Arq, Inc. 10-K

Item 8. Financial Statements and Supplementary Data Advanced Emissions Solutions, Inc. Index to Financial Statements Advanced Emissions Solutions, Inc. Consolidated Financial Statements: Report of Independent Registered Public Accounting Firm (Moss Adam LLP, Denver, Colorado, PCAOB ID: 659 ) 50 Consolidated Balance Sheets as of December 31, 2021 and 2020 52 Consolidated Statements of Operations for the years ended December 31, 2021 and 2020 53 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2021 and 2020 54 Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020 55 Notes to Consolidated Financial Statements 57 49 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Advanced Emissions Solutions, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Advanced Emissions Solutions, Inc. and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2021 and 2020, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. 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 As described in Notes 1 and 18 to the consolidated financial statements, the Company recognizes deferred income taxes for the effects of temporary differences between the tax basis of an asset or liability and their reported amounts in the accompanying consolidated balance sheet. These temporary differences result in taxable or deductible amounts in future years. 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, 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. 50 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. The primary procedures we performed to address this critical audit matter included: • 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 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 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. • 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 Denver, Colorado March 8, 2022 We have served as the Company’s auditor since 2017. 51 Advanced Emissions Solutions, Inc. and Subsidiaries Consolidated Balance Sheets As of December 31, (in thousands, except share data) 2021 2020 ASSETS Current assets: Cash, cash equivalents and restricted cast $ 78,753 $ 30,932 Receivables, net 12,622 13,125 Receivables, related party 2,481 3,453 Inventories, net 7,850 9,882 Prepaid expenses and other current assets 6,661 4,597 Total current assets 108,367 61,989 Restricted cash, long-term 10,027 5,000 Property, plant and equipment, net of accumulated depreciation of $ 7,684 and $ 3,340 , respectively 30,171 29,433 Intangible assets, net 1,237 1,964 Equity method investments 2,391 7,692 Deferred tax assets, net — 10,604 Other long-term assets, net 33,243 29,989 Total Assets $ 185,436 $ 146,671 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 10,009 $ 7,849 Accrued payroll and related liabilities 6,477 3,257 Current portion of long-term debt 1,011 18,441 Other current liabilities 5,124 12,996 Total current liabilities 22,621 42,543 Long-term debt, net of current portion 3,152 5,445 Other long-term liabilities 12,362 13,473 Total Liabilities 38,135 61,461 Commitments and contingencies (Note 14) Stockholders’ equity: Preferred stock: par value of $ .001 per share, 50,000,000 shares authorized, none outstanding — — Common stock: par value of $ .001 per share, 100,000,000 shares authorized, 23,460,212 and 23,141,284 shares issued and 18,842,066 and 18,523,138 shares outstanding at December 31, 2021 and 2020, respectively 23 23 Treasury stock, at cost: 4,618,146 and 4,618,146 shares as of December 31, 2021 and 2020, respectively ( 47,692 ) ( 47,692 ) Additional paid-in capital 102,106 100,425 Retained earnings 92,864 32,454 Total stockholders’ equity 147,301 85,210 Total Liabilities and Stockholders’ equity $ 185,436 $ 146,671 See Notes to the Consolidated Financial Statements. 52 Advanced Emissions Solutions, Inc. and Subsidiaries Consolidated Statements of Operations Years Ended December 31, (in thousands, except per share data) 2021 2020 Revenues: Consumables $ 85,882 $ 53,908 License royalties, related party 14,368 13,440 Other 44 15 Total revenues 100,294 67,363 Operating expenses: 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 Legal and professional fees 6,260 5,585 General and administrative 7,060 8,228 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 Gain on settlement — ( 1,129 ) Total operating expenses 95,442 108,344 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 ) Other 640 132 Total other income 71,221 27,190 Income (loss) before income tax expense 76,073 ( 13,791 ) Income tax expense 15,672 6,511 Net income (loss) $ 60,401 $ ( 20,302 ) Earnings (loss) per common share (Note 1): Basic $ 3.31 $ ( 1.12 ) Diluted $ 3.27 $ ( 1.12 ) Weighted-average number of common shares outstanding: Basic 18,258 18,044 Diluted 18,461 18,044 See Notes to the Consolidated Financial Statements. 53 Advanced Emissions Solutions, Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders’ Equity Common Stock Treasury Stock (in thousands, except share data) Shares Amount Shares Amount Additional Paid-in Capital Retained Earnings/(Accumulated Deficit) Total Stockholders’ Equity Balances, January 1, 2020 22,960,157 $ 23 ( 4,597,533 ) $ ( 47,533 ) $ 98,466 $ 57,336 $ 108,292 Stock-based compensation 278,910 — — — 2,496 — 2,496 Repurchase of common shares to satisfy tax withholdings ( 97,783 ) — — — ( 537 ) — ( 537 ) Cash dividends declared on common stock — — — — — ( 4,580 ) ( 4,580 ) Repurchase of common shares — — ( 20,613 ) ( 159 ) — — ( 159 ) 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 Stock-based compensation 364,657 — — — 1,927 — 1,927 Repurchase of common shares to satisfy tax withholdings ( 45,729 ) — — — ( 246 ) — ( 246 ) 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 See Notes to the Consolidated Financial Statements. 54 Advanced Emissions Solutions, Inc. and Subsidiaries Consolidated Statements of Cash Flows Years Ended December 31, (in thousands) 2021 2020 Cash flows from 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 Depreciation, amortization, depletion and accretion 7,933 8,537 Amortization of debt discount and debt issuance costs 945 1,418 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 Gain on settlement — ( 1,129 ) Recovery of accounts receivable and other receivables ( 36 ) ( 990 ) Stock-based compensation expense 1,927 2,496 Earnings from equity method investments ( 68,726 ) ( 30,978 ) Other non-cash items, net ( 173 ) 192 Changes in operating assets and liabilities, net of effects of acquired businesses: Receivables, net 540 ( 2,541 ) Related party receivables 972 794 Prepaid expenses and other current assets ( 2,064 ) 3,234 Inventories, net 1,394 4,748 Other long-term assets, net 1,838 ( 1,005 ) Accounts payable 1,977 ( 196 ) Accrued payroll and related liabilities 3,220 233 Other current liabilities ( 8,279 ) ( 520 ) Operating lease liabilities ( 2,764 ) ( 2,200 ) Other long-term liabilities ( 2,645 ) ( 3,337 ) Distributions from equity method investees, return on investment 22,944 62,441 Net cash provided by operating activities 25,999 54,048 55 Years Ended December 31, (in thousands) 2021 2020 Cash flows from investing activities 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 ) 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 ) 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 ) Repurchase of common shares — ( 159 ) Net cash used in financing activities ( 17,529 ) ( 27,730 ) 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 Cash, Cash Equivalents and Restricted Cash, end of year $ 88,780 $ 35,932 Supplemental disclosure of cash flow information: Cash paid for interest $ 524 $ 2,489 Cash paid (received) for income taxes $ 8,882 $ ( 84 ) Supplemental disclosure of non-cash investing and financing activities: 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 See Notes to the Consolidated Financial Statements. 56 Advanced Emissions Solutions, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1 - Summary of Operations and Significant Accounting Policies Nature of Operations Advanced Emissions Solutions, Inc. ("ADES" or the "Company") is a Delaware corporation with its principal office located in Greenwood Village, Colorado and operations located in Louisiana. 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 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 ("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. 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 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 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. 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 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, 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. 57 Advanced Emissions Solutions, Inc. and Subsidiaries Notes to Consolidated Financial Statements 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. 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. 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. Intangible Assets Intangible assets consist of patents, licensed technology, customer relationships, developed technologies and trade names. The Company has developed technologies resulting in patents being granted by the U.S. Patent and Trademark Office or other regulatory offices. Legal costs associated with securing the patent are capitalized and amortized over the legal or useful life beginning on the patent filing date. The following table details the components of the Company's intangible assets: As of December 31, 2021 2020 (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 Patents 15 1,454 426 1,306 733 Developed technology 5 607 341 607 518 Total $ 2,896 $ 1,237 $ 2,748 $ 1,964 (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. The estimated future amortization expense for existing intangible assets as of December 31, 2021 is expected to be $ 0.2 million for each of the five succeeding fiscal years. Investments The investments in entities in which the Company does not have a controlling interest (financial or operating), but where it has the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method of accounting. 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 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. When the Company receives distributions in excess of the carrying value of the investment and has not guaranteed any obligations of the investee and/or is not required to provide additional funding to the investee, the Company recognizes such excess distributions as equity method earnings in the period the distributions occur. When the investee subsequently reports income, the Company does not record its share of such income until it equals the amount of distributions in excess of carrying value that were previously recognized in income. During the years ended December 31, 2021 and 2020, the Company had no guarantees or requirements to provide additional funding to investees. 58 Advanced Emissions Solutions, Inc. and Subsidiaries Notes to Consolidated Financial Statements 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 losses. 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. Likewise, distributions from equity method investees are reported in the Consolidated Statements of Cash Flows as "return on investment" in Operating cash flows until such time as the carrying value in an equity method investee company is reduced to zero; thereafter, such distributions are reported as "distributions in excess of cumulative earnings" in Investing cash flows. See Note 8 for additional information regarding the Company's equity method investments. Investments in partially-owned subsidiaries for which the Company has less-than-20% ownership are accounted for in accordance with accounting guidance applicable to equity investments that do not qualify for the equity method of accounting. The Company evaluates these types of investments for changes in fair value and, if there is change, recognizes the change in the Consolidated Statement of Operations. If no such events or changes in circumstances have occurred related to these types of investments, the fair value is estimated only if practicable to do so. Property, Plant and Equipment 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). Maintenance and repairs that do not extend the useful life of the respective asset are charged to Operating expenses as incurred. 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 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. Amortization of finance leased assets is included in depreciation expense and is calculated using the straight-line method over the term of the lease. Leases 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 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. For all classes of underlying assets, the Company does not separate nonlease components from lease components and accounts for each separate lease component and the nonlease components associated with that lease component as a single lease component. The Company records lease liabilities and related ROU assets for all leases that have a term of greater than one year. For short-term leases (leases with terms of less than one year), the Company expenses lease payments on a straight-line basis over the lease term. Variable lease payments represent payments made by a lessee for the right to use an underlying asset that vary because of changes in facts or circumstances occurring after the commencement date of a lease other than the passage of time. Variable lease payments that are based on an index or rate, calculated by using the index or rate that exists on the lease commencement date, are included in the measurement of a lease liability. Certain of the Company’s operating leases for office facilities contain variable lease components that are not based on an index or rate, and the Company recognizes these payments as lease expense in the period in which the obligation for those payments is incurred. The Company calculates lease liabilities based on the present value of lease payments discounted by the rate implicit in the lease or, if not readily determinable, the Company’s incremental borrowing rate. Finance lease liabilities are subsequently measured by increasing the carrying amount to reflect interest expense on the finance lease liability and reducing the carrying amount of the lease liability to reflect lease payments made during the period. 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 59 Advanced Emissions Solutions, Inc. and Subsidiaries 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. ROU assets under operating leases are subsequently measured at the amounts of the related operating lease liability, adjusted for, as applicable, prepaid or accrued lease payments, the remaining balance of any lease incentives received, unamortized initial direct costs and impairment. Lease expense from operating leases is recognized as a single lease cost over the remaining lease term on a straight-line basis. 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" and "Consumables Cost of revenues, excluding depreciation and amortization" line items in the Consolidated Statements of Operations. Other Assets 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 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 Sheets. Spare Parts Spare parts include critical spares required to support plant operations. Parts and supply costs are determined using the lower of cost or estimated replacement cost. Parts are recorded as maintenance expenses in the period in which they are consumed. Spare parts are reported in the "Other long-term assets, net" line item in the Consolidated Balance Sheets. Revenue Recognition The Company recognizes revenue from a contract with a customer when a performance obligation under the terms of a contract with a customer is satisfied, which is when the customer controls the promised goods or services that are transferred in satisfaction of the performance obligation. Revenue is measured as the amount of consideration that is expected to be received in exchange for transferring goods or providing services, and the transaction price is generally fixed and generally does not contain variable or noncash consideration. In addition, the Company’s contracts with customers generally do not contain customer refund or return provisions or other similar obligations. Transfer of control and satisfaction of performance obligations are further discussed in each of the revenue components listed below. The Company uses estimates and judgments in determining the nature and timing of satisfaction of performance obligations, the standalone selling price ("SSP") of performance obligations and the allocation of the transaction price to multiple performance obligations, if any. The Company’s revenue components are Consumables sales and License royalties. Consumables 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. 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 60 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 The Company generates revenues from royalties ("M-45 Royalties") earned under a licensing arrangement ("M-45 License") of its M-45 TM and M-45-PC TM emissions control technologies ("M-45 Technology") between the Company and Tinuum Group. The Company recognizes M-45 Royalties at a point in time based on the use of the M-45 Technology at certain RC facilities or through Tinuum Group’s use of licensed technology for rates in excess of amounts allowed for RC application. 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. Practical Expedients and Exemptions The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. Sales and other taxes that are collected concurrently with revenue-producing activities are excluded from revenue. 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 "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 revenues. Legal and Professional Legal and professional costs include external legal, audit and consulting expenses. General and Administrative General and administrative costs include director fees and expenses, rent, insurance and occupancy-related expenses, bad debt expense, impairments and other general costs of conducting business. 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. 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 Asset retirement obligations ("ARO") are comprised of mine reclamation activities required under operating agreements related to the Five Forks Mine and the Marshall Mine (as defined in Note 4) and are recognized when incurred and recorded as liabilities at fair value. An ARO is accreted over time through periodic charges to earnings. Accounting for reclamation and remediation obligations requires the Company to make estimates of future costs unique to a specific mining operation that the Company expects to incur to complete the reclamation and remediation work required to comply with existing laws and regulations. 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. 61 Advanced Emissions Solutions, Inc. and Subsidiaries Notes to Consolidated Financial Statements Five Forks Mine For the Five Forks Mine ARO, a corresponding ARO asset is depreciated over its estimated life. Reclamation costs related to the Five Forks Mine are allocated to expense over the life of the related mine assets, and are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation costs. Remediation costs for the Five Forks Mine are accrued based on management’s best estimate at the end of each period of the costs expected to be incurred. Such cost estimates may include ongoing care, maintenance and monitoring costs. Reclamation obligations are based on the timing of estimated spending for an existing environmental disturbance. On an annual basis, unless otherwise deemed necessary, the Company reviews its estimates and assumptions of the Five Forks Mine ARO. The Company’s mining activities at the Five Forks Mine are subject to various domestic laws and regulations governing the protection of the environment. The Company conducts its mining activities to protect public health and the environment and believes its operations are in compliance with applicable laws and regulations in all material respects. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations, but cannot predict the full amount of such future expenditures. Estimated future reclamation costs are based principally on current legal and regulatory requirements. Marshall Mine (refer to Note 4) 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 and actual reclamation costs may change and the Company accounts for these changes on a quarterly basis. Income Taxes 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 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 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. 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 Stock-based compensation expense is measured at the grant date based on the estimated fair value of the stock-based award and is generally expensed on a straight-line basis over the requisite service period and/or performance period of the award. Forfeitures are recognized when incurred. 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. 62 Advanced Emissions Solutions, Inc. and Subsidiaries Notes to Consolidated Financial Statements Dividends 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. 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. Potential dilutive shares are excluded from diluted earnings (loss) per share when their effect is anti-dilutive. When there is a net loss for a period, all Potential dilutive shares are anti-dilutive and are excluded from the calculation of diluted loss per share for that period. Each PSU represents a contingent right to receive shares of the Company’s common stock, and the number of shares may range from zero to two times the number of PSU's granted on the award date depending upon the price performance of the Company's common stock as measured against a general index and a specific peer group index over requisite performance periods. The number of Potential dilutive shares related to PSU's is based on the number of shares of the Company's common stock, if any, that would be issuable at the end of the respective reporting period, assuming that the end of the reporting period is the end of the contingency period applicable to such PSU's. See Note 16 for additional information related to PSU's. The following table sets forth the calculations of basic and diluted earnings per common share: Years Ended December 31, (in thousands, except per share amounts) 2021 2020 Net income (loss) $ 60,401 $ ( 20,302 ) Basic weighted-average number of common shares outstanding 18,258 18,044 Add: dilutive effect of equity instruments 203 — Diluted weighted-average shares outstanding 18,461 18,044 Earnings (loss) per share - basic $ 3.31 $ ( 1.12 ) Earnings (loss) per share - diluted $ 3.27 $ ( 1.12 ) 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 ("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. Significant financial statement components in which the Company makes assumptions include • business combinations, including asset acquisitions; • the carrying value of its long-lived assets; • AROs; and • 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. Additionally, due to COVID-19, overall power generation and coal-fired power demand may change, which could also 63 Advanced Emissions Solutions, Inc. and Subsidiaries Notes to Consolidated Financial Statements have a material adverse effect on the Company. The Company is not aware of any specific event or circumstance due to COVID-19 that would require an update to its estimates or judgments or a revision of the carrying values of its assets or liabilities through the date of this Report. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions Risks and Uncertainties 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 Certain balances have been reclassified from prior years to conform to the current year presentation. Such reclassifications had no effect on the Company’s results of operations or financial position in any of the periods presented. New Accounting Guidance 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 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 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. 64 Advanced Emissions Solutions, Inc. and Subsidiaries Notes to Consolidated Financial Statements 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 Revenues: 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"). 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 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. Note 4 - Acquisition of Marshall Mine Concurrently with the execution of the Supply Agreement, on September 30, 2020, the Company entered into an agreement to purchase (the "Mine Purchase Agreement") from Cabot 100 % of the membership interests in Marshall Mine, LLC (the "Marshall Mine Acquisition") for a nominal purchase price. Marshall Mine, LLC owns a lignite mine located outside of Marshall, Texas (the "Marshall Mine"). 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 65 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. The Company determined that the Marshall Mine Acquisition should be accounted for as an asset acquisition as it did not meet the definition of a business. 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 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. The Cabot Receivable is further discussed in Note 5. 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. 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. The net assets acquired and liabilities assumed and the additional assets recorded for the Marshal Mine Acquisition as of September 30, 2020 are shown in the table below. Subsequent to this date, the Company completed additional analysis and adjustments were made as noted in the table below: (in thousands) As Originally Reported Adjustments As Adjusted Assets acquired: Receivables $ — $ 513 $ 513 Property, plant and equipment 3,863 — 3,863 Spare parts 100 — 100 Liabilities assumed: Accounts payable and accrued expenses ( 673 ) 160 ( 513 ) Asset retirement obligation ( 21,328 ) — ( 21,328 ) Net assets acquired and liabilities assumed from Marshall Mine acquisition ( 18,038 ) 673 ( 17,365 ) Cabot receivable 9,749 — 9,749 Upfront Customer Consideration $ 8,289 $ ( 673 ) $ 7,616 The Company also evaluated 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 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. 66 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 Asset Retirement Obligation 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 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 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. There were no significant related fees or costs associated with the Cabot Receivable. 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, 2021 or 2020. 67 Advanced Emissions Solutions, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 6 - Impairment 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 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. As of June 30, 2020, the Company completed an undiscounted cash flow analysis of its APT segment's long-lived assets (the "Asset Group"), which were comprised of its manufacturing plant and related assets and its lignite mine assets. The estimated undiscounted cash flows from the Asset Group was $ 54.7 million, which was less than the carrying value of the Asset Group of $ 58.3 million. Accordingly, the Company completed an assessment of the Asset Group’s fair value and estimated the fair value of the Asset Group at $ 32.2 million. This resulted in an impairment and write-down of the Asset Group (the "Impairment Charge") of $ 26.1 million as of June 30, 2020. The Impairment Charge is reflected as "Impairment of long-lived assets" in the Consolidated Statement of Operations for the year ended December 31, 2020, and was allocated to the APT segment. The following table summarizes the allocation to the Asset Group of the Impairment Charge of $ 26.1 million recorded as of June 30, 2020: (in thousands) Property, plant and equipment, net $ 18,986 Intangible assets, net 1,445 Other long-term assets, net 5,672 Total impairment $ 26,103 The Company engaged an independent third party to perform the valuation of the Asset Group in order to determine the estimated fair value of the Asset Group. This valuation was based on the use of several established valuation models including an expected future discounted cash flow model using Level 3 inputs. Note 7 - COVID-19 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"). 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 interest). For the year ended December 31, 2021, the Company recorded a gain on extinguishment of the PPP Loan in the amount of $ 3.3 million in the Consolidated 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 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 Tinuum Group, LLC As of December 31, 2021 and 2020, the Company’s ownership in Tinuum Group was 42.5 %. 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 68 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. ("GS"), own the remaining 42.5 % and 15.0 %, respectively of Tinuum Group. 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 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: As of December 31, (in thousands) 2021 2020 Current assets $ 39,387 $ 142,440 Non-current assets $ 220 $ 28,649 Current liabilities $ 15,558 $ 44,278 Non-current liabilities $ — $ 5,186 Members equity attributable to Class A members $ 8,890 $ 59,221 Member equity attributable to Class B members $ 9,887 $ 18,769 Noncontrolling interests $ 5,272 $ 43,635 Years Ended December 31, (in thousands) 2021 2020 Gross profit $ 6,995 $ 6,649 Operating, selling, general and administrative expenses 49,414 58,008 Loss from operations ( 42,419 ) ( 51,359 ) Other income 9,726 17,260 Loss attributable to noncontrolling interest 126,948 91,501 Net income available to Class A and B members $ 94,255 $ 57,402 ADES equity earnings from Tinuum Group $ 61,837 $ 24,396 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. 69 Advanced Emissions Solutions, Inc. and Subsidiaries Notes to Consolidated Financial Statements 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, 2021 and 2020 ( in thousands ): Description Date(s) Investment balance ADES equity earnings (loss) Cash distributions Memorandum Account: Cash distributions and equity loss in (excess) of investment balance Beginning balance 12/31/2019 $ 32,280 $ — $ — $ — ADES proportionate share of net income from Tinuum Group 2020 activity 24,396 24,396 — — Cash distributions from Tinuum Group 2020 activity ( 53,289 ) — 53,289 — Total investment balance, equity earnings (loss) and cash distributions 12/31/2020 $ 3,387 $ 24,396 $ 53,289 $ — ADES proportionate share of net income from Tinuum Group 2021 activity 40,058 40,058 — — 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 ) Additional information related to Tinuum Group is included in Item 15 - "Exhibits and Financial Statement Schedules" ("Item 15") of this Report. Tinuum Services, LLC 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 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. As of December 31, 2021 and 2020, the Company’s investment in Tinuum Services was $ 2.4 million and $ 4.2 million, respectively. 70 Advanced Emissions Solutions, Inc. and Subsidiaries Notes to Consolidated Financial Statements The following tables summarize the assets, liabilities and results of operations of Tinuum Services: As of December 31, (in thousands) 2021 2020 Current assets $ 159,013 $ 301,670 Non-current assets $ 19 $ 45,575 Current liabilities $ 14,343 $ 187,097 Non-current liabilities $ — $ 6,451 Equity $ 6,263 $ 8,483 Noncontrolling interests $ 138,426 $ 145,214 Years Ended December 31, (in thousands) 2021 2020 Gross loss $ ( 68,465 ) $ ( 87,723 ) Operating, selling, general and administrative expenses 166,075 171,095 Loss from operations ( 234,540 ) ( 258,818 ) Other income (expenses) 3,830 ( 1,282 ) Loss attributable to noncontrolling interest 246,094 273,262 Net income $ 15,384 $ 13,162 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. The following table details the carrying value of the Company's respective equity method investments included in the "Equity method investments" line item on the Consolidated Balance Sheets and indicates the Company's maximum exposure to loss: As of December 31, (in thousands) 2021 2020 Equity method investment in Tinuum Group $ — $ 3,387 Equity method investment in Tinuum Services 2,391 4,242 Equity method investment in other — 63 Total equity method investments $ 2,391 $ 7,692 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. 71 Advanced Emissions Solutions, Inc. and Subsidiaries Notes to Consolidated Financial Statements The following table details the components of the Company's respective earnings or loss from equity method investments included in the "Earnings from equity method investments" line item in the Consolidated Statements of Operations: Year ended December 31, (in thousands) 2021 2020 Earnings from Tinuum Group $ 61,837 $ 24,396 Earnings from Tinuum Services 6,952 6,582 Loss from other ( 63 ) — Earnings from equity method investments $ 68,726 $ 30,978 The following table details the components of the cash distributions from the Company's respective equity method investments included as a component of cash flows from operating activities in the Consolidated Statements of Cash Flows. Distributions from equity method investees are reported in the Consolidated Statements of Cash Flows as "return on investment" in Operating cash flows until such time as the carrying value in an equity method investee company is reduced to zero ; thereafter, such distributions are reported as "distributions in excess of cumulative earnings" as a component of cash flows from investing activities. Year ended December 31, (in thousands) 2021 2020 Distributions from equity method investees, return on investment Tinuum Group $ 14,142 $ 53,289 Tinuum Services 8,802 9,152 $ 22,944 $ 62,441 Distributions from equity method investees in excess of cumulative earnings Tinuum Group $ 51,082 $ — $ 51,082 $ — Note 9 - Inventories, net The following table summarizes the Company's inventories recorded at the lower of average cost or net realizable value as of December 31, 2021 and 2020: As of December 31, (in thousands) 2021 2020 Product inventory $ 4,901 $ 8,361 Raw material inventory 2,949 1,521 $ 7,850 $ 9,882 72 Advanced Emissions Solutions, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 10 - Property, Plant and Equipment 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, (in thousands) 2021 2020 Land and land improvements 0 - 31 $ 1,225 $ 891 Plant and operating equipment 2 - 29 31,266 25,703 Furniture and fixtures 2 - 11 1,388 1,259 Machinery and equipment 2 - 10 697 688 Leasehold improvements 2 - 3 2,089 2,089 Construction in progress 1,190 2,143 37,855 32,773 Less accumulated depreciation ( 7,684 ) ( 3,340 ) Total property, plant and equipment, net $ 30,171 $ 29,433 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. Note 11 - Debt Obligations Years ended December 31, (in thousands) 2021 2020 Finance lease obligations $ 4,163 $ 5,526 Senior Term Loan principal, related party — 16,000 Less: net unamortized debt issuance costs — ( 465 ) Less: net unamortized debt discount — ( 480 ) Senior Term Loan, net — 15,055 PPP Loan — 3,305 Total borrowings 4,163 23,886 Less: Current maturities ( 1,011 ) ( 18,441 ) Total long-term borrowings $ 3,152 $ 5,445 Senior Term Loan On December 7, 2018, the Company, and ADA-ES, Inc. ("ADA"), a wholly-owned subsidiary, and certain other subsidiaries of the Company as guarantors, The Bank of New York Mellon as administrative agent, and Apollo Credit Strategies Master Fund Ltd and Apollo A-N Credit Fund (Delaware) L.P., affiliates of a beneficial owner of greater than five percent of 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. 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. 73 Advanced Emissions Solutions, Inc. and Subsidiaries Notes to Consolidated Financial Statements Line of Credit 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 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 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. 74 Advanced Emissions Solutions, Inc. and Subsidiaries Notes to Consolidated Financial Statements 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: Year ended December 31, (in thousands) 2021 2020 Finance lease cost: Amortization of right-of-use assets $ 642 $ 1,471 Interest on lease liabilities 288 401 Operating lease cost 2,430 2,340 Short-term lease cost 1,650 2,067 Variable lease cost (1) 40 163 Total lease cost $ 5,050 $ 6,442 Other Information: Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from finance leases $ 288 $ 401 Operating cash flows from operating leases $ 2,764 $ 2,200 Financing cash flows from finance leases $ 1,190 $ 1,360 Right-of-use assets obtained in exchange for new finance lease liabilities $ — $ 158 Right-of-use assets obtained in exchange for new operating lease liabilities $ 6,108 $ 59 Weighted-average remaining lease term - finance leases 2.9 years 3.5 years Weighted-average remaining lease term - operating leases 4.3 years 1.8 years Weighted-average discount rate - finance leases 6.4 % 6.2 % Weighted-average discount rate - operating leases 6.7 % 8.5 % (1) Primarily includes common area maintenance, property taxes and insurance payable to lessors. 75 Advanced Emissions Solutions, Inc. and Subsidiaries Notes to Consolidated Financial Statements The following table summarizes the Company's future lease payments under finance and operating leases as of December 31, 2021: (in thousands) Operating Lease Commitments Finance Lease Commitments Total Lease Commitments 2022 $ 2,502 $ 1,008 $ 3,510 2023 2,005 980 2,985 2024 739 1,929 2,668 2025 566 569 1,135 2026 566 — 566 Thereafter 871 — 871 Total lease payments 7,249 4,486 11,735 Less: Imputed interest ( 914 ) ( 323 ) ( 1,237 ) Present value of lease payments $ 6,335 $ 4,163 $ 10,498 Note 13 - Revenues Trade receivables Trade receivables represent an unconditional right to consideration in exchange for goods or services transferred to a customer. The Company invoices its customers in accordance with the terms of the contract. Credit terms are generally net 30 from the date of invoice . The timing between the satisfaction of performance obligations and when payment is due from the customer is generally not significant. The Company records allowances for doubtful trade receivables when it is probable that the balances will not be collected. The following table shows the components of Trade receivables, net: As of December 31, (in thousands) 2021 2020 Trade receivables $ 10,476 $ 12,241 Less: Allowance for doubtful accounts — ( 37 ) Trade receivables, net $ 10,476 $ 12,204 Cabot Receivable The following table shows the components of the Cabot Receivable: As of (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 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. 76 Advanced Emissions Solutions, Inc. and Subsidiaries Notes to Consolidated Financial Statements Disaggregation of Revenue and Earnings from Equity Method Investments 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 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 Segment (in thousands) APT RC Total Revenue component Consumables $ 85,882 $ — $ 85,882 License royalties, related party — 14,368 14,368 Other 44 — 44 Revenues from customers 85,926 14,368 100,294 Earnings from equity method investments — 68,726 68,726 Total revenues and earnings from equity method investments $ 85,926 $ 83,094 $ 169,020 Year ended December 31, 2020 Segment (in thousands) APT RC Total Revenue component 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 Earnings from equity method investments — 30,978 30,978 Total revenues and earnings from equity method investments $ 53,923 $ 44,418 $ 98,341 (1) Consumables revenues for the year ended December 31, 2020 have been restated. See restatement discussion in Note 2. Note 14 - Commitments and Contingencies Legal Proceedings The Company is from time to time subject to, and is presently involved in, various pending or threatened legal actions and proceedings, including those that arise in the ordinary course of its business. Such matters are subject to many uncertainties and outcomes, the financial impacts of which are not predictable with assurance and that may not be known for extended periods of time. The Company records a liability in its consolidated financial statements for costs related to claims, settlements, and judgments where management has assessed that a loss is probable, and an amount can be reasonably estimated. The Company did not have any significant legal proceedings. 77 Advanced Emissions Solutions, Inc. and Subsidiaries Notes to Consolidated Financial Statements Restricted Cash 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. Surety Bonds 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. Other Commitments and Contingencies The Company also has certain limited obligations contingent upon future events in connection with the activities of Tinuum Group. The Company, NexGen and two entities affiliated with NexGen have provided GSFS with limited guaranties (the "Tinuum Group Party Guaranties") related to certain losses it may suffer as a result of inaccuracies or breach of representations and covenants. The Company also is a party to a contribution agreement with NexGen under which any party called upon to pay on a Tinuum Group Party Guaranty is entitled to receive contribution from the other party equal to 50 % of the amount paid. No liability or expense provision has been recorded by the Company related to this contingent obligation as the Company believes that it is not probable that a loss will occur with respect to Tinuum Group Party Guaranties. Note 15 - Stockholders' Equity The Company has two classes of capital stock authorized, common stock and preferred stock, which are described as follows: Preferred Stock The Company's Board of Directors (the "Board") is authorized to provide out of the unissued shares of Preferred Stock and to fix the number of shares constituting a series of Preferred Stock and, with respect to each series, to fix the number of shares and designation of such series, the voting powers, if any, the preferences and relative, participating, option or other special rights, if any, and any qualifications, limitations or restrictions thereof, of the shares of such series. As of December 31, 2021 and 2020, there were no shares of Preferred Stock designated or outstanding. Common Stock Holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Additionally, holders of common stock are entitled to receive dividends when and if declared by the Board, subject to any statutory or contractual restrictions on payment of dividends and to any restrictions on the payment of dividends imposed by the terms of any outstanding shares of preferred stock. Upon dissolution, liquidation or the sale of all or substantially all of the Company's assets, after payment in full of any amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of shares of common stock will be entitled to receive the Company's remaining assets for distribution on a pro rata basis. Stock Repurchase Programs 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. 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, 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. 78 Advanced Emissions Solutions, Inc. and Subsidiaries Notes to Consolidated Financial Statements Tax Asset Protection Plan U.S. federal income tax rules, and Section 382 of the Internal Revenue Code in particular, could substantially limit the use of net operating losses and other tax assets 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 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 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. Expense RSA's - Restricted Stock Awards ("RSA's") are typically granted with vesting terms of three years . The fair value of RSA's is determined based on the closing price of the Company’s common stock on the authorization date of the grant multiplied by the number of shares subject to the stock award. Compensation expense for RSA's is generally recognized over the vesting term 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. Each PSU represents a contingent right to receive shares of the Company’s common stock if the Company meets certain performance measures over the requisite period. 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. 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 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. Performance period - The Company’s performance period is based upon the vesting term of the Company’s PSU awards. The Company recorded the following compensation expense related to the Stock Plans: Years Ended December 31, (in thousands) 2021 2020 RSA expense $ 1,816 $ 2,304 PSU expense 111 192 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 79 Advanced Emissions Solutions, Inc. and Subsidiaries Notes to Consolidated Financial Statements 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: As of December 31, 2021 (in thousands) Unrecognized Compensation Cost Expected Weighted-Average Period of Recognition (in years) RSA expense $ 1,961 1.79 PSU expense 282 1.71 Total unrecognized stock-based compensation expense $ 2,243 1.62 Activity Restricted Stock 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 RSA's For the year ended December 31, 2021 Non-vested at January 1, 2021 373,860 $ 7.25 Granted 445,383 $ 5.54 Vested ( 206,894 ) $ 7.47 Forfeited ( 80,726 ) $ 5.90 Non-vested at December 31, 2021 531,623 $ 5.94 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. PSU's 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. 80 Advanced Emissions Solutions, Inc. and Subsidiaries Notes to Consolidated Financial Statements A summary of PSU activity for the year ended December 31, 2021 is presented in the table below: Units Weighted-Average Grant Date Fair Value Aggregate Intrinsic Value (in thousands) Weighted-Average Remaining Contractual Term (in years) For the year ended December 31, 2021 PSU's outstanding, January 1, 2021 50,127 $ 6.17 Granted 62,448 7.09 Vested / Settled — — Forfeited / Canceled ( 24,549 ) 6.78 PSU's outstanding, December 31, 2021 88,026 $ 6.17 $ 583 1.71 Note 17 - Supplemental Financial Information Supplemental Balance Sheet Information The following table summarizes the components of "Prepaid expenses and other current assets" and "Other long-term assets, net"as presented in the Consolidated Balance Sheets: As of December 31, (in thousands) 2021 2020 Prepaid expenses and other current assets: Prepaid expenses $ 2,571 $ 1,690 Prepaid income taxes and income tax refunds 2,782 1,605 Other 1,308 1,302 $ 6,661 $ 4,597 Other long-term assets: Upfront customer consideration (1) $ 6,982 $ 7,490 Cabot receivable (1) 6,846 8,852 Right of use assets, operating leases, net 6,000 1,930 Spare parts, net 4,598 3,727 Mine development costs, net 5,330 4,338 Mine reclamation asset, net 1,742 1,712 Highview investment 552 552 Other long-term assets 1,193 1,388 $ 33,243 $ 29,989 (1) See further discussion of Upfront Customer Consideration in Note 4 and Cabot Receivable in Note 5. Spare parts include critical spares required to support plant operations. Parts and supply costs are determined using the lower of cost or estimated replacement cost. Parts are recorded as maintenance expenses in the period in which they are consumed. 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 estimated to be 13 years as of December 31, 2021. 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 reclamation asset represents the ARO asset related to the Five Forks Mine and is depreciated over its estimated life. The Company holds a long-term investment (the "Highview Investment") in Highview Enterprises Limited ("Highview"), a London, England based developmental stage company specializing in power storage. 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 81 Advanced Emissions Solutions, Inc. and Subsidiaries 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: As of December 31, (in thousands) 2021 2020 Other current liabilities: Current portion of operating lease obligations $ 2,157 $ 1,883 Accrued interest — 69 Income and other taxes payable 807 1,305 Current portion of mine reclamation liability 1,775 9,370 Other current liabilities 385 369 $ 5,124 $ 12,996 Other long-term liabilities: Operating lease obligations, long-term $ 4,178 $ 1,109 Mine reclamation liabilities 8,184 12,077 Other — 287 $ 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. Changes in the AROs were as follows: As of December 31, (in thousands) 2021 2020 Asset retirement obligations, beginning of year $ 21,447 $ 2,721 Asset retirement obligations assumed — 21,328 Accretion 1,102 543 Liabilities settled ( 10,010 ) ( 3,565 ) Changes due to scope and timing of reclamation ( 2,580 ) 420 Asset retirement obligations, end of year 9,959 21,447 Less current portion 1,775 9,370 Asset retirement obligations, long-term $ 8,184 $ 12,077 Supplemental Consolidated Statements of Operations Information Gain on Settlement 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 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 82 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: Years Ended December 31, (in thousands) 2021 2020 Interest on Senior Term Loan $ 206 $ 1,708 Debt discount and debt issuance costs 945 1,418 453A interest 13 331 Other 326 463 $ 1,490 $ 3,920 The following table details the components of "Other"in the Consolidated Statements of Operations: Years Ended December 31, (in thousands) 2021 2020 Interest income $ 326 $ 127 Other 314 5 $ 640 $ 132 Note 18 - Income Taxes The provision for income taxes consists of the following: Years Ended December 31, (in thousands, except for rate) 2021 2020 Current portion of income tax expense: Federal $ 2,741 $ 1,666 State and other 2,326 1,354 5,067 3,020 Deferred portion of income tax expense (benefit): Federal 9,527 5,068 State and other 1,078 ( 1,577 ) 10,605 3,491 Total income tax expense $ 15,672 $ 6,511 Effective tax rate 21 % ( 47 ) % 83 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, (in thousands) 2021 2020 Federal statutory rate $ 15,975 $ ( 2,896 ) State income taxes, net of federal benefit 2,283 ( 410 ) Permanent differences ( 680 ) 326 Tax credits ( 443 ) ( 417 ) Valuation allowances ( 1,290 ) 9,148 Changes in tax rates ( 33 ) ( 97 ) Stock-based compensation 86 285 Return to provision and other true-ups ( 40 ) 572 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. These temporary differences result in taxable or deductible amounts in future years. Details of the Company’s deferred tax assets and liabilities are summarized as follows: As of December 31, (in thousands) 2021 2020 Deferred tax assets Tax credits $ 86,097 $ 93,874 Equity method investments 1,584 5,149 Net operating loss carryforwards 2,388 2,906 Intangible assets 5,126 2,765 ARO, net of reimbursements — 2,167 Employee related liabilities 1,971 827 Other investments 556 548 Operating lease obligations 1,585 508 Other 138 69 Total deferred tax assets 99,445 108,813 Less valuation allowance ( 87,468 ) ( 88,758 ) Deferred tax assets 11,977 20,055 Less: Deferred tax liabilities Property and equipment and other ( 8,203 ) ( 7,039 ) Upfront customer consideration ( 1,747 ) ( 1,847 ) Right of use operating lease assets ( 1,497 ) ( 270 ) Inventory ( 197 ) ( 295 ) ARO, net of reimbursements ( 333 ) — Total deferred tax liabilities ( 11,977 ) ( 9,451 ) Net deferred tax assets $ — $ 10,604 84 Advanced Emissions Solutions, Inc. and Subsidiaries 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. 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, 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: As of December 31, (in thousands) 2021 Beginning expiration year Ending expiration year 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 positions on a gross basis for the years ended December 31, 2021 and 2020: Years Ended December 31, (in thousands) 2021 2020 Balance as of January 1 $ 946 $ 946 Lapse of applicable statute of limitations ( 892 ) — Balance as of December 31 $ 54 $ 946 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. Additionally, the Company recognizes interest expense related to the federal tax treatment of RC facilities at Tinuum Group in the "Interest expense "line item in the Consolidated Statements of Operations. Additional information related to the components of "Interest expense"is included in Note 17. The Company files income tax returns in the U.S. and various states. The Company is no longer subject to U.S. federal examinations by tax authorities for years before 2018. The Company is generally no longer subject to state examinations by tax authorities for years before 2014. Note 19 - Business Segment Information Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by a company's chief operating decision maker ("CODM"), or a decision making group, in deciding how to allocate resources and in assessing financial performance. As of December 31, 2021, the Company's CODM was the Company's CEO. The Company's operating and reportable segments are organized by products and services provided. 85 Advanced Emissions Solutions, Inc. and Subsidiaries Notes to Consolidated Financial Statements As of December 31, 2021, the Company has two reportable segments: (1) Refined Coal ("RC"); and (2) Advanced Purification Technologies ("APT"). The business segment measurements provided to and evaluated by the CODM are computed in accordance with the principles listed below: • The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies except as described below. • Segment revenues include equity method earnings and losses from the Company's equity method investments. • Segment operating income (loss) includes segment revenues and allocation of certain corporate general and administrative expenses, which 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, 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. companies. The following table presents the Company's operating segment results for the years ended December 31, 2021 and 2020: Years Ended December 31, (in thousands) 2021 2020 Revenues: Refined Coal: Earnings in equity method investments $ 68,726 $ 30,978 License royalties, related party 14,368 13,440 83,094 44,418 Advanced Purification Technologies: Consumables (1) 85,882 53,908 Other 44 15 85,926 53,923 Total segment reporting revenues 169,020 98,341 Adjustments to reconcile to reported revenues: Earnings in equity method investments ( 68,726 ) ( 30,978 ) Total reported revenues $ 100,294 $ 67,363 Segment operating income (loss) Refined Coal $ 82,634 $ 42,689 Advanced Purification Technologies (2) 5,649 ( 39,958 ) Total segment operating income $ 88,283 $ 2,731 (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. 86 Advanced Emissions Solutions, Inc. and Subsidiaries Notes to Consolidated Financial Statements A reconciliation of reportable segment operating income to consolidated income (loss) before income taxes is as follows: Years Ended December 31, (in thousands) 2021 2020 Total reported segment operating income $ 88,283 $ 2,731 Adjustments to reconcile to income (loss) before income tax expense attributable to the Company: Corporate payroll and benefits ( 2,478 ) ( 2,866 ) Corporate legal and professional fees ( 6,014 ) ( 4,954 ) Corporate general and administrative ( 3,358 ) ( 5,096 ) Corporate depreciation and amortization ( 505 ) ( 551 ) Corporate interest expense, net ( 854 ) ( 3,060 ) Other income, net 999 5 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. Such costs include, but are not limited to, accounting and human resources staff, information systems costs, legal fees, facility costs, audit fees and corporate governance expenses. A reconciliation of reportable segment assets to the Company's consolidated assets is as follows: As of December 31, (in thousands) 2021 2020 Assets: Refined Coal (1) $ 4,884 $ 11,516 Advanced Purification Technologies (2) 83,516 80,877 Total segment assets 88,400 92,393 Corporate (3) 97,036 54,278 Consolidated $ 185,436 $ 146,671 (1) Includes $ 2.4 million and $ 7.7 million of investments in equity method investees as of December 31, 2021 and 2020, respectively. (2) Includes $ 36.7 million and $ 34.6 million of long-lived assets, net. 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 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 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. The following table provides the estimated fair values of the remaining financial instruments: As of December 31, 2021 As of December 31, 2020 (in thousands) Carrying Value Fair Value Carrying Value Fair Value Financial Instruments: Highview Investment $ 552 $ 552 $ 552 $ 552 Highview Obligation $ 227 $ 227 $ 228 $ 228 87 Advanced Emissions Solutions, Inc. and Subsidiaries Notes to Consolidated Financial Statements Concentration of credit risk As of December 31, 2021, the Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents. The Company holds cash and cash equivalents at three financial institutions as of December 31, 2021. If those institutions were unable to perform their obligations, the Company would be at risk regarding the amount of its cash balance in excess of the federal deposit insurance corporation limits ($250 thousand). Assets and Liabilities Measured at Fair Value on a Recurring Basis As of December 31, 2021 and December 31, 2020, the Company had no material financial instruments carried and measured at fair value on a recurring basis. Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis As disclosed in Note 4, the Company completed the asset acquisition of Marshall Mine, LLC. The estimated fair values of the assets acquired and liabilities assumed were determined based on Level 3 inputs. 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. 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. Fair value measurements, if any, represent either Level 2 or Level 3 measurements. Note 21 - Major Customers Revenues from external customers who represent 10% or more of the Company’s revenues for the years ended December 31, 2021 and 2020 were as follows: Years ended December 31, Customer Revenue Type Segment(s) 2021 2020 A License royalties, related party RC 14 % 20 % B Consumables (1) APT 14 % 6 % 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 Accounts Receivable The following table shows the Company's receivable balance associated with related parties as of December 31, 2021 and 2020: As of December 31, (in thousands) 2021 2020 Receivable from related party - Tinuum Group $ 2,481 $ 3,453 Revenues The following table shows the income recognized with related parties during the years ended December 31, 2021 and 2020: Years Ended December 31, (in thousands) 2021 2020 License royalties, related party - Tinuum Group $ 14,368 $ 13,440 The above Tinuum Group royalties are included in the "License royalties, related party" line in the Consolidated Statements of Operations. 88 Advanced Emissions Solutions, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 23 - Defined Contribution Savings Plans The Company sponsors a qualified defined contribution savings plan (the "401(k) Plan") that allows participation by eligible employees who may defer a portion of their gross pay. 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. The following table presents the amount of the Company's contributions made to the 401(k) Plans: Years Ended December 31, (in thousands) 2021 2020 401(k) Plans employer contributions $ 479 $ 484 Note 24 - Quarterly Financial Results (unaudited) Summarized quarterly results for the two years ended December 31, 2021 and December 31, 2020 are as follows: For the Quarter Ended (in thousands, except per share data) December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 Revenues $ 25,764 $ 30,858 $ 21,065 $ 22,607 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 784 3,299 439 330 Earnings from equity method investments 6,782 22,195 21,437 18,312 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 $ 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 Basic 18,302 18,292 18,271 18,166 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. 89 Advanced Emissions Solutions, Inc. and Subsidiaries Notes to Consolidated Financial Statements For the Quarter Ended (in thousands, except per share data) December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 Revenues $ 19,743 $ 21,270 $ 12,726 $ 13,624 Cost of revenues 12,076 16,812 8,659 12,852 Other operating expenses 6,117 (1) 7,283 35,132 9,413 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 (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 Basic 18,109 18,093 18,014 17,932 Diluted 18,167 18,103 18,014 17,932 (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. (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 tax assets. 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 — — — 90 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 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. 91 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.