What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-12 compared with 2023-03-08 · 478 added, 545 removed, 597 unchanged (63% of the section changed)

Financial Statements and Supplementary Data

Advanced Emissions Solutions, Inc.

Index to Financial Statements

Advanced Emissions Solutions, Inc.

Consolidated Financial Statements:

7 unchanged sentences

To the Shareholders and the Board of Directors of

Advanced Emissions Solutions, Inc.

and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Advanced Emissions Solutions, Inc.

We have audited the accompanying consolidated balance sheets of Arq, Inc.

and Subsidiaries (the Company) as of December 31, 2023 and 2022, 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, 2023 and 2022, 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 .

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 8, 2023 expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

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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 PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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.

1 unchanged sentence

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.

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

Critical Audit Matters

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

We determined that there are no critical audit matters.

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.

Business Combination – Valuation of Acquired Property, Plant, and Equipment and Developed Technology Intangible Asset

As described in Notes 1 and 2 to the consolidated financial statements, in February 2023, the Company acquired 100% of the equity of the subsidiaries of Arq Ltd.

(the “Arq Acquisition”) in exchange for total consideration of $31.2 million.

The Company accounted for the Arq Acquisition as an acquisition of a business and recorded the assets acquired and liabilities assumed at their respective fair values, including $39.2 million of property, plant, and equipment, and a $7.7 million developed technology intangible asset.

Management estimated the fair value of the acquired property, plant and equipment using a combination of valuation methodologies, including the cost and market approaches and the fair value of the developed technology intangible asset using an income approach.

The significant assumptions used by management in determining the fair value of the acquired property, plant and equipment primarily included estimated replacement costs and sales prices of the acquired assets as well as the estimated useful lives of the acquired assets.

The significant assumptions used by management in determining the fair value of the developed technology intangible asset included the Company’s best estimate of projected financial information, including revenues, growth rates, production ramp-up and capacity, and cost of revenue as well as discount and royalty rates.

The principal considerations for our determination that performing procedures relating to the valuation of the acquired property, plant and equipment and developed technology intangible asset relating to the Arq Acquisition is a critical audit matter are (i) the significant judgment by management when determining the significant assumptions used in projecting future financial performance of the acquired business;

(ii) especially challenging and subjective auditor judgment involved when performing procedures and evaluating management’s significant assumptions related to revenue and its growth rate, production ramp-up and capacity, and cost of revenue, and the discount and royalty rates utilized;

and (iii) involving the use of professionals with specialized skill and knowledge.

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

– Obtaining and reading the Securities Purchase Agreement to develop an understanding of the Arq Acquisition.

– Evaluating management’s process for determining the fair value of the acquired property, plant and equipment and developed technology intangible asset, including the appropriateness of the valuation methods used.

– Testing the completeness and accuracy of the underlying data used in the valuation models.

– Evaluating the reasonableness of the significant assumptions used by management related to projected financial information, which primarily related to production ramp-up and capacity, revenue growth, cost of revenues and the discount and royalty rates.

Specifically, when evaluating the assumptions related to production ramp-up and capacity and revenue growth rates, we compared the assumptions to industry and market trends, along with updated management forecasts, to evaluate the reasonableness of management’s estimates as of the date of the transaction.

– Utilizing professionals with specialized skill and knowledge to assist in evaluating the appropriateness of the valuation models used and the reasonableness of certain significant assumptions including estimated replacement costs and sales prices as well as discount and royalty rates.

/s/ Moss Adams LLP

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We have served as the Company’s auditor since 2017.

Advanced Emissions Solutions, Inc.

and Subsidiaries

5 unchanged sentences

Receivables, net 16,192 13,864

Receivables, related party — 2,481

Inventories, net 19,693 17,828

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See Notes to the Consolidated Financial Statements.

Advanced Emissions Solutions, Inc.

and Subsidiaries

3 unchanged sentences

Consumables $ 99,183 $ 102,987

License royalties, related party — 14,368

Total revenues 102,987 100,294

Total revenue 99,183 102,987

Operating expenses:

Consumables cost of revenues, exclusive of depreciation and amortization 80,465 65,576

Consumables cost of revenue, exclusive of depreciation and amortization 67,323 80,465

Payroll and benefits 15,154 10,540

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Depreciation, amortization, depletion and accretion 10,543 6,416

Loss (gain) on change in estimate, asset retirement obligation 34 ( 2,702 )

Gain on sale of Marshall Mine, LLC ( 2,695 ) —

Other ( 36 ) 34

Total operating expenses 112,518 115,055

Operating (loss) income ( 12,068 ) 4,852

Other income (expense):

Operating loss ( 13,335 ) ( 12,068 )

Other income, net:

Earnings from equity method investments 1,623 3,541

Gain on extinguishment of debt — 3,345

Interest expense ( 3,014 ) ( 336 )

Other 2,630 155

Total other income 3,360 71,221

(Loss) income before income tax expense ( 8,708 ) 76,073

Total other income, net 1,239 3,360

Loss before income tax expense ( 12,096 ) ( 8,708 )

Income tax expense 153 209

Net (loss) income $ ( 8,917 ) $ 60,401

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

Net loss $ ( 12,249 ) $ ( 8,917 )

Loss per common share (Note 1):

Basic $ ( 0.42 ) $ ( 0.48 )

4 unchanged sentences

See Notes to the Consolidated Financial Statements.

Advanced Emissions Solutions, Inc.

and Subsidiaries

6 unchanged sentences

Accrued dividends cancelled on common stock — — — — — 2 2

Net income — — — — — 60,401 60,401

Net loss — — — — — ( 8,917 ) ( 8,917 )

Balances, December 31, 2022 23,788,319 $ 24 ( 4,618,146 ) $ ( 47,692 ) $ 103,698 $ 83,949 $ 139,979

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

Issuance of common stock related to PIPE Investment, net of offering costs 3,842,315 4 — — 15,216 — 15,220

Issuance of common stock pursuant to Arq Acquisition, net of offering costs 3,814,864 4 — — 12,433 — 12,437

Stock-based compensation 572,056 — — — 2,648 — 2,648

Issuance of common stock to related party 527,779 1 — — 999 — 1,000

Repurchase of common shares to satisfy tax withholdings ( 117,175 ) — — — ( 230 ) — ( 230 )

Accrued dividends cancelled on common stock — — — — — 2 2

Issuance of warrant — — — — 826 — 826

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

Net loss — — — — — ( 12,249 ) ( 12,249 )

1 unchanged sentence

See Notes to the Consolidated Financial Statements.

Advanced Emissions Solutions, Inc.

and Subsidiaries

3 unchanged sentences

Cash flows from operating activities

Net (loss) income $ ( 8,917 ) $ 60,401

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

Net loss $ ( 12,249 ) $ ( 8,917 )

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation, amortization, depletion and accretion 10,543 6,416

Earnings from equity method investments ( 3,541 ) ( 68,726 )

Operating lease expense 2,757 2,709

Gain on sale of Marshall Mine, LLC ( 2,695 ) —

Stock-based compensation expense 2,648 1,981

Loss (gain) on change in estimate, asset retirement obligation 34 ( 2,702 )

Deferred income tax expense — 10,604

Earnings from equity method investments ( 1,623 ) ( 3,541 )

Amortization of debt discount and debt issuance costs 546 —

Gain on extinguishment of debt — ( 3,345 )

Other non-cash items, net ( 111 ) 530

Changes in operating assets and liabilities:

Receivables, net ( 1,312 ) 540

Related party receivables 2,481 972

Receivables and related party receivables ( 2,264 ) 1,169

Prepaid expenses and other current assets 4,777 ( 876 )

6 unchanged sentences

Distributions from equity method investees, return on investment — 2,297

Net cash (used in) provided by operating activities $ ( 6,061 ) $ 25,999

Years Ended December 31,

(in thousands) 2022 2021

Net cash used in operating activities ( 16,653 ) ( 6,061 )

Cash flows from investing activities

Distributions from equity method investees in excess of cumulative earnings $ 3,636 $ 51,082

Acquisition of property, equipment and intangible assets, net ( 27,516 ) ( 8,914 )

Mine development costs ( 2,690 ) ( 583 )

Cash and restricted cash acquired in acquisition of business 2,225 —

Payment for disposal of Marshall Mine, LLC ( 2,177 ) —

Distributions from equity method investees in excess of cumulative earnings 1,623 3,636

Proceeds from sale of property and equipment — 1,253

Net cash (used in) provided by investing activities ( 4,608 ) 44,378

Net cash used in investing activities ( 28,535 ) ( 4,608 )

Years Ended December 31,

(in thousands) 2023 2022

Cash flows from financing activities

Principal payments on term loan — ( 16,000 )

Net proceeds from common stock issuance $ 15,220 $ —

Net proceeds from CFG Loan, related party, net of discount and issuance costs 8,522 —

Principal payments on finance lease obligations ( 1,130 ) ( 1,246 )

Net proceeds from common stock issuance, related party 1,000 —

Principal payments on Arq Loan ( 473 ) —

Repurchase of shares to satisfy tax withholdings ( 230 ) ( 388 )

Dividends paid — ( 45 )

Net cash used in financing activities ( 1,679 ) ( 17,529 )

(Decrease) increase in Cash and Restricted Cash ( 12,348 ) 52,848

Net cash provided by (used in) financing activities 22,909 ( 1,679 )

Decrease in Cash and Restricted Cash ( 22,279 ) ( 12,348 )

Cash and Restricted Cash, beginning of year 76,432 88,780

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Cash paid for interest $ 1,727 $ 334

Cash paid for income taxes $ 3 $ 8,882

Cash (received) paid for income taxes $ ( 1,697 ) $ 3

Supplemental disclosure of non-cash investing and financing activities:

Acquisition of property and equipment under finance lease $ 1,641 $ —

Equity issued as consideration for acquisition of business $ 31,206 $ —

Change in accrued purchases for property and equipment $ 914 $ 532

Change in asset retirement obligation $ — $ 121

Paid-in-kind dividend on Series A Preferred Stock $ 157 $ —

Acquisition of property and equipment under finance lease $ — $ 1,641

See Notes to the Consolidated Financial Statements.

Advanced Emissions Solutions, Inc.

and Subsidiaries

2 unchanged sentences

Nature of Operations

Advanced Emissions Solutions, Inc.

("ADES" or the "Company") is a Delaware corporation with its principal office located in Greenwood Village, Colorado and manufacturing, mining and logistic 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 air quality and water regulations.

The Company manufactures and sells AC and other chemicals used to capture and remove contaminants for coal-fired power, industrial and water treatment markets.

The Company also owns an associated lignite mine (the "Five Forks Mine") which supplies the primary raw material for manufacturing AC.

Through December 31, 2021, the Company generated substantial earnings from its equity ownership in Tinuum Group, LLC ("Tinuum Group") and Tinuum Services, LLC ("Tinuum Services"), both of which are unconsolidated entities.

Both Tinuum Group and Tinuum Services ceased material operations effective December 31, 2021 as a result of the expiration of a tax credit program under Internal Revenue Code Section 45 - Production Tax Credit (the "Section 45 Tax Credit Program").

Tinuum Group provided reduction of mercury and nitrogen oxide ("NOx") emissions at select coal-fired power generators through the production and sale of refined coal ("RC") that qualified for tax credits under the Section 45 Tax Credit Program ("Section 45 tax credits").

The Company also earned royalties for technologies which were licensed to Tinuum Group and used at certain RC facilities to enhance combustion and reduce emissions of NOx and mercury from coal burned to generate electrical power.

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

Presently, both Tinuum Group and Tinuum Services continue to wind-down their operations.

("Arq" or the "Company", formerly known as Advanced Emissions Solutions, Inc.

("ADES")) is a Delaware corporation with its principal office located in Greenwood Village, Colorado, manufacturing, mining and logistic operations located in Louisiana and mining and manufacturing operations in Kentucky.

The Company is an environmental technology company and is principally engaged in the sale of consumable air, water, and soil treatment solutions including activated carbon ("AC") and chemical technologies.

The Company's proprietary AC products enable customers to reduce air, water, and soil contaminants, including mercury, per and polyfluoroalkyl substances ("PFAS") and other pollutants, to help our customers meet the challenges of existing and pending air quality and water regulations.

The Company manufactures and sells AC and other chemicals used to capture and remove contaminants for coal-fired power generation, industrial, municipal water and air, water, and soil treatment and remediation markets (collectively, the advanced purification technologies or "APT" market).

In February 2023, the Company acquired 100 % of the equity of the subsidiaries of Arq Limited (the "Arq Acquisition," and hereafter the Arq Limited subsidiaries referred to as "Legacy Arq") to secure access to a feedstock, a manufacturing facility and certain patented processes as a means to manufacture additional granular activated carbon ("GAC") products for sale into the APT and other markets.

With the Arq Acquisition, the Company now controls bituminous coal waste reserves and owns a manufacturing facility, both located in Corbin Kentucky (the "Corbin Facility"), and a process to recover and purify the bituminous coal fines for sale or further conversion to GAC products.

Under this manufacturing process, the Company expects to be able to convert bituminous coal waste into a purified, microfine carbon powder known as Arq powder TM ("Arq Powder").

See further discussion of the Arq Acquisition in Note 2.

Principles of Consolidation

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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 Other long-term assets, net line item in the Consolidated Balance Sheets.

As of December 31, 2022, the Company holds equity interests of 42.5 % and 50.0 % in Tinuum Group and Tinuum Services, respectively.

All investments in partially owned entities for which the Company has the ability to exercise significant influence and holds a 20% or greater ownership interest based on the legal form of the Company's ownership percentage are accounted for using the equity method and are included in the Other long-term assets, net line item in the Consolidated Balance Sheets.

As of December 31, 2023, the Company holds equity interests of 42.5 % and 50.0 % in Tinuum Group, LLC ("Tinuum Group") and Tinuum Services, LLC ("Tinuum Services"), respectively.

Cash and restricted cash

Cash consists of cash on hand and bank deposits.

Restricted cash is comprised of posted cash collateral required under a surety bond contract related to the Five Forks Mine and the Company's mine located at Marshall, Texas.

Restricted cash is primarily comprised of posted cash collateral required under a surety bond contract related to a lignite mine in Louisiana (the "Five Forks Mine") and the Corbin Facility.

Concentration of credit risk

As of December 31, 2022, 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 two financial institutions as of December 31, 2022.

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).

As of December 31, 2023, the Company holds cash that exceed the Federal Deposit Insurance Corporation ("FDIC") limits (currently $ 250 thousand) at two financial institutions.

If a financial institution was unable to perform its obligations, the Company would be at risk regarding the amount of cash held in excess of the FDIC limits.

Fair value measurements

The carrying amounts of our cash, restricted cash, accounts receivable, accounts payable and other current liabilities approximate fair value as recorded due to the short-term nature of these instruments.

Advanced Emissions Solutions, Inc.

and Subsidiaries

5 unchanged sentences

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 products.

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

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 products.

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 5.

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

The composition of Inventories is included in Note 3.

Intangible Assets

Intangible assets consist of patents, licensed technology, customer relationships, developed technologies and trade names.

Intangible assets consist of customer relationships, patents, and developed technology.

The Company has developed technologies resulting in patents being granted by the U.S.

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Included in the Consolidated Statements of Operations is amortization expense related to intangible assets of $ 0.8 million and $ 0.5 million for the years ended December 31, 2023 and 2022, respectively.

The estimated future amortization expense for existing intangible assets as of December 31, 2022 is expected to be $ 0.4 million for the year ended December 31, 2023 and less than $ 0.1 million for each of the four succeeding fiscal years.

The estimated future amortization expense for existing intangible assets as of December 31, 2023 is expected to be approximately $ 0.4 million for the year ended December 31, 2024 and each of the four succeeding fiscal years.

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 is reported in the "Earnings from equity method investments" line item in the Consolidated

Advanced Emissions Solutions, Inc.

however, the Company’s share of the earnings or losses of the investee 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 is reported in the "Other long-term assets, net" line in the Consolidated Balance Sheets.

The Company recognizes equity earnings from equity method investments based on its percentage ownership in the investee.

The Company recognizes distributions received in excess of the carrying value of an equity method investment as equity

and Subsidiaries

Notes to Consolidated Financial Statements

Statements of Operations, and the Company’s carrying value in an equity method investee is reported in the "Other long-term assets, net" line in the Consolidated Balance Sheets.

The Company recognizes equity earnings (loss) from equity method investments based on it percentage ownership in the investee.

The Company recognizes distributions received in excess of the carrying value of an equity method investment as equity method earnings in the period the distributions occur to the extent that the Company has not guaranteed any obligations of the investee or is not contractually required to provide additional funding to the investee.

method earnings in the period the distributions occur to the extent that the Company has not guaranteed any obligations of the investee or is not contractually required to provide additional funding to the investee.

Subsequent earnings from investees where the Company has recognized earnings from distributions in excess of the carrying value of the equity method investment are recognized for the excess of cumulative earnings over previously recognized earnings from distributions.

3 unchanged sentences

Thereafter, such distributions are reported as "distributions in excess of cumulative earnings" in Investing cash flows.

See Note 10 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.

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Property, Plant and Equipment

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

Property, plant and equipment are stated at cost less accumulated depreciation and include 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 1 to 31 years).

1 unchanged sentence

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.

Amortization of finance leased assets is included in depreciation expense and is calculated using the straight-line method over the term of the lease.

The Company periodically evaluates the recoverability of the carrying value of property, plant and equipment for impairment.

Amortization of right of use assets under finance lease is included in depreciation expense and is calculated using the straight-line method over the term of the lease.

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.

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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.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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.

3 unchanged sentences

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.

and Subsidiaries

Notes to Consolidated Financial Statements

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

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

4 unchanged sentences

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.

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

Mine Development Costs

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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.

Transfer of control and satisfaction of performance obligations are further discussed 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 component is Consumables sales, but for 2021 also included License royalties.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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.

The Company's 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 Company’s revenue component is Consumables.

The sale of consumable products is comprised of a single performance obligation and is recognized at the point in time when control transfers and the Company's 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.

and Subsidiaries

Notes to Consolidated Financial Statements

Certain contracts with customers require the customers to purchase minimum quantities over the contractual period ("MQ Contracts").

Under these MQ Contracts, the Company reserves the right to bill a customer for any shortfall in the actual quantity purchases and minimum quantity purchases as of the end of the contractual period.

The Company recognizes revenue on MQ Contracts based on the satisfaction of all three of the following criteria:

(1) the likelihood of a customer not meeting its MQ contract obligations is probable, (2) the amount of the shortfall can be quantified and (3) the Company elects to exercise it right to enforce the billing of the shortfall at some point during the contractual period through a billing subsequent to the contractual period.

The determination of when all three criteria are satisfied requires significant judgment.

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 activities as fulfillment activities and not as separate performance obligations.

Shipping and handling costs incurred by the Company in delivering products to 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 earned from Tinuum Group

Through December 2021, the Company generated 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, a related party.

The Company recognized M-45 Royalties at a point in time based on the use of the M-45 Technology at certain RC facilities (the "M-45 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 was generally based on a percentage of pre-tax margins (as defined in the M-45 License) of the M-45 Facilities.

License royalties payable to Tinuum Group

In December 2022, the Company and Tinuum Group entered into an agreement (the "Tinuum Group Royalty Agreement") whereby the Company pays Tinuum Group a royalty (the "Tinuum Group Royalty") for certain of the Company's sales of its M-Prove TM products after the expiration of the Section 45 Tax Credit Program (beginning January 1, 2022) to certain of the M-45 Facilities.

The Tinuum Group Royalty is calculated based on "Net Profit" (as defined in the Tinuum Royalty Agreement) on the Company's sales of M-Prove TM product to certain of the M-45 Facilities.

The Tinuum Group Royalty Agreement is for an initial term of five years with automatic renewals of five years unless the Company and Tinuum Group agree to terminate it.

For the year ended December 31, 2022, the Company recognized $ 0.8 million of Tinuum Group Royalties, which are included in the "Consumables cost of revenues, excluding depreciation and amortization" line item in the Consolidated Statement of Operations.

Shipping and handling costs incurred by the Company in delivering products to customers are billed to customers and are included in the transaction price and included in the "Revenue - 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 revenue, excluding depreciation and amortization" line item in the Consolidated Statements of Operations.

Practical Expedients and Exemptions

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

Consumables Cost of Revenues

Consumables 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.

Consumables Cost of Revenue

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

License Royalties Payable to Tinuum Group

In December 2022, the Company and Tinuum Group entered into an agreement (the "Tinuum Group Royalty Agreement") whereby the Company agreed to pay Tinuum Group a royalty (the "Tinuum Group Royalty") on sales of M-Prove TM to certain power plants where Tinuum Group had operated refined coal facilities (the "M-45 Facilities") prior to the expiration of the Section 45 Tax Credit Program on December 31, 2021.

Amounts due under the Tinuum Group Royalty Agreement commenced on January 1, 2022.

The Tinuum Group Royalty is calculated based on "Net Profit" (as defined in the Tinuum Royalty Agreement) on the Company's sales of M-Prove TM product to the M-45 Facilities.

The Tinuum Group Royalty Agreement is for an initial term of five years with automatic renewals of five years unless the Company and Tinuum Group agree to terminate it.

The Tinuum Group Royalty is included in Cost of revenue in the Consolidated Statements of Operations.

Payroll and Benefits

Payroll and benefits costs include payroll costs, payroll related fringe benefits and stock based compensation expense of research and development, sales and administrative personnel, but exclude such costs related to direct labor that are included in Cost of revenue.

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.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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

Legal and Professional

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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, 2022 and 2021, the Company recorded research and development costs of $ 0.4 million and $ 0.4 million, respectively.

General and administrative costs include director fees and expenses, rent, insurance and occupancy-related expenses, bad debt expense, impairments, research and development and other general costs of conducting business.

and Subsidiaries

Notes to Consolidated Financial Statements

Research and Development

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

For the years ended December 31, 2023 and 2022, the Company recorded total research and development costs of $ 3.3 million and $ 2.1 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 Marshall Mine (as defined below) and are recognized when incurred and recorded as liabilities at fair value.

Asset retirement obligations ("ARO") are comprised of mine reclamation activities required under agreements related primarily to the Five Forks Mine and a coal waste site adjacent to the Corbin Facility (the "Corbin ARO") 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 AROs 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.

An ARO asset is depreciated over its estimated remaining life.

Accounting for AROs requires the Company to estimate 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.

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 3)

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 operator of the Marshall Mine.

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

On an annual basis, unless otherwise deemed necessary, the Company reviews its estimates and assumptions of its AROs.

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.

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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.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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.

2 unchanged sentences

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 manufacturing employees and administrative employees is included in the "Consumables Cost of revenue, 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.

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

and Subsidiaries

Notes to Consolidated Financial Statements

Potentially dilutive securities consist of restricted stock awards ("RSAs") and contingent performance stock units ("PSUs") (collectively, "Potential dilutive shares").

7 unchanged sentences

(in thousands, except per share amounts) 2023 2022

Net (loss) income $ ( 8,917 ) $ 60,401

Net loss $ ( 12,249 ) $ ( 8,917 )

Basic weighted-average number of common shares outstanding 29,104 18,453

1 unchanged sentence

Diluted weighted-average shares outstanding 29,104 18,453

(Loss) earnings per share - basic $ ( 0.48 ) $ 3.31

(Loss) earnings per share - diluted $ ( 0.48 ) $ 3.27

For the years ended December 31, 2022 and 2021, 0.6 million and zero 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.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Loss per share - basic $ ( 0.42 ) $ ( 0.48 )

Loss per share - diluted $ ( 0.42 ) $ ( 0.48 )

For the years ended December 31, 2023 and 2022, 1.7 million 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

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The Company is principally dependent on operations of its APT business and its cash on hand to provide liquidity over the near and long term.

The Company's revenues, sales volumes, earnings and cash flows are significantly affected by prices of competing power generation sources such as natural gas and renewable energy.

The Company's revenue, sales volumes, earnings and cash flows are significantly affected by prices of competing power generation sources such as natural gas and renewable energy.

During periods of low natural gas prices, natural gas provides a competitive alternative to coal-fired power generation and therefore, coal consumption may be reduced, which in turn reduces the demand for the Company's products.

1 unchanged sentence

In addition, coal consumption and demand for the Company's products are affected by the demand for electricity, which is higher in the warmer and colder months of the year.

As a result, the Company's operating results are subject to seasonal variations whereby its revenues and cost of revenues tend to be higher in its first and third fiscal quarters compared to its second and fourth fiscal quarters.

Abnormal temperatures during the summer and winter months may significantly affect coal consumption and impurities within various municipalities' water sources, and thus impact the demand for the Company's products.

As a result, the Company's operating results are subject to seasonal variations whereby its revenue and cost of revenue tend to be higher in its first and third fiscal quarters compared to its second and fourth fiscal quarters.

Abnormal temperatures during the summer and winter months may significantly affect coal

and Subsidiaries

Notes to Consolidated Financial Statements

consumption and impurities within various municipalities' water sources, and thus impact the demand for the Company's products.

Reclassifications

2 unchanged sentences

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, 2022, the Company's CODM was the

Company's Chief Executive Officer, and the Company concluded that it had one reportable segment.

Given the wind-down of Tinuum Group and Tinuum Services and the impact on the Company's financial statements, including the method in which the CODM allocates resources, the Company determined the historical Refined Coal segment no longer met the qualitative or quantitative criteria to be considered a reporting segment under GAAP.

As a result, beginning January 1, 2022, the Company determined that it had one reportable segment and therefore has not provided segment reporting disclosures for both 2022 and 2021.

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").

As of December 31, 2023, the Company's CODM was the Company's Chief Executive Officer, and the Company concluded that it had one reportable segment.

New Accounting Standards

Recently Adopted

Effective January 1, 2023, the Company adopted 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

Advanced Emissions Solutions, Inc.

The adoption of ASU 2016-13 did not have a material impact on the Company's financial statements and disclosures.

Recently Issued

In December 2023, the FASB issued Accounting Standards Update 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures .

("ASU 2023-09").

ASU 2023-09 requires entities to disclose:

(1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) the disaggregation of income taxes paid by jurisdiction.

This update also makes several other changes to the income tax disclosure requirements.

For public entities, the amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024, with early adoption permitted, and is required to be applied prospectively, but retrospective application is permitted.

The Company is currently evaluating the impact of ASU 2023-09 on its income tax disclosures.

Note 2 - Arq Acquisition

On February 1, 2023 (the "Acquisition Date"), the Company entered into a securities purchase agreement (the "Purchase Agreement") with Arq Ltd.

for the Arq Acquisition in exchange for consideration (the "Purchase Consideration") totaling $ 31.2 million and consisting of (i) 3,814,864 shares of the Company's common stock, par value $ 0.001 per share (the "Common Stock"), valued at $ 12.4 million based on the closing price of the Common Stock on the Acquisition Date and (ii) 5,294,462 shares of the Company's Series A Convertible Preferred Stock, par value $ 0.001 per share (the "Series A Preferred Stock" or the "Preferred Shares"), valued at $ 18.8 million.

The Company also incurred $ 8.7 million in acquisition-related costs, which have been expensed as incurred.

Legacy Arq's principal location is in Corbin, Kentucky where it operates the Corbin Facility, which processes bituminous coal waste into Arq Powder and can be used as an alternative to oil or in-ground mined coal to produce a range of carbon products.

With the completion of the Arq Acquisition, the Company intends to sell Arq Powder as a feedstock to produce high-quality AC for use in water and air purification markets.

The Company expects to begin using Arq Powder to produce granular activated carbon products by the end of 2024.

The Company accounted for the Arq Acquisition as an acquisition of a business.

The total Purchase Consideration was $ 31.2 million and was allocated to the acquired assets and assumed liabilities of Legacy Arq based on their estimated fair values as of the Acquisition Date.

The Purchase Consideration was comprised of the fair values as of the Acquisition Date of 3,814,864 shares of Common Stock, valued at $ 12.4 million, and 5,294,462 Preferred Shares, valued at $ 18.8 million.

The Company also incurred $ 8.7 million in acquisition-related costs, which were expensed as incurred and included in the "General and administrative" and "Legal and professional fees" line items in the Statements of Operations.

and Subsidiaries

Notes to Consolidated Financial Statements

interim periods within those years.

The Company will adopt ASU 2016-13 effective January 1, 2023 and this standard will not have a material impact on the Company's financial statements and disclosures.

Note 2 - Customer Supply Agreement

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

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.

Under the Supply Agreement, Norit also 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 Norit (referred to as "Shared Capital") and revenues earned from capital expenditures incurred that will benefit Norit exclusively (referred to as "Specific Capital").

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

Further, under the terms of the Supply Agreement, Norit was obligated to pay the Reclamation Reimbursement (defined in Note 3 below) to the Company for $ 10.2 million of the Reclamation Costs (defined in Note 3 below), inclusive of interest.

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

Under the Change in Control, the Company received from Norit full payment of all amounts outstanding under the Reclamation Reimbursement, payment of all unbilled amounts related to Specific Capital for expenditures incurred through February 28, 2022 and payment of $ 0.8 million related to additional costs due to the third-party operator of Marshall Mine (the "Norit Reclamation Costs").

Under the Reclamation Contract (defined in Note 3 below), the Company was obligated to remit payment for the Norit Reclamation Costs to the third-party operator of Marshall Mine (defined in Note 3 below), and such payment was remitted in March 2022.

The Change in Control did not impact any other provisions of the Supply Agreement.

As of February 25, 2022, the carrying value of the Reclamation Reimbursement was $ 9.0 million, which included the principal balance, adjusted for accretion of interest and payments made to date.

Under the Change in Control, the Company received $ 8.5 million in cash for full payment of the outstanding Reclamation Reimbursement.

The Company concluded that the cash proceeds received represented an early payment of a receivable based on a change in contractual terms and accounted for the difference between the cash proceeds received and the carrying amount of the Reclamation Reimbursement of $ 0.5 million as a loss, which is included in the "Other income (expense)" line item in the Consolidated Statement of Operations for the year ended December 31, 2022.

Also, under the Change in Control, the Company received $ 1.3 million in advance of revenue to be recognized in future periods related to Specific Capital and recorded this amount as deferred revenue, which is recognized ratably over the remaining contractual term as stipulated in the Supply Agreement.

Note 3 - Marshall Mine

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

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

The Company concluded that the Marshall Mine did not have any remaining economic reserves and independently determined to immediately commence activities to shutter it.

Accordingly, on September 30, 2020, the Company and a third party entered into a reclamation contract (the "Reclamation Contract") for full reclamation of the Marshall Mine, which was expected to be completed by 2030.

Under the terms of the Supply Agreement, Norit was obligated to reimburse the Company for $ 10.2 million (the "Reclamation Reimbursement") for a portion of the total costs incurred under the Reclamation Contract (the "Reclamation Costs"), which was payable semi-annually over 13 years and inclusive of interest.

As discussed in Note 2, on February 25, 2022 as part of the Change in Control, Norit fully paid the outstanding amount owed under the Reclamation Reimbursement and has no further liability related to the Marshall Mine.

Advanced Emissions Solutions, Inc.

The following table provides the final purchase price allocation to the assets acquired and liabilities assumed as of the date of the Arq Acquisition:

(in thousands) Purchase Price Allocation

Fair value of assets acquired:

Prepaid expenses and other current assets 2,229

Restricted cash, long-term 814

Property, plant and equipment, net 39,159

Other long-term assets, net 11,717

Amount attributable to assets acquired 55,330

Fair Value of liabilities assumed:

Accounts payable and accrued expenses 9,806

Current portion of long-term debt 494

Other current liabilities 103

Long-term debt, net of current portion 9,199

Other long-term liabilities 4,523

Amount attributable to liabilities assumed 24,125

Net assets acquired $ 31,205

The following represents the intangible asset identified as part of the Arq Acquisition and which is included in "Other long-term-assets, net" in the table above:

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

Developed technology $ 7,700 20

Series A Preferred Stock

In connection with the issuance of the Series A Preferred Stock pursuant to the Purchase Agreement, the Company filed the Certificate of Designations of Preferred Stock for the Series A Preferred Stock (the "Certificate of Designations") with the Secretary of State of the State of Delaware.

Under the Certificate of Designations, 8.9 million preferred shares were designated as Series A Preferred Stock.

On June 13, 2023 (the "Conversion Date"), the Company's stockholders approved the conversion of all of the outstanding shares of Series A Preferred Stock, including the "Escrow Shares," as defined below, and the corresponding issuance of shares of Common Stock.

Upon such approval, each outstanding share of Series A Preferred Stock was automatically converted into the number of shares of Common Stock described below.

Each share of Series A Preferred Stock was deemed to have an original issue price of $ 4.00 per share (the "Original Issue Amount").

The number of shares of Common Stock issued upon conversion of each share of Series A Preferred Stock was equal to the product of (i) the sum of (A) the Original Issue Amount plus (B) an amount equal to the cumulative amount of the accrued and unpaid dividends on such share at such time divided by (ii) the Original Issue Amount, subject to adjustment.

Holders of the Series A Preferred Stock were entitled to receive cumulative dividends, which accrued quarterly on the last day of each applicable quarter (whether or not declared or funds for their payment are lawfully available) and were payable quarterly, in arrears, on the earlier to occur of (a) the date any dividend is paid to holders of Common Stock with respect to such quarter and (b) 30 days after the end of each quarter (the "Series A Quarterly Dividend") at the rate per share of Series A Preferred Stock equal to the greater of (i) if the Company declared a cash dividend on the Common Stock with respect to such quarter, the amount of the cash dividend that would be received by a holder of Common Stock in which such share of Series A Preferred Stock would be convertible on the record date for such cash dividend and (ii) an annual rate (the "Rate") of 8.0 % of

and Subsidiaries

Notes to Consolidated Financial Statements

The Company accounted for the Marshall Mine Acquisition as an asset acquisition, and it included the acquisition of certain assets and assumption of certain liabilities as well as the incurrence of an obligation for the Reclamation Costs (the "Marshall Mine ARO").

As of December 31, 2022 and 2021, the carrying value of the Marshall Mine ARO was $ 4.7 million and $ 6.3 million, respectively.

As the Marshall Mine Acquisition represented a transaction with a customer of net assets acquired and liabilities assumed from Norit, the Company accounted for the excess of the fair value of liabilities assumed over assets acquired as upfront consideration transferred to a customer, Norit (the "Upfront Customer Consideration"), which was $ 7.6 million.

The amount of the Upfront Customer Consideration was also recognized net of the Reclamation Reimbursement.

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

Amortization of the Upfront Customer Consideration is approximately $ 0.5 million per year.

As of June 30, 2021 and December 31, 2021, the Company significantly 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 for the year ended December 31, 2021 recognized a gain on change in estimate of $ 2.7 million.

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.

On September 2, 2022, (the "Agreement Date"), the Company entered into a Membership Interest Purchase Agreement (the "MM Purchase Agreement") with a third party (the "MM Buyer") to sell all of its membership interests in Marshall Mine, LLC to the MM Buyer (the "MM Sale") in exchange for a cash payment to be made by the Company to the MM Buyer of approximately $ 2.4 million (the "MM Purchase Price") and the assumption by the MM Buyer of certain liabilities of Marshall Mine, LLC.

The MM Buyer previously operated the Marshall Mine on behalf of Marshall Mine, LLC and is currently performing reclamation under the Reclamation Contract.

The MM Purchase Price is subject to adjustments for certain events that may occur during the period from the Agreement Date and the Closing Date (as defined below) as follows:

(1) increased or reduced as agreed upon by the Company and the MM Buyer (collectively, the "Parties");

(2) increased or decreased by income, proceeds, receipts and credits earned with respect to the assets and operations of Marshall Mine, LLC between signing and closing of the MM Sale, (3) increased by any amounts that are, or under US GAAP should be, accrued as liabilities of Marshall Mine LLC as of the closing of the MM Sale, as more fully described in the MM Purchase Agreement;

and (4) decreased by agreed amounts which escalate depending on the timing of closing if it occurs after January 1, 2023.

The obligations of the Parties to close the MM Sale (the "Closing Date") is subject to certain events, including (1) obtaining the approval of the Railroad Commission of Texas (the "Commission") for an operating permit in the name of the MM Buyer or an affiliate of the MM Buyer;

and (2) the MM Buyer replacing the Company’s surety bond with a reclamation performance bond, letter of credit or other form of security to which the MM Buyer or an affiliate of the MM Buyer is the principal that is satisfactory to the Commission.

The MM Purchase Agreement may be terminated:

(1) by mutual consent of the MM Buyer and the Company at any time prior to the Closing Date;

(2) by the MM Buyer or the Company, if the Closing has not occurred within one year after the Agreement Date, unless the failure of the consummation of the Closing shall be due to the failure of the party wishing to terminate to comply in all material aspects with the agreements and covenants contained therein;

(3) if there is a material breach (by either the MM Buyer or the Company) of any representation, warranty, covenant or agreement contained in the MM Purchase Agreement that is not cured within a specified time frame;

and (4) if the MM Sale is prohibited by governmental authority in a final, non-appealable order or applicable law.

As of December 31, 2022, Marshall Mine, LLC had outstanding liabilities of approximately $ 4.9 million, which the Company expects to be fully discharged upon payment of the MM Purchase Price.

Because the Closing Date is uncertain, primarily due to a date uncertain for the Parties to receive approval of the MM Buyer's operating permit and surety bond by the Commission, the Company is unable to determine the accounting period in which it will recognize the MM Sale.

Advanced Emissions Solutions, Inc.

the Original Issue Amount compounded quarterly with respect to such quarter.

On March 31, 2023, the Company declared a dividend of 68,464 Series A PIK Shares with respect to the accrued dividends on the Preferred Shares for the first quarter of 2023 (the "PIK Dividend").

The PIK Dividend was recorded at the estimated fair value of $ 0.2 million as of March 31, 2023 and was paid on April 21, 2023.

Of the total Preferred Shares issued in the Arq Acquisition, 833,914 were held in escrow (the "Escrow Shares") based on a contingent redemption feature, (the "Contingent Redemption Feature," as defined below).

The fair value of the Preferred Shares issued was determined to be $ 3.46 per Preferred Share on the Acquisition Date (the ("Preferred Share Price") plus the value of the Contingent Feature related to the Escrow Shares.

The Escrow Shares were converted into shares of Common Stock on the Conversion Date and continue to be held in escrow (the "Escrow Common Shares").

The Escrow Common Shares are being withheld pending a determination by the IRS that no tax withholding is required on the Purchase Consideration issued to Arq Ltd.

(the "Arq Ltd.

Tax Liability").

The Company estimated the fair value of the potential Arq Ltd.

Tax Liability at $ 3.3 million.

In the event that the IRS determines that no withholding is required by Arq Ltd.

in connection with the Purchase Consideration received by Arq Ltd., all of the Escrow Common Shares will be released and delivered to Arq Ltd.

In the event that the IRS determines that any amount of withholding is required by Arq Ltd., the Company has agreed to redeem a sufficient number of Escrow Common Shares to fund the required payment to the IRS, and that number of Escrow Common Shares will be returned to the Company.

The number of Escrow Common Shares to be returned to the Company is equal to the required withholding amount divided by the Original Issue Amount, not to exceed a maximum of 833,914 Escrow Common Shares, and is equal to $ 3.3 million based on the Original Issue Amount (the "Maximum Contingent Redemption Amount").

The fair value of the Preferred Escrow Shares was determined on the Acquisition Date and was comprised of the Maximum Contingent Redemption Amount and the fair value of the non-escrowed Preferred Shares ("Non-Preferred Escrow Shares").

The Series A Preferred Stock contained a mandatory redemption feature in the event the Preferred Shares, including future issuances of Series A Preferred Stock issued under dividend requirements, were not converted into shares of Common Stock prior to February 1, 2028.

The Company concluded that both the Escrow Shares and the Non Escrow Shares did not meet the definition of mandatorily redeemable financial instruments as there was a substantive conversion feature, and were therefore not classified as liabilities.

As both the Escrow Shares and Non Escrow Shares represented financial instruments that were redeemable for cash, SEC guidance mandates that preferred securities which are redeemable upon the occurrence of an event that is not solely within the control of the issuer be classified outside of permanent equity as "temporary equity." Accordingly, the Company classified and reported the Series A Preferred Stock as temporary equity and in the Consolidated Balance Sheet as of as of the Acquisition Date.

On the Conversion Date, all shares of Series A Preferred Stock were converted into 5,362,926 shares of Common Stock, and the Company reclassified all of the Series A Preferred Stock to Common Stock as of June 30, 2023.

PIPE Investment

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

and Subsidiaries

Notes to Consolidated Financial Statements

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

Unaudited Pro Forma Financial Information

The following represents the pro forma effects of the Arq Acquisition as if it had occurred on January 1, 2022.

The pro forma net loss for each of the two years presented has been calculated after applying the Company’s accounting policies in effect for those years.

In addition, pro forma net loss includes:

(1) for the years ended December 31, 2023 and 2022, increases in depreciation and amortization resulting from fair value adjustments to Property, plant, equipment of $ 0.2 million and $ 0.1 million, respectively;

(2) for the years ended December 31, 2023 and 2022, increases in amortization resulting from fair value adjustments to Intangibles of $ 0.1 million and $ 0.4 million, respectively;

(3) for the year ended December 31, 2023 and 2022, increases to interest expense for:

(a) the issuance of the CFG Loan (as defined below) including stated interest and the amortization of the CFG Loan's discount and issuance costs and (b) amortization of debt discount related to a fair value adjustment to the assumed CTB Loan (as defined below) of Arq of $ 0.2 million and $ 2.0 million, respectively;

(4) the removal of $ 1.9 million of Payroll and benefits for compensation expense payable to certain Arq employees triggered by change in control provisions in employment agreements, as well as in employee severance agreements, for the year ended December 31, 2023 but included as additional Payroll and benefits expense for the year ended December 31, 2022;

(5) for the years ended December 31, 2023 and 2022, decreases to general and administrative expenses resulting from fair value adjustments to operating leases acquired of $ 0.1 million and $ 0.5 million, respectively, and (6) for the year ended December 31, 2022, the addition of $ 2.4 million of transaction costs incurred for the period from January 1, 2023 through the Arq Acquisition Date, together with the income tax effects on (1) through (6).

Since Arq had no revenue for the years ended December 31, 2023 or 2022, pro forma revenue is the same as the Company's reported revenue for those years.

Years ended December 31,

(in thousands) 2023 2022

Revenue $ 99,183 $ 102,987

Net loss $ ( 11,119 ) $ ( 75,788 )

The amounts of year to date revenue and net loss for Arq for the period from the Acquisition Date to December 31, 2023 are as follows:

Year ended December 31,

(in thousands) 2023

Net loss $ ( 11,660 )

Note 3 - Inventories, net

The following table summarizes the Company's inventories as of December 31, 2023 and 2022:

As of December 31,

(in thousands) 2022 2021 Balance sheet component

Cash $ — $ 914 Current assets

Norit receivable, short-term — 2,056 Current assets

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

Norit receivable, long-term — 6,846 Non-current assets

Property and equipment, net — 1,968 Non-current assets

(in thousands) 2023 2022

Product inventory $ 9,524 $ 9,479

Raw material inventory 10,169 8,349

$ 19,693 $ 17,828

Accounts payable and accrued liabilities $ 201 $ 1,065 Current liabilities

Asset retirement obligation, short-term 548 1,775 Current liabilities

Asset retirement obligation, long-term 4,131 4,546 Non-current liabilities

and Subsidiaries

Notes to Consolidated Financial Statements

Note 4 - Property, Plant and Equipment

The cost basis and accumulated depreciation of property, plant and equipment at December 31, 2023 and 2022 are summarized in the table below:

Life in Years As of December 31,

(in thousands) 2023 2022

Land and land improvements 5 + 1

$ 1,225 $ 1,225

Note 4 - Revenues

For the years ended December 31, 2022 and 2021, all material performance obligations related to revenues recognized were satisfied at a point in time.

For the years ended December 31, 2022 and 2021, approximately 8 % and 12 %, respectively, of Consumables revenues were generated in Canada, and all other revenues were generated in the U.S.

Plant and operating equipment 3 - 29

81,266 33,180

Furniture and fixtures 1 - 19

Machinery and equipment 3 - 10

Leasehold improvements 12

Construction in progress 25,059 6,373

113,942 46,752

Less accumulated depreciation ( 19,293 ) ( 11,897 )

Total property, plant and equipment, net $ 94,649 $ 34,855

1 Land Improvements have a useful life between 5 and 31 years.

Included in plant and operating equipment as of December 31, 2023 and 2022 is mining equipment financed under various lease facilities, and obligations due under these facilities are included in long-term debt in the Consolidated Balance Sheets.

The total amount recorded for ROU assets as of December 31, 2023 and 2022 related to finance lease obligations was $ 1.7 million and $ 2.6 million, respectively, net of accumulated depreciation of $ 2.7 million and $ 2.0 million.

Depreciation expense for the years ended December 31, 2023 and 2022 was $ 8.5 million and $ 4.9 million, respectively.

Note 5 - Revenue

For the years ended December 31, 2023 and 2022, all material performance obligations related to revenue recognized were satisfied at a point in time.

For each of the years ended December 31, 2023 and 2022, approximately 8 %, respectively, of Consumables revenue was generated in Canada, and all other revenue was generated in the U.S.

In accordance with its revenue recognition policy for MQ Contracts, in December 2023, the Company exercised its right under certain MQ Contracts and recognized $ 4.7 million of consumables revenue and recorded an unbilled receivable.

Trade receivables

3 unchanged sentences

The timing between the satisfaction of performance obligations and when payment is due from the customer is generally not significant.

Contract assets

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

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

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

2 unchanged sentences

Trade receivables, net $ 11,289 $ 13,789

Other receivables 75 —

Norit Receivable - current — 2,146

Unbilled receivables 4,862 —

Receivables, net $ 16,192 $ 13,864

and Subsidiaries

Notes to Consolidated Financial Statements

Contract liabilities

As discussed in Note 2, the Company received $ 1.3 million in advance of revenue to be recognized in future periods related to Specific Capital and recorded this amount as deferred revenue in February 2022, which is recognized ratably over the remaining contractual term as stipulated in the Supply Agreement.

As of December 31, 2022, total deferred revenue related to Specific Capital was $ 1.0 million, of which the current portion is included in "Other current liabilities" and the long-term portion is included in "Other long-term liabilities" in the Consolidated Balance Sheet.

Advanced Emissions Solutions, Inc.

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

Note 6 - Debt Obligations

(in thousands) December 31, 2023 December 31, 2022

CFG Loan due February 2027, related party $ 10,000 $ —

CTB Loan due January 2036 9,527 —

Finance lease obligations 3,465 4,581

Unamortized debt discounts ( 815 ) —

Unamortized debt issuance costs ( 1,250 ) —

Current maturities ( 2,653 ) ( 1,131 )

Total long-term debt obligations $ 18,274 $ 3,450

CFG Term Loan

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

The Company received net cash proceeds of $ 8.5 million after deducting the OID and debt issuance costs of $ 1.3 million.

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

The Warrant has a term of 7 years and contains a cashless exercise provision.

The Company allocated the cash proceeds of the CFG Loan Agreement to both the CFG Loan and the Warrant based on their relative fair values.

The amount allocated to the Warrant was recorded as a debt discount and is amortized to interest expense over the term of the CFG Loan.

The standalone fair value of the CFG Loan was based on a comparison of borrowings and associated credit ratings consistent with those of the Company.

The Warrant is exercisable for $ 0.01 per share, and the fair value is deemed to be equal to the fair value of the underlying shares.

Accordingly, the fair value of the Warrant was determined as the number of shares issuable from the exercise of the Warrant (based on 1.0 % of post-transaction fully diluted share capital, as defined in the Purchase Agreement) multiplied by the closing share price of the Company's common stock on the Acquisition Date.

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

The Company may prepay the CFG Loan at any time subject to the following prepayment premium:

(i) prior to the twelve month anniversary of the Closing Date, the Make-Whole Amount (as defined below), (ii) thereafter but prior to the thirty-six month anniversary of the Closing Date, 2.00 % of the outstanding principal amount of the CFG Loan being repaid or prepaid or (iii) thereafter until the maturity date, 1.00 % of the outstanding principal amount of the CFG Loan being repaid or prepaid.

The "Make-Whole Amount," with respect to any repayment or prepayment, is (i) an amount equal to all required interest payable (except for currently accrued and unpaid interest) on the aggregate principal amount of the CFG Loan subject to such

and Subsidiaries

Notes to Consolidated Financial Statements

Note 5 - 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, 2022 and 2021:

As of December 31,

(in thousands) 2022 2021

Product inventory $ 9,479 $ 4,901

Raw material inventory 8,349 2,949

$ 17,828 $ 7,850

prepayment or repayment from the date of such prepayment or repayment through but excluding the date that is the first anniversary of the Closing Date calculated using an interest rate equal to (x) Adjusted Term SOFR for an interest period of one month in effect on the third U.S.

Government Securities Business Day prior to such prepayment or repayment plus (y) 14.00 % per annum and assuming all interest was paid in cash, plus (ii) a prepayment premium of 2.00 % on the aggregate principal amount of the CFG Loan subject to such prepayment or repayment.

The CFG Loan is secured by substantially all of the assets of the Company and its subsidiaries (including those acquired in the Arq Acquisition, but excluding those pledged as collateral (the "Arq Loan Assets") under the "CTB Loan," as defined and described below), subject to customary exceptions.

The CFG Loan Agreement includes, among others, the following covenants:

(1) beginning with the first fiscal quarter after March 31, 2023 and as of the end of each fiscal quarter thereafter, the Company must maintain a minimum unrestricted cash balance of $ 5.0 million;

(2) (x) as of December 31, 2023, for the fiscal year then ended, the Company must have a minimum annual revenue, on a consolidated basis, of $ 70.0 million, (y) as of December 31, 2024, for the fiscal year then ended, the Company must have a minimum annual revenue, on a consolidated basis, of $ 85.0 million and (z) for any fiscal year thereafter, the Company must have a minimum annual revenue, on a consolidated basis, of $ 100.0 million;

(3) (x) as of December 31, 2024, for the fiscal year then ended, the Company must have a minimum Consolidated EBITDA of $ 3.0 million and (y) for any fiscal year thereafter, the Company must have a minimum Consolidated EBITDA of $ 16.0 million;

and (4) beginning after the fiscal quarter ending September 30, 2023, during an LTV Trigger Period, Arq must not exceed a loan to value ratio of 0.40 :1.00 (based on the consolidated total assets of the Company and its subsidiaries, but excluding the Arq Loan Assets).

CTB Term Loan

As consideration in the Arq Acquisition, the Company assumed a term loan (the "CTB Loan") held by certain Arq subsidiaries, as borrowers, as set out in the Arq Loan (the "Arq Subsidiaries") held by Community Trust Bank ("CTB") in the principal amount of $ 10.0 million.

The Company recorded the CTB Loan on the Acquisition Date at its estimated fair value of $ 9.7 million, with the difference of $ 0.3 million between the estimated fair value and the principal amount recorded as a debt discount and recognized as interest expense over the term of the CTB Loan.

The CTB Loan was originally entered into on January 27, 2021 and is comprised of two promissory notes (the "Notes"):

(1) "Note A" in the principal amount of $ 8.0 million, which is guaranteed by the U.S.

Department of Agriculture;

and (2) "Note B" in the principal amount of $ 2.0 million.

The Notes mature on January 27, 2036 and bear interest at 6.0 % per annum through January 2026 and at the prime rate plus 2.75 % thereafter.

Beginning January 27, 2023 and for the balance of the term of the CTB Loan, the Arq Subsidiaries are required to make combined interest and principal payments monthly in the fixed amount of $ 0.1 million.

Interest is computed and payable on the outstanding principal as of the end of the prior month and the balance of the fixed monthly payment amount is applied to the outstanding principal.

The Notes carry a prepayment penalty of 3.0 % of the outstanding principal if paid prior to January 27, 2024, 2.0 % of the outstanding principal if paid prior to January 27, 2025 and 1.0 % of the outstanding principal if paid prior to January 27, 2026.

Thereafter, the CTB Loan may be prepaid without penalty.

On June 2, 2023 (the "Amendment Date"), certain of the Arq Subsidiaries, which included Corbin Project LLC, Arq Projects Holding Company LLC, Arq St.

Rose LLC, Arq Corbin LLC and Arq Corbin Land LLC (collectively, the "Borrowers") and CTB entered into a loan modification agreement (the "CTB Loan Modification Agreement") to the CTB Loan, as amended by that certain letter agreement by and among the CTB and Borrowers dated January 21, 2022, and as otherwise amended, modified and/or extended by the parties from time to time (collectively, the "CTB Loan Agreement").

As consideration for CTB entering into the CTB Loan Modification Agreement, the Borrowers agreed to pay a fee of $ 50,000 plus additional fees incurred by CTB and were required to deposit an additional $ 0.7 million into a deposit account (the "Interest Reserve Account" as defined in the CTB Loan Agreement), where the Interest Reserve Account is held as collateral by CTB.

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

The CTB Loan Modification Agreement clarified and modified certain terms under the CTB Loan Agreement.

The principal clarifications and modifications are as follows:

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

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

and Subsidiaries

Notes to Consolidated Financial Statements

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

• The Borrowers were required to establish their operating bank accounts with CTB no later than September 30, 2023;

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

The CTB Loan is secured by substantially all assets of the Borrowers and includes among others, the following covenants with respect to the Borrowers, which are tested annually (Capitalized terms are defined in the CTB Loan Agreement):

(a) Total Indebtedness to Net Worth greater than 4 to 1;

(b) Balance Sheet Equity greater than or equal to 20 % of the book value of all assets of the Borrowers;

(c) (i) net income plus interest, taxes, depreciation and amortization divided by (ii) interest expense plus current maturities on long-term debt greater than or equal to 1.25 to 1.

The carrying value of our long-term debt under the CFG Loan and CTB Loan approximates its fair value because it bears interest at rates indexed to market rates.

Note 7 - Leases

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

Year ended December 31,

(in thousands) December 31, 2023 December 31, 2022

Operating Leases

14 unchanged sentences

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, 2023 and 2022.

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 items respectively, in the Consolidated Statement of Operations for the years ended December 31, 2022 and 2021.

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, 2023 and 2022.

Lease expense for operating leases for the year ended December 31, 2022 was $ 4.4 million, of which $ 4.0 million is included in "Consumables cost of revenues, exclusive of depreciation and amortization" line item and $ 0.4 million is included in "General and administrative" line item in the Consolidated Statement of Operations for the year ended December 31, 2022.

Lease expense for operating leases for the year ended December 31, 2021 was $ 4.0 million, of which $ 3.5 million is included in the "Consumables cost of revenues, exclusive of depreciation and amortization" line item and $ 0.5 million is included in the "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, 2023 was $ 5.9 million, of which $ 4.5 million is included in "Consumables cost of revenue, exclusive of depreciation and amortization" line item and $ 1.4 million is included in "General and administrative" line item in the Consolidated Statement of Operations for the year ended December 31, 2023.

Lease expense for operating leases for the year ended December 31, 2022 was $ 4.4 million, of which $ 4.0 million is included in the "Consumables cost of revenue, exclusive of depreciation and amortization" line item and $ 0.4 million is included in the "General and administrative" line item in the Consolidated Statement of Operations for the year ended December 31, 2022.

Lease financial information as of and for the years ended December 31, 2023 and 2022 is provided in the following table:

20 unchanged sentences

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

Advanced Emissions Solutions, Inc.

and Subsidiaries

13 unchanged sentences

Present value of lease payments $ 10,814 $ 3,465 $ 14,279

In November 2022, the Company executed a new lease for its corporate headquarters and primary laboratory commencing May 1, 2023 and expiring October 31, 2030.

Total commitments under the lease include aggregate rental payments of $ 3.3 million plus a pro rata portion of operating expenses related to the office and laboratory leased space, which is not included in the table above.

Note 8 - Commitments and Contingencies

Retention Agreements

On May 4, 2022, the Compensation Committee of the Board of Directors and the Board of Directors (the "Board") approved the amendment to retention agreements (the "Retention Agreements" and each a "Retention Agreement"), which had been executed in May 2021, between the Company and its executive officers and certain other key employees in order to maintain the Company's business operations while it pursues and executes on its strategic initiatives (the "Amended Retention Agreements").

Under the Amended Retention Agreements, employees will receive (i) 40 % of the original amount agreed to in the Retention Agreements ("Retention Pay") in August 2022;

(ii) 60 % of the Retention Pay on the earliest of (1) the date the employee’s employment is terminated without Cause or for Good Reason (as those terms are defined in the Retention Agreement or the employee’s employment agreement, as applicable), (2) 90 days after a Transaction Date or a Change in Control (as those terms are defined in the Retention Agreement or the employee’s employment agreement, as applicable), or (3) January 18, 2023;

and (iii) an additional lump sum payment, ranging from 10 % to 40 % of the Retention Pay, will also be paid at the earliest of (1) the date the employee’s employment is terminated without Cause or for Good Reason (as those terms are defined in the Retention Agreement or the employee’s employment agreement, as applicable), (2) 90 days after a Transaction Date or a Change in Control (as those terms are defined in the Retention Agreement or the employee’s employment agreement, as applicable), or (3) in January 2023.

In order to receive the Amended Retention Agreements payments, employees must remain employed at the Company through the dates above.

In August 2022, the Company paid out $ 1.0 million pursuant to the payment terms of the Amended Retention Agreements.

As of December 31, 2022, the total cash payable pursuant to the Amended Retention Agreements was $ 1.4 million, and is included in the "Other current liabilities" line item in the Consolidated Balance Sheet.

This amount was paid in January 2023.

Surety Bonds and Restricted Cash

As the owner of the Marshall Mine, the Company is required to post a surety bond with a regulatory commission.

As of December 31, 2022, the Company had posted a $ 16.6 million surety bond (the "MM Surety Bond") which will remain in place until the Marshall Mine is fully reclaimed, and may be further reduced in amount from time to time as the Company progresses with its reclamation activities or eliminated if the MM Sale is consummated.

As the owner of the Five Forks Mine, the Company is required to post a surety bond with a regulatory commission.

As of December 31, 2022 , the Company had posted a $ 7.5 million surety bond related to performance requirements associated with the Five Forks Mine.

Advanced Emissions Solutions, Inc.

As the owner of the Five Forks Mine, the Company is required to post a surety bond with a regulatory commission related to performance requirements associated with the Five Forks Mine.

As of December 31, 2023 , the amount of this surety bond was $ 7.5 million .

The Company leases land adjacent to the Corbin Facility and is required to post surety bonds with a regulatory commission for reclamation.

As of December 31, 2023, the amount of these surety bonds was $ 3.0 million.

The Company holds permits for an abandoned mine in West Virginia ("Mine 4") and is required to post a surety bond with a regulatory commission for reclamation.

As of December 31, 2023, the amount of this surety bond was $ 0.7 million.

As of December 31, 2023 and 2022, the Company posted cash collateral of $ 8.5 million and $ 10.0 million, respectively, as required by the Company's surety bond providers, which is reported as long-term restricted cash in the Consolidated Balance Sheets.

As of December 31, 2023, the Company holds a deposit of $ 0.4 million with a third party for collateral as required under a bonding arrangement for Mine 4.

This deposit is included in "Other long-term assets, net" in the Consolidated Balance Sheet as of December 31, 2023.

The Company has a customer supply agreement, which was renewed January 1, 2024, that requires the Company to post a performance bond in an amount equal to the annual contract value of $ 3.7 million.

Red River Plant Construction Contract

In January 2024, the Company executed a contract with a third-party contractor for the construction of a GAC facility at the Red River Plant, and immediately commenced construction operations.

The Company expects to complete the GAC Facility by the end of 2024 and estimates that total construction costs will be in the range of $ 62.0 - $ 67.0 million.

and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2022, the Company posted cash collateral of $ 10.0 million for both the Marshall Mine and Five Forks Mine as required by the Company's surety bond provider, which is reported as long-term restricted cash on the Consolidated Balance Sheets.

The Company also has certain limited obligations contingent upon future events in connection with the activities of Tinuum Group.

2 unchanged sentences

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 Guarantees.

In December 2022, the Company, certain of the other owners of Tinuum Group (collectively, the "Tinuum Group Owners") and Tinuum Group executed the Distribution and Repayment Agreement (the "Repayment Agreement").

Under the terms of the Repayment Agreement, the Tinuum Group Owners received cash distributions (the "Distributions") equal to their percentage ownership and also agreed to be contractually liable for certain contingent liabilities of Tinuum Group (the "Tinuum Group Obligation") in amounts equal to their percentage ownership.

In December 2022, the Company received its percentage share of the Distributions in the amount of $ 2.0 million and became contractually liable for $ 1.7 million of the Tinuum Group Obligation.

As of December 31, 2022, the Company recorded the contractual obligation of $ 1.7 million as a liability in the "Other current liabilities" line item in the Consolidated Balance Sheet, with the difference between the cash distribution of $ 0.3 million recorded to equity method earnings for the year ended December 31, 2022.

In the event that the Tinuum Group Obligation is discharged in its entirety or settled for an amount that is less than the total Tinuum Group Obligation, the Company will recognize future equity earnings for the difference in its contractual obligation amount and its pro rata share of the actual payment made by Tinuum Group, if any, for the Tinuum Group Obligation.

Marken Separation Agreement

Pursuant to Mr.

Marken's termination as CEO of the Company effective July 17, 2023, the Company and Mr.

Marken executed a separation agreement under which Mr.

Marken will receive the following payments and benefits:

(i) the severance payments and benefits set forth in the terms of his employment agreement upon a termination without "cause," (ii) accelerated vesting of 49,715 shares of restricted stock, (iii) continued eligibility for possible vesting of a pro rata target number of 25,941 performance share units ("PSUs") granted in 2021, subject to achievement of applicable performance measures, (iv) continued eligibility for possible vesting of a pro rata target number of 15,988 PSUs granted in 2022, subject to achievement of applicable performance measures, and (v) continued eligibility for possible vesting of a pro rata target number of 19,834 PSUs granted in 2023, subject to achievement of applicable performance measures.

As of December 31, 2023, the amount of the liability related to (i) and (ii) above was $ 0.4 million.

Legal Proceedings

3 unchanged sentences

There were no significant legal proceedings as of December 31, 2023.

Note 8 - Property, Plant and Equipment

The cost basis and accumulated depreciation of property, plant and equipment at December 31, 2022 and 2021 are summarized in the table below:

Life in Years As of December 31,

(in thousands) 2022 2021

Land and land improvements 0 - 31

$ 1,225 $ 1,225

Plant and operating equipment 2 - 29

33,180 31,266

Furniture and fixtures 2 - 11

Machinery and equipment 3 - 10

Leasehold improvements 3 - 12

Construction in progress 6,373 1,190

46,752 37,855

Less accumulated depreciation ( 11,897 ) ( 7,684 )

Total property, plant and equipment, net $ 34,855 $ 30,171

Included in plant and operating equipment as of December 31, 2022 and 2021 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, 2022 and 2021 related to finance lease obligations was $ 2.6 million and $ 1.7 million, respectively, net of accumulated depreciation of $ 2.0 million and $ 1.1 million.

Depreciation expense for the years ended December 31, 2022 and 2021 was $ 4.9 million and $ 5.5 million, respectively.

Advanced Emissions Solutions, Inc.

Note 9 - Marshall Mine, LLC

On March 27, 2023, (the "MM Closing Date"), the Company completed the sale of all of its membership interests in Marshall Mine, LLC to a third party (the "Buyer") in exchange for cash payment of $ 2.2 million (the "MM Purchase Price") made by the Company to the Buyer and the assumption by the Buyer of certain liabilities of Marshall Mine, LLC.

As of the MM Closing Date, Marshall Mine, LLC had outstanding liabilities of approximately $ 4.9 million that were discharged upon payment of the MM Purchase Price by the Company, and the Company recognized a gain of approximately $ 2.7 million in the Statement of Operations for the year ended December 31, 2023.

and Subsidiaries

14 unchanged sentences

Upfront customer consideration (1)

Mine development costs, net 5,478 5,330

Mine reclamation asset, net 1,955 1,641

Intangible assets, net 7,899 847

Norit receivable — 6,846

Equity method investments — 2,391

Mine development costs, net 7,377 5,478

Other long-term assets 2,663 1,683

$ 45,600 $ 30,647

(1) See further discussion of Upfront Customer Consideration in Note 3.

(1) Represent remaining balance on consideration paid to a customer under a long-term supply contract executed in 2020.

This asset is being amortized as a reduction to revenue on a straight-line basis over the expected 15 -year contractual period of the contract.

Spare parts include critical spares required to support plant operations.

11 unchanged sentences

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

Advanced Emissions Solutions, Inc.

and Subsidiaries

5 unchanged sentences

Current portion of operating lease obligations $ 1,944 $ 2,724

Income and other taxes payable 1,039 807

Sales, use and other taxes payable 948 1,039

Current portion of mine reclamation liability 182 548

4 unchanged sentences

Operating lease obligations, long-term 8,870 5,133

Other 929 733

$ 15,780 $ 13,851

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

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.

(1) Included in Other current liabilities as of December 31, 2023 and 2022 is $ 1.7 million related to the Repayment Agreement as defined in Note 15.

The Mine reclamation liabilities represent AROs.

Changes in the AROs were as follows:

2 unchanged sentences

Asset retirement obligations, beginning of year $ 8,533 $ 9,959

Asset retirement obligations assumed (1)

Accretion 582 611

Liabilities settled (2)

( 4,866 ) ( 2,071 )

Changes due to scope and timing of reclamation 414 34

2 unchanged sentences

Asset retirement obligations, long-term $ 5,981 $ 7,985

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

(2) Includes the removal of a reclamation liability associated with Marshall Mine, LLC as a result of its sale to a third party in March 2023.

Supplemental Consolidated Statements of Operations Information

Gain on Change in estimate, asset retirement obligation

As discussed in Note 3, 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:

1 unchanged sentence

(in thousands) 2023 2022

Interest on Senior Term Loan $ — $ 206

Debt discount and debt issuance costs — 945

453A interest — 13

Interest on CFG Loan $ 2,029 $ —

Interest on CTB Loan 545 —

Other 440 336

Total Interest expense $ 3,014 $ 336

Advanced Emissions Solutions, Inc.

and Subsidiaries

6 unchanged sentences

Total Other income $ 2,630 $ 155

Note 10 - Equity Method Investments

Tinuum Group, LLC

The following table summarizes the results of operations of Tinuum Group:

Years Ended December 31,

(in thousands) 2022 2021

Gross profit $ 964 $ 6,995

Operating, selling, general and administrative expenses 4,275 49,414

Loss from operations ( 3,311 ) ( 42,419 )

Other income 1,231 9,726

(Income) loss attributable to noncontrolling interest ( 874 ) 126,948

Net (loss) income available to members $ ( 2,954 ) $ 94,255

ADES equity earnings from Tinuum Group $ 3,455 $ 61,837

As of December 31, 2022 and 2021, the carrying value of the Company's investment in Tinuum Group was zero as the cumulative amount of distributions received from Tinuum Group exceeded the Company's cumulative pro-rata share of Tinuum Group's net income available to Class A members.

As a result, for the years ended December 31, 2022 and 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.

In December 2022, the Company received its percentage share of the Distributions in the amount of $ 2.0 million and became contractually liable for $ 1.7 million of the Tinuum Group Obligation.

The Company recorded the Company's contractual obligation of $ 1.7 million as a liability in the "Other current liabilities" line item in the Consolidated Balance Sheet as of December 31, 2022, with the difference between the cash distribution of $ 0.3 million recorded to equity method earnings for the year ended December 31, 2022.

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, 2022 and 2021 ( 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 12/31/2020 $ 3,387 $ — $ — $ —

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 (loss) and cash distributions 12/31/2021 $ — $ 61,837 $ 65,224 $ ( 21,779 )

ADES proportionate share of net loss from Tinuum Group 2022 activity ( 1,255 ) ( 1,255 ) — ( 1,255 )

Cash distributions from Tinuum Group 2022 activity ( 3,455 ) — 3,455 ( 3,455 )

Adjustment for current year cash distributions in excess of investment balance 2022 activity 4,710 4,710 — —

Total investment balance, equity earnings and cash distributions 12/31/2022 $ — $ 3,455 $ 3,455 $ ( 26,489 )

Tinuum Services, LLC

The following tables summarizes the results of operations of Tinuum Services:

Years Ended December 31,

(in thousands) 2022 2021

Gross profit (loss) $ 1,065 $ ( 68,465 )

Operating, selling, general and administrative expenses 2,800 166,075

Loss from operations ( 1,735 ) ( 234,540 )

Other income (expenses), net 1,159 3,830

Loss attributable to noncontrolling interest 323 246,094

Net (loss) income $ ( 253 ) $ 15,384

ADES equity earnings from Tinuum Services $ 85 $ 6,952

Included in the Consolidated Statement of Operations of Tinuum Services for the years ended December 31, 2022 and 2021 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.

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 year ended December 31, 2022 ( in thousands ):

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

Cash distributions and equity earnings in (excess) of investment balance

Beginning balance 12/31/2021 $ 2,391 $ — $ — $ —

ADES proportionate share of net loss from Tinuum Services 2022 activity ( 127 ) ( 127 ) — —

Cash distributions from Tinuum Services 2022 activity ( 2,476 ) — 2,476 —

Adjustment for current year cash distributions in excess of investment balance 2022 activity 212 212 — ( 212 )

Total investment balance, equity earnings and cash distributions 12/31/2022 $ — $ 85 $ 2,476 $ ( 212 )

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 and as a result, 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.

The following table details the carrying value of the Company's respective equity method investments included in the "Other long-term assets, net" line item on the Consolidated Balance Sheets and indicates the Company's maximum exposure to loss:

As of December 31,

(in thousands) 2022 2021

Equity method investment in Tinuum Services — 2,391

Total equity method investments $ — $ 2,391

The following table details the components of the Company's respective 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) 2022 2021

Earnings from Tinuum Group $ 3,455 $ 61,837

Earnings from Tinuum Services 85 6,952

Earnings (loss) from other 1 ( 63 )

Earnings from equity method investments $ 3,541 $ 68,726

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.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Year ended December 31,

(in thousands) 2022 2021

Distributions from equity method investees, return on investment

Tinuum Services $ 2,297 $ 8,802

Tinuum Group — 14,142

$ 2,297 $ 22,944

Distributions from equity method investees in excess of cumulative earnings

Tinuum Group $ 3,455 $ 51,082

Tinuum Services 179 —

$ 3,636 $ 51,082

Note 11 - Stockholders' Equity

3 unchanged sentences

As of December 31, 2023 and 2022, there were no shares of Preferred Stock designated or outstanding.

See further discussion of subsequent preferred stock designation and issuance in Note 17.

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.

1 unchanged sentence

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.

Equity Transactions

As discussed in Note 2:

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

Additionally, the Company completed the PIPE Investment and sold 3,842,315 shares of common stock for cash proceeds of $ 15.4 million.

• On March 31, 2023, the Company declared a dividend of 68,464 Series A PIK Shares with respect to the accrued dividends on the Series A Preferred Stock, which was recorded at the estimated fair value of $ 0.2 million as of March 31, 2023 and was paid on April 21, 2023.

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

On July 14, 2023, the Board appointed Mr.

Robert Rasmus to the positions of President and Chief Executive Officer effective July 17, 2023.

On July 17, 2023, the Company entered into a Subscription Agreement (the "Subscription Agreement") with Mr.

Rasmus and entities controlled by Mr.

Rasmus, in connection with his appointment as the Company’s President and Chief Executive Officer.

Pursuant to the Subscription Agreement, Mr.

Rasmus subscribed for and agreed to purchase 950,000 shares of common stock from the Company for an aggregate purchase price of $ 1.8 million (at a price per share of approximately $ 1.90 ).

In September 2023, the Company received cash of $ 1.0 million and issued 527,779 shares of common stock to Mr.

Rasmus pursuant to the Subscription Agreement.

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.

As of December 31, 2022, the Company had $ 7.0 million remaining under the Stock Repurchase Program.

Tax Asset Protection Plan

federal income tax rules, and Section 382 of the Internal Revenue Code in particular, could substantially limit the use of Section 45 tax credits 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.

An entity that experiences an ownership change generally will be subject to an annual limitation on its pre-ownership change tax loss and credit carryforwards equal to the equity value of the entity immediately before the ownership change, multiplied by the long-term, tax-exempt rate posted monthly by the Internal Revenue Service ("IRS") (subject to certain adjustments).

The annual limitation would be increased each year to the extent that there is an unused limitation in a prior year.

Advanced Emissions Solutions, Inc.

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").

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

and Subsidiaries

Notes to Consolidated Financial Statements

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

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

During the years 2018-2022, we executed amendments to the TAPP (the "TAPP Amendments"), which amended the definition of "Final Expiration Date under the TAPP to extend the duration of the TAPP and makes associated changes in connection therewith.

The most recent TAPP Amendment was approved at our 2022 annual meeting of stockholders and extended the Final Expiration Date to the close of business on December 31, 2023.

otherwise modified by the Board.

As of December 31, 2023, the Company had $ 7.0 million remaining under the Stock Repurchase Program.

Note 12 - Stock-Based Compensation

11 unchanged sentences

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.

The Company's Monte Carlo simulation models include the following assumptions:

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

3 unchanged sentences

• Performance period - The Company’s performance period is based on the vesting term of the Company’s PSU awards.

Stock Options

Stock options vest over three years and have a contractual limit of ten years from the date of grant to exercise.

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

The determination of the grant date fair value of stock options issued is affected by a number of variables, including the fair value of the Company’s common stock, the expected common stock price volatility over the expected term of the stock option, the expected term of the stock option, risk-free interest rates, and the expected dividend yield of the Company’s common stock.

The Company's Black Scholes option pricing models include the following assumptions:

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

Treasury rate for the periods that coincided with the expected term of the options.

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

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

and Subsidiaries

Notes to Consolidated Financial Statements

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

The following table indicates the weighted average assumptions that were used related to the awards granted during the year ended December 31, 2023:

Year ended December 31, 2023

Stock options granted:

Risk-free interest rate 4 %

Dividend yield — %

Volatility 62 %

Expected term (in years) 6

The Company recorded the following compensation expense related to the Stock Plans:

3 unchanged sentences

PSU expense 650 302

Stock option expense 111 —

Total stock-based compensation expense $ 2,648 $ 1,981

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 the Consolidated Statements of Operations.

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

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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

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

The Company recognizes forfeitures as they occur.

The amount of unrecognized compensation cost as of December 31, 2023, and the expected weighted-average period over which the cost will be recognized is as follows:

2 unchanged sentences

RSA expense $ 1,412 1.67

Stock option expense 618 2.54

PSU expense 994 1.36

Total unrecognized stock-based compensation expense $ 3,024 1.30

and Subsidiaries

Notes to Consolidated Financial Statements

Restricted Stock

11 unchanged sentences

The aggregate intrinsic value of non-vested RSAs outstanding as of December 31, 2023 was $ 2.4 million.

PSUs 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.

PSUs outstanding remain unvested until either the requisite performance condition of the grant is met, or 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.

A summary of PSU activity for the year ended December 31, 2023 is presented in the table below:

8 unchanged sentences

PSU's outstanding, December 31, 2023 968,918 $ 2.06 $ 2,887 1.33

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Stock Options

A summary of stock option activity for the year ended December 31, 2023 is presented below:

Number of Options

Outstanding and

Exercisable Weighted-Average

Exercise Price Aggregate Intrinsic Value Weighted-Average

Remaining Contractual

Term (in years)

For the year ended December 31, 2023

Options outstanding, Options outstanding at January 1, 2023 — $ —

Options granted 1,000,000 3.00

Options exercised — —

Options expired / forfeited — —

Options outstanding, Options outstanding at December 31, 2023 1,000,000 $ 3.00 $ — 9.54

Options vested and exercisable at December 31, 2023 — $ — $ — 0

Note 13 - Income Taxes

The sources of pretax loss are as follows:

Years ended December 31,

(in thousands) 2023 2022

Domestic $ ( 9,123 ) $ ( 8,708 )

Foreign ( 2,973 ) —

$ ( 12,096 ) $ ( 8,708 )

The provision for income taxes consists of the following:

5 unchanged sentences

Deferred portion of income tax expense (benefit):

Federal — 9,527

State and other — —

1 unchanged sentence

Effective tax rate ( 1 ) % ( 2 ) %

and Subsidiaries

Notes to Consolidated Financial Statements

Income tax expense (benefit) 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, 2022 and 2021 as follows:

statutory federal income tax rate of 21% to loss before income taxes for the years ended December 31, 2023 and 2022 as follows:

Years Ended December 31,

3 unchanged sentences

Permanent differences 755 1,284

Tax credits — ( 443 )

Valuation allowances 1,385 825

2 unchanged sentences

Return to provision and other true-ups 144 ( 109 )

Other — ( 186 )

Income tax expense $ 153 $ 209

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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.

23 unchanged sentences

Upfront customer consideration ( 1,383 ) ( 1,507 )

Inventory — ( 197 )

ARO, net of reimbursements — ( 333 )

Equity method investments ( 404 ) —

Total deferred tax liabilities ( 13,471 ) ( 11,009 )

Net deferred tax assets $ — $ —

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.

and Subsidiaries

Notes to Consolidated Financial Statements

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

6 unchanged sentences

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

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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

1 unchanged sentence

(in thousands) 2023 Beginning expiration year Ending expiration year

Federal net operating loss carryforwards $ 467 Indefinite Indefinite

State and other operating loss carryforwards $ 2,425 2026 2037

Federal net operating loss carryforwards (1) $ 10,177 2035 Indefinite

Foreign net operation loss carryforwards $ 3,629 Indefinite Indefinite

State and other net operating loss carryforwards $ 3,211 2025 Indefinite

Federal tax credit carryforwards $ 86,125 2032 2041

(1) Approximately $ 8.8 million of the federal net operating loss carryforwards were acquired in the Arq Acquisition, of which $ 6.2 million have expiration dates beginning in 2035.

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, 2023 and 2022:

7 unchanged sentences

Additional information related to the components of "Interest expense" is included in Note 10.

The Company files income tax returns in the U.S.

and various states.

The Company files income tax returns in the U.S., various states and the United Kingdom.

The Company is no longer subject to U.S.

1 unchanged sentence

The Company is generally no longer subject to state examinations by tax authorities for years before 2016.

federal income tax rules, and Sections 382 of the Internal Revenue Code in particular, could substantially limit the use of Section 45 tax credits 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 the aggregate stock ownership of certain stockholders (generally 5 % stockholders, applying certain look-through rules) increases by more than 50 percentage points over such stockholders' lowest percentage ownership during the testing period (generally three years ).

and Subsidiaries

Notes to Consolidated Financial Statements

The annual limitation would be increased each year to the extent that there is an unused limitation in a prior year.

In connection with the Arq Acquisition and PIPE Investment, we issued additional shares of our common stock.

We performed an IRC Section 382 analysis as of the Acquisition Date and determined that we had not experienced an ownership change as of that date.

The Company acquired certain tax assets (the "Legacy Arq Tax Assets") in the Arq Acquisition, totaling approximately $ 12.5 million.

The Legacy Arq Tax Assets are comprised of net operating loss carryforwards, of which $ 8.8 million were in the U.S.

Prior to the Acquisition Date, Legacy Arq completed numerous equity offerings that resulted in ownership changes.

We have not completed a formal IRC Section 382 analysis of Legacy Arq equity changes from its inception through the Acquisition Date, however, the Company believes that one or more "ownership changes" occurred during this time period as defined under Sections 382 and 383 and that a portion or all the Legacy Arq Tax Assets may subject to an annual limitation.

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.

During the years 2018-2023, we executed amendments to the TAPP (the "TAPP Amendments"), which amended the definition of "Final Expiration Date" under the TAPP to extend the duration of the TAPP and makes associated changes in connection therewith.

The most recent TAPP Amendment was approved at our 2023 annual meeting of stockholders and extended the Final Expiration Date to the close of business on December 31, 2024.

Note 14 - Major Customers

Revenues from external customers who represent 10% or more of the Company’s revenues for the years ended December 31, 2022 and 2021 were as follows:

Revenue from external customers who represent 10% or more of the Company’s revenue for the years ended December 31, 2023 and 2022 were as follows:

Years ended December 31,

2 unchanged sentences

B Consumables 9 % 11 %

C Consumables 8 % 10 %

D License royalties, related party — % 14 %

Note 15 - Related Party Transactions

Accounts Receivable

The following table shows the Company's receivable balance associated with related parties as of December 31, 2022 and 2021:

As of December 31,

(in thousands) 2022 2021

Receivable from related party - Tinuum Group (1) $ — $ 2,481

(1) Represents amount due for M-45 Royalties.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

The following table shows the income recognized with related parties during the years ended December 31, 2022 and 2021:

Years Ended December 31,

(in thousands) 2022 2021

License royalties, related party - Tinuum Group $ — $ 14,368

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

Consumables Cost of Revenues

For the year ended December 31, 2022, the Company recognized $ 0.8 million of Tinuum Group Royalty expense, which is included in the "Consumables cost of revenues, exclusive of depreciation and amortization" line item in the Consolidated Statement of Operations.

Consumables Cost of Revenue

For the year ended December 31, 2023, the Company recognized $ 0.7 million of Tinuum Group Royalty expense, which is included in the "Consumables cost of revenue, exclusive of depreciation and amortization" line item in the Consolidated Statement of Operations.

Tinuum Group Obligation

As of December 31, 2022, the Company had an outstanding liability of $ 1.7 million related to its contractual amount due under the Tinuum Group Obligation, which is included in the "Other current liabilities" line item in the Consolidated Balance Sheet.

As of December 31, 2023 and 2022, the Company had an outstanding liability of $ 1.7 million related to its contractual amount due under the Tinuum Group Obligation, which is included in the "Other current liabilities" line item in the Consolidated Balance Sheet.

Refer to Note 8 for further discussion.

2 unchanged sentences

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) 2022 2021

401(k) Plans employer contributions $ 552 $ 479

Note 17 - 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, 2022.

On February 1, 2023 (the "Acquisition Date"), the Company entered into a securities purchase agreement (the "Purchase Agreement") with Arq Limited ("Arq Ltd."), a company incorporated under the laws of Jersey, pursuant to which the Company acquired all of the direct and indirect equity interests of Arq Limited’s subsidiaries (the "Arq Acquisition," and hereafter referred to as "Arq") in exchange for consideration (the "Purchase Consideration") totaling $ 31.2 million and consisting of (i) 3,814,864 shares of the Company's common stock, par value $ 0.001 per share (the "Common Stock"), valued at $ 12.4 million based on the closing price of the Common Stock on the Acquisition Date and (ii) 5,294,462 shares of the Company's Series A Convertible Preferred Stock, par value $ 0.001 per share (the "Series A Preferred Stock" or the "Preferred Shares"), valued at $ 18.8 million.

The Company also incurred $ 8.7 million in acquisition-related costs, which have been expensed as incurred.

Of the total Preferred Shares, 833,914 are being held in escrow (the "Escrow Shares") based on a contingent redemption feature, (the "Contingent Redemption Feature," as defined below).

The fair value of the Preferred Shares issued was determined to be $3.46 per Preferred Share on the Acquisition Date (the ("Preferred Share Price") plus the value of the Contingent Feature related to the Escrow Shares.

Under the Certificate of Designations, 8.9 million preferred shares were designated as Series A Preferred Stock.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Arq's principal office is located in London, United Kingdom, with additional offices located in Lexington and Corbin, Kentucky near its main production facility.

Arq is an environmental technology company that has developed a process for transforming coal waste into a purified, microfine carbon powder ("Arq Powder") that can be used as an alternative to oil or in-ground mined coal to produce a range of carbon products.

With the completion of the Arq Acquisition, the Company intends to first sell Arq Powder as a feedstock to produce high-quality AC for use in water and air purification markets.

Series A Preferred Stock

Each share of Series A Preferred Stock will be automatically converted into a share of Common Stock upon approval by the stockholders of the Company.

Each share of Series A Preferred Stock is deemed to have an original issue price of $ 4.00 per share (the "Original Issue Amount").

The number of shares of Common Stock issued upon conversion of each share of Series A Preferred Stock shall be equal to the product of (i) the sum of (A) the Original Issue Amount plus (B) an amount equal to the cumulative amount of the accrued and unpaid dividends on such share at such time divided by (ii) the Original Issue Amount, subject to adjustment.

Holders of the Series A Preferred Stock are entitled to receive cumulative dividends which will accrue quarterly on the last day of each applicable quarter (whether or not declared or funds for their payment are lawfully available) and will be payable quarterly, in arrears, on the earlier to occur of (a) the date any dividend is paid to holders of Common Stock with respect to such quarter and (b) 30 days after the end of each quarter (the "Series A Quarterly Dividend") at the rate per share of Series A Preferred Stock equal to the greater of (i) if the Company declares a cash dividend on the Common Stock with respect to such quarter, the amount of the cash dividend that would be received by a holder of Common Stock in which such share of Series A Preferred Stock would be convertible on the record date for such cash dividend and (ii) an annual rate (the "Rate") of 8.0 % of the Original Issue Amount per annum compounded quarterly with respect to such quarter.

The Rate will increase by 2.0 % on the first day of the first quarter ending on or after the 635th day following the closing date of the first issuance of Series A Preferred Stock and on each subsequent anniversary of such date.

The Series A Quarterly Dividend is payable in cash or in additional shares of Series A Preferred Stock (the "Series A PIK Shares"), at the option of us.

The number of Series A PIK Shares to be issued shall be determined by dividing (i) the Series A Quarterly Dividend payable with respect to all shares of Series A Preferred Stock held by a holder thereof by (ii) the aggregate Original Issue Amount of all shares of Series A Preferred Stock held by a holder thereof, and each fractional Series A PIK Share will be rounded to the nearest whole Series A PIK Share (with 0.5 of a share being rounded down to 0.0).

In the event of the Company’s liquidation, dissolution or winding up, after payment or provision for payment of its debt and other liabilities, a holder of Series A Preferred Stock will receive a liquidating distribution equal to the amount of the cumulative accrued but unpaid dividends on each share of Series A Preferred Stock held by such holder.

After the payment to the holders of Series A Preferred Stock of such liquidation preference, the holders of outstanding shares of Series A Preferred Stock will participate pari passu with the holders of Common Stock on an as-converted basis in any remaining distributions out of the Company’s assets available for distribution to stockholders.

Holders of shares of Series A Preferred Stock will generally have no voting rights.

However, the Company is restricted from taking certain actions without the written consent or affirmative vote of the holders of at least a majority of the then outstanding shares of Series A Preferred Stock, including, but not limited to, amending the Company’s Certificate of Incorporation or Bylaws in a manner that adversely affects the rights of the Series A Preferred Stock or consummating a merger of the Company with or into another party or a sale of substantially of our assets.

If the approval by the stockholders of the Company of conversion of the Series A Preferred Stock has not been obtained, each outstanding share of Series A Preferred Stock will be redeemed by the Company on February 1, 2028 for cash, at a redemption price equal to the sum of (i) the product of (x) 140 % and (y) the Original Issue Amount, plus (ii) an amount equal to the cumulative amount of accrued and unpaid dividends on such share of Series A Preferred Stock.

Acquisition Accounting

The Company accounted for the Arq Acquisition as an acquisition of a business as of the Acquisition Date.

The fair value of the Purchase Consideration has been preliminarily allocated to the acquired assets and assumed liabilities based on their respective fair values as of the Acquisition Date.

The Company also incurred $ 8.7 million in acquisition-related costs (or transaction costs), which were expensed as incurred.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Under the terms of the Purchase Agreement, the Escrow Shares are being withheld pending a determination by the IRS that no tax withholding is required on the Purchase Consideration issued to Arq Ltd.

(the "Arq Ltd.

Tax Liability").

The Company has estimated the fair value of the potential Arq Ltd.

Tax Liability at $ 3.3 million.

In the event that the IRS determines that no withholding is required by Arq Ltd.in connection with the Purchase Considered received by Arq Ltd., all of the Escrow Shares will be released and delivered to Arq Ltd.

In the event that the IRS determines that any amount of withholding is required by Arq Ltd., the Company has agreed to redeem a sufficient number of Escrow Shares to fund the required payment to the IRS, and that number of Escrow Shares will be returned to the Company (the "Contingent Redemption Feature").

The number of Escrow Shares to be returned to the Company is equal to the required withholding amount divided by the Original Issue Amount, not to exceed a maximum of 833,914 Escrow Shares, and is equal to $ 3.3 million based on the Original Issue Amount (the "Maximum Contingent Redemption Amount").

The fair value of the Escrow Shares is the Maximum Contingent Redemption Amount and the fair value of the non-escrowed Preferred Shares ("Non Escrow Shares") is the Preferred Share Price.

The Series A Preferred Stock contains a mandatory redemption feature in the event the Series A Preferred Stock is not converted prior to February 1, 2028.

The Company has determined that both the Escrow Shares and the Non Escrow Shares do not meet the definition of mandatorily redeemable financial instruments as there is a substantive conversion feature, and are therefore not classified as liabilities.

As both the Escrow Shares and Non Escrow Shares represent financial instruments that are redeemable for cash, SEC guidance mandates that preferred securities which are redeemable upon the occurrence of an event that is not solely within the control of the issuer be classified outside of permanent equity as "temporary equity." Accordingly, the Company has classified all of the Preferred Shares as temporary equity as of the Acquisition Date.

The following table provides the preliminary estimated fair values of the assets acquired and liabilities assumed as of the Acquisition Date:

(in thousands) Preliminary Purchase Price Allocation

Inventories, net 340

Prepaid expenses and other current assets 1,889

Property, plant and equipment, net 39,199

Other long-term assets, net 19,460

Total Assets $ 62,299

Accounts payable and accrued expenses $ 9,323

Other current liabilities —

Long-term debt, net of current portion 20,502

Other long-term liabilities 1,269

Total Liabilities $ 31,094

Total Preliminary Purchase Price $ 31,205

The intangible assets acquired are composed of Developed Technology and the estimated useful life is 10 years.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Unaudited Pro Forma Financial Information

The following represents the pro forma effects of the Arq Acquisition as if it had occurred on January 1, 2021.

The pro forma net (loss) income for each of the two years presented has been calculated after applying the Company’s accounting policies in effect for those years.

In addition, pro forma net (loss) income includes:

(1) for the year ended December 31, 2021, an increase in Payroll and benefits for compensation expense of $ 1.9 million payable to certain Arq employees triggered by change in control provisions in employment agreements as well as in employee severance agreements that is not recognized in the historical financial statements, assuming such amounts will be paid in cash;

(2) for the year ended December 31, 2022, a decrease in depreciation and amortization resulting from fair value adjustments to Property, plant, equipment of $ 0.9 million, and for the year ended 2021, an increase in depreciation and amortization resulting from fair value adjustments to Property, plant, equipment of $ 1.1 million;

(3) for each of the years ended December 31, 2022 and 2021, an increase in amortization resulting from fair value adjustments to Intangibles of $ 0.8 million (4) for the year ended December 31, 2022 and 2021, increases to interest expense for:

(a) the issuance of the Term Loan (as defined below) including stated interest and the amortization of the Term Loan's discount and issuance costs and (b) amortization of debt discount related to a fair value adjustment to an assumed term loan of Arq of $ 2.3 million and $ 2.2 million, respectively;

(5) the removal of $ 6.3 million of transaction costs incurred for the year ended December 31, 2022 but included as additional transaction costs for the year ended December 31, 2021;

and (6) for the year ended December 31, 2021, the addition of $ 5.9 million of transaction costs incurred for the period from January 1, 2023 through the Arq Acquisition Date, together with the income tax effects on (1) through (6).

Since Arq had no revenues for the years ended December 31, 2022 or 2021, pro forma revenues are the same as the Company's reported revenues for those years.

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

Years Ended December 31,

(in thousands) 2023 2022

Revenues 102,987 100,294

Net (loss) income ( 66,297 ) 5,344

Subscription Agreements

As a requirement of the Purchase Agreement, and on February 1, 2023, the Company entered into subscription agreements with certain persons (the "Subscribers") pursuant to which the Subscribers subscribed for and purchased 3,842,315 shares of Common Stock for an aggregate price of $ 15.4 million and at a price per share of $ 4.00 ("PIPE Investment").

As a requirement of the Arq Acquisition, the Company appointed three new directors to the Board (the "New Directors"), each of whom was a director of Arq Ltd and is considered a related party as of the Acquisition Date.

Each of the New Directors individually or through their affiliated entities were Subscribers in the PIPE Investment.

Loan Agreement

On August 19, 2022, the Company and CF Global Credit, LP ("CF Global") executed a commitment letter pursuant to which CF Global offered to provide a $ 10 million term loan (the "Term Loan") to the Company, of which $ 8.5 million was the net proceeds.

The proceeds of the Term Loan are intended to be utilized for the general corporate purposes of the Company and its subsidiaries.

As a requirement of the Purchase Agreement, and on February 1, 2023 (the "Closing Date"), the Company, as borrower, certain of its subsidiaries, as guarantors, and CF Global, as administrative agent and lender, entered into the Term Loan upon execution of a Term Loan and Security Agreement (the "Loan Agreement").

Capitalized terms used herein but not otherwise defined have the meaning set forth in the Loan Agreement.

CF Global is an affiliate of one of the Company's directors who was appointed on February 1, 2023 in conjunction with the Arq Acquisition.

This director is considered a related party effective February 1, 2023.

The Term Loan has a term of 48 months and bears interest at a rate equal to either (a) Adjusted Term SOFR (subject to a 1.00 % floor and a cap of 2.00 %) plus a margin of 9.00 % paid in cash and 5.00 % paid in kind or (b) Base Rate plus a margin of 8.00 % paid in cash and 5.00 % paid in kind, which interest on the Term Loan in each case shall be payable (or capitalized, in the case of in kind interest) quarterly in arrears.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

The Company is permitted to prepay the Term Loan at any time subject to the following prepayment premium:

(i) prior to the twelve (12) month anniversary of the Closing Date, the Make-Whole Amount (as defined below), (ii) thereafter but prior to the thirty-six (36) month anniversary of the Closing Date, 2.00 % of the outstanding principal amount of the Term Loan being repaid or prepaid or (iii) thereafter until the maturity date, 1.00 % of the outstanding principal amount of the Term Loan being repaid or prepaid.

The "Make-Whole Amount", with respect to any repayment or prepayment, is (i) an amount equal to all required interest payable (except for currently accrued and unpaid interest) on the aggregate principal amount of the Term Loan subject to such prepayment or repayment from the date of such prepayment or repayment through but excluding the date that is the first anniversary of the Closing Date calculated using an interest rate equal to (x) Adjusted Term SOFR for an interest period of one month in effect on the third U.S.

The Term Loan is secured by substantially all of the assets of the Company and its subsidiaries (including those acquired in Arq Acquisition), subject to customary exceptions.

The Loan Agreement includes, among others, the following covenants:

(1) beginning March 31, 2023 and as of the end of each fiscal quarter thereafter, the Company must maintain a minimum cash balance of $ 5.0 million;

(3) (x) as of December 31, 2024, for the fiscal year then ended, the Company must have a minimum EBITDA of $ 3.0 million and (y) for any fiscal year thereafter, the Company must have a minimum EBITDA of $ 16.0 million;

and (4) beginning after the fiscal quarter ending September 30, 2023, during an LTV Trigger Period, the Company must not exceed a loan to value (based on the consolidated total assets of the Company and its subsidiaries) ratio of 0.40 :1.00.

In addition, in connection with the Loan Agreement and as consideration for the Term Loan, the Company agreed to issue to CF Global a warrant (the "Warrant") to purchase 325,457 shares of Common Stock.

The Warrant has an exercise price of $ 0.01 per share, subject to adjustment as set forth in the Warrant, is exercisable immediately and will expire on February 1, 2030.

The terms of the Warrant do not allow for cash exercise, and the Warrant may only be exercised pursuant to the terms thereof.

One of the New Directors is a principal of CF Global and both this director and CF Global are considered related parties as of the Acquisition Date.

Termination of Transaction Agreement

In connection with entry into the Purchase Agreement described above, that certain Transaction Agreement, dated August 19, 2022, by and among Elbert Holdings, Inc., Arq Ltd.

and the Company (the "Transaction Agreement") was terminated on February 1, 2023 pursuant to a termination agreement entered into by each of the parties to the Transaction Agreement.

The Transaction Agreement would have provided, subject to its terms and conditions, for a business combination of Arq Ltd.

and the Company.

By virtue of the termination of the Transaction Agreement, the Transaction Agreement became void and of no further force or effect, with no liability of the part of any party to the Transaction Agreement.

401(k) Plans employer contributions $ 613 $ 552

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data