~performance requirements under reclamation contracts associated with~~ both the ~~Five Forks~~Marshall Mine and ~~the Marshall~~Five Forks Mine. As of September 30, ~~2021,~~2022, and as required by our surety bond provider, we ~~had~~held restricted cash of $10.0 million ~~securing~~pledged as collateral related to performance requirements required under reclamation contracts for both the ~~Surety Agreement.~~Marshall Mine and Five Forks Mine. We expect that the obligations secured by these surety bonds will be performed in the ordinary course of business and in accordance with the applicable contractual terms. To the extent that the obligations are performed, the related surety bonds should be released and ~~we should not have any continuing obligations.~~collateral requirements reduced. However, in the event any surety bond is called, our indemnity obligations could require us to reimburse the ~~issuer~~surety bond provider.

We intend to fund our mine reclamation costs associated with both the Five Forks Mine and Marshall Mine from cash on hand. As discussed above, on September 2, 2022, we executed the sale of all of our equity interests in Marshall Mine, LLC and upon the expected closing of this transaction, we expect to fully discharge the liability associated with the Reclamation Costs and also reduce both the surety ~~bond.~~bond and collateral requirements as we will only be obligated for future remediation costs for the Five Forks Mine.

Critical Accounting Policies and Estimates

Our ~~significant~~critical accounting policies and estimates have not changed from those reported in Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the ~~2020~~2021 Form 10-K.

Recently Issued Accounting Standards

Refer to Note 1 of the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report for information regarding recently issued accounting standards applicable to us.

Forward-Looking Statements Found in this Report

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that involve risks and uncertainties. In particular, such forward-looking statements are found in this Part I, Item 2 above. Words or phrases such as "anticipates," "believes," "expects," "intends," "plans," "estimates," "predicts," the negative expressions of such words, or similar expressions are used in this Quarterly Report to identify forward-looking statements, and such forward-looking statements include, but are not limited to, statements or expectations regarding:

(a)the ~~scheduled expiration of the IRC Section 45 tax credit period in 2021 and the resulting wind down of the business of, and loss of revenue from, Tinuum Group and Tinuum Services;~~

~~(b)the production and sale of RC by RC facilities through the remainder of 2021 that will qualify for Section 45 tax credits and associated cash flows from Tinuum Group expected through 2021;~~

~~(c)expected growth or contraction in and potential size of our target APT markets, including the water purification, food and beverage and pharmaceuticals markets;~~

~~(d)the~~ anticipated effects from the increase in pricing of our ~~APT~~AC products;

~~(e)~~

(b)the anticipated effects from the increase in costs of our AC products related cost increases in supply and logistics;

(c)expected supply and demand for our ~~APT~~AC products and services;

~~(f)~~(d)increasing competition in the ~~APT~~AC market;

~~(g)~~(e)the timing and effects of the proposed merger with Arq Limited;

(f)future level of research and development activities;

~~(h)~~(g)the effectiveness of our technologies and the benefits they provide;

~~(i)~~(h)probability of any loss occurring with respect to certain guarantees made by Tinuum Group;

~~(j)~~(i)the timing of awards of, and work and related testing under, our contracts and agreements and their value;

~~(k)~~(j)the timing and amounts of or changes in future revenues, ~~royalties earned,~~ backlog, funding for our business and projects, margins, expenses, earnings, tax rates, cash flows, royalty payment obligations, working capital, liquidity and other financial and accounting measures;

~~(l)~~(k)the amount of future capital expenditures needed for our business;

~~(m)~~(l)awards of patents designed to protect our proprietary technologies both in the U.S. and other countries;

~~(n)~~(m)the adoption and scope of regulations to control certain chemicals in drinking water; ~~and~~

(n)

the impact of adverse global macroeconomic conditions, including rising interest rates, recession fears and inflationary pressures, and geopolitical events or conflicts; and

(o)opportunities to effectively provide solutions to U.S. coal-related businesses to comply with regulations, improve efficiency, lower costs and maintain reliability.

The forward-looking statements included in this Quarterly Report involve risks and uncertainties. Actual events or results could differ materially from those discussed in the forward-looking statements as a result of various factors including, but not limited to, timing of new and pending regulations and any legal challenges to or extensions of compliance dates of them; the U.S. government’s failure to promulgate regulations that benefit our business; changes in laws and regulations, accounting rules, prices, economic conditions and market demand; impact of competition; availability, cost of and demand for alternative energy sources and other technologies; technical, start up and operational difficulties; ~~decreases in the production of RC;~~ our inability to commercialize our APT technologies on favorable terms; our inability to ramp up our operations to effectively address recent and expected growth in our ~~APT~~ business; loss of key personnel; availability of materials and equipment for our ~~businesses;~~business; intellectual property infringement claims from third parties; pending litigation; as well as other factors relating to our business, as described in our filings with the SEC, with particular emphasis on the risk factor disclosures contained in those filings. You are cautioned not to place undue reliance on the forward-looking statements made in this Quarterly Report and to consult filings we have made and will make with the SEC for additional discussion concerning risks and uncertainties that may apply to our business and the ownership of our securities. The forward-looking statements contained in this Quarterly Report are presented as of the date hereof, and we disclaim any duty to update such statements unless required by law to do so.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The information under this Item is not required to be provided by smaller reporting companies.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a‑15(b) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), we have evaluated, under the supervision of and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Based upon this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of September 30, ~~2021.~~2022 due to the material weakness described in Item 9A. "Controls and Procedures" of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for the initial application of the adoption of ASC 606 related to the accounting for freight, which was previously immaterial; an inadequate monitoring of interpretative guidance of previously adopted accounting standards; and a lack of a control related to an annual review of policies and procedures for material accounts.

Notwithstanding the material weaknesses, management has concluded that the Condensed Consolidated Financial Statements included in this Quarterly Report present fairly, in all material aspects, the Company’s financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.

Changes in Internal Control Over Financial Reporting

~~There have been no~~Under the applicable SEC rules (Exchange Act Rules 13a-15(f) and 15d-15(f) management is required to evaluate any changes in ~~our~~ internal control over financial reporting ~~(as defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act)~~that occurred during ~~the~~each fiscal quarter ~~ended September 30, 2021~~ that ~~have~~ materially affected, or ~~are~~is reasonably likely to materially affect, our internal control over financial reporting. As discussed in Item 9A. "Controls and Procedures" of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, we identified a material weakness in our internal control over financial reporting described above. As of September 30, 2022, we designed and implemented remediation procedures which enhanced existing controls that were ineffective in the prior year and implemented new controls to address the design gaps related to the material weakness. The updates to the internal controls framework include enhanced monitoring of interpretative guidance of previously adopted accounting standards and a periodic review of policies and procedures associated to material accounts. For the fiscal quarter ended September 30, 2022, the new controls were in place and remediation procedures continued, and, accordingly, we believe the controls will bein place for a sufficient period of time to conclude on their effectiveness as of December 31, 2022.

4436

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are involved in litigation, claims and other proceedings related to the conduct of our business. Information with respect to this item may be found in Note 118 "Commitments and Contingencies" to the consolidated financial statements included in Item 1 of Part I of this Quarterly Report.

Item 1A. Risk Factors

There are no material updates to our risk factors as disclosed in the ~~2020~~2021 Form 10-K except as ~~set forth~~described below. ~~These~~

Risks Related to our Pending Business Combination

We are subject to a number of risks ~~factor should be read together~~and uncertainties related to the pending Transactions including, but not limited to, the risks discussed below in this section of the risk factors. For additional information about the pending Transactions and the additional risks and uncertainties related to the Transactions, see New ADES’ registration statement on Form S-4, filed with the ~~risk factors~~SEC on November 3, 2022.

Completion of the Transactions is subject to certain conditions, some of which are outside of the parties’ control, and if these conditions are not satisfied or waived, the Transactions will not be completed.

The closing of the Transactions is subject to certain conditions, including (i) ADES stockholder approval of the merger proposal and related matters at our special meeting of stockholders, (ii) Arq shareholder approval of the Scheme of Arrangement and certain related matters, (iii) the expiration or termination of all waiting periods applicable to the Contemplated Transactions under the HSR Act, (v) the effectiveness of the registration statement on Form S-4 for the New ADES Shares, (vi) receipt of Nasdaq listing approval for the New ADES Shares and the shares of New ADES to be issued in the ~~2020 Form 10-K.~~Arq Acquisition, (vii) subject to certain materiality exceptions, the accuracy of each of our and Arq’s representations and warranties in the Transaction Agreement and performance by us and Arq of obligations under the Transaction Agreement and (viii) the sanctioning of the Scheme of Arrangement by the Royal Court of Jersey and the delivery of the order of the Royal Court of Jersey sanctioning the Scheme of Arrangement to the Registrar of Companies in Jersey.

The ~~U.S. presidential executive order concerning mandatory COVID-19 vaccination~~requirement to satisfy each of ~~U.S.-based employees~~the foregoing conditions could delay completion of ~~companies~~the Transactions for a significant period of time or prevent them from occurring at all. Any delay in completing the Transactions could cause New ADES not to realize some or all of the benefits that ~~work~~the parties expect New ADES to achieve if the Transactions are successfully completed within the expected timeframe. Additionally, any delay in completing the Transactions could lead to increased costs for us and Arq. Further, as a condition to approving the Transactions, governmental authorities may impose conditions, terms, obligations or restrictions on the conduct of the parties’ business after the completion of the Transactions. Notwithstanding the provisions of the Transaction Agreement, if the parties were to become subject to any conditions, terms, obligations or ~~in support~~restrictions (whether because such conditions, terms, obligations and restrictions do not rise to the specified level of ~~federal contracts and~~materiality or because the parties consent to their imposition), it is possible that such conditions, terms, obligations or restrictions will delay completion of the Transactions or otherwise adversely affect the parties’ business, financial condition, or operations. Furthermore, governmental authorities may require that the parties divest assets or businesses as a ~~new OSHA standard requiring testing~~condition to the closing of ~~non-vaccinated employees could have a material adverse impact~~the Transactions. If we are required to divest assets or businesses, there can be no assurance that we will be able to negotiate such divestitures expeditiously or on ~~our business and results~~favorable terms or that the governmental authorities will approve the terms of ~~operations.~~

~~On September 9, 2021, President Biden issued Executive Order 14042 (the "Executive Order") requiring all employers with U.S. Government contracts~~such divestitures. There can be no assurance that the conditions to ~~ensure~~the closing of the Transactions will be satisfied or, where applicable, waived or that their U.S.-based employees, contractors, and subcontractors that work on or in support of U.S. Government contracts are fully vaccinated by December 8, 2021. The executive order includes on-site and remote U.S.-based employees, contractors and subcontractors and it only permits limited exemptions for medical and religious reasons.the Transactions will be completed.

In addition, if the Transactions shall not have occurred by April 30, 2023 (subject to certain extension rights), either we or Arq may choose not to proceed with the Transactions. We and Arq may also terminate the Transaction Agreement under certain specified circumstances.

Failure to complete the Transactions could negatively impact our stock price and the future business and financial results.

If the Transactions are not completed for any reason, including as a result of our stockholders failing to adopt the Transaction Agreement and approve the transactions contemplated thereby, or Arq shareholders failing to approve the Scheme of Arrangement, our ongoing business may be adversely affected and, without realizing any of the benefits of having completed the Transactions, we would be subject to a number of risks, including the following:

•we may be required, under certain circumstances, to pay Arq a termination fee of approximately $3 million and/or reimburse Arq for certain fees and expenses in an amount of up to $3 million;

•we are subject to certain restrictions on ~~September 9, 2021, President Biden announced that he has directed OSHA~~the conduct of our businesses prior to ~~develop an Emergency Temporary Standard ("ETS") mandating either~~completing the ~~full vaccination or weekly testing~~Transactions, which may adversely affect our ability to execute certain of ~~employees for employers~~our respective business strategies going forward if the Transactions are not completed;

•we have incurred and will continue to incur significant costs and fees associated with ~~100 or more employees. OSHA published~~ the ~~ETS on November 5, 2021, which includes a requirement that employers with 100 or more employees institute either a mandatory vaccine policy or a policy for weekly testing~~proposed Transactions, such as legal, accounting, financial advisor and ~~masking~~printing fees, regardless of ~~unvaccinated employees.~~whether the Transactions are completed;

~~We cannot currently predict with certainty~~•we may experience negative reactions from the ~~impact the Executive Order or the OSHA ETS will have~~financial markets, including negative impacts on our ~~workforce. Although~~ stock prices;

•we are considered a federal contractor, the Executive Order does not cover subcontracts solely for the provision of products; however, some federal agency guidance, including the guidance issued by the General Services Agencymay experience negative reactions from our customers, regulators and employees; and

•matters relating to the ~~Executive Order, indicates~~Transactions (including integration planning) will require substantial commitments of time and resources by our management, which would otherwise have been devoted to day-to-day operations and other opportunities that ~~through~~may have been beneficial to us as an independent company.

In addition, we could be subject to litigation related to any failure to complete the ~~federal contracting process the requirements of the Executive Order may be applied, at an as of now unknown time,~~Transactions or related to ~~entities not covered~~any enforcement proceeding commenced against us to perform our obligations under the ~~language of~~Transaction Agreement. If the ~~Executive Order.~~Transactions are not completed, these risks may materialize and may adversely affect our business, financial condition, financial results and stock price.

~~To the extent the Executive Order is not applicable~~The Transaction Agreement limits our ability to pursue alternatives to the ~~Company, the OSHA ETS, if enforceable, will apply~~Transaction, may discourage other companies from making a favorable alternative transaction proposal and, in specified circumstances, could require us to pay Arq a termination fee and/or reimburse Arq for certain of its expenses.

The Transaction Agreement contains certain provisions that restrict our ability to solicit, initiate, knowingly encourage induce or facilitate any inquiry, proposal or offer with respect to, or making or completion of, any acquisition proposal, or any inquiry, proposal or offer that would reasonably be expected to lead to, an acquisition proposal with respect to the Company, and we have agreed to certain terms and conditions relating to our ability to enter into, continue or otherwise participate in any discussions or negotiations regarding or otherwise cooperate in any way with, any acquisition proposal. In addition, Arq generally has an opportunity to offer to modify the ~~Company is currently developing policies and procedures meeting the requirements~~terms of the ~~OSHA ETS. Additional vaccine mandates~~Transaction Agreement in response to any competing acquisition proposals or intervening events before our Board may withdraw, modify or qualify its recommendation. The Transaction Agreement further provides that under specified circumstances, including after receipt of certain alternative acquisition proposals, we may be ~~announced~~required to pay Arq a cash termination fee equal to $3 million and/or reimburse Arq for certain fees and expenses in ~~jurisdictions~~an amount of up to $3 million.

These provisions could discourage a potential third-party acquirer or other strategic transaction partner that might have an interest in ~~which~~acquiring all or a significant portion of our Company from considering or pursuing an alternative transaction with us or proposing such a transaction, even if it were prepared to pay consideration with a higher per share value than the total value proposed to be paid or received in the mergers. These provisions might also result in a potential third-party acquirer or other strategic transaction partner proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances.

We will incur significant transaction and merger-related costs in connection with the Transactions.

We have incurred and expect to incur a number of non-recurring direct and indirect costs associated with the Transactions. These costs and expenses include fees paid to financial, legal and accounting advisors, severance and other potential employment-related costs, including payments that may be made to certain of our executives, filing fees, printing expenses and other related charges. Some of these costs are payable by us regardless of whether the Transactions are completed. There are also processes, policies, procedures, operations, technologies and systems that must be integrated in connection with the Transactions and the integration of the two companies’ businesses. While we have assumed that a certain level of expenses would be incurred in connection with the Transactions and the other transactions contemplated by the Transaction Agreement and continue to assess the magnitude of these costs, there are many factors beyond our control that could affect the total amount or the timing of the integration and implementation expenses.

There may also be additional unanticipated significant costs in connection with the Transactions that we may not recoup. These costs and expenses could reduce the realization of efficiencies and strategic benefits we expect New ADES to achieve from the Transactions. Although we expect that these benefits will offset the transaction expenses and implementation costs over time, this net benefit may not be achieved in the near term or at all.

In connection with the Transactions, we may be required to take write-downs or write-offs, restructuring and impairment or other charges that could negatively affect our business, operates. Our implementation of these required policies may result in employee attrition, including attrition of critically skilled labor, and difficulty securing future labor needs, which could have a material adverse effect on our business,assets, liabilities, prospects, outlook, financial condition and results of operations.

~~Our inability~~Although we have conducted extensive due diligence in connection with the Transactions and related transactions, we cannot assure stockholders that this diligence revealed all material issues that may be present, that it would be possible to ~~meet customer supply requirements~~uncover all material issues through a customary amount of due diligence or that factors outside of our control will not later arise. Even if our due diligence successfully identifies certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. Further, as a result of the Transactions, purchase accounting and the proposed operation of New ADES going forward, we may be required to take write-offs or write-downs, restructuring and impairment or other charges. As a result, we may be forced to write-down or write-off assets, restructure its operations or incur impairment or other charges that could negatively affect our business, assets, liabilities, prospects, outlook, financial condition and results of operations.

We may have difficulty attracting, motivating and retaining executives and other key employees due to ~~damage to or insufficient production capacity of our manufacturing facility may have a material adverse effect on our business, results of operations and financial condition.~~uncertainty associated with the Transactions.

We own and operate a single activation-based manufacturing plant (the Red River Plant), which is our sole manufacturing plant for producing and selling products to our customers. Our ability to meet customer expectations, manage inventory, complete sales and achieve our objectives for operating efficiencies depends on the full-time operationNew ADES’ success after completion of the ~~Red River Plant. We cannot replicate~~Transactions will depend in part upon the ability of New ADES to retain our ~~manufacturing methods at another plant due to~~key employees. Competition for qualified personnel can be intense. Our current and prospective employees may experience uncertainty about the ~~limited availability~~effect of ~~similar manufacturing plants,~~ the ~~additional costs incurred in supplying raw materials such as lignite to another plant, and the risk of revealing our confidential and proprietary technologies and manufacturing processes.~~

If the Red River Plant was destroyed or damaged in a significant manner, we would suffer a loss of inventory to supply customers, likely incur additional costs to deliver products to our customers, and disrupt the ordinary course of our business. In addition, if contractual demand exceeds manufacturing capacity, we would jeopardizeTransactions, which may impair our ability to ~~fulfill obligations under~~attract, retain and motivate key management, sales, marketing, manufacturing, technical and other personnel prior to and following the Transactions. Employee retention may be particularly challenging during the pendency of the Transactions, as our ~~contracts, which~~employees may experience uncertainty about their future roles with New ADES.

In addition, pursuant to severance provisions in our executive employment agreements, certain of our key employees are entitled to receive severance payments upon certain qualifying terminations of their employment. Certain of our key employees potentially could terminate their employment following specified circumstances set forth in ~~turn,~~the applicable executive severance scheme or employment agreement, including certain changes in such key employees’ title, status, authority, duties, responsibilities or compensation, and be entitled to receive severance. Such circumstances could occur in connection with the Transactions as a result of changes in ~~reduced sales, contract penalties or terminations, damage to our customer relationships~~roles and ~~could have a material adverse effect on our business.~~ responsibilities.

While we ~~have insured~~may employ the ~~Red River Plan for damage or destruction as well as for losses from business interruptions,~~use of certain retention programs, there can be no guarantee that they will prove to be successful. If our key employees depart, the integration of the companies may be more difficult and New ADES’ business following the Transactions may be harmed. Furthermore, New ADES may be required to incur significant costs in identifying, hiring, training and retaining replacements for departing employees and may lose significant expertise and talent relating to our business, which may adversely affect New ADES’ ability to realize the anticipated benefits of the Transactions. Accordingly, no assurance can be given that ~~any insurance coverage~~New ADES will be ~~sufficient~~able to ~~cover any such losses.~~attract or retain our key employees to the same extent that we have been able to attract or retain our own employees in the past.

~~Further, a prolonged~~Our business relationships may be subject to disruption ~~in our operations~~ due to ~~Red River Plant downtime~~uncertainty associated with the Transactions.

Companies with which we do business may experience uncertainty associated with the Transactions, including with respect to current or ~~having to meet customer requirements that exceed its maximum manufacturing capacity would require us to seek alternative customer supply arrangements, which may not be on attractive terms to~~future business relationships with us or ~~could lead~~New ADES. Our business relationships may be subject to ~~delays~~disruption as customers, distributors, suppliers, vendors and others may attempt to negotiate changes in ~~distribution of products to our customers, either of which~~existing business relationships or consider entering into business relationships with parties other than us or New ADES. These disruptions could have ~~a material~~an adverse effect on ~~our business,~~the businesses, financial condition, results of operations or prospects of New ADES, including an adverse effect on New ADES’ ability to realize the anticipated benefits of the Transactions. The risk and ~~financial condition.~~adverse effect of such disruptions could be exacerbated by a delay in completion of the Transactions.

Completion of the Transactions may trigger change-in-control or other provisions in certain agreements to which we are a party.

The completion of the Transactions may trigger change-in-control or other provisions in certain agreements to which we are a party. If we are unable to negotiate waivers of those provisions, the respective counterparties may exercise their rights and remedies under the applicable agreements, including in some instances potentially terminating the agreements or seeking monetary damages. Even if we are able to negotiate waivers, the respective counterparties may require a fee for such waivers or seek to renegotiate the agreements on terms less favorable to the combined business.

4539

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

The statement concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95.1 to this Quarterly Report.

Item 5. Other Information

None.

4640

Item 6. Exhibits

Exhibit No.

Description

Form

File No.

Incorporated by Reference
Exhibit

Filing Date

Exhibit No.

Description

Form

File No.

Incorporated by Reference
Exhibit

Filing Date

2.1

Transaction Agreement, dated as of August 19, 2022, by and among Advanced Emissions Solutions, Inc., Elbert Holdings, Inc., Elbert Merger Sub 1, Inc., and Arq Limited

8-K

001-37822

2.1

August 19, 2022

10.1

Sixteenth Amendment of 2013 Loan and Security Agreement by and among ADA-ES,Inc., Advanced Emissions Solutions, Inc., and BOK, NA d/b/a Bank of Oklahoma dated as of July 29, 2021

8-K

001-37822

10.1

July 29, 2021

10.1

Membership Interest Purchase Agreement between Caddo Creek Resources Company, L.L.C., as Buyer, and ADA Carbon Solutions (Operations), LLC, as Seller dated as of September 2, 2022**

8-K

001-37822

10.1

September 6, 2022

31.1

Certification of Principal Executive Officer of Advanced Emissions Solutions, Inc. Pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a)*

31.1

Certification of Principal Executive Officer of Advanced Emissions Solutions, Inc. Pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a)*

31.2

Certification of Principal Financial Officer of Advanced Emissions Solutions, Inc. Pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a)*

31.2

Certification of Principal Financial Officer of Advanced Emissions Solutions, Inc. Pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a)*

32.1

Certification of Principal Executive Officer and Principal Financial Officer of Advanced Emissions Solutions, Inc. Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

32.1

95.1

Mine Safety Disclosure Exhibit*

95.1

Mine Safety Disclosure Exhibit*

101. INS

XBRL Instance Document

101. INS

XBRL Instance Document*

101.SCH

XBRL Schema Document

101.SCH

XBRL Schema Document*

101.CAL

XBRL Calculation Linkbase Document

101.CAL

XBRL Calculation Linkbase Document*

101.LAB

XBRL Label Linkbase Document

101.LAB

XBRL Label Linkbase Document*

101.PRE

XBRL Presentation Linkbase Document

101.PRE

XBRL Presentation Linkbase Document*

101.DEF

Taxonomy Extension Definition Linkbase Document

101.DEF

Taxonomy Extension Definition Linkbase Document*

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)*

Notes:

* – Filed herewith.

** Portions of this exhibit have been omitted pursuant to a request for confidential treatment.

4741

SIGNATURES

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


	Advanced Emissions Solutions, Inc.
	(Registrant)


November ~~9, 2021~~8, 2022	By:	/s/ Greg Marken
		Greg Marken
		Chief Executive Officer
		(Principal Executive Officer)


November ~~9, 2021~~8, 2022	By:	/s/ Morgan Fields
		Morgan Fields
		Chief Accounting Officer
		(Principal Financial Officer)

4842


(in thousands)	As Originally Reported		Adjustments		As Adjusted
Assets acquired:
Receivables	$	—	$	513	$	513
Property, plant and equipment	3,863		—		3,863
Spare parts	100		—		100

Liabilities assumed:
Accounts payable and accrued expenses	(673)		160		(513)
Asset retirement obligation	(21,328)		—		(21,328)
Net assets acquired and liabilities assumed from Marshall Mine acquisition	(18,038)		673		(17,365)
Cabot Receivable	9,749		—		9,749
Upfront Customer Consideration	$	8,289	$	(673)	$	7,616


	As of
(in thousands)	September 30, 2021		December 31, 2020
Equity method investment in Tinuum Group	$	—	$	3,387
Equity method investment in Tinuum Services	2,824		4,242
Equity method investment in other	60		63


Total equity method investments	$	2,884	$	7,692


	Three Months Ended September 30, 2021				Nine Months Ended September 30, 2021
	Segment						Segment
	APT		RC		Total		APT		RC		Total
Revenue component
Consumables	$	24,689	$	—	$	24,689	$	57,696	$	—	$	57,696
License royalties, related party	—		4,165		4,165		—		11,888		11,888


Revenues from customers	24,689		4,165		28,854		57,696		11,888		69,584

Earnings from equity method investments	—		22,195		22,195		—		61,944		61,944

Total revenues from customers and earnings from equity method investments	$	24,689	$	26,360	$	51,049	$	57,696	$	73,832	$	131,528


	Three Months Ended September 30, 2020				Nine Months Ended September 30, 2020
	Segment						Segment
	APT		RC		Total		APT		RC		Total
Revenue component
Consumables	$	15,844	$	—	$	15,844	$	33,231	$	—	$	33,231
License royalties, related party	—		3,627		3,627		—		9,986		9,986


Revenues from customers	15,844		3,627		19,471		33,231		9,986		43,217

Earnings from equity method investments	—		9,518		9,518		—		25,959		25,959

Total revenues from customers and earnings from equity method investments	$	15,844	$	13,145	$	28,989	$	33,231	$	35,945	$	69,176


	As of September 30, 2021
(in thousands)	Unrecognized Compensation Cost		Expected Weighted- Average Period of Recognition (in years)
RSA expense	$	2,558	2.01

PSU expense	438		1.99

Total unrecognized stock-based compensation expense	$	2,996	2.01


	Restricted Stock	Weighted-Average Grant Date Fair Value

Non-vested at January 1, 2021	373,860	$	7.25
Granted	441,109	$	5.53
Vested	(193,624)	$	7.44
Forfeited	(54,299)	$	5.80
Non-vested at September 30, 2021	567,046	$	5.99


	As of September 30, 2021				As of December 31, 2020
(in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial Instruments:



Highview Investment	$	552	$	552	$	552	$	552








Highview Obligation	$	226	$	226	$	228	$	228