Arq, Inc. 10-K

Item 9A. 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 annual 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 effective as of December 31, 2020. Management’s Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. The Company's internal control over financial reporting includes those policies and procedures that: 1. Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; 2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of our management and directors; and 3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision of, and with the participation of our management, including the principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control-Integrated Framework in 2013, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2020. Changes in Internal Control Over Financial Reporting There has been no change in our internal control over financial reporting (as defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act) during the fourth quarter of 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 97 Item 9B. Other Information None. 98 PART III Item 10. Directors, Executive Officers, and Corporate Governance The information required by this Item is incorporated by reference to our definitive proxy statement for the Annual Meeting of Stockholders to be filed within 120 days from December 31, 2020. Item 11. Executive Compensation The information required by this Item is incorporated by reference to our definitive proxy statement for the Annual Meeting of Stockholders to be filed within 120 days from December 31, 2020. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this Item concerning security ownership of certain beneficial owners and management is incorporated by reference to our definitive proxy statement for the Annual Meeting of Stockholders to be filed within 120 days from December 31, 2020, with the exception of the following information. Securities Authorized for Issuance under Equity Compensation Plans We have plans under which equity awards are authorized for grant or issuance as compensation to eligible employees, consultants, and members of the Board. Our stockholders have approved these plans. See Note 16 - Stock-Based Compensation included in Item 8 of this Report for further information about the material terms of our equity compensation plans. The following table is a summary of the shares of our common stock authorized for issuance under the equity compensation plans as of December 31, 2020: Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column) (2) Equity compensation plans approved by security holders (1) — $ — 1,748,491 Equity compensation plans not approved by security holders — $ — — Total — 1,748,491 (1) Includes the Amended and Restated 2007 Equity Incentive Plan, as amended, the Amended and Restated 2010 Non-Management Compensation and Incentive Plan, as amended, and the 2017 Omnibus Incentive Plan. (2) The number of securities is reduced by 373,860 shares of restricted common stock for which restrictions have not lapsed. Item 13. Certain Relationships and Related Transactions and Director Independence The information required by this Item is incorporated by reference to our definitive proxy statement for the Annual Meeting of Stockholders to be filed within 120 days from December 31, 2020. Item 14. Principal Accountant Fees and Services The information required by this Item is incorporated by reference to our definitive proxy statement for the Annual Meeting of Stockholders to be filed within 120 days from December 31, 2020. 99 Item 15. Exhibits and Financial Statement Schedules (a) The following consolidated financial statements of Advanced Emissions Solutions, Inc. are filed as part of this Report under Item 8: (1) Financial Statements – see Index to Consolidated Financial Statements in Item 8; (2) Financial Statement Schedules – All schedules are omitted because the required information is not applicable or is not present in amounts sufficient to require submission of the schedule or because the information required is included in the Consolidated Financial Statements and Notes thereto; and (3) Exhibits – Those exhibits required by Item 601 of Regulation S-K and by paragraph (b) below. (b) The following exhibits are filed as part of this Report or, where indicated, were heretofore filed and are hereby incorporated by reference: Exhibit No. Description Form File No. Incorporated by Reference Exhibit Filing Date 3.1 Second Amended and Restated Certificate of Incorporation of Advanced Emissions Solutions, Inc. 10-Q 000-54992 3.1 August 9, 2013 3.2 Conformed Copy of the Bylaws of Advanced Emissions Solutions, Inc., as amended 10-K 001-37822 3.2 March 12, 2018 3.3 Certificate of Designation, Preferences, and Rights of Series B Junior Participating Preferred Stock of Advanced Emissions Solutions, Inc 8-K 001-37822 3.1 May 8, 2017 4.1 Form of Specimen Common Stock Certificate 10-Q 000-54992 4.1 August 9, 2013 4.2 Tax Asset Protection Plan dated as of May 5, 2017, by and between the Company and Computershare Trust Company, N.A., as rights agent, which includes as Exhibit B the Form of Rights Certificate 8-K 001-37822 3.2 May 8, 2017 4.3 First Amendment to Tax Asset Protection Plan dated as of April 6, 2018, by and between the Company and Computershare Trust Company, N.A., as rights agent 8-K 001-37822 4.2 April 11, 2018 4.4 Second Amendment to Tax Asset Protection Plan dated as of April 5, 2019, by and between the Company and Computershare Trust Company, N.A., as rights agent 8-K 001-37822 4.3 April 11, 2019 4.5 Third Amendment to Tax Asset Protection Plan dated as of April 8, 2020, by and between the Company and Computershare Trust Company, N.A., as rights agent 8-K 001-37822 4.4 April 9, 2020 10.1 Advanced Emissions Solutions, Inc. 2017 Omnibus Incentive Plan ** 8-K 001-37822 10.1 June 22, 2017 10.2 Form of Employment Agreement dated August 27, 2014, among L. Heath Sampson, ADA-ES, Inc. and Advanced Emissions Solutions, Inc., as amended ** 10-K 000-54992 10.19 February 29, 2016 10.3 Rider to Employment Agreement dated August 27, 2014 between Heath Sampson and ADA-ES, Inc. and Advanced Emissions Solutions, Inc. ** 8-K 000-54992 10.66 September 2, 2014 10.4 Form of Amendment No. 2 to Employment Agreement of Greg Marken and Theodore Sanders ** 10-Q 001-37822 10.1 August 6, 2018 10.5 Employment Agreement dated May 7, 2020, between the Company and Christine Bellino ** 8-K 001-37822 10.1 May 11, 2020 10.6 Release of Claims and Separation Agreement dated as of June 30, 2020, between the Company and Heath Sampson 10-Q 001-37822 10.3 August 10, 2020 10.7 Advisor Services Agreement dated as of July 1, 2020, between the Company and Heath Sampson 10-Q 001-37822 10.4 August 10, 2020 10.8 Employment Agreement dated February 26, 2021 between the Company and Morgan Fields ** 8-K 001-37822 10.1 March 3, 2021 100 Exhibit No. Description Form File No. Incorporated by Reference Exhibit Filing Date 10.9 Second Amended and Restated Operating Agreement of Clean Coal Solutions, LLC dated May 27, 2011, by and among Clean Coal Solutions, LLC, ADA-ES, Inc., GSFS Investments I Corp. and NexGen Refined Coal, LLC *** 10-Q/A 000-50216 10.33 September 28, 2011 10.10 The First Amendment to the Second Amended and Restated Operating Agreement of Clean Coal Solutions, LLC, by and among Clean Coal Solutions, LLC, ADA-ES, Inc., GSFS Investments I Corp. and NexGen Refined Coal, LLC dated September 9, 2011 10-Q 000-50216 10.89 November 14, 2011 10.11 Second Amendment to the Second Amended and Restated Operating Agreement of Clean Coal Solutions, LLC by and among ADA-ES, Inc., NexGen Refined Coal, LLC and GSFS Investments I Corp. dated July 31, 2012 10-Q 000-50216 10.59 November 9, 2012 10.12 Contribution Agreement dated May 27, 2011 between ADA-ES, Inc. and NexGen Refined Coal, LLC 10-Q 000-50216 10.87 August 12, 2011 10.13 Amended and Restated Limited Liability Company Operating Agreement by and between ADA-ES, Inc., NexGen Refined Coal, LLC and Clean Coal Solutions Services, LLC dated November 20, 2013 10-K 000-54992 10.38 February 29, 2016 10.14 Amended and Restated License Agreement between ADA-ES, Inc. and Clean Coal Solutions, LLC dated October 30, 2009 10-Q 000-50216 10.77 August 16, 2010 10.15 First Amendment to the Amended and Restated License Agreement between ADA-ES, Inc. and Clean Coal Solutions, LLC dated as of August 4, 2010 10-K 000-50216 10.81 March 28, 2011 10.16 Second Amendment to Amended and Restated License Agreement by and between ADA-ES, Inc. and Clean Coal Solutions, LLC dated as of July 23, 2013 *** 10-Q 000-54992 10.63 November 12, 2013 10.17 Technology Sublicense Agreement between ADA-ES, Inc., Clean Coal Solutions, LLC, and GS RC Investments LLC dated June 29, 2010 10-Q 000-50216 10.74 August 16, 2010 10.18 Amendment to Technology Sublicense Agreement between ADA-ES, Inc., GS RC Investments, LLC, and Clean Coal Solutions, LLC dated November 21, 2011 *** 10-K 000-54992 10.44 February 29, 2016 10.19 Amendment #2 to Technology Sublicense Agreement between ADE-ES, Inc, GS RC Investments, LLC, and Clean Coal Solutions, LLC dated December 15, 2011 10-K 000-50216 10.49 March 15, 2012 10.20 Exclusive Right to Lease Agreement dated May 27, 2011 between Clean Coal Solutions, LLC and GSFS Investments I Corp *** 10-Q/A 000-50216 10.84 September 28, 2011 10.21 ADA-ES, Inc. Limited Guaranty for the benefit of GSFS Investments I Corp. dated May 27, 2011 10-Q 000-50216 10.86 August 12, 2011 10.22 ADA-ES, Inc. Limited Guaranty for the benefit of GS RC Investments LLC dated November 21, 2011 10-K 000-50216 10.44 March 15, 2012 10.23 ADA-ES, Inc. Limited Guaranty for the benefit of GS RC Investments LLC dated December 15, 2011 10-K 000-50216 10.50 March 15, 2012 10.24 M-45 Technology License Agreement between ADA-ES, Inc. and Clean Coal Solutions, LLC dated July 27, 2012 *** 10-Q 000-50216 10.58 November 9, 2012 10.25 Undertaking and Assumption Agreement by and among Advanced Emissions Solutions, Inc., ADA-ES, Inc., and ADA Environmental Solutions, LLC dated as of July 1, 2013 10-Q 000-54992 10.62 November 12, 2013 10.26 2013 Loan and Security Agreement by and among ADA-ES, Inc., Advanced Emissions Solutions, Inc., and CoBiz Bank d/b/a Colorado Business Bank in the State of Colorado dated as of September 19, 2013 10-K 000-54992 10.69 February 29, 2016 101 Exhibit No. Description Form File No. Incorporated by Reference Exhibit Filing Date 10.27 Thirteenth Amendment of 2013 Loan and Security Agreement by and among ADA-ES, Inc., Advanced Emissions Solutions, Inc., and CoBiz Bank d/b/a Colorado Business Bank in the State of Colorado dated as of December 7, 2018 8-K 001-37822 10.2 December 13, 2018 10.28 Fourteenth Amendment of 2013 Loan and Security Agreement by and among ADA-ES,Inc., Advanced Emissions Solutions, Inc., and BOK, NA d/b/a Bank of Oklahoma dated as of September 29, 2020 8-K 001-37822 10.1 September 29, 2020 10.29 Purchase and Sale Agreement by and among Energy Capital Partners I, LP, Energy Capital Partners I-A, LP, Energy Capital Partners I-B IP, LP, Energy Capital Partners I (Crowfoot IP), LP, and Carbon Solutions Management, LLC, as Sellers, and Advanced Emissions Solutions, Inc., as Purchaser, dated as of November 15, 2018 8-K 001-37822 2.1 November 15, 2018 10.30 Term Loan and Security Agreement among Advanced Emissions Solutions, Inc., certain subsidiaries as Guarantors, the Bank of New York Mellon as administrative agent, and Apollo dated as of December 7, 2018 8-K 001-37822 10.1 December 13, 2018 10.31 First Amendment to Term Loan and Security Agreement dated April 20, 2020, among the Company, the Company’s Subsidiaries named therein, the Lenders named therein and The Bank of New York Mellon as administrative agent to the Lenders 8-K 001-37822 10.2 April 22, 2020 10.32 Lignite Mining Agreement between Demery Resources Company, L.L.C. and Five Forks Mining, LLC dated as of June 29, 2009 *** 10-K 001-37822 10.43 March 18, 2019 10.33 First Amendment to Lignite Mining Agreement between Demery Resources Company, L.L.C. and Five Forks Mining, LLC, dated as of March 22, 2017 *** 10-K 001-37822 10.44 March 18, 2019 10.34 Third Amendment to the Second Amended and Restated Operating Agreement of Tinuum Group, LLC. dated September 4, 2019 *** 10-Q 001-37822 10.1 November 12, 2019 10.35 Promissory Note of the Company dated April 21, 2020, made under the Paycheck Protection Program sponsored by the U.S. Small Business Administration through BOK, NA dba Bank of Oklahoma 8-K 001-37822 10.1 April 22, 2020 10.36 Master Agreement for Supply of Furnace Products between ADA Carbon Solutions, LLC and Cabot Norit Americas, Inc. *** 8-K 001-37822 10.1 September 30, 2020 10.37 Amended and Restated Lignite Mining Agreement among Caddo Creek Resources Company, L.L.C., ADA Carbon Solutions (Operations), LLC, Marshall Mine, LLC and The North American Coal Corporation dated as of September 30, 2020 *** 8-K 001-37822 10.2 September 30, 2020 21.1 Subsidiaries of Advanced Emissions Solutions, Inc. * 23.1 Consent of Moss Adams LLP * 23.2 Consent of Moss Adams LLP * 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 Finan cial Officer of Advanced Emissions Solutions, Inc. Pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a) * 102 Exhibit No. Description Form File No. Incorporated by Reference Exhibit Filing Date 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 * 95 Mine Safety Disclosure Exhibit * 101 The following financial statements, formatted in XBRL: (i) Consolidated Balance Sheets as of December 31, 2020 and 2019, (ii) Consolidated Statements of Operations for the Years ended December 31, 2020 and 2019, (iii) Consolidated Statements of Changes in Stockholders’ Equity for the Years ended December 31, 2020 and 2019, (iv) Consolidated Statements of Cash Flows for the Years ended December 31, 2020 and 2019; and (v) Notes to the Consolidated Financial Statements. The information in Exhibit 101 is “furnished” and not “filed” as provided in Rule 401 of Regulation S-T. Notes: * – Filed herewith. ** – Management contract or compensatory plan or arrangement. *** – Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The non-public information has been separately filed with the Securities and Exchange Commission. Filings for the Company were made under the name ADA-ES, Inc. (File No. 000-50216) prior to July 1, 2013, the effective date of our reorganization, and under the name Advanced Emissions Solutions, Inc. (File No. 000-54992) starting on July 1, 2013. Filings for the Company were made under the name Advanced Emissions Solutions, Inc. (File No. 001-37822) starting on July 6, 2016. (c) The following financial statements are included in this report pursuant to Regulation S-X: (1) Tinuum Group, LLC and Subsidiaries; a. Consolidated Financial Statements, December 31, 2020 and 2019 (with Independent Auditors' Reports thereon); 103 Tinuum Group, LLC and Subsidiaries CONSOLIDATED FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2020 and 2019 104 TABLE OF CONTENTS Page REPORT OF INDEPENDENT AUDITORS 106 FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS 107 CONSOLIDATED STATEMENTS OF OPERATIONS 109 CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY 110 CONSOLIDATED STATEMENTS OF CASH FLOWS 111 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 113 105 Report of Independent Auditors The Board of Managers and Members of Tinuum Group, LLC Report on the Financial Statements We have audited the accompanying consolidated financial statements of Tinuum Group, LLC and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2020 and 2019, and the related consolidated statements of operations, members’ equity, and cash flows for the years then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tinuum Group, LLC and its subsidiaries as of December 31, 2020 and 2019, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter Regarding Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, with cash inflows ending in January 2022 and with legislation to extend the production tax credit (PTC) expiration date not in process or having been passed, management has assumed the reduced emissions fuel (REF) facilities and the related PTCs will expire as scheduled by December 31, 2021, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter. /s/ Moss Adams LLP Denver, Colorado March 8, 2021 106 ASSETS 2020 2019 CURRENT ASSETS Cash and cash equivalents $ 50,540 $ 44,441 Accounts receivable 8,029 6,086 Income tax receivable 5,966 904 Contract receivables – current 47,264 42,916 Contract costs – current 5,541 21,503 Inventory 13,730 11,866 Other current assets 11,370 1,661 Total current assets 142,440 129,377 Fixed assets, net 24,508 50,323 Contract receivables – long term 4,122 51,587 Contract costs – long term — 5,226 Other assets, net 19 17,780 TOTAL ASSETS $ 171,089 $ 254,293 The following table presents certain assets of the consolidated variable interest entities ("VIEs"), which are included in the Consolidated Balance Sheets above. The assets in the table below include those assets that can only be used to settle obligations of consolidated VIEs, presented on the following page, and are in excess of those obligations. Additionally, the assets in the table below include third-party assets of consolidated VIEs only and exclude intercompany balances that eliminate in consolidation. Assets of Consolidated VIEs to be Used to Settle Obligations of Consolidated VIEs 2020 2019 ASSETS Cash and cash equivalents $ 32,050 $ 31,481 Accounts receivable 25 22 Income tax receivable 5,966 904 Inventory 13,724 11,840 Other current assets 403 381 Non-current assets 10,631 13,934 TOTAL ASSETS $ 62,799 $ 58,562 Statement continues on the next page 107 TINUUM GROUP, LLC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of December 31, 2020 and 2019 (in thousands) LIABILITIES AND MEMBERS' EQUITY 2020 2019 CURRENT LIABILITIES Accounts payable $ 6,446 $ 5,128 Accrued liabilities 6,568 7,076 Related party payables 7,653 10,278 Deferred revenue – current 11,898 9,810 Line of credit — 5,500 Note payable to customer – current 5,400 21,600 Secured promissory notes – current 6,313 — Total current liabilities 44,278 59,392 Asset retirement obligations 2,070 1,449 Accrued retention compensation 3,116 — Secured promissory notes – long term — 6,491 Note payable to customer – long term — 5,400 TOTAL LIABILITIES 49,464 72,732 MEMBERS' EQUITY Members’ equity attributable to Class A Members 59,221 117,006 Member equity attributable to Class B Member 18,769 28,967 Noncontrolling interests 43,635 35,588 Total Members' equity 121,625 181,561 TOTAL LIABILITIES AND MEMBERS' EQUITY $ 171,089 $ 254,293 The following table presents certain liabilities of consolidated VIEs, which are included in the Consolidated Balance Sheets above. The liabilities in the table below include third-party liabilities of consolidated VIEs only and exclude intercompany balances that eliminate in consolidation. The liabilities also exclude intercompany amounts where creditors have recourse against the general credit of Tinuum Group, LLC. Liabilities of Consolidated VIEs for Which Creditors Do Not Have Recourse Against the General Credit of Tinuum Group, LLC 2020 2019 LIABILITIES Accounts payable and accrued liabilities $ 7,859 $ 6,745 Related party payables 3,747 5,462 Secured promissory notes 6,313 6,491 Non-current liabilities 1,670 1,091 TOTAL LIABILITIES $ 19,589 $ 19,789 The accompanying notes are an integral part of the consolidated financial statements. 108 TINUUM GROUP, LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 2020 and 2019 (in thousands) 2020 2019 REVENUES Reduced emissions and unrefined fuel $ 619,101 $ 500,404 REF Facility revenues – over time 89,478 142,028 REF Facility revenues – point-in-time (1,129) 45,608 Other 594 733 TOTAL REVENUES 708,044 688,773 COST OF SALES (exclusive of depreciation shown separately below) Feedstock purchases 619,101 500,404 Cost of REF facilities (12) 11,509 Chemicals 27,496 22,521 Site and production fees 35,950 27,523 Royalties and fees 18,860 21,840 TOTAL COST OF SALES 701,395 583,797 GROSS PROFIT 6,649 104,976 OPERATING EXPENSES 11,217 8,983 IMPAIRMENT OF REF FACILITIES 2,968 — DEPRECIATION AND AMORTIZATION EXPENSE 28,175 16,361 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 15,648 12,297 (LOSS) INCOME FROM OPERATIONS (51,359) 67,335 OTHER (INCOME) EXPENSE Interest income (1,744) (2,526) Other expense 655 1,674 Interest expense 1,671 482 TOTAL OTHER (INCOME) EXPENSE 582 (370) (LOSS) INCOME BEFORE INCOME TAXES (51,941) 67,705 Deferred tax benefit (18,979) (904) Income tax expense 1,137 1,369 NET (LOSS) INCOME (34,099) 67,240 Loss attributable to noncontrolling interests 91,501 78,544 NET INCOME AVAILABLE TO MEMBERS $ 57,402 $ 145,784 The accompanying notes are an integral part of the consolidated financial statements. 109 TINUUM GROUP, LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY Years Ended December 31, 2020 and 2019 (in thousands) Class A Members Class B Member Non-Controlling Interests Total Members' Equity BALANCES, JANUARY 1, 2019 $ 49,102 $ 16,983 $ 16,510 $ 82,595 Change in accounting principle 74,463 13,141 — 87,604 Member contributions — — 97,622 97,622 Member distributions (130,475) (23,025) — (153,500) Net income available to members 123,916 21,868 — 145,784 Net loss attributable to noncontrolling interests — — (78,544) (78,544) BALANCES, DECEMBER 31, 2019 117,006 28,967 35,588 181,561 Member contributions — — 113,465 113,465 Member distributions (106,577) (18,808) — (125,385) Member distributions, noncontrolling interests — — (13,917) (13,917) Net income available to members 48,792 8,610 — 57,402 Net loss attributable to noncontrolling interests — — (91,501) (91,501) BALANCES, DECEMBER 31, 2020 $ 59,221 $ 18,769 $ 43,635 $ 121,625 The accompanying notes are an integral part of the consolidated financial statements. 110 TINUUM GROUP, LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2020 and 2019 (in thousands) 2020 2019 CASH, BEGINNING OF YEAR $ 44,441 $ 26,211 CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income (34,099) 67,240 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 28,175 16,361 Amortization of contract costs 21,188 871 Noncash operating lease expense 176 159 Assets sold as part of REF Facility transaction (12) 11,509 Loss on sale of assets 264 1,803 Impairment of REF facilities 2,968 — Loss on removal of asset retirement obligation (194) (129) Accretion of asset retirement obligation 184 134 Effects of changes in operating assets and liabilities: Accounts receivable (1,943) 1,188 Related party receivables — 6,294 Income tax receivable (5,062) (904) Contract receivables 43,117 (7,387) Inventory (1,864) 2,766 Other assets 8,047 263 Accounts payable and accrued liabilities 1,010 2,033 Accrued retention compensation 3,116 — Payments on operating leases (200) (176) Related party payables (2,196) 1,524 Deferred revenue 2,088 (13,795) Settlement of asset retirement obligation — (230) Net cash provided by operating activities 64,763 89,524 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures for fixed assets (5,648) (17,891) Proceeds from sale of fixed assets 99 206 Net cash used in investing activities (5,549) (17,685) CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under line of credit 8,900 7,500 Repayments under line of credit (14,400) (2,000) Borrowings (repayments) on note payable to customer (21,600) — Repayments under secured promissory note (178) (3,231) Contributions from noncontrolling interest members 113,465 97,622 Distributions paid to minority interest members (13,917) — Distributions paid to members (125,385) (153,500) Net cash used in financing activities (53,115) (53,609) NET INCREASE IN CASH 6,099 18,230 The accompanying notes are an integral part of the consolidated financial statements. 111 TINUUM GROUP, LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2020 and 2019 (in thousands) 2020 2019 CASH, END OF YEAR $ 50,540 $ 44,441 SUPPLEMENTAL DISCLOSURES Cash paid for interest $ 1,824 $ 389 Cash paid for taxes 1,212 1,313 NON-CASH TRANSACTIONS Customer note for contract costs $ — $ 27,000 Capitalized contract costs — 600 Capital expenditures included in related party payables 429 1,951 Asset retirement obligation layer 631 370 The accompanying notes are an integral part of the consolidated financial statements. 112 TINUUM GROUP, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 and 2019 (in thousands) NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES Tinuum Group, LLC (together with its subsidiaries, "Tinuum" or "TG" or the "Company") develops, manages, sells and leases facilities ("REF Facilities") used in the production and sale of reduced emissions fuel. The production and sale of reduced emissions fuel (refined coal or "REF") via these REF Facilities qualifies for production tax credits that are available under Section 45 of the Internal Revenue Code ("PTCs"). The value of the PTC is adjusted annually based on inflation adjustment factors published in the Federal Register. The 2020 and 2019 PTC rates were $7.301 and $7.173 per ton of REF produced, respectively. Tinuum is owned 42.5% by ADA-ES, Inc. ("ADA"), 42.5% by NexGen Refined Coal, LLC ("NexGen") (collectively, Class A Members), and 15% by GSFS Investments I Corp. ("GSFS" or the "Class B Member"). ADA, NexGen, and GSFS are collectively referred to herein as the "Members." Tinuum placed in service two REF Facilities prior to January 1, 2010 and 26 additional REF Facilities prior to January 1, 2012. Each REF Facility has demonstrated the required emissions reductions from the production of REF to qualify for PTCs. The REF produced at these REF Facilities is burned at coal-fired generation stations (the owner of which is a "Generator") and is expected to continue to qualify for PTCs for a period of 10 years following the applicable placed in service date. The two REF Facilities that were placed in service prior to January 1, 2010 no longer qualified for PTCs as of December 31, 2019. The remaining 26 REF Facilities that were placed in service prior to January 1, 2012 will no longer qualify for PTCs as of December 31, 2021. At December 31, 2020 and 2019, respectively, 23 and 20 REF Facilities had been sold to or were under lease with third-party investors ("TP Investors") who utilize the REF Facilities to produce REF (each of these REF Facilities is owned or leased by a "Producer Entity"). Some of the Producer Entities are owned or leased exclusively by a TP Investor and some are owned or leased by a TP Investor with some ownership percentage retained by the Company. The REF Facilities are located at coal-fired generation stations throughout the United States. In instances where Tinuum retains certain member interests in a Producer Entity, PTCs generated are allocated to Tinuum in proportion to its member interests and are therefore available for the benefit of Tinuum’s Members. Tinuum Services, LLC ("TS"), operates and maintains the REF Facilities under respective operating and maintenance agreements. TS is owned 50% each by ADA and NexGen and is not consolidated with the accounts of Tinuum. TP Investors of REF Facilities pay TS, subject to certain limitations, a fee for procuring certain proprietary chemical additives, an operating fee for the production of REF, and for the other operating and maintenance costs associated with running the REF Facilities. Basis of Presentation The accompanying consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America ("GAAP") and include the accounts of the Company and several variable interest entities ("VIEs"), for which Tinuum is the primary beneficiary. An entity is referred to as a VIE if it meets any of the following criteria outlined in Accounting Standard Codification 810 - Consolidation ("ASC 810"), which are: (i) the entity has equity that is insufficient to permit the entity to finance its activities without additional subordinated financial support from other parties; (ii) the entity has equity investors that, as a group, lack the characteristics of a controlling financial interest; or (iii) the entity is structured with non-substantive voting rights. The Company consolidates a VIE when it has both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses of the entity that could be potentially significant to the VIE (i.e., it is the primary beneficiary). All intercompany balances and transactions have been eliminated in consolidation. 113 TINUUM GROUP, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 and 2019 (in thousands) Going Concern Currently, with cash inflows ending in January 2022 and with legislation to extend the PTC expiration date not in process or having been passed, management has assumed the REF Facilities and the related PTCs will expire as scheduled by December 31, 2021. To date, management has not developed an alternative business strategy and thus management currently expects that 100% of the business operations will be wound down in 2022, which decision will be subject to approval by the Members. The Company’s line of credit expired on December 31, 2020 and debt financing is no longer available. Management has budgeted, and is planning, to reserve enough cash from the final cash inflows of 2021 and 2022 to satisfy anticipated remaining liabilities and obligations, including identified contingent liabilities that have been asserted by December 31, 2021. These cash reserves will be utilized to conduct an orderly wind down of business operations. No new business opportunities or cash inflows are expected to occur. The only exception to management’s plan would be if the U.S. Congress were to extend the PTC expiration date beyond December 31, 2021. If that event were to occur in a timely manner or prior to decommissioning of REF Facilities, management would seek to renegotiate its contracts with the various TP Investors and the host stations at which the REF Facilities are located and to continue to operate the business until the latter expiration date. Management has concluded that these factors, in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements have been prepared on a basis which assumes the Company will be able to continue as a going concern and contemplates the realization of assets and satisfaction of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Significant estimates include the estimated contingent revenues recognized related to revenues recognized at a point-in-time, the estimated useful lives associated with REF Facilities and assumptions associated with asset retirement obligations ("ARO"). Ultimate realization of assets and settlement of liabilities in the future could differ from those estimates. During the third quarter of 2019, the Company reevaluated the estimated useful life of its REF Facilities. As a result, the Company determined that the estimated useful life of the REF Facilities should be reduced from 20 years as originally estimated to the remainder of the 10 year period from the date the REF Facility was originally placed in service. The Company accounted for the change in the useful life of the REF Facilities as a change in accounting estimate beginning August 1, 2019. For the year ended December 31, 2019, the impact of the change in estimate resulted in a decrease in net income of $11,644. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The carrying value approximates fair value due to the short-term nature of these instruments. The Company maintains its cash and cash equivalents in accounts with a local financial institution. These accounts at times may exceed federally insured limits. The Company has not experienced any losses in these accounts and believes it is not exposed to any significant credit risk related to cash and cash equivalents. Accounts Receivable Accounts receivable consist primarily of payments due from TP Investors that own or lease the REF Facilities. The carrying amount of accounts receivable may be reduced by a valuation allowance that reflects management's best estimate of amounts 114 TINUUM GROUP, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 and 2019 (in thousands) that will not be collected. Under the Company’s agreements, interest can accrue on delinquent balances. No interest on delinquent balances was recorded for the years ended December 31, 2020 and 2019. Any allowance for doubtful accounts is based on management’s assessment of the collectability of specific customer accounts and the aging of the accounts receivable. If there is a deterioration of a major customer’s credit worthiness or actual defaults are higher than the historical experience, management’s estimates of the recoverability of amounts due to the Company could be adversely affected. As of December 31, 2020 and 2019, no allowance for doubtful accounts was considered necessary. Inventory Inventory is comprised primarily of feedstock fuel and chemicals used in the production and sale of REF at REF Facilities. Inventory is valued at the lower of cost or net realizable value using the average cost method. Fixed Assets Fixed assets are stated at historical cost less accumulated depreciation and consist primarily of the REF Facilities and ancillary equipment, including major additions and improvements. Expenditures for major improvements are capitalized, while maintenance and repair costs that do not significantly improve the related asset or extend its useful life are charged to expense as incurred. For financial reporting purposes, depreciation is calculated using the straight-line method over the estimated useful lives of the assets ranging from 3 to 10 years. The Company records an ARO liability equal to the fair value of the estimated cost to retire a REF Facility. The ARO liability is initially recorded in the period in which the obligation meets the definition of a liability, which is generally when a REF Facility is installed at a generation station ("Site"). The ARO liability is estimated by the Company based on legal removal requirements, historical removal experience, and anticipated future inflation rates. When the liability is initially recorded, the Company increases the carrying amount of the related long-lived asset by an amount equal to the original liability. The liability is increased over time to reflect the change in its present value, and the capitalized cost is depreciated over the useful life of the related long-lived asset. The ARO liability is removed when the Company is relieved of its removal obligation due to either completion of the removal activities at a generation station or a transfer of the responsibility for the REF Facility removal to a third-party. The Company reevaluates the adequacy of its recorded ARO liability at least annually. Actual costs of asset retirements, such as removing the REF Facility from a generation station and related site restoration, are charged against the related liability. Any difference between costs incurred upon settlement of an ARO and the recorded liability is recognized in other expense as a gain or loss in the Company’s consolidated statements of operations. Intangible Assets Tinuum has two exclusive licenses from ADA for the patented and proprietary "CyClean™" and "M-45™" technologies related to the production of REF. The patents underlying the CyClean™ technology license expire beginning in 2021; however, the license agreement includes potential future patents related to the technology. The costs associated with the exclusive CyClean™ license are included in other assets, net on the consolidated balance sheets and are being amortized over the useful economic life of the technology, or approximately 14 years, using the straight-line method. Amortization expense was $5 for each of the years ended December 31, 2020 and 2019. Impairment of Long-Lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. As part of the Company’s on-going monitoring of its REF Facilities, the Company evaluated the REF Facility assets for potential impairment as of December 31, 2020. Given the expiration of the original PTC period, December 31, 2021, the fact that no extension of the PTC period has been passed by Congress, and the fact that the Company does not have an expectation of additional future cash flows associated with the REF Facilities beyond the PTC period, any REF Facilities that have not been invested by TP Investors have been considered to be impaired. Impairment was assessed based upon the future 115 TINUUM GROUP, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 and 2019 (in thousands) undiscounted cash flows of each REF Facility as compared to its net book value. As a result, the Company recognized an impairment loss of $2,968 as of and for the year ended December 31, 2020. At December 31, 2019, there were no such impairments. Revenue Recognition REF Facilities The Company identifies performance obligations by reviewing the combination of customer agreements for material distinct goods and services. Goods and services are distinct when the customer can benefit from them on their own and the promises to transfer these items are separately identifiable from other promises within the contract. When the Company is contracted to provide a single promise (an integrated system), it is treated as a single performance obligation as goods and services are provided with the same pattern of transfer. The Company has identified the provision of the technology sublicense combined with the use of the REF Facility to be a single performance obligation. REF Facility revenues are recognized based upon the type of contract with the TP Investor. Generally, the Company has three types of contracts with customers (a) Leases, (b) Member Interest Purchase Agreements ("MIPA") and (c) Asset Purchase Agreements ("APA"). In all instances the contracts relate to the use of the REF Facility and the related sublicensed patented technology which is necessary for each Producer Entity to produce REF utilizing the REF Facility. Depending upon the agreement, the Company may receive fixed payments or a combination of fixed and variable payments over the contract term. Variable payments are determined based upon the expected amount of REF production during the defined period. Certain prepayments are received upon execution of TP Investor agreements. Significant judgments and estimates are used in the Company’s revenue policies. Throughout the revenue cycle, the Company evaluates contractual evidence, monitors performance and evaluates variable consideration changes. For the Leases and MIPA contracts, revenue is recognized "over time" using the output method, utilizing actual REF production volumes. In these agreements where a prepayment is received, that amount is recorded as deferred revenue and is amortized into revenue in accordance with the amortization period of the respective TP Investor agreement. Contingent consideration associated with Leases or MIPAs is recorded based upon actual REF production volumes achieved, constrained by any contractual limitations or by production volumes that management estimates could occur. Revenues recorded related to the APAs are recorded when the Company has completed delivery of the REF Facility and has transferred title and control of the REF Facility to the TP Investor. These revenues are recognized at a "point-in-time" based upon the net present value of the expected fixed purchase payments plus management’s estimate of any variable payments associated with the sale. Additionally, since the payments are made quarterly over a time period exceeding one year, a financing component exists to these transactions. For the years ended December 31, 2020 and 2019, interest recorded related to these contracts was $1,619 and $2,346, respectively, and is recorded as interest income in the statement of operations. As a result of the recording of APA revenues as of a point-in-time, future cash flows will be received according to the contractual payment schedules, but no future revenues, other than changes in estimates, will be recognized for these contracts. Changes in estimates for variable consideration can occur for a variety of reasons, including but not limited to (i) annual inflation adjustment factors being different from what was originally estimated and (ii) changes in actual versus expected production volumes of REF. For the year ended December 31, 2020, the impact of the change in estimate resulted in a decrease in revenues of $1,129. Generally, the REF Facility is collateral for the outstanding contract receivable balances recorded by Tinuum. The Company recognizes a contract receivable when the Company transfers control of a REF Facility to the customer in advance of receiving consideration. Contracts with variable consideration are billed quarterly in arrears, once production volumes are known, under similar payment terms. 116 TINUUM GROUP, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 and 2019 (in thousands) Reduced Emissions and Unrefined Fuel The Company’s consolidated VIEs, which are Producer Entities, purchase and take title to feedstock fuel under purchase agreements with each respective Generator or other supplier of feedstock fuel. Each Producer Entity purchases chemicals from third-party vendors and applies them to the feedstock fuel to produce REF utilizing REF Facilities. The REF is sold by the Producer Entities, under REF sale agreements, to a Generator or to another third-party at the discretion of the Manager of each Producer Entity, as permitted under the applicable Generator agreements. The Company performs REF recertification or redetermination testing periodically as required by Section 45 with respect to production and sale of REF at each of its REF Facilities. During the years ended December 31, 2020 and 2019, each of the Producer Entities sold all of its REF and unrefined fuel (coal untreated but part of the REF process) to third parties that used the fuel to generate electricity and recorded such amounts as reduced emissions and unrefined fuel revenues. Each VIE utilizes the combination of the REF Facility and the technology license to combine raw materials (feedstock coal and chemicals) to produce REF which is then sold as a separate manufactured product to its customer, the Generator. As a result, the Company recognizes both REF Facility revenues and reduced emissions and unrefined fuel on a gross basis. An accounts receivable balance represents the Company’s right to consideration that is unconditional and only the passage of time is required before payment of that consideration is due. No allowance for doubtful accounts related to accounts receivable balances or impairment of contract receivables has been recorded as of December 31, 2020 and 2019. Deferred revenue is recognized when the Company receives consideration in advance of performance. The Company disaggregates revenue based upon the revenue recognition methodology (over time vs. point-in-time). Taxes assessed by a governmental agency that are imposed on and concurrent with a specific revenue producing transaction collected by the Company from a customer are excluded from revenues. Shipping and handling costs are not associated with Tinuum’s products and services and therefore are not included in revenues or costs of revenues. No amounts have been recorded for returns, refunds, or other similar obligations. Income Taxes The Company, with the consent of its Members, has elected to be taxed under applicable sections of federal and state income tax laws as a limited liability company treated as a partnership for income tax purposes. As a result of this election, no federal income taxes are incurred by the Company. Instead, the Members are liable for income taxes on their pro rata share of the Company's income, deductions, losses, and credits. In certain states, the Company is taxed based upon shareholder equity or other enterprise considerations. In these instances, the Company records and pays the applicable tax directly to the state agency. One of the Company’s consolidated VIEs has elected to be a C corporation for federal and state income tax purposes. As a result, that VIE’s income tax provision and related deferred tax assets and liabilities are included within the consolidated financial statements. Deferred income taxes are provided for temporary differences arising from differences between the financial statement amount and tax basis of assets and liabilities existing at each balance sheet date, using enacted tax rates anticipated to be in effect when the related taxes are expected to be paid. A valuation allowance is established if it is more likely than not that a deferred tax asset will not be realized. The Company includes interest and penalties related to state tax as a component of income tax expense. The Company applies the requirement of ASC 740, Income Taxes, related to accounting for uncertain tax positions. In January 2021, the Company was notified that one of its consolidating VIEs was selected for audit by the IRS. Tinuum is the partnership representative and intends to cooperate with the IRS audit requirements. Reclassifications Certain reclassifications have been made to the prior years’ financial statements to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations or Members’ equity. 117 TINUUM GROUP, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 and 2019 (in thousands) Recent Accounting Pronouncements Effective January 1, 2019, the Company adopted ASC 606, Revenue from Contracts with Customers , and ASC 842, Leases . As a result, the Company reassessed its revenue generating contracts and determined that the contracts previously accounted for as leases under ASC 840 no longer met the control criteria of a lease and the MIPAs and APAs, previously accounted for via analogy to ASC 840, were required to be analyzed and recorded utilizing the guidance in ASC 606. The Company recorded the cumulative effect of applying the new revenue standard as an adjustment to the opening balance of Members’ equity. The Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations. NOTE 2 - FIXED ASSETS Reduced Emissions Fuel Facilities Each of the REF Facilities and related components that were placed in service by the Company in 2009 and 2011 have demonstrated the qualified emissions reductions to qualify for PTCs. REF Facilities are stated at historical cost. Depreciation is calculated using the straight-line method over a 10 year period, commencing with the original placed in service date in 2009 or 2011, as appropriate. The two REF Facilities originally placed in service in 2009 were fully depreciated as of December 31, 2019. Furniture, Fixtures and Equipment Furniture, fixtures, and equipment is comprised of office furniture, fixtures and office equipment, including those under finance leases. These assets are recorded at cost and depreciated using the straight-line method with estimated useful lives ranging from 3 to 8 years. The following table summarizes the components of gross and net carrying amounts for fixed assets as of December 31, 2020 and 2019: 2020 2019 REF Facilities and related equipment $ 91,399 $ 86,832 Assets associated with removal obligations 1,637 1,129 Furniture, fixtures, equipment and other 1,397 1,414 ROU assets 711 702 Accumulated depreciation (67,668) (39,754) Impairment reserve (2,968) — Fixed assets, net $ 24,508 $ 50,323 Depreciation expense was $28,170 and $16,356, for the years ended December 31, 2020 and 2019, respectively. Under the site license agreements between the Producer Entities or Tinuum and the Generators, Tinuum may be required to return the Site upon which the REF Facility is located to its original condition at the end of the applicable contract period. In instances where the applicable agreements place this responsibility on the Company, the Company has recorded a liability for an ARO equal to the fair value of the estimated cost to retire the REF Facility and return each Site to its original condition. The ARO liability was estimated by the Company using estimated and historical facility removal costs and anticipated future inflation rates. This estimated future value was discounted to its present value using the Company’s credit-adjusted risk-free rate. The carrying value of the asset is depreciated on a straight-line basis over the remaining estimated life of the REF Facility asset group. The ARO liability is increased over time to reflect the change in its present value, and the capitalized cost is depreciated over the useful life of the site license. In subsequent periods, the Company is required to make adjustments to AROs based on changes in the estimated fair values of the obligations. Corresponding increases in asset book values are depreciated over the remaining useful life of the related site license. Uncertainties as to the probability, timing, or amount of cash flows associated with AROs may affect management’s estimates of fair value. For the years ended December 31, 2020 and 2019, within operating expenses, the Company recorded $184 and $134 of accretion expense, respectively. 118 TINUUM GROUP, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 and 2019 (in thousands) The following table describes changes to the Company’s ARO liability for the years ended December 31, 2020 and 2019: 2020 2019 Beginning balance $ 1,449 $ 1,304 Liabilities incurred, net 631 370 Removal of liability (194) (129) Accretion 184 134 Settlement of obligations — (230) Ending balance $ 2,070 $ 1,449 NOTE 3 - INVENTORY Inventory is comprised primarily of feedstock fuel and chemicals used in the production and sale of REF at REF Facilities. The Company assesses the inventory valuation on a monthly basis and reduces the value for any obsolete inventory. No valuation allowance was considered necessary as of December 31, 2020 and 2019. 2020 2019 Feedstock fuel $ 12,707 $ 11,187 Chemicals 1,023 679 Total inventory $ 13,730 $ 11,866 NOTE 4 - REVENUES As discussed in Note 1, revenue is recognized when a performance obligation is satisfied. The Company’s contracts can contain both fixed and variable components of the transaction price. Each contract is evaluated for these components and may be determined to include fixed consideration, variable consideration and financing components as part of the overall transaction price. The Company receives payments from customers based upon specific payment schedules established under each contract. Payment schedules can include a combination of prepayments, fixed payments and variable payments, based upon expected production volumes, and are generally made quarterly. When a contract is determined to contain variable consideration, the transaction price is estimated using the expected value (i.e., the most likely amount method) to predict revenue for that contract. These variable amounts are estimated at contract inception based upon the projected REF production volumes associated with the specific Generator location. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration are estimated based upon contractual terms, historical experience and projected REF production volumes. Nine and eight, respectively, of the REF Facility transactions with TP Investors are transactions with a related party as of December 31, 2020 and 2019. These transactions generally have terms that extend to the date ten years after the placed in service date for the particular REF Facility, subject to earlier termination by the TP Investor at periodic intervals or upon the occurrence of specified events. Under the various TP Investor agreements, Tinuum has committed to provide the REF Facility and the related sublicense for a term as identified in each contract. Most of the agreements expire in 2021 or by the first quarter of 2022. Generally, payments are made quarterly to Tinuum on a net 10 to 30 days basis, in advance of the respective quarter. The following is an estimate of the cash flows expected to be received from TP Investors through December 31, 2021, assuming no variations in estimated production volumes, no modifications of payments, non-renewals or early terminations of contracts. It is possible that future payments from TP Investors may be modified or reduced. Future REF Facility payments, including any eliminated in consolidation, are based on the estimated levels of REF production. 119 TINUUM GROUP, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 and 2019 (in thousands) 2021 $ 154,805 2022 7,515 $ 162,320 In December 2019, the Company agreed to provide a future price concession to a significant customer. A portion of the price concession is provided via a note payable (“Customer Note”) under which the Company would make monthly principal and interest payments to the customer commencing in January 2020 and continuing through March 2021. The Customer Note was $27,000 and the Company recorded the amount as contract costs on the consolidated balance sheet and allocated the payments to the customer as a reduction to the transaction price of the existing contracts with the customer. The reduction in the transaction price is being recorded monthly, commencing with the contract date of December 2019 through the end of the term of the payments of March 31, 2021. The reduction in the transaction price is recorded as production volumes are achieved (over time). For the years ended December 31, 2020 and 2019, the Company reduced revenues under this price concession contract by $20,903 and $871, respectively. In certain instances, the Company employs outside parties to facilitate the commencement of a Lease, MIPA or APA transaction. Under these agreements, the Company typically pays the outside party a fee (“Fee”) relative to either the collection of revenues by the Company or the REF production volumes achieved. Under the Lease and MIPA transactions, any related contract costs are recorded as the production volumes or collection of revenues are achieved. These amounts are recorded as a component of cost of goods sold. Under the APA agreements, the Fees are capitalized as contract costs based on the estimated revenues recognized at the commencement of the contract and are amortized as a reduction of revenue over the period of benefit. For the years ended December 31, 2020 and 2019, Fees included in contract costs on the consolidated balance sheet were $315 and $600, respectively. NOTE 5 - VARIABLE INTEREST ENTITIES For the years ended December 31, 2020 and 2019, the Company consolidates nine and seven entities, respectively, (the "TG VIEs") that were created as REF production companies. The operations include the purchase of feedstock fuel from a Generator, application of chemicals utilizing that Producer Entity’s REF Facility, and the subsequent sale of REF to the Generator. In all nine of the TG VIEs, CCS-AE, LLC ("CCS-AE"), a subsidiary of the Company, or another Tinuum entity is the Managing Member and holds a 0.2% or 1.0% member interest, depending on the transaction. As the Managing Member of the TG VIEs, CCS-AE or Tinuum directs the activities that are considered most significant to the entities. Based upon the criteria set forth in ASC 810, the Company has determined that it is the primary beneficiary in the TG VIEs for the years ended December 31, 2020 and 2019. As such, the financial results of the TG VIEs are consolidated with the results of the Company, and the results attributable to the other owners are presented as noncontrolling interests within the consolidated financial statements. Creditors of the TG VIEs have no recourse against the general credit of the Company (outside of its member interest or specific guarantee obligations) and the assets of the Company are not collateral for any TG VIE obligations. The operations of all nine entities are financed through capital calls of the respective members in proportion to their member interests. In the event that a member defaults on a capital call request made by the Managing Member, the Managing Member may (i) withhold distributions payable to the defaulting member or sue for the amount due, and/or (ii) elect to transfer the defaulting member’s interest to a separate legal entity controlled by the Managing Member, or (iii) suspend operations of the REF Facility. In certain instances, the TP Investor has the ability to put, and Tinuum has the ability to call, the other member interests at a purchase price equal to fair market value. Under the provisions of certain of the TG VIEs’ various agreements, including the leases of REF Facilities or the partnership operations of the TG VIEs, the agreements terminate during time periods ranging from the fourth quarter of 2021 through December 31, 2022, unless terminated earlier by written consent of the members. Under certain of the TG VIE agreements, capital call limitations exist, limiting the amount of capital calls if certain operational costs are exceeded. 120 TINUUM GROUP, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 and 2019 (in thousands) NOTE 6 - NOTES PAYABLE Line of Credit In September 2019, the 2013 Revolver ("Revolver") with BOK Financial ("BOK"), was amended and replaced with the Fifth Amendment to the Revolver ("Fifth Amendment"). The Fifth Amendment expired on December 31, 2020 and was not renewed. Under the Fifth Amendment, prior to expiration, the available borrowing limit was: Available Borrowing Limit For the period ending December 30, 2019 through September 29, 2020 $ 7,000 For the period commencing September 30, 2020 through December 30, 2020 $ 3,400 For the period after December 31, 2020 $ — The Fifth Amendment required any outstanding borrowings to be fully repaid for a period of fifteen consecutive days during two non-consecutive calendar quarters. Amounts outstanding under the Fifth Amendment were repaid at the option of the Company. Any undrawn balance during the years ended December 31, 2020 and 2019, was subject to a quarterly unused facility fee in the amount of 0.826% annually. Interest on outstanding balances was payable monthly and was accrued at the greater of 5.5% per annum or the prime rate (as defined in the agreement) plus 1.0%. The Fifth Amendment was collateralized by the assets of the Company and the equity interests and proceeds related to such equity interests of each material subsidiary owned by the Company. The Fifth Amendment was also collateralized by the Company’s deposit accounts held at BOK. These accounts were not restricted by the Fifth Amendment. Tinuum was required to be in compliance with certain covenants under the Fifth Amendment, including tangible net worth as defined in the agreement. As of December 31, 2019, the Company was in compliance with the loan covenants. As of December 31, 2019, the outstanding balance on the Revolver was $5,500. Customer Note As mentioned in Note 4, in December 2019, the Company agreed to provide a future price concession to a significant customer via a Customer Note. The Company makes monthly principal and interest payments to the customer. Payments commenced in January 2020 and extend through March 2021. As of December 31, 2020 and 2019, respectively, the Customer Note balance was $5,400 and $27,000. The Customer Note bears interest at 8% per annum. Under the Customer Note, Tinuum has agreed to maintain a Cash Reserve Account of $3,000, to limit additional indebtedness to $7,000 (plus amounts to finance Company insurance premiums plus a maximum of $500 for finance leases) and to maintain compliance with certain loan covenants. At December 31, 2020 and 2019, respectively, the Company was in compliance with the Customer Note covenants. Secured Promissory Note In February 2014, a VIE consolidated into the consolidated financial statements of the Company, entered into an $11,000 secured promissory note (the "Note") with a Generator from which it purchases feedstock fuel, and to which it sells reduced emissions and unrefined fuel on a monthly basis. The purpose of the Note is to finance the purchases of feedstock fuel from the Generator. The amount of principal and interest owed is dependent upon the amount of feedstock fuel purchased and reduced emissions and unrefined fuel sold between the two parties and is net settled on a monthly basis. The Note is collateralized by the feedstock fuel inventory. The Note bears interest at a per annum rate equal to the short-term applicable federal rate announced by the IRS in December of each year. The interest rate for the years ended December 31, 2020 and 2019 was 1.60% and 2.72% per annum, respectively. Interest is payable quarterly in arrears. All outstanding amounts owed under the Note are due and payable on the earlier of December 31, 2021 or the termination or expiration of the Feedstock Coal Purchase Agreement between the TG VIE and the Generator. As of December 31, 2020 and 2019, respectively, the outstanding balance on the Note was $4,327 and $4,505 with interest payable of $16 and $32, respectively. 121 TINUUM GROUP, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 and 2019 (in thousands) In June 2018, a second VIE consolidated into the consolidated financial statements of the Company, entered into an $1,986 secured promissory note ("2018 Note") with a Generator to fund the initial purchase of feedstock fuel. The 2018 Note bears interest at a per annum rate equal to the mid-term applicable federal rate announced by the IRS in December of each year. The rate was 1.67% and 3.03% for the years ended December 31, 2020 and 2019, respectively. Interest is payable quarterly in arrears. The 2018 Note is collateralized by the feedstock fuel inventory. All outstanding amounts owed under the 2018 Note are due and payable on the earlier of December 31, 2025, or the termination or expiration of the Feedstock Coal Purchase Agreement between the Company and the Generator. At each of December 31, 2020 and 2019, the outstanding balance on the Note was $1,986. Interest payable of $3 and $5 was recorded as of December 31, 2020 and 2019, respectively. NOTE 7 - MEMBERS’ EQUITY Under the Class B Unit Purchase Agreement ("Class B Agreement") with GSFS, which was entered into upon the amendment and restatement of the Tinuum Operating Agreement in 2011, ADA and NexGen each entered into a limited guarantee agreement under which the parties are obligated to guarantee performance by Tinuum of its obligations to indemnify GSFS against certain losses it may suffer as a result of inaccuracies or breach in representations and covenants related to the Class B Agreement or REF Facilities’ lease agreements with GSFS affiliates. ADA and NexGen entered into a contribution agreement where, in the event of such a breach, they have agreed to contribute their pro rata share of any amounts under the limited guarantee. The Class B units were considered conditionally redeemable as specified in the Second Amended and Restated Operating Agreement and the Class B Agreement. Upon satisfaction of the redemption criteria in 2018, GSFS continues to own the Class B units which have no further capital call requirements and have limited voting rights. In September 2019, the Second Amended and Restated Operating Agreement was amended to eliminate the preferential redemption provisions for the Class B shares and simultaneously reallocated certain tax attributes between the Class A and B Members. The Company had the following classes and percentages of Member units issued and outstanding at December 31, 2020 and 2019. Class A Units (voting) 85 % Class B Units (non-voting) 15 % NOTE 8 - INCOME TAXES During the years ended December 31, 2020 and 2019, the Company has concluded that there are no significant uncertain tax positions that would require recognition or disclosure in the financial statements. As of December 31, 2020, and 2019, the Company made no provision for interest or penalties related to uncertain positions. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes related to one of the Company’s consolidated VIEs. Under a tax sharing agreement with the specific TP Investor of this VIE, the deferred tax assets are allocated specifically to the TP Investor and are not for the benefit of Tinuum or its members. On a quarterly basis, the TP Investor provides a cash payment to the VIE for the prior quarter’s tax benefits generated, generally production tax credits and net operating losses. As a result, the quarterly estimated funding is presented as an income tax receivable in the consolidated balance sheets. The income tax receivable as of December 31, 2020 and 2019, consists of: 2020 2019 Net operating losses $ 1,026 $ 287 Deferred tax liability (21) — Production tax credits 4,961 617 Total deferred tax assets $ 5,966 $ 904 Net operating loss carryforwards can be carried forward indefinitely and the PTCs can be carried forward for 20 years. 122 TINUUM GROUP, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 and 2019 (in thousands) For the years ended December 31, 2020 and 2019, income tax expense (benefit) consisted of the following: 2020 2019 Current $ 1,137 $ 1,369 Deferred (18,979) (904) Total income tax (benefit) expense $ (17,842) $ 465 NOTE 9 - RELATED PARTY TRANSACTIONS During 2020 and 2019, the Company incurred expenses and capital expenditures and had amounts payable (excluding capital distributions) to and revenues recognized from the following related party entities: ADA TS GSFS Affiliates NexGen and Affiliates (a) (b) (c) (d) As of December 31, 2020 Accounts payable $ 3,454 $ 4,179 $ — $ 20 As of December 31, 2019 Accounts payable $ 4,104 $ 6,134 $ 20 $ 20 Revenues Recognized During the Year Ended December 31, 2020 $ — $ (593) $ 88,243 $ — December 31, 2019 — 45,608 121,794 — Expenses Incurred During the Year Ended December 31, 2020 $ 13,656 $ 16,629 $ — $ 527 December 31, 2019 16,945 14,807 — 519 (a) ADA expenses include expenditures for royalties and consulting services. (b) TS expenses include operating expenses associated with the operations of REF Facilities. TS revenues include APA point in time revenue estimates and management fee revenues from TP Investors included within the TS consolidated financial statements. (c) GSFS affiliates revenues relate to REF Facility lease revenues recognized. (d) NexGen and affiliates expenses include management fees and labor costs. The Company acquires substantial amounts of fixed assets from TS. For the years ended December 31, 2020 and 2019, the Company acquired $5,549 and $17,951, respectively, of capital assets from its related party, TS. NOTE 10 - COMMITMENTS Purchase Commitments In November 2011, Tinuum entered into a technology licensing agreement with ADA whereby Tinuum agreed to pay ADA royalties based on a percentage of operating income from REF production at REF Facilities that utilize the M-45™ technology. During the years ended December 31, 2020 and 2019, respectively, the Company recognized royalty expense under cost of sales in the amounts of $13,440 and $16,900, respectively. In December 2015 the Company was assigned, by TS, a Master Supply Agreement with a chemical vendor. Under the agreement the Company had a commitment commencing January 1, 2015, for minimum purchase quantities of the specified chemical that if not achieved would require a shortfall payment amount ("Shortfall") to be paid to the vendor on a monthly 123 TINUUM GROUP, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 and 2019 (in thousands) basis. Any Shortfall payment required would be applied to future chemical purchases once certain minimum volume levels were achieved. In 2018 an agreement was reached to further amend the Master Supply Agreement and the Company made an additional prepayment of $8,187 resulting in a total prepaid amount of $17,755 on deposit with the vendor as of December 31, 2019. Beginning in August 2020, the Company started utilizing the prepaid deposit balance through ongoing chemical usage. As of December 31, 2020, the balance was $10,632, and is included within other current assets in the Company’s consolidated balance sheets. The Company anticipates utilizing the prepaid deposit balance by the end of 2021. Retention Compensation It has been an ongoing practice of the Company to provide severance payments to employees that are involuntarily terminated for reasons other than for cause. In anticipation of the wind down of operations expected by 2022, the Company has formalized that practice into a retention compensation program. The purpose of the program is to incent employees to remain with the Company through the wind down dates necessary for the successful cessation of the Company. Certain executive employees have contracts that do not have a defined retention date but provide for severance payment provisions equivalent to one year of base salary that only become due and payable upon a decision by the Board of Managers to terminate an executive other than for cause. The potential estimated liability under these contracts is approximately $1,000. Any executive employee who does not have an employment contract and all non-executive employees have a retention bonus agreement with a defined dollar amount that is payable by the Company upon the earlier of the Company's initiation of an involuntary termination or the employee remaining with the Company until the defined retention date within their agreement. Any employees electing to voluntarily terminate employment with the Company prior to their defined retention date will forfeit their retention bonus amount. The Company has determined these retention program costs to be reasonably estimable and probable for the year ended December 31, 2020. As a result, the Company has recognized a retention compensation liability and compensation expense of $3,116 as of and for the year ended December 31, 2020. No amount was recognized as of December 31, 2019. 401k Profit Sharing Plan and Other Benefits The Company offers a defined contribution and profit sharing plan (the "Plan") to employees who are over 18 years of age and have been employed by the Company for more than 30 days. Employees can deposit up to 80% of their eligible pay up to the statutory limit in the Plan. The Company contributes 3% of employees’ eligible pay to the Plan as safe harbor contributions and an additional matching contribution equivalent to 50% of the first 6% of employee contributions. Company contributions charged to benefits expense was $194 and $186 for the years ended December 31, 2020 and 2019, respectively. Office Lease Tinuum’s ROU asset and lease liability are comprised of its lease for its corporate office space. The lease has an eight-year term that commenced in March 2014. The lease does not include renewal options that the Company expects to utilize. The Company has utilized its implicit borrowing rate of 5.75% to calculate the ROU asset and lease liabilities. Operating lease expense for each of the years ended December 31, 2020 and 2019 was $199 and $201 respectively. Operating leases are included in the ROU assets within fixed assets, net, and lease liabilities are included within accrued liabilities on the consolidated balance sheets. Real estate taxes and common area maintenance charges are expensed as incurred as operating expenses and are not included in the lease payments. As of December 31, 2020, future annual lease payments under lease agreements through December 31, 2022 are as follows: 2021 $ 229 2022 236 Total lease payments 465 Less: interest expense (27) Present value of lease liabilities $ 438 NOTE 11 - CONCENTRATIONS The COVID-19 pandemic developed rapidly in 2020. Measures taken by federal and local governments to contain the virus have affected economic activity, locally as well as nationally. The Company's production of REF has to date been considered an element of power generation and therefore been considered an essential function under various government policies restricting business activity. The Company has taken a number of steps to monitor and mitigate the effects of COVID-19 on its operations 124 TINUUM GROUP, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 and 2019 (in thousands) and customers, such as safety and health measures for its employees. At this stage, the impact on the financial and operational results has not been significant and based on the Company’s experience to date this is expected to remain the case. The Company will continue to follow the applicable government policies and advice and, in parallel, the Company will continue to pursue operational modifications to allow continued REF production without jeopardizing the health of the Company’s employees or those of its customers. The Company’s operations are currently dependent upon TP Investors leasing or purchasing REF Facilities. Further, under the terms of the various TP Investor agreements, the agreements may be subject to termination or modification by the TP Investor at periodic intervals or upon the occurrence of specified events which include amendments to Section 45 of the Internal Revenue Code. The termination or modification of all or a material portion of any TP Investor agreements would have a significant adverse impact on the Company’s future operations and financial condition. Additionally, the production and sale of REF is dependent upon the plant operations of specific generating stations where the REF Facilities are located. Production at these locations could be impacted by the COVID-19 pandemic, the demand for electricity, the amount of fuel burned as compared to other electricity generation fuel sources utilized by the utility to produce electricity, disruptions due to foreseen or unforeseen plant outages, or changes in government regulations related to electricity generation or coal burning activities. Certain of the chemicals utilized by the Company to produce REF are available from a limited number of vendors in the United States. The Company's future operations may be materially and adversely affected if the Company encounters difficulty procuring these chemicals, the quality of available chemicals deteriorates or there are significant price increases for the chemicals. NOTE 12 - SUBSEQUENT EVENTS Management evaluated subsequent events through March 8, 2021, the date financial statements were available to be issued. 125 Item 16. Form 10-K Summary None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Advanced Emissions Solutions, Inc. (Registrant) By /s/ Greg P. Marken By /s/ Christine A. Bellino Greg P. Marken Christine A. Bellino Interim Chief Executive Officer (Principal Executive Officer) Chief Accounting Officer (Principal Financial and Accounting Officer) Date: March 10, 2021 Date: March 10, 2021 Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By /s/ Carol Eicher By /s/ Brian Leen Carol Eicher, Director Brian Leen, Director Date: March 10, 2021 Date: March 10, 2021 By /s/ Gilbert Li By /s/ R. Carter Pate Gilbert Li, Director R. Carter Pate, Director Date: March 10, 2021 Date: March 10, 2021 By /s/ J. Taylor Simonton By /s/ L. Spencer Wells J. Taylor Simonton, Director L. Spencer Wells, Director Date: March 10, 2021 Date: March 10, 2021 126