What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-08 compared with 2021-03-10 · 401 added, 530 removed, 952 unchanged (49% of the section changed)

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Consolidated Financial Statements:

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (Moss Adam LLP, Denver, Colorado, PCAOB ID:

Consolidated Balance Sheets as of December 31, 2021 and 2020

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of

To the Shareholders and the Board of Directors of

Advanced Emissions Solutions, Inc.

and Subsidiaries

Opinion on the Financial Statements

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Income Taxes – Realizability of Deferred Tax Assets

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

As of December 31, 2020 the Company concluded it is more likely than not the Company will generate sufficient taxable income within the applicable net operating loss and tax credit carry-forward periods to realize $10.6 million of its net deferred tax assets, which resulted in a valuation allowance of $88.8 million.

We identified the realizability of deferred tax assets as a critical audit matter due to the Company’s tax structure and the significant judgments and estimates made by management to determine that sufficient taxable income will be generated to realize a portion of deferred tax assets prior to expiration.

As of December 31, 2021, the Company concluded it is more likely than not that the Company will not generate sufficient taxable income within the applicable net operating loss and tax credit carry-forward periods to realize any of its net deferred tax assets, which resulted in a valuation allowance of $87.5 million.

We identified the realizability of deferred tax assets as a critical audit matter due to the Company’s tax structure and the significant judgments and estimates made by management to determine that sufficient taxable income will not be generated to realize a portion of deferred tax assets prior to expiration.

This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate management’s estimates of taxable income prior to expiration.

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• Recalculating the mathematical accuracy of management’s accounting for the previously described taxes, which included supporting calculations, schedules, and reconciliations.

• Reading and evaluating management’s documentation of the accounting for income taxes, including relevant significant accounting policies, and information obtained by management from third party tax specialists which details management’s basis for the accounting and impact to the consolidated financial statements.

• Reading and evaluating management’s documentation of the accounting for income taxes, including their analysis of the valuation allowance.

This includes relevant significant accounting policies, and information obtained by management from third party tax specialists which details management’s basis for the accounting and impact to the consolidated financial statements, inclusive of relevant positive and negative evidence available and utilized in performing the analysis.

• Obtaining and evaluating the supporting tax analyses and documentation prepared by management as a framework and initial support for audit procedures.

This includes the Company’s deferred tax calculations, which also integrates management’s analysis of valuation allowances, current tax expenses (benefits), and IRC Section 45 credits.

This includes gaining an understanding of the Company’s estimation process, the Company’s deferred tax calculations, which also integrates management’s analysis of valuation allowances, current tax expenses (benefits), and IRC Section 45 credits.

• Consulting with internal tax specialists in evaluating management’s calculation of its provision for income taxes and that the significant judgments used were applied consistently with the tax code.

• Validating the parameters employed by management in their analysis of the partial valuation allowance, in order to gain comfort with relevant positive and negative evidence available and utilized in performing the analysis.

• Evaluating whether significant estimates and judgments used were consistent with past performance related to said estimates, the consistency of future forecasts and projections based on current operating conditions and future expectations, and that all were consistent with evidence obtained in procedures performed in other areas of the audit.

Accounting for Cabot Transactions

As described in Notes 2, 3, and 4 to the consolidated financial statements, on September 30, 2020, the Company entered into a supply agreement (the Supply Agreement) with Cabot Norit Americas, Inc.

(Cabot) to sell and deliver certain lignite-based AC products.

Concurrently with the execution of the Supply Agreement, the Company entered into an agreement to purchase (the Mine Purchase Agreement) from Cabot 100% of the membership interests in Marshall Mine, LLC for a nominal purchase price.

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

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

In conjunction with the execution of the Supply Agreement and the Purchase Agreement, the Company entered into a reclamation contract (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.

Under the terms of the Supply Agreement, Cabot is obligated to reimburse the Company for $10.2 million of the Reclamation Costs (the Reclamation Reimbursements).

In connection with the Supply Agreement, Purchase Agreement, and the Reclamation Contract, the Company assumed the obligations to reclaim and restore the land associated with the Marshall Mine.

As of September 30, 2020, the Company recorded an asset retirement obligation for the total Reclamation Costs of $21.3 million.

The Company also recorded a receivable for the Reclamation Reimbursements at its estimated fair value of $9.7 million.

These transactions also resulted in the recording of property, plant, and equipment of $3.9 million, spare parts of $0.1 million, receivables of $0.5 million, accounts payable and accrued liabilities of $0.5 million, and upfront customer consideration of $7.6 million.

The upfront customer consideration is the excess of the fair value of the liabilities assumed over assets acquired and will be amortized on a straight-line basis as a reduction to revenue over the expected 15-year contractual period of the Supply Agreement.

We identified the accounting for these agreements and contracts as a critical audit matter due to the subjective judgment required to evaluate the appropriateness of the accounting guidance followed in recording these transactions, including the conclusions surrounding the interrelatedness of the transactions and the application of Generally Accepted Accounting Principles surrounding the treatment of the upfront customer consideration.

The primary procedures we performed to address this critical audit matter included:

• Evaluating management’s significant accounting policies related to the various aspects of these transactions for appropriateness, which incorporated the use of a subject matter expert on technical accounting matters.

• Gaining an understanding of the transactions, including the business purpose and terms, by obtaining and reading the related contracts and through discussion with management.

• Evaluating the estimated future cash flows for consistency with the terms laid out in the contract.

Assessment of Impairment of Long-lived Assets

As described in Note 5 to the consolidated financial statements, as part of its periodic review of the carrying value of long-lived assets, the Company assesses its long-lived assets for potential impairment.

At June 30, 2020, in assessing impairment of its advanced purification technologies (APT) segment and certain other long-lived asset groups (the Asset Group), based on market conditions such as current and future years’ forecasted revenue and historically low prices of alternative power generation sources, management concluded there should be an impairment analysis of the Asset Group.

Accordingly, the Company completed an undiscounted cash flow analysis of the Asset Group and estimated that the undiscounted cash flows from the Asset Group were less than the carrying value of the Asset Group.

As such, the Company completed an assessment of the Asset Group’s fair value, resulting in a $26.1 million impairment and write-down of the Asset Group.

We identified the assessment and measurement of the impairment of the Asset Group as a critical audit matter due to the auditor judgment required to evaluate management’s process for assessing and quantifying the impairment.

Specifically, assessing certain internally developed assumptions included the need to involve our fair value specialists.

These assumptions included cash flow forecasts and revenue growth rates, estimates relating to the cost structure and operating margins, and the discount rate.

The primary procedures we performed to address this critical audit matter included:

• Recalculating the mathematical accuracy of both the undiscounted cash flow analysis and the assessment of the Asset Group’s fair value.

• Evaluating the Company’s estimated cash flow forecasts and long-term revenue growth rates by comparing to historical data, current market conditions, and our knowledge of the Company’s operations and the industry.

• Obtaining and evaluating the fair value report used to estimate the Asset Group’s fair value which was prepared by management’s third-party valuation specialist and was evaluated and approved by the Company’s management team.

This evaluation incorporated the use of the expertise of our internal fair value specialists.

The work of our fair value specialists included reviews and analysis of the model and related assumptions used for the valuation of the Asset Group and the appropriateness of such modeling for the type of valuation being performed.

• Evaluating whether significant estimates and judgments used were consistent with past performance related to said estimates, the consistency of future forecasts and projections based on current operating and market conditions and future expectations, and that all were consistent with evidence obtained in procedures performed in other areas of the audit.

• Evaluating the adequacy of the Company’s disclosure in Notes 1 and 18 in relation to the income taxes.

/s/ Moss Adams LLP

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Current assets:

Cash, cash equivalents and restricted cash $ 30,932 $ 12,080

Cash, cash equivalents and restricted cast $ 78,753 $ 30,932

Receivables, net 12,622 13,125

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Total Liabilities 38,135 61,461

Commitments and contingencies (Notes 14)

Commitments and contingencies (Note 14)

Stockholders’ equity:

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Operating expenses:

Consumables cost of revenue, exclusive of depreciation and amortization 45,176 49,443

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

Consumables cost of revenues, exclusive of depreciation and amortization 65,576 50,962

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

Payroll and benefits 11,315 10,621

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

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

Impairment of long-lived assets — 26,103

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Total operating expenses 95,442 108,344

Operating loss ( 40,981 ) ( 14,893 )

Operating income (loss) 4,852 ( 40,981 )

Other income (expense):

Earnings from equity method investments 68,726 30,978

Gain on extinguishment of debt 3,345 —

Interest expense ( 1,490 ) ( 3,920 )

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Total other income 71,221 27,190

(Loss) income before income tax expense ( 13,791 ) 47,536

Income (loss) before income tax expense 76,073 ( 13,791 )

Income tax expense 15,672 6,511

Net (loss) income $ ( 20,302 ) $ 35,537

(Loss) earnings per common share (Note 1):

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

Earnings (loss) per common share (Note 1):

Basic $ 3.31 $ ( 1.12 )

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Balances, January 1, 2020 22,960,157 $ 23 ( 4,597,533 ) $ ( 47,533 ) $ 98,466 $ 57,336 $ 108,292

Cumulative effect of change in accounting principle (Note 7) — — — — — 27,442 27,442

Stock-based compensation 278,910 — — — 2,496 — 2,496

Issuance of stock upon exercise of options, net 50,268 — — — 156 — 156

Repurchase of common shares to satisfy tax withholdings ( 97,783 ) — — — ( 537 ) — ( 537 )

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Repurchase of common shares — — ( 20,613 ) ( 159 ) — — ( 159 )

Net income — — — — — 35,537 35,537

Net loss — — — — — ( 20,302 ) ( 20,302 )

Balances, December 31, 2020 23,141,284 $ 23 ( 4,618,146 ) $ ( 47,692 ) $ 100,425 $ 32,454 $ 85,210

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Repurchase of common shares to satisfy tax withholdings ( 45,729 ) — — — ( 246 ) — ( 246 )

Cash dividends declared on common stock — — — — — ( 4,580 ) ( 4,580 )

Repurchase of common shares — — ( 20,613 ) ( 159 ) — — ( 159 )

Net loss — — — — — ( 20,302 ) ( 20,302 )

Accrued dividends cancelled on common stock — — — — — 9 9

Net income — — — — — 60,401 60,401

Balances, December 31, 2021 23,460,212 $ 23 ( 4,618,146 ) $ ( 47,692 ) $ 102,106 $ 92,864 $ 147,301

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Cash flows from operating activities

Net (loss) income $ ( 20,302 ) $ 35,537

Adjustments to reconcile net (loss) income to net cash used in operating activities:

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

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Deferred income tax expense 10,604 3,491

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Operating lease expense 2,038 3,559

Gain on extinguishment of debt ( 3,345 ) —

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

Impairment of long-lived assets — 26,103

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Cash flows from investing activities

Acquisition of property, plant, equipment, and intangible assets, net ( 6,685 ) ( 7,851 )

Distributions from equity method investees in excess of cumulative earnings $ 51,082 $ —

Acquisition of property, equipment and intangible assets, net ( 6,201 ) ( 6,685 )

Mine development costs ( 1,398 ) ( 781 )

Acquisition of business, net of cash acquired — ( 661 )

Net cash used in investing activities ( 7,887 ) ( 13,238 )

Proceeds from sale of property and equipment 895 —

Net cash provided by (used in) investing activities 44,378 ( 7,466 )

Cash flows from financing activities

Principal payments on term loan ( 16,000 ) ( 24,000 )

Borrowings from Paycheck Protection Program Loan 3,305 —

Dividends paid ( 4,979 ) ( 18,274 )

Principal payments on finance lease obligations ( 1,190 ) ( 1,360 )

Dividends paid ( 93 ) ( 4,979 )

Borrowings from Paycheck Protection Program Loan — 3,305

Repurchase of shares to satisfy tax withholdings ( 246 ) ( 537 )

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Net cash used in financing activities ( 17,529 ) ( 27,730 )

Increase (decrease) in Cash, Cash Equivalents and Restricted Cash 18,852 ( 6,692 )

Increase in Cash, Cash Equivalents and Restricted Cash 52,848 18,852

Cash, Cash Equivalents and Restricted Cash, beginning of year 35,932 17,080

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Cash paid for interest $ 524 $ 2,489

Cash (received) paid for income taxes $ ( 84 ) $ 4,308

Cash paid (received) for income taxes $ 8,882 $ ( 84 )

Supplemental disclosure of non-cash investing and financing activities:

Acquisition of property, plant and equipment under finance lease $ 158 $ —

Change in accrued purchases for property and equipment $ 183 $ —

Change in asset retirement obligation $ 121 $ 421

Acquisition of property and equipment under finance lease $ — $ 158

Dividends payable $ — $ 32

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The Company is principally engaged in the sale of consumable air and water treatment options including activated carbon ("AC") and chemical technologies.

The Company's proprietary technologies in the advanced purification technologies ("APT") market enable customers to reduce air and water containments, including mercury and other pollutants, to maximize utilization levels and improve operating efficiencies to meet the challenges of existing and pending emission control regulations.

Through its wholly-owned subsidiary, ADA Carbon Solutions, LLC ("Carbon Solutions"), which the Company acquired on December 7, 2018 (the "Carbon Solutions Acquisition"), the Company manufactures and sells AC used to capture and remove contaminants for coal-fired power plants, industrial and water treatment markets.

The Company's proprietary technologies in the advanced purification technologies ("APT") market enable customers to reduce air and water contaminants, including mercury and other pollutants, to maximize utilization levels and to improve operating efficiencies to meet the challenges of existing and pending emission control regulations.

Through its wholly-owned subsidiary, ADA Carbon Solutions, LLC ("Carbon Solutions"), the Company manufactures and sells AC used to capture and remove contaminants for coal-fired power plants, industrial and water treatment markets.

Carbon Solutions also owns an associated lignite mine ("Five Forks Mine") that supplies the primary raw material for manufacturing AC.

Through its equity ownership in Tinuum Group, LLC ("Tinuum Group") and Tinuum Services, LLC ("Tinuum Services"), both of which are unconsolidated entities, the Company generates substantial earnings.

Tinuum Group provides reduction of mercury and nitrogen oxide ("NOx") emissions at select coal-fired power generators through the production and sale of refined coal ("RC") that qualifies for tax credits under the Internal Revenue Code ("IRC") Section 45 - Production Tax Credit ("Section 45 tax credits").

Tinuum Group provides reduction of mercury and nitrogen oxide ("NOx") emissions at select coal-fired power generators through the production and sale of refined coal ("RC") that qualifies for tax credits ("Section 45 tax credits") under the Internal Revenue Code ("IRC") Section 45 - Production Tax Credit (the "Section 45 tax credit program").

The Company also earns royalties for technologies that are licensed to Tinuum Group and used at certain RC facilities to enhance combustion and reduced emissions of NOx and mercury from coal burned to generate electrical power.

Tinuum Services 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.

Effective December 31, 2021, the Section 45 tax credit program expired and, as a result, both Tinuum Group and Tinuum Services ceased operations and are winding down their respective businesses.

Beginning in 2022, our equity earnings generated from both Tinuum Group and Tinuum Services are expected to be minimal.

In addition, license royalties earned from Tinuum Group ceased as of December 31, 2021.

Principles of Consolidation

The Consolidated Financial Statements include accounts of wholly-owned subsidiaries.

The Consolidated Financial Statements include accounts of wholly-owned subsidiaries and variable interest entities ("VIEs") in which the Company is the primary beneficiary.

All significant intercompany balances and transactions have been eliminated in consolidation.

All investments in partially owned entities for which the Company has greater than 20% ownership are accounted for using the equity method based on the legal form of the Company's ownership percentage and the applicable ownership percentage of the entity and are included in the Equity method investments line item in the Consolidated Balance Sheets.

All investments in partially owned entities for which the Company has greater than 20% ownership are accounted for using the equity method based on the legal form of the Company's ownership percentage and are included in the Equity method investments line item in the Consolidated Balance Sheets.

As of December 31, 2021, the Company holds equity interests of 42.5 % and 50.0 % in Tinuum Group and Tinuum Services, LLC ("Tinuum Services"), respectively.

Tinuum Group is deemed to be variable interest entity ("VIE") under the VIE model of consolidation, but the Company does not consolidate Tinuum Group as it is not deemed to be its primary beneficiary.

Cash, cash equivalents and restricted cash

Cash and cash equivalents include bank deposits and other highly liquid investments purchased with an original maturity of three months or less.

Restricted cash primarily consists of minimum cash balance requirements under the Term Loan and Security Agreement (the "Senior Term Loan") and a surety bond indemnification agreement (the "Surety Agreement") associated with reclamation of a mine.

Restricted cash primarily consists of a surety bond indemnification agreement (the "Surety Agreement") associated with reclamation of a mine.

As of December 31, 2020, restricted cash also consisted of minimum cash balance requirements under a line of credit agreement (the "Line of Credit") with a bank (the "Lender").

Restricted cash is classified consistent with the underlying obligation.

Receivables, net

Receivables, net are recorded at net realizable value.

This carrying value includes an appropriate allowance for estimated uncollectible amounts to reflect any loss anticipated on the receivables balances.

Receivables, net are recorded at net realizable value, which includes an appropriate allowance for estimated uncollectible amounts to reflect any loss anticipated on the receivables balances.

Increases and decreases in the allowance for doubtful accounts are established based upon changes in the credit quality of receivables and are included as a component of the General and administrative line item in the Consolidated Statements of Operations.

The allowance for doubtful accounts is based on historical experience, general economic conditions and the credit quality of specific accounts.

Inventories, net

Inventories, net are stated at the lower of average cost or net realizable value and consist principally of raw materials and finished goods related to the Company's AC and chemical product offerings.

The cost of inventory is determined using the average cost method.

Advanced Emissions Solutions, Inc.

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Notes to Consolidated Financial Statements

Inventories, net

The cost of inventory is determined using the average cost method.

Inventories are periodically reviewed for both potential obsolescence and potential declines in anticipated selling prices.

In this review, the Company makes assumptions about the future demand for and market value of the inventory and estimates the amount of any obsolete, unmarketable, slow moving or overvalued inventory.

The Company will write down the value of inventories by an amount equal to the difference between the cost of the inventory and its estimated net realizable value.

If applicable, the Company will write down the value of inventories by an amount equal to the difference between the cost of the inventory and its estimated net realizable value.

Additional details regarding Inventory balances are included in Note 9.

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Legal costs associated with securing the patent are capitalized and amortized over the legal or useful life beginning on the patent filing date.

The remaining intangible assets were recorded at fair value in connection with the Carbon Solutions Acquisition.

The following table details the components of the Company's intangible assets:

As of December 31,

(in thousands, except years) Weighted average amortization (in years) Initial Cost (1) Net of Accumulated Amortization Initial Cost Net of Accumulated Amortization

(in thousands, except years) Weighted Average Useful Life (in years) Cost Net of Accumulated Amortization Cost (1)

Net of Accumulated Amortization

Customer relationships 5 $ 835 $ 470 $ 835 $ 713

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Developed technology 5 607 341 607 518

Trade name 2 36 — 300 140

Total $ 2,896 $ 1,237 $ 2,748 $ 1,964

(1) As of December 31, 2020, initial costs were inclusive of the write down of intangibles to fair value based on the impairment charge taken during the year ended December 31, 2020 and further described in Note 5.

(1) As of December 31, 2020, cost was inclusive of the write down of intangibles to fair value based on the impairment charge taken during the year ended December 31, 2020 and further described in Note 6.

Included in the Consolidated Statements of Operations is amortization expense related to intangible assets of $ 0.9 million and $ 1.0 million for the years ended December 31, 2021 and 2020, respectively.

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Whether or not the Company exercises significant influence with respect to an investee depends on an evaluation of several factors including, among others, representation on the investee company’s board of directors and the Company's ownership level.

Under the equity method of accounting, an investee company’s accounts are not reflected in the Company’s Consolidated Balance Sheets and Consolidated Statements of Operations;

Under the equity method of accounting, an investee company’s financial statements are not consolidated in the Company’s Consolidated Balance Sheets and Consolidated Statements of Operations;

however, the Company’s share of the earnings or losses of the investee company is reported in the "Earnings from equity method investments" line item in the Consolidated Statements of Operations, and the Company’s carrying value in an equity method investee company is reported in the "Equity method investments"line in the Consolidated Balance Sheets.

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During the years ended December 31, 2021 and 2020, the Company had no guarantees or requirements to provide additional funding to investees.

Additionally, when the Company's carrying value in an equity method investment is zero, and the Company has not guaranteed any obligations of the investee and/or is not required to provide additional funding to the investee, the Company will not recognize its share of any reported losses by the investee until future earnings are generated to offset previously unrecognized

Advanced Emissions Solutions, Inc.

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Notes to Consolidated Financial Statements

As a result, equity income or loss reported in the Company's Consolidated Statements of Operations for certain equity method investees may differ from a mathematical calculation of net income or loss attributable to its equity interest based on the percentage ownership of the Company's equity interest and the net income or loss attributable to equity owners as shown in the investee company's statements of operations.

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Property, Plant and Equipment

Property, plant and equipment is stated at cost less accumulated depreciation and includes leasehold improvements.

Property, plant and equipment are stated at cost less accumulated depreciation and includes leasehold improvements.

Depreciation on assets is computed using the straight-line method over the lesser of the estimated useful lives of the related assets or the lease term (ranging from 2 to 31 years).

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When assets are retired, or otherwise disposed of, the property accounts are relieved of costs and accumulated depreciation and any resulting gain or loss is credited or charged to income.

The Company performs an evaluation of the recoverability of the carrying value of its property, plant and equipment to determine if facts and circumstances indicate that their carrying value may be impaired.

The Company performs an evaluation of the recoverability of the carrying value of property, plant and equipment to determine if facts and circumstances indicate that their carrying values may be impaired.

Impairment charges are recorded to "Operating expenses" in the Consolidated Statements of Operations.

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The Company records a right of use ("ROU") asset and related liability under a contract or part of a contract when it conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

Control over the use of an identified asset means that an entity has both the right to obtain substantially all of the economic benefits from the use of an identified asset and the right to direct the use of that identified asset.

Control over the use of an identified asset occurs when an entity has both the right to obtain substantially all of the economic benefits from the use of an identified asset and the right to direct the use of that identified asset.

The determination of whether a contract contains a lease may require significant assumptions and judgments.

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Interest on finance lease liabilities is determined in each period during the lease term as the amount that produces a constant periodic discount rate on the remaining balance of the lease liability.

ROU assets under finance leases are amortized over the remaining lease term on a straight-line basis.

Interest expense related to finance lease liabilities and amortization of ROU assets under finance leases are included in Interest expense and Depreciation, amortization, depletion and accretion, respectively, in the Consolidated Statement of Operations.

ROU assets under finance leases are amortized over the remaining

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

lease term on a straight-line basis.

Interest expense related to finance lease liabilities and amortization of ROU assets under finance leases are included in the "Interest expense" and "Depreciation, amortization, depletion and accretion" line item, respectively, in the Consolidated Statements of Operations.

Operating lease liabilities are subsequently measured at the present value of the lease payments not yet paid, discounted using the discount rate for the lease established at the inception date of the lease.

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Variable lease payments not included in operating lease liabilities are recognized as expense in the period in which the obligation for those payments is incurred.

Lease expense from operating leases is included in the "General and administrative" line in the Consolidated Statement of Operations.

Lease expense from operating leases is included in the "General and administrative" and "Consumables Cost of revenues, excluding depreciation and amortization" line items in the Consolidated Statements of Operations.

Mine Development Costs

Mine development costs are related to the Five Forks Mine and are stated at cost less accumulated depletion and include acquisition costs, the cost of other development work and mitigation costs.

Costs are amortized over the estimated life of the related mine reserves, which is 16 years.

Costs are amortized over the estimated life of the related mine reserves, which as of December 31, 2021 is estimated to be 13 years.

The Company performs an evaluation of the recoverability of the carrying value of mine development costs to determine if facts and circumstances indicate that their carrying value may be impaired and if any adjustment is warranted.

Mine development costs are reported in the "Other long-term assets, net" line item in the Consolidated Balance Sheet.

Mine development costs are reported in the "Other long-term assets, net" line item in the Consolidated Balance Sheets.

Spare parts include critical spares required to support plant operations.

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Parts are recorded as maintenance expenses in the period in which they are consumed.

Spare parts are reported in the "Other long-term assets, net" line item in the Consolidated Balance Sheet.

Spare parts are reported in the "Other long-term assets, net" line item in the Consolidated Balance Sheets.

Revenue Recognition

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The Company’s revenue components are Consumables sales and License royalties.

The Company is principally engaged in the sale of consumable products that utilize activated carbon ("AC") and chemical based technologies to a broad range of customers, including coal-fired utilities, water treatment plants, and other diverse markets.

The Company is principally engaged in the sale of consumable products that utilize AC and chemical based technologies to a broad range of customers, including coal-fired utilities, water treatment plants, and other diverse markets.

Our proprietary technologies and associated product offerings provide purification solutions to enable our customers to reduce certain contaminants and pollutants and thus maximize utilization levels and improve operating efficiencies to meet the challenges of existing and potential regulations.

Generally, customer contracts for consumables are short duration and performance obligations generally do not extend beyond one year.

The sale of consumable products is comprised of a single performance obligation and is recognized at the point in time when control transfers and our obligation has been fulfilled, which is when the product is shipped or delivered to a customer.

Performance obligations for the sale of consumable products do not extend beyond one year.

The Company performs shipping and handling activities through the use of third-party shippers and such activities occur prior to a customer obtaining control of goods.

As such, the Company accounts for these these activities as fulfillment activities and not as separate performance obligations.

Shipping and handling costs incurred by the Company in delivering products to

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

customers are billed to customers and are included in the transaction price and included in the "Revenues - Consumables" line item in the Consolidated Statements of Operations.

Costs for shipping and handling activities incurred by the Company are included in the "Consumables Cost of revenues, excluding depreciation and amortization" line item in the Consolidated Statements of Operations.

License royalties, related party

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The amount of M-45 Royalties recognized is generally based on a percentage of pre-tax margins (as defined in the M-45 License) of the RC facilities using the M-45 Technology.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Practical Expedients and Exemptions

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Sales and other taxes that are collected concurrently with revenue-producing activities are excluded from revenue.

The Company accounts for freight costs as activities to fulfill the promise to transfer the goods, and therefore these activities are also not assessed as a separate service to customers.

The Company accounts for all shipping and handling activities that occur after control of the related good transfers as fulfillment activities.

These activities are included in Cost of Revenue line items om the Consolidated Statement of Operations.

The Company generally expenses sales commissions when incurred because the amortization period of the asset that the Company would have recognized is one year or less.

These costs are recorded in sales and marketing expenses in the Depreciation, amortization, depletion and accretion line item on the Consolidated Statement of Operations.

Cost of Revenue

Cost of revenue includes all labor, fringe benefits, subcontract labor, additive and coal costs, materials, equipment, supplies, travel costs and any other costs and expenses directly related to the Company’s production of revenues.

The Company records estimated contract losses, if any, in the period they are determined.

These costs are recorded in sales and marketing expenses in the "General and administrative" line item in the Consolidated Statements of Operations.

Cost of Revenues

Cost of revenues includes all labor, fringe benefits, subcontract labor, additive and coal costs, materials, equipment, supplies, travel costs and any other costs and expenses directly related to the Company’s production of revenues.

Payroll and Benefits

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

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

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Research and development costs are charged to expense in the period incurred and are reported in the "General and administrative" line item in the Consolidated Statements of Operations.

During the years ended December 31, 2020 and 2019, the Company recorded research and development costs of $ 1.0 million and $ 0.2 million, respectively.

For the years ended December 31, 2021 and 2020, the Company recorded research and development costs of $ 0.4 million and $ 1.0 million, respectively.

Asset Retirement Obligations

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AROs 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.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Five Forks Mine

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On an annual basis, unless otherwise deemed necessary, the Company reviews its estimates and assumptions of the Five Forks Mine ARO.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

The Company’s mining activities at the Five Forks Mine are subject to various domestic laws and regulations governing the protection of the environment.

4 unchanged sentences

Reclamation costs related to the Marshall Mine are largely 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 the Company and the Marshall Mine operator.

The timing of payments may vary and the Company accounts for these timing differences in valuing the reclamation as well as changes in actual reclamation costs on a quarterly basis.

The timing of payments and actual reclamation costs may change and the Company accounts for these changes on a quarterly basis.

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.

Under this method, deferred tax assets and liabilities are determined on the basis of differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

Under this method, deferred income taxes are provided for temporary differences between the financial reporting basis and tax basis of the Company's assets and liabilities and are tax-effected using enacted tax rates in effect for the year in which the temporary differences are expected to reverse.

The effect of a change in tax rates on deferred tax assets and liabilities is recognized in operations in the period that includes the enactment date.

The Company recognizes deferred tax assets and liabilities and maintains valuation allowances where it is more likely than not that all or a portion of deferred tax assets will not be realized.

The Company maintains valuation allowances where it is more likely than not that all or a portion of deferred tax assets will not be realized.

In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations.

The Company records uncertain tax positions on the basis of a two-step process whereby (1) the Company determines whether it is more-likely-than-not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company records interest expense due to the Company's share of Tinuum Group's equity method earnings for Refined Coal ("RC") facilities, in which the sale of an RC facility or lease income generated from an RC facility are treated as installment sales for federal income tax purposes.

IRS section 453A requires taxpayers using the installment method to pay an interest charge on the portion of the tax liability that is deferred under the installment method.

The Company recognizes IRS section 453A interest ("453A interest") and other interest and penalties related to unrecognized tax benefits in the Interest expense line item in the Consolidated Statements of Operations.

Based on its ownership in Tinuum Group, the Company records its pro-rata share for interest expense resulting from the sale of, or lease income generated from, RC facilities that are treated as installment sales for federal income purposes, pursuant to IRS section 453A ("Section 453A").

Section 453A requires taxpayers using the installment method to pay an interest charge ("453A interest") on the portion of the tax liability that is deferred under the installment method.

The Company recognizes 453A interest and other interest and penalties related to unrecognized tax benefits in the "Interest expense" line item in the Consolidated Statements of Operations.

Stock-Based Compensation

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Forfeitures are recognized when incurred.

Stock-based compensation expense related to manufacturing employees and administrative employees is included in the Consumables, Cost of revenues and Payroll and benefits line items, respectively, on the Consolidated Statement of Operations.

Stock-based compensation expense related to non-employee directors and consultants is included in the General and administrative line item in the Consolidated Statement of Operations.

When a sufficient amount of available earnings exists at the time of a dividend declaration, dividends are charged to Retained earnings when declared.

If a sufficient amount of available earnings is not available, dividends declared are charged as a reduction to Additional paid-in capital.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed using the two-class method, which is an earnings allocation formula that determines earnings (loss) per share for common stock and any participating securities according to dividend and participating rights in undistributed earnings.

The Company's restricted stock awards ("RSA's") granted prior to December 31, 2016 contain non-

Stock-based compensation expense related to manufacturing employees and administrative employees is included in the "Consumables Cost of revenues, exclusive of depreciation and amortization" and "Payroll and benefits" line items, respectively, in the Consolidated Statements of Operations.

Stock-based compensation expense related to non-employee directors and consultants is included in the "General and administrative" line item in the Consolidated Statements of Operations.

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

forfeitable rights to dividends or dividend equivalents and are deemed to be participating securities ("Participating Securities").

RSA's granted subsequent to December 31, 2016 do not contain non-forfeitable rights to dividends and are not deemed to be Participating Securities.

As permitted, the Company has elected not to separately present basic or diluted earnings per share attributable to Participating Securities in the Consolidated Statement of Operations.

When a sufficient amount of available earnings exists at the time of a dividend declaration, dividends are charged to Retained earnings when declared.

If a sufficient amount of available earnings is not available, dividends declared are charged as a reduction to Additional paid-in capital.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed using the weighted-average number of shares of common stock outstanding during the reporting period.

Diluted earnings per share is computed in a manner consistent with that of basic earnings per share, while considering other potentially dilutive securities.

Potentially dilutive securities consist of both unvested, Participating Securities and non-participating RSA's, as well as outstanding options to purchase common stock ("Stock Options") and contingent performance stock units ("PSU's") (collectively, "Potential dilutive shares").

The treasury stock method is used to determine the dilutive effect of potentially dilutive securities.

Potentially dilutive securities consist of restricted stock awards ("RSA's"), as well as outstanding options to purchase common stock ("Stock Options") and contingent performance stock units ("PSU's") (collectively, "Potential dilutive shares").

The dilutive effect, if any, for non-participating RSA's, Stock Options and PSU's is determined using the greater of dilution as calculated under the treasury stock method or the two-class method.

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(in thousands, except per share amounts) 2021 2020

Net (loss) income $ ( 20,302 ) $ 35,537

Dividends and undistributed income allocated to Participating Securities ( 5 ) 44

(Loss) income attributable to common stockholders $ ( 20,297 ) $ 35,493

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

Basic weighted-average number of common shares outstanding 18,258 18,044

3 unchanged sentences

Earnings (loss) per share - diluted $ 3.27 $ ( 1.12 )

For the years ended December 31, 2020 and 2019, 0.6 million and 0.3 million weighted-average equity instruments, respectively, were outstanding but were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive.

For the years ended December 31, 2021 and 2020, zero and 0.6 million weighted-average equity instruments, respectively, were outstanding but were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States ("U.S.

GAAP") requires the Company’s management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes.

The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires the Company’s management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes.

Actual results could differ from those estimates.

The Company makes assumptions on the following significant financial statement components including:

Significant financial statement components in which the Company makes assumptions include

• business combinations, including asset acquisitions;

• the carrying value of its long-lived assets;

• the carrying value of its intangible assets;

• income taxes, including the valuation allowance for deferred tax assets and uncertain tax positions.

• income taxes, including the valuation allowance for deferred tax assets and assessment of uncertain tax positions.

Due to the coronavirus ("COVID-19") pandemic, there has been uncertainty and disruption in the global economy and financial markets.

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Risks and Uncertainties

The Company’s earnings are significantly affected by equity earnings it receives from Tinuum Group.

As of December 31, 2020, Tinuum Group has 23 invested RC facilities of which 9 are leased to a single customer.

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.

The loss of Tinuum Group's customers, reduction in revenue streams as a result of lease renewals and the expiration of Section 45 tax credits will have a significant adverse impact on Tinuum Group's financial position, results of operations and cash flows, which in turn will have a material adverse impact on the Company’s financial position, results of operations and cash flows.

As of December 31, 2021, all RC facilities had ceased operations and Tinuum is expected to complete reclamation activities, as required, during 2022.

The loss of earnings from both Tinuum Group and Tinuum Services will have a significant adverse impact on our financial position, results of operations and cash flows beginning in 2022 and beyond.

Reclassifications

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New Accounting Guidance

Not yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments ("ASU 2016-13").

The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

To achieve this objective, the amendments in ASU 2016-13 replace the incurred loss impairment methodology in current U.S.

GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

To achieve this objective, the amendments in ASU 2016-13 replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

ASU 2016-13 is effective for "smaller reporting companies" (as defined by the Securities and Exchange Commission) for fiscal years beginning after December 15, 2022, including interim periods within those years, and must be adopted under a modified retrospective method approach.

Entities may adopt ASU 2016-13 earlier as of the fiscal years beginning after December 15, 2018, including interim periods within those years.

The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company's financial statements and disclosures and does not believe this standard will have a material impact on the Company's financial statements and disclosures.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes ("ASU 2019-12").

The amendments in ASU 2019-12 simplify various aspects related to accounting for income taxes by removing certain exceptions contained in Topic 740 and also clarifies and amends existing guidance in Topic 740 to improve consistent application.

ASU 2019-12 is effective for public business entities beginning after December 15, 2020, including interim periods within those years, and early adoption is permitted.

Note 2 - Customer Supply Agreement

On September 30, 2020, the Company and Cabot Norit Americas, Inc., ("Cabot") entered into a supply agreement (the "Supply Agreement") pursuant to which the Company agrees to sell and deliver to Cabot, and Cabot agrees to purchase and accept from the Company certain lignite-based AC products ("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 the Company and purchase by Cabot of Furnace Products, the Company and Cabot have agreed to additional terms whereby Cabot will reimburse the Company for certain capital expenditures incurred by the Company 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 the Company and Cabot (referred to as "Shared Capital") and capital expenditures incurred that will benefit Cabot exclusively (referred to as "Specific Capital").

The Company intends to adopt ASU 2016-13 effective January 1, 2023 and is currently evaluating the provisions of this standard and assessing its impact on the Company's financial statements and disclosures.

The Company does not believe this standard will have a material impact on the Company's financial statements and disclosures.

Note 2 - Restatement

Subsequent to the filing of its Quarterly Report for the quarterly period ended September 30, 2021, the Company reassessed its presentation of shipping and handling costs billed to its customers in its Consolidated Statement of Operations for the year ended December 31, 2021.

Historically, the Company has accounted for shipping and handling costs billed to customers as a reduction of consumables cost of revenues, as presented in the Consumables cost of revenues, exclusive of depreciation and amortization line item in the Consolidated Statements of Operations.

Under Accounting Standards Codification 606 - Revenue from Contracts with Customers , shipping and handling costs billed to customers are considered a component of the total transaction price in a contract with a customer and should be presented as revenues.

The Company concluded that its historical presentation of shipping and handling costs billed to customers as a component of cost of revenues rather than as a component of revenues was incorrect and that the Company's presentation of both the "Revenues - Consumables" and "Consumables cost of revenues, exclusive of depreciation and amortization" line items for the year ended December 31, 2020 should be restated.

The impact of this error resulted in an understatement of both the "Revenues - Consumables" and "Consumables cost of revenues, exclusive of depreciation and amortization" line items in the Consolidated Statements of Operations for the year ended December 31, 2020, but had no impact to operating income (loss), income (loss) before income taxes, net income (loss) or earnings (loss) per share for these years.

Further, there was no impact of this error to the Consolidated Balance Sheets, Consolidated Statements of Stockholders' Equity or Consolidated Statements of Cash Flow as of and for the year ended December 31, 2020.

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

Revenues are earned on Shared Capital ("Shared Capital revenues") based on the percentage of planned Furnace Products produced and sold divided by the Company’s total products produced and sold for each year multiplied by a factor, which is based on the cost of Shared Capital assets placed in service amortized as an annuity over the expected asset life (lives) using an interest rate that is mutually agreed to by both the Company and Cabot.

Shared Capital revenues are recognized and billable beginning on the first day of a half year (either January 1 or July 1 of a calendar year) following the placed in service date of a Shared Capital asset(s).

Revenues are earned on Specific Capital ("Specific Capital revenues") and are based on a factor, which is based on the cost of Specific Capital assets placed in service amortized as an annuity over five years using an interest rate that is mutually agreed to by both the Company and Cabot.

Specific Capital revenues are recognized beginning on the first day of a half year (either January 1 or July 1 of a calendar year) following the placed in service date of a Specific Capital asset(s) and are billable in quarterly installments beginning on the first day of a half year following the placed in service date of a Specific Capital asset(s).

A summary of the impact of this restatement for the year ended December 31, 2020 is included in the table below.

A summary of the impact of this restatement for the quarterly periods ended March 31, 2021 and 2020:

June 30, 2021 and 2020;

September 30, 2021 and 2020 and December 31, 2020 are contained in Note 24.

Year ended December 31, 2020

(in thousands, except per share data) As previously reported Increase/(Decrease) As Restated

Consumables $ 48,122 $ 5,786 $ 53,908

Total revenues 61,577 5,786 67,363

Consumables cost of revenues, exclusive of depreciation and amortization $ 45,176 $ 5,786 50,962

Total operating expenses 102,558 5,786 108,344

Operating loss $ ( 40,981 ) $ — $ ( 40,981 )

Note 3 - Customer Supply Agreement

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

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

Reimbursements are comprised of revenues earned from capital expenditures incurred that will benefit both the Company and Cabot (referred to as "Shared Capital") and revenues earned from capital expenditures incurred that will benefit Cabot exclusively (referred to as "Specific Capital").

In the event that Cabot ceases to make purchases under the Supply Agreement, Cabot is obligated to pay the balance of any outstanding payments for Specific Capital.

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

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

In conjunction with the execution of the Supply Agreement and the Mine Purchase Agreement, on September 30, 2020, the Company entered into a reclamation contract (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 (the "Reclamation Period").

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

In the event that Cabot has a change in control as described in the Supply Agreement, all outstanding balances of the Reclamation Reimbursements shall be due and payable in full.

See further discussion of the Reclamation Costs and Reclamation Reimbursements in Note 4.

As the owner of the Marshall Mine, the Company was required to post a surety bond to ensure performance of its reclamation activities.

On September 30, 2020, the Company and a third party entered into a Surety Bond Indemnification Agreement (the "Surety Agreement") pursuant to which the Company secured and posted a $ 30.0 million surety bond (the "Bond") with the local regulatory agency.

The Bond will remain in place until the Marshall Mine is fully shuttered, and it may be reduced in amount from time to time as the Company progresses with its reclamation activities.

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

The Company 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, the Company entered into a reclamation contract (the "Reclamation Contract") with a third party that provides a capped cost, subject to certain contingencies, in the initial 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 (the "Reclamation Period").

Under the terms of the Supply Agreement, Cabot is obligated to reimburse the Company for $ 10.2 million of the Reclamation Costs (the "Reclamation Reimbursement"), payments of which are due semi-annually over the estimated reclamation period and are inclusive of interest.

In the event that Cabot has a change in control as described in the Supply Agreement, all outstanding balances of the Reclamation Reimbursement shall be due and payable in full.

See further discussion of the Reclamation Costs and Reclamation Reimbursement in Note 5.

As the owner of the Marshall Mine, the Company is required to post a surety bond to ensure performance of its reclamation activities and entered into the Surety Agreement on September 30, 2020.

As of December 31, 2021, the Company had a $ 16.6 million surety bond (the "Surety Bond") posted with the local regulatory agency.

The Surety Bond will remain in place until the Marshall Mine is fully shuttered, and it may be reduced in amount from time to time as the Company progresses with its reclamation activities.

As of December 31, 2021 and 2020, for the obligations due under the Reclamation Contract, the

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Company posted cash collateral of $ 10.0 million and $ 5.0 million, respectively, which is reported as "Restricted Cash, long-term" in the Consolidated Balance Sheets.

The Marshall Mine Acquisition included the acquisition of certain assets that will be consumed and the assumption of certain liabilities that will be paid in reclamation of the Marshall Mine, in addition to the incurrence of an obligation for the Reclamation Costs.

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The Company's conclusion was based on the Marshall Mine not having any economic reserves, as the Company commenced full reclamation as of September 30, 2020, and therefore lacked inputs.

As the Marshall Mine Acquisition represents a transaction with a customer of net assets acquired and liabilities assumed from Cabot, the Company has accounted for the excess of the fair value of liabilities assumed over assets acquired as upfront consideration transferred to a customer, Cabot (the "Upfront Customer Consideration").

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

The amount of the Upfront Customer Consideration was recognized net of an additional asset recognized in the Marshall Mine Acquisition, which was comprised of a receivable from Cabot (the "Cabot Receivable") for the Reclamation Reimbursements.

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The total Upfront Customer Consideration is amortized on a straight-line basis as a reduction to revenue over the expected 15-year contractual period of the Supply Agreement.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

The Company paid a nominal cash amount to Cabot in the form of cash for the Marshall Mine and also assumed liabilities whose fair value exceeded the fair value of assets acquired.

13 unchanged sentences

The Company also evaluated the Marshall Mine entity as a VIE, and determined that because of its structure and closing-stage status, it does not have sufficient equity at-risk and would not likely be able to obtain additional subordinated financial support to complete its closing stage obligations.

The Company purchased all of the membership interests in Marshall Mine, LLC and has determined that it meets the definition of a VIE and that the Company is the primary beneficiary.

Therefore, Marshall Mine, LLC’s assets and liabilities are consolidated as of December 31, 2020.

The Company purchased all of the membership interests in Marshall Mine, LLC and determined that it met the definition of a VIE and that the Company is the primary beneficiary.

Therefore, Marshall Mine, LLC’s assets and liabilities are consolidated.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

The following tables summarize the assets and liabilities of Marshall Mine and their classification in the Company's Consolidated Balance Sheets:

As of December 31,

(in thousands) 2021 2020 Balance sheet component

Cash $ 914 $ 495 Current assets

Cabot receivable, short-term 2,056 921 Current assets

Property and equipment, net 1,968 3,254 Non-current assets

Cabot receivable, long-term 6,846 8,852 Non-current assets

Restricted cash 10,027 5,000 Non-current assets

Upfront customer consideration 6,982 7,490 Non-current assets

Other — 50 Non-current assets

$ 28,793 $ 26,062

Accounts payable and accrued liabilities $ 1,065 $ 407 Current liabilities

Asset retirement obligation, short-term 1,775 9,370 Current liabilities

Asset retirement obligation, long-term 4,546 8,760 Non-current liabilities

$ 7,386 $ 18,537

Note 5 - Marshall Mine Asset Retirement Obligation and related Cabot Receivable

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In connection with the Supply Agreement, Mine Purchase Agreement and the Reclamation Contract, the Company assumed the obligation to reclaim and restore the land associated with the Marshall Mine.

The Company determined that the Marshall Mine does not have any remaining economic reserves.

As of September 30, 2020, the Company recorded an ARO (the "Marshall Mine ARO") for the total Reclamation Costs of $ 21.3 million as measured at the expected future cash flows of $ 23.7 million, inclusive of contingency costs, discounted to their present value using a discount rate based on a credit-adjusted, risk-free rate of 7.0 %.

The Company determined that the Marshall Mine did not have any remaining economic reserves.

As of September 30, 2020, the Company recorded an ARO (the "Marshall Mine ARO") as its best estimate for the total Reclamation Costs of $ 21.3 million as measured at the estimated future cash flows of $ 23.7 million, inclusive of contingency costs, discounted to their present value using a discount rate based on a credit-adjusted, risk-free rate of 7.0 %.

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

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

This is included as "Gain on change in estimate, asset retirement obligation" in the Consolidated Statement of Operations for the year ended December 31, 2021.

Cabot Receivable

As previously disclosed, under the terms of the related Supply Agreement, Cabot is obligated to pay Reclamation Reimbursements to the Company for $ 10.2 million of the Reclamation Costs, inclusive of interest.

As of September 30, 2020, the Company recorded the Cabot Receivable for the Reclamation Reimbursements at its estimated fair value, which was measured using a discounted cash flows valuation model that considers the estimated credit risk associated with the obligor’s (Cabot’s) future performance.

As previously disclosed, under the terms of the related Supply Agreement, Cabot is obligated to pay the Reclamation Reimbursement to the Company for $ 10.2 million of the Reclamation Costs, inclusive of interest.

As of September 30, 2020, the Company recorded the Cabot Receivable for the Reclamation Reimbursement at its estimated fair value, which was measured using a discounted cash flows valuation model that considered the estimated credit risk associated with the obligor’s (Cabot’s) future performance.

Interest is accreted on a monthly basis and recognized as interest income.

1 unchanged sentence

As of September 30, 2020, the Company recorded the Cabot Receivable at its estimated fair value of $ 9.7 million, reflecting a discount rate of approximately 1.5 % or $ 0.5 million.

Allowances for this asset are assessed periodically, and no allowance was deemed necessary as of December 31, 2020.

Allowances for this asset are assessed periodically, and no allowance was deemed necessary as of December 31, 2021 or 2020.

Advanced Emissions Solutions, Inc.

3 unchanged sentences

As part of its periodic review of the carrying value of long-lived assets, the Company assessed its long-lived assets for potential impairment.

In assessing impairment of its APT segment's long-lived asset groups, the Company considered factors such as the significant decline in both the APT segment's trailing twelve months revenues and current and future years’ forecasted revenues.

In assessing impairment of its APT segment's long-lived asset groups as of June 30, 2021, the Company considered factors such as the significant decline in both the APT segment's trailing twelve months revenues and current and future years’ forecasted revenues.

These factors were largely due to the significant drop in coal-fired power dispatch amid historically low prices of alternative power generation sources, such as natural gas, leading to an increase in natural gas usage as well as other competing energy sources.

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This valuation was based on the use of several established valuation models including an expected future discounted cash flow model using Level 3 inputs.

The cash flows are those expected to be generated by market participants discounted at the risk-free rate of interest.

Because of the continued future uncertainty surrounding the level of coal-fired dispatch, the impact of historically low natural gas prices and other estimates impacting the expected future cash flow, it is reasonably possible that the expected future cash flows may change in the near term and may result in the Company recording additional impairment of the Asset Group.

Note 7 - COVID-19

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 creation of the Paycheck Protection Program ("PPP"), which is sponsored and administered by the U.S.

In March 2020, the federal government passed the Coronavirus Aid, Relief, and Security Act (the "CARES Act"), which

provided among other things the creation of the Paycheck Protection Plan ("PPP"), which was sponsored and administered by the U.S.

Small Business Administration ("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.

On April 20, 2020, the Company entered into a loan (the "PPP Loan") under the PPP, evidenced by a promissory note, with BOK, NA dba Bank of Oklahoma ("BOK") providing for $ 3.3 million in proceeds, which was funded to the Company 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 Company recorded the PPP Loan as a debt obligation and is accruing interest over the term of the PPP Loan.

There is no assurance that the PPP Loan will be forgiven.

The interest rate on the PPP Loan is 1.0 %.

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 the Company, or filing suit and obtaining judgment against the Company.

Under the PPPFA, 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 the Company that the SBA has notified BOK that all or a portion of the PPP Loan has not been forgiven.

In January 2021, the Company submitted its application to the SBA for

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

forgiveness of the PPP Loan, and the Company is awaiting the SBA's response on its application for forgiveness.

Accordingly, the Company has determined that any amounts due under the PPP Loan would commence in August 2021 and, as of December 31, 2020, has classified a portion of the PPP Loan principal and accrued interest as current in the Consolidated Balance Sheet.

On April 20, 2020, the Company executed a loan agreement (the "PPP Loan") under the PPP, evidenced by a promissory note, with BOK, NA dba Bank of Oklahoma ("BOK"), providing for $ 3.3 million in proceeds, which was funded to the Company on April 21, 2020.

The PPP Loan was scheduled to mature on April 21, 2022, unless forgiven subject to terms and conditions established by the SBA.

The Company initially recorded the PPP Loan as a debt obligation and accrued interest over its term.

On July 27, 2021, the Company received formal notification in the form of a letter dated July 19, 2021 from BOK that the SBA

approved the Company’s PPP Loan forgiveness application for the PPP Loan in the amount of $ 3.3 million (including accrued

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 Statement of Operations, which is included as a component of "Other income (expense)."

The CARES Act also provided the deferral of payroll tax payments for all payroll taxes incurred through December 31, 2020.

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

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

The Company elected to defer payments of payroll taxes for the periods allowed under the CARES Act in the amount of $ 0.4 million and paid $ 0.2 million during the fourth quarter of 2021, with the balance due no later than December 31, 2022.

Note 8 - Equity Method Investments

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Tinuum Group supplies technology, equipment and technical services to cyclone-fired and other boiler users, but its primary purpose is to place into operation facilities that produce and sell RC that lower emissions and therefore qualifies for Section 45 tax credits.

NexGen Refined Coal, LLC ("NexGen") and GSFS Investments I Corp.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Refined Coal, LLC ("NexGen") and GSFS Investments I Corp.

("GSFS"), an affiliate of The Goldman Sachs Group, Inc.

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GSFS' ownership interest is in the form of Class B units that do not have voting rights but provide certain preferences over ADA and NexGen as to liquidation and profit distribution.

The Company has determined that Tinuum Group is a VIE, however, the Company does not have the power to direct the activities that most significantly impact Tinuum Group's economic performance and has therefore accounted for the investment under the equity method of accounting.

The Company determined the voting partners of Tinuum Group have identical voting rights, equity control interests and board control interests, and therefore, concluded that the power to direct the activities that most significantly impact Tinuum Group's economic performance was shared.

The Company determined that Tinuum Group is a VIE, however, it concluded that it was not the primary beneficiary and therefore did not consolidate Tinuum Group, and accounted for it under the equity method of accounting.

The Company's conclusion that it was not the primary beneficiary was based on the Company's and NexGen's shared power of Tinuum Group.

The following tables summarize the assets, liabilities and results of operations of Tinuum Group:

6 unchanged sentences

Members equity attributable to Class A members $ 8,890 $ 59,221

Members equity attributable to Class B members $ 18,769 $ 28,967

Member equity attributable to Class B members $ 9,887 $ 18,769

Noncontrolling interests $ 5,272 $ 43,635

3 unchanged sentences

Operating, selling, general and administrative expenses 49,414 58,008

(Loss) income from operations ( 51,359 ) 67,335

Other income (expense) 17,260 ( 95 )

Loss from operations ( 42,419 ) ( 51,359 )

Other income 9,726 17,260

Loss attributable to noncontrolling interest 126,948 91,501

1 unchanged sentence

ADES equity earnings from Tinuum Group $ 61,837 $ 24,396

As shown above, the Company reported earnings from its equity investment in Tinuum Group of $ 24.4 million and $ 60.3 million for the years ended December 31, 2020 and 2019, respectively.

For the year ended December 31, 2021, the Company recognized earnings from Tinuum Group's net income available to members that was different from its pro-rata share of Tinuum Group's net income available to members, as cash distributions for the year ended December 31, 2021 exceeded the carrying value of the Tinuum Group equity investment.

For the year ended December 31, 2020, the Company recognized its pro-rata share of Tinuum Group's net income available to its members.

The carrying value of the Company's investment in Tinuum Group is zero as long as the cumulative amount of distributions received from Tinuum Group exceeds the Company's cumulative pro-rata share of Tinuum Group's net income available to Class A members.

For periods during which the ending balance of the Company's investment in Tinuum Group is zero , the Company only recognizes equity earnings from Tinuum Group to the extent that cash distributions are received from Tinuum Group during the period.

For periods during which the ending balance of the Company's investment is greater than zero (e.g., when the cumulative earnings in Tinuum Group exceeds cumulative cash distributions received), the Company recognizes its pro-rata share of Tinuum Group's net income available to Class A members for the period, less any amount necessary to recover the cumulative earnings short-fall balance as of the end of the immediately preceding period.

As shown in the table below, the Company’s carrying value in Tinuum Group for the years ended December 31, 2021 and 2020 was zero and $ 3.4 million, respectively.

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

The carrying value of the Company's investment in Tinuum Group shall be zero as long as the cumulative amount of distributions received from Tinuum Group exceeds the Company's cumulative pro-rata share of Tinuum Group's net income available to Class A members.

As shown in the table below, the Company’s carrying value in Tinuum Group for the years ended December 31, 2020 and 2019 were $ 3.4 million and $ 32.3 million, respectively.

The following table presents the Company's investment balance, equity earnings, cash distributions and cash distributions in excess of the investment balance for the years ended December 31, 2019 and December 31, 2020 ( in thousands ):

Description Date(s) Investment balance ADES equity earnings (loss) Cash distributions Memorandum Account:

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Beginning balance 12/31/2019 $ 32,280 $ — $ — $ —

Impact of adoption of accounting standards (1)

2019 activity 37,232 — — —

ADES proportionate share of net income from Tinuum Group 2020 activity 24,396 24,396 — —

Recovery of cash distributions in excess of investment balance (prior to cash distributions) 2019 activity ( 1,672 ) ( 1,672 ) — 1,672

Cash distributions from Tinuum Group 2020 activity ( 53,289 ) — 53,289 —

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Cash distributions from Tinuum Group 2021 activity ( 65,224 ) — 65,224 —

Adjustment for current year cash distributions in excess of investment balance 2021 activity 21,779 21,779 — ( 21,779 )

Total investment balance, equity earnings and cash distributions 12/31/2021 $ — $ 61,837 $ 65,224 $ ( 21,779 )

(1) Tinuum Group adopted ASC Topic 606, Revenue from Contracts with Customers ("ASC 606") and ASC Topic 842, Leases ("ASC 842") as of January 1, 2019.

As a result of Tinuum Group’s adoption of these standards, the Company recorded a cumulative adjustment of $ 27.4 million, net of the impact of income taxes, related to the Company's percentage of Tinuum Group's cumulative effect adjustment that increased the Company's Retained earnings as of January 1, 2019.

Additional information related to Tinuum Group is included in Item 15 - "Exhibits and Financial Statement Schedules" ("Item 15") of this Report.

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In 2010, the Company, together with NexGen, formed Tinuum Services for the purpose of operating and maintaining RC facilities, including those RC facilities leased or sold to third parties.

The Company has determined that Tinuum Services is not a VIE and has evaluated Tinuum Services for potential consolidation under the voting interest model.

The Company determined that Tinuum Services is not a VIE and evaluated Tinuum Services for potential consolidation under the voting interest model.

Because the Company does not own greater than 50 % of the outstanding voting shares, it has accounted for its investment in Tinuum Services under the equity method of accounting.

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Loss from operations ( 234,540 ) ( 258,818 )

Other expenses ( 1,282 ) ( 1,422 )

Other income (expenses) 3,830 ( 1,282 )

Loss attributable to noncontrolling interest 246,094 273,262

Net income $ 15,384 $ 13,162

ADES equity earnings from Tinuum Services $ 6,582 $ 8,896

Included in the Consolidated Statement of Operations of Tinuum Services for the years ended December 31, 2020 and 2019 were losses related to VIE entities that are consolidated within Tinuum Services of $ 273.3 million and $ 321.1 million, respectively.

Included in the Consolidated Statement of Operations of Tinuum Services for the years ended December 31, 2021 and 2020 were losses related to VIE entities that are consolidated within Tinuum Services.

These losses do not impact the Company's equity earnings from Tinuum Services as 100 % of those losses are attributable to a noncontrolling interest and eliminated in the calculations of Tinuum Services' net income attributable to the Company's interest.

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Total equity method investments $ 2,391 $ 7,692

The Company evaluates the investments for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable.

No impairments were recorded during the years ended December 31, 2020 and 2019.

The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable.

As of December 31, 2021, the Company concluded the carrying amount of its 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, the Company wrote-down its 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.

Advanced Emissions Solutions, Inc.

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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

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Tinuum Services 8,802 9,152

Included in Operating Cash Flows $ 62,441 $ 73,888

Note 8 - Acquisition of ADA Carbon Solutions

On December 7, 2018 (the "Acquisition Date"), the Company completed the Carbon Solutions Acquisition.

The Company acquired Carbon Solutions primarily to expand the Company's product offerings in the consumable air treatment markets.

The Company completed the Carbon Solutions Acquisition for a total purchase price of $ 75.0 million (the "Purchase Price").

The fair value of the purchase consideration totaled $ 66.5 million and consisted of cash of $ 65.8 million and an additional purchase adjustment amount payable to Carbon Solutions' secured lender of $ 0.7 million, which was paid in March 2019.

The Purchase Price was adjusted by assumed debt and contractual commitments of $ 11.8 million, and less cash acquired of $ 3.3 million.

The Company also paid $ 4.5 million in acquisition-related costs (or transaction costs).

The Company funded the cash consideration from cash on hand and the proceeds from a senior term loan facility (the "Senior Term Loan") in the principal amount of $ 70.0 million, as more fully described in Note 11.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

The following table summarizes the final Purchase Price allocation.

Subsequent to December 31, 2018, the Company completed additional analysis and adjustments were made to the preliminary Purchase Price allocations as noted in the table below:

Fair value of assets acquired:

As Originally Reported Adjustments As Adjusted

Cash $ 3,284 $ — $ 3,284

Receivables 6,409 — 6,409

Inventories 22,100 ( 356 ) 21,744

Prepaid expenses and other current assets 2,992 61 3,053

Spare parts 3,359 — 3,359

Property, plant and equipment 43,033 ( 377 ) 42,656

Mine leases and development 2,500 200 2,700

Mine reclamation asset — 2,402 2,402

Intangible assets 4,000 100 4,100

Other assets 168 — 168

Amount attributable to assets acquired 87,845 2,030 89,875

Fair value of liabilities assumed:

Accounts payable 4,771 — 4,771

Accrued liabilities 7,354 254 7,608

Equipment lease liabilities 8,211 — 8,211

Mine reclamation liability 626 1,776 2,402

Other liabilities 437 — 437

Amount attributable to liabilities assumed 21,399 2,030 23,429

Net assets acquired $ 66,446 $ — $ 66,446

Adjustments to the preliminary Purchase Price allocation primarily related to changes in fair values assigned to property, plant and equipment, intangible assets, mine reclamation liability and the related mine reclamation asset as a result of the final valuation report from the Company's third-party valuation firm issued in May 2019.

During the year ended December 31, 2019 based on new information of facts and circumstances that existed as of the Acquisition Date, the Company revised its estimates used as of the Acquisition Date related to the net realizable value of certain finished goods inventory items as well as values assigned to certain prepaid and accrued expense items.

The adjustments were recorded as of June 30, 2019 and were included in the Consolidated Balance Sheet as of that date and the resultant impact to the Statement of Operations was reflected for the year ended December 31, 2019.

The following table represents the intangible assets identified as part of the Carbon Solutions Acquisition:

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

Customer relationships $ 2,200 5

Developed technology 1,600 5

Trade name 300 2

Total intangibles acquired $ 4,100

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

$ 22,944 $ 62,441

Distributions from equity method investees in excess of cumulative earnings

Tinuum Group $ 51,082 $ —

Note 9 - Inventories, net

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$ 7,850 $ 9,882

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Note 10 - Property, Plant and Equipment

The carrying basis and accumulated depreciation of property, plant and equipment at December 31, 2020 and 2019 are summarized in the table below:

The cost basis and accumulated depreciation of property, plant and equipment at December 31, 2021 and 2020 are summarized in the table below:

Life in Years As of December 31,

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Total property, plant and equipment, net $ 30,171 $ 29,433

Included in plant and operating equipment as of December 31, 2020 and 2019 is mining equipment financed under various lease facilities, and obligations due under these facilities are included in finance lease obligations in the Consolidated Balance Sheet.

Included in plant and operating equipment as of December 31, 2021 and 2020 is mining equipment financed under various lease facilities, and obligations due under these facilities are included in finance lease obligations in the Consolidated Balance Sheets.

The total amount recorded for ROU assets as of December 31, 2021 and 2020 related to finance lease obligations was $ 1.7 million and $ 2.4 million, respectively, net of accumulated depreciation of $ 1.1 million and $ 0.5 million.

Depreciation expense for the years ended December 31, 2021 and 2020 was $ 5.5 million and $ 6.8 million, respectively.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Note 11 - Debt Obligations

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(in thousands) 2021 2020

Senior Term Loan due December 2021, related party $ 16,000 $ 40,000

Finance lease obligations $ 4,163 $ 5,526

Senior Term Loan principal, related party — 16,000

net unamortized debt issuance costs — ( 465 )

net unamortized debt discount — ( 480 )

Senior Term Loan due December 2021, net 15,055 37,637

Senior Term Loan, net — 15,055

PPP Loan — 3,305

Finance lease obligations 5,526 6,729

23,886 44,366

Total borrowings 4,163 23,886

Current maturities ( 1,011 ) ( 18,441 )

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On December 7, 2018, the Company, and ADA-ES, Inc.

(collectively "Apollo”), affiliates of a beneficial owner of greater than five percent of the Company's 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 Carbon Solutions Acquisition as disclosed in Note 8.

("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 the Company's 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.

The Company 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.

Quarterly principal payments of $ 6.0 million were required beginning in March 2019, and the Company may prepay the Senior Term Loan at any time without penalty.

The Senior Term Loan is secured by substantially all of the assets of the Company, including the cash flows from Tinuum Group and Tinuum Services (collectively, the "Tinuum Entities"), but excluding the Company's equity interests in the Tinuum entities.

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

(1) As of the end of each fiscal quarter, the Company 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 Company shares 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.

Waiver and Limited Consent on Senior Term Loan

Pursuant to entering into the PPP Loan, on April 20, 2020, the Company and Apollo executed the First Amendment to the Senior Term Loan, which permitted the Company to enter into the PPP Loan.

On September 30, 2020, the Company and Apollo entered into a limited consent, which permitted the Company to (i) enter into the Surety Agreement, open the collateral bank accounts and post collateral required under the Surety Agreement, and (ii) acquire the membership interests in Marshall Mine, LLC., as described in Note 3.

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

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

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

As of December 31, 2020, the following table presents the future aggregate annual maturities of the Senior Term Loan excluding unamortized discounts and deferred financing costs:

Year ended December 31,

(in thousands) Principal Amount

2021 $ 16,000

Total $ 16,000

Line of Credit

In September 2013, ADA-ES, Inc.

("ADA"), a wholly-owned subsidiary of the Company, as borrower, the Company, as guarantor, entered into a line credit (the "Line of Credit") with a bank (the "Lender") 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, the Company 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, the Company, as guarantor, entered into the Line of Credit with the Lender 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 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.

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

On July 29, 2021, the Company and the Lender entered into the Sixteenth Amendment (the "Sixteenth Amendment") to the Line of Credit.

The Sixteenth Amendment amends certain terms and conditions related to collateral securing the Line of Credit.

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

The Line of Credit expired on December 31, 2021.

Note 12 - Leases

As of December 31, 2020 and 2019, the Company has obligations under finance leases of $ 5.5 million and $ 6.7 million, respectively, and obligations under operating leases of $ 3.0 million and $ 5.2 million, respectively.

ROU assets under finance leases are mining equipment used at the Company’s lignite mine, which provides the key raw material for manufacturing the Company’s products.

ROU assets under operating leases are primarily plant equipment used at the Company’s manufacturing facility, but also include other office equipment, vehicles and office facilities.

As of December 31, 2020 and 2019, the Company has ROU assets, net of accumulated amortization, under finance leases of $ 2.4 million and $ 5.9 million and ROU assets, net of accumulated amortization, under operating leases of $ 1.9 million and $ 5.1 million, respectively.

Certain of the finance and operating leases have options permitting renewals for additional periods and buy-out options.

Renewal and buy-out options for applicable leases have not been included in the measurement of the respective lease liabilities as the Company is not reasonably certain that it will exercise the respective option or the lessor does not have an exclusive right to exercise the option.

Finance leases

ROU assets under finance leases and finance lease liabilities are included in Property, plant and equipment and Current portion and Long-term portion of borrowings, respectively, in the Consolidated Balance Sheets as of December 31, 2020 and 2019.

The Company's operating and finance lease right-of-use ("ROU") assets and liabilities as of December 31, 2021 and 2020 consisted of the following items (in thousands):

Year ended December 31,

Leases 2021 2020

Operating Leases

ROU assets under operating leases and operating lease liabilities are included in Other long-term assets and Other liabilities and Other long-term liabilities, respectively, in the Consolidated Balance Sheets as of December 31, 2020 and 2019.

Operating lease right-of-use assets, net of accumulated amortization (1)

$ 6,000 $ 1,930

Operating lease obligations, current $ 2,157 $ 1,883

Long-term operating lease obligations 4,178 1,109

Total operating lease obligation $ 6,335 $ 2,992

Finance Leases

Finance lease right-of-use assets, net of accumulated amortization (2)

$ 1,743 $ 2,385

Finance lease obligations, current $ 1,011 $ 1,550

Long-term finance lease obligations 3,152 3,976

Total finance lease obligations $ 4,163 $ 5,526

(1) Operating lease assets are reported net of accumulated amortization of $ 1.9 million and $ 0.8 million as of December 31, 2021 and 2020, respectively.

(2) Finance lease assets are reported net of accumulated amortization of $ 1.1 million and $ 0.5 million as of December 31, 2021 and 2020, respectively.

Finance leases

ROU assets under finance leases are reported in the "Property, plant and equipment line item, and finance lease liabilities are included in the "Current portion of long-term debt" and "Long-term debt, net of current portion" line items in the Consolidated Balance Sheets as of December 31, 2021 and 2020.

Interest expense related to finance lease liabilities and amortization of ROU assets under finance leases are included in the "Interest expense" and "Depreciation, amortization, depletion and accretion" line respectively, in the Consolidated Statement of Operations for the years ended December 31, 2021 and 2020.

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

Lease expense for operating leases for the year ended December 31, 2020 was $ 4.4 million, of which $ 3.8 million is included in Consumables cost of revenue, exclusive of depreciation and amortization, and $ 0.6 million is included in General and administrative in the Consolidated Statement of Operations for the year ended December 31, 2020.

Lease expense for operating leases for the year ended December 31, 2019 was $ 4.4 million, of which $ 3.9 million is included in Consumables cost of revenue, exclusive of depreciation and amortization, and $ 0.5 million is included in General and administrative in the Consolidated Statement of Operations for the year ended December 31, 2019.

In August 2019, the Company entered into a new lease agreement covering approximately 21,000 square feet of office space for a term of 3.5 years and recorded an ROU asset of $ 1.2 million and a corresponding operating lease liability of $ 1.2 million.

Operating leases

ROU assets under operating leases are included in the "Other long-term assets line item, and operating lease liabilities are included in " Other liabilities" and " Other long-term liabilities" line items, respectively, in the Consolidated Balance Sheets as of December 31, 2021 and 2020.

Lease expense for operating leases for the year ended December 31, 2021 was $ 4.0 million, of which $ 3.5 million is included in "Consumables cost of revenues, exclusive of depreciation and amortization" line item and $ 0.5 million is included in "General and administrative" line item in the Consolidated Statement of Operations for the year ended December 31, 2021.

Lease expense for operating leases for the year ended December 31, 2020 was $ 4.4 million, of which $ 3.8 million is included in the "Consumables cost of revenues, exclusive of depreciation and amortization" line item and $ 0.6 million is included in the "General and administrative" line item in the Consolidated Statement of Operations for the year ended December 31, 2020.

Lease financial information as of and for the years ended December 31, 2021 and 2020 is provided in the following table:

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Note 13 - Revenues

Contract Assets and Liabilities

Contract assets are comprised of unbilled receivables and are included in Receivables, net in the Consolidated Balance Sheets.

Unbilled receivables represent a conditional right to consideration in exchange for goods or services transferred to a customer.

Trade receivables

Trade receivables represent an unconditional right to consideration in exchange for goods or services transferred to a customer.

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The Company records allowances for doubtful trade receivables when it is probable that the balances will not be collected.

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

Trade receivables, net

The following table shows the components of Trade receivables, net:

4 unchanged sentences

Trade receivables, net $ 10,476 $ 12,204

During the years ended December 31, 2020 and 2019, the Company recognized zero and $ 0.1 million, respectively, as bad debt expense related to specific accounts whose ultimate collection was in doubt.

Cabot Receivable

The following table shows the components of the Cabot Receivable:

(in thousands) December 31, 2021 December 31, 2020

Receivables, net $ 2,146 $ 921

Other long-term assets, net 6,846 8,852

Total Cabot Receivable $ 8,992 $ 9,773

Upfront Customer Consideration

As described in Note 3, as of September 30, 2020, the Company recorded an asset for Upfront Customer Consideration of $ 7.6 million in connection with the Supply Agreement.

The amount is included in Other long-term assets, net on the Company's Consolidated Balance Sheet as of December 31, 2020.

The Upfront Customer Consideration is being amortized on a straight-line basis as a reduction to revenue over the expected 15 -year contractual period of the Supply Agreement.

As described in Note 4, as of September 30, 2020, the Company recorded an asset for Upfront Customer Consideration of $ 7.6 million in connection with the Supply Agreement, which is amortized on a straight-line basis as a reduction to revenue over the expected 15 -year contractual period of the Supply Agreement.

The unamortized balance is included in Other long-term assets, net on the Company's Consolidated Balance Sheets as of December 31, 2021 and 2020.

Advanced Emissions Solutions, Inc.

3 unchanged sentences

For the years ended December 31, 2021 and 2020, all performance obligations related to revenues recognized were satisfied at a point in time.

The Company disaggregates its revenues by its major components as well as between its two operating segments, which are further discussed in Note 19 to the consolidated financial statements.

The Company does not disaggregate revenue by geographic region as revenue is generated primarily from customers in the United States;

however, in the APT segment for the year ended December 31, 2020, approximately 15 % of APT revenue was generated in Canada.

The following tables disaggregate revenues by major source for the year ended December 31, 2020 and 2019 (in thousands):

The Company disaggregates its revenues by its major components its two operating segments, which are further discussed in Note 19 to the consolidated financial statements.

In the APT segment for the year ended December 31, 2021 and 2020, approximately 13 % and 15 %, respectively, of APT revenue was generated in Canada.

The following tables disaggregate revenues by major source for the year ended December 31, 2021 and 2020:

Year ended December 31, 2021

11 unchanged sentences

Consumables (1)

$ 53,908 $ — $ 53,908

License royalties, related party — 13,440 13,440

Other 15 — 15

Revenues from customers 53,923 13,440 67,363

1 unchanged sentence

Total revenues and earnings from equity method investments $ 53,923 $ 44,418 $ 98,341

As further discussed in Note 19, as of December 31, 2020 the Company had a change in reportable segments.

The Company has recast the segment information above for the year ended December 31, 2019 to be consistent with the new reportable segments as of December 31, 2020.

(1) Consumables revenues for the year ended December 31, 2020 have been restated.

See restatement discussion in Note 2.

Note 14 - Commitments and Contingencies

8 unchanged sentences

Restricted Cash

As of December 31, 2020, the Company 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.

As of December 31, 2021 and 2020, the Company had long-term restricted cash of $ 10.0 million and $ 5.0 million, respectively, as required under the Surety Agreement related to the Reclamation Contract.

As of December 31, 2020, the Company had short-term restricted cash of $ 5.0 million as required under a minimum cash balance requirement of a Senior Term Loan covenant.

As of December 31, 2021 , the Company 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, the Company 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.

Other Commitments and Contingencies

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In November 2018, the Board authorized the Company to purchase up to $ 20.0 million of its outstanding common stock under a stock repurchase program (the "Stock Repurchase Program"), which was to remain in effect until December 31, 2019 unless otherwise modified by the Board.

As of November 2019, $ 2.9 million remained outstanding under the Stock Repurchase Program.

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

For the years ended December 31, 2020 and 2019, under the Stock Repurchase Program, the Company purchased 20,613 and 533,345 shares of its common stock for cash of $ 0.2 million and $ 5.8 million, inclusive of commissions and fees, respectively.

For the years ended December 31, 2021 and 2020, under the Stock Repurchase Program, the Company purchased zero and 20,613 shares of its common stock for cash of zero and $ 0.2 million, inclusive of commissions and fees, respectively.

As of December 31, 2021, the Company had $ 7.0 million remaining under the Stock Repurchase Program.

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Notes to Consolidated Financial Statements

Quarterly Cash Dividend

Dividends declared to holders of the Company's common shares during the years ended December 31, 2020 and December 31, 2019 were $ 4.6 million and $ 18.6 million, respectively.

A portion of the dividends remains accrued subsequent to the payment dates and represents dividends accumulated on nonvested shares of common stock held by employees of the Company which contain forfeitable dividend rights which are not payable until the underlying shares of common stock vest.

These amounts are included in both Other current liabilities and Other long-term liabilities in the Consolidated Balance Sheets as of December 31, 2020 and 2019.

Dividends declared and paid quarterly per share on all outstanding shares of common stock for the years ended December 31, 2020 and 2019 were as follows:

Per share Date paid Per share Date paid

Dividends declared during quarter ended:

March 31 $ 0.25 March 10, 2020 $ 0.25 March 7, 2019

June 30 — 0.25 June 7, 2019

September 30 — 0.25 September 6, 2019

December 31 — 0.25 December 13, 2019

$ 0.25 $ 1.00

Tax Asset Protection Plan

United States federal income tax rules, and Section 382 of the IRC in particular, could substantially limit the use of net operating losses and other tax assets if ADES experiences an "ownership change" (as defined in the IRC).

In general, an ownership change occurs if there is a cumulative change in the ownership of ADES by "5 percent stockholders" that exceeds 50 percentage points over a rolling three-year period.

federal income tax rules, and Section 382 of the Internal Revenue Code in particular, could substantially limit the use of net operating losses and other tax assets if the Company experiences an "ownership change" (as defined in the Internal Revenue Code).

In general, an ownership change occurs if there is a cumulative change in the ownership of the Company by "5 percent stockholders" that exceeds 50 percentage points over a rolling three-year period.

On May 5, 2017, the Board approved the declaration of a dividend of rights to purchase Series B Junior Participating Preferred Stock for each outstanding share of common stock as part of a tax asset protection plan (the "TAPP") designed to protect the Company’s ability to utilize its net operating losses and tax credits.

The TAPP is intended to act as a deterrent to any person acquiring beneficial ownership of 4.99 % or more of the Company’s outstanding common stock.

On April 8, 2020, the Board approved the Third Amendment to the TAPP ("Third Amendment") that amended the TAPP, as previously amended by the First and Second Amendments that were approved the Board on April 6, 2018 and April 5, 2019, respectively.

The Third Amendment amended the definition of "Final Expiration Date" under the TAPP to extend the duration of the TAPP and makes associated changes in connection therewith.

At the Company's 2020 annual meeting of stockholders, the Company's stockholders approved the Third Amendment, thus the Final Expiration Date will be the close of business on December 31, 2021.

On April 9, 2021, the Board approved the Fourth Amendment to the TAPP ("Fourth Amendment") that amends the TAPP, as previously amended by the First, Second and Third Amendments that were approved the Board on April 6, 2018, April 5, 2019 and April 9, 2020, respectively.

The Fourth Amendment amends the definition of "Final Expiration Date" under the TAPP to extend the duration of the TAPP and makes associated changes in connection therewith.

At the Company's 2021 annual meeting of stockholders, the Company's stockholders approved the Fourth Amendment, thus the Final Expiration Date will be the close of business on December 31, 2022.

Note 16 - Stock-Based Compensation

The Company currently has incentive plans, including the Amended and Restated 2010 Non-Management Compensation and Incentive Plan, as amended (the “2010 Plan”) and the 2017 Omnibus Incentive Plan (the “2017 Plan”) as described below.

Collectively, these plans are called the “Stock Plans" and permit the Company to issue stock-based awards, including common stock, restricted stock, stock options and other rights and benefits under the plans to employees, directors and non-employees.

The 2010 Plan - During 2010, the Company adopted the 2010 Plan which permits grants of stock awards to employees, which may be shares, rights to purchase restricted stock, bonuses of restricted stock, or other rights or benefits under the plan.

The Company reserved 600,000 shares of its common stock for these purposes.

The Plan was amended and restated as of July 19, 2012 to make non-material changes to assure IRC Section 409A compliance.

Upon the adoption of the 2017 Plan in June 2017, the Company no longer grants any awards from the 2010 Plan.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

The 2017 Plan - During 2017, the Company adopted the 2017 Plan which permits grants of awards to employees, directors and non-employees, which may be shares, rights to purchase restricted stock, bonuses of restricted stock, or other rights or benefits under the plan.

On June 20, 2017, the Company's stockholders approved the 2017 Omnibus Incentive Plan (the "2017 Plan"), which permits grants of awards to employees, directors and non-employees.

Awards may be in the form of shares, rights to purchase restricted stock, bonuses of restricted stock, or other rights or benefits as described under the 2017 Plan.

As of December 31, 2021, the Company has 644,540 shares of its common stock authorized for issuance under the 2017 Plan.

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Compensation expense for RSA's is generally recognized over the vesting term on a straight-line basis.

Stock Options - Stock options generally vest over three years or upon satisfaction of performance-based conditions and have a contractual limit of five years from the date of grant to exercise.

The fair value of stock options granted is determined on the date of grant using the Black-Scholes option pricing model and the related expense is recognized on a straight-line basis over the entire vesting period.

No stock options were granted during the years ended December 31, 2020 and 2019.

When options are granted, the Company uses historical data to estimate inputs used in the Black-Scholes option pricing model.

Risk-free interest rate - The risk-free interest rate for stock options granted during the period was determined by using a zero-coupon U.S.

Treasury rate for the periods that coincided with the expected terms listed above.

Dividends - As historically no dividends had been paid as of the date by which grants occurred, no dividend yield was included in the calculations when the outstanding options were granted.

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

Expected term - The Company’s expected term of options was based upon historical exercise behavior and consideration of the options' vesting and contractual terms.

RSU's - Restricted Stock Units ("RSU's") are typically granted with vesting terms of one year.

The fair value of RSU's is determined based on the closing price of the Company’s common stock on the authorization date of the grant multiplied by the number of shares subject to the stock award.

Compensation expense is generally recognized over the service period of the award on a straight-line basis.

PSU's - Performance share units ("PSU's") generally vest over three years and are based on the grantee’s continuous service with the Company, performance measures or a combination of both.

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Compensation expense is recognized for PSU awards on a straight-line basis over the vesting period based on the estimated fair value at the date of grant using a Monte Carlo simulation model.

No PSU's were granted during the year ended December 31, 2019.

Risk-free interest rate - The risk-free interest rate for PSU's granted during the period was determined by using a zero-coupon, U.S.

Treasury rate for the periods that coincided with the expected terms listed above.

Dividends - As historically no dividends had been paid as of the date by which grants occurred, no dividend yield was included in the calculations.

Dividends - As the PSU's granted receive dividend equivalent units, no discount was applied for any dividends declared.

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

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Total stock-based compensation expense $ 1,927 $ 2,496

Stock-based compensation expense related to manufacturing employees and administrative employees is included in the "Consumables cost of revenues, excluding depreciation and amortization and "Payroll and benefits line items" in

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

Stock-based compensation expense related to manufacturing employees and administrative employees is included in the Consumables cost of revenue and Payroll and benefits line items, respectively, in the Consolidated Statements of Operations.

Stock-based compensation expense related to non-employee directors and consultants is included in the General and administrative line item in the Consolidated Statement of Operations.

the Consolidated Statements of Operations.

Stock-based compensation expense related to non-employee directors and consultants is included in the "General and administrative" line item in the Consolidated Statements of Operations.

The amount of unrecognized compensation cost as of December 31, 2021, and the expected weighted-average period over which the cost will be recognized is as follows:

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Restricted Stock

A summary of the status and activity of RSA's and RSU's is presented in the following table:

A summary of activity of RSA's for the year ended December 31, 2021 is presented in the following table:

Restricted Stock Weighted-Average Grant Date Fair Value

(in thousands, except for share and per share amounts) Awards Units RSA's RSU's

(in thousands, except for share and per share amounts) Awards RSA's

For the year ended December 31, 2021

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Non-vested at December 31, 2021 531,623 $ 5.94

The weighted-average grant date fair value of RSA's granted or modified during the years ended December 31, 2020 and 2019 was $ 5.20 and $ 11.03 , respectively.

The total grant-date fair value of RSA's vested during the years ended December 31, 2020 and 2019 was $ 3.4 million and $ 1.1 million, respectively.

The weighted-average grant date fair value of RSA's granted or modified for the years ended December 31, 2021 and 2020 was $ 5.54 and $ 5.20 , respectively.

The total grant-date fair value of RSA's vested for the years ended December 31, 2021 and 2020 was $ 1.5 million and $ 3.4 million, respectively.

The aggregate intrinsic value of non-vested RSA's outstanding as of December 31, 2021 was $ 3.5 million.

Stock Options

A summary of option activity under the Stock Plans is presented below:

(in thousands, except for share and per share amounts) Number of

Outstanding and

Exercisable Weighted-

Price Aggregate Intrinsic Value Weighted-

Term (in years)

For the year ended December 31, 2020

Options outstanding at January 1, 2020 300,000 $ 13.87

Options granted — $ —

Options exercised — $ —

Options expired / forfeited ( 300,000 ) $ 13.87

Options outstanding at December 31, 2020 — $ — $ — —

Options vested and exercisable at December 31, 2020 — $ — $ — —

PSU's outstanding remain unvested until the third anniversary of their issuance date, at which time the actual number of vested shares will be determined based on the actual price performances of the Company’s common stock relative to a broad stock index and a peer group performance index.

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

The weighted-average grant-date fair value of options vesting during the years ended December 31, 2020 and 2019 was zero and zero , respectively.

The weighted-average grant-date fair value of options exercised during the year ended December 31, 2020 and 2019 was zero and $ 0.6 million, respectively.

The Company received proceeds of $ 0.2 million from the exercise of stock options during the year ended December 31, 2019.

Cash flows resulting from excess tax benefits, if any, are classified as part of cash flows from financing activities.

Excess tax benefits are realized tax benefits from tax deductions for vested RSA's and exercised options in excess of the deferred tax asset attributable to stock compensation costs for such equity awards.

The Company recorded no excess tax benefits for the years ended December 31, 2020 and 2019.

PSU's outstanding remain unvested until the third anniversary of their issuance date, at which time the actual number of vested shares will be determined based upon the actual price performances of the Company’s common stock relative to a broad stock index and a peer group performance index.

A summary of PSU activity for the year ended December 31, 2020 is presented below:

A summary of PSU activity for the year ended December 31, 2021 is presented in the table below:

Units Weighted-Average

1 unchanged sentence

Term (in years)

PSU's outstanding, December 31, 2020

For the year ended December 31, 2021

PSU's outstanding, January 1, 2021 50,127 $ 6.17

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PSU's outstanding, December 31, 2021 88,026 $ 6.17 $ 583 1.71

There were no PSU's granted during the year ended December 31, 2019.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Note 17 - Supplemental Financial Information

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Prepaid expenses $ 2,571 $ 1,690

Prepaid income taxes 1,605 4,228

Prepaid income taxes and income tax refunds 2,782 1,605

Other 1,308 1,302

2 unchanged sentences

Upfront customer consideration (1)

$ 6,982 $ 7,490

Cabot receivable (1)

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Parts are recorded as maintenance expenses in the period in which they are consumed.

Mine development costs include acquisition costs, the cost of other development work and mitigation costs related to the Five Forks Mine and are depleted over the estimated life of the related mine reserves, which is 16 years.

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In November 2014, the Company acquired an 8 % ownership interest in the common stock of Highview for $ 2.8 million in cash.

The Company accounts for the Highview Investment as an investment recorded at cost, less impairment, plus or minus observable changes in price for identical or similar investments of the same issuer.

The Highview Investment is evaluated for indicators of impairment such as an event or change in circumstances that may have a significant adverse effect on the fair value of the investment.

There were no changes to the carrying value of the Highview Investment for the years ended December 31, 2020 and 2019 as there were no indicators of impairment or observable price changes for equity issued by Highview.

Since the purchase date, the Company has recognized $ 2.2 million of cumulative impairment losses on the Highview Investment.

The Company accounts for the

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

Highview Investment as an investment recorded at cost, less impairment, plus or minus observable changes in price for identical or similar investments of the same issuer.

The Highview Investment is evaluated for indicators of impairment such as an event or change in circumstances that may have a significant adverse effect on the fair value of the investment.

There were no changes to the carrying value of the Highview Investment for the years ended December 31, 2021 and 2020 as there were no indicators of impairment or observable price changes for equity issued by Highview.

Since inception of Highview Investment, the Company has recognized $ 2.2 million of cumulative impairment losses.

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

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Mine reclamation liabilities 8,184 12,077

Other 287 229

$ 12,362 $ 13,473

The Mine reclamation liability related to the Five Forks Mine is included in Other long-term liabilities.

The Mine reclamation liability related to Marshall Mine, which was assumed in the Marshall Mine Acquisition is included in Other current liabilities and Other long-term liabilities.

The Mine reclamation liabilities represent AROs.

The Mine reclamation liability related to Marshall Mine, which was assumed in the Marshall Mine Acquisition is included in Other current liabilities" and "Other long-term liabilities." The Mine reclamation liabilities represent AROs.

Changes in the AROs were as follows:

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Asset retirement obligations, long-term $ 8,184 $ 12,077

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Supplemental Consolidated Statements of Operations Information

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On December 29, 2020, the Company and a former customer (the "Parties") reached a settlement (the "Settlement") on various litigation matters (the "Litigation Matters") that resulted in the former customer (the "Former Customer") agreeing to pay to the Company cash of $ 2.5 million (the "Settlement Amount"), which was received on January 27, 2021.

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.

The Company 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 on the Settlement of $ 1.1 million, which is reported as a component of operating expenses in the Consolidated Statements of Operations for the year ended December 31, 2020.

The gain on settlement impacted operating income for the quarterly period ended December 31, 2020.

This payment was in exchange for full dissolution of all claims and counterclaims that the two Parties 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

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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.

The Company 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 of $ 1.1 million, which is reported as "Gain on settlement" as a component of operating expenses in the Consolidated Statements of Operations for the year ended December 31, 2020.

Gain on Change in estimate, asset retirement obligation

As discussed in Note 4, for the year ended December 31, 2021, recorded a gain on change in estimate of $ 2.7 million based on its revisions in its estimate of future obligations owed for the reclamation of Marshall Mine.

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

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Interest income $ 326 $ 127

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Note 18 - Income Taxes

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Effective tax rate 21 % ( 47 ) %

Income tax expense differs from the amount that would be computed by applying the U.S.

statutory federal income tax rate of 21% for the years ended December 31, 2020 and 2019 to income before income taxes as a result of the following:

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Income tax expense differed from the amount that would be computed by applying the U.S.

statutory federal income tax rate of 21% to income before income taxes for the years ended December 31, 2021 and 2020 as follows:

Years Ended December 31,

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Return to provision and other true-ups ( 40 ) 572

UTP liability — 236

Expense for the provision for income taxes $ 6,511 $ 11,999

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Other ( 186 ) —

Income tax expense $ 15,672 $ 6,511

Deferred income taxes are provided for the effects of temporary differences between the tax basis of an asset or liability and their reported amounts in the accompanying Consolidated Balance Sheets.

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Operating lease obligations 1,585 508

Inventory — 507

Total deferred tax assets 99,445 108,813

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Property and equipment and other ( 8,203 ) ( 7,039 )

Equity method investments — ( 736 )

Upfront customer consideration ( 1,747 ) ( 1,847 )

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Inventory ( 197 ) ( 295 )

ARO, net of reimbursements ( 333 ) —

Total deferred tax liabilities ( 11,977 ) ( 9,451 )

Net deferred tax assets $ — $ 10,604

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.

The Company assesses the valuation allowance recorded against deferred tax assets at each reporting date.

The determination of whether a valuation allowance for deferred tax assets is appropriate requires the evaluation of positive and negative evidence that can be objectively verified.

Consideration must be given to all sources of taxable income available to realize a deferred tax asset, including, as applicable, the future reversal of existing temporary differences, future taxable income forecasts exclusive of the reversal of temporary differences and carryforwards, taxable income in carryback years and tax planning strategies.

In estimating taxes, the Company assesses 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, the Company concluded it is more likely than not the Company will generate sufficient taxable income within the applicable net operating loss and tax credit carry-forward periods to realize $ 10.6 million of its net deferred tax assets, which resulted in an increase in the valuation allowance from December 31, 2019 of $ 9.1 million.

In reaching this conclusion, the Company primarily considered:

(1) the future reversal of existing temporary differences;

and (2) forecasts of future taxable income.

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

Accounting for income taxes requires that companies assess whether a valuation allowance should be recorded against a 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.

The Company assesses a valuation allowance recorded against deferred tax assets at each reporting date.

The determination of whether a valuation allowance is appropriate requires the evaluation of positive and negative evidence that can be objectively verified.

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

As of December 31, 2021, the Company concluded it is more likely than not the Company will not generate sufficient taxable income within the applicable net operating loss and tax credit carry-forward periods to realize any of its net deferred tax assets.

For the year ended December 31, 2021, the Company reduced a valuation allowance from December 31, 2020 by $ 1.3 million, but as of December 31, 2021 has a valuation allowance equal to 100 % of its net deferred tax assets.

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

The following table presents the approximate amount of state net operating loss carryforwards and federal tax credit carryforwards available to reduce future taxable income, along with the respective range of years that the net operating loss and tax credit carryforwards would expire if not utilized:

1 unchanged sentence

(in thousands) 2021 Beginning expiration year Ending expiration year

Foreign net operating loss carryforwards $ 656 2041 2041

State and other operating loss carryforwards $ 2,388 2026 2036

Federal tax credit carryforwards $ 86,097 2032 2040

The following table sets forth a reconciliation of the beginning and ending unrecognized tax benefits on a gross basis for the years ended December 31, 2020 and 2019:

The following table sets forth a reconciliation of the beginning and ending unrecognized tax positions on a gross basis for the years ended December 31, 2021 and 2020:

Years Ended December 31,

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Balance as of January 1 $ 946 $ 946

Increases for tax positions of prior years — 892

Lapse of applicable statute of limitations ( 892 ) —

Balance as of December 31 $ 54 $ 946

Included in the balance of unrecognized tax benefits as of December 31, 2020 and December 31, 2019 is $ 0.7 million of tax benefits that, if utilized, would result in an adjustment to deferred taxes.

The Company did not record any adjustments or recognize interest expense for uncertain tax positions for the years ended December 31, 2020 and 2019.

For the years ended December 31, 2021 and 2020, the Company did not record any adjustments or recognize interest expense for uncertain tax positions.

Interest and penalties related to uncertain tax positions are accrued and included in the "Interest expense"line item in the Consolidated Statements of Operations.

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The Company's operating and reportable segments are organized by products and services provided.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2021, the Company has two reportable segments:

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and (2) Advanced Purification Technologies ("APT").

Given the downward trends in the coal-fired power generation market, the prices of competing power generation sources as well as the expected expiration of the Section 45 tax credit period as of December 31, 2021, during 2020 we initiated plans to expand our AC products and diversify into new markets.

As a result, internal changes, including changes in operating structure and the method in which the Chief Operating Decision Maker ("CODM") allocates resources, resulted in the change in reportable segments.

The Company has recast segment information below for the year ended December 31, 2019 to be consistent with the new reportable segments as of December 31, 2020.

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

1 unchanged sentence

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

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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

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

As of December 31, 2020 and 2019, substantially all of the Company's material assets are located in the U.S.

and all significant customers are U.S.

As of December 31, 2021 and 2020, substantially all of the Company's material assets were located in the U.S.

and the majority of its customers are U.S.

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

8 unchanged sentences

85,882 53,908

85,926 53,923

Total segment reporting revenues 169,020 98,341

3 unchanged sentences

Segment operating income (loss)

Refined Coal (1)

$ 82,634 $ 42,689

2 unchanged sentences

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

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

Included in APT segment operating loss for the year ended December 31, 2019 was approximately $ 5.0 million of amortization expense related to the fair value of inventory.

(1) Revenues - Consumables for the year ended December 31, 2020 have been restated.

See restatement discussion in Note 2.

(2) Included in 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 for the year ended December 31, 2021 was $ 2.7 million related to a gain on change in estimate, asset retirement obligation.

Additionally, included in APT segment operating loss for the year ended December 31, 2020 was an impairment charge of $ 26.1 million and the Gain on Settlement of $ 1.1 million.

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

A reconciliation of reportable segment operating income to the Company's consolidated net income is as follows:

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

Years Ended December 31,

1 unchanged sentence

Total reported segment operating income $ 88,283 $ 2,731

Adjustments to reconcile to (loss) income before income tax expense attributable to the Company:

Adjustments to reconcile to income (loss) before income tax expense attributable to the Company:

Corporate payroll and benefits ( 2,478 ) ( 2,866 )

4 unchanged sentences

Other income, net 999 5

(Loss) income before income tax expense $ ( 13,791 ) $ 47,536

Income (loss) before income tax expense $ 76,073 $ ( 13,791 )

Corporate general and administrative expenses include certain costs that benefit the business as a whole but are not directly related to one of the Company's segments.

14 unchanged sentences

Expenditures for additions to long-lived assets were $ 7.4 million and $ 7.3 million, respectively, for the years ended December 31, 2021 and 2020.

(3) Includes the Company's net deferred tax assets of $ 10.6 million and $ 14.1 million as of December 31, 2020 and 2019, respectively .

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(3) Includes the Company's net deferred tax assets of zero and $ 10.6 million as of December 31, 2021 and 2020, respectively .

Note 20 - Fair Value Measurements

Fair Value of Financial Instruments

The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, deposits and accrued expenses, approximate fair value due to the short maturity of these instruments.

T he carrying amounts of the Senior Term Loan and other obligations.

including finance leases, approximate fair value based on credit terms and market interest rates currently available for similar instruments.

The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, deposits and accrued expenses, approximate their fair values due to the short maturity of these instruments.

T he carrying amounts of the Senior Term Loan and other obligations, including finance leases, approximate their fair values based on credit terms and market interest rates currently available for similar instruments.

Accordingly, these instruments are not presented in the table below.

5 unchanged sentences

Highview Obligation $ 227 $ 227 $ 228 $ 228

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Concentration of credit risk

8 unchanged sentences

As disclosed in Note 6, the Company recorded an impairment charge related to the Asset Group based on a valuation model that included an expected future discounted cash flow model using Level 3 inputs.

The Company completed the Carbon Solutions Acquisition, in which the fair value of the purchase consideration totaled $ 66.5 million.

The Company's estimated fair values of the assets acquired and liabilities assumed are disclosed in Note 8.

The fair value measurements represent Level 3 measurements as they were based on significant inputs not observable in the market.

As noted in Note 17, the Company accounts for the Highview Investment as an investment recorded at cost, less impairment, plus or minus observable changes in price for identical or similar investments of the same issuer.

5 unchanged sentences

A License royalties, related party RC 14 % 20 %

B Consumables APT 10 % 10 %

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

B Consumables (1)

C Consumables (1)

APT 10 % 11 %

(1) Consumables revenues for the year ended December 31, 2020 have been restated.

See restatement discussion in Note 2.

Note 22 - Related Party Transactions

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The above Tinuum Group royalties are included in the "License royalties, related party" line in the Consolidated Statements of Operations.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Note 23 - Defined Contribution Savings Plans

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The Company makes contributions to the 401(k) Plan based on percentages of an employee's eligible compensation as specified in the 401(k) Plan, and such employer contributions are in the form of cash.

Prior to January 1, 2020, the Company sponsored two 401(k) Plans, which were merged effective January 1, 2020.

The following table presents the amount of the Company's contributions made to the 401(k) Plans:

2 unchanged sentences

401(k) Plans employer contributions $ 479 $ 484

Note 24 - Restructuring and Other Compensation

Restructuring

For the years ended December 31, 2020 and 2019, the Company did not record material restructuring charges.

Other Compensation

On March 27, 2020, the Company's CEO resigned from the Company effective June 30, 2020.

Pursuant to a settlement agreement executed between the Company and the CEO, the Company was obligated to pay severance compensation to the CEO in the form of salary continuance, cash bonus, contingent upon the Company achieving a performance metric, healthcare benefits, RSAs and PSUs, which in the aggregate was $ 1.4 million.

As of June 30, 2020, the Company recorded a liability for the total severance compensation and corresponding expense under the caption "Payroll and benefits" in the Condensed Consolidated Statements of Operations.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

A summary of the net pretax charges incurred is as follows:

The following table summarizes the Company's utilization of restructuring accruals for the years ended December 31, 2020 and 2019:

(in thousands) Employee Severance

Beginning accrual as of January 1, 2019 $ 2,208

Expense provision 172

Cash payments and other ( 2,051 )

Change in estimates ( 75 )

Accrual as of December 31, 2019 254

Expense provision 1,403

Cash payments and other ( 1,386 )

Accrual as of December 31, 2020 $ 271

For the years ended December 31, 2020 and 2019, included in the Expense provision and Cash payments and other line items in the above table is stock-based compensation of $ 0.6 million and zero , respectively, resulting from the accelerated vesting of equity-based compensation awards for certain terminated employees.

Restructuring accruals related to personnel are included in the Accrued payroll and related liabilities line item in the Consolidated Balance Sheets.

Restructuring expenses related to personnel are included in the Payroll and benefits and Impairment of long-lived assets line items in the Consolidated Statements of Operations.

Note 24 - Quarterly Financial Results (unaudited)

3 unchanged sentences

Revenues $ 25,764 $ 30,858 $ 21,065 $ 22,607

Cost of revenues, exclusive of operating expenses shown below 10,693 15,013 7,416 11,491

Cost of revenues 16,904 19,956 14,732 13,984

Other operating expenses 8,076 (1) 7,603 5,894 8,293

Operating income (loss) 1,550 ( 2,825 ) ( 31,065 ) ( 8,641 )

Operating income 784 3,299 439 330

Earnings from equity method investments 6,782 22,195 21,437 18,312

Other expenses, net ( 943 ) ( 864 ) ( 814 ) ( 1,167 )

Income (loss) before income tax expense 5,626 5,829 ( 23,711 ) ( 1,535 )

Other (expenses) income, net ( 86 ) 3,340 ( 343 ) ( 416 )

Income before income tax expense 7,480 28,834 21,533 18,226

Income tax expense 1,659 4,581 4,943 4,489

Net income (loss) $ 430 $ 4,975 $ ( 23,814 ) $ ( 1,893 )

Earnings (loss) per common share – basic $ 0.02 $ 0.27 $ ( 1.32 ) $ ( 0.11 )

Earnings (loss) per common share – diluted $ 0.02 $ 0.27 $ ( 1.32 ) $ ( 0.11 )

Net income $ 5,821 $ 24,253 $ 16,590 $ 13,737

Earnings per common share – basic $ 0.32 $ 1.33 $ 0.91 $ 0.76

Earnings per common share – diluted $ 0.31 $ 1.31 $ 0.90 $ 0.75

Weighted-average number of common shares outstanding

1 unchanged sentence

Diluted 18,545 18,489 18,398 18,274

(1) During the fourth quarter of 2021, the Company recorded a gain on change in estimate, asset retirement obligation of $ 0.8 million related to the Company revising its estimate of future obligations owed for the reclamation of Marshall Mine as further described in Note 17.

Advanced Emissions Solutions, Inc.

4 unchanged sentences

Revenues $ 19,743 $ 21,270 $ 12,726 $ 13,624

Cost of revenues, exclusive of operating expenses shown below 11,104 11,939 12,292 14,108

Cost of revenues 12,076 16,812 8,659 12,852

Other operating expenses 6,117 (1) 7,283 35,132 9,413

Operating loss ( 4,687 ) ( 2,391 ) ( 4,260 ) ( 3,555 )

Operating income (loss) 1,550 ( 2,825 ) ( 31,065 ) ( 8,641 )

Earnings from equity method investments 5,019 9,518 8,168 8,273

Other expenses, net ( 943 ) ( 864 ) ( 814 ) ( 1,167 )

Income before income tax expense 6,169 10,518 14,748 16,101

Income tax (benefit) expense ( 2,929 ) (3) 6,595 6,634 1,699

Net income $ 9,098 $ 3,923 $ 8,114 $ 14,402

Earnings per common share – basic $ 0.50 $ 0.22 $ 0.45 $ 0.79

Earnings per common share – diluted $ 0.50 $ 0.21 $ 0.44 $ 0.78

Income (loss) before income tax expense 5,626 5,829 ( 23,711 ) ( 1,535 )

Income tax expense 5,196 (2) 854 103 358

Net income (loss) $ 430 $ 4,975 $ ( 23,814 ) $ ( 1,893 )

Earnings (loss) per common share – basic $ 0.02 $ 0.27 $ ( 1.32 ) $ ( 0.11 )

Earnings (loss) per common share – diluted $ 0.02 $ 0.27 $ ( 1.32 ) $ ( 0.11 )

Weighted-average number of common shares outstanding

1 unchanged sentence

Diluted 18,167 18,103 18,014 17,932

(1) During the fourth quarter of 2020, the Company recorded a gain on settlement of 1.1 million related to the Settlement reached with the Former Customer as further described in Note 17.

(2) During the fourth quarter of 2020, the Company recorded income tax expense of $ 5.2 million primarily due to an increase in the valuation allowance as of December 31, 2020 related to the Company's deferred income tax assets.

(3) During the fourth quarter of 2019, the Company recorded income tax benefit of $ 2.9 million primarily due to a decrease in current income tax expense compared to current income tax recorded from the nine months ended September 30, 2019.

This decrease was primarily due to a decrease in income before income tax expense for the year ended December 31, 2019 compared to the estimated annual income before income tax expense that was used in computing current income tax expense for the nine months ended September 30, 2019.

(1) During the fourth quarter of 2020, the Company recorded a gain of 1.1 million related to the Settlement reached with the Former Customer as further described in Note 17.

As discussed in Note 2, the Company concluded that its historical presentation of shipping and handling costs billed to customers as a component of cost of revenues rather than as a component of revenues was incorrect and that the Company's presentation of both the "Revenues - Consumables" and "Consumables cost of revenues, exclusive of depreciation and amortization" line items for the year ended December 31, 2020 should be restated.

The impact of this error resulted in an understatement of both the "Revenues - Consumables" and "Consumables cost of revenues, exclusive of depreciation and amortization" line items in the Consolidated Statements of Operations for each of the quarters included in 2020 and for the quarters ended March 31, 2021, June 30, 2021 and September 30, 2021 and is shown below for those periods.

The amounts reported above for the three months ended March 31, 2021 and 2020, the three months ended June 30, 2021 and 2020, the three months ended September 30, 2021 and 2020 and the three months ended December 31, 2020 have been restated for this error.

There was no impact to operating income (loss), income (loss) before income taxes, net income (loss) or earnings (loss) to any of the 2021 or 2020 periods.

The adjustments for restatement of the quarters ended September 30, 2021, June 30, 2021, and March 31, 2021 are as follows:

For the Quarter Ended

September 30, 2021 (Restated) June 30, 2021 (Restated) March 31, 2021 (Restated)

Increase / (Decrease) Increase / (Decrease) Increase / (Decrease)

Revenues 2,004 1,432 1,510

Cost of revenues 2,004 1,432 1,510

Operating income — — —

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

The adjustments for restatement of the quarters ended December 31, 2020, September 30, 2020, June 30, 2020, and March 31, 2020 are as follows:

For the Quarter Ended

December 31, 2020 (Restated) September 30, 2020 (Restated) June 30, 2020 (Restated) March 31, 2020 (Restated)

Increase / (Decrease) Increase / (Decrease) Increase / (Decrease) Increase / (Decrease)

Revenues 1,383 1,799 1,243 1,361

Cost of revenues 1,383 1,799 1,243 1,361

Operating income — — — —

Note 25 - Subsequent Events

Unless disclosed elsewhere in the notes to the Consolidated Financial Statements, the following are the significant matters that occurred subsequent to December 31, 2020.

In February 2021, the Company entered into a 5 -year supply agreement with Cabot Norit Nederland B.V., a subsidiary of Cabot Corporation ("Cabot"), to supply Cabot with lignite activated carbon products and other ADES proprietary products used for mercury removal in utility and industrial coal-fired power plants.

Cabot will be the exclusive and sole reseller of the products within Europe, Turkey, the Middle East and Africa.

Unless disclosed elsewhere in the notes to the Consolidated Financial Statements, the following is the significant matter that occurred subsequent to December 31, 2021.

On February 25, 2022, the Company 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, the Company received from Cabot full payment of all amounts outstanding under the Reclamation Reimbursement, payment of all unbilled amounts related to Specific Capital for expenditures incurred through February 28, 2022 and payment of additional Reclamation Costs (the "Cabot Reclamation Costs").

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

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

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data