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Item 7. Management’s Discussion and Analysis

2022-03-08 compared with 2021-03-10 · 275 added, 272 removed, 297 unchanged (65% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

We operate two segments:

Our RC segment is comprised of our equity ownership in Tinuum Group and Tinuum Services, both of which are unconsolidated entities in which we generate substantial earnings.

Through December 31, 2021, we operated two segments:

Our RC segment is comprised of our equity ownership in Tinuum Group and Tinuum Services, both of which are unconsolidated entities from which we generated substantial earnings.

Tinuum Group provides reduction of mercury and NOx emissions at select coal-fired power generators through the production and sale of RC that qualifies for Section 45 tax credits under IRC Section 45.

We benefit from Tinuum Group's production and sale of RC, which generates tax credits, as well as its revenue from selling or leasing RC facilities to tax equity investors.

We also earn royalties for technologies that we license to Tinuum Group and are used at certain RC facilities to enhance combustion and reduced emissions of NOx and mercury from coal burned to generate electrical power.

Tinuum Services operates and maintains the RC facilities under operating and maintenance agreements with Tinuum Group and owners or lessees of the RC facilities.

Both Tinuum Group and Tinuum Services expect to significantly wind down their operations by the end of 2021 due to the expected expiration of the Section 45 tax credit period as of December 31, 2021.

As such, our earnings and distributions from our RC segment will substantially cease as of December 31, 2021.

Our APT segment is materially operated through a wholly-owned subsidiary, Carbon Solutions, which we acquired on December 7, 2018 (the "Carbon Solutions Acquisition").

We sell consumable products that utilize AC and chemical based technologies to a broad range of customers, including coal-fired utilities, industrials, water treatment plants, and other diverse markets through the customer supply agreement defined below.

We benefited from Tinuum Group's production and sale of RC, which generated Section 45 tax credits, as well as its revenue from selling or leasing RC facilities to tax equity investors.

We also earned royalties for technologies that we licensed to Tinuum Group, which were 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.

Effective December 31, 2021, the Section 45 tax credit period expired and as a result both Tinuum Group and Tinuum Services have substantially ceased their operations.

As such, our earnings and distributions from our RC segment substantially ceased as of December 31, 2021.

We expect to receive limited, additional cash distributions from Tinuum Group and Tinuum Services during the first half of 2022.

Our APT segment is primarily comprised of operations of our wholly-owned subsidiary, Carbon Solutions, which we acquired on December 7, 2018.

Our primary products are comprised of AC, which is produced from lignite coal.

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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 regulations.

Additionally, through Carbon Solutions, we also own an associated lignite mine that supplies the primary raw material for manufacturing our products.

Additionally, we own an associated lignite mine which supplies the primary raw material for manufacturing our products.

See further discussion of our business included in Item 1 - "Business" ("Item 1") of this Report.

Discussion regarding segment information is included in the discussion of our consolidated results under this Item 7.

Additionally, discussion related to our reportable segments is included in Item 1 and Note 19 of the Consolidated Financial Statements, which are included in Item 8 of this Report.

We believe there are opportunities to continue to pursue diverse markets for our purification products outside of coal-fire power generation, including industrial applications and water.

The Supply Agreement with Cabot, as discussed below, will help our expansion of our AC products to those diverse end-markets and drive the Company’s post-Refined Coal future.

Additionally, discussion related to our reportable segments is included in Item 1 and Note 19 of the Consolidated Financial Statements, which is included in Item 8 of this Report.

We believe there are opportunities and are continuing to pursue diverse markets for our purification products outside of coal-fired power generation, including industrial applications and water.

The Supply Agreement with Cabot, as discussed below, continues to expand sales of our AC products to those diverse end-markets and drive the Company’s post-Refined Coal future.

Review of Strategic Alternatives

In May 2021, we announced that we had retained Ducera Partners, LLC as our financial advisor to assist in a strategic review process to assess a range of strategic alternatives to enhance value for our stockholders.

We cannot provide any assurance that the exploration of strategic alternatives will result in the identification or consummation of any transaction.

Similarly, any strategic decision will involve risks and uncertainties, and we cannot provide any assurance that any strategic alternative, if identified, evaluated and consummated, will provide the anticipated benefits or otherwise enhance stockholder value.

The process is ongoing and our board of directors has not set a timetable for completion of the evaluation.

Drivers of Demand and Key Factors Affecting Profitability

Drivers of demand and key factors affecting our profitability differ by segment.

In the RC segment, demand is driven primarily from investors who purchase or lease RC facilities that qualify under the Section 45 tax credit period, which is expected to expire no later than December 31, 2021.

Operating results in RC are affected by:

(1) the ability to sell, lease or operate RC facilities;

(2) lease renegotiation or termination;

and (3) changes in tonnage of RC due to changing coal-fired dispatch and electricity power generation sources.

Earnings and distributions from our RC segment will substantially cease as of December 31, 2021 as a result the significant wind down of both Tinuum Group and Tinuum Services due to the expected expiration of the Section 45 tax credit period as of December 31, 2021.

In the APT segment, demand is driven primarily by consumables-based solutions for coal-fired power generation and other industrials, municipal water customers, and since September 30, 2020, demand from Cabot's customers through the Supply Agreement discussed below.

Operating results in APT has been influenced by:

Historically, we derived substantial earnings and cash distributions from the RC segment through our equity ownership in Tinuum Group and Tinuum Services as well as the royalties earned from a licensing arrangement with Tinuum Group for use of our M-45 Technology.

With the expiration of the Section 45 tax credit period, we will no longer generate earnings from either Tinuum Group or Tinuum Services.

Additionally, we do not expect our overall selling, general and administrative portions of our operating expenses to materially decrease in 2022 as a result of the wind down of our RC segment.

Demand in the APT segment is driven primarily by consumables-based solutions for coal-fired power generation, municipal water treatment and other industrial customers;

and since the fourth quarter of 2020, demand from Cabot's customers through the Supply Agreement discussed below.

Operating results in the APT segment have been influenced by:

(1) changes in our sales volumes;

(2) changes in price and product mix;

and (3) changes in coal-fired dispatch and electricity power generation sources.

(3) changes related to non-integrated supply chain inputs and (4) changes in coal-fired dispatch and electricity power generation sources.

For the year ended December 31, 2021, we observed significant

increases in demand for our AC product.

As such, we continue to purchase inventory to meet our customer demands to supplement products manufactured at our Red River Plant.

Customer Supply Agreement

On September 30, 2020, we and Cabot entered into the Supply Agreement pursuant to which we agree to sell and deliver to Cabot, and Cabot agrees to purchase and accept from us, Furnace Products.

On September 30, 2020, we and Cabot entered into the Supply Agreement, pursuant to which we agreed to sell and deliver to Cabot, and Cabot agreed to purchase and accept from us, Furnace Products.

The term of the Supply Agreement is for 15 years with 10-year renewal terms that are automatic unless either party provides three years prior notice of intention not to renew before the end of any term.

In addition to the sale by us and purchase by Cabot of Furnace Products, we and Cabot have agreed to additional terms whereby Cabot will reimburse us for certain capital expenditures incurred by us that are necessary to manufacture the Furnace Products.

Reimbursements will be in the form of revenues earned from capital expenditures incurred that will benefit both us and Cabot (referred to as "Shared Capital") and capital expenditures incurred that will benefit Cabot exclusively (referred to as "Specific Capital").

We believe the Supply Agreement will provide material incremental volume and capture lower operating cost efficiencies of our manufacturing plant.

As these incremental volumes come on-line and after our existing inventory balances are sold, we anticipate an increase in gross margins.

Further, we expect the Supply Agreement will expand our activated carbon products to diverse end markets that are outside of coal-fired power generation.

The Supply Agreement has provided material incremental volume and allowed us to capture operating cost efficiencies at our Red River manufacturing plant.

The incremental volumes from the Supply Agreement have improved fixed cost absorption and resulted in increased gross margins.

Further, the Supply Agreement has expanded our AC products to diverse end markets that are outside of markets we historically served.

Acquisition of Marshall Mine

Concurrently with the execution of the Supply Agreement, on September 30, 2020, we entered into the Mine Purchase Agreement from Cabot 100% of the membership interests in Marshall Mine, LLC (the "Marshall Mine Acquisition") for a nominal purchase price.

Concurrently with the execution of the Supply Agreement, on September 30, 2020, we entered into the Mine Purchase Agreement from Cabot for 100% of the membership interests in Marshall Mine, LLC (the "Marshall Mine Acquisition") for a nominal purchase price.

Marshall Mine, LLC owns a lignite mine located outside of Marshall, Texas (the "Marshall Mine").

We independently determined to immediately commence activities to shutter the Marshall Mine and will incur the associated reclamation costs.

We independently determined to immediately commence activities to shutter the Marshall Mine and to incur the associated reclamation costs.

In conjunction with the execution of the Supply Agreement and the Mine Purchase Agreement, on September 30, 2020, we entered into the Reclamation Contract with a third party that provides a capped cost, subject to certain contingencies, in the amount of approximately $19.7 million plus an obligation to pay certain direct costs of approximately $3.6 million (collectively, the "Reclamation Costs") over the estimated reclamation period of 10 years.

We are accounting for this obligation as an asset retirement obligation under U.S.

Under the terms of the Supply Agreement, Cabot is obligated to reimburse us for $10.2 million of Reclamation Costs (the "Reclamation Reimbursements"), which are payable semi-annually over 13 years and inclusive of interest.

As the owner of the Marshall Mine, we were required to post a surety bond to ensure performance of our reclamation activities in the amount of $30.0 million under the Surety Agreement.

For the obligations due under the Reclamation Contract, we were required to post collateral of $5.0 million dollars as of September 30, 2020 and to post an additional $5.0 million dollars as of March 31, 2021.

Under the terms of the Supply Agreement, Cabot is obligated to reimburse us for approximately $10.2 million of Reclamation Costs (the "Reclamation Reimbursement"), which are payable semi-annually over 13 years and inclusive of interest.

On February 25, 2022, we received $10.6 million in cash from Cabot (the "Cabot Payment") as a result of a change in control provision in the Supply Agreement (the "Change in Control"), which occurred as a result of the sale of Cabot by its parent, Cabot Corporation.

Under the Change in Control, we received from Cabot full payment of all amounts outstanding under the Reclamation Reimbursement, payment of all unbilled amounts related to certain capital expenditures incurred by us through February 28, 2022 for specific use in manufacturing Furnace Products and payment of additional Reclamation Costs (the "Cabot Reclamation Costs").

Under the Reclamation Contract, we are obligated to remit payment for the Cabot Reclamation Costs to the third party operator of Marshall Mine within a specified timeframe.

We will account for the Cabot Payment in its March 31, 2022 quarter and we do not anticipate any impacts to the Supply Agreement except as described above.

As the owner of the Marshall Mine, we were required to post a surety bond to ensure performance of our reclamation activities.

As of December 31, 2021, the amount outstanding under this surety bond was $16.6 million.

For the obligations due under the Reclamation Contract, we were required to post collateral of $10.0 million.

As of June 30, 2021 and December 31, 2021, we revised our estimate of future obligations owed for reclamation of the Marshall Mine primarily based on scope reductions related to future reclamation requirements.

As a result, we reduced the Marshall Mine ARO by $1.9 million and $0.8 million as of June 30, 2021 and December 31, 2021, respectively, and recorded a corresponding gain on change in estimate in the aggregate of $2.7 million in the Consolidated Statements of Operations for the year ended December 31, 2021.

Settlement with Former Customer

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This payment was in exchange for full dissolution of all claims and counterclaims that the two Parties have asserted or could have asserted against each other in the Litigation Matters, or which have arisen or may arise against each other but are presently unknown, arising out of or related to the Litigation Matters and related to any other of the Parties’ business dealings, conduct and/or transactions through the date of the Settlement, including all claims for damages, fees, costs, sanctions, or any other amounts due or to become due in connection with the foregoing.

We applied the Settlement Amount cash proceeds to both an outstanding trade account receivable and note receivable due from the Former Customer and recognized the excess cash received as a gain from the Settlement of $1.1 million, which is included as a reduction of operating expenses for the year ended December 31, 2020, See further discussion under "Results of Operations" under this Item 7.

We applied the Settlement Amount cash proceeds to both an outstanding trade account

receivable and a note receivable due from the Former Customer and recognized the excess cash received as a gain from the Settlement of $1.1 million, which is included as a reduction of operating expenses for the year ended December 31, 2020, See further discussion under "Results of Operations" under this Item 7.

Impact of COVID-19

In March 2020, the WHO declared COVID-19 a global pandemic.

We are designated by CISA of the Department of Homeland Security as a critical infrastructure supplier to the energy sector.

Our operations have been deemed essential and, therefore, our facilities remain open and our employees employed.

In March 2020, the World Heath Organization declared COVID-19 a global pandemic.

We follow the COVID-19 guidelines from the Centers for Disease Control concerning the health and safety of our personnel, including remote working for those that have the ability to do so, sequestered employees at our plant and other heath safety measures.

Additionally, we have taken proactive and precautionary steps to ensure the safety of our employees, customers and suppliers, including frequent cleaning and disinfection of workspaces, property, plant and equipment, instituting social distancing measures and mandating remote working environments, where possible, for all employees.

These measures have resulted in an increase in our personnel costs, operational inefficiencies and the incurrence of incremental costs to allow manufacturing operations to continue;

while at the same time we have faced a general downturn in our sales and marketing efforts.

The duration of these measures is unknown, may be extended and additional measures may be imposed.

We cannot predict the long-term effects on our business, including our financial position or results of operations, if governmental restrictions or other such directives continue for a prolonged period of time and cause a material negative change in power generation demand, materially disrupt our supply chain, substantially increase our operating costs or limit our ability to serve existing customers and seek new customers.

In response to the COVID-19 outbreak, in March 2020, the federal government passed the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act").

The CARES Act provided, among other things, the deferral of payroll tax payments for all payroll taxes incurred through December 31, 2020 and created the Paycheck Protection Program ("PPP"), which is sponsored and administered by the SBA.

In June 2020, the Paycheck Protection Program Flexibility Act of 2020 (the "PPPFA") was signed into law and established the payment dates in the event that amounts borrowed under the PPP are not forgiven.

See further discussion below of the loan made to us under the PPP under the section "PPP Loan" under this Item.

The Company elected to defer payments of payroll taxes for the periods allowed under the CARES Act and will repay 50% by December 31, 2021 and 50% by December 31, 2022.

As of December 31, 2020, total payroll tax payments deferred under the CARES Act were $0.4 million.

For the year ended December 31, 2020, we incurred costs of $0.4 million related to sequestration of certain of our employees at our Red River plant.

We elected to defer payments of payroll taxes of $0.4 million for the periods allowed under the CARES Act, which allowed for a deferral of 50% of the total amount to December 31, 2021 and 50% of the total amount to December 31, 2022.

As of December 31, 2021, we had repaid $0.2 million and will repay the outstanding balance by December 31, 2022.

For 2020, we incurred costs of $0.4 million related to sequestration of certain of our employees at our Red River plant.

These costs included hazard pay, lodging and meal expenses for 30 days.

Our customers may also be impacted by COVID-19 pandemic as the utilization of energy has changed.

For 2021, we did not incur similar costs.

Our customers may also be impacted by COVID-19 pandemic as we believe the utilization of energy has changed.

We cannot predict the long-term impact on our customers and the subsequent impact on our business.

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Descriptions of the revenue recognition policies are included in Note 1 to the Consolidated Financial Statements included in Item 8 of this Report.

Revenues and cost of revenue

We sell AC and proprietary chemical blend technologies for purification of air and water contaminants and other industries.

Currently, our products mostly serve coal-fired utilities and other industrial boilers that allow the respective utilities to comply with the regulatory air emissions standards as well as water treatment plants to remove contaminants from the water.

Revenues and cost of revenues

We sell AC and products and other chemical-based technology products to a broad range of customers, including coal-fired utilities, industrials, water treatment plants and other diverse markets.

Currently, our products mostly serve coal-fired utilities and other industrial boilers that allow the respective utilities to comply with the regulatory air emissions standards and water treatment plants to remove contaminants from the water.

Additionally, we sell AC to Cabot and its customers through the Supply Agreement.

Revenue is generally recorded upon delivery of our product.

License royalties, related party

We recognize license royalties under the M-45 License, under our M-45 Technology, to Tinuum Group.

License royalties are based on a percentage of the per-ton, pre-tax margin, inclusive of depreciation expense and other allocable expenses, as defined in the M-45 License.

Because Section 45 tax credits from the production and sale of RC will likely not be available after 2021 and both Tinuum Group and Tinuum Services expect to significantly wind down their operations by the end of 2021, we do not expect to receive license royalties after 2021.

We recognize license royalties under the M-45 License with Tinuum Group.

License royalties from our M-45 Technology are based on a percentage of the per-ton, pre-tax margin, inclusive of depreciation expense and other allocable expenses, as defined in the M-45 License.

Because Section 45 tax credits from the production and sale of RC are not available to be generated after 2021 and both Tinuum Group and Tinuum Services significantly wound down their operations by the end of 2021, we do not expect to earn license royalties after 2021.

Other Operating Expenses

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Payroll and benefits costs include personnel related fringe benefits, sales and administrative staff labor costs and stock compensation expenses.

Payroll and benefits costs exclude direct labor included in Cost of revenue.

Payroll and benefits costs exclude direct labor included in Cost of revenues.

Legal and professional fees

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General and administrative costs include director fees and expenses, bad debt expense, research and development expense and other general costs of conducting business.

Research and development costs, net of reimbursements from cost-sharing

arrangements, are charged to expense in the period incurred and are reported in the General and administrative line item in the Consolidated Statements of Operations.

Research and development costs, net of reimbursements from cost-sharing arrangements, are charged to expense in the period incurred and are reported in the General and administrative line item in the Consolidated Statements of Operations.

Depreciation, amortization, depletion and accretion

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Tinuum Services also arranges for the purchase and delivery of certain chemical additives under chemical agency agreements necessary for the production of RC.

Tinuum Services consolidates certain RC facilities leased or owned by tax equity investors that are deemed to be variable interest entities ("VIE's").

All net income (loss) associated with these VIE's is allocated to the noncontrolling equity holders of Tinuum Services and therefore does not impact our equity earnings (loss) from Tinuum Services.

Other income (expense)

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Results of Operations

Presentation of Financial Results

For the year ended December 31, 2020, we have restated our "Revenues - Consumables" and "Cost of revenues, excluding depreciation and amortization" line items in our Consolidated Statement of Operations for the impact of previously reporting shipping and handling costs billed to our customers as a reduction to cost of revenue rather than as a component of consumables revenue.

This restatement was a result of a reassessment of our accounting and presentation of shipping and handling costs billed to our customers under accounting principles generally accepted in the United States ("GAAP") in our Consolidated Statement of Operations for the year ended December 31, 2021.

Historically, we have accounted for and presented shipping and handling costs billed to customers as a reduction of consumables cost of revenue rather than as a component of consumables revenue as required under Accounting Standards Codification 606 - Revenue from Contracts with Customers .

Accordingly, we have restated both consumables revenues and consumable cost of revenues for the year ended December 31, 2020 by increasing the previously reported amounts by $5.8 million, respectively.

For the year ended December 31, 2020, there was no impact of the restatement to previously reported amounts for gross margin, operating loss, loss before income taxes, net loss or loss per share.

Further there was no impact of this error to the previously reported Consolidated Balance Sheet as of December 31, 2020 or the Consolidated Statement of Stockholders' Equity or Consolidated Statement of Cash Flows for the year ended December 31, 2020.

See further discussion of this restatement in Note 2 to the Consolidated Financial Statements under Item 8 of this Report.

For comparison purposes, the following tables set forth our results of operations for the years presented in the Consolidated Financial Statements included in Item 8 of this Report.

The year-to-year comparison of financial results is not necessarily indicative of financial results that may be achieved in future years.

Our Annual Report on Form 10-K for the year ended December 31, 2020 includes a discussion and analysis of our financial condition and results of operations for the year ended December 31, 2019 in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Year ended December 31, 2021 Compared to Year ended December 31, 2020

Total Revenue and Cost of Revenue

Total Revenues and Cost of Revenues

A summary of the components of revenues and cost of revenue for the years ended December 31, 2021 and 2020 is as follows:

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Total revenues $ 100,294 $ 67,363 $ 32,931 49 %

Consumables cost of revenue, exclusive of depreciation and amortization $ 45,176 $ 49,443 $ (4,267) (9) %

Other cost of revenue, exclusive of depreciation and amortization (563) — (563) *

* Calculation not meaningful

Consumables revenue and consumables cost of revenue

For the years ended December 31, 2020 and 2019, consumables revenue decreased year over year primarily due to less favorable price and product mix of approximately $7.6 million combined.

Offsetting these decreases was higher volume resulting in revenue of approximately $2.6 million.

However, for the quarterly period ended December 31, 2020, both volumes and revenue increased both sequentially and compared to the quarterly period ended December 31, 2019, primarily due to the Supply Agreement, which was executed on September 30, 2020.

Consumables cost of revenues, exclusive of depreciation and amortization $ 65,576 $ 50,962 $ 14,614 29 %

Other cost of revenues, exclusive of depreciation and amortization — (563) 563 (100) %

Consumables revenues and consumables cost of revenues

For the years ended December 31, 2021 and 2020, consumables revenue increased year over year primarily due to higher product volumes, which comprised approximately $25.0 million of the total change in consumables revenues.

Product volumes were higher in power generation primarily due to higher natural gas prices compared to the prior year, which contributed to increased utilization of coal-fired generation and increased demand for our products.

In addition, product sales increased under the Supply Agreement from the prior year as we began product shipments under this agreement beginning in the fourth quarter of 2020.

Total revenues also increased due to a favorable price impact of our products by approximately $1.0 million as well as favorable product mix impact on consumables revenue of approximately $4.1 million.

Consumables revenue for 2021 also increased $0.9 million related to an increase in shipping and handling costs billed to our customers, driven by increases in volumes and costs to ship our products.

Our gross margin, exclusive of depreciation and amortization, increased for the year ended December 31, 2021 compared to 2020 primarily due to the higher product volumes, which resulted in lower fixed costs per pound of product sold.

Additionally, gross margin was positively impacted by product price increases.

Offsetting these improvements for the year ended December 31, 2021, gross margin was negatively impacted by having to supplement the Red River production of our AC product, due to higher customer demand related to requirements-based contracts, with AC product purchases from third party suppliers at higher costs per pound.

We expect to continue to purchase inventory from third party suppliers in 2022 due to ongoing increased demand for our products and Red River Plant capacity impacted by customer and product mix.

Consumables revenue is affected by electricity demand, driven by seasonal weather and related power generation needs, as well as competitor prices related to alternative power generation sources such as natural gas.

According to data provided by the EIA, for the year ended December 31, 2020, power generation from coal-fired power dispatch was down approximately 19.0% compared to the corresponding period in 2019.

Additionally, there was a decrease in total power generation from all sources of approximately 4.0% in 2020 compared to the corresponding period in 2019.

Consumables cost of revenue was positively impacted for the year ended December 31, 2020 due to higher volumes driving lower per unit fixed costs.

However, we incurred additional expense from safety actions taken by the Company to provide for continued operation of our manufacturing facilities in response to COVID-19 of approximately $0.4 million.

For the year ended December 31, 2019, consumables cost of revenue was negatively impacted as a result of $5.0 million of costs recognized as a result of the step-up in inventory fair value recorded from the Carbon Solutions Acquisition.

For 2021, based on current market estimates and the expected benefits from the Supply Agreement, we believe that consumables revenue and volumes will be higher for 2021 compared to 2020.

In addition to the Supply Agreement, the most significant drivers related to this expected volume increase are expected higher natural gas prices and the expansion of energy generation sources related to natural gas and renewables.

For 2021, we expect to incur additional plant costs that were not incurred in 2020 for the planned plant turnaround occurring in 2021.

According to data provided by the U.S.

Energy Information Administration, for the year ended December 31, 2021, power generation from coal-fired power dispatch was up approximately 18.0% compared to the corresponding period in 2020.

Additionally, there was an increase in total power generation from all sources of approximately 3.1% in 2021 compared to the corresponding period in 2020.

For 2022, and based on current market estimates and the expected benefits from the Supply Agreement, we believe that both consumables revenue and volumes will increase compared to 2021.

We expect that consumables revenues and gross margin will be positively impacted by price increases announced in 2021 and our efforts to improve product mix to higher margin products through changes in our customer base.

We anticipate that the product price increases will also help offset the increase

in operating costs from purchasing inventory from third party suppliers, as well as expected increases in pricing related to certain additives necessary for our manufacturing operations.

License royalties, related party

License royalties decreased in 2020 compared to 2019 primarily due to a reduction in the royalty rate per ton.

This decrease was primarily attributable to higher depreciation recognized of approximately $1.7 million on all royalty bearing RC facilities as a result of a reduction in their estimated useful lives as determined by Tinuum Group in the second half of 2019.

Further reducing the rate per ton was a decrease in net lease payments of approximately $1.3 million as a result of Tinuum Group restructuring RC facility contracted leases with its largest customer in the second half of 2019.

As a result of higher depreciation and lower lease payments, we expect that the lower royalty rate per ton will continue in 2021.

Offsetting the year over year decrease in license royalties from a decrease in the royalty rate per ton, there was an increase year over year in tons of RC produced from RC produced using the M-45 Technology under the M-45 License, which increased from 47.3 million tons in 2019 to 49.4 million tons in 2020.

Other cost of revenue

For the year ended December 31, 2020, we recognized a credit of $0.6 million to Other cost of revenue for the reversal of an allowance, originally recorded as of December 31, 2016, on a trade account receivable due from the Former Customer.

We recorded the reversal of this reserve based on our quarterly collectability review of financial assets that was performed as of December 31, 2020.

License royalties increased in 2021 compared to 2020 primarily due to an increase in the royalty rate per ton.

This increase was primarily a result of an increase year over year in rent revenues generated from RC facilities even though the tonnage produced remained relatively flat.

The tons of RC produced from RC produced using the M-45 Technology under the M-45 License were 49.3 million and 49.4 million for the year ends December 31, 2021 and 2020, respectively.

As a result of the Section 45 tax credit period ending as of December 31, 2021, both Tinuum Group and Tinuum Services ceased operations and, as such, we do not expect to earn M-45 License royalties after December 31, 2021.

Other cost of revenues

For the year ended December 31, 2020, we recognized a credit of $0.6 million to Other cost of revenues related to the Settlement with the Former Customer.

See further discussion below of the reversal of an allowance on a note receivable due from the Former Customer in this section under the caption "General and administrative."

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Other Operating Expenses

A summary of the components of our operating expenses, exclusive of cost of revenue items (presented above), for the years ended December 31, 2020 and 2019 is as follows:

A summary of the components of our operating expenses, exclusive of cost of revenues items (presented above), for the years ended December 31, 2021 and 2020 is as follows:

Years Ended December 31, Change

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Depreciation, amortization, depletion and accretion 7,933 8,537 (604) (7) %

Gain on change in estimate, asset retirement obligation (2,702) — (2,702) *

Impairment of long-lived assets — 26,103 (26,103) (100) %

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Payroll and benefits

Payroll and benefits expenses increased year over year primarily due to severance related costs of $1.4 million incurred in 2020 associated with the resignation of an executive officer, offset by a decrease in salaries related to our current headcount, which remained relatively consistent year over year.

Payroll and benefits expenses increased year over year primarily due to expenses of $1.1 million related to the agreements with our executive officers and certain other key employees executed in June 2021 ("Retention Agreements") as well as $1.3 million related to an increase in incentive expense for the year ended December 31, 2021 compared to 2020.

These increases were offset by a decrease in expenses taken during the year ended December 31, 2020 of $1.4 million associated with the resignation of a former executive officer.

Additionally, payroll expense decreased by approximately $0.5 million due to a decrease in headcount.

Legal and professional fees

Legal and professional fees decreased year over year primarily due to decreased outsourced shared service costs, which included legal, general consulting and audit and accounting fees of approximately $2.8 million, and a reduction in outsourced IT costs specific to the completion of the integration of Carbon Solutions of $1.5 million.

Legal and professional fees increased year over year primarily due to an increase in legal and consulting fees of $0.9 million and $1.2 million, respectively, related to our continuing evaluation of strategic alternatives.

Offsetting these increases was $0.9 million related to a reduction in outsourced shared service costs, which included legal and general consulting contractors, and $0.5 million in outsourced IT costs specific to the completion of the integration of Carbon Solutions in 2020.

General and administrative

General and administrative expenses increased year over year primarily due to an increase in product development expenses of approximately $0.8 million related to the Supply Agreement, an increase in rent and occupancy of approximately $0.6 million relating to property taxes and office rent, and an increase in costs incurred due to the sequestration of certain of our employees at our Red River plant of approximately $0.4 million.

Offsetting these increases was the reversal of an allowance on a note receivable from the Former Customer (See "Other cost of revenue" discussion of above under this section) of $0.4 million, which we reversed as part of our financial asset collectability review performed as of December 31, 2020.

See further discussion below in this section under the caption "Gain on settlement." Further reductions year over year included travel, as a preventative measure related to the COVID-19 pandemic, and recruiting fees.

General and administrative expenses decreased year over year primarily due to decreases in product development expenses of approximately $0.6 million related to the Supply Agreement, costs incurred due to the sequestration of certain of our employees at the Red River Plant in 2020 of approximately $0.4 million, rent and occupancy related expenses of $0.3 million and other general and administrative expenses, including recruiting, travel and licenses and fees of approximately $0.7 million.

Offsetting the net decrease in general and administrative expenses year over year was the offset to general and administrative expenses in 2020 from the reversal of an allowance on a note receivable from the Former Customer of $0.4 million.

See further discussion below in this section under the caption "Gain on settlement." Further increases year over year included an increase in insurance premiums of approximately $0.4 million.

Depreciation, amortization, depletion and accretion

Depreciation and amortization expense increased year over year primarily due to increased sales volumes in 2020 and lower absorption due to the drawdown of inventory, resulting in an increase of depreciation expense of $1.1 million.

Further, the addition of leasehold improvements at our corporate headquarters in 2020 and the addition of accretion expense related to Marshall Mine contributed approximately $0.7 million of depreciation and amortization expense in 2020.

Offsetting these increases was a decrease year over year in depreciation and amortization expense of approximately $0.6 million related to impaired property, plant and equipment assets as of June 30, 2020, which resulted in lower net book values of the impaired assets of June 30, 2020 and lower depreciation and amortization recorded in the second half of 2020.

Depreciation and amortization expense decreased year over year primarily due to lower absorption from the drawdown of inventory, partially offset by increase in sales volumes for 2021, resulting in a decrease of depreciation expense of $0.2 million.

Further, depreciation and amortization expense decreased by approximately $1.1 million related to a lower depreciable base for 2021 compared to 2020 as a result of an impairment charge recorded in the second quarter of 2020 which reduced the carrying value of our property, plant and equipment.

Offsetting these decreases was an increase in accretion expense of $0.6 million related to the Marshall Mine ARO and an increase in depletion expense of $0.2 million due to increased production volume at the Five Forks Mine.

Gain on change in estimate, asset retirement obligation

As previously discussed under this Item, for the year ended December 31, 2021, we recorded a gain on change in estimate of $2.7 million related to a reduction in scope of our estimated future reclamation efforts of the Marshall Mine.

Impairment of long-lived assets

As of June 30, 2020, we recorded an impairment charge of $26.1 million, which is included in the Statement of Operations for the year ended December 31, 2020 and was solely attributable to our APT segment.

This impairment charge was necessitated by an analysis of the carrying values of our APT segment's long-lived assets and certain other long-lived assets (the "Asset

Group"), which are comprised of our manufacturing plant and related assets and our lignite mine assets, to their respective fair values.

This impairment charge was necessitated by an analysis of the carrying values of our APT segment's long-lived assets and certain other long-lived assets (the "Asset Group"), which are comprised of our manufacturing plant and related assets and our lignite mine assets, to their respective fair values.

Gain on settlement

As noted above under this Item 7, for the year ended December 31, 2020, we recognized a gain of $1.1 million on the Settlement with the Former Customer.

In connection with the Settlement discussed above, the Former Customer paid us the cash Settlement Amount of $2.5 million on January 27, 2021 in exchange for a full release of claims in the Litigation Matters.

As a result of the Settlement, we recognized a gain of $1.1 million for the year ended December 31, 2020.

Other Income (Expense), net

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Earnings from equity method investments $ 68,726 $ 30,978 $ 37,748 122 %

Gain on extinguishment of debt 3,345 — 3,345 *

Interest expense (1,490) (3,920) 2,430 (62) %

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Total other income $ 71,221 $ 27,190 $ 44,031 162 %

* Calculation not meaningful

Earnings from equity method investments

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Earnings from Tinuum Services 6,952 6,582 370 6 %

Earnings (loss) from other — (6) 6 (100) %

Loss from other (63) — (63) *

Earnings from equity method investments $ 68,726 $ 30,978 $ 37,748 122 %

For the year ended December 31, 2020, we recognized $24.4 million in equity earnings from Tinuum Group, which was equal to our proportionate share of Tinuum Group's net income for the year.

* Calculation not meaningful

For the year ended December 31, 2021, we recognized $61.8 million in equity earnings from Tinuum Group compared to our proportionate share of Tinuum Group's net income of $40.1 million for the year.

This difference was the result of cumulative distributions received from Tinuum Group being in excess of the carrying value of the investment, and therefore we recognized such excess distributions as equity method earnings in the year the distributions occurred.

The difference between our pro-rata share of Tinuum Group's net income and our earnings from Tinuum Group equity method investment as reported on the 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 year ended December 31, 2020, we recognized $24.4 million in equity earnings from Tinuum Group, which was equal to our proportionate share of Tinuum Group's net income for the year.

As of December 31, 2021, we concluded the carrying amount of our investment in Tinuum Services was not fully recoverable due to the remaining expected future cash distributions to be received as Tinuum Services shutters its operations in 2022 as a result of the expiration of the Section 45 tax credit period as of December 31, 2021.

As a result, we wrote-down our investment in the amount of $0.7 million, which is included in the "Earnings from equity method investments" line item in the Consolidated Statement of Operations for the year ended December 31, 2021.

See further discussion of year over year changes in Earnings from Equity Investments in "Business Segments" under this Item.

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Tinuum Group's audited consolidated financial statements as of December 31, 2021 and 2020 and for the years then ended are included in Item 15 - "Exhibits and Financial Statement Schedules" ("Item 15") of this Report.

Gain on extinguishment of debt

On July 27, 2021, we received formal notification in the form of a letter dated July 19, 2021 from Bank of Oklahoma ("BOK") that the SBA approved our PPP Loan forgiveness application for the PPP Loan in the amount of $3.3 million (including accrued interest).

For the year ended December 31, 2021, we recorded a gain on extinguishment of the PPP Loan in the amount of $3.3 million in the Consolidated Statement of Operations, which is included as a component of "Other income (expense)."

Tax Credits and Obligations

Historically, we have earned Section 45 tax credits that may be available for future benefit related to the production of RC from the operation of RC facilities in which we have held both direct ownership and indirect ownership through Tinuum's direct ownership.

We refer to these RC facilities as "retained facilities." Future earned Section 45 tax credits for 2021 are expected to be consistent with 2020.

We refer to these RC facilities as "retained facilities." The Section 45 tax credit period ended December 31, 2021 and we will not earn Section 45 tax credits beyond this date.

As of December 31, 2021, we had approximately $86.1 million in Section 45 tax carryforwards.

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Such analysis for the period from January 1, 2022 through the date of this Report has not been completed.

Therefore, it is possible that we experienced an ownership change between January 1, 2021 and the date of this filing, thus subjecting our GBC carryforwards to limitation.

Therefore, it is possible that we experienced an ownership change between January 1, 2022 and the date of the filing of this Report, thus subjecting our GBC carryforwards to limitation.

Interest expense

Interest expense decreased year over year by $3.3 million primarily due to a reduction in the coupon interest of $2.4 million related to senior term loan (the "Senior Term Loan"), as the principal balance was reduced from payments made of $24.0 million in 2020 and the weighted-average interest rate for 2019 compared to 2020 decreased from 7.1% to 5.8%.

Interest expense related to debt discount and debt issuance costs related to the Senior Term Loan also decreased by $0.3 million as a result of the decrease in the Senior Term Loan principal.

The remaining decrease in interest expense year over year related to lower interest expense ("Section 453A interest") in 2020 compared to 2019 related to IRS section 453A ("Section 453A"), which decreased by $0.7 million in 2020 year over year as a result of a decrease in the tax liability for the year ended December 31, 2020 associated with RC facilities in which Tinuum Group recognized as installment sales for tax purposes.

The following table shows the balance of the tax liability that has been deferred and the applicable interest rate used to calculate 453A interest:

Interest expense decreased year over year by $2.4 million primarily due to principal payments made in 2021 on a senior term loan (the "Senior Term Loan") that resulted in lower coupon interest expense of $1.5 million.

Interest expense for debt discount and debt issuance costs related to the Senior Term Loan also decreased by $0.5 million pursuant to the decrease in the Senior Term Loan principal.

On June 1, 2021 and prior to the Senior Term Loan's maturity date, we paid the remaining principal balance of the Senior Term Loan and all remaining accrued interest through this date.

The remaining decrease in interest expense year over year related to lower interest expense ("Section 453A interest") related to IRS section 453A ("Section 453A"), which decreased by $0.3 million primarily due to a decrease in Tinuum Group's the tax liability year over year associated with RC facilities in which Tinuum Group recognized as installment sales for tax purposes.

The following table shows the balance of the tax liability that has been deferred and the applicable interest rate used to calculate the 453A interest liability:

As of December 31,

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Tax liability deferred on installment sales (1)

$ 10,653 $ 20,783

Interest rate 3.00 %

(1) Represents the approximate tax effected liability utilizing the federal tax rate in effect for the applicable years ended related to the deferred gain on installment sales (approximately $59.8 million as of December 31, 2020).

We expect the tax liability deferred on installment sales to be minimal as of December 31, 2021.

(1) Represents the approximate tax effected liability utilizing the federal tax rate in effect for the applicable year ended related to the deferred gain on installment sales, which was approximately zero as of December 31, 2021.

Income tax expense

For the year ended December 31, 2020, our reported income tax expense of $6.5 million differed from federal income tax benefit of $2.9 million, computed by applying the U.S.

statutory federal income tax rate (the "Federal Rate") and state income tax benefit of $0.4 million, primarily due to the increase in the valuation allowance on our deferred income tax assets of $9.1 million.

For the year ended December 31, 2019, our reported income tax expense of $12.0 million differed from income tax expense of $10.0 million, computed using the Federal Rate, primarily due to an increase in income tax expense from state income tax expense, net of federal benefit of $1.6 million.

For the year ended December 31, 2021, our reported income tax expense was $15.7 million and was based on an effective rate of 21%.

While the U.S.

statutory federal income tax rate (the "Federal Rate") was also 21%, our effective tax rate was primarily increased for state income tax expense, net of federal benefit, and decreased from a reduction in the valuation allowance on our deferred tax assets.

For the year ended December 31, 2020, our reported income tax expense of $6.5 million and was based on an inverse effective rate of 47%, which differed from the Federal Rate of 21% due to primarily an increase in the valuation allowance on our deferred tax assets.

This increase in the valuation allowance resulted in income tax expense rather than expected income tax benefit based on the pretax loss.

Accounting for income taxes requires that companies assess whether a valuation allowance should be recorded against their deferred tax asset based on an assessment of the amount of the deferred tax asset that is “more likely than not” to be realized.

Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that is more likely than not to be realized.

We assess the valuation allowance recorded against deferred tax assets at each reporting date.

We assess 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.

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In estimating taxes, we assess the relative merits and risks of the appropriate tax treatment of transactions taking into account statutory, judicial, and regulatory guidance.

As of December 31, 2020, we concluded it is more likely than not we will generate sufficient taxable income within the applicable net operating loss and tax credit carryforward periods to realize $10.6 million of our net deferred tax assets.

In reaching this conclusion, we primarily considered:

(1) the future reversal of existing temporary differences;

and (2) forecasts of future taxable income.

As of December 31, 2021, we concluded it is more likely than not we will not generate sufficient taxable income within the allowable carryforward periods to realize any of our net deferred tax assets, and fully reserved for such assets as of December 31, 2021.

In reaching this conclusion, we primarily considered forecasts of future taxable losses.

As of December 31, 2021 and 2020, we had a valuation allowance of $87.5 million and $88.8 million, respectively, on our deferred tax assets.

The ability to recognize the remaining deferred tax assets that continue to be subject to a valuation allowance is evaluated on a quarterly basis to determine if there are any significant events that would affect the ability to utilize those deferred tax assets.

Our estimate of future taxable income is based on internal projections that consider historical performance, assumptions on future performance and external data.

If events are identified that affect our ability to utilize our deferred tax assets, or if additional deferred tax assets are generated, we update our analysis to determine if an increase to the valuation allowance is required.

Our estimate of future taxable income or losses is based on internal projections that consider historical performance, assumptions on future performance and external data.

Such an increase could have a material adverse effect on our financial condition and results of operations.

Conversely, better than expected results and continued positive results and trends could result in an decrease to the valuation allowance, and any such decreases could have a material positive effect on our financial condition and results of operations.

Conversely, better than expected results and continued positive results and trends could result in a decrease to a valuation allowance, and any such decreases could have a material positive effect on our financial condition and results of operations.

See additional discussion in Note 18 of the Consolidated Financial Statements included in Item 8 of this Report.

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We define Consolidated EBITDA as net income adjusted for the impact of the following items that are either non-cash or that we do not consider representative of our ongoing operating performance:

depreciation, amortization, depletion, accretion, interest expense, net and income tax expense.

We define Consolidated Adjusted EBITDA as Consolidated EBITDA reduced by the non-cash impacts of equity earnings from equity method investments and gain on settlement, and increased by cash distributions from equity method investments, impairment of long-lived assets and amortization of upfront customer consideration that was recorded as a component of the Marshall Mine Acquisition ("Upfront Customer Consideration").

depreciation, amortization, depletion, accretion, amortization of upfront customer consideration that was recorded as a component of the Marshall Mine Acquisition ("Upfront Customer Consideration"), interest expense, net and income tax expense.

We define Consolidated Adjusted EBITDA as Consolidated EBITDA, reduced by the non-cash impacts of equity earnings from equity method investments, gain on change in estimate of asset retirement obligations, gain on extinguishment of debt and gain on customer settlement, and increased by cash distributions from equity method investments and impairment of long-lived assets.

Because Consolidated Adjusted EBITDA omits certain non-cash items, we believe that the measure is less susceptible to variances that affect our operating performance.

We define APT Segment EBITDA (loss) as APT Segment operating loss adjusted for the impact of the following items that are either non-cash or that we do not consider representative of our ongoing operating performance:

depreciation, amortization, depletion, accretion and interest expense, net.

We define APT Segment Adjusted EBITDA loss as APT Segment EBITDA loss reduced by gain on settlement and increased by impairment of long-lived assets and amortization of Upfront Customer Consideration.

depreciation, amortization, depletion, accretion, amortization of Upfront Customer Consideration and interest expense, net.

We define APT Segment Adjusted EBITDA (loss) as APT Segment EBITDA (loss), reduced by gain on customer settlement, gain on change in estimate of asset retirement obligation, gain on extinguishment of debt and gain on customer settlement, and increased by impairment of long-lived assets.

We define RC Segment EBITDA as RC Segment operating income adjusted for the impact of the following items that are either non-cash or that we do not consider representative of our ongoing operating performance:

depreciation, amortization, depletion, accretion and interest expense.

We define RC Segment Adjusted EBITDA as RC Segment EBITDA reduced by the non-cash impact of equity earnings from equity method investments and increased by cash distributions from equity method investments.

We define RC Segment Adjusted EBITDA as RC Segment EBITDA, reduced by the non-cash impact of equity earnings from equity method investments and gain on extinguishment of debt, and increased by cash distributions from equity method investments.

When used in conjunction with GAAP financial measures, we believe these non-GAAP measures are supplemental measures of operating performance that 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.

With the exception of impairment on long-lived assets and gain on settlement, the adjustments to Consolidated Adjusted EBITDA and APT Segment Adjusted EBITDA in future periods are generally expected to be similar.

With the exception of extinguishment of debt, gain on change in estimate, asset retirement obligation, impairment on long-lived assets and gain on settlement, the adjustments to Consolidated Adjusted EBITDA and APT Segment Adjusted EBITDA in future periods are generally expected to be 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 Consolidated Adjusted EBITDA

Reconciliation of Net income (loss) to Consolidated EBITDA (Loss) and Consolidated Adjusted EBITDA

The following table reconciles net income (loss), our most directly comparable as-reported financial measure calculated in accordance with GAAP, to Consolidated EBITDA (Loss) and Consolidated Adjusted EBITDA.

A reconciliation of RC Segment EBITDA, RC Segment Adjusted EBITDA, APT Segment EBITDA and APT Segment Adjusted EBITDA to our most directly comparable as-reported financial measure calculated in accordance with GAAP is included below following the discussion of the results of each respective segment.

Year ended December 31,

Net (loss) income (1)

$ (20,302) $ 35,537

Net income (loss) $ 60,401 $ (20,302)

Depreciation, amortization, depletion and accretion 7,933 8,537

Amortization of Upfront Customer Consideration 508 158

Interest expense, net 1,164 3,793

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Equity earnings (68,726) (30,978)

Gain on extinguishment of debt (3,345) —

Gain on change in estimate, asset retirement obligation (2,702) —

Impairment — 26,103

Gain on settlement — (1,129)

Amortization of Upfront Customer Consideration 158 —

Consolidated Adjusted EBITDA $ 84,931 $ 55,134

(1) Net income for the year ended December 31, 2019 was inclusive of a $5.0 million adjustment, which increased cost of revenue due to a step-up in basis of inventory acquired related to the Carbon Solutions Acquisition.

Business Segments

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

The principal products and services of our segments are described in Item 1 of this document.

The principal products and services of our segments are described in Item 1 of this Report.

The following table presents our operating segment results for the years ended December 31, 2021 and 2020:

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Consumables (1)

85,882 53,908 31,974

Other 44 15 29

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Segment operating income (loss)

Refined Coal (1)

$ 82,634 $ 42,689 $ 39,945

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Total segment operating income $ 88,283 $ 2,731 $ 85,552

(1) Included in the RC segment operating income for the years ended December 31, 2020 and 2019 is 453A interest expense of $0.3 million and $1.0 million, respectively.

(2) I ncluded in the APT segment operating loss for the years ended December 31, 2020 and 2019 was $7.9 million and $7.2 million, respectively, of depreciation, amortization, depletion and accretion expenses on mine- and plant-related long-lived assets and liabilities.

Included in the APT segment operating loss for the year ended December 31, 2020 was an impairment charge of $26.1 million offset by gain on settlement of $1.1 million.

Included in the APT segment operating loss for the year ended December 31, 2019 was approximately $5.0 million of cost of revenue expense related to a step up in basis of the fair value of inventory and of depreciation, amortization.

(1) I ncluded in the APT segment operating income (loss) for the years ended December 31, 2021 and 2020 was $7.4 million and $7.9 million, respectively, of depreciation, amortization, depletion and accretion expenses on mine- and plant-related long-lived assets and liabilities.

Further included in the APT segment operating income (loss) for the year ended December 31, 2021 was $2.7 million related to the gain on change in estimate, asset retirement obligation.

Included in the APT segment operating loss for the year ended December 31, 2020 was an impairment charge of $26.1 million offset by gain on settlement with the Former Customer of $1.1 million.

A reconciliation of segment operating income to consolidated net income is included in Note 19 of the Consolidated Financial Statements included in Item 8 of this Report.

The following table details the segment revenues of our respective equity method investments for the years ended December 31, 2020 and 2019:

The following table provides the segment revenues of our respective equity method investments for the years ended December 31, 2021 and 2020:

Year ended December 31,

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Earnings from Tinuum Services 6,952 6,582

Earnings (loss) from other — (6)

Loss from other (63) —

Earnings from equity method investments $ 68,726 $ 30,978

For 2020, equity earnings from Tinuum Group were positively impacted by the addition of two new RC facilities during the second half of 2019, three new RC facilities added during the year ended December 31, 2020 and the sale by Tinuum Group of its 49.9% remaining interest in an RC facility in the quarterly period ended September 30, 2020.

However, equity earnings from Tinuum Group for 2020 decreased from 2019 primarily from the point-in-time revenue recognition in 2019 of two new RC facilities and due to higher depreciation recognized of approximately $4.9 million in 2020 on all Tinuum Group RC facilities as

a result of a reduction in RC facilities estimated useful lives as determined by Tinuum Group during the second half of 2019.

Further contributing to the decrease in equity earnings for 2020 compared to 2019 was the restructuring of RC facility leases with Tinuum Group's largest customer in 2019, which decreased lease payments and equity earnings beginning in the second half of 2019, and the termination of two RC facility leases in the fourth quarter of 2019 for RC facilities located at two coal-fired utilities that were announced for closure in 2019.

Also, in the fourth quarter of 2020, Tinuum Group recorded an impairment charge of $3.0 million on certain of its assets located at RC facilities and a retention accrual related to the wind down of its operations by the end of 2021.

As a result of higher depreciation, lower lease payments and the termination of RC facilities' leases throughout 2021 due to the expiration of the Section 45 tax period applicable to those RC facilities' leases, we expect our earnings in Tinuum Group to decrease in 2021.

However, in 2021, and consistent with 2020, we expect that cash distributions will substantially exceed earnings.

RC earnings related to M-45 license royalties decreased from 2020 to 2019 as a result of reduction in the royalty rate per ton year over year offset by an increase in tonnage produced by RC facilities subject to the M-45 License.

Equity earnings from Tinuum Services decreased by $2.3 million in 2020 compared to 2019 primarily as a result of recording an impairment charge of $2.9 million for year ended December 31, 2020 as well as a reduction in tonnage for the RC facilities that Tinuum Services operated in 2020 compared to 2019.

As of December 31, 2020 and 2019, Tinuum Services provided operating and maintenance services to 22 and 19 RC facilities, respectively.

Tinuum Services derives earnings from both fixed-fee arrangements as well as fees that are tied to actual RC production, as determined by the specific RC facility operating and maintenance agreement.

Both Tinuum Group and Tinuum Services expect to significantly wind down their operations by the end of 2021 due to the planned expiration of the Section 45 tax credit period as of December 31, 2021, and the loss of equity earnings, distributions and M-45 Royalties beginning in 2022 will have a material adverse effect on our financial condition and consolidated operating results compared to historical periods.

Earnings in the RC segment for 2021 will continue to be impacted by coal-fired dispatch and invested facilities with leases subject to periodic renewals being terminated, repriced, or otherwise subject to renegotiated terms.

As a result of higher depreciation and lower lease payments for 2021, as well as the expiration of the Section 45 tax program as of December 31, 2021, we expect our earnings in Tinuum Group to decrease in 2021.

However, in 2021, and consistent with 2020, cash distributions will substantially exceed earnings.

RC Segment EBITDA and Adjusted EBITDA

For 2021, equity earnings from Tinuum Group were positively impacted by an increase in overall coal-fired power generation demand and higher production volume from coal-fired sources, which was driven by higher prices related to alternative power generation sources such as natural gas.

Also, this increase was driven by higher RC facility count for the majority of 2021 compared to 2020.

Further, for the year ended December 31, 2020 , we recognized equity earnings from Tinuum Group equal to

our proportionate share of Tinuum Group's net income for the period, which was less than cash distributions received for the same period.

In the fourth quarter of 2020, Tinuum Group recorded an impairment charge of $3.0 million on certain of its assets located at RC facilities and a retention accrual related to the wind down of its operations upon the expected expiration of Section 45 on December 31, 2021.

RC earnings related to M-45 license royalties increased from 2021 to 2020 as a result of an increase in the royalty rate per ton year over year offset by a reduction in RC facilities subject to the M-45 License due to the expected expiration of Section 45 on December 31, 2021.

Equity earnings from Tinuum Services increased by $0.4 million in 2021 compared to 2020 primarily as a result of recording an impairment charge of $2.9 million for year ended December 31, 2020 as well as an increase in tonnage for the RC facilities that Tinuum Services operated in 2021 compared to 2020.

As of December 31, 2021 and 2020, Tinuum Services provided operating and maintenance services to zero and 22 RC facilities, respectively.

Tinuum Services derived earnings from both fixed-fee arrangements as well as fees that are tied to actual RC production, as determined by the specific RC facility operating and maintenance agreement.

As discussed above, as of December 31, 2021, the Company reduced its investment in Tinuum Services in the amount of $0.7 million, which is included in the "Earnings from equity method investments" line item in the Consolidated Statement of Operations for the year ended December 31, 2021.

As a result of the expiration of the ability to generate Section 45 tax credits after December 31, 2021, both Tinuum Group and Tinuum Services ceased operations and are in reclamation of their respective businesses.

The loss of equity earnings, distributions and M-45 Royalties beginning in 2022 will have a material adverse effect on our financial condition and consolidated operating results compared to historical periods.

Reconciliation of RC Segment operating income to RC Segment EBITDA and RC Segment Adjusted EBITDA

The following table reconciles RC Segment operating income, our most directly comparable as-reported financial measure calculated in accordance with GAAP, to RC Segment EBITDA and RC Adjusted EBITDA.

Year ended December 31,

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Equity earnings (68,726) (30,978)

Gain on extinguishment of debt (97) —

RC Segment Adjusted EBITDA $ 87,889 $ 74,599

Advanced Purification Technologies

APT segment operating loss increased during the year ended December 31, 2020 compared to 2019 primarily due to the impairment charge of $26.1 million, a reduction in consumable revenue and associated margins and costs incurred related to COVID-19.

During the year ended December 31, 2020, Consumables revenue and margins also continued to be negatively impacted by low coal-fired power dispatch driven by power generation from sources other than coal and a decline in overall U.S.

power generation during 2020 of approximately 4.0%.

APT segment operating income increased during the year ended December 31, 2021 compared to 2020 primarily due to the Impairment Charge of $26.1 million recorded for the year end December 31, 2020.

Further, for the year ended December 31, 2021, consumable revenues and associated gross margin increased, driven by an increase in volume year over year, specifically related to the Supply Agreement, as well as an increase in demand for our products by our current customer base and from new customers.

During the year ended December 31, 2020, we incurred costs of $0.4 million related to sequestration of certain of our employees at our Red River plant.

These costs included hazardous pay, lodging expense and other related costs for 60 days.

Based on current market estimates, we believe that the APT segment will continue to be negatively impacted, as power generation from coal-fired power plants declines and the market focuses on other sources, including natural gas and renewable energy.

Future demand will also be impacted by prices of competing energy sources such as natural gas.

Low prices of alternative energy sources and decreasing power generation from coal-fired utilities reduce demand for our products.

However, in 2021 and beyond, we expect the Supply Agreement to play significant roles in diversifying our product mix into markets outside of power generation.

APT Segment EBITDA Loss and Adjusted EBITDA Loss

Based on current market estimates, we believe that the APT segment will continue to be affected, both positively and negatively, by power generation and the pricing of other sources, including natural gas and renewable energy, as well as weather throughout the U.S.

In 2022, we expect demand from our current customers to be consistent with 2021 based on current market trends.

Further, we see opportunities and are continuing to pursue diverse markets for our purification products outside of coal-fire power generation, including industrial application, water treatment plants and other end markets.

Reconciliation of APT Segment operating income (loss) to APT Segment EBITDA (loss) and APT Segment Adjusted EBITDA (loss)

The following table reconciles APT Segment income (loss), our most directly comparable as-reported financial measure calculated in accordance with GAAP, to APT Segment EBITDA (loss) and Adjusted EBITDA (loss).

Year ended December 31,

(in thousands) 2021 2020

APT Segment operating loss (1)

$ (39,958) $ (13,600)

APT Segment operating income (loss) $ 5,649 $ (39,958)

Depreciation, amortization, depletion and accretion 7,388 7,870

Amortization of Upfront Customer Consideration 508 158

Interest expense, net 297 402

APT Segment EBITDA (loss) 13,842 (31,528)

Gain on extinguishment of debt (2,562) —

Gain on change in estimate, asset retirement obligation (2,702) —

Impairment — 26,103

Gain on settlement — (1,129)

Amortization of Upfront Customer Consideration 158 —

APT Segment Adjusted EBITDA (loss) $ 8,578 $ (6,554)

(1) Segment operating loss for the year ended December 31, 2019 was inclusive of an adjustment of $5.0 million, which increased cost of revenue due to a step-up in basis of inventory acquired related to the Carbon Solutions Acquisition.

Liquidity and Capital Resources

Factors Affecting Our Liquidity

During 2020, our liquidity position was positively affected primarily from cash distributions from Tinuum Group and Tinuum Services, royalty payments from Tinuum Group, PPP Loan distributions and borrowing availability under our bank ("Lender") line of credit (the "Line of Credit").

Current Resources and Factors Affecting Our Liquidity

As of December 31, 2021, our principal future sources of liquidity include:

• cash and cash equivalents;

• distributions from Tinuum Group and Tinuum Services;

• royalty payments from Tinuum Group;

• $88.8 million of cash, cash equivalents and restricted cash;

• operations of the APT segment

• the Line of Credit.

For the year ended December 31, 2021, our principal uses of liquidity included:

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• payment of debt principal and interest.

• payment of dividends;

• repurchases of shares of common stock.

During 2021, our liquidity position was positively affected primarily from cash distributions from Tinuum Group and Tinuum Services, royalty payments from Tinuum Group and borrowing availability under our line of credit with a bank ("Line of Credit").

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

Our line of credit expired on December 31, 2021.

These include:

(1) executing on our contracts and initiatives;

(2) increasing our share of the market for APT consumables, including expanding our overall AC business into additional adjacent markets and improving our customer and product mix;

and (3) receiving final, expected M-45 License royalty payments from Tinuum Group and distributions from Tinuum Group and Tinuum Services in 2022.

For 2022 and beyond, our primary sources of liquidity are expected to be from cash on hand and through the ongoing operations of our APT segment.

We believe our existing operations and related contract volumes will continue to provide operating cost efficiencies of the Red River Plant, providing additional sources of operating cash flows in the future.

Full and partial reimbursements on capital expenditures from Cabot will offset our uses of investing cash flows.

As discussed above, on February 25, 2022, we received the Cabot Payment in the amount of $10.6 million, which provides a source of cash for us in 2022.

Tinuum Group and Tinuum Services Distributions

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Distributions from equity method investees $ 74,026 $ 62,441

Cash distributions from Tinuum Group for 2020 decreased by $11.9 million compared to 2019 primarily due to reductions in lease payments received by Tinuum Group from its largest customer as a result of renegotiations of certain leases, which occurred in the second half of 2019 between Tinuum Group and this customer, and the shuttering of two coal-fired utilities in the fourth quarter of 2019 where two invested RC facilities were operating.

Future cash flows from Tinuum are expected to range from $70 to $90 million, and key drivers in achieving these future cash flows are based on the following:

• 23 invested facilities as of December 31, 2020 and inclusive of all net Tinuum cash flows (distributions and license royalties), offset by estimated federal and state income tax payments and 453A interest payments.

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

• Tinuum Group continues to not operate retained facilities;

• Tinuum Group does not have material unexpected capital expenditures or unusual operating expenses;

• Tax equity lease renewals on invested facilities are not terminated or repriced;

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

Both Tinuum Group and Tinuum Services expect to significantly wind down their operations by the end of 2021 due to the expected expiration of the Section 45 tax credit period as of December 31, 2021.

Cash distributions from Tinuum Group for 2021 increased by $11.9 million compared to 2020 primarily due to higher production volume driven by high competitor prices related to alternative power generation sources such as natural gas.

Also, this increase was driven by higher average RC facility count for the year ended December 31, 2021 compared to 2020.

Both Tinuum Group and Tinuum Services ceased their operations as of December 31, 2021 due to the expiration of the Section 45 tax credit period as of December 31, 2021.

As such, our distributions from our RC segment will substantially cease as of December 31, 2021.

During the first half of 2022, we expect to receive final cash distributions from Tinuum Group and Tinuum Services in the range of $4.0 to $5.0 million.

On April 20, 2020, we entered into the PPP Loan under the PPP, evidenced by a promissory note, with BOK providing for $3.3 million in proceeds, which was funded on April 21, 2020.

The PPP Loan matures April 21, 2022.

The PPP Loan principal may be forgiven subject to the terms of the PPP and approval by the SBA.

The interest rate on the PPP Loan is 1.00%.

The PPP Loan is unsecured and contains customary events of default relating to, among other things, payment defaults, making materially false and misleading representations to the SBA or BOK, or breaching the terms of the PPP Loan.

The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing from us, or filing suit and obtaining judgment against us.

Under the PPPFA, as defined above, monthly payments of principal and interest commence on the later of 10 months following the "covered period" (as defined in the PPPFA) or the date that BOK notifies us that the SBA has notified BOK that all or a portion of the PPP Loan has not been forgiven.

In January 2021, we submitted an application to the SBA for forgiveness of the PPP Loan and we are awaiting the SBA's response on our application for forgiveness.

Accordingly, we have determined that any amounts due under the PPP Loan would commence in August 2021.

Our business has been classified as an essential business, and therefore we continue to operate on a modified basis to comply with governmental restrictions and public health authority guidelines.

In April 2020, we sequestered approximately 60 employees to continue to run our manufacturing plant and build-up inventory in order to supply our customers.

This resulted in additional costs as the sequestered employees received hazard pay.

We used proceeds from the PPP Loan to fund our payroll costs.

The PPP Loan had a maturity date of April 21, 2022.

principal was eligible for forgiveness subject to the terms of the PPP and approval by the SBA.

The interest rate on the PPP Loan was 1.00%.

The PPP Loan was unsecured and contains customary events of default relating to, among other things, payment defaults, making materially false and misleading representations to the SBA or BOK, or breaching the terms of the PPP Loan.

The occurrence of an event of default could result in the repayment of all amounts outstanding, collection of all amounts owing from us, or filing suit and obtaining judgment against us.

On July 27, 2021, we received formal notification in the form of a letter dated July 19, 2021 from BOK that the SBA approved the forgiveness of our PPP Loan forgiveness application for the PPP Loan in the amount of $3.3 million (including accrued interest).

For the year ended December 31, 2021, the Company recorded a gain on extinguishment of the PPP Loan in the amount of $3.3 million in the Consolidated Statements of Operations, which is included as a component of "Other income (expense)."

Restricted Cash

As of December 31, 2020, we had short-term restricted cash of $5.0 million as required under a minimum cash balance requirement of a Senior Term Loan covenant, and long-term restricted cash of $5.0 million as required under the Surety Agreement related to the Reclamation Contract.

Under the Surety Agreement, we are required to increase the restricted cash balance by $5.0 million as of March 31, 2021.

As of December 31, 2021, we had long-term restricted cash of $10.0 million as required under the Surety Agreement related to the Reclamation Contract.

Senior Term Loan

On December 7, 2018, we executed the Senior Term Loan with Apollo in the principal amount of $70.0 million, less original issue discount of $2.1 million.

On December 7, 2018, we and ADA-ES, Inc.

("ADA"), a wholly-owned subsidiary, and certain other subsidiaries of the Company as guarantors, The Bank of New York Mellon as administrative agent, and Apollo Credit Strategies Master Fund Ltd and Apollo A-N Credit Fund (Delaware) L.P., affiliates of a beneficial owner of greater than five percent of our common stock and a related party, entered into the Senior Term Loan in the amount of $70.0 million, less original issue discount of $2.1 million.

Proceeds from the Senior Term Loan were used to fund the acquisition of Carbon Solutions.

We also paid debt issuance costs of $2.0 million related to the Senior Term Loan.

The Senior Term Loan matures on December 7, 2021 and bears interest at a rate equal to 3-month LIBOR (subject to a 1.5% floor) + 4.75% per annum, which is adjusted quarterly to the current 3-month LIBOR rate, and interest is payable quarterly in arrears.

As of December 31, 2020, we have $16.0 million in outstanding principal which, per the contractual requirements, we expect to fully repay in 2021.

The Senior Term Loan is secured by substantially all of our assets, including the cash flows from Tinuum Group and Tinuum Services, but excluding our equity interests in those Tinuum entities.

The Senior Term Loan includes, among others, the following covenants:

(1) As of the end of each fiscal quarter, we must maintain a minimum cash balance of $5.0 million and shall not permit "expected future net cash flows from the refined coal business" (as defined in the Senior Term Loan) to be less than 1.75 times the outstanding principal amount of the Senior Term Loan;

(2) Annual collective dividends and buybacks of shares of our common stock in an aggregate amount, not to exceed $30.0 million, are permitted so long as (a) no default or event of default exists under the Senior Term Loan and (b) expected future net cash flows from the refined coal business as of the end of the most recent fiscal quarter exceed $100.0 million.

As of December 31, 2020, our expected future net cash flows from the refined coal business are less than $100.0 million and we have no plans in 2021 to either declare cash dividends on our stock or repurchase shares of our common stock.

See also "Item 1A Risk Factors" of this Report - "Risks relating to our common stock - There can be no assurance that we will continue to declare cash dividends at all or in any particular amounts."

The Senior Term Loan bore interest at a rate equal to 3-month LIBOR (subject to a 1.5% floor) + 4.75% per annum, which was adjusted quarterly to the current 3-month LIBOR rate, and interest was payable quarterly in arrears.

The Senior Term Loan was secured by substantially all the assets of the Company, including the cash flows from the Tinuum Entities, but excluding our equity interests in the Tinuum entities.

On June 1, 2021 and prior to the Senior Term Loan's maturity date, we paid the remaining principal outstanding on the Senior Term Loan and all remaining accrued interest through this date.

We did not incur any prepayment fees associated with the early pay-off.

Stock Repurchases and Dividends

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In November 2019, the Board authorized an incremental $7.1 million to the Stock Repurchase Program and provided that it will remain in effect until all amounts are utilized or it is otherwise modified by the Board.

During the year ended December 31, 2020, we paid quarterly cash dividends to stockholders of $4.6 million, which was paid on March 10, 2020.

We did not make any stock repurchases during the year ended December 31, 2021.

During the year ended December 31, 2021, we did not pay quarterly cash dividends to stockholders.

We paid our most recent dividend in March 2020 of $0.25 per share.

Line of Credit

As of December 31, 2020, there were no outstanding borrowings under the Line of Credit.

In September 2013, ADA, as borrower, ADES, as guarantor, and the Lender entered into the Line of Credit for an aggregate principal amount of $10.0 million that was secured by certain amounts due to the Company from certain Tinuum Group RC leases.

The Line of Credit has been amended 14 times from the period from December 2, 2013 through December 31, 2020, which included a reduction in the principal amount to $5.0 million in September 2018.

On September 29, 2020, ADA, ADES and the Lender entered into an amendment to the Line of Credit (the "Fourteenth Amendment"), which extended the maturity date of the Line of Credit to March 31, 2021.

In addition, the Fourteenth Amendment retained covenants from the prior amendments to the Line of Credit, which included ADA's ability to enter into the Senior Term Loan as a guarantor so long as the principal amount of the Senior Term Loan did not exceed $70.0 million and the revision of covenants that were consistent with the Senior Term Loan covenants, including maintaining a minimum cash balance of $5.0 million.

In September 2013, ADA, as borrower, ADES, as guarantor, entered into the Line of Credit with a bank for an aggregate principal amount of $10.0 million that was secured by certain amounts due to us from certain Tinuum Group RC leases.

The Line of Credit was amended 16 times from the period from December 2, 2013 through March 23, 2021, which included a reduction in the principal amount to $5.0 million in September 2018.

The Line of Credit expired on December 31, 2021.

Cash, cash equivalents and restricted cash increased from $35.9 million as of December 31, 2020 to $88.8 million as of December 31, 2021, an increase of $52.8 million.

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Cash flows from operating activities

Cash flows provided by operating activities for the year ended December 31, 2020 decreased by $7.8 million compared to the year ended December 31, 2019 and were negatively impacted primarily by the following:

(1) a decrease in Distributions from equity method investees, return on investment of $11.4 million;

(2) a decrease of $5.2 million in deferred income tax expense;

and (3) a reduction due to the Gain on settlement of $1.1 million recognized in 2020 .

Offsetting these decreases to operating cash flows was primarily a decrease in earnings from equity method investments of $38.2 million and Impairment of long-lived assets of $26.1 million recorded in 2020.

Cash flows provided by operating activities for the year ended December 31, 2021 decreased by $28.0 million compared to the year ended December 31, 2020 and the net decrease was primarily due to the following:

(1) a decrease in Distributions from equity method investees, return on investment of $39.5 million year over year;

(2) an increase in Earnings from equity method investments of $37.7 million year over year;

(3)Impairment of long-lived assets of $26.1 million recorded in 2020;

and (4) Gain on extinguishment of debt of $3.3 million recorded in 2021.

Offsetting the net decrease in cash flows provided by operating activities year over year was a net change in net income of $80.7 million year over year as a result of net loss recognized for the year ended December 31, 2020.

Cash flows from investing activities

Cash flows used in investing activities for the year ended December 31, 2020 decreased by $5.4 million compared to the year ended December 31, 2019 primarily due to a decrease in expenditures for mine development costs of $3.5 million.

Also contributing to the decrease in cash flows used in investing activities were decreases in cash flows used in investing activities for acquisition of property, plant, equipment and intangibles of $1.2 million and the final cash payment for the Carbon Solutions Acquisition of $0.7 million, which was made in 2019.

Cash flows provided by investing activities for the year ended December 31, 2021 were $44.4 million compared to cash flows used in investing activities of $7.5 million for the year ended December 31, 2020.

This net increase in cash flows provided by investing activities was primarily due to increases in distributions from equity earnings in excess of cumulative earnings of $51.1 million year over year as well as proceeds from the sale of property and equipment in 2021.

Cash flows from financing activities

Cash flows used in financing activities for the year ended December 31, 2020 were $27.7 million compared to cash flows provided by financing activities of $55.7 million for the year ended December 31, 2019.

This net decrease in cash flows used in financing activities was primarily due a decrease in dividends paid and shares repurchased of $13.3 million and $5.6 million, respectively, in an effort to preserve cash due to uncertainties arising from the COVID-19 pandemic in 2020.

Also contributing to the decrease were lower principal payments on the Senior Term Loan of $6.0 million and $3.3 million of cash proceeds in 2020 from the PPP Loan .

Liquidity Outlook

Our ability to continue to generate sufficient cash flow required to meet ongoing operational needs and obligations, and make potential future dividend payments and share repurchases depends upon several factors, includes executing on our contracts and initiatives, receiving royalty payments from Tinuum Group and distributions from Tinuum Group and Tinuum Services, and increasing our share of the market for APT consumables, including expanding our overall AC business into additional adjacent markets.

Our liquidity was negatively impacted from COVID-19 due to increased operating losses in our APT segment from higher operating costs as a result of measures taken to support our ability to deliver as a critical infrastructure business, primarily from sequestration efforts and "hazard pay," which is a premium on wages, for a substantial number of our employees, and overall plant operating inefficiencies.

However, in April 2020, we took steps to enhance our short-term liquidity through the PPP Loan as discussed above under this Item.

In 2021, our primary source of liquidity is expected to be distributions from Tinuum Group and Tinuum Services.

These distributions in 2021 will provide sufficient cash on hand to fund operations in 2021 and 2022.

Cash flows used in financing activities for the year ended December 31, 2021 decreased by $10.2 million compared to the year ended December 31, 2020 primarily due to lower principal payments on the Senior Term Loan of $8.0 million.

Also contributing to the decrease was a decrease year over year in dividends paid and shares repurchased of $4.9 million and $0.2 million, respectively, and a reduction in repurchases of shares of our common stock to satisfy tax withholdings of $0.3 million.

Offsetting the net decrease year over year was $3.3 million of cash proceeds received in 2021 from the forgiveness of the PPP Loan.

Material Cash Requirements

For 2022, we expect to spend $13.0 million in capital expenditures compared to $7.6 million incurred in 2021.

This increase is primarily the result of product specific capital related to the Supply Agreement and routine scheduled maintenance outages planned for 2021.

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

As we look to 2022 and beyond, our primary source of liquidity is expected to be through our ongoing operations from our APT segment.

We believe the Supply Agreement will provide material incremental volume and capture lower operating cost efficiencies of our Red River plant, providing additional sources of operating cash flows in the future.

Full and partial reimbursements on capital expenditures from Cabot will help limit our uses of investing cash flows.

Further, we intend to fund the remaining portion of the Reclamation Costs from cash on hand as well as cash generated from the Supply Agreement.

In 2022 and beyond, our capital expenditures are expected to average approximately $5.0 million.

Contractual Obligations

Our contractual obligations as of December 31, 2020 are as follows:

This increase is primarily the result of forecasted improvements to the plant, which are estimated to be $7.0 million, product specific capital expenditures related to the Supply Agreement, which are estimated to be $1.0 million and routine, scheduled maintenance improvements.

As of June 30, 2021, we entered into the Retention Agreements for the purpose of retaining officers and key employees in order to maintain our current business operations, while we pursue and execute on our strategic initiatives.

The total amount due at time of payment pursuant to the Retention Agreements is $2.0 million, which we expect to pay in 2022.

We intend to fund the remaining portion of the Reclamation Costs from cash on hand as well as cash generated from the Supply Agreement.

We believe that as reclamation activities proceed and the related bonded amounts required under the Surety Agreement are able to be reduced, there may be an opportunity to further reduce the collateral requirement.

On a normalized basis, our annual capital expenditures, exclusive of any capital specifically procured for Cabot under the Supply Agreement or capital for major improvements to the plant, are expected to average approximately $5.0 million.

We expect that our cash on hand as of December 31, 2021 will provide sufficient liquidity to fund operations for the next 12 months.

Contractual obligations as of December 31, 2021 are as follows:

Payment Due by Period

(in thousands) Total Less than 1 year 1-3 years 4-5 years After 5 years

Senior Term Note (1)

$ 16,000 $ 16,000 $ — $ — $ —

Finance lease obligations 4,486 1,008 2,909 569 —

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$ 19,366 $ 5,614 $ 8,538 $ 2,932 $ 2,282

(1) Includes outstanding principal amounts due through the maturity date of the Senior Term Loan.

(2) Includes payments due under a capped fee contract with a third-party mining operator for reclamation of the Marshal Mine (the "Marshall Mine ARO").

(1) Includes payments due under a capped fee contract with a third-party mining operator for reclamation of the Marshall Mine (the "Marshall Mine ARO").

Payments on this contract are due through approximately 2031.

Reclamation costs related to the Marshall Mine ARO are based on a stated fee by month structure based on the initial estimate of the total costs of reclamation, which provides for certain contingencies that could increase or decrease the reclamation fee over time.

The timing of payments may vary, and the Company accounts for these timing differences in valuing the reclamation on a quarterly basis.

As well, the Company accounts for changes in actual reclamation costs on a quarterly basis.

The table above excludes obligations related to 453A interest payments, which are variable due to annual changes in the statutory rate established by the IRS and changes in Tinuum Group's deferred tax liabilities associated with taxes that have been deferred under the installment method for sales or leases of certain of Tinuum Group's RC facilities.

We do not expect that our obligations for 453A interest will be material for 2021.

During 2021, Tinuum Group will be likely closing RC facilities commensurate with the expiration of the Section 45 tax credit period, which expires 10 years after a respective facility was in service and eligible to generate Section 45 tax credits.

As a result, Tinuum Group's composite deferred tax liability will decline through 2021 and our 453A interest payments will also decline in proportion to the decrease in Tinuum Group's deferred tax liability.

The timing and amount of future payments may change from original estimates, and the Company assesses changes in estimated future amounts on a quarterly basis.

The table above also excludes our asset retirement obligation ("ARO") related to reclamation of the Five Forks Mine (the "Five Forks ARO").

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The Five Forks Mine ARO was recorded at fair value.

The timing and amount of payments to satisfy the Five Forks ARO are uncertain and are based on numerous factors including, but not limited to, the Five Forks Mine closure date.

The timing and amount of payments to satisfy the Five Forks ARO are uncertain and are based on numerous factors including, but not limited to, the Five Forks Mine expected closure date.

We had no outstanding letters of credit as of December 31, 2021.

Off-Balance Sheet Arrangements

We expect that our cash on hand as of December 31, 2021 will provide sufficient liquidity to fund operations for the next 12 months.

As of December 31, 2021 , we had outstanding surety bonds of $24.1 million related to performance requirements under reclamation contracts associated with both the Five Forks Mine and the Marshall Mine.

As of December 31, 2020, we had restricted cash of $5.0 million securing the Surety Agreement and will be required to post an additional $5.0 million of restricted cash on March 31, 2021.

As of December 31, 2021, we had restricted cash of $10.0 million securing the Surety Agreement.

We expect that the obligations secured by these surety bonds will be performed in the ordinary course of business and in accordance with the applicable contractual terms.

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Business Combinations, including asset acquisitions

We allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date.

This also includes accounting for asset acquisitions.

We apply the acquisition method to acquisitions of both businesses and assets and allocate the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date.

The purchase price allocation process requires us to make significant estimates and assumptions with respect to assets acquired and liabilities assumed.

Although we believe the assumptions and estimates we have made are reasonable, they are based in part on historical experience, market conditions and information obtained from management of the acquired company or group of assets and are inherently uncertain.

Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to:

We believe the assumptions and estimates we make are reasonable, they are based in part on historical experience, market conditions and information obtained from management of the acquired company or group of assets and are inherently uncertain.

Examples of critical estimates in valuing certain of long-lived assets, including intangible assets, we have acquired or may acquire in the future include but are not limited to:

• future expected cash flows from revenues;

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• valuation methods and discount rates used in estimating the values of the assets acquired and liabilities assumed.

In regard to the Marshall Mine Acquisition, which was accounted for as an asset acquisition, we recorded the fair value of assumed assets, which included property, plant and equipment and spare parts and assumed liabilities, which included accrued liabilities.

In addition, we recorded assets including, Upfront Customer Consideration and the Cabot Receivable, and liability of Marshall Mine ARO.

In regard to the Marshall Mine Acquisition, which we accounted for as an asset acquisition, we recorded the fair value of assumed assets, which included property, plant and equipment and spare parts and assumed liabilities.

In addition, we recorded other assets, including Upfront Customer Consideration and the Cabot Receivable, and a liability for the Marshall Mine ARO.

Carrying value of long-lived assets and intangibles

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An impairment loss is measured and recorded for long-lived assets and intangibles based on the excess of their carrying amounts over their estimated fair values.

Fair value is typically determined through the use of an income approach utilizing estimates of discounted pre-tax future cash flows or a market approach utilizing recent transaction activity for comparable properties.

Fair value is typically determined through the use of an income approach utilizing estimates of discounted pretax future cash flows or a market approach utilizing recent transaction activity for comparable assets.

Asset Retirement Obligations

Accounting for AROs requires management to make estimates of future costs unique to a specific mining operation that we will incur to complete the reclamation and remediation work required to comply with existing laws and regulations.

Accounting for AROs requires us to make estimates of future costs unique to a specific mining operation that we will incur to complete the reclamation and remediation work required to comply with existing laws and regulations.

Any such changes in future costs, the timing of reclamation activities, scope or the exclusion of certain costs not considered reclamation and remediation costs could materially impact the amounts charged to earnings for reclamation and remediation.

Additionally, future changes to environmental laws and regulations could increase the extent of reclamation and remediation work required.

Additionally, future changes to environmental laws and regulations could increase the scope of reclamation and remediation work required.

Five Forks Mine ARO - Reclamation costs related to the Five Forks Mine ARO are allocated to expense over the life of the related mine assets and are periodically adjusted 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.

Remediation costs for the Five Forks Mine are accrued based on management’s best estimate at the end of each period of the costs expected to be incurred.

Remediation costs for the Five Forks Mine are accrued based on management’s best estimate of the costs expected to be incurred.

Such cost estimates may include ongoing care, maintenance and monitoring costs.

Reclamation obligations are based on the timing of estimated spending for an existing environmental disturbance.

We review, on at least an annual basis, the Five Forks Mine ARO.

Marshall Mine ARO - Reclamation costs related to the Marshall Mine are based on a capped fee structure, based on the initial estimate of the total costs of reclamation, which provides for certain contingencies that could increase or decrease the reclamation fee based on the reclamation agreement executed between us and the Marshall Mine operator.

The timing of payments may vary, and the Company accounts for these timing differences in valuing the reclamation on a quarterly basis.

As well, the Company accounts for changes in actual reclamation costs on a quarterly basis.

We account for income taxes as required by U.S.

GAAP, under which management judgment is required in determining income tax expense and the related balance sheet amounts.

This judgment includes estimating and analyzing historical and projected future operating results, the reversal of taxable temporary differences, tax planning strategies, and the ultimate outcome of uncertain income tax positions.

Actual income taxes paid may vary from estimates, depending upon changes in income tax laws, actual results of operations, and the final audit of tax returns by taxing authorities.

We review, on at least an annual basis, the future expected costs and the timing of such costs for the Five Forks Mine ARO.

Marshall Mine ARO - Reclamation costs related to the Marshall Mine are based on a capped fee structure for a significant portion of the ARO liability based on the initial estimate of the total costs of reclamation, which provides for certain contingencies that could increase or decrease the reclamation fee based on the reclamation agreement executed between us and the Marshall Mine operator.

The timing of payments may vary, and in valuing the the Marshall Mine ARO, we account for these timing differences, as well as changes in actual reclamation costs, on a quarterly basis.

We account for income taxes under the asset and liability method, which requires judgment in determining income tax expense and the related balance sheet amounts.

This includes estimating and analyzing historical and projected future operating results, the reversal of taxable temporary differences, tax planning strategies, and the ultimate outcome of uncertain income tax positions.

Actual income taxes paid may vary from estimates depending on changes in income tax laws, actual results of operations, state apportionment and, if applicable, final audits of tax returns by taxing authorities.

Tax assessments may arise several years after tax returns have been filed.

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We establish a valuation allowance against our deferred tax assets when, based upon the weight of all available evidence, we believe it is more likely than not that some portion or all of the deferred tax assets will not be realized.

As of December 31, 2020 and 2019, we have established valuation allowances for our deferred tax assets that, in our judgment, will not be realized.

In making this determination, we have considered the relative impact of all of the available positive and negative evidence regarding future sources of taxable income and tax planning strategies.

However, there could be a material impact to our effective tax rate if there is a significant change in our estimates of future taxable income and tax planning strategies.

If and when our estimates change, or there is a change in the gross balance of deferred tax assets or liabilities causing the need to reassess the realizability of deferred tax assets, we adjust the valuation allowance through the provision for income taxes in the period in which this determination is made.

Refer to Note 18 of our Consolidated Financial Statements included in Item 8 of this Report for additional information regarding our net deferred tax assets and related deferred income tax expense (benefit).

In making this determination, we consider the relative impact of all of the available positive and negative evidence regarding future sources of taxable income and tax planning strategies.

However, there could be a material impact to our effective tax rate if there is a

significant change in our estimates of future taxable income.

If and when our estimates change, or there is a change in the value of deferred tax assets or liabilities warranting the need to reassess the realizability of deferred tax assets, we adjust a valuation allowance through the provision for income taxes in the period in which this determination is made.

Refer to Note 18 of our Consolidated Financial Statements included in Item 8 of this Report for additional information regarding our deferred tax assets and liabilities and related deferred income tax expense (benefit).

Recently Issued Accounting Standards

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis