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, ~~2022~~2023


☐			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)

______________________________________

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 Global Market

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

Indicate by check mark whether the registrant has submitted electronically 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 such files). Yes ☒ No ☐

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

Large accelerated filer

☐

Accelerated filer

☐☒

Non-accelerated filer

☒☐

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 Global Market~~

As of November 2, ~~2022,~~2023, there were ~~19,110,910~~33,180,907 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, ~~2022~~2023 and December 31, ~~2021~~2022	1
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, ~~2022~~2023 and September 30, ~~2021~~2022	2
	Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and Nine Months Ended September 30, ~~2022~~2023 and September 30, ~~2021~~2022	3
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2022~~2023 and September 30, ~~2021~~2022	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3533
Item 4.	Controls and Procedures	3533

PART II. - OTHER INFORMATION

Item 1.	Legal Proceedings	3734
Item 1a.	Risk Factors	3734
Item 2.	Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds and Issuer Purchases of Equity Securities	4034
Item 3.	Defaults Upon Senior Securities	4035
Item 4.	Mine Safety Disclosures	4035
Item 5.	Other Information	4035
Item 6.	Exhibits	4137
	Signatures	4238

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, 2022		December 31, 2021		(in thousands, except share data)	September 30, 2023		December 31, 2022
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash	Cash	$	75,823	$	78,753	Cash	$	52,529	$	66,432
Receivables, net	Receivables, net	13,903		12,622		Receivables, net	14,225		13,864
Receivables, related parties		—		2,481

Inventories, net	Inventories, net	15,261		7,850		Inventories, net	18,549		17,828
Prepaid expenses and other current assets		7,653		6,661

Prepaid expenses and other current assets						Prepaid expenses and other current assets	6,171		7,538
Total current assets	Total current assets	112,640		108,367		Total current assets	91,474		105,662
Restricted cash, long-term	Restricted cash, long-term	10,000		10,027		Restricted cash, long-term	8,792		10,000
Property, plant and equipment, net of accumulated depreciation of $10,704 and $7,684, respectively		33,286		30,171
Other long-term assets, net		29,529		36,871
Property, plant and equipment, net of accumulated depreciation of $17,110 and $11,897, respectively						Property, plant and equipment, net of accumulated depreciation of $17,110 and $11,897, respectively	85,709		34,855

Other long-term assets, net						Other long-term assets, net	44,629		30,647
Total Assets	Total Assets	$	185,455	$	185,436	Total Assets	$	230,604	$	181,164
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable and accrued expenses	Accounts payable and accrued expenses	$	18,652	$	16,486	Accounts payable and accrued expenses	$	13,972	$	16,108

Current portion of finance lease obligations		1,182		1,011
Other current liabilities		5,361		5,124
Current portion of debt obligations						Current portion of debt obligations	1,991		1,131

Other current liabilities						Other current liabilities	6,061		6,645
Total current liabilities	Total current liabilities	25,195		22,621		Total current liabilities	22,024		23,884
Long-term finance lease obligations, net of current portion		3,731		3,152
Long-term debt obligations, net of current portion						Long-term debt obligations, net of current portion	19,179		3,450

Other long-term liabilities	Other long-term liabilities	13,906		12,362		Other long-term liabilities	15,107		13,851
Total Liabilities	Total Liabilities	42,832		38,135		Total Liabilities	56,310		41,185
Commitments and contingencies (Note 8)	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 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		24		23
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)
Preferred stock: par value of $0.001 per share, 50,000,000 shares authorized including Series A Convertible Preferred Stock: par value $0.001 per share, 8,900,000 shares authorized, none issued and outstanding						Preferred stock: par value of $0.001 per share, 50,000,000 shares authorized including Series A Convertible Preferred Stock: par value $0.001 per share, 8,900,000 shares authorized, none issued and outstanding	—		—
Common stock: par value of $0.001 per share, 100,000,000 shares authorized, 37,799,053 and 23,788,319 shares issued, and 33,180,907 and 19,170,173 shares outstanding at September 30, 2023 and December 31, 2022, respectively						Common stock: par value of $0.001 per share, 100,000,000 shares authorized, 37,799,053 and 23,788,319 shares issued, and 33,180,907 and 19,170,173 shares outstanding at September 30, 2023 and December 31, 2022, respectively	38		24
Treasury stock, at cost: 4,618,146 and 4,618,146 shares as of September 30, 2023 and December 31, 2022, respectively						Treasury stock, at cost: 4,618,146 and 4,618,146 shares as of September 30, 2023 and December 31, 2022, respectively	(47,692)		(47,692)
Additional paid-in capital	Additional paid-in capital	103,175		102,106		Additional paid-in capital	153,695		103,698
Retained earnings	Retained earnings	87,116		92,864		Retained earnings	68,253		83,949

Total Stockholders’ Equity	Total Stockholders’ Equity	142,623		147,301		Total Stockholders’ Equity	174,294		139,979
Total Liabilities and Stockholders’ Equity	Total Liabilities and Stockholders’ Equity	$	185,455	$	185,436	Total Liabilities and Stockholders’ Equity	$	230,604	$	181,164

See Notes to the Condensed Consolidated Financial 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)	2022		2021		2022		2021		(in thousands, except per share data)	2023		2022		2023		2022
Revenues:	Revenues:									Revenues:
Consumables	Consumables	$	28,437	$	26,693	$	79,578	$	62,642	Consumables	$	29,829	$	28,437	$	71,079	$	79,578
License royalties, related party		—		4,165		—		11,888

Total revenues	Total revenues	28,437		30,858		79,578		74,530		Total revenues	29,829		28,437		71,079		79,578
Operating expenses:	Operating expenses:									Operating expenses:
Consumables cost of revenue, exclusive of depreciation and amortization	Consumables cost of revenue, exclusive of depreciation and amortization	21,575		19,956		62,992		48,672		Consumables cost of revenue, exclusive of depreciation and amortization	20,707		21,575		53,218		62,992

Payroll and benefits	Payroll and benefits	2,313		2,637		7,458		8,014		Payroll and benefits	4,228		2,313		12,482		7,458

Legal and professional fees	Legal and professional fees	3,668		1,106		7,395		4,340		Legal and professional fees	1,654		3,668		8,060		7,395
General and administrative	General and administrative	1,833		1,715		5,628		5,223		General and administrative	3,054		1,833		9,177		5,662
Depreciation, amortization, depletion and accretion	Depreciation, amortization, depletion and accretion	1,671		2,145		4,765		6,155		Depreciation, amortization, depletion and accretion	2,711		1,671		7,276		4,765
Gain on sale of Marshall Mine, LLC										Gain on sale of Marshall Mine, LLC	—		—		(2,695)		—

Loss (gain) on change in estimate, asset retirement obligation		—		—		34		(1,942)
Total operating expenses	Total operating expenses	31,060		27,559		88,272		70,462		Total operating expenses	32,354		31,060		87,518		88,272
Operating (loss) income		(2,623)		3,299		(8,694)		4,068
Operating loss										Operating loss	(2,525)		(2,623)		(16,439)		(8,694)
Other income (expense):	Other income (expense):									Other income (expense):
Earnings from equity method investments	Earnings from equity method investments	—		22,195		3,222		61,944		Earnings from equity method investments	412		—		1,512		3,222
Gain on extinguishment of debt		—		3,345		—		3,345

Interest expense	Interest expense	(83)		(86)		(259)		(1,416)		Interest expense	(787)		(83)		(2,155)		(259)
Other		315		81		(19)		652

Other										Other	725		315		1,510		(19)
Total other income	Total other income	232		25,535		2,944		64,525		Total other income	350		232		867		2,944
(Loss) income before income tax expense		(2,391)		28,834		(5,750)		68,593
Income tax (benefit) expense		—		4,581		—		14,013
Net (loss) income		$	(2,391)	$	24,253	$	(5,750)	$	54,580
(Loss) earnings per common share (Note 1):
Loss before income taxes										Loss before income taxes	(2,175)		(2,391)		(15,572)		(5,750)
Income tax benefit										Income tax benefit	—		—		33		—
Net loss										Net loss	$	(2,175)	$	(2,391)	$	(15,539)	$	(5,750)
Loss per common share (Note 1):										Loss per common share (Note 1):
Basic	Basic	$	(0.13)	$	1.33	$	(0.31)	$	2.99	Basic	$	(0.07)	$	(0.13)	$	(0.56)	$	(0.31)
Diluted	Diluted	$	(0.13)	$	1.31	$	(0.31)	$	2.96	Diluted	$	(0.07)	$	(0.13)	$	(0.56)	$	(0.31)
Weighted-average number of common shares outstanding:	Weighted-average number of common shares outstanding:									Weighted-average number of common shares outstanding:
Basic	Basic	18,487		18,292		18,435		18,243		Basic	31,807		18,487		27,894		18,435
Diluted	Diluted	18,487		18,489		18,435		18,416		Diluted	31,807		18,487		27,894		18,435

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										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, 2022		23,460,212	$	23	(4,618,146)	$	(47,692)	$	102,106	$	92,864	$	147,301
Balances, January 1, 2023														Balances, January 1, 2023	23,788,319	$	24	(4,618,146)	$	(47,692)	$	103,698	$	83,949	$	139,979

Stock-based compensation	Stock-based compensation	323,742	1		—	—		463		—		464		Stock-based compensation	483,242	—		—	—		563		—		563

Issuance of common stock pursuant to Arq Acquisition, net of offering costs														Issuance of common stock pursuant to Arq Acquisition, net of offering costs	3,814,864	4		—	—		12,433		—		12,437
Issuance of common stock related to PIPE Investment, net of offering costs														Issuance of common stock related to PIPE Investment, net of offering costs	3,842,315	4		—	—		15,216		—		15,220
Issuance of warrant														Issuance of warrant	—	—		—	—		826		—		826
Repurchase of common shares to satisfy minimum tax withholdings	Repurchase of common shares to satisfy minimum tax withholdings	(59,736)	—		—	—		(382)		—		(382)		Repurchase of common shares to satisfy minimum tax withholdings	(74,104)	—		—	—		(146)		—		(146)

Preferred stock dividends declared on redeemable preferred stock														Preferred stock dividends declared on redeemable preferred stock	—	—		—	—		—		(157)		(157)

Net loss	Net loss	—	—		—	—		—		(3,033)		(3,033)		Net loss	—	—		—	—		—		(7,508)		(7,508)
Balances, March 31, 2022		23,724,218	24		(4,618,146)	(47,692)		102,187		89,831		144,350
Balances, March 31, 2023														Balances, March 31, 2023	31,854,636	$	32	(4,618,146)	$	(47,692)	$	132,590	$	76,284	$	161,214
Stock-based compensation	Stock-based compensation	(30,459)	—		—	—		484		—		484		Stock-based compensation	(16,430)	—		—	—		545		—		545

Issuance of common stock upon conversion of preferred stock														Issuance of common stock upon conversion of preferred stock	5,362,926	5		—	—		18,921		—		18,926

Repurchase of common shares to satisfy minimum tax withholdings	Repurchase of common shares to satisfy minimum tax withholdings	(551)	—		—	—		(3)		—		(3)		Repurchase of common shares to satisfy minimum tax withholdings	(6,973)	—		—	—		(14)		—		(14)

Net loss	Net loss	—	—		—	—		—		(326)		(326)		Net loss	—	—		—	—		—		(5,856)		(5,856)
Balances, June 30, 2022		23,693,208	24		(4,618,146)	(47,692)		102,668		89,505		144,505
Balances, June 30, 2023														Balances, June 30, 2023	37,194,159	$	37	(4,618,146)	$	(47,692)	$	152,042	$	70,428	$	174,815
Stock-based compensation	Stock-based compensation	37,291	—		—	—		507		—		507		Stock-based compensation	105,244	—		—	—		702		—		702
Issuance of common stock to related party														Issuance of common stock to related party	527,779	1		—	—		999		—		1,000
Repurchase of common shares to satisfy minimum tax withholdings														Repurchase of common shares to satisfy minimum tax withholdings	(28,129)	—		—	—		(48)		—		(48)

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

Net loss	Net loss	—	—		—	—		—		(2,391)		(2,391)		Net loss	—	—		—	—		—		(2,175)		(2,175)
Balances, September 30, 2022		23,730,499	$	24	(4,618,146)	$	(47,692)	$	103,175	$	87,116	$	142,623
Balances, September 30, 2023														Balances, September 30, 2023	37,799,053	$	38	(4,618,146)	$	(47,692)	$	153,695	$	68,253	$	174,294

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

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,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2022		2021		(in thousands)	2023		2022
Cash flows from operating activities	Cash flows from operating activities					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:
Net loss						Net loss	$	(15,539)	$	(5,750)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:						Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation, amortization, depletion and accretion	Depreciation, amortization, depletion and accretion	4,765		6,155		Depreciation, amortization, depletion and accretion	7,276		4,765
Earnings from equity method investments		(3,222)		(61,944)
Gain on sale of Marshall Mine, LLC						Gain on sale of Marshall Mine, LLC	(2,695)		—
Operating lease expense	Operating lease expense	1,953		1,481		Operating lease expense	2,061		1,953
Stock-based compensation expense	Stock-based compensation expense	1,455		1,476		Stock-based compensation expense	1,810		1,455
Deferred income tax expense		—		9,046
Earnings from equity method investments						Earnings from equity method investments	(1,512)		(3,222)

Amortization of debt discount and debt issuance costs	Amortization of debt discount and debt issuance costs	—		945		Amortization of debt discount and debt issuance costs	395		—
Loss (gain) on change in estimate, asset retirement obligation		34		(1,942)
Gain on extinguishment of debt		—		(3,345)

Other non-cash items, net	Other non-cash items, net	404		(352)		Other non-cash items, net	—		438
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Receivables and related party receivables	Receivables and related party receivables	1,199		(2,835)		Receivables and related party receivables	(359)		1,199
Prepaid expenses and other assets	Prepaid expenses and other assets	(991)		(16)		Prepaid expenses and other assets	3,595		(991)
Inventories, net	Inventories, net	(7,222)		3,658		Inventories, net	(811)		(7,222)

Other long-term assets, net	Other long-term assets, net	2,136		(4,009)		Other long-term assets, net	(3,646)		2,136
Accounts payable and accrued expenses	Accounts payable and accrued expenses	1,827		2,388		Accounts payable and accrued expenses	(12,033)		1,827
Other current liabilities	Other current liabilities	(184)		(3,489)		Other current liabilities	148		(184)
Operating lease liabilities	Operating lease liabilities	1,445		3,878		Operating lease liabilities	(140)		1,445

Other long-term liabilities	Other long-term liabilities	206		(3,031)		Other long-term liabilities	305		206
Distributions from equity method investees, return on investment	Distributions from equity method investees, return on investment	2,297		22,044		Distributions from equity method investees, return on investment	—		2,297
Net cash provided by operating activities		352		24,688
Net cash (used in) provided by operating activities						Net cash (used in) provided by operating activities	(21,145)		352
Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Acquisition of property, plant, equipment, and intangible assets, net						Acquisition of property, plant, equipment, and intangible assets, net	(17,008)		(6,178)
Cash and restricted cash acquired in business acquisition						Cash and restricted cash acquired in business acquisition	2,225		—
Payment for disposal of Marshall Mine, LLC						Payment for disposal of Marshall Mine, LLC	(2,177)		—
Acquisition of mine development costs						Acquisition of mine development costs	(1,856)		(345)
Distributions from equity method investees in excess of cumulative earnings	Distributions from equity method investees in excess of cumulative earnings	3,316		44,707		Distributions from equity method investees in excess of cumulative earnings	1,512		3,316

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	Proceeds from sale of property and equipment	1,241		895		Proceeds from sale of property and equipment	—		1,241

Net cash used in investing activities						Net cash used in investing activities	(17,304)		(1,966)
Cash flows from financing activities						Cash flows from financing activities
Net proceeds from common stock issued in PIPE						Net proceeds from common stock issued in PIPE	15,220		—
Net proceeds from Term Loan, related party, net of discount and issuance costs						Net proceeds from Term Loan, related party, net of discount and issuance costs	8,522		—
Net proceeds from common stock issuance, related party						Net proceeds from common stock issuance, related party	1,000		—
Principal payments on finance lease obligations						Principal payments on finance lease obligations	(855)		(913)
Principal payments on Arq Loan						Principal payments on Arq Loan	(341)		—
Repurchase of common stock to satisfy tax withholdings						Repurchase of common stock to satisfy tax withholdings	(208)		(385)
Dividends paid on common stock						Dividends paid on common stock	—		(45)

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
Net cash provided by (used) in financing activities						Net cash provided by (used) in financing activities	23,338		(1,343)
Decrease in Cash and Restricted Cash						Decrease in Cash and Restricted Cash	(15,111)		(2,957)
Cash and Restricted Cash, beginning of period	Cash and Restricted Cash, beginning of period	88,780		35,932		Cash and Restricted Cash, beginning of period	76,432		88,780
Cash and Restricted Cash, end of period	Cash and Restricted Cash, end of period	$	85,823	$	82,139	Cash and Restricted Cash, end of period	$	61,321	$	85,823

Supplemental disclosure of non-cash investing and financing activities:	Supplemental disclosure of non-cash investing and financing activities:					Supplemental disclosure of non-cash investing and financing activities:
Acquisition of property and equipment through finance lease		$	1,641	$	—
Equity issued as consideration for acquisition of business						Equity issued as consideration for acquisition of business	$	31,206	$	—
Change in accrued purchases for property and equipment						Change in accrued purchases for property and equipment	$	255	$	339
Paid-in-kind dividend on Series A Preferred Stock						Paid-in-kind dividend on Series A Preferred Stock	$	157	$	—
Acquisition of property and equipment under finance lease						Acquisition of property and equipment under 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 - Organization and 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.~~Louisiana and a manufacturing facility located in Kentucky. The Company is an environmental technology company and has been principally engaged in the sale of consumable air and water treatment 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 air quality and water regulations. The Company manufactures and sells AC and other chemicals used to capture and remove contaminants for coal-fired power generation and for industrial, municipal and remediation water treatment markets. The Company also owns an associated lignite mine ("Five Forks Mine") ~~which~~that currently 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. Both Tinuum Group 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 qualified for tax credits under the Section 45 Tax Credit Program ("Section 45 tax credits"). The Company also earned royalties for technologies which were licensed to Tinuum Group and used at certain RC facilities to enhance combustion and reduce 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 the Company has received what it anticipates to be final cash distributions from 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, Tinuum Group and Tinuum Services, 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, ~~2021~~2022 (the ~~"2021~~"2022 Form 10-K"). Significant accounting policies disclosed therein have not changed.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed using the weighted-average number of shares of common stock outstanding during the 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~~2023 and ~~2021,~~2022, potentially dilutive securities consist of unvested restricted stock awards ("RSAs"), stock options and contingent performance stock units ("PSUs").

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(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,					Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share amounts)	(in thousands, except per share amounts)	2022		2021		2022		2021		(in thousands, except per share amounts)	2023		2022		2023		2022
Net (loss) income		$	(2,391)	$	24,253	$	(5,750)	$	54,580

Net loss										Net loss	$	(2,175)	$	(2,391)	$	(15,539)	$	(5,750)
Less: Dividends declared on redeemable preferred stock										Less: Dividends declared on redeemable preferred stock	—		—		157		—
Loss attributable to common stockholders										Loss attributable to common stockholders	$	(2,175)	$	(2,391)	$	(15,696)	$	(5,750)

Basic weighted-average common shares outstanding	Basic weighted-average common shares outstanding	18,487		18,292		18,435		18,243		Basic weighted-average common shares outstanding	31,807		18,487		27,894		18,435
Add: dilutive effect of equity instruments	Add: dilutive effect of equity instruments	—		197		—		173		Add: dilutive effect of equity instruments	—		—		—		—

Diluted weighted-average shares outstanding	Diluted weighted-average shares outstanding	18,487		18,489		18,435		18,416		Diluted weighted-average shares outstanding	31,807		18,487		27,894		18,435
(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
Loss per share - basic										Loss per share - basic	$	(0.07)	$	(0.13)	$	(0.56)	$	(0.31)
Loss per share - diluted										Loss per share - diluted	$	(0.07)	$	(0.13)	$	(0.56)	$	(0.31)

For the three and nine months ended September 30, 2023 and 2022, potentially dilutive securities of 2.3 million and 0.8 million and 1.4 million and 0.7 million shares of common stock, respectively, ~~were~~are outstanding but ~~were~~are not included in the calculation of diluted net loss per share because the effect would ~~have been~~be 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~~Company's critical accounting estimates from those that were disclosed in the ~~2021~~2022 Form 10-K. Actual results could differ from these estimates.

Risks and Uncertainties

The loss of earnings and cash distributions from both Tinuum Group and Tinuum Services will continue to have a material adverse impact on the Company’s financial position, results of operations and cash flows. For 2022, the Company is principally dependent on the operations of its APT business and its cash on hand to 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 for purposes of power generation 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 increases.

In addition, coal consumption for purposes of power generation and demand for the Company's products are 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.

As of September 30, 2023, the Company holds cash at two financial institutions that exceed the Federal Deposit Insurance Corporation ("FDIC") limits (currently $250 thousand). If a financial institution was unable to perform its obligations, the Company would be at risk regarding the amount of cash held in excess of the FDIC limits.

Concentration of credit risk

The Company is exposed to concentrations of credit risk primarily related to ~~cash held at financial institutions and~~its customer 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~~agreements to sell its products and, as necessary, ~~through~~throughout 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. The Company does not believe this standard will have a material impact on its financial statements and disclosures.

Note 2 - ~~Proposed Merger~~Arq Acquisition

On ~~August 19, 2022,~~February 1, 2023 (the "Acquisition Date"), the Company entered into a ~~Transaction~~Securities Purchase Agreement (the ~~"Transaction~~"Purchase 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 ("Arq Ltd."), a company incorporated under the laws of Jersey, ~~("Arq"),~~ pursuant to which ~~(i) New ADES will acquire 100%~~the Company acquired all of the ~~outstanding~~direct and indirect equity interests of Arq Ltd.'s subsidiaries (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~~hereafter referred 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"~~as "Arq") ~~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~~consideration (the "Purchase Consideration") totaling $31.2 million, and consisting of ~~19,729,235 newly issued~~(i) 3,814,864 shares of ~~New ADES~~the Company's common stock, par value $0.001 per share (the ~~"Arq Share Acquisition"~~"Common Stock") and (ii) 5,294,462 preferred shares (the "Preferred Shares") of the Company's Series A Convertible Preferred Stock, par value $0.001 per share (the "Series A Preferred Stock").

Arq's principal office is located in Corbin, Kentucky near its production facility ("the Corbin Facility"). The ~~Scheme~~Corbin location consists of ~~Arrangement will become effective at such time~~bituminous coal reserves and a manufacturing facility used to recover and purify the bituminous coal fines for sale or further conversion to value-added specialty chemicals. Arq is a pre-revenue, environmental technology company that has developed a process for transforming coal waste into a purified, microfine carbon powder, known as Arq powderTM ("Arq Powder"). The Company expects to begin using Arq Powder to produce granular activated carbon products in the second half of 2024.

The Company accounted for the Arq Acquisition as an ~~act~~acquisition of a business. The total Purchase Consideration was $31.2 million and was allocated to the acquired assets and assumed liabilities of Arq based on their estimated fair values as of the ~~Royal Court~~Acquisition Date. The Purchase Consideration was comprised of ~~Jersey sanctioning~~ the ~~Scheme~~fair values as of ~~Arrangement has been delivered~~the Acquisition Date of 3,814,864 shares of Common Stock, valued at $12.4 million, and 5,294,462 Preferred Shares, valued at $18.8 million. The Company also incurred $8.7 million in acquisition-related costs, which were expensed as incurred and included in the "General and administrative" and "Legal and professional fees" line items in the Statements of Operations.

The following table provides the final purchase price allocation to the ~~Registrar of Companies in Jersey. Concurrently with the execution~~assets acquired and liabilities assumed as of the ~~Transaction Agreement, persons holding more than 75%~~Acquisition Date:


(in thousands)	Purchase Price Allocation
Fair value of assets acquired:
Cash	$	1,411

Prepaid expenses and other current assets	2,229
Restricted cash, long-term	814
Property, plant and equipment, net	39,159
Other long-term assets, net	11,717
Amount attributable to assets acquired	55,330

Fair Value of liabilities assumed:
Accounts payable and accrued expenses	9,806
Current portion of long-term debt	494
Other current liabilities	103
Long-term debt, net of current portion	9,199
Other long-term liabilities	4,523
Amount attributable to liabilities assumed	24,125

Net assets acquired	$	31,205

The following represents the ~~voting rights~~intangible asset identified as part of the Arq ~~shareholders delivered irrevocable voting agreements to Arq~~Acquisition and ~~ADES pursuant to~~ which ~~those shareholders agreed to vote~~is included in ~~favor of~~"Other long-term-assets, net" in the ~~Scheme of Arrangement.~~table above:


(in thousands)	Amount		Weighted Average Useful Life (years)

Developed technology	$	7,700	20

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Series A Preferred Stock

In connection with the ~~Transactions, each ADES equity award made or otherwise denominated in~~issuance of the Series A Preferred Stock pursuant to the Purchase Agreement, the Company filed the Certificate of Designations of Preferred Stock for the Series A Preferred Stock (the "Certificate of Designations") with the Secretary of State of the State of Delaware. Under the Certificate of Designations, 8.9 million preferred shares were designated as Series A Preferred Stock.

On June 13, 2023 (the "Conversion Date"), the Company's stockholders approved the conversion of all of the outstanding shares of Series A Preferred Stock, including the ~~Company’s common stock that is outstanding immediately prior to~~"Escrow Shares," as defined below, and the ~~ADES Merger will be assumed by New ADES. Such equity awards will continue to have the same terms and conditions~~corresponding issuance 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~~Common Stock. Upon such approval, each outstanding share of ~~shares subject to such award will be equal to~~Series A Preferred Stock was automatically converted into the number of shares of ~~ADES common stock~~Common Stock described below. Each share of Series A Preferred Stock was deemed to have an original issue price of $4.00 per share (the "Original Issue Amount"). The number of shares of Common Stock issued upon conversion of each share of Series A Preferred Stock was equal to the product of (i) the sum of (A) the Original Issue Amount plus (B) an amount equal to the cumulative amount of the accrued and unpaid dividends on such share at such time divided by (ii) the Original Issue Amount, subject to ~~such award multiplied by the All Stock Conversion Rate.~~adjustment.

~~The closing~~Holders of the ~~Transactions (the "Closing") is conditioned~~Series A Preferred Stock were entitled to receive cumulative dividends, which accrued quarterly on the ~~absence~~last day of ~~any order, law~~each applicable quarter (whether or ~~injunction preventing the consummation of the Transactions; approval~~not declared or funds for ~~listing of the shares of New ADES common stock issued~~their payment are lawfully available) and were payable quarterly, in ~~the ADES Merger and the Arq Share Acquisition (subject to official notice of issuance)~~arrears, on the ~~Nasdaq Global Market; approval~~earlier to occur of (a) the ~~Transaction Agreement by~~date any dividend is paid to holders of Common Stock with respect to such quarter and (b) 30 days after the end of each quarter (the "Series A Quarterly Dividend") at the rate per share of Series A Preferred Stock equal to the greater of (i) if the Company declared a ~~majority of~~cash dividend on 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; subjectCommon Stock with respect 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 insuch quarter, the amount of ~~$10.0 million provided~~the cash dividend that would be received by a ~~third-party financial institution~~holder of Common Stock in which such share of Series A Preferred Stock would be convertible on the record date for such cash dividend and (ii) an annual rate (the ~~"Debt Financing"~~"Rate") ~~and a PIPE Investment in~~of 8.0% of the ~~amount of $20.0 million from current Arq shareholders (the "PIPE Investment").~~Original Issue Amount compounded quarterly with respect to such quarter.

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,~~March 31, 2023, the Company ~~has determined that it will be~~declared a dividend of 68,464 Series A PIK Shares with respect to the ~~accounting acquirer.~~

~~Note 3 - Customer Supply Agreement~~

~~On September 30, 2020,~~accrued dividends on the ~~Company and Norit Activated Carbon - Americas (f/k/a Cabot Norit Americas, Inc.) ("Norit"), entered into a supply agreement~~Preferred Shares for the first quarter of 2023 (the ~~"Supply Agreement") pursuant to which the Company agreed to sell and deliver to Norit, and Norit agreed to purchase and accept from the Company certain lignite-based AC products ("Furnace Products"~~"First Quarter PIK Dividend"). The ~~term~~First Quarter PIK Dividend was recorded at the estimated fair value of $0.2 million as of March 31, 2023 and was paid on April 21, 2023.

Under the terms of the ~~Supply~~Purchase Agreement, ~~is for 15 years with 10-year renewal terms that~~a total of 833,914 Preferred Shares, were held in escrow (the "Preferred Escrow Shares") based on a contingent redemption feature, (the "Contingent Redemption Feature," as defined below). The fair value of the Preferred Shares issued was determined to be $3.46 per Preferred Share on the Acquisition Date (the "Preferred Share Price") plus the value of the Contingent Redemption Feature related to the Escrow Shares. The Escrow Shares were converted into shares of Common Stock on the Conversion Date and continue to be held in escrow (the "Escrow Common Shares").

The Escrow Common Shares are ~~automatic unless either party provides three years prior notice of intention not to renew before the end of any term.~~

~~Under the Supply Agreement, Norit also reimburses the Company for certain capital expenditures incurred~~being withheld pending a determination by the IRS that no tax withholding is required on the Purchase Consideration issued to Arq Ltd. (the "Arq Ltd. Tax Liability"). The Company ~~that are necessary to manufacture~~estimated the ~~Furnace Products. Reimbursements are comprised~~fair value of~~revenues earned from capital expenditures incurred that will benefit both~~ the ~~Company and Norit (referred to as "Shared Capital") and revenues earned from capital expenditures incurred that will benefit Norit exclusively (referred to as "Specific Capital").~~potential Arq Ltd. Tax Liability at $3.3 million. In the event that ~~Norit ceases to make purchases under~~ the ~~Supply Agreement, Norit~~IRS determines that no withholding is ~~obligated to pay~~required by Arq Ltd. in connection with the ~~balance of any outstanding payments for Specific Capital.~~

~~Further, under the terms~~Purchase Consideration received by Arq Ltd., all of the ~~Supply Agreement, Norit was obligated~~Escrow Common Shares will be released and delivered to ~~pay~~Arq Ltd. In the ~~Reclamation Reimbursement (defined in Note 4 below)~~event that the IRS determines that any amount of withholding is required by Arq Ltd., the Company has agreed to redeem a sufficient number of Escrow Common Shares to fund the required payment to the IRS, and that number of Escrow Common Shares will be returned to the Company. The number of Escrow Common Shares to be returned to the Company ~~for $10.2~~is equal to the required withholding amount divided by the Original Issue Amount, not to exceed a maximum of 833,914 Escrow Common Shares, and is equal to $3.3 million based on the Original Issue Amount (the "Maximum Contingent Redemption Amount"). The fair value of the ~~Reclamation Costs (defined~~Preferred Escrow Shares was determined on the Acquisition Date and was comprised of the Maximum Contingent Redemption Amount and the fair value of the non-escrowed Preferred Shares ("Non-Preferred Escrow Shares").

The Series A Preferred Stock contained a mandatory redemption feature in ~~Note 4 below), inclusive~~the event the Preferred Shares, including future issuances of ~~interest.~~Series A Preferred Stock issued under dividend requirements, were not converted into shares of Common Stock prior to February 1, 2028. The Company ~~recorded~~concluded that both the ~~Norit Receivable~~Escrow Shares and the Non Escrow Shares did not meet the definition of mandatorily redeemable financial instruments as there was not a substantive conversion feature, and were therefore not classified as liabilities. As both the Escrow Shares and Non Escrow Shares represented financial instruments that were redeemable for cash, SEC guidance mandates that preferred securities which are redeemable upon the ~~Reclamation Reimbursement at its estimated fair value, which was measured using a discounted cash flows valuation model~~occurrence of an event that ~~considered~~is not solely within the ~~estimated credit risk associated with~~control of the ~~obligor's (Norit's) future performance, which~~issuer be classified outside of permanent equity as "temporary equity." Accordingly, the Company ~~estimated was approximately 1.5%.~~

classified and reported the Series A Preferred Stock as temporary equity and in the Consolidated Balance Sheet as of as of March 31, 2023. On ~~February 25, 2022,~~the Conversion Date, all shares of Series A Preferred Stock were converted into 5,362,926 shares of Common Stock, and the Company ~~received $10.6 million in cash from 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~~reclassified all of the ~~sale~~Series A Preferred Stock to Common Stock as 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 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.June 30, 2023.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Other

The amounts of year to date revenues and net loss for Arq for the period from the Acquisition Date to September 30, 2023 are as follows:


	Nine Months Ended September 30,
(in thousands)	2023
Revenues	$	—
Net loss	$	(9,199)

The following represents the pro forma effects of the Arq Acquisition as if it had occurred on January 1, 2022. The pro forma net loss for each of the two periods presented has been calculated after applying the Company’s accounting policies in effect for those periods. In addition, pro forma net loss includes: (1) for the nine months ended September 30, 2022, an increase in Payroll and benefits for compensation expense of $1.9 million payable to certain Arq employees, triggered by change in control provisions in employment agreements and employee severance agreements that has not been recognized in the historical financial statements, assuming such amounts will be paid in cash; (2) for the nine months ended September 30, 2023 and 2022, a decrease in depreciation and amortization of $0.2 million and $1.2 million, respectively, resulting from fair value adjustments to Property, plant, equipment; (3) for the nine months ended September 30, 2023 and 2022, an increase in amortization of $0.1 million and $0.3 million, respectively, resulting from fair value adjustments to intangible assets; (4) for the nine months ended September 30, 2023 and 2022, increases to Interest expense of $0.2 million and $1.4 million, respectively, for: (a) the issuance of the Term Loan (as defined below) including stated interest and the amortization of the Term Loan's discount and issuance costs and (b) amortization of debt discount related to a fair value adjustment to an assumed term loan of Arq; and (5) the removal of $3.8 million of transaction costs incurred for the period from October 1, 2022 to September 30, 2023 but included as additional transaction costs for the nine months ended September 30, 2022, together with the income tax effects on (1) through (5). Since Arq had no revenues for the nine months ended September 30, 2023 or 2022, pro forma revenues are the same as the Company's reported revenues for those periods.


	Nine Months Ended September 30,
(in thousands)	2023		2022
Revenues	$	71,079	$	79,578
Net loss	$	(12,100)	$	(53,752)

Note 3 - Marshall Mine

On March 27, 2023, (the "MM Closing Date"), the Company completed the sale of all of its membership interests in Marshall Mine, LLC to a third party (the "Buyer") in exchange for cash payment of $2.2 million (the "MM Purchase Price") made by the Company to the Buyer and the assumption by the Buyer of certain liabilities of Marshall Mine, LLC. As of ~~February 25, 2022,~~ the ~~carrying value~~MM Closing Date, Marshall Mine, LLC had outstanding liabilities of ~~the Reclamation Reimbursement was $9.0~~approximately $4.9 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~~that were discharged upon payment of the ~~outstanding Reclamation Reimbursement. The~~MM Purchase Price by 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~~Company recognized a gain of ~~the Reclamation Reimbursement of $0.5~~approximately $2.7 million ~~as a loss for the three months ended March 31, 2022, which is included~~ in the ~~"Other Income (Expense)" line item in the Condensed Consolidated~~ Statement of 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.2023.

Note 4 ~~- Marshall Mine~~

~~Acquisition~~

Concurrently with the execution of the Supply Agreement, on September 30, 2020, the Company entered into an agreement to purchase from Norit 100% 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"). The Company concluded that the Marshall Mine did not have any remaining economic reserves and independently determined to immediately commence activities to shutter it. Accordingly, on September 30, 2020, the Company and a third party entered into a reclamation contract (the "Reclamation Contract") for full reclamation of the Marshall Mine, which was expected to be completed by 2030. Under the terms of the Supply Agreement, Norit was obligated to reimburse the Company for $10.2 million (the "Reclamation Reimbursement") for a portion of the total costs incurred under the Reclamation Contract (the "Reclamation Costs"), which was payable semi-annually over 13 years and inclusive of interest. As discussed in Note 3, on February 25, 2022 as part of the Change in Control, Norit fully paid the outstanding amount owed under the Reclamation Reimbursement and has no further liability related to the Marshall Mine.

The Company accounted for the Marshall Mine Acquisition as an asset acquisition, and it included the acquisition of certain assets and assumption of certain liabilities as well as the incurrence of an obligation for the Reclamation Costs (the "Marshall Mine ARO"). As of September 30, 2022 and December 31, 2021, the carrying value of the Marshall Mine ARO was $4.6 million and $6.3 million, respectively.

As the Marshall Mine Acquisition represented a transaction with a customer of net assets acquired and liabilities assumed from Norit, the Company accounted for the excess of the fair value of liabilities assumed over assets acquired as upfront consideration transferred to a customer, Norit (the "Upfront Customer Consideration"). The amount of the Upfront Customer Consideration was also recognized net of the Reclamation 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~~

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 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 Closing Date (as defined below) as follows: (1) increased or reduced as agreed upon by the 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 Marshall Mine, LLC between signing and closing of the MM Sale, (3) increased by any amounts that are, or under US GAAP should be, accrued as liabilities of Marshall Mine LLC as of the closing of the MM Sale, as more fully described in the Purchase Agreement; and (4) decreased by agreed amounts which escalate depending on the timing of closing if it occurs after January 1, 2023.

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

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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 Parties to receive approval of the MM Buyer's operating permit and surety bond by the Commission, the Company is unable to determine the accounting period in which 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 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~~ - Revenues

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 terms of the 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 represents an obligation to transfer goods or services to a customer for which the Company has received consideration from the customer and, if deliverable within one year or less, is included in "Other current liabilities" in the Condensed Consolidated Balance Sheets and, if deliverable outside of one year, is included in "Other long-term liabilities" in the Condensed Consolidated Balance Sheets.

~~The following table shows the components of the 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

109

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table shows the components of the Company's Receivables, net:


	As of
(in thousands)	September 30, 2023		December 31, 2022


Trade receivables, net	$	14,138	$	13,789
Other receivables	87		75

Receivables, net	$	14,225	$	13,864

For the three and nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, all material performance obligations related to revenues recognized were satisfied at a point in time. For the three and nine months ended September 30, ~~2022,~~2023, approximately 7% and 9%8% , respectively, of Consumables revenues were generated in Canada, and all other revenues were generated in the U.S. For the three and nine months ended September 30, ~~2021,~~2022, approximately 8%7% and ~~12%,~~9% respectively, of Consumables revenues were generated in Canada, and all other revenues were generated in the U.S.

Note 65 - 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~~2023 and December 31, ~~2021:~~2022:


		As of					As of
(in thousands)	(in thousands)	September 30, 2022		December 31, 2021		(in thousands)	September 30, 2023		December 31, 2022
Product inventory, net	Product inventory, net	$	6,723	$	4,901	Product inventory, net	$	8,659	$	9,479
Raw material inventory	Raw material inventory	8,538		2,949		Raw material inventory	9,890		8,349

Total inventories, net	Total inventories, net	$	15,261	$	7,850	Total inventories, net	$	18,549	$	17,828

Note 6 - Debt Obligations


	As of
(in thousands)	September 30, 2023		December 31, 2022
Term Loan due February 2027, related party	$	10,000	$	—
Arq Loan due January 2036	9,659		—
Finance lease obligations	3,727		4,581
	23,386		4,581
Unamortized debt discounts	(880)		—
Unamortized debt issuance costs	(1,336)		—

	21,170		4,581
Less: Current maturities	(1,991)		(1,131)
Total long-term debt obligations	$	19,179	$	3,450

Term Loan

As required under the Purchase Agreement, and on February 1, 2023 (the "Closing Date"), the Company, as borrower, certain of its subsidiaries, as guarantors, and CF Global ("CFG"), a related party, as administrative agent and lender (the "Lender"), entered into a term loan (the "Term Loan") in the amount of $10.0 million, less original issue discount ("OID") of $0.2 million, upon execution of a Term Loan and Security Agreement (the "CFG Loan Agreement"). The Company received net cash proceeds of $8.5 million after deducting the OID and debt issuance costs of $1.3 million.

The CFG Loan Agreement also required the issuance of a warrant (the "Warrant") to CFG to purchase 325,457 shares of Common Stock (the "Warrant Shares"), which represented 1% of the post-Arq Acquisition and PIPE Investment (as defined below) fully diluted share capital (as defined in the CFG Loan Agreement), at an exercise price of $0.01 per share. The Warrant has a term of 7 years and contains a cashless exercise provision.

The Term Loan matures on February 1, 2027 and bears interest at a rate equal to either (a) Adjusted Term SOFR (subject to a 1.00% floor and a cap of 2.00%) plus a margin of 9.00% paid in cash and 5.00% paid in kind or (b) Base Rate plus a margin of 8.00% paid in cash and 5.00% paid in kind, which interest on the Term Loan in each case shall be payable (or capitalized, in the case of in kind interest) quarterly in arrears.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The Company may prepay the Term Loan at any time subject to the following prepayment premium: (i) prior to the twelve month anniversary of the Closing Date, the Make-Whole Amount (as defined below), (ii) thereafter but prior to the thirty-six month anniversary of the Closing Date, 2.00% of the outstanding principal amount of the Term Loan being repaid or prepaid or (iii) thereafter until the maturity date, 1.00% of the outstanding principal amount of the Term Loan being repaid or prepaid. The "Make-Whole Amount," with respect to any repayment or prepayment, is (i) an amount equal to all required interest payable (except for currently accrued and unpaid interest) on the aggregate principal amount of the Term Loan subject to such prepayment or repayment from the date of such prepayment or repayment through but excluding the date that is the first anniversary of the Closing Date calculated using an interest rate equal to (x) Adjusted Term SOFR for an interest period of one month in effect on the third U.S. Government Securities Business Day prior to such prepayment or repayment plus (y) 14.00% per annum and assuming all interest was paid in cash, plus (ii) a prepayment premium of 2.00% on the aggregate principal amount of the Term Loan subject to such prepayment or repayment.

The Term Loan is secured by substantially all of the assets of the Company and its subsidiaries (including those acquired in the Acquisition, but excluding those pledged as collateral (the "Arq Loan Assets") under the Arq Loan, as defined and described below), subject to customary exceptions. The CFG Loan Agreement includes, among others, the following covenants: (1) beginning with the first fiscal quarter after March 31, 2023 and as of the end of each fiscal quarter thereafter, the Company must maintain a minimum unrestricted cash balance of $5.0 million; (2) (x) as of December 31, 2023, for the fiscal year then ended, the Company must have a minimum annual revenue, on a consolidated basis, of $70.0 million, (y) as of December 31, 2024, for the fiscal year then ended, the Company must have a minimum annual revenue, on a consolidated basis, of $85.0 million and (z) for any fiscal year thereafter, the Company must have a minimum annual revenue, on a consolidated basis, of $100.0 million; (3) (x) as of December 31, 2024, for the fiscal year then ended, the Company must have a minimum Consolidated EBITDA of $3.0 million and (y) for any fiscal year thereafter, the Company must have a minimum Consolidated EBITDA of $16.0 million; and (4) beginning after the fiscal quarter ending September 30, 2023, during an LTV Trigger Period, ADES must not exceed a loan to value ratio of 0.40:1.00 (based on the consolidated total assets of the Company and its subsidiaries, but excluding the Arq Loan Assets).

The Company allocated the cash proceeds of the Term Loan to both the Term Loan and the Warrant based on their relative fair values. The amount allocated to the Warrant was recorded as a debt discount and is amortized to interest expense over the term of the Term Loan. The standalone fair value of the Term Loan was based on a comparison of borrowings and associated credit ratings consistent with those of the Company. As the Warrant is exercisable for $0.01 per share, the fair value is deemed to be equal to the fair value of the underlying shares, and accordingly, the fair value of the Warrant was determined as the number of shares issuable from the exercise of the Warrant (based on 1.0% of post-transaction fully diluted share capital, as defined in the Purchase Agreement) multiplied by the closing share price of the Company's common stock on the Acquisition Date.

Arq Loan

As consideration in the Arq Acquisition, the Company assumed a term loan (the "Arq Loan") held by certain Arq subsidiaries as set out in the Arq Loan (the "Arq Subsidiaries") with a financial institution (the "Bank") in the principal amount of $10.0 million. The Company recorded the Arq Loan on the Acquisition Date at its estimated fair value of $9.7 million, with the difference of $0.3 million between the estimated fair value and the principal amount recorded as a debt discount and recognized as interest expense over the term of the Arq Loan.

The Arq Loan was originally entered into on January 27, 2021 and is comprised of two promissory notes (the "Notes"): (1) "Note A" in the principal amount of $8.0 million, which is guaranteed by the U.S. Department of Agriculture; and (2) "Note B" in the principal amount of $2.0 million. The Notes mature on January 27, 2036 and bear interest at 6.0% per annum through January 2026 and at the prime rate plus 2.75% thereafter. Beginning January 27, 2023 and for the balance of the term of the Arq Loan, the Arq Subsidiaries are required to make combined interest and principal payments monthly in the fixed amount of $0.1 million. Interest is computed and payable on the outstanding principal as of the end of the prior month and the balance of the fixed monthly payment amount is applied to the outstanding principal. The Notes carry a prepayment penalty of 3.0% of the outstanding principal if paid prior to January 27, 2024, 2.0% of the outstanding principal if paid prior to January 27, 2025 and 1.0% of the outstanding principal if paid prior to January 27, 2026. Thereafter, the Arq Loan may be prepaid without penalty.

On June 2, 2023 (the "Amendment Date"), certain of the Arq Subsidiaries, which included Corbin Project LLC, Arq Projects Holding Company LLC, Arq St. Rose LLC, Arq Corbin LLC and Arq Corbin Land LLC (collectively, the "Borrowers") and the Bank entered into a loan modification agreement (the "Arq Loan Modification Agreement") to the Arq Loan, as amended by that certain letter agreement by and among the Bank and Borrowers dated January 21, 2022, and as otherwise amended, modified and/or extended by the parties from time to time (collectively, the "Arq Loan Agreement"). As consideration for the Bank entering into the Arq Loan Modification Agreement, the Borrowers agreed to pay a fee of $50,000 plus additional fees incurred by the Bank and were required to deposit an additional $0.7 million into a deposit account (the "Interest Reserve Account" as defined in the Arq Loan Agreement), where the Interest Reserve Account is held as collateral by the Bank. The

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Borrowers may withdraw funds from the Interest Reserve Account beginning one year from the Amendment Date, subject to restrictions as stated in the Arq Loan Modification Agreement.

The Arq Loan Modification Agreement clarified and modified certain terms under the Arq Loan Agreement. The principal clarifications and modifications are as follows:

•The Borrowers are not entitled to any further disbursements of proceeds under those promissory notes described in the Arq Loan Modification Agreement;

•The Bank agreed to waive certain financial delivery requirements for fiscal years 2021 and 2022;

•The Bank agreed to waive certain required financial covenants required as of December 31, 2022 and certain required financial covenants as of December 31, 2023;

•The Borrowers are required to establish their operating bank accounts with the Bank no later than September 30, 2023; and

•The Bank is authorized to amend and/or amend and restate its then-current security instruments to include additional collateral represented by the Borrowers' acquisition of any equipment or other fixed and/or operating assets in which the Bank does not then hold a lien or security interest.

The Arq Loan is secured by substantially all assets of the Borrowers and includes among others, the following covenants with respect to the Borrowers, which are tested annually (Capitalized terms are defined in the Arq Loan Agreement): (a) Total Indebtedness to Net Worth greater than 4 to 1; (b) Balance Sheet Equity greater than or equal to 20% of the book value of all assets of the Borrowers; (c) (i) net income plus interest, taxes, depreciation and amortization divided by (ii) interest expense plus current maturities on long-term debt greater than or equal to 1.25 to 1.

Note 7 - Leases

The Company's operating and finance lease right-of-use ("ROU") assets and liabilities as of September 30, ~~2022~~2023 and December 31, ~~2021~~2022 consisted of the following items (in thousands):


		As of					As of
Leases	Leases	September 30, 2022		December 31, 2021		Leases	September 30, 2023		December 31, 2022
Operating Leases	Operating Leases					Operating Leases

Operating lease right-of-use assets, net of accumulated amortization (1)	Operating lease right-of-use assets, net of accumulated amortization (1)	$	7,610	$	6,000	Operating lease right-of-use assets, net of accumulated amortization (1)	$	10,673	$	7,734

Operating lease obligations, current	Operating lease obligations, current	$	2,654	$	2,157	Operating lease obligations, current	$	2,045	$	2,724
Long-term operating lease obligations	Long-term operating lease obligations	5,127		4,178		Long-term operating lease obligations	8,797		5,133
Total operating lease obligation	Total operating lease obligation	$	7,781	$	6,335	Total operating lease obligation	$	10,842	$	7,857

Finance Leases	Finance Leases					Finance Leases

Finance lease right-of-use assets, net of accumulated amortization (2)	Finance lease right-of-use assets, net of accumulated amortization (2)	$	2,806	$	1,743	Finance lease right-of-use assets, net of accumulated amortization (2)	$	1,904	$	2,565

Finance lease obligations, current	Finance lease obligations, current	$	1,182	$	1,011	Finance lease obligations, current	$	1,477	$	1,131
Long-term finance lease obligations	Long-term finance lease obligations	3,731		3,152		Long-term finance lease obligations	2,250		3,450
Total finance lease obligations	Total finance lease obligations	$	4,913	$	4,163	Total finance lease obligations	$	3,727	$	4,581

(1) Operating lease ROU assets are reported net of accumulated amortization of ~~$3.6~~$5.1 million and ~~$1.9~~$4.4 million as of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

(2) Finance lease ROU assets are reported net of accumulated amortization of ~~$1.7~~$2.5 million and ~~$1.1~~$2.0 million as of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, 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~~2023 and December 31, ~~2021.~~2022.

1112

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Lease expense for operating leases for the three and nine months ended September 30, 2023 was $1.6 million and $4.3 million, respectively, of which $1.2 million and $3.4 million, respectively, is included in the "Consumables - cost of revenue, exclusive of depreciation and amortization" line item, and $0.4 million and $0.9 million, respectively, is included in the "General and administrative" line item in the Condensed Consolidated Statements of Operations for those periods. Lease expense for operating leases for the three and nine months ended September 30, 2022 was $1.2 million and $3.2 million, respectively, of which $1.1 million and $2.9 million, respectively, is included in the "Consumables - cost of revenue, exclusive of depreciation and amortization" line item, and $0.1 million and ~~$0.3~~$0.4 million, respectively, is included in the "General and administrative" line item in the Condensed Consolidated Statements of Operations for those periods. 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, is included in the "Consumables - cost of 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~~2023 and December 31, ~~2021.~~2022. Interest expense related to finance lease obligations and amortization of ROU assets under finance leases are included in the "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~~2023 and ~~2021.~~2022.

Lease financial information as of and for the three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 is provided in the following table:


		Three Months Ended September 30,				Nine Months Ended September 30,							Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2022		2021		2022			2021			(in thousands)	2023		2022		2023			2022
Finance lease cost:	Finance lease cost:											Finance lease cost:
Amortization of right-of-use assets	Amortization of right-of-use assets	$	236	$	152	$	607		$	500		Amortization of right-of-use assets	$	215	$	236	$	661		$	607
Interest on lease liabilities	Interest on lease liabilities	76		74		240			223			Interest on lease liabilities	59		76		190			240

Operating lease cost	Operating lease cost	805		647		2,389			1,732			Operating lease cost	1,000		805		3,017			2,389
Short-term lease cost	Short-term lease cost	373		493		832			1,293			Short-term lease cost	481		373		1,132			832
Variable lease cost (1)	Variable lease cost (1)	5		9		12			30			Variable lease cost (1)	81		5		145			12

Total lease cost	Total lease cost	$	1,495	$	1,375	$	4,080		$	3,778		Total lease cost	$	1,836	$	1,495	$	5,145		$	4,080

Other Information:	Other Information:											Other Information:
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:											Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for finance leases	Operating cash flows for finance leases					$	240		$	223		Operating cash flows for finance leases					$	190		$	240
Operating cash flows for operating leases	Operating cash flows for operating leases					$	2,118		$	2,514		Operating cash flows for operating leases					$	2,087		$	2,118
Financing cash flows for finance leases	Financing cash flows for finance leases					$	913		$	1,085		Financing cash flows for finance leases					$	855		$	913
Right-of-use assets obtained in exchange for new finance lease liabilities	Right-of-use assets obtained in exchange for new finance lease liabilities					$	1,641		$	—		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	Right-of-use assets obtained in exchange for new operating lease liabilities					$	3,563		$	6,392		Right-of-use assets obtained in exchange for new operating lease liabilities					$	1,947		$	3,563
Weighted-average remaining lease term - finance leases	Weighted-average remaining lease term - finance leases					2.9 years			3.1 years			Weighted-average remaining lease term - finance leases					2.1 years			2.9 years
Weighted-average remaining lease term - operating leases	Weighted-average remaining lease term - operating leases					4.2 years			3.1 years			Weighted-average remaining lease term - operating leases					7.8 years			4.2 years
Weighted-average discount rate - finance leases	Weighted-average discount rate - finance leases					5.9		%	6.4		%	Weighted-average discount rate - finance leases					5.9		%	5.9		%
Weighted-average discount rate - operating leases	Weighted-average discount rate - operating leases					6.1		%	6.6		%	Weighted-average discount rate - operating leases					12.7		%	6.1		%

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

1213

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 8 - Commitments and Contingencies

Marken Separation Agreement

Pursuant to Mr. Marken's termination as CEO of the Company effective July 17, 2023, the Company and Mr. Marken executed a separation agreement under which Mr. Marken will receive the following payments and benefits: (i) the severance payments and benefits set forth in the terms of his employment agreement upon a termination without "cause," (ii) accelerated vesting of 49,715 shares of restricted stock, (iii) continued eligibility for possible vesting of a pro rata target number of 25,941 performance share units ("PSUs") granted in 2021, subject to achievement of applicable performance measures, (iv) continued eligibility for possible vesting of a pro rata target number of 15,988 PSUs granted in 2022, subject to achievement of applicable performance measures, and (v) continued eligibility for possible vesting of a pro rata target number of 19,834 PSUs granted in 2023, subject to achievement of applicable performance measures. As of September 30, 2023, the Company recorded a liability and corresponding charge in the amount of $0.8 million related to (i) and (ii) above.

Retention Agreements

OnAs of December 31, 2022, the Company had an outstanding liability of $1.4 million (the "Retention Liability"), which was included in the "Other current liabilities" line item in the Condensed Consolidated Balance Sheet, related to retention agreements (the "Retention Agreements") executed between the Company and its executive officers and certain other key employees in May 4,2021 and amended in May 2022 in order to maintain the Company's business operations while it pursued and executed on its strategic initiatives. The Retention Agreements were approved by 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 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 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) in January 2023.

~~In order to receive the Amended Retention Agreements payments, employees must remain employed at the Company through the dates above.~~May 2022. 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 total cash payable pursuant to the Amended~~ Retention Agreements ~~is $1.1 million~~ and ~~is included~~the Retention Liability was paid in ~~the "Other current liabilities" line item~~full in ~~the Condensed Consolidated Balance Sheet.~~January 2023.

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, 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 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 is required to post a surety bond with a regulatory ~~commission. As of September 30, 2022 and December 31, 2021, the Company had posted a~~ ~~$7.5 million~~ ~~surety bond~~commission related to performance requirements associated with the Five Forks Mine. As of September 30, 2023 and December 31, 2022, the amount of this surety bond was $7.5 million.

The Company leases land adjacent to the Corbin Facility and is required to post surety bonds with a regulatory commission for reclamation. As of September 30, 2023, the amount of these surety bonds was $3.0 million.

The Company holds permits for an abandoned mine in West Virginia ("Mine 4") and is required to post a surety bond with a regulatory commission for reclamation. As of September 30, 2023, the amount of this surety bond was $0.7 million.

As the owner of the Marshall Mine, the Company was required to post a surety bond with a regulatory commission. As of December 31, 2022, the Company posted a $16.6 million surety bond that was released upon all of the Conditions for closing the MM Transaction being satisfied, which occurred on March 27, 2023.

As of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company posted cash collateral of $8.5 million and $10.0 million, ~~for both the Marshall Mine and Five Forks Mine~~respectively, as required by the Company's surety bond ~~provider,~~providers, which is reported as long-term restricted cash onin the Condensed Consolidated Balance Sheets. As of September 30, 2023, the Company holds a deposit of $0.4 million with a third party for collateral as required under a bonding arrangement for Mine 4. This deposit is included in "Other long-term assets, net" in the Condensed Consolidated Balance Sheet as of September 30, 2023.

The Company has a customer supply agreement that requires the Company to post a performance bond in an amount equal to the annual contract value of $3.7 million. As of September 30, 2023, the remaining commitment under this customer contract, which expires on December 31, 2023, was approximately $0.4 million.

Tinuum Group

~~The~~In addition to those obligations described in Note 10, 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 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 certain losses it may suffer as a result of inaccuracies or breach of representations and covenants committed by Tinuum Group. 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.

As previously disclosed, effective December 31, 2021, the Section 45 tax credit period expired and, as a result, both Tinuum Group and Tinuum Services (discussed below) ceased their operations.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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, ~~2022.~~

2023.

~~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					As of
(in thousands)	(in thousands)	September 30, 2022		December 31, 2021		(in thousands)	September 30, 2023		December 31, 2022

Other long-term assets, net:	Other long-term assets, net:					Other long-term assets, net:
Right of use assets, operating leases, net	Right of use assets, operating leases, net	$	7,610	$	6,000	Right of use assets, operating leases, net	$	10,673	$	7,734
Intangible assets, net						Intangible assets, net	8,053		847
Spare parts, net						Spare parts, net	8,523		6,789
Upfront Customer Consideration	Upfront Customer Consideration	6,602		6,982		Upfront Customer Consideration	6,094		6,475
Mine development costs, net	Mine development costs, net	5,369		5,330		Mine development costs, net	7,063		5,478
Spare parts, net		5,500		4,598
Mine reclamation asset, net	Mine reclamation asset, net	1,666		1,742		Mine reclamation asset, net	1,566		1,641
Intangible assets, net		947		1,237
Other	Other	1,835		1,745		Other	2,657		1,683
Equity method investments		—		2,391
Norit Receivable		—		6,846

Total other long-term assets, net	Total other long-term assets, net	$	29,529	$	36,871	Total other long-term assets, net	$	44,629	$	30,647

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.~~ 2023.

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~~2023 and December 31, ~~2021,~~2022, 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~~2023 as there were no indicators of impairment or observable price changes for identical or similar investments.

1415

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					As of
(in thousands)	(in thousands)	September 30, 2022		December 31, 2021		(in thousands)	September 30, 2023		December 31, 2022
Other current liabilities:	Other current liabilities:					Other current liabilities:
Current portion of operating lease obligations	Current portion of operating lease obligations	$	2,654	$	2,157	Current portion of operating lease obligations	$	2,045	$	2,724
Income and other taxes payable	Income and other taxes payable	1,286		807		Income and other taxes payable	1,126		1,039
Current portion of mine reclamation liability						Current portion of mine reclamation liability	176		548

Other		1,421		2,160
Other(1)						Other(1)	2,714		2,334
Total other current liabilities	Total other current liabilities	$	5,361	$	5,124	Total other current liabilities	$	6,061	$	6,645
Other long-term liabilities:	Other long-term liabilities:					Other long-term liabilities:
Operating lease obligations, long-term						Operating lease obligations, long-term	$	8,797	$	5,133
Mine reclamation liabilities	Mine reclamation liabilities	$	7,979	$	8,184	Mine reclamation liabilities	5,444		7,985
Operating lease obligations, long-term		5,127		4,178

Other	Other	800		—		Other	866		733
Total other long-term liabilities	Total other long-term liabilities	$	13,906	$	12,362	Total other long-term liabilities	$	15,107	$	13,851

~~The~~(1) Included in Other current liabilities is $1.7 million related to the Repayment Agreement as defined in Note 10.

As of September 30, 2023 and December 31, 2022, the Mine reclamation liability related to the Five Forks Mine is included in Other long-term liabilities. ~~The~~As of December 31, 2022, the Mine reclamation liability related to Marshall Mine iswas included in Other current liabilities and Other long-term liabilities.

As part of the Arq Acquisition, the Company assumed asset retirement obligations related to two sites; a coal waste site adjacent to the Corbin Facility (the "Corbin ARO") and Mine 4 located in West Virginia (the "Mine 4 ARO"). The Company recorded these AROs at their estimated fair values and periodically adjusts them to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation costs. As of September 30, 2023, the Corbin ARO is included in Other long-term liabilities. As of September 30, 2023, the current portion of the Mine 4 ARO is included in Other current liabilities with the long-term portion included in Other long-term liabilities.

The Mine reclamation liabilities represent AROs and changes for the ~~three and~~ nine months ended September 30, ~~2022~~2023 and year ended December 31, ~~2021~~2022 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


	As of
(in thousands)	September 30, 2023		December 31, 2022
Asset retirement obligations, beginning of period	$	8,533	$	9,959
Asset retirement obligations assumed(1)	1,500		—
Accretion	441		611
Liabilities settled(2)	(4,854)		(2,071)
Changes due to scope and timing of reclamation	—		34
Asset retirement obligations, end of period	5,620		8,533
Less current portion	176		548
Asset retirement obligations, long-term	$	5,444	$	7,985

(1) ~~Represent reductions to~~Represents the Corbin ARO and Mine 4 ARO in the amounts of $0.5 million and $1.0 million, respectively.

(2) Represents the removal of the Marshall Mine ARO ~~primarily based on scope reductions related~~as a result of the sale of Marshall Mine, LLC, as further discussed in Note 3.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to ~~future reclamation requirements for Marshall Mine. Amounts recorded as changes in estimates in the Statement of Operations for the corresponding periods.~~Condensed Consolidated Financial Statements

(Unaudited)

Note 10 - Equity Method Investments

Tinuum Group, LLC

As of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company's 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 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 Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~The following table summarizes the results of 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 nine months ended September 30, 2022 and~~ the three and nine months ended September 30, ~~2021,~~2023 the Company recognized earnings from Tinuum ~~Group's net (loss) income available to members that were different from its pro-rata share~~Group of ~~Tinuum Group's net (loss) income available to members for those periods, as~~$0.2 million and $1.1 million, respectively, which was comprised solely of 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~~received during these periods. For the three and nine months ended September 30, 2022, the Company recognized earnings from Tinuum Group of zero and ~~2021 (~~$3.1 million, respectively, which was comprised solely of cash distributions received during these periods.

In December 2022, the Company, certain of the other owners of Tinuum Group (collectively, the "Tinuum Group Owners") and Tinuum Group executed the Distribution and Repayment Agreement (the "Repayment Agreement"). Under the terms of the Repayment Agreement, the Tinuum Group Owners receive cash distributions (the "Distributions") equal to their percentage ownership and also are contractually liable for certain contingent liabilities of Tinuum Group (the "Tinuum Group Obligation") in amounts equal to their percentage ownership. In December 2022, the Company received its percentage share of the Distributions in the amount of $2.0 million and became contractually liable for $1.7 million of the Tinuum Group Obligation. As of September 30, 2023 and December 31, 2022, the Company's portion of the Tinuum Group Obligation is $1.7 million and $1.7 million, respectively, and is included in the "Other current liabilities" line item in the Condensed Consolidated Balance Sheets. In the event that the Tinuum Group Obligation is discharged in its entirety or settled for an amount that is less than the total Tinuum Group Obligation, the Company will recognize future equity earnings for the difference in its portion of the Tinuum Group Obligation and its pro rata share of the actual payment made by Tinuum Group, if any, for the Tinuum Group Obligation.

In December 2022, the Company and Tinuum Group entered into an agreement (the "Tinuum Group Royalty Agreement") whereby the Company pays Tinuum Group a royalty (the "Tinuum Group Royalty") on certain of the Company's sales of its M-ProveTM products after the expiration of the Section 45 Tax Credit Program (beginning January 1, 2022) to certain of the former refined coal facilities owned by Tinuum Group and operated by Tinuum Services (the "M-45 Facilities"). The Tinuum Group Royalty is calculated based on "Net Profit" (as defined in ~~thousands~~the Tinuum Royalty Agreement) on the Company's sales of M-Prove):TM product to certain of the M-45 Facilities. The Tinuum Group Royalty Agreement is for an initial term of five years with automatic renewals of five years unless the Company and Tinuum Group agree to terminate it.

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)
For the three and nine months ended September 30, 2023, the Company recognized $0.2 million and $0.6 million, respectively, of Tinuum Group Royalties, which are included in the "Consumables cost of revenues, excluding depreciation and amortization" line item in the Consolidated Statement of Operations.

Tinuum Services, LLC

As of September 30, 2023 and December 31, 2022, the Company had a 50% voting and economic interest in Tinuum Services. For the three and nine months ended September 30, 2023, the Company recognized income from Tinuum Services of $0.2 million and $0.5 million, respectively. For the three and nine months ended September 30, 2022, the Company recognized income from Tinuum Services of zero and $0.1 million, respectively.

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~~Cash Distributions

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 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, 2022, the Company 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 nine months ended September 30, 2022 exceeded the carrying value of the Tinuum Services' equity investment.

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 (~~in thousands~~):

~~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,
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 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" 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


	Nine Months Ended September 30,
(in thousands)	2023		2022
Distributions from equity method investees, return on investment
Tinuum Services	$	—	$	2,297
Tinuum Group	—		—



	$	—	$	2,297
Distributions from equity method investees in excess of investment basis
Tinuum Group	$	1,062	$	3,137
Tinuum Services	450		179


	$	1,512	$	3,316

Note 11 - Stockholders' Equity

Equity Transactions

On February 1, 2023, and pursuant to the Arq Acquisition, the Company entered into Subscription Agreements with certain persons (the "Subscribers"), which included existing shareholders of Arq Ltd., three of which were appointed to the Company's Board of Directors (the "Board"), pursuant to which the Subscribers subscribed for and purchased 3,842,315 shares of Common Stock for an aggregate purchase price of $15.4 million and at a price per share of $4.00 (such transaction, the "PIPE Investment").

On February 1, 2023, and as consideration for the Arq Acquisition, the Company issued 3,814,864 shares of its Common Stock and 5,294,462 shares of Series A Preferred Stock.

On March 31, 2023, and pursuant to the Certificate of Designations, the Company declared a dividend of 68,464 shares of Series A Preferred Stock with respect to accrued dividends on the Series A Preferred Stock for the first quarter of 2023 (the "PIK Dividend"). The PIK Dividend was recorded at the estimated fair value of $0.2 million as of March 31, 2023 and was paid on April 21, 2023.

On June 13, 2023, pursuant to stockholder approval, all shares of Series A Preferred Stock were converted into 5,362,926 shares of Common Stock.

On July 14, 2023, the Board appointed Mr. Robert Rasmus to the positions of President and Chief Executive Officer effective July 17, 2023 succeeding Mr. Greg Marken. Also on this date, the Board increased the size of the Board from seven to eight directors and appointed Mr. Rasmus to fill the vacancy as a member of the Board effective immediately.

On July 17, 2023, the Company entered into a Subscription Agreement (the "Subscription Agreement") with Mr. Rasmus and entities controlled by Mr. Rasmus, in connection with his appointment as the Company’s President and Chief Executive Officer. Pursuant to the Subscription Agreement, Mr. Rasmus subscribed for and agreed to purchase 950,000 shares of Common Stock from the Company for an aggregate purchase price of $1.8 million (at a price per share of approximately $1.90). In September 2023, the Company received cash of $1.0 million and issued 527,779 shares of Common Stock to Mr. Rasmus pursuant to the Subscription Agreement. The Company expects to receive the remaining cash of $0.8 million due under the Subscription Agreement during the fourth quarter of 2023 and, when received, will issue Mr. Rasmus 422,221 shares of Common Stock.

Term Loan

As consideration for the Term Loan, the Company issued 325,857 Warrant Shares, which were deemed to be equity securities. The Warrant Shares were recorded at their estimated fair value of $0.8 million to Additional paid in capital with a corresponding amount recorded as a debt discount on the Term Loan.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Stock Repurchase Program

As of September 30, ~~2022,~~2023, 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 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 tax 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.~~An entity that experiences an ownership change generally will be subject to an annual limitation on its pre-ownership change tax loss and ~~Subsidiaries~~

~~Notes~~credit carryforwards equal to ~~Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

the equity value of the entity immediately before the ownership change, multiplied by the long-term, tax-exempt rate posted monthly by the Internal Revenue Service (subject to certain adjustments). The annual limitation would be increased each year to the extent that there is an unused limitation in a prior year.

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"), which is 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 ~~March 15, 2022,~~April 11, 2023, the Board approved the ~~Fifth~~Sixth Amendment to the TAPP (the ~~"Fifth~~"Sixth Amendment"), which amends the TAPP, as previously amended by the First, Second, Third, Fourth and ~~Fourth~~Fifth Amendments that were approved the Board on April 6, 2018, April 5, 2019, April 9, 2020, ~~and~~ April 9, 2021 and March 15, 2022, respectively. The ~~Fifth~~Sixth 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~~Sixth Amendment, the Final Expiration Date shall be the close of business on the earlier of (i) December 31, ~~2023~~2024 or (ii) December 31, ~~2022~~2023 if stockholder approval of the ~~Fifth~~Sixth Amendment has not been obtained prior to such date. At the Company's ~~2022 annual meeting~~2023 Annual Meeting of ~~stockholders,~~Stockholders, the Company's stockholders approved the ~~Fifth~~Sixth Amendment, thus the Final Expiration Date will be the close of business on December 31, ~~2023.~~2024.

Note 12 - Stock-Based Compensation

The 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 "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, ~~2022~~2023 and ~~2021~~2022 was as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2022		2021		2022		2021		(in thousands)	2023		2022		2023		2022
RSA expense	RSA expense	$	420	$	435	$	1,240	$	1,353	RSA expense	$	501	$	420	$	1,405	$	1,240

PSU expense	PSU expense	87		54		215		123		PSU expense	151		87		355		215

Stock option expense										Stock option expense	50		—		50		—
Total stock-based compensation expense	Total stock-based compensation expense	$	507	$	489	$	1,455	$	1,476	Total stock-based compensation expense	$	702	$	507	$	1,810	$	1,455

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The amount of unrecognized compensation cost as of September 30, ~~2022,~~2023, and the expected weighted-average period over which the cost will be recognized is as follows:


		As of September 30, 2022				As of September 30, 2023
(in thousands, expect years)	(in thousands, expect years)	Unrecognized Compensation Cost		Expected Weighted- Average Period of Recognition (in years)	(in thousands, expect years)	Unrecognized Compensation Cost		Expected Weighted- Average Period of Recognition (in years)
RSA expense	RSA expense	$	2,767	1.86	RSA expense	$	1,723	1.86

PSU expense	PSU expense	648		1.57	PSU expense	502		2.01

Stock option expense					Stock option expense	679		2.79
Total unrecognized stock-based compensation expense	Total unrecognized stock-based compensation expense	$	3,415	1.81	Total unrecognized stock-based compensation expense	$	2,904	2.10

Restricted Stock Awards

~~Restricted stock is~~RSAs are typically granted with vesting terms of three years. The fair value of RSAs is determined based on the closing price of the ~~Company’s~~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 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's various stock compensation plans for the nine months ended September 30, ~~2022~~2023 is presented below:


		Restricted Stock	Weighted-Average Grant Date Fair Value			Restricted Stock	Weighted-Average Grant Date Fair Value

Non-vested at January 1, 2022		531,623	$	5.94
Non-vested at January 1, 2023					Non-vested at January 1, 2023	652,962	$	5.58
Granted	Granted	400,301	$	6.12	Granted	773,327	$	1.91
Vested	Vested	(249,620)	$	6.44	Vested	(391,893)	$	4.89
Forfeited	Forfeited	(69,737)	$	5.94	Forfeited	(201,271)	$	3.29
Non-vested at September 30, 2022		612,567	$	5.84
Non-vested at September 30, 2023					Non-vested at September 30, 2023	833,125	$	3.04

Performance Share Units

Compensation expense for PSUs is recognized ~~for PSUs~~ 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, ~~2022~~2023 is presented below:


		Units	Weighted-Average Grant Date Fair Value		Aggregate Intrinsic Value (in thousands)		Weighted-Average Remaining Contractual Term (in years)		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
PSUs outstanding, January 1, 2023								PSUs outstanding, January 1, 2023	148,591	$	7.85
Granted	Granted	60,565	9.59					Granted	682,709	1.22
Vested / Settled(1)	Vested / Settled(1)	—	—					Vested / Settled(1)	—	—
Forfeited / Canceled	Forfeited / Canceled	—	—					Forfeited / Canceled	(162,382)	4.10
PSU's outstanding, September 30, 2022		148,591	$	7.85	$	406	1.57
PSUs outstanding, September 30, 2023								PSUs outstanding, September 30, 2023	668,918	$	1.99	$	1,191	2.01

(1) The number of units shown in the table above are based on target performance. The final number of shares of common stock issued may vary depending on the achievement of market conditions established within the awards, which could result in the actual number of shares issued ranging from zero to a maximum of two times the number of units shown in the above table. For the three and nine months ended September 30, 2023, no shares of common stock were issued upon vesting of PSUs.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Stock Options

Stock options vest over three years and have a contractual limit of ten years from the date of grant to exercise. The fair value of stock options granted is determined on the date of grant using the Black-Scholes option pricing model, and the related expense is recognized on a straight-line basis over the entire vesting period. The determination of the grant date fair value of stock options issued is affected by a number of variables, including the fair value of the Company’s common stock, the expected common stock price volatility over the expected term of the stock option, the expected term of the stock option, risk-free interest rates, and the expected dividend yield of the Company’s common stock.

Risk-free interest rate - The risk-free interest rate for stock options granted during the period was determined by using a zero-coupon U.S. Treasury rate for the periods that coincided with the expected term of the options.

Dividend yield - An expected dividend yield of zero was included in the calculations, as the Company does not currently pay nor does it anticipate paying dividends on its common stock as of the grant date of the stock options.

Expected volatility - To calculate expected volatility, the historical volatility of the Company's common stock was used.

Expected term - The Company’s expected term of stock options was calculated using a simplified method whereby the midpoint between the vesting date and the end of the contractual term is utilized to compute the expected term, as the Company does not have sufficient historical data for options with similar vesting and contractual terms.

The following table indicates the weighted average assumptions that were used related to the awards granted in the three months ended September 30, 2023:


	Three Months Ended September 30, 2023
Stock options granted:	1,000,000
Risk-free interest rate	4	%
Dividend yield	—	%
Volatility	62	%
Expected term (in years)	6

A summary of stock option activity for the nine months ended September 30, 2023 is presented below:


	Number of Options Outstanding and Exercisable	Weighted-Average Exercise Price		Aggregate Intrinsic Value		Weighted-Average Remaining Contractual Term (in years)

Options outstanding, January 1, 2023	—	$	—
Options granted	1,000,000	3.00
Options exercised	—	—
Options expired / forfeited	—	—
Options outstanding, September 30, 2023	1,000,000	$	3.00	$	—	9.79
Options vested and exercisable, September 30, 2023	—	$	—	$	—	0.00

Note 13 - Income Taxes

For the three and nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, the Company's income tax expense and effective tax rates were:


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except for rate)	(in thousands, except for rate)	2022			2021			2022			2021			(in thousands, except for rate)	2023			2022			2023			2022
Income tax (benefit) expense		$	—		$	4,581		$	—		$	14,013
Income tax benefit														Income tax benefit	$	—		$	—		$	(33)		$	—
Effective tax rate	Effective tax rate	—		%	16		%	—		%	14		%	Effective tax rate	—		%	—		%	—		%	—		%

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The Company incurred pretax loss for the nine months ended September 30, ~~2022~~2023 and expects to incur pretax loss for the year ending December 31, ~~2022.~~2023. As a result, the effective rate for the three and nine months ended September 30, ~~2022~~2023 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, 2021.2023.

The Company assesses 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 14 - Subsequent Events

Unless disclosed elsewhere in the notes to the Condensed Consolidated Financial Statements, there were no significant matters that occurred subsequent to September 30, 2023.

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 ~~2021~~2022 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 ADES and its consolidated subsidiaries, collectively, the "Company," "we," "our" or "us."

Overview

We are an environmental technology company and sell consumable products that utilize ACactivated carbon ("AC") and 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.~~served by one of our major customers. Our primary products are comprised of AC, which is produced from a variety of carbonaceous raw materials. Our AC products include both powdered activated carbon, ~~("PAC")~~Colloidal Activated Carbon Product and granular activated ~~carbon ("GAC").~~carbon. 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 ~~which~~that supplies the primary raw material for the manufacturing of our current products.

~~Through December 31, 2021,~~Acquisition

On February 1, 2023, we ~~generated substantial earnings from our equity investments in Tinuum Group~~completed the Arq Acquisition and ~~Tinuum Services. Both entities ceased operations effective December 31, 2021~~ as ~~a result~~Purchase Consideration, issued 3,814,864 shares of Common Stock and 5,294,462 shares of Series A Convertible Preferred Stock. The Purchase Consideration was valued at $31.2 million.

On June 13, 2023, and pursuant to the Purchase Agreement, the Company's stockholders approved the conversion of all of the ~~expiration~~outstanding shares of Series A Preferred Stock and the corresponding issuance of 5,362,926 shares of Common Stock.

CFG Loan Agreement

On February 1, 2023, we and CFG entered into the Term Loan in the amount of $10.0 million, less original issue discount of $0.2 million. The Term Loan matures on February 1, 2027 and bears interest at a ~~tax credit program~~rate equal to either (a) Adjusted Term SOFR (subject to a 1.00% floor and a cap of 2.00%) plus a margin of 9.00% paid in cash and 5.00% paid in kind or (b) Base Rate plus a margin of 8.00% paid in cash and 5.00% paid in kind, which interest on the Term Loan in each case is payable (or capitalized, in the case of in kind interest) quarterly in arrears. The Term Loan is secured by substantially all of the assets of ADES and its subsidiaries (including those acquired in the Acquisition, but excluding those pledged as collateral under the ~~Section 45 Tax Credit Program. Tinuum Group provided reduction~~Arq Loan, as defined and described in Note 6 "Debt Obligations" to the Condensed Consolidated Financial Statements included in Item 1 of ~~mercury~~this Quarterly Report), subject to customary exceptions. We incurred issuance costs of $1.3 million associated with the CFG Loan Agreement.

Pursuant to the CFG Loan Agreement, we issued the Warrant to CFG to purchase 325,457 shares of Common Stock, which represented 1% of the post-Arq Acquisition and ~~nitrogen oxide ("NOx") emissions~~PIPE Investment fully diluted share capital (as defined in the CFG Loan Agreement), at ~~select coal-fired power generators through~~an exercise price of $0.01 per share. The Warrant has a term of 7 years and contains a cashless exercise provision.

Equity Financings

On February 1, 2023, we and the ~~production~~Subscribers, which included existing shareholders of Arq Ltd., entered into the PIPE Investment for the purchase of 3,842,315 shares of Common Stock for an aggregate purchase price of $15.4 million and ~~sale~~at a price per share of ~~refined coal ("RC") which qualified~~$4.00.

On July 17, 2023, we entered into the Subscription Agreement with Mr. Rasmus and entities controlled by Mr. Rasmus, in connection with his appointment as our President and Chief Executive Officer. Pursuant to the Subscription Agreement, Mr. Rasmus subscribed for ~~tax credits~~and agreed to purchase 950,000 shares of Common Stock from us for an aggregate purchase price of $1.8 million (at a price per share of approximately $1.90). In September 2023, the Company received cash of $1.0 million and issued 527,779 shares of Common Stock to Mr. Rasmus pursuant to the Subscription Agreement. The Company expects to receive the remaining cash of $0.8 million due under the ~~Section 45 Tax Credit Program ("Section 45 tax credits"). We also earned royalties for technologies that were licensed to Tinuum Group~~Subscription Agreement during the fourth quarter of 2023 and, ~~used at certain RC facilities to enhance combustion and reduced emissions~~when received, will issue Mr. Rasmus 422,221 shares 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.Common Stock.

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 are sales of our consumables-based solutions for coal-fired power

generation, industrials, municipal water customers and other diverse markets served by ~~Norit, whom we supply through the Supply Agreement as discussed below.~~one of our major customers. Our operating results are influenced by: (1) changes in our manufacturing production and sales volumes; (2) changes in average selling price and product mix; (3) changes in coal-fired dispatch and electricity power generation sources and (4) changes in demand for contaminant removal within water treatment ~~facilities. During~~facilities and contaminated soil and groundwater sites.

For the three months ended September 30, 2022, we have continued to see high demand for our AC products. As such, we continue to purchase inventory to supplement customer demands in excess of our 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.~~

~~Proposed Merger~~

As more fully discussed in Note 2 to the Condensed Consolidated Financial Statements, on August 19, 2022, we and Arq entered into the Transaction Agreement, which if 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 Transaction Agreement, we have entered into subscription agreements from existing Arq shareholders for the purchase of $20.0 million of shares of New ADES' common stock (the "PIPE Investment") and a term debt commitment letter for $10.0 million (the "Debt Financing"), both of which will fund at Closing.

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 believe New ADES’ vertically integrated supply chain will enable highly efficient production and 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 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~~

On February 25, 2022, we received $10.6 million in cash from Norit as a result of the Change in Control, of which $8.5 million represented full payment of the outstanding Reclamation Reimbursement. As a result of the Change in Control, we recognized a loss of $0.5 million, which is included within the "Other income (expense)" line item in the Condensed Consolidated Statement of Operation for the nine months ended September 30, 2023, we experienced a decrease in demand for our product from certain coal-fired dispatch and electricity power generation customers. This was primarily due to lower than anticipated natural gas prices, resulting in several large utility customers opting to use natural gas versus coal as a primary source for power generation, and mild temperatures during the spring and early summer season, resulting in lower demand for power generation compared to 2022. ~~The Change in Control did not~~We expect that natural gas prices will remain relatively consistent through 2023, which, we expect, will negatively impact ~~any other provisions~~sales of ~~the Supply Agreement.~~our products even with higher than average summer temperatures.

Marshall Mine

On ~~September 2, 2022,~~March 27, 2023, we ~~entered into a Purchase Agreement with a third party (the "MM Buyer") to sell all of our membership interests in Marshall Mine, LLC to~~closed the MM Buyer in exchange for a cash payment to be made by the Seller to the MM Buyer of approximately $2.4 million and 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 behalfsale of Marshall Mine, LLC and ~~is currently performing reclamation under~~we remitted a cash payment to 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 Closing Date.~~

~~The obligations of the Parties to close the MM Sale is subject to certain events, including (1) obtaining the approval of the Commission for an operating permit~~Buyer in the ~~name~~amount of $2.2 million in connection with 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.sale. As of ~~September 30, 2022,~~March 27, 2023, Marshall Mine, LLC had outstanding liabilities of approximately ~~$5.1~~$4.9 million ~~which we expect to be fully~~that were discharged upon ~~payment~~the closing, and as a result, we recognized a gain of ~~the Purchase Price. Because the Closing Date is uncertain, primarily due to the uncertain date~~approximately $2.7 million 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.~~

nine months ended September 30, 2023.

Results of Operations

For the three and nine months ended September 30, ~~2022,~~2023, we recognized net loss of $2.2 million and $15.5 million, compared to net loss of $2.4 million and $5.8 ~~million, respectively, compared to net income of $24.3 million and $54.6~~ million for the three and nine months ended September 30, ~~2021, respectively.~~2022. The most significant ~~factor~~factors impacting results ~~period over period was~~for the comparable prior year periods were higher expenses related to the Arq Acquisition and lower revenues as a result of a decrease in ~~equity earnings from Tinuum Group as the ability~~demand for our AC and chemical products with power generation customers, primarily due to ~~generate Section 45 tax credits, the driver~~continued low prices of alternative energy sources for ~~Tinuum Group's operations, ceased as of December 31, 2021.~~power generation.

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 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, ~~2022~~2023 and ~~2021~~2022

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, ~~2022~~2023 and ~~2021~~2022 is as follows:


		Three Months Ended September 30,				Change					Three Months Ended September 30,				Change
(in thousands, except percentages)	(in thousands, except percentages)	2022		2021		($)		(%)		(in thousands, except percentages)	2023		2022		($)		(%)
Revenues:	Revenues:									Revenues:
Consumables	Consumables	$	28,437	$	26,693	$	1,744	7	%	Consumables	$	29,829	$	28,437	$	1,392	5	%
License royalties, related party		—		4,165		(4,165)		(100)	%

Total revenues	Total revenues	$	28,437	$	30,858	$	(2,421)	(8)	%	Total revenues	$	29,829	$	28,437	$	1,392	5	%
Operating expenses:	Operating expenses:									Operating expenses:
Consumables cost of revenue, exclusive of depreciation and amortization	Consumables cost of revenue, exclusive of depreciation and amortization	$	21,575	$	19,956	$	1,619	8	%	Consumables cost of revenue, exclusive of depreciation and amortization	$	20,707	$	21,575	$	(868)	(4)	%

Consumables and consumables cost of revenue

For the three months ended September 30, ~~2022,~~2023, consumables revenues increased from the comparable quarter in ~~2021~~2022 primarily driven by overall higher pricing and favorable product mix of approximately $4.3 million and $1.0 million, respectively. Offsetting these increases to Consumables revenues was approximately $3.9 million attributable to lower volumes ~~sold, which comprised $1.5 million of the total change.~~sold. Product volumes were ~~higher~~lower among power generation customers primarily due to ~~higher~~low natural gas prices ~~and higher demand for electricity~~ compared to the same quarter in ~~2021,~~2022, which contributed to ~~increased~~decreased utilization of coal-fired generation and ~~increased~~decreased demand for our products. Total consumables revenues also increased due to overall higher pricing of our products by approximately $1.5 million from the comparable quarter in 2021. Offsetting these increases to Consumable revenue was unfavorable product mix of approximately $1.3millionThe average natural gas spot prices ($MMBtu) for the three months ended September 30, 2023 and 2022 ~~compared to 2021.~~were $2.59 and $7.99, respectively.

Consumables gross margin, exclusive of depreciation and amortization, ~~remained flat~~increased for the three months ended September 30, ~~2022,~~2023 compared to the corresponding quarter in ~~2021. For~~2022. Driving the increase in gross margin was a decrease in the price of our feedstock and additives, primarily as a result of decreased production volumes for the three months ended September 30, ~~2022, our consumables~~2023 from the corresponding quarter in 2022. Offsetting the overall increase in gross margin for the three months ended September 30, 2023 from the corresponding quarter in 2022 were higher fixed costs as a percentage of total consumables cost of revenue primarily due to lower production volumes for the three months ended September 30, 2023 from the corresponding quarter in 2022. Further reducing gross margin for the three months ended September 30, 2023 was ~~negatively impacted by higher prices for key raw materials, transportation, including fuel, and other operational costs~~severance expense of $0.3 million related to ~~produce and deliver our products, including~~the termination of 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 was an increase in the prices of our products, most of which were in place as of the beginning of April 2022, as well as sales volume remaining consistent quarter over quarter, and incremental positive impact from net electricity generated.executive.

We expect that consumables revenues and gross margin will continue to be positively impacted by our product price increases ~~related to new or renewed contracts~~ and our efforts to move our product mix to higher margin products. We anticipate that the product price increases will help offset ~~both~~decreases in volumes due to prices of alternative energy sources impacting the ~~inflation we are experiencing in many of~~demand for our AC and chemical products related to power generation. However, there is risk to our gross margin outlook driven by inflationary pressures that may increase our overall operating costs ~~and the higher operating costs from purchasing 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.~~our manufacturing operations.

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 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, 2022.

Other Operating Expenses

A summary of the components of our operating expenses for the three months ended September 30, ~~2022~~2023 and ~~2021,~~2022, 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)	2022		2021		($)		(%)		(in thousands, except percentages)	2023		2022		($)		(%)
Operating expenses:	Operating expenses:									Operating expenses:
Payroll and benefits	Payroll and benefits	$	2,313	$	2,637	$	(324)	(12)	%	Payroll and benefits	$	4,228	$	2,313	$	1,915	83	%

Legal and professional fees	Legal and professional fees	3,668		1,106		2,562		232	%	Legal and professional fees	1,654		3,668		(2,014)		(55)	%
General and administrative	General and administrative	1,833		1,715		118		7	%	General and administrative	3,054		1,833		1,221		67	%
Depreciation, amortization, depletion and accretion	Depreciation, amortization, depletion and accretion	1,671		2,145		(474)		(22)	%	Depreciation, amortization, depletion and accretion	2,711		1,671		1,040		62	%

		$	9,485	$	7,603	$	1,882	25	%		$	11,647	$	9,485	$	2,162	23	%

Payroll and benefits

Payroll and benefits, ~~expenses,~~ which represent costs related to selling, general and administrative personnel, ~~decreased~~increased for the three months ended September 30, ~~2022~~2023 compared to the corresponding quarter in ~~2021,~~2022 primarily due to the addition of Arq employees from the date of the Arq Acquisition, which represented $1.0 million of the increase, and an increase of $0.2 million related to non-Arq employees. Further, for the three months ended September 30, 2023, we incurred severance related costs of $1.0 million associated with the termination of an executive officer. Offsetting these increases was a ~~decrease~~reduction in ~~payroll-related expenses~~retention bonuses of ~~employees as our headcount decreased quarter over quarter.~~$0.3 million, which were paid in full in January 2023.

Legal and professional fees

Legal and professional fees ~~increased~~decreased for the three months ended September 30, ~~2022~~2023 compared to the corresponding quarter in ~~2021 as~~2022 primarily from a ~~result of an increase~~decrease in legal and consulting costs incurred related to the ~~Merger, and was comprised mostly of legal and consulting fees.~~Arq Acquisition.

General and administrative

General and administrative expenses ~~had no significant changes~~increased for the three months ended September 30, 2023 compared to the corresponding quarter in 2022 by approximately $0.8 million quarter over ~~quarter.~~quarter, mostly related to increases in travel, insurance, and Board compensation, as three new directors were added to the Board in connection with the Arq Acquisition. Further, driving the increase was $0.3 million of additional rent and occupancy expense, primarily from additional leased space related to the Arq Acquisition, and higher research and development of $0.2 million.

Depreciation, amortization, depletion and accretion

Depreciation and amortization expense ~~decreased~~increased for the three months ended September 30, ~~2022~~2023 compared to the corresponding quarter in ~~2021~~2022 primarily due to depreciation and amortization of approximately $0.7 million from the addition of long-lived assets and intangible assets acquired as part of the Arq Acquisition. Further driving the increase were higher production volumes compared to sales volumes for the three months ended September 30, ~~2022,~~2023, resulting in ~~$0.2~~$0.3 million ~~less~~of additional absorption of depreciation in inventory. ~~Further driving the decrease was a reduction in accretion expense of $0.1 million related to the Marshall Mine ARO and amortization expense of $0.1 million related to patents.~~

2625

Other Income (Expense), net

A summary of the components of other income (expense), net for the three months ended September 30, ~~2022~~2023 and ~~2021~~2022 is as follows:


		Three Months Ended September 30,				Change					Three Months Ended September 30,				Change
(in thousands, except percentages)	(in thousands, except percentages)	2022		2021		($)		(%)		(in thousands, except percentages)	2023		2022		($)		(%)
Other income (expense):	Other income (expense):									Other income (expense):
Earnings from equity method investments	Earnings from equity method investments	$	—	$	22,195	$	(22,195)	(100)	%	Earnings from equity method investments	$	412	$	—	$	412	*
Gain on extinguishment of debt		—		3,345		(3,345)		(100)

Interest expense	Interest expense	(83)		(86)		3		(3)	%	Interest expense	(787)		(83)		(704)		848	%
Other		315		81		234		289	%

Other										Other	725		315		410		130	%
Total other income	Total other income	$	232	$	25,535	$	(25,303)	(99)	%	Total other income	$	350	$	232	$	118	51	%

* Calculation not meaningful

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~~Earnings from ~~Tinuum Group and Tinuum Services~~equity method investments 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,
(in thousands) 2022 2021
Earnings from Tinuum Group $ — $ 19,975
Earnings from Tinuum Services — 2,223
(Loss) earnings from other — (3)
Earnings from equity method investments $ — $ 22,195

~~For the three months ended September 30,~~2023 and 2022 ~~we did not recognize any equity earnings~~represented cash distributions from Tinuum Group ~~compared to our proportionate share of~~and Tinuum ~~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~~Services. Tinuum Group compared to our proportionate share of Tinuum Group's net income of $10.7 million for the quarter. 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, 2022, we did not recognize any equity earnings from~~ Tinuum Services ~~compared~~continuing 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 $2.2 million~~wind down their services in equity earnings from Tinuum Services, which was our proportionate share of Tinuum Services' net income of $4.4 million for the 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.2023.

Additional information related to equity method investments is included in Note 10 to the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report.

~~Gain on extinguishment of debt~~

For the three months ended September 30, 2021, we recorded a gain on extinguishment of a loan obtained through the Paycheck Protection Program (the "PPP Loan"), administered by Small Business Administration ("SBA"), in the amount of $3.3 million.

Interest expense

Interest expense ~~had no significant changes quarter over quarter.~~

~~Other~~

~~Other~~ increased for the three months ended September 30, ~~2022~~2023 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~~2022 primarily due to interest expense incurred for the three months ended September 30, ~~2022.~~2023 of $0.5 million related to the Term Loan, which was entered into on February 1, 2023 in connection with the Arq Acquisition, and $0.1 million related to the Arq Loan, which we assumed in the Arq Acquisition.

Other

During the three months ended September 30, 2023, we earned $0.6 million of interest income from cash on hand.

Income tax expense

For three months ended September 30, 2023, we had pretax loss of $2.2 million and recorded no income tax expense or benefit due to the recording of a full valuation allowance based on our forecast of pretax loss for the year ending December 31, 2023. For the three months ended September 30, 2022, we had pretax loss of $2.4 million and recorded no income tax ~~expense or~~ benefit ~~compared to income tax expense of $4.6 million for the three months ended September 30, 2021, primarily~~ due to ~~pretax loss for~~ the ~~three months ended September 30, 2022~~recording of ~~$2.4 million compared to pretax income for the three months ended September 30, 2021 of $28.8 million. We did not recognize~~ a ~~tax benefit for the three months ended September 30, 2022 related to the pretax loss for this period, as we recorded a~~full valuation allowance ~~as of 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, ~~2022~~2023 and ~~2021~~2022

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, ~~2022~~2023 and ~~2021~~2022 is as follows:


		Nine Months Ended September 30,				Change					Nine Months Ended September 30,				Change
(in thousands, except percentages)	(in thousands, except percentages)	2022		2021		($)		(%)		(in thousands, except percentages)	2023		2022		($)		(%)
Revenues:	Revenues:									Revenues:
Consumables	Consumables	$	79,578	$	62,642	$	16,936	27	%	Consumables	$	71,079	$	79,578	$	(8,499)	(11)	%
License royalties, related party		—		11,888		(11,888)		(100)	%

Total revenues	Total revenues	$	79,578	$	74,530	$	5,048	7	%	Total revenues	$	71,079	$	79,578	$	(8,499)	(11)	%
Operating expenses:	Operating expenses:									Operating expenses:
Consumables cost of revenue, exclusive of depreciation and amortization	Consumables cost of revenue, exclusive of depreciation and amortization	$	62,992	$	48,672	$	14,320	29	%	Consumables cost of revenue, exclusive of depreciation and amortization	$	53,218	$	62,992	$	(9,774)	(16)	%

Consumables and consumables cost of revenue

For the nine months ended September 30, ~~2022,~~2023, consumables revenues ~~increased~~decreased from the ~~comparable~~corresponding period in ~~2021~~2022 primarily driven by ~~higher product~~a decrease in volumes sold, which comprised ~~approximately $11.2~~$16.7 million of the total change. Product volumes ~~in 2022 were higher in~~decreased among power generation customers primarily due to ~~higher~~low natural gas prices compared to the ~~prior year~~corresponding period in 2022, which contributed to ~~increased~~decreased utilization of coal-fired generation and decreased demand for our products. Total consumables revenues also ~~increased~~decreased for the nine months ended September 30, 2023 by approximately $0.1 million from the corresponding period in 2022 due to ~~favorable selling prices~~unfavorable product mix. Offsetting these period over period decreases to Consumables revenues was an increase of approximately $8.3 million from overall higher pricing of our products ~~by approximately $4.3 million and favorable product mix of $0.6 million.~~for the nine months ended September 30, 2023 compared to the corresponding period in 2022.

Consumables gross margin, exclusive of depreciation and amortization, ~~decreased~~increased for the nine months ended September 30, ~~2022~~2023 compared to the corresponding period in ~~2021. For~~2022. Driving the increase in gross margin was a decrease in the price of our feedstock and additives, primarily as a result of decreased production volumes for the nine months ended September 30, ~~2022, our~~2023. compared to the corresponding period in 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~~a decrease 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 costs per pound, as well as increases in the prices of our products implemented during the first half of 2022, sales volume remaining consistent quarter over quarter and incremental positive impact from 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, 2022, we did not recognize any revenues from license royalties from Tinuum Group.

sold.

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, ~~2022~~2023 and ~~2021~~2022 is as follows:


		Nine Months Ended September 30,				Change					Nine Months Ended September 30,				Change
(in thousands, except percentages)	(in thousands, except percentages)	2022		2021		($)		(%)		(in thousands, except percentages)	2023		2022		($)		(%)
Operating expenses:	Operating expenses:									Operating expenses:
Payroll and benefits	Payroll and benefits	$	7,458	$	8,014	$	(556)	(7)	%	Payroll and benefits	$	12,482	$	7,458	$	5,024	67	%

Legal and professional fees	Legal and professional fees	7,395		4,340		3,055		70	%	Legal and professional fees	8,060		7,395		665		9	%
General and administrative	General and administrative	5,628		5,223		405		8	%	General and administrative	9,177		5,662		3,515		62	%
Depreciation, amortization, depletion and accretion	Depreciation, amortization, depletion and accretion	4,765		6,155		(1,390)		(23)	%	Depreciation, amortization, depletion and accretion	7,276		4,765		2,511		53	%
Gain on sale of Marshall Mine, LLC										Gain on sale of Marshall Mine, LLC	(2,695)		—		(2,695)		*

Loss (gain) on change in estimate, asset retirement obligation		34		(1,942)		1,976		(102)	%
		$	25,280	$	21,790	$	3,490	16	%		$	34,300	$	25,280	$	9,020	36	%

* Calculation not meaningful

Payroll and benefits

Payroll and benefits ~~expenses decreased~~increased for the nine months ended September 30, ~~2022~~2023 compared to the ~~same~~corresponding period in ~~2021~~2022 primarily due to the addition of Arq employees, which increased expenses by $4.2 million for the period, of which $1.1 million related to severance expense of former executives of Arq. In addition, for the nine months ended September 30, 2023, we incurred severance related costs of $1.0 million associated with the termination of an executive officer. Further, payroll and benefits expenses related to non-Arq employees for the nine months ended September 30, 2023 increased by $0.7 million compared to the corresponding period in 2022. These increases were offset by a decrease in ~~payroll-related expenses of~~retention bonuses with our executive officers and certain other key employees of ~~approximately $0.8~~$0.9 million, ~~as our headcount decreased period over period. Partially offsetting these decreases was an increase~~which were paid in ~~expense of $0.2 million related to the Amended Retention Agreements.~~full in January 2023.

Legal and professional fees

Legal and professional fees increased for the nine months ended September 30, ~~2022~~2023 compared to the ~~same~~corresponding period in ~~2021~~2022 primarily as a result of an increase in costs incurred related to the ~~Merger,~~Arq Acquisition, and ~~was~~were comprised mostly of legal and consulting fees. For the nine months ended September 30, 2023, we incurred $2.4 million of legal and professional fees related to non-recurring transactions costs associated with the Arq Acquisition.

General and administrative

General and administrative expenses increased for the nine months ended September 30, ~~2022~~2023 compared to the ~~same~~corresponding period in ~~2021 primarily due to an increase in~~2022 as a result of $1.9 million of expenses incurred by Arq, which included $0.9 million from rent and occupancy expense from additional leased space. Additional increases period over period of ~~$0.1~~approximately $1.7 million were increases in research and development, ~~expense of $0.1 million,~~insurance, travel, ~~of $0.1 million~~recruiting and ~~recruiting fees of $0.1 million.~~Board compensation, as three new directors were added to the Board in connection with the Arq Acquisition.

Depreciation, amortization, depletion and accretion

Depreciation and amortization expense ~~decreased~~increased for the nine months ended September 30, 2023 compared to the corresponding period in 2022 primarily due to depreciation and amortization of approximately $2.2 million from the addition of long-lived assets and intangible assets acquired in the Arq Acquisition. Also contributing to the increase was an increase in Depreciation and amortization expense due to higher production volumes compared to sales volumes for the nine months ended September 30, 2022, ~~compared to the same period~~which resulted in ~~2021 primarily due to higher production volumes during the nine months ended September 30, 2022, resulting in $0.7~~$0.3 million ~~less~~additional absorption of depreciation in inventory. ~~Further driving the decrease was a reduction in accretion expense~~

Gain on sale of ~~$0.4 million related to the reduction of the~~ Marshall Mine, ~~ARO compared to prior year period and a decrease in amortization expense of $0.3 million related to patents.~~LLC

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

We recorded a loss on change in estimate of $34.0 thousand primarily based on a change in the timing of estimated payments for future reclamation requirements of the Marshall Mine, which is included in the Condensed Consolidated Statements of OperationsAs discussed above, for the nine months ended September 30, ~~2022.~~

~~We recorded~~2023, we recognized a gain of $2.7 million on ~~change in estimate~~the sale 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.~~

LLC.

Other Income (Expense), net

A summary of the components of our other income (expense), net for the nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 is as follows:

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) %


	Nine Months Ended September 30,				Change
(in thousands, except percentages)	2023		2022		($)		(%)
Other income (expense):
Earnings from equity method investments	$	1,512	$	3,222	$	(1,710)	(53)	%

Interest expense	(2,155)		(259)		(1,896)		732	%




Other	1,510		(19)		1,529		(8,047)	%
Total other income	$	867	$	2,944	$	(2,077)	(71)	%

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,
(in thousands) 2022 2021
Earnings from Tinuum Group $ 3,137 $ 55,462
Earnings from Tinuum Services 84 6,485
Earnings (loss) from other 1 (3)
Earnings from equity method investments $ 3,222 $ 61,944

~~For~~for the nine months ended September 30, 2023 and 2022 we recognized $3.1 million in equity earnings from Tinuum Group 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. 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 cumulativerepresented cash 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, 2022, we recognized $0.1 million in equity earnings from~~Tinuum Services. The decrease was primarily due to Tinuum Group and Tinuum Services ~~compared~~continuing to our proportionate share of Tinuum 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 beingwind down their services 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 quarter.2023.

~~See additional~~Additional information related to equity method investments is included in Note 10 to the Condensed Consolidated Financial Statements included in ~~Part I -~~ Item 1 of this Quarterly Report.

~~Gain on extinguishment of debt~~Interest expense

~~As previously discussed,~~Interest expense increased for the nine months ended September 30, ~~2021, we recorded a gain on extinguishment~~2023 compared to the corresponding period in 2022 primarily due to interest expense of ~~debt in the amount of $3.3~~$1.5 million related to the ~~SBA forgiveness~~Term Loan, which was entered into on February 1, 2023 in connection with the Arq Acquisition, and interest expense of ~~the PPP Loan.~~

~~Interest expense~~

~~For~~$0.4 million incurred for the nine months ended September 30, ~~2022, interest expense decreased $1.2 million primarily due~~2023 related to the ~~pay-off of a senior term loan as of June 1, 2021.~~

Arq Loan, which we assumed in the Arq Acquisition.

Other

During the nine months ended September 30, 2023, we earned $1.3 million in interest income from cash on hand. For the nine months ended September 30, 2022, Other is primarily comprised of a loss of $0.5 million recognized on the early settlement of ~~the Reclamation Reimbursement related to the Change in Control on February 25, 2022, which was partially offset~~an amount owed by ~~a gain on sale~~Norit for reclamation of ~~right of way easement of $0.2 million at~~ the Marshall Mine ~~and gain on sale~~as a result of ~~property plant and equipment~~Norit's acquisition by a third party, which triggered a change of ~~$0.2 million.~~control provision in our supply agreement with Norit.

Income tax expense

For the nine months ended September 30, ~~2022,~~2023, we had pretax loss of $15.6 million and recorded income tax benefit related to out-of-period state income tax refunds received during the period. We recorded no additional income tax expense or benefit compared to income tax expense of $14.0 million for the nine months ended September 30, 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. We did not recognize a tax benefit for the nine months ended September 30, ~~2022 related~~2023 due to the recording of a full valuation allowance based on our forecast of pretax loss for ~~this period, as we recorded a valuation allowance as of~~the year ending December 31, 2023. For the nine months ended September 30, 2022, ~~primarily~~we had pretax loss of $5.8 million and recorded no income tax benefit due to the recording of a full valuation allowance based on our forecast of pretax loss for the year ended December 31, 2022.

3128

Non-GAAP Financial Measures

To supplement our financial information presented in accordance with U.S. GAAP (or "GAAP"), we provide non-GAAP measures of certain financial performance. These non-GAAP measures include ~~Consolidated~~ EBITDA (EBITDA Loss) and ~~Consolidated~~ Adjusted ~~EBITDA.~~EBITDA (Adjusted EBITDA Loss). We have included these non-GAAP measures because management believes that they help to facilitate period to period comparisons of our operating results and provide useful information to both management and users of the financial statements by excluding certain expenses, gains and losses ~~which~~that can vary widely across different industries or among companies within the same industry and 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, and may not be comparable to, similarly titled 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 (EBITDA Loss) 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 ~~which was recorded in conjunction with the Marshall Mine Acquisition~~ ("Upfront Customer Consideration"), interest expense, net and income taxes. We define ~~Consolidated~~ Adjusted EBITDA (Adjusted EBITDA Loss) as ~~Consolidated~~ EBITDA (EBITDA Loss), reduced by the non-cash impact of equity earnings from equity method investments and gain on ~~extinguishment~~sale of ~~debt,~~Marshall Mine, LLC, increased by cash distributions from equity method investments, loss on early settlement of ~~the Norit Receivable~~a long-term receivable and ~~the~~loss on change in ~~ARO as a result of a change in estimate.~~estimate, asset retirement obligation. Because ~~Consolidated~~ Adjusted EBITDA omits certain non-cash items, we believe that the measure is less susceptible to variances that affect our operating performance.

When used in conjunction with GAAP financial measures, we believe these non-GAAP measures are supplemental measures of operating performance ~~which~~that explain our operating performance for our 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~~ EBITDA and ~~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,
(in thousands) 2022 2021 2022 2021
Net (loss) income $ (2,391) $ 24,253 $ (5,750) $ 54,580
Depreciation, amortization, depletion and accretion 1,671 2,145 4,765 6,155
Amortization of Upfront Customer Consideration 127 127 381 381
Interest expense, net 44 25 163 1,188
Income tax expense — 4,581 — 14,013
Consolidated ( EBITDA loss) EBITDA (549) 31,131 (441) 76,317
Cash distributions from equity method investees — 22,875 5,613 66,751
Equity earnings — (22,195) (3,222) (61,944)
Gain on extinguishment of debt — (3,345) — (3,345)
Loss (gain) on change in estimate, asset retirement obligation — 34 (1,942)
Loss on early settlement of Norit Receivable — — 535 —
Consolidated (Adjusted EBITDA loss) Adjusted EBITDA $ (549) $ 28,466 $ 2,519 $ 75,837


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022
Net loss(1)	$	(2,175)	$	(2,391)	$	(15,539)	$	(5,750)
Depreciation, amortization, depletion and accretion	2,711		1,671		7,276		4,765
Amortization of Upfront Customer Consideration	127		127		381		381
Interest expense, net	224		44		822		163
Income tax benefit	—		—		(33)		—
EBITDA (EBITDA loss)	887		(549)		(7,093)		(441)
Cash distributions from equity method investees	412		—		1,512		5,613
Equity earnings	(412)		—		(1,512)		(3,222)
Gain on sale of Marshall Mine, LLC	—		—		(2,695)		—
Loss on early settlement of long-term receivable	—		—		—		535
Loss on change in estimate, asset retirement obligation	—		—		—		34
Adjusted EBITDA (Adjusted EBITDA loss)	$	887	$	(549)	$	(9,788)	$	2,519

(1) Included in Net loss for the three and nine months ended September 30, 2023 is zero and $4.9 million, respectively, of transaction and integration costs incurred related to the Arq Acquisition. Included in Net Loss for the three and nine months ended September 30, 2022 is $2.4 million and $3.7 million, respectively, of transaction and integration costs incurred related to the Arq Acquisition. Additionally, for the nine months ended September 30, 2023, Net loss included $4.2 million of Arq payroll and benefit costs. Further included in Net Loss for the three and nine months ended September 30, 2023 is $1.3 million of severance expense related to two executive employees.

3229

Liquidity and Capital Resources

Current Resources and Factors Affecting Our Liquidity

As of September 30, ~~2022,~~2023, our principal sources of liquidity included:

•cash on hand, excluding $8.8 million of restricted ~~cash of $10.0 million pledged as collateral under a surety bond agreement;~~cash; and

•our operations.

As of September 30, ~~2022,~~2023, our principal uses of liquidity included:

•our business operating expenses;

•capital and spare parts expenditures;

•payments on our lease obligations;

•payments on our debt obligations; and

•payments ~~of AROs~~for reclamation work 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 for the nine months ended September 30, 2022 and 2021:~~

Nine Months Ended September 30,
(in thousands) 2022 2021
Tinuum Services $ 2,476 $ 7,902
Tinuum Group 3,137 58,849
Distributions from equity method investees $ 5,613 $ 66,751

Cash distributions from Tinuum for the nine months ended September 30, 2022 decreased by $61.1 million compared to the nine months ended September 30, 2021 primarily due to Tinuum Group and Tinuum Services ceasing material operations as of December 31, 2021.

Cash Flows

Nine Months Ended September 30, ~~2022~~2023 vs. Nine Months Ended September 30, ~~2021~~2022

Cash and restricted cash decreased from ~~$88.8~~$76.4 million as of December 31, ~~2021~~2022 to ~~$85.8~~$61.3 million as of September 30, ~~2022.~~2023. The following table summarizes our cash flows for the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively:


		Nine Months Ended September 30,							Nine Months Ended September 30,
(in thousands)	(in thousands)	2022		2021		Change		(in thousands)	2023		2022		Change
Cash and restricted cash provided by (used in):
Cash and restricted cash (used in) provided by:								Cash and restricted cash (used in) provided by:

Operating activities	Operating activities	$	352	$	24,688	$	(24,336)	Operating activities	$	(21,145)	$	352	$	(21,497)

Investing activities	Investing activities	(1,966)		38,937		(40,903)		Investing activities	(17,304)		(1,966)		(15,338)

Financing activities	Financing activities	(1,343)		(17,418)		16,075		Financing activities	23,338		(1,343)		24,681
Net change in cash and restricted cash	Net change in cash and restricted cash	$	(2,957)	$	46,207	$	(49,164)	Net change in cash and restricted cash	$	(15,111)	$	(2,957)	$	(12,154)

Cash flow from operating activities

Cash flows ~~provided by~~used in operating activities for the nine months ended September 30, ~~2022 decreased~~2023 increased by ~~$24.3~~$21.5 million compared to the nine months ended September 30, ~~2021.~~2022. The ~~decrease~~net increase was primarily attributable to net loss of ~~$5.8~~$15.5 million recognized for the nine months ended September 30, ~~2022~~2023 compared to net ~~income~~loss of ~~$54.6~~$5.8 million recognized for the nine months ended September 30, ~~2021,~~2022; the add-back of a non-cash gain of $2.7 million recognized from the sale of Marshall Mine, LLC for the nine months ended September 30, 2023; a decrease in ~~Deferred income tax expense~~accounts payable and accrued expenses of ~~$9.0~~$13.9 million, primarily from payments of Arq assumed liabilities, comprised of accrued employee-related compensation and accrued transaction costs, in the Arq Acquisition; payment of the balance of retention bonuses; an increase in Other long-term assets, net of $5.8 million, primarily from a payment received from settlement on a long-term receivable in 2022; and a decrease in Distributions from equity method investees, return on investment of ~~$19.7 million and an increase in net working capital of $5.1~~$2.3 million. Offsetting the net ~~decrease~~increase in cash flows ~~provided by~~used in operating activities for the nine months ended September 30, ~~2022~~2023 compared to the nine months ended September 30, ~~2021 were decreases~~2022 was a decrease in non-cash net working capital, excluding accounts payable and accrued expenses, of $8.2 million, a decrease in Earnings from equity method investments of ~~$58.7~~$1.7 million ~~Other long-term assets, net~~and an increase in Depreciation, amortization, depletion and accretion of ~~$6.1~~$2.5 million ~~primarily~~due to a higher asset base from the ~~Norit Payment in settlement of the Reclamation Reimbursement, and the non-cash gain recognized from the change in estimate of the Marshall Mine ARO of $2.0 million.~~

Arq Acquisition.

Cash flow from investing activities

Cash flows ~~provided by (used in)~~used in investing activities ~~decreased~~increased for the nine months ended September 30, ~~2022~~2023 compared to the nine months ended September 30, ~~2021~~2022 by ~~$40.9~~$15.3 million primarily as a result of an increase in property, plant and equipment additions of $10.8 million from the Arq Acquisition; an increase in mine development costs of $1.5 million; a decrease in distributions from equity earnings in excess of cumulative earnings of ~~$41.4~~$1.8 million; a cash payment of $2.2 million made in March 2023 required in the sale of Marshall Mine, LLC; and a decrease in cash received from the sale of property and equipment of $1.2 million. Offsetting the net ~~decrease~~increase in cash flows ~~provided by (used in)~~used in investing activities was ~~an increase~~$2.2 million of cash acquired in ~~property, plant and equipment additions of $0.8 million.~~the Arq Acquisition.

Cash flow from financing activities

Cash flows ~~used in~~provided by financing activities for the nine months ended September 30, ~~2022~~2023 compared to the nine months ended September 30, ~~2021 decreased~~2022 increased by ~~$16.1~~$24.7 million primarily due to the net borrowings, net of debt issuance costs paid, of $8.5 million from the Term Loan; net proceeds from the PIPE Investment of $15.2 million; and net proceeds from common stock sold to a ~~decrease in principal loan repayments on a senior term loan.~~related party of $1.0 million .

Material Cash Requirements

~~For~~With the ~~nine~~Arq Acquisition, we assumed liabilities, including the Arq Loan, that will increase our cash requirements for the next 12 months ~~ended September 30, 2022, there were no material changes to~~and beyond. In addition, our ~~contractual obligations outside~~success with the Arq acquisition will require significant capital expenditures as quantified below. Under the payment terms of the ~~ordinary course~~Term Loan, we are required to make quarterly interest payments through February 1, 2027, and a balloon payment of ~~business from those reported as of December 31, 2021.~~principal and PIK interest totaling approximately $12.2 million on this date. We expect that our cash on hand as of September 30, ~~2022~~2023 will provide sufficient liquidity to fund ~~operations~~contractual obligations due and expected operating loss for the next 12 months.

Capital Expenditures

For ~~2022,~~2023, we expect to incur ~~$11.4~~between $35.0 million and $40.0 million in capital expenditures ~~compared to $7.6~~as follows:

•Between $14.0 million ~~incurred in 2021. This increase~~and $16.0 million is ~~primarily the result of forecasted~~forecast for capital improvements toat the Red River Plant ~~of approximately $4.4 million, product specific capital expenditures~~ related to ~~the Supply Agreement of approximately $0.7~~scheduled maintenance improvements and to complete current capital projects; and

•Between $21.0 million and ~~scheduled maintenance improvements.~~$24.0 million is forecast for growth capital for the modifications of the Red River Plant and Corbin Plant in order to incorporate Arq Powder as feedstock.

For the nine months ended September 30, 2023, we incurred $17.0 million in capital expenditures. We expect to fund all capital expenditures for ~~2022~~2023 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~~Surety Bonds and ~~Marshall~~ Mine Obligations

As of September 30, ~~2022,~~2023, we had outstanding surety bonds with regulatory commissions totaling ~~$24.1~~$7.5 million related to ~~both~~reclamation of the ~~Marshall Mine and~~ Five Forks Mine. As of September 30, ~~2022,~~2023, and as required by ~~our~~a surety bond provider, we also held restricted cash of ~~$10.0~~$8.5 million pledged as collateral for such surety bonds related to ~~performance requirements required under reclamation contracts for both~~ the ~~Marshall~~Five Forks Mine and ~~Five Forks Mine.~~ other surety obligations.

As September 30, 2023, we had outstanding surety bonds with a regulatory commission totaling $3.0 million for reclamation obligations of the land adjacent to the Corbin Facility.

As of September 30, 2023, we had an outstanding surety bond with a regulatory commission totaling $0.7 million for reclamation obligations of Mine 4 located in West Virginia.

We expect that the obligations secured by these surety bonds associated with the Five Forks Mine and the Corbin Facility will be performed in the ordinary course of business and in accordance with the applicable contractual terms. To the extent that we perform the obligations, ~~are performed,~~ the related surety bonds should be released and collateral requirements reduced. However, in the event any surety bond is called, our indemnity obligations could require us to reimburse the surety bond provider.

We intend to fund our mine reclamation costs associated with ~~both~~ the Five Forks Mine and ~~Marshall Mine~~the Corbin Facility from cash on hand.

We have a customer supply agreement that requires us to post a performance bond in an amount equal to the annual contract value of $3.7 million. As ~~discussed above,~~of September 30, 2023, the remaining commitment under this customer contract, which expires 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 and collateral requirements as we will only be obligated for future remediation costs for the Five Forks Mine.December 31, 2023, was approximately $0.4 million.

Critical Accounting Policies and Estimates

Our 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" of Part II in the ~~2021~~2022 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, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended ~~or the Exchange Act,~~(the "Exchange Act") that involve risks and uncertainties. In particular such forward-looking statements are found in this Item 2 of 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 anticipated effects from ~~the~~an increase in pricing of our AC products;

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

(c)expected supply and demand for our activated carbon ("AC ") products and services;

(d)increasing competition in the AC market;

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

(f)the ability to successfully integrate Arq's business;

(g)the ability to develop and utilize Arq’s products and technology;

(h)the ability to make Arq's products commercially viable;

(i)the expected future demand of Arq's products;

(j)future level of research and development activities;

~~(g)~~(k)future plant capacity expansions and site development projects;

(l)the effectiveness of our technologies and the benefits they provide;

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

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

~~(j)~~(o)the timing and amounts of, or changes in, future revenues, 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;

~~(k)~~(p)the amount and timing of future capital expenditures needed for our ~~business;~~APT business and Arq to fund our business plan;

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

~~(m)~~(r)the adoption and scope of regulations to control certain chemicals in drinking ~~water;~~water and other environmental concerns;

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

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

(u)the impact of prices of competing power generation sources such as natural gas and renewable energy on demand for our products; and

(v)bank failures or other events affecting financial institutions.

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; 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 business; loss of key personnel; availability of materials and equipment for our business; intellectual property infringement claims from third parties; pending litigation; as well as other factors relating to our business strategy, goals and expectations concerning the Arq Acquisition (including future operations, future performance or results); our ability to maintain relationships with customers, suppliers and other with whom we do business, or our results of operations and business generally; risks related to diverting management's attention from our ongoing business operations; the ability to meet Nasdaq's listing standards following the consummation of the Arq Acquisition; costs related to the Arq Acquisition; opportunities for additional sales of our lignite AC products and end-market diversification; our ability to meet customer supply requirements; the rate of coal-fired power generation in the U.S., the timing and cost of capital expenditures and the resultant impact to our liquidity and cash flows; 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, 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.

2023.

Changes in Internal Control Over Financial Reporting

~~Under the applicable SEC rules (Exchange Act Rules 13a-15(f)~~On February 1, 2023, we acquired Arq and ~~15d-15(f) management is required to evaluate any changes in~~excluded their business from our assessment of internal control over financial reporting ~~that occurred~~as of September 30, 2023, as allowed under general guidance issued by the Staff of the Securities and Exchange Commission. There have been no changes in our internal control over financial reporting (as defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act) during ~~each~~the fiscal quarter ended September 30, 2023 that have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting. ~~As discussed in Item 9A. "Controls and Procedures"~~The Company is evaluating the impacts of the ~~Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, we identified a material weakness in~~Arq Acquisition to our internal control over financial reporting ~~described above. As~~as allowed under general guidance issued by the Staff of ~~September 30, 2022, we designed~~the Securities 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 beExchange Commission.

~~in place for a sufficient period of time to conclude on their effectiveness as of December 31, 2022.~~

3633

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 8 "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 ~~2021~~2022 Form 10-K except as described below.

~~Risks Related to~~Bank failures or other events affecting financial institutions could have a material adverse effect on our ~~Pending Business Combination~~

~~We are subject to a number~~business, results of risks 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 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~~operations 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 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 requirement to satisfy each of the foregoing conditions could delay completion of 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 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 restrictions (whether because such conditions, terms, obligations and restrictions do not rise to the specified level of 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 have other adverse consequences.

We primarily use two U.S. banks for our operations. ~~Furthermore, governmental authorities~~Cash deposits are held by these banks and may, ~~require that~~at times, exceed the ~~parties divest assets~~Federal Deposit Insurance Corporation ("FDIC") insurance limits. The failure of these banks or ~~businesses as~~events involving limited liquidity, non-performance or other adverse conditions in the financial or credit markets impacting these banks, or concerns or rumors about such events, may lead to disruptions in access to our cash balances, adversely impact our liquidity or limit our ability to process transactions related to our customers. In the event of a ~~condition to the closing~~failure of ~~the Transactions. If we are required to divest assets or businesses,~~these banks, there can be no assurance that weour deposits in excess of the FDIC or other comparable insurance limits will be ~~able~~recoverable or, even if ultimately recoverable, there may be significant delays in our ability to ~~negotiate such divestitures expeditiously~~access those funds. Furthermore, bank failures, non-performance, or other adverse developments that affect other financial institutions could impair the ability of these banks to honor our commitments. Such events could have a material adverse effect on ~~favorable terms~~our financial condition or ~~that the governmental authorities will approve the terms~~results of ~~such divestitures. There can~~operations.

Similarly, our customers may be ~~no assurance that the conditions to the closing of the Transactions will be satisfied~~adversely affected by any bank failure or ~~where applicable, waived~~other event affecting financial institutions. If our customers are unable, or ~~that 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~~customers in the future ~~business and financial results.~~

~~If the Transactions~~ are ~~not completed for any reason, including~~unable, to meet their obligations to us as a result of ~~our stockholders failing to adopt the Transaction Agreement and approve the transactions contemplated thereby,~~a bank failure 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:

•other event affecting financial institutions, we may be ~~required, under certain circumstances,~~exposed to ~~pay Arq~~potential risks that could impact our financial condition or results of operations. Furthermore, a ~~termination fee of approximately $3 million and/~~significant change in the liquidity or ~~reimburse Arq for certain fees and expenses in an amount of up to $3 million;~~

•~~we are subject to certain restrictions on the conduct~~financial position of our ~~businesses prior to completing the Transactions,~~customers could cause unfavorable trends in cash collections, which ~~may adversely affect our ability to execute certain of our respective business strategies going forward if the Transactions are not completed;~~

•wecould have incurred and will continue to incur significant costs and fees associated with the proposed Transactions, such as legal, accounting, financial advisor and printing fees, regardless of whether the Transactions are completed;

•~~we may experience negative reactions from the financial markets, including negative impacts~~a material adverse effect on our ~~stock prices;~~

•~~we may experience negative reactions from our customers, regulators and employees; and~~

•matters relating to the 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 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 Transactions or related to any enforcement proceeding commenced against us to perform our obligations under the Transaction Agreement. If the Transactions are not completed, these risks may materialize and may adversely affect our business, financial condition ~~financial results and stock price.~~

The Transaction Agreement limits our ability to pursue alternatives to the 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 terms of the 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 required to pay Arq a cash termination fee equal to $3 million and/or reimburse Arq for certain fees and expenses in 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 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, assets, liabilities, prospects, outlook, financial condition and results of operations.

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 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 uncertainty associated with the Transactions.~~

New ADES’ success after completion of the Transactions will depend in part upon the ability of New ADES to retain our key employees. Competition for qualified personnel can be intense. Our current and prospective employees may experience uncertainty about the effect of the Transactions, which may impair our ability to 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 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 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 roles and responsibilities.

While we may employ the 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 New ADES will be able to 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.

~~Our business relationships may be subject to disruption due to uncertainty associated with the Transactions.~~

Companies with which we do business may experience uncertainty associated with the Transactions, including with respect to current or future business relationships with us or New ADES. Our business relationships may be subject to disruption as customers, distributors, suppliers, vendors and others may attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than us or New ADES. These disruptions could have an adverse effect on 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 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.

Item 2. Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds and Issuer Purchases of Equity Securities

~~None.~~On July 17, 2023, we entered into a Subscription Agreement (the "Subscription Agreement") with Mr. Robert "Bob" Rasmus and entities controlled by Mr. Rasmus, in connection with his appointment as our President and Chief Executive Officer. Pursuant to the Subscription Agreement, Mr. Rasmus subscribed for and agreed to purchase 950,000 shares of our common stock, par value $0.001 per share, from the Company for an aggregate purchase price of $1,800,000 (at a price per share of approximately $1.90). In September 2023, we received cash of $1.0 million and issued 527,779 shares of our common stock to Mr. Rasmus pursuant to the Subscription Agreement.

The securities issued to Mr. Rasmus under the Subscription Agreements were issued pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act, Rule 506 of Regulation D, which is promulgated thereunder, and Regulations S of the Securities Act. We are relying on this exemption from registration based in part on representations made by Mr. Rasmus under the Subscription Agreement. The sale of the securities pursuant to the Subscription Agreement has not been registered under the Securities Act or any state securities laws. The securities may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

Share Repurchases

We maintain a program to repurchase up to $20.0 million of shares of our common stock under a stock repurchase program (the "Stock Repurchase Program") through open market transactions at prevailing market prices, of which $7.0 million remained available as of September 30, 2023. No repurchases were made during the three months ended September 30, 2023.

Tax Withholding

The following table contains information about common shares that we withheld from delivering to employees during the third quarter of 2023 to satisfy their respective tax obligations related to stock-based awards.

Period

Total Number of Common Shares Purchased

Average Price
Paid per
Common Share

Total Number of Common Shares Purchased as Part of Publicly Announced Plans or Programs

Maximum Number (or Dollar Value) of Common Shares that May Yet Be Purchased Under the Plans or Programs

July 1 to July 31, 2023

—

N/A

August 1 to August 31, 2023

1,321

1.92

N/A

September 1 to September 30, 2023

26,808

1.72

N/A

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.~~Amended and Restated Bylaws

On November 7, 2023, in connection with the effectiveness of new SEC rules regarding universal proxy cards, certain recent changes to the Delaware General Corporation Law (the "DGCL"), and a periodic review of the bylaws of the Company, the board of directors of Company (the "Board") approved and adopted an amendment and restatement of the Company’s amended and restated bylaws (as so amended, the "Amended and Restated Bylaws"). The Amended and Restated Bylaws became effective immediately upon approval by the Board.

Among other things, the amendments effected by the Amended and Restated Bylaws:

•update Section 2.03 to reflect certain procedural requirements related to director nominations by stockholders in light of the recently adopted Rule 14a-19 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and (ii) reflect certain other related changes, including requiring (1) additional background information and disclosures regarding stockholders proposing director nominations and other business, director nominees proposed by stockholders, and other persons related to a stockholder’s solicitation of proxies; and (2) any stockholder submitting a nomination notice to make a representation and provide confirmation as to whether such stockholder intends to solicit proxies in support of director nominees other than the Company’s nominees in accordance with Rule 14a-19 under the Exchange Act and the Amended and Restated Bylaws and to provide evidence that the stockholder has complied with such requirements;

•provide in Section 2.03(b) that any notice of proposals of business and/or director nominations must be delivered to or mailed and received at the principal executive offices of the Company (i) in the case of an annual meeting of the stockholders, not later than the close of business on the one hundred twentieth (120th) calendar day and not earlier than the close of business on the one hundred fiftieth (150th) calendar day prior to the one-year anniversary of the previous year’s annual meeting of stockholders; provided, however, that if no annual meeting was held or deemed to have been held in the previous year or the date of the annual meeting has been changed by more than thirty (30) calendar days from the date on which the previous year’s annual meeting was held, notice by the stockholder to be timely must be so received not earlier than the close of business on the one hundred twentieth (120th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or ten (10) calendar days following the date of public disclosure of the date of such meeting; and (ii) in the case of a special meeting of the stockholders, not earlier than the close of business on the one hundred twentieth (120th) calendar day prior to the special meeting and not later than the close of business on the later of the ninetieth (90th) calendar day prior to the date of the special meeting or the tenth (10th) day following the date of public disclosure of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting;

•add a new sub-section 2.03(d), which requires any director nominee to provide certain consents and representations related to voting, certain third-party arrangements and compliance with certain policies and procedures and a written questionnaire with respect to the nominee’s background and qualifications as well as to provide any other questionnaires or information that may be necessary to assess the nominee’s qualifications and eligibility for board service;

•add a new sub-section 2.03(e) regarding certain potential written verifications that may be required of the nominating stockholder;

•add certain procedural requirements to provisions (i) in Section 2.03(g) regarding special meetings of stockholders, such as making it clear that any notice of a director nomination at a special meeting called for purposes of electing directors under Section 2.03(g) or any stockholder-requested special meeting pursuant to Section 2.04 must include the same information, representations, questionnaires and agreements as required under the advance notice provisions for annual meetings of stockholders; and (ii) in Section 2.04, including with respect to record date requirement, information to be included in the special meeting request and documentary evidence of stock ownership, consequences of revocation and failure to appear, certain limitations as set forth in sub-section 2.04(c) and definition of beneficial ownership for purposes of these provisions;

•clarify effects of non-compliance with the advance notice provisions, including powers of the chair of the meeting to disregard proposals of business and/or director nominations submitted by stockholders;

•require in new sub-section 2.03(i) that a stockholder directly or indirectly soliciting proxies from other stockholders use a proxy card color other than white, which is reserved solely for use for solicitation by the Board;

•clarify in Section 2.06 the notice procedures for adjournments of virtual meetings of stockholders and eliminate the requirement in Section 2.07 that the list of stockholders be open to examination at meetings of stockholders, in each case in accordance with the DGCL;

•clarify in Section 2.09 as to who presides at meetings of stockholders and reflect additional procedures to define the powers of the chair of stockholders’ meetings and to specify, without limitation, the universe of meeting rules properly determined by the Board or such chair;

•clarify in Section 2.10 that the plurality voting standard applies to director elections, all other matters shall be determined by majority of the votes cast (unless otherwise required by law) and add certain quorum requirements in alignment with the DGCL;

•revise the Board’s special meeting provisions in Section 3.06 to make it clear that majority of the Board can also call special meetings and clarify quorum requirements

•provide that "officers" for purposes of the indemnification provisions set forth in Article VII include any individual designated by the Board as an officer of the Company or as defined under the DGCL;

•incorporate other non-substantive, ministerial, clarifying and conforming changes, including, among other things, with respect to the use of gender-neutral terms, updating officer provisions to include the Chief Executive Officer role and explicitly providing that any officer office may be left vacant, including definitions of "close of business" and "qualified representative" and eliminating certain provisions that are otherwise addressed in the Delaware statute (such as provisions related to books and records).

The foregoing description of the Amended and Restated Bylaws does not purport to be complete and is qualified in its entirety by reference to the full text of the Amended and Restated Bylaws, a copy of which is filed as Exhibit 3.1 to this Quarterly Report on Form 10-Q and incorporated herein by reference.

4036

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

3.1

Conformed Copy of the Bylaws of Advanced Emissions Solutions, Inc., as amended*

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

10.1

Subscription Agreement by and between Robert E. Rasmus, RER Legacy Investments II LLC and Advanced Emissions Solutions, Inc., dated July 17, 2023.

8-K

001-37822

10.1

July 17, 2023

10.2

Employment Agreement by and between Robert E. Rasmus and Advanced Emissions Solutions, Inc., dated July 17, 2023.

8-K

001-37822

10.2

July 17, 2023

10.3

E mployment Agreement by and between Jeremy D. Williamson and Advanced Emissions Solutions, Inc., dated September 18, 2023.

8-K

001-37822

10.1

September 18, 2023

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.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)*

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.

4137

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 8, ~~2022~~2023	By:	/s/ ~~Greg Marken~~Robert Rasmus
		~~Greg Marken~~Robert Rasmus
		Chief Executive Officer
		(Principal Executive Officer)


November 8, ~~2022~~2023	By:	/s/ ~~Morgan Fields~~Stacia Hansen
		~~Morgan Fields~~Stacia Hansen
		Chief Accounting Officer
		(Principal Financial Officer)

4238


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)