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What changed in Arq, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Arq, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+333 added−434 removedSource: 10-K (2024-03-12) vs 10-K (2023-03-08)

Top changes in Arq, Inc.'s 2023 10-K

333 paragraphs added · 434 removed · 234 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

67 edited+33 added−77 removed16 unchanged
Biggest changeActual events or results could differ materially from those discussed in the forward-looking statements as a result of various factors including, but not limited to, timing of new and pending regulations and any legal challenges to or extensions of compliance dates of them; the U.S. government’s failure to promulgate regulations that benefit our business; changes in laws and regulations, accounting rules, prices, economic conditions and market demand; impact of competition; availability, cost of and demand for alternative energy sources and other technologies; technical, start up and operational difficulties; our inability to commercialize our APT technologies on favorable terms; our inability to ramp up our operations to effectively address recent and expected growth in our business; loss of key personnel; availability of materials and equipment for our business; intellectual property infringement claims from third parties; pending litigation; as well as other factors relating to our business strategy, goals and expectations concerning the Arq Acquisition (including future operations, future performance or results); the effect of the Arq Acquisition on our ability to hire key personnel; our ability to maintain relationships with customers, suppliers and other with whom we do business, or our results of operations and business generally; risks related to diverting management's attention from our ongoing business operations; the ability to meet Nasdaq's listing standards following the consummation of the Arq Acquisition; costs related to the Arq Acquisition; opportunities for additional sales of our lignite AC products and end-market diversification; our ability to meet customer supply requirements; the rate of coal-fired power generation in the U.S., as described in our filings with the SEC, with particular emphasis on the risk factor disclosures contained in those filings.
Biggest changeActual events or results could differ materially from those discussed in the forward-looking statements as a result of various factors including, but not limited to, timing of new and pending regulations and any legal challenges to or extensions of compliance dates of them; the U.S. government’s failure to promulgate regulations that benefit our business; changes in laws and regulations, accounting rules, prices, economic conditions and market demand; impact of competition; availability, cost of and demand for alternative energy 8 sources and other technologies; technical, start up and operational difficulties; competition within the industries in which the Company operates; our inability to commercialize our APT products on favorable terms; our inability to effectively and efficiently commercialize new products; changes in construction costs or availability of construction materials; our inability to effectively manage construction and startup of the Red River GAC Facility or Corbin Facility; our inability to obtain required financing or financing on terms that are favorable to us; our inability to ramp up our operations to effectively address recent and expected growth in our business; loss of key personnel; ongoing effects of the inflation and macroeconomic uncertainty, including from the ongoing pandemic and armed conflicts around the world, and such uncertainty's effect on market demand and input costs; availability of materials and equipment for our business; intellectual property infringement claims from third parties; pending litigation; as well as other factors relating to our business strategy, goals and expectations concerning the Arq Acquisition (including future operations, future performance or results); our ability to maintain relationships with customers, suppliers and others with whom it does business and meet supply requirements, or its results of operations and business generally; risks related to diverting management's attention from our ongoing business operations; the ability to meet Nasdaq's listing standards following the consummation of the Transaction; costs related to the Arq Acquisition; opportunities for additional sales of our activated carbon products and end-market diversification; the timing and scope of new and pending regulations and any legal challenges to or extensions of compliance dates of them; our ability to meet customer supply requirements; the rate of coal-fired power generation in the U.S., the timing and cost of capital expenditures and the resultant impact to our liquidity and cash flows as described in our filings with the SEC, with particular emphasis on the risk factor disclosures contained in those filings.
Below is a summary of the primary legislation and regulation that currently affects the market for our current products. Federal MATS Affecting Electric Utility Steam Generating Units The U.S. Environmental Protection Agency (the "EPA") final "MATS Rule" went into effect in April 2012.
Below is a summary of the primary legislation and regulation that currently affects the market for our current products. Federal MATS Affecting Electric Utility Steam Generating Units The U.S. Environmental Protection Agency ("EPA") final "MATS Rule" went into effect in April 2012.
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 2.00% cap) 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.
The CFG 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 2.00% cap) 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.
AC has been adopted as the most widely-used technology to capture mercury due to product efficiency and effectiveness, and currently accounts for the majority of the mercury control consumables in the North American market.
AC has been adopted as the most widely-used technology to capture mercury due to product efficiency and 1 effectiveness, and currently accounts for the majority of the mercury control consumables in the North American market.
Markets AC is a specialized sorbent material that is used widely in a host of industrial and consumer applications to remove impurities, contaminants and pollutants from gas, water and other product or waste streams. AC is produced by activating carbonaceous raw materials, including wood, coal, nut shells, resins and petroleum pitch.
Products and Markets AC is a specialized sorbent material that is used widely in a host of industrial and consumer applications to remove impurities, contaminants and pollutants from gas, water, soil and other product or waste streams. AC is produced by activating carbonaceous raw materials, including wood, coal, nut shells, resins and petroleum pitch.
The forward-looking statements contained in this Report are presented as of the date hereof, and we disclaim any duty to update such statements unless required by law to do so. 15
The forward-looking statements contained in this Report are presented as of the date hereof, and we disclaim any duty to update such statements unless required by law to do so. 9
Available Information Our periodic and current reports are filed with the Securities and Exchange Commission (the "SEC") pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and are available free of charge within 24 hours after they are filed with, or furnished to, the SEC at the Company’s website at www.advancedemissionssolutions.com.
Available Information Our periodic and current reports are filed with the SEC pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and are available free of charge within 24 hours after they are filed with, or furnished to, the SEC at the Company’s website at www.arq.com.
Most of the North American coal-fired power generators installed equipment to control air pollutants, such as mercury, prior to or since the implementation of the Mercury and Air Toxics Standards ("MATS"). However, many power generators need consumable products to complement the operation of installed equipment on a recurring basis to chemically and physically capture mercury and other contaminants.
Most of the North American coal-fired power generators installed equipment to control air pollutants, such as mercury, prior to or since the implementation of the Mercury and Air Toxics Standards ("MATS"). However, many power generators need consumable products to complement the operation of installed equipment on a recurring basis to more effectively capture mercury and other contaminants.
Arq Powder has unique properties, including low levels of impurities and small average particle size, which when used as a feedstock to produce certain carbon products may provide for advantages compared to coal or oil-based feedstocks in terms of cost and performance.
Arq Powder has unique properties, including low levels of impurities and small average particle size, which when used as a feedstock to produce certain carbon products may provide for advantages compared to lignite coal, other bituminous coals, or oil-based feedstocks in terms of cost and performance.
For the purification of water, AC has been used in the treatment of drinking water, wastewater, contaminated soil and groundwater to adsorb compounds causing unpleasant taste and odor and other contaminants. Both industrial and municipal wastewater treatment plants have deployed the use of AC in their treatment processes.
For the purification of water, our AC products have been used in the treatment of drinking water, wastewater, contaminated soil and groundwater to adsorb compounds causing unpleasant taste and odor and other toxic contaminants. Both industrial and municipal wastewater treatment plants have deployed the use of our AC products in their treatment processes.
This Annual Report on Form 10-K is referred to as the "Form 10-K" or the "Report." As used in this Report, the terms the "Company," "we," "us" and "our" means ADES and its consolidated subsidiaries.
This Annual Report on Form 10-K is referred to as the "Form 10-K" or the "Report." As used in this Report, the terms the "Company," "we," "us" and "our" means Arq, Inc. and its consolidated subsidiaries.
Depending on weather conditions and other environmental factors, the summer months historically have the highest demand for PAC, as one of the major uses for PAC is for the treatment of taste and odor episodes caused by increased degradation of organic contaminants and natural materials in water during the summer.
Depending on weather conditions and other environmental factors, the summer months historically have the highest demand for our PAC products in water treatment. One of the major uses for PAC is for the treatment of taste and odor episodes caused by increased degradation of organic contaminants and natural materials in water that occurs during the summer months.
Key markets include removal of pollutants from coal-fired electrical generation and other industrial processes, treatment of drinking and waste waters, industrial acid gas and odor removal, automotive gasoline emission control, soil and ground water remediation and food and beverage process and product purification.
Key markets for AC products include removal of pollutants from coal-fired electrical generation and other industrial processes, treatment of drinking and waste waters, industrial and renewable gas purification and odor removal, automotive gasoline emission control, soil and ground water remediation and food and beverage process and product purification.
In 2018, we acquired ADA Carbon Solutions, LLC ("Carbon Solutions") as a means to enter into the broader activated carbon ("AC") market and to expand our product offerings in the mercury control industry and other applicable AC markets.
In 2018, we acquired ADA Carbon Solutions, LLC ("Carbon Solutions") to enter into the broader AC market and to expand our product offerings in the mercury control industry and other applicable AC markets.
The Five Forks Mine operates in Louisiana, which has achieved primacy and issues permits in lieu of the OSM. The Marshall Mine operates in Texas, which has also achieved primacy and issues permits in lieu of the OSM.
The Five Forks Mine operates in Louisiana, which has achieved primacy and issues permits in lieu of the OSM.
Words or phrases such as "anticipates," "believes," "expects," "intends," "plans," "estimates," "predicts," the negative expressions of such words, or similar expressions are used in this Report to identify forward-looking statements, and such forward-looking statements include, but are not limited to, statements or expectations regarding: (a) the anticipated effects from an increase in pricing of our AC products; (b) the anticipated effects from an increase in costs of our AC products and related cost increases in supply and logistics; (c) expected supply and demand for our AC products and services; (d) increasing competition in the AC market; (e) the effects of the Arq Acquisition; (f) the ability to successfully integrate Arq's business; (g) the ability to develop and utilize Arq’s products and technology; (h) the ability to make Arq's products commercially viable; (i) the expected future demand of Arq's products; (j) future level of research and development activities; (k) future plant capacity expansions and site development projects; (l) the effectiveness of our technologies and the benefits they provide; (m) probability of any loss occurring with respect to certain guarantees made by Tinuum Group; (n) the timing of awards of, and work and related testing under, our contracts and agreements and their value; (o) the timing and amounts of or changes in future revenues, backlog, funding for our business and projects, margins, expenses, earnings, tax rates, cash flows, royalty payment obligations, working capital, liquidity and other financial and accounting measures; (p) the amount of future capital expenditures needed for our business and needed by Arq to fund its business plan; (q) awards of patents designed to protect our proprietary technologies both in the U.S. and other countries; (r) the adoption and scope of regulations to control certain chemicals in drinking water and other environmental concerns; (s) the impact of adverse global macroeconomic conditions, including rising interest rates, recession fears and inflationary pressures, and geopolitical events or conflicts; and (t) opportunities to effectively provide solutions to U.S. coal-related businesses to comply with regulations, improve efficiency, lower costs and maintain reliability.
In some cases, forward-looking statements can be identified by words or phrases such as "anticipates," "believes," "expects," "intends," "plans," "estimates,", "may", "predicts," the negative expressions of such words, or similar expressions, and such forward-looking statements include, but are not limited to, statements or expectations regarding: (a) the anticipated effects from an increase in pricing of our AC products; (b) the anticipated effects from an increase in costs of our AC products and related cost increases in supply and logistics; (c) expected supply and demand for our AC products and services; (d) increasing competition in the AC market; 7 (e) the ability to successfully integrate Legacy Arq's business; (f) the ability to develop and utilize Legacy Arq’s products and technology; (g) the ability to make Legacy Arq's products commercially viable; (h) the expected future demand of Legacy Arq's products; (i) future level of research and development activities; (j) future plant capacity expansions and site development projects, including the GAC Facility; (k) the effectiveness of our technologies and the benefits they provide; (l) probability of any loss occurring with respect to certain guarantees made by Tinuum Group; (m) the timing of awards of, and work and related testing under, our contracts and agreements and their value; (n) the timing and amounts of or changes in future revenue, backlog, funding for our business and projects, margins, expenses, earnings, tax rates, cash flows, royalty payment obligations, working capital, liquidity and other financial and accounting measures; (o) the amount of future capital expenditures needed to fund our business plan; (p) awards of patents designed to protect our proprietary technologies both in the U.S. and other countries; (q) the adoption and scope of regulations to control certain chemicals in drinking water and other environmental concerns; (r) the impact of adverse global macroeconomic conditions, including rising interest rates, recession fears and inflationary pressures, and geopolitical events or conflicts; (s) opportunities to effectively provide solutions to U.S. coal-related businesses to comply with regulations, improve efficiency, lower costs and maintain reliability; (t) the impact of prices of competing power generation sources such as natural gas and renewable energy on demand for our products; and (u) bank failures or other events affecting financial institutions.
Groundwater contamination has become a matter of increasing concern to federal and state governments as well as to the public, especially over recent years. The U.S. AC market may see significant growth from water purification markets, especially if future regulations are passed controlling certain chemicals in drinking water. At present, individual states are primarily responsible for the protection of groundwater.
Groundwater contamination has become a matter of increasing concern to federal and state governments as well as to the public, especially over recent years. The U.S. AC market may see significant growth from water purification markets, especially if future regulations are passed controlling certain chemicals in drinking water.
Our expectations are based on certain assumptions, including without limitation, that: (a) coal will continue to be a significant source of fuel for electrical generation in the U.S.; (b) we will continue as a key supplier of consumables to the coal-fired power generation industry as it seeks to implement reduction of mercury emissions; (c) we will be able to obtain adequate capital and personnel resources to meet our operating needs and to fund anticipated growth and our indemnity obligations; (d) Norit will continue to purchase Furnace Products from us under the Supply Agreement in the quantities specified; (e) we will be able to establish and retain key business relationships with current and other companies; (f) orders we anticipate receiving will be received; 14 (g) we will be able to formulate new consumables that will be useful to, and accepted by, the markets; (h) we will be able to effectively compete against others; and (i) we will be able to meet any technical requirements of projects we undertake.
Our expectations are based on certain assumptions, including without limitation, that: (a) coal will continue to be a significant source of fuel for electrical generation in the U.S.; (b) we will continue as a key supplier of consumables to the coal-fired power generation industry as it seeks to implement reduction of mercury emissions; (c) we will be able to obtain adequate capital and personnel resources to meet our operating needs and to fund anticipated growth and our indemnity obligations; (d) significant customers will continue to purchase consumables from us; (e) we will be able to establish and retain key business relationships with current and other companies; (f) orders we anticipate receiving will be received; (g) we will be able to formulate new consumables that will be useful to, and accepted by, the markets; (h) we will be able to effectively compete against others; (i) we will be able to meet any technical requirements of projects we undertake; and (j) existing environmental regulations such as MATS stay in place.
Demand for our AC products related to coal-fired electricity generation is dependent on the availability and cost of alternative energy sources, such as natural gas, solar and wind energy. We see opportunities to continue pursuing diverse markets for our purification products outside of coal-fired power generation, including industrial applications, water treatment plants and other markets.
Demand for our AC products related to coal-fired electricity generation is highly dependent on the availability and cost of alternative energy sources, such as natural gas, solar and wind energy. We continue to pursue markets for our purification products outside of coal-fired power generation, including industrial applications, (such as waste-to-energy and cement making), water treatment and other markets.
Item 1. Business General ADA-ES, Inc. ("ADA"), a Colorado corporation, was incorporated in 1997. Pursuant to an Agreement and Plan of Merger, effective July 1, 2013, Advanced Emissions Solutions, Inc. ("ADES"), a Delaware company incorporated in 2011, succeeded ADA as the publicly-held corporation and ADA became a wholly-owned subsidiary of ADES.
Pursuant to an Agreement and Plan of Merger, effective July 1, 2013, the Company (formerly known as Advanced Emissions Solutions, Inc. ("ADES")), a Delaware company incorporated in 2011, succeeded ADA as the publicly-held corporation and ADA became a wholly-owned subsidiary of the Company.
Employees As of December 31, 2022, we employed 147 personnel, 28 in Colorado and 119 in Louisiana, all of which were employed full-time. 9 Entry into Material Definitive Agreements Securities Purchase Agreement On February 1, 2023 (the "Acquisition Date"), we 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 we acquired all of the direct and indirect equity interests of Arq Ltd.'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 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"), valued at $18.8 million.
Arq Acquisition On February 1, 2023 (the "Acquisition Date"), we 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 we acquired all of the direct and indirect equity interests of Arq Ltd.'s subsidiaries (the "Arq Acquisition," and hereafter referred to as "Legacy 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 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"), valued at 6 $18.8 million.
AC, in various forms, has and will continue to play a key role in these remediation efforts. 4 Our Business Our products are used to purify contaminated liquid and gas streams from a variety of industrial sources including coal-fired power plants and waste-water treatment plants and other end markets.
AC, in various forms, has and will continue to play a key role in these remediation efforts. Our current products (also referred to as "consumables") are used to purify contaminated liquid, soil, and gas streams from a variety of industrial sources including coal-fired power plants and wastewater treatment plants and other end markets.
During the years ended December 31, 2022 and 2021, we incurred research and development costs of $0.4 million and $0.4 million, respectively. Legislation and Environmental Regulations Our products and services are used for the reduction of pollutants and other contaminants. Legislation and regulation limit the amount of pollutants and other contaminants permitted and may increase the need for our product.
For the years ended December 31, 2023 and 2022, we incurred research and development costs of $3.3 million and $2.1 million, respectively. Legislation and Environmental Regulations Our products and services are used for the reduction of pollutants and other contaminants. Legislation and regulations limit the amount of pollutants and other contaminants permitted and may increase the need for our products.
In addition, in connection with the Loan Agreement and as consideration for the Term Loan, ADES agreed to issue to CF Global a warrant (the "Warrant") to purchase 325,457 shares of Common Stock.
In addition, in connection with the Loan Agreement and as consideration for the CFG Loan, we issued to CF Global a warrant (the "Warrant") to purchase 325,457 shares of Common Stock.
Properties such as surface area, pore volume, surface chemical functionalities and particle size can be specifically engineered to selectively target various contaminants to meet end-use application requirements. AC can come in several different forms that are important for the end-use application, including powdered activated carbon ("PAC"), granular activated carbon ("GAC"), pellets, honeycombs, blocks or cloths.
Properties such as surface area, pore volume, surface chemical functionalities and particle size and form can be specifically engineered to selectively target various contaminants to meet end-use application requirements. Our AC products are manufactured in several different forms that are important for the end-use application, including powdered activated carbon ("PAC"), granular activated carbon, and colloidal carbon product ("CCP").
Patents As of December 31, 2022, we held 86 U.S. patents and 12 international patents that were issued or allowed, 13 additional U.S. provisional patents or applications that were pending, and two international patent applications that were either pending or filed relating to different aspects of our technology.
Intellectual Property As of December 31, 2023, we held 83 U.S. patents and 8 international patents that were issued or allowed, 13 additional U.S. provisional patents or applications that were pending, and 2 international patent applications that were either pending or filed relating to different aspects of our technology.
Specific emissions limits for dust, nitrogen oxides (NOx), sulfur dioxide (SO 2 ), mercury and particulate matter (PM) are currently being developed guided by the best available technologies reference ("BREF") document for limiting stack emissions and liquid effluents from industrial processes.
Specific emissions limits for dust, nitrogen oxides (NOx), sulfur dioxide (SO 2 ), mercury and particulate matter (PM) are currently being developed, guided by the best available technologies reference ("BREF") document for limiting stack emissions and liquid effluents from industrial processes. The BREF conclusions for large coal-fired electricity generating units were adopted by the European Commission in July 2017.
Although surety bonds are usually noncancelable during their term, many of these bonds are renewable on an annual basis and collateral requirements may change. As of December 31, 2022, we posted a surety bond of approximately $7.5 million for reclamation of the Five Forks Mine and $16.6 million for the reclamation of Marshall Mine.
Although surety bonds are usually non-cancelable during their term, many of these bonds are renewable on an annual basis and collateral requirements may change. As of December 31, 2023, we posted a surety bonds of approximately $7.5 million and $3.0 million for reclamation of the Five Forks Mine and the Corbin Facility, respectively.
In this action, the EPA found that it was not "appropriate and necessary" to regulate HAPs emissions from coal- and oil-fired EGUs. However, the EPA expressly stated that the reconsideration neither removed coal- and oil-fired EGUs from the list of sources that must comply with the MATS rule, nor rescinded the MATS Rule, which has remained continuously in effect.
However, the EPA expressly stated that the reconsideration neither removed coal- and oil-fired EGUs from the list of sources that must comply with the MATS rule, nor rescinded the MATS Rule, which has remained continuously in effect.
We source 100% of the lignite coal to fulfill customer orders through our ownership of the Five Forks Mine ("Five Forks"). Five Forks is operated for us by a subsidiary of the North American Coal Company. We may also periodically purchase various ACs to supplement our inventory levels or to produce various products to serve certain AC markets.
The Five Forks Mine is operated for us by a subsidiary of the North American Coal Company. We may also periodically purchase various ACs to supplement our inventory levels or to produce various products to serve certain AC markets. We purchase these various ACs through supply agreements or spot purchases with the producers.
We purchase these various ACs through supply agreements or spot purchases with the producers. We purchase various additives utilized in the production of AC. The manufacturing of AC is dependent upon these various additives, which are subject to price fluctuations and supply constraints.
The manufacturing of AC is dependent upon these various additives, which are subject to price fluctuations and supply constraints. In addition, the number of suppliers who provide the necessary additives needed to manufacture our ACs is limited. We purchase these additives through supply agreements or spot purchases with the producers.
Mining Environmental and Reclamation Matters Federal, state and local authorities regulate the U.S. coal mining industry with respect to matters such as employee health and safety and the environment, including the protection of air quality, water quality, wetlands, special status species of plants and animals, land uses, cultural and historic properties and other environmental resources identified during the permitting process.
Based on the existing and potential regulations, we believe the international market for activated carbon products may expand in the coming years. 5 Mining Environmental and Reclamation Matters Federal, state and local authorities regulate the U.S. coal mining industry with respect to matters such as employee health and safety and the environment, including the protection of air quality, water quality, wetlands, special status species of plants and animals, land uses, cultural and historic properties and other environmental resources identified during the permitting process.
In response to this market opportunity, in late 2021, we developed a new Colloidal Carbon Product ("CCP") platform, FluxSorb IS TM , which is currently in the initial stages of in-field testing at multiple contaminated soil and groundwater remediation treatment sites. Coal-fired power plants continue to be a significant, though declining, source of electricity in the U.S.
In response to this market opportunity, in late 2021, we developed a new Colloidal Carbon Product ("CCP") platform, FluxSorb RC, which is currently in the initial stages of field testing at multiple contaminated soil and groundwater remediation treatment sites.
Increased environmental attention has been drawn to the monitoring and treatment of heavy metals, organic and inorganic compounds in groundwater to improve overall drinking water quality across North America.
In addition, we see significant opportunities emerging in the soil, sediment and groundwater treatment markets. Increased attention has been drawn to the monitoring and treatment of heavy metals, organic and inorganic compounds in groundwater to improve overall ground and drinking water quality across North America.
Subscription Agreements Also, on February 1, 2023, we entered into Subscription Agreements (the "Subscription Agreements") with certain persons (the "Subscribers") pursuant to which the Subscribers subscribed for and purchased shares of Common Stock for an aggregate purchase price of approximately $15.4 million and at a price per share of $4.00 (the "PIPE Price Per Share" and such transaction, the "PIPE Investment").
On February 1, 2023, and pursuant to the Arq Acquisition, we entered into subscription agreements with certain persons (the "Subscribers"), which included existing shareholders of Arq Ltd., three of which were appointed to our board of directors, pursuant to which the Subscribers subscribed for and purchased 3,842,315 shares of Common Stock for an aggregate purchase price of approximately $15.4 million and at a price per share of $4.00 (the "PIPE Investment").
These SH&E Regulations include requirements to maintain and comply with various environmental permits related to the operation of many of our facilities, including mine health and safety laws required for continued operation of the Five Forks Mine.
These SH&E Regulations include requirements to maintain and comply with various environmental permits related to the operation of many of our facilities, including mine health and safety laws required for continued operation of the Five Forks Mine. Employees As of December 31, 2023, we employed 173 personnel, of which 171 were employed full-time.
We also purchase additives that are included in certain chemical products for resale to our customers through contracts with suppliers. The manufacturing of these consumable products is dependent upon certain discrete additives, which are subject to price fluctuations and supply constraints. In addition, the number of suppliers who provide the necessary additives needed to manufacture our chemical products are limited.
Supply agreements with these producers are generally renewed on an annual basis. We also purchase additives that are included in certain chemical products for resale to our customers through contracts with suppliers. The manufacturing of these chemical products is dependent upon certain discrete additives, which are subject to price fluctuations and supply constraints.
Revenues from our top three customers comprised approximately 37% of our consolidated consumables revenues for the year ended December 31, 2022, and the loss of any of these customers would have a material adverse effect on our operating results.
Revenue from our top three customers comprised approximately 37% of our consumables revenue for the year ended December 31, 2023, and the loss of any of these customers would have a material adverse effect on our operating results. Seasonality The timing of the sale of our consumable products is dependent upon several factors.
In addition, the number of suppliers who provide the necessary additives needed to manufacture our ACs is limited. We purchase these additives through supply agreements or spot purchases with the producers. Supply agreements with these producers are generally renewed on an annual basis.
In addition, the number of suppliers who provide the necessary additives needed to manufacture our chemical products are limited. We purchase these chemical products through spot purchases with the producers.
On August 3, 2021, the EPA initiated a supplemental rule-making initiative to strengthen certain discharge limits and stated its intention to issue a proposed rule for public comment in Fall of 2022, which has not yet been issued. Additional U.S.
On August 3, 2021, the EPA initiated a supplemental rule-making initiative to strengthen certain discharge limits and stated its intention to issue a proposed rule for public comment in Fall of 2022, and issued a proposed rule on ELGs for the Steam Electric Power Generating Category on March 29, 2023.
Demand for AC products has been, and is expected to continue to be, driven by increasing environmental regulations pertaining to water and air purification, especially in the developed and more industrialized areas of the world. Additionally, we believe enhanced environmental and health advisory issues will continue to drive demand for AC in rapidly developing countries.
Demand for AC products has been, and is expected to continue to be driven by increasing environmental regulations pertaining to water, soil, and air quality, especially in the developed and more industrialized areas of the world, and general consumer attention towards environmental issues.
Approximately 1,260 units in the U.S. were coal-fired EGUs when the rule was enacted. According to our estimates, the MATS Rule sets a limit that we believe requires the capture of 80-90% plus of the mercury in the coal burned in electric power generation boilers as measured at the exhaust stack outlet for most plants.
According to our estimates, the MATS Rule sets a limit that we believe requires the capture of 80-90% plus of the mercury in the coal burned in electric power generation boilers as measured at the exhaust stack outlet for most plants. The MACT-based standards are also known as National Emission Standards for Hazardous Air Pollutants ("NESHAP").
We offer AC and other chemical products and work with customers as they develop and implement a compliance control strategy which utilizes the consumables solutions that fit with their unique operating and pollution control configuration.
We offer AC and other chemical products and work with customers as they develop and implement a compliance control strategy that utilizes the consumables solutions that fit with their unique operating and pollution control configuration. Coal-fired power plants continue to be a significant, though declining, source of electricity generation in the United States ("U.S.").
The information contained on our website shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended (the "Securities Act") or the Exchange Act. 13 Forward-Looking Statements Found in this Report This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that involve risks and uncertainties.
The information contained on our website shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended (the "Securities Act") or the Exchange Act.
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.
The Warrant has an exercise price of $0.01 per share, subject to adjustment as set forth in the Warrant, is exercisable immediately, contains a cashless exercise provision and expires on February 1, 2030.
The MATS Rule remains in effect. State Mercury and Air Toxics Regulations Affecting EGUs In addition, certain states have their own mercury rules that are similar to or more stringent than the MATS Rule.
State Mercury and Air Toxics Regulations Affecting EGUs In addition, certain states have their own mercury rules that are similar to or more stringent than the MATS Rule. Coal-fired electricity generating units in the U.S. are subject to consent decrees that require the control of acid gases and particulate matter, in addition to mercury emissions. U.S.
Through internal testing, we have demonstrated that Arq Powder can be shaped and successfully activated using industrially available equipment, technology, and know-how. In the U.S, the availability of feedstock for GAC manufacturing is limited as it is either supplied by specialty mined coal or coconut husks which need to be imported.
In the U.S., the availability of feedstock for GAC manufacturing is limited, as it is either supplied by specialty mined coal or coconut husks, which need to be imported.
ADES and its affiliates relied on this exemption from registration based in part on representations made by each of the Subscribers under the Subscription Agreements.
The Company and its affiliates relied on this exemption from registration based in part on representations made by each of the Subscribers under the Subscription Agreements. Pursuant to the terms of the Purchase Agreement, we entered into a Registration Rights Agreement (the "Registration Rights Agreement") with Arq Ltd. and the Subscribers to the Subscription Agreements described above.
The EPA structured the MATS Rule as a Maximum Achievable Control Technology-based ("MACT-based") hazardous pollutant regulation applicable to coal and oil-fired Electric Utility Steam Generating Units ("EGU"), which generate electricity through steam turbines and have a capacity of 25 megawatts or greater, and provide for, among other provisions, control of mercury, control of acid gases such as hydrochloric acid and other Hazardous Air Pollutants ("HAPs").
EGUs generate electricity through steam turbines and have a capacity of 25 megawatts or greater and provide for, among other provisions, control of mercury, control of acid gases such as hydrochloric acid and other Hazardous Air Pollutants ("HAPs"). Approximately 1,260 units in the U.S. were coal-fired EGUs when the rule was enacted.
Effluent Limitation Guidelines In 2015, the EPA set the first federal limits known as effluent limitation guidelines ("ELGs") on the levels of toxic metals in wastewater that can be discharged from power plants.
Our estimates, based on conversations with plant operators, suggest that most of the affected plants have either shut down or switched fuels to natural gas to comply with the regulation. 4 Effluent Limitation Guidelines In 2015, the EPA set the first federal limits known as effluent limitation guidelines ("ELGs") on the levels of toxic metals in wastewater that can be discharged from power plants.
In particular such forward-looking statements are found in this Part I and under the heading in Part II, Item 7 below.
In particular statements about our beliefs, plans, objectives, expectations, assumptions, future events or future performance contained in this report, including certain statements found in this Part I and under the heading in Part II, Item 7 below, are forward-looking statements.
We estimate that 52% of the coal-fired units that were operating in December 2012 when the MATS Rule was finalized have been permanently shut down, leaving approximately 469 units in operation in the U.S. as of December 31, 2022. In April 2017, a review by the U.S. Court of Appeals for the D.C. Circuit (the "D.C.
Plants generally had four years to comply with the MATS Rule, and implementation of the MATS Rule is now largely completed. We estimate that 58% of the coal-fired units that were operating in December 2012 when the MATS Rule was finalized have been permanently shut down, leaving approximately 406 units in operation in the U.S. as of December 31, 2023.
On February 1, 2023 (the "Closing Date"), ADES, 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.
Loan Agreement On February 1, 2023, and pursuant to the Arq Acquisition, we, as borrower, certain of subsidiaries, as guarantors, and CF Global Credit, as administrative agent and lender, entered into a $10.0 million term loan (the "CFG Loan") upon execution of a Term Loan and Security Agreement (the "Loan Agreement").
In February 2023, we acquired the subsidiaries of Arq Limited (hereafter the Arq Limited subsidiaries referred to as "Arq") to secure access to a unique feedstock, a manufacturing facility and certain patented processes as a means to further expand our product offerings.
In February 2023, we 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 to manufacture new advanced granular activated carbon ("GAC") products for sale into markets to the APT and other markets.
The existing technologies for treatment, including removal of the soil for external treatment or landfill, pumping the groundwater above surface for treatment and/or installing treatment trenches or barriers, are expensive and may have complicated life-cycle management requirements.
At present, individual states are primarily responsible for the protection of groundwater and drinking water. The existing technologies for treatment of groundwater, including removal of the soil for external treatment or landfill, pumping the groundwater above surface for treatment and/or installing treatment trenches or barriers all utilize PAC and GAC products.
Operations We own and operate the Red River plant, which is located in Louisiana. We also lease land on which we operate a production and distribution facility located in Louisiana.
Facilities We own and operate a manufacturing plant (the "Red River Plant"), located in Coushatta, Louisiana. We also operate a production and distribution facility located on land we lease in Coushatta. In addition, we own and operate the Corbin Facility, where we process bituminous coal waste and apply patented technology to produce Arq Powder.
The EPA estimated that approximately 600 coal-fired boilers will be affected by IBMACT, in industries such as pulp and paper. Our estimates, based on conversations with plant operators, suggest that most of the affected plants have either shut down or switched fuels to natural gas to comply with the regulation.
The EPA estimated that approximately 600 coal-fired boilers will be affected by IBMACT, in industries such as pulp and paper.
On February 9, 2022, the EPA published a new proposed rule revoking the May 2020 withdrawal of the 2016 supplemental finding and affirming that it is "appropriate and necessary" to regulate HAP emissions from coal- and oil-fired EGUs, which is currently pending. The D.C. Circuit granted the Biden Administration’s motion, and this appeal also is now in abeyance.
On February 15, 2023, the EPA issued a final rule revoking the May 2020 reconsideration and affirming that it is "appropriate and necessary" to regulate HAP emissions from coal- and oil-fired EGUs.
Strategy We intend to first sell Arq Powder as a carbon filler for rubber composites and as a component for asphalt with an opportunity to evaluate expanding into other carbon products. These products utilizing Arq Powder are expected to have a lower carbon footprint compared to similar products utilizing conventional materials.
We expect to secure customer interest in Arq Powder as an additive into other markets, such as components for asphalt. These products utilizing Arq Powder are expected to have a lower carbon footprint compared to similar products utilizing conventional materials. These applications are currently in various stages of proof of concept testing or preliminary customer testing.
During the period in which an outage may occur, which may range from one week to over a month, no consumables are used, and our sales may be correspondingly reduced. The sale of our AC products for water purification depends on demand from municipal water treatment facilities that use these products.
During the period in which an outage may occur, which may range from one week to over a month, our product sales may decrease.
Sales and Customers Sales of consumables are primarily made by the Company’s employees to a range of end customers, including coal-fired utilities, industrial companies, water treatment plants and other customers. Our AC sales are generally made under requirements-based contracts ranging from one to five years. Our chemical product sales are generally made on an order by order basis.
Sales and Customers We sell consumables primarily though our internal sales group and are generally under contracts ranging from one to five years. We generally recognize revenue on an order-by-order basis.
Additionally, the rainy season causes more PAC usage for the municipalities due to rain run-offs and contaminant dilution resulting in higher water treatment volumes. Safety, Health and Environment Our operations are subject to numerous federal, state, and local laws, regulations, rules and ordinances relating to safety, health, and environmental matters ("SH&E Regulations").
During the year ended December 31, 2023, we obtained an additional 33 trademarks from the Arq Acquisition. Safety, Health and Environment Our operations are subject to numerous federal, state, and local laws, regulations, rules and ordinances relating to safety, health, and environmental matters ("SH&E Regulations").
Additionally, we have sales, product development and administrative operations located in Colorado. 6 In 2020 and in conjunction with the execution of the Supply Agreement, we purchased 100% of the membership interests in Marshall Mine, LLC, which owns a lignite mine located outside of Marshall, Texas (the "Marshall Mine").
In March 2023, we sold 100% of the membership interests in Marshall Mine, LLC, which owned a shuttered lignite mine located outside of Marshall, Texas to a third party. Research and Development Activities We conduct research and product development activities for further enhancement of our consumables.
We believe Arq Powder has the potential to open markets and applications for us, which were previously inaccessible to the lignite-based products made by ADES today. In addition, the Arq Acquistion enables us to have a fully integrated supply chain in multiple feedstocks - bituminous (Arq) and lignite (through the Five Forks Mine) to produce GAC and PAC.
Between the Corbin Facility and the Five Forks Mine, we will have a fully integrated supply chain in multiple feedstocks - bituminous coal fines (Corbin Facility) and lignite coal (Five Forks Mine) to produce both GAC and PAC products. We purchase various additives utilized in the production of AC.
Power generation is weather dependent, with electricity and steam production varying in response to heating and cooling needs. Additionally, power generating units routinely schedule maintenance outages in the spring and/or fall depending on the operation of the boilers.
Power generation is weather dependent, with electricity and steam production varying in response to heating and cooling demands. As a result, our revenue is generally higher in our first and third fiscal quarters during the warmer and colder months of the year.
Our primary competitors for consumable chemical products include Midwest Energy Emissions Corp. (MEEC) and Nalco Holding Company, a subsidiary of Ecolab Inc. (ECL). Raw Materials The principal raw material we use in the manufacturing of AC is lignite coal, which is readily available.
Sources and Availability of Raw Materials Currently, the principal raw material we use in the manufacturing of AC is lignite coal, which is readily available through our 100% ownership of a lignite coal mine (the "Five Forks Mine") located in Saline, Louisiana. All production from the Five Forks Mine is used in our manufacturing process.
We sell consumable products that utilize AC and chemical-based technologies to a broad range of customers, including coal-fired utilities, industrials, water treatment plants and other diverse markets. Our proprietary technologies and associated product offerings provide purification solutions to enable our customers to reduce certain contaminants and pollutants to meet the challenges of existing and potential future regulations.
Our proprietary AC products enable customers to reduce air, water, and soil contaminants, including mercury, per - and polyfluoroalkyl substances ("PFAS") and other pollutants, to meet the challenges of existing and pending air quality and water regulations.
Removed
As of December 31, 2022 and 2021, we held equity interests of 42.5% and 50.0% in Tinuum Group, LLC ("Tinuum Group") and Tinuum Services, LLC ("Tinuum Services"), respectively, which are both unconsolidated entities, and through December 31, 2021, both contributed significantly to our financial position and results of operations.
Added
Item 1. Business General Arq, Inc. ("Arq", the "Company," "we," "us", "our," or similar pronouns) is an environmental technology company principally engaged in the sale of consumable air, water, and soil treatment solutions including activated carbon ("AC") and chemical technologies.
Removed
We account for Tinuum Group and Tinuum Services under the equity method of accounting.
Added
We manufacture and sell AC and other chemicals used to capture and remove contaminants for the coal-fired power generation, industrial, municipal water and air, water and soil treatment and remediation markets (collectively, the advanced purification technologies or "APT" market). Our predecessor, ADA-ES, Inc. ("ADA"), a Colorado corporation, was incorporated in 1997.
Removed
As a result of the expiration of Internal Revenue Code ("IRC") Section 45 - Production Tax Credit ("Section 45") refined coal tax credit program effective December 31, 2021, both Tinuum Group and Tinuum Services have substantially ceased operations as of December 31, 2021 and wound down their operations. Further, Tinuum Group is in the process of completing reclamation activities.
Added
In February 2024, as part of a larger rebranding, the Company changed its name to Arq, Inc., and on February 1, 2024, our common stock commenced trading under the ticker symbol, "ARQ".
Removed
We see opportunities and are continuing to pursue diverse markets for our purification products outside of coal-fired power generation, including industrial applications, water treatment plants and other end markets. In addition, we see significant opportunities emerging in the soil, sediment and groundwater treatment markets.
Added
Additionally, we believe enhanced environmental and health advisory issues will continue to drive demand for AC in rapidly developing countries. We pursue opportunities to expand and diversify our customer base into markets for our purification products including industrial applications, water treatment plants and other end markets.
Removed
Norit Supply Agreement and Related Agreements On September 30, 2020, we and Cabot Norit Americas, Inc., ("Norit") entered into a supply agreement (the "Supply Agreement") pursuant to which we agreed to sell and deliver to Norit, and Norit agreed to purchase and accept from us, certain lignite-based AC products ("Furnace Products").
Added
Legacy Arq Products and Markets With the acquisition of Legacy Arq in February 2023, we now control bituminous coal waste reserves and own a manufacturing facility, both located in Corbin Kentucky (the "Corbin Facility").
Removed
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 us for certain capital expenditures incurred by us that are necessary to manufacture the Furnace Products.
Added
Our facility will remediate these reserves, using a patented manufacturing process to convert bituminous coal waste into a purified, microfine carbon powder known as Arq powder TM ("Arq Powder") for high value applications, such as for a raw material to produce GAC products.
Removed
Reimbursements are comprised of revenues earned from capital expenditures incurred that will benefit both us and Norit (referred to as "Shared Capital") and revenues earned from capital expenditures incurred that will benefit Norit exclusively (referred to as "Specific Capital").

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAlthough testing data and feedback from potential customers have been positive to date, Arq has had no sales of its products and there can be no assurance that these products will be commercially viable. Our commercial success will depend on our ability to sell Arq Powder into new markets, including as an additive into the carbon black and asphalt markets.
Biggest changeOur business plan and commercial success also assumes selling Arq Powder into new markets, including as an additive into the carbon black and asphalt markets. Although testing data and feedback from potential customers have been positive to date, there can be no assurance that these products will be commercially viable.
COVID-19 pandemic has had, and continues to have, a significant impact around the world, prompting governments and businesses to take unprecedented measures in response. While it is not possible to predict their extent or duration, these disruptions may have a material adverse effect on our business, financial condition and results of operations.
The COVID-19 pandemic has had, and continues to have, a significant impact around the world, prompting governments and businesses to take unprecedented measures in response. While it is not possible to predict their extent or duration, these disruptions may have a material adverse effect on our business, financial condition and results of operations.
At the Five Forks Mine, the risks are primarily operational risks associated with the maintenance and operation of the heavy equipment required to dig and haul the lignite and risks relating to producing lower than expected lignite quality or recovery rates. Additionally, cost of inputs in our mining operation, most notably fuel cost, can create operational risks.
At the Five Forks Mine, the risks are primarily operational risks associated with the maintenance and operation of the heavy equipment required to dig and haul the lignite and risks relating to producing lower than expected lignite quality or recovery rates. Additionally, the cost of inputs in our mining operation, most notably fuel cost, can create operational risks.
An increased focus on environmental, social and governance factors by institutional investors may negatively impact our access to capital and the liquidity of our stock price. Some institutional investors have recently adopted Environmental, Social and Governance ("ESG") investing guidelines that may prevent them from increasing or taking new stakes with companies with exposure to fossil fuels.
An increased focus on environmental, social and governance factors by institutional investors may negatively impact our access to capital and the liquidity of our stock price. Some institutional investors have recently adopted ESG investing guidelines that may prevent them from increasing or taking new stakes with companies with exposure to fossil fuels.
The global or national outbreak of an infectious disease, such as COVID-19, may cause disruptions to our business and operational plans, which may include (i) shortages of employees, (ii) inefficiencies, delays and additional costs in our manufacturing, sales and customer service efforts, (iii) recommendations of, or restrictions imposed by, government and health authorities, including quarantines, to address an infectious disease, such as the COVID-19 pandemic, and (iv) restrictions that we impose, including facility shutdowns, to ensure the safety of employees and others.
The global or national outbreak of an infectious disease, such as COVID-19, may cause disruptions to our business and operational plans, which may include (i) shortages of employees, (ii) inefficiencies, delays and additional costs in our manufacturing, sales and customer service efforts, (iii) recommendations of, or restrictions imposed by, government and health authorities, including quarantines, to address an infectious disease, such as the COVID-19 pandemic, and (iv) restrictions that 13 we impose, including facility shutdowns, to ensure the safety of employees and others.
Further, a prolonged disruption in our operations at the Red River Plant due to downtime or having to meet customer requirements that exceed its maximum manufacturing capacity would require us to seek alternative customer supply arrangements, which may not be on attractive terms to us or could lead to delays in distribution of products to our customers, either of which could have a material adverse effect on our business, results of operations and financial condition.
Further, a prolonged disruption in our operations at the Red River Plant due to downtime or having to meet customer requirements that exceed our maximum manufacturing capacity would require us to seek alternative customer supply arrangements, which may not be on attractive terms to us or could lead to delays in distribution of products to our customers, either of which could have a material adverse effect on our business, results of operations and financial condition.
We have agreed to indemnify licensees of our technologies (including Tinuum Group) and purchasers of our products, and we may enter into additional agreements with others under which we agree to indemnify and hold them harmless from losses they may incur as a result of the alleged infringement of third-party rights caused by the use of our technologies and products.
We have agreed to indemnify licensees of our technologies (including Tinuum Group) and purchasers of our products, and we may enter into additional agreements with others under which we agree to indemnify and hold them harmless from losses they 18 may incur as a result of the alleged infringement of third-party rights caused by the use of our technologies and products.
Such means of protecting our proprietary rights may not be adequate because they provide only limited protection or such protection may be prohibitively expensive to enforce. We also enter into confidentiality and non-disclosure agreements with our employees, consultants and many of our customers and vendors, and generally control 24 access to and distribution of our proprietary information.
Such means of protecting our proprietary rights may not be adequate because they provide only limited protection or such protection may be prohibitively expensive to enforce. We also enter into confidentiality and non-disclosure agreements with our employees, consultants and many of our customers and vendors, and generally control access to and distribution of our proprietary information.
Any future regulations regarding CO 2 emissions of coal reclamation and product manufacturing could also impact our future business. Action by the EPA related to Mercury and Air Toxics Standards ("MATS") that decreases demand for our mercury removal products could have a material adverse effect on our business.
Any future regulations regarding CO 2 emissions of coal reclamation and product manufacturing could also impact our future business. 14 Action by the EPA related to Mercury and Air Toxics Standards ("MATS") that decreases demand for our mercury removal products could have a material adverse effect on our business.
We may experience roadway or railway transportation disruptions that could have a material adverse effect on our operations or financial condition. There can be no assurance that we will be able to secure sufficient railway transport capacity to transport raw materials from the Corbin Facility to the Red River Plant.
We may experience roadway or railway transportation disruptions that could have a material adverse effect on our operations or financial condition. There can be no assurance that we will be able to secure sufficient truck or railway transport capacity to transport raw materials from the Corbin Facility to the Red River Plant.
Our future success depends in part on our ongoing identification and development of intellectual property and our ability to invest in and deploy new products, services and technologies into the marketplace efficiently and cost effectively. The process of identifying customer needs and developing and enhancing products, services and solutions for our customser markets is complex, costly and uncertain.
Our future success depends in part on our ongoing identification and development of intellectual property and our ability to invest in and deploy new products, services and technologies into the marketplace efficiently and cost effectively. The process of identifying customer needs and developing and enhancing products, services and solutions for our customer markets is complex, costly and uncertain.
Despite the TAPP, our projections of what will effect an ownership change could be wrong, and with a waiver in place for certain shareholders, there is a risk that we experience an ownership change for purposes of IRC Sections 382 and 383 because of future acquisitions of our stock.
Despite the TAPP, our projections of what will effect an ownership change could be wrong, and with a waiver in place for certain shareholders, there is a risk that we experience an ownership change for purposes of IRC Sections 382 and 383 because of future acquisitions of our common stock.
Given these emerging trends, liquidity in our common stock and our stock price may be negatively impacted. 27 We may require additional funding for our growth plans, and such funding may require us to issue additional shares of our common stock resulting in a dilution of your investment. We estimate our funding requirements in order to implement our growth plans.
Given these emerging trends, liquidity in our common stock and our stock price may be negatively impacted. We require additional funding for our growth plans, and such funding may require us to issue additional shares of our common stock resulting in a dilution of your investment. We estimate our funding requirements in order to implement our growth plans.
If we fail to develop or maintain an effective system of internal controls as we integrate Arq’s business operations and processes with ours, we may not be able to accurately report our financial results or prevent fraud.
If we fail to develop or maintain an effective system of internal controls as we integrate Legacy Arq’s business operations and processes with ours, we may not be able to accurately report our financial results or prevent fraud.
The TAPP was adopted in an effort to protect stockholder value by attempting to diminish the risk that our ability to use the Tax Credits to reduce potential future federal income tax obligations may become substantially limited (the "Protection Plan").
The TAPP was adopted in an effort to protect stockholder value by attempting to diminish the risk that our ability to use the ADES Tax Credits to reduce potential future federal income tax obligations may become substantially limited (the "Protection Plan").
In turn, this could impact throughput in the Corbin Facility, which could lead to lower production and higher operating costs. There is also risk of delays that are product-specific. For example, we may not receive adequate customer acceptance or achieve acceptable performance given the specification differentiation between some of Arq’s products and the industry’s existing conventional products.
In turn, this could 10 impact throughput in the Corbin Facility, which could lead to lower production and higher operating costs. There is also risk of delays that are product-specific. For example, we may not receive adequate customer acceptance or achieve acceptable performance given the specification differentiation between some of Legacy Arq’s products and the industry’s existing conventional products.
We will be producing new products that we have not yet sold commercially. As such, production to date has not been at full throughput. Arq’s new manufacturing technology has been extensively tested at scale, but continuous operations represent risks including an inability to achieve the scale-up efficiencies which have been assumed in our business plan.
We will be producing new products that we have not yet sold commercially. As such, production to date has not been at full throughput. Legacy Arq’s manufacturing technology has been extensively tested at scale, but continuous operations represent risks including an inability to achieve the scale-up efficiencies that have been assumed in our business plan.
A statement to the effect that the occurrence of a specified event may have a negative impact on our business, results of operations, profitability, financial condition, or the like, is intended to reflect the fact that such an event, if it occurs, would be likely to have a negative impact on your investment in ADES, but should not imply the likelihood of the occurrence of such specified event.
A statement to the effect that the occurrence of a specified event may have a negative impact on our business, results of operations, profitability, financial condition, or the like, is intended to reflect the fact that such an event, if it occurs, would be likely to have a negative impact on your investment in Arq, but should not imply the likelihood of the occurrence of such specified event.
Any reduction in the amount of coal consumed by domestic electricity power generators, whether as a result of new power plants utilizing alternative energy sources or as a result of technological advances, could reduce the demand for our current products and services, thereby reducing our revenues and materially and adversely affecting our business and results of operations.
Any reduction in the amount of coal consumed by domestic electricity power generators, whether as a result of new power plants utilizing alternative energy sources or as a result of technological advances, could reduce the demand for our current products and services, thereby reducing our revenue and materially and adversely affecting our business and results of operations.
The implementation of environmental regulations regarding certain pollution control and permitting requirements has been delayed from time to time due to various lawsuits. The uncertainty created by litigation and reconsiderations of rule-making by the EPA has negatively impacted our business, results of operations and financial condition and will likely continue to do so. 2.
The implementation of environmental regulations regarding certain pollution control and permitting requirements has been delayed from time to time due to various lawsuits. The uncertainty created by litigation and reconsideration of rule-making by the EPA has negatively impacted our business, results of operations and financial condition and will likely continue to do so. 2.
As a result of the Arq Acquisition, perceived uncertainties related to our future may result in the loss of potential business opportunities and volatility in the market price of our common stock and may make it more difficult for us to attract and retain qualified personnel and business partners. 17 In connection with the Arq Acquisition, we may be required to take write-downs or write-offs, restructuring and impairment or other charges that could negatively affect our business, assets, liabilities, prospects, outlook, financial condition and results of operations.
As a result of the Arq Acquisition, perceived uncertainties related to our future may result in the loss of potential business opportunities and volatility in the market price of our common stock, which may make it more difficult for us to attract and retain qualified personnel and business partners. 11 In connection with the Arq Acquisition, we may be required to take write-downs or write-offs, restructuring and impairment or other charges that could negatively affect our business, assets, liabilities, prospects, outlook, financial condition and results of operations.
If utilities significantly reduce the number of coal-fired electricity generating units or the amount of coal burned without a corresponding increase in the services required at the remaining units, this could reduce our revenues and materially and adversely affect our business, financial condition and results of operations.
If utilities significantly reduce the number of coal-fired electricity generating units or the amount of coal burned without a corresponding increase in the services required at the remaining units, this could reduce our revenue and materially and adversely affect our business, financial condition and results of operations.
A breach of our IT systems and security measures as a result of third party action, malware, employee error, malfeasance or otherwise could materially adversely impact our business and results of operations and expose us to customer, supplier and other third party liabilities.
A breach of our IT systems and security measures or those of our third party partners as a result of third party action, malware, employee error, malfeasance or otherwise could materially adversely impact our business and results of operations and expose us to customer, supplier and other third party liabilities.
To limit these activities, regulators in the U.S. have enacted an anti-dumping duty order on steam AC products from China. In 2018, the order was extended for an additional five years. The amount of anti-dumping duties collected on imports of steam AC from China is reviewed annually by the U.S. Department of Commerce.
To limit these activities, regulators in the U.S. have enacted an anti-dumping duty order on steam AC products from China. In November 2023, the order was extended for an additional five years. The amount of anti-dumping duties collected on imports of steam AC from China is reviewed annually by the U.S. Department of Commerce.
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.
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 2022 annual meeting of stockholders and extended the Final Expiration Date to the close of business on December 31, 2023.
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.
These risks could have a material adverse effect on our business, operating results and financial condition. 16 There could be no future demand for Arq’s products.
These risks could have a material adverse effect on our business, operating results and financial condition. There could be no future demand for Legacy Arq’s products.
Our future results depend, in part, upon our ability to manage this expanded business, which will pose substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity.
Our future results depend, in part, upon our ability to manage this expanded business, which poses substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity.
The success of the Arq Acquisition will depend, in significant part, on our ability to successfully integrate the businesses of ADES and Arq and realize the anticipated strategic benefits and synergies. We believe that the combination of the two businesses will allow us to enter into more diversified, higher margin markets with our products.
Our success will depend, in significant part, on our ability to successfully integrate the Legacy Arq business and realize the anticipated strategic benefits and synergies. We believe that the combination of the two businesses will allow us to enter into more diversified, higher margin markets with our products.
Arq’s operations are governed by extensive laws and regulations, including: • laws and regulations related to exports, taxes and fees; • labor standards and regulations related to the MSHA; and • environmental standards and regulations related to waste disposal, toxic substances, land use and environmental protection, including environmental protection regulations related to water and air.
The Corbin Facility's operations are governed by extensive laws and regulations, including: • laws and regulations related to exports, taxes and fees; • labor standards and regulations related to the MSHA; and • environmental standards and regulations related to waste disposal, toxic substances, land use and environmental protection, including environmental protection regulations related to water and air.
Our primary market for Arq Powder will be as a feedstock for AC, and although we believe current conditions are favorable as a result of excess demand versus supply, there can be no guarantee that this will continue. Drivers of demand include factors beyond our control such as population growth and GDP growth, amongst others.
Our initial use for Arq Powder is as a feedstock for AC, and although we believe current conditions are favorable as a result of excess demand versus supply, there can be no guarantee that this will continue. Drivers of demand include factors beyond our control such as population growth and GDP growth, amongst others.
A significant market driver for our existing products and services and those planned in the future are existing and expected environmental laws and regulations, particularly those addressing the reduction of mercury and other emissions from coal-fired electricity generating units.
A significant market driver for our existing products and services and those planned in the future are existing and expected environmental laws and regulations, particularly those addressing the reduction of mercury and other emissions from coal-fired electricity generating units and proposed regulation of PFAS and other pollutants.
We cannot reasonably predict the impact that any such future laws or regulations or public opposition may have on our results of operations, financial condition or cash flows. 20 With the Arq Acquisition, we will be subject to additional significant governmental regulations, which may negatively impact our operations and costs of conducting business.
Further, we cannot reasonably predict the impact that any such future laws or regulations or public opposition may have on our results of operations, financial condition or cash flows. With the Arq Acquisition, we are subject to additional significant governmental regulations, which may negatively impact our operations and costs of conducting business.
Further, as a result of the Arq Acquisition and the proposed operation of ADES going forward, we may be required to take write-offs or write-downs, restructuring and impairment or other charges that could negatively affect our business, assets, liabilities, prospects, outlook, financial condition and results of operations.
Further, as a result of the Arq Acquisition, we may be required to take write-offs or write-downs, restructuring and impairment or other charges that could negatively affect our business, assets, liabilities, prospects, outlook, financial condition and results of operations.
We operate in a highly competitive marketplace. Our ability to compete successfully depends in part upon our ability to maintain a production cost advantage, competitive technological capabilities and to continue to identify, develop and commercialize new and innovative products for existing and future customers.
Our ability to compete successfully depends in part upon our ability to maintain a production cost advantage, competitive technological capabilities and to continue to identify, develop and commercialize new and innovative products for existing and future customers.
Treasury Department and the IRS, we may carry forward or otherwise utilize the Tax Credits in certain circumstances to offset current and future federal income tax liabilities, subject to certain requirements and restrictions.
Treasury Department and the IRS, we may carry forward or otherwise utilize our NOLs and Tax Credits (collectively, "Tax Assets") in certain circumstances to offset current and future federal income tax liabilities, subject to certain requirements and restrictions.
Natural disasters could affect our operations and financial results. We operate facilities, including the Red River Plant, Five Forks Mine and the Corbin Facility, that are exposed to natural hazards, such as floods, windstorms and hurricanes. Extreme weather events present physical risks that may become more frequent as a result of factors related to climate change.
We operate facilities, including the Red River Plant, Five Forks Mine and the Corbin Facility, that are exposed to natural hazards, such as floods, windstorms and hurricanes. Extreme weather events present physical risks that may become more frequent as a result of factors related to climate change.
The market price of our common stock may continue to be affected by numerous factors, including: a. market perception of the Arq Acquisition; b. actual or anticipated fluctuations in our operating results and financial condition; c. changes in laws or regulations and court rulings and trends in our industry; d. announcements of sales awards; e. changes in supply and demand of components and materials; f. adoption of new tax regulations or accounting standards affecting our industry; g. changes in financial estimates by securities analysts; h. trends in social responsibility and investment guidelines; i. whether we are able and elect to pay cash dividends; j. the continuation of repurchasing shares of common stock under stock repurchase programs; and k. the degree of trading liquidity in our common stock and general market conditions. 26 From January 1, 2021 to December 31, 2022, the closing price of our common stock ranged from $2.19 to $8.15 per share.
The market price of our common stock may continue to be affected by numerous factors, including: a. market perception of the Arq Acquisition; b. actual or anticipated fluctuations in our operating results and financial condition; c. changes in laws or regulations and court rulings and trends in our industry; d. announcements of sales awards; e. changes in supply and demand of components and materials; f. adoption of new tax regulations or accounting standards affecting our industry; g. changes in financial estimates by securities analysts; h. trends in social responsibility and investment guidelines; i. whether we are able and elect to pay cash dividends; j. the continuation of repurchasing shares of common stock under stock repurchase programs; and k. the degree of trading liquidity in our common stock and general market conditions.
If the volumes of these low-priced imports increase, especially if they are sold at less than fair value, our sales of competing products could decline, which could have an adverse effect our earnings. In addition, sales of these low-priced imports may negatively impact our pricing.
Our business faces competition in the U.S. from low-priced imports of AC products. If the volumes of these low-priced imports increase, especially if they are sold at less than fair value, our sales of competing products could decline, which could have an adverse effect our earnings. In addition, sales of these low-priced imports may negatively impact our pricing.
In addition, market competition could negatively impact our ability to maintain or raise prices or maintain or grow our market position. We compete against certain significantly larger and/or more established companies in the market for consumables and other products that provide mercury emissions reduction, water treatment and air purification.
In addition, market competition could negatively impact our ability to maintain or raise prices or maintain or grow our market position. Additionally, our competitors are significantly larger and/or more established companies in the market for consumables and other products that provide mercury emissions reduction, water treatment and air purification.
Certain legacy Arq shareholders and participants in the PIPE Investment hold a significant portion of the voting power of ADES common stock. Certain legacy Arq shareholders and participants in the PIPE Investment hold a significant percentage of our outstanding common shares.
Certain Legacy Arq shareholders and participants in the PIPE Investment hold a significant portion of the voting power of our common stock.
We may experience a shortage of reliable and adequate transport capacity and any material increase in transportation costs could have a material adverse effect on our results of operations. We currently plan to transport Arq's filter cake from the Corbin Facility to the Red River Plant by rail and truck.
We may experience a shortage of reliable and adequate transport capacity and any material increase in transportation costs could have a material adverse effect on our results of operations. We currently plan to transport our Arq Powder based filter cake produced at the Corbin Facility ("Wet Cake") to the Red River Plant by rail and truck.
While we have insured the Red River Plant against damage or destruction as well as for losses from business interruptions, there can be no assurance that any insurance coverage will be sufficient to cover any such losses.
While we have insured our facilities against damage or destruction as well as for losses from business interruptions, there can be no assurance that any insurance coverage will be sufficient to cover any such losses.
On May 5, 2017, our board of directors (the "Board") approved the Tax Asset Protection Plan (the "TAPP") and declared a dividend of one preferred share purchase right (each, a "Right") for each outstanding share of our common stock.
To mitigate the risk of an "ownership change," on May 5, 2017, our board of directors (the "Board") approved the Tax Asset Protection Plan (the "TAPP") and declared a dividend of one preferred share purchase right (each, a "Right") for each outstanding share of our common stock.
The economic effects from these events over longer terms could negatively impact our business and results of operations. 22 The manufacturing and processing of our consumable products requires significant amounts of raw materials. The price and availability of those raw materials can be impacted by factors beyond our control.
The economic effects from these events over longer terms could negatively impact our business and results of operations. The manufacturing and processing of our consumable products requires significant amounts of raw materials. The price and availability of those raw materials can be impacted by factors beyond our control. Our consumable products, exclusive of lignite coal, use a variety of additives.
The difficulties of combining the operations of ADES and Arq include, among others: • managing a larger company; • coordinating geographically separate organizations; • the potential diversion of management’s focus and resources from other strategic opportunities and from operational matters; • performance shortfalls at one or both of the companies as a result of the diversion of management’s attention caused by completing the Arq Acquisition and integrating the combined companies’ operations; • aligning and executing a new business strategy; • retaining existing customers and attracting new customers; • maintaining employee morale and retaining key management and other employees; • the disruption of, or the loss of momentum in, each company’s ongoing business or inconsistencies in standards, controls, systems, procedures and policies; • integrating two unique business cultures, which may prove to be incompatible; • the possibility of faulty assumptions underlying expectations regarding the integration process; • consolidating corporate and administrative infrastructures and eliminating duplicative operations; • coordinating sales, distribution and marketing efforts; • maintaining R&D technology momentum and lead customer technical collaboration progress; • significant changes to current market conditions that may adversely affect the business plan; • integrating IT, communications and other systems; • changes in applicable laws and regulations; • managing tax costs or inefficiencies associated with integrating the operations of ADES and Arq; • unforeseen expenses or delays associated with the Arq Acquisition; and • taking actions that may be required in connection with obtaining regulatory approvals. 18 Many of these factors will be outside of our control and any one of them could result in increased costs, decreased revenues and diversion of management’s time and energy, which could materially impact our business, financial condition and results of operations.
The difficulties of combining the operations of the two companies include, among others: • managing a larger company; • coordinating geographically separate organizations; • the potential diversion of management’s focus and resources from other strategic opportunities and from operational matters; • performance shortfalls at one or both of the companies as a result of the diversion of management’s attention caused by completing the Arq Acquisition and integrating the combined companies’ operations; • aligning and executing a new business strategy; • retaining existing customers and attracting new customers; • maintaining employee morale and retaining key management and other employees; • the disruption of, or the loss of momentum in, each company’s ongoing business or inconsistencies in standards, controls, systems, procedures and policies; • integrating two unique business cultures, which may prove to be incompatible; • the possibility of faulty assumptions underlying expectations regarding the integration process; • consolidating corporate and administrative infrastructures and eliminating duplicative operations; • coordinating sales, distribution and marketing efforts; • maintaining research and development technology momentum and leading customer technical collaboration progress; • significant changes to current market conditions that may adversely affect the business plan; • integrating IT, communications and other systems; • changes in applicable laws and regulations; • managing tax costs or inefficiencies associated with integrating Legacy Arq's operations; • unforeseen expenses or delays associated with the Arq Acquisition; and • taking actions that may be required in connection with obtaining regulatory approvals.
If these anticipated capital expenditures are delayed, whether as a result of unanticipated challenges in permitting, construction or economic conditions, the cost of such activities may increase and the timing of projected revenues may be impacted.
If these anticipated capital expenditures are delayed, whether as a result of unanticipated challenges in permitting, construction or economic conditions, the cost of such activities may increase and the timing of projected revenue may be impacted. Further, the costs of such construction activities may significantly exceed the budgeted costs.
The loss of, or significant reduction in, purchases by our largest customers could adversely affect our business, financial condition or results of operations. For 2022, we derived approximately 51% of our total consumable revenues from our five largest customers. Our top three customers accounted for approximately 37% of our total consumable revenue for 2022.
The loss of, or significant reduction in, revenue from our largest customers could adversely affect our business, financial condition or results of operations. For 2023, we derived approximately 48% of our total consumable revenue from our five largest customers. Our top three customers accounted for approximately 37% of our total consumable revenue for 2023.
Additionally, our ability to bring new products to the market will depend on various factors, including, but not limited to, solving potential technical or manufacturing difficulties, competition and market acceptance, which may hinder the timeliness and cost to bring such products to production. These factors or delays could affect our future operating results.
Our ability to bring new products to the market will depend on various factors, including, but not limited to, solving potential technical or manufacturing difficulties, competition and market acceptance, which may hinder the timeliness and cost to bring such products to production.
In addition, Public Utility Commissions ("PUCs") may not allow utilities to charge consumers for, and pass on the cost of, emissions control technologies without federal or state mandates. All of Arq’s development operations will be subject to environmental permitting and regulations that can make operations expensive, or prohibit them altogether.
In addition, public utility commissions may not allow utilities to charge consumers for, and pass on the cost of, emissions control technologies without federal or state mandates. Our development operations at the Corbin Facility are subject to environmental permitting and regulations that can make operations expensive, or prohibit them altogether.
Our consumable products, exclusive of lignite coal, use a variety of additives. Significant movements or volatility in the costs of additives could have an adverse effect on our working capital or results of operations. Additionally, we purchase certain raw materials from selected key suppliers.
Significant movements or volatility in the costs of additives could have an adverse effect on our working capital or results of operations. Additionally, we purchase certain raw materials from selected key suppliers.
There can be no assurance that we will be successful or that we will realize the expected operating efficiencies, cost savings, revenue enhancements and other benefits currently anticipated from the Arq Acquisition. The Arq Acquisition will require significant capital for us to manufacture Arq’s products. Arq is a development stage entity that to date has not generated any revenues.
There can be no assurance that we will be successful or that we will realize the expected operating efficiencies, cost savings, revenue enhancements and other benefits currently anticipated from the Arq Acquisition. Manufacturing Legacy Arq's products and GAC products requires significant capital. Legacy Arq was a development stage entity that to date has not generated any revenue.
Future dividends are subject to declaration by the Board, and under our current stock repurchase program, we are not obligated to acquire any specific number of shares.
We believe our stock price should reflect expectations of future growth and profitability. Future dividends are subject to declaration by the Board, and under our current stock repurchase program, we are not obligated to acquire any specific number of shares.
Information technology vulnerabilities and cyberattacks on our networks could have a material adverse impact on our business. We rely on information technology ("IT") to manage and conduct business, both internally and externally, with our customers, suppliers and other third parties. Internet transactions involve the transmission and storage of data including customer and supplier business information.
We rely on information technology ("IT") to manage and conduct business, both internally and externally, with our customers, suppliers and other third parties. Internet transactions involve the transmission and storage of data including customer and supplier business information.
We performed an IRC Section 382 analysis related to the Arq Acquisition and PIPE Investment and determined we had not experienced an ownership change as of the date of the Arq Acquisition and PIPE Investment.
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.
However, costs of complying with regulations could increase, as concerns related to greenhouse gases and climate change continue to emerge. 23 The enactment of new environmental laws and regulations and/or the more aggressive interpretation of existing requirements could require us to incur significant costs for compliance or capital improvements or limit our current or planned operations, any of which could have a material adverse effect on our earnings or cash flow.
The enactment of new environmental laws and regulations and/or the more aggressive interpretation of existing requirements could require us to incur significant costs for compliance or capital improvements or limit our current or planned operations, any of which could have a material adverse effect on our earnings or cash flow.
In connection with the Arq Acquisition and PIPE Investment, we granted a waiver under the TAPP for certain shareholders to acquire more shares of our stock in the future, provided that such acquisition is not expected to, and does not, effect an "ownership change" under IRC Sections 382 and 383.
The Board may, in its sole discretion, also exempt any person from triggering the Protection Plan. 19 In connection with the Arq Acquisition and PIPE Investment, we granted a waiver under the TAPP for certain shareholders to acquire more shares of our stock in the future, provided that such acquisition is not expected to, and does not, effect an "ownership change" under IRC Sections 382 and 383.
The failure of tariffs placed on U.S. imports of Chinese AC to adequately address the impact of low-priced imports from China could have a material adverse effect on the competitiveness and financial performance of our business. Our business faces competition in the U.S. from low-priced imports of AC products.
The timing and content of the proposed updates to the rule are unknown. The failure of tariffs placed on U.S. imports of Chinese AC to adequately address the impact of low-priced imports from China could have a material adverse effect on the competitiveness and financial performance of our business.
In addition, even if the operations of Arq are integrated successfully, we may not realize the full benefits of the Arq Acquisition, including the synergies, cost savings or growth opportunities that we expect. These benefits may not be achieved within the anticipated timeframe, or at all.
In addition, even if the operations of Legacy Arq are integrated successfully, we may not realize the full benefits from the Arq Acquisition, including the synergies, cost savings or growth opportunities that we expect.
To date, we have not been required to make any payments under such guarantees and are not aware of any actual or threatened requests or claims for payment under such guarantees.
We have provided limited, joint and several guarantees of Tinuum Group’s obligations under those leases. To date, we have not been required to make any payments under such guarantees and are not aware of any actual or threatened requests or claims for payment under such guarantees.
Further, in the event of railway transport shortages, there can be no assurance that road transportation will be able to satisfy the shortfall. Raw materials may also be combustible or ignitable and appropriate care and permitting may be required in handling and transporting such materials.
Further, in the event of railway transport shortages, there can be no assurance that road transportation will be able to satisfy the shortfall. Potential transportation classifications of raw materials may require permitting, and special care and handling to transport such materials.
Stockholders who beneficially owned 4.99% or more of our outstanding common stock upon execution of the Protection Plan will not trigger the Protection Plan so long as they do not acquire beneficial ownership of additional shares of our common stock. The Board may, in its sole discretion, also exempt any person from triggering the Protection Plan.
Stockholders who beneficially owned 4.99% or more of our outstanding common stock upon execution of the Protection Plan will not trigger the Protection Plan so long as they do not acquire beneficial ownership of additional shares of our common stock.
Uncertain geopolitical conditions, including the invasion of Ukraine, sanctions against Russia and other potential impacts on this region's economic environment and currencies may cause disruptions in our business.
Uncertain geopolitical conditions, including the conflicts in the Middle East, the invasion of Ukraine, sanctions against Russia and other potential impacts on the world economy and currencies may cause disruptions in our business.
Limit the business at special meetings of stockholders to the purpose stated in a notice of the meeting; b. Authorize the issuance of "blank check" preferred stock, which is preferred stock with voting or other rights or preferences that could impede a takeover attempt and that the Board can create and issue without prior stockholder approval; c.
Authorize the issuance of "blank check" preferred stock, which is preferred stock with voting or other rights or preferences that could impede a takeover attempt and that the Board can create and issue without prior stockholder approval; c.
Any major global downturn could also materially negatively impact this demand. New activated carbon supply is driven by new manufacturing sites being built, and we have little visibility on what additional manufacturing capacity other manufacturers may add in the future. Arq’s business plan also assumes entry into new markets including additives for carbon black and asphalt.
Any major global downturn could also materially negatively impact this demand. New AC supply is driven by new manufacturing sites being built, and we have little visibility on what additional manufacturing capacity other manufacturers may add in the future.
Our ability to meet customer expectations, manage inventory, complete sales and achieve our objectives for operating efficiencies depends on the full-time operation of the Red River Plant.
Our current and future ability to meet customer expectations, manage inventory, complete sales and achieve our objectives for operating efficiencies depends on the full-time operation of the Red River Plant, and the execution of our business plan depends on the completion of the Corbin Facility and the GAC expansion at the Red River Plant.
The failure to successfully integrate the businesses of ADES and Arq in the expected timeframe could adversely affect our future business and financial performance. The combination of two independent companies is a complex, costly and time-consuming process.
The failure to successfully integrate the Legacy Arq businesses in the expected timeframe could adversely affect our future business and financial performance. The combination of two independent companies is a complex, costly and time-consuming process. As a result, we have devoted significant management attention and resources to integrate Legacy Arq's business practices and operations.
In addition, the integration of Arq may result in material unanticipated problems, expenses, liabilities, competitive responses, loss of customer relationships and diversion of management’s attention, and may cause our stock price to decline.
We may not be successful in integrating the operations of Legacy Arq or otherwise realizing the anticipated benefits of the Arq Acquisition. In addition, the integration of Legacy Arq may result in material unanticipated problems, expenses, liabilities, competitive responses, loss of customer relationships and diversion of management’s attention, and may cause our stock price to decline.
If any of our five largest customers were to significantly reduce the quantities of consumables they purchase from us, it may adversely affect our business, financial condition and results of operations. Disruptions of supply chains may affect volatility in price and availability of raw materials.
If any of our five largest customers were to significantly reduce the quantities of consumables they purchase from us, it may adversely affect our business, financial condition and results of operations. Uncertain geopolitical conditions could adversely affect our business.
To the extent that the Tax Credits do not otherwise become limited, we believe that we will have available a significant amount of Tax Credits in future years, and therefore the Tax Credits could be a substantial asset to us.
To the extent that the Tax Assets do not otherwise become limited, we believe that we will have available a significant amount of Tax Assets in future years, and therefore the Tax Assets could be a substantial asset to us. In connection with the Arq Acquisition and PIPE Investment, we issued additional shares of our common stock.
Ineffective internal controls could additionally lead to increased costs to remediate any failures and could cause investors to lose confidence in our reported financial information, which would likely have a negative effect on the trading price of our common stock. 19 The financial effects of Tinuum Group providing indemnification under performance guarantees of its RC facilities are largely unknown and could adversely affect our financial condition.
Ineffective internal controls could additionally lead to increased costs to remediate any failures and could cause investors to lose confidence in our reported financial information, which would likely have a negative effect on the trading price of our common stock.
Arq uses coal waste as its feedstock and the majority of waste sites targeted by Arq for development contain potential environmental liabilities. Arq therefore may be subject to potential risks and liabilities associated with pollution of the environment and the disposal of waste products that could occur as a result of its development and production activities.
Therefore, we may be subject to potential risks and liabilities associated with pollution of the environment and the disposal of waste products that could occur as a result of these development and production activities.
The development of geopolitical conflicts in 2022 has contributed to disruptions of supply chains, resulting in cost increases for commodities, goods and services in many parts of the world. Significant disruptions of supply chains and higher costs persisted in 2022 and may continue into 2023 and beyond.
Disruptions of supply chains may affect volatility in price and availability of raw materials. The continuation of geopolitical conflicts in 2023 has continued to disrupt supply chains, resulting in cost increases for commodities, goods and services in many parts of the world. Disruptions of supply chains and higher costs may continue into 2024 and beyond.
If we are not able to achieve these objectives and realize the anticipated benefits and synergies expected from the Arq Acquisition within the anticipated timeframe or at all, our business, financial condition and operating results may be adversely impacted. Business issues currently faced by ADES or Arq may be imputed to the operations of the other.
If we are not able to achieve these objectives and realize the anticipated benefits and synergies expected from the Arq Acquisition within the anticipated timeframe or at all, our business, financial condition and operating results may be adversely impacted. Strategic relationships upon which we rely on are subject to change, which may diminish our ability to conduct our operations.
We also own the Marshall Mine, a former lignite coal mine located in Texas, which ceased mining operations in the third quarter of 2020 and is currently being reclaimed. Reclamation operations by their nature involve a high level of uncertainty and are often affected by risks and hazards outside of our control.
We own the Five Forks Mine, a lignite coal mine located in Louisiana, which is operated for us by a third party. Mining operations by their nature involve a high level of uncertainty and are often affected by risks and hazards outside of our control.
We have incurred substantial expenses related to the this strategic review process and the Arq Acquisition. There can be no assurance that the Arq Acquisition will provide greater value to our stockholders than that reflected in the current price of our common stock.
There can be no assurance that the Arq Acquisition will result in additional value for our stockholders. There can be no assurance that the Arq Acquisition will provide greater value to our stockholders than that reflected in the current price of our common stock.
If we were to experience an "ownership change," it is possible that a significant portion of our Tax Credits could expire before we would be able to use them to offset future federal income tax liability. 25 In connection with the Arq Acquisition and PIPE Investment, we issued additional shares of our stock.
If we were to experience an "ownership change," it is possible that a significant portion of our Tax Assets could expire before we would be able to use them to offset future federal income tax liability. Prior to the Acquisition Date, Legacy Arq completed numerous equity offerings that resulted in ownership changes.
To the extent the anti-dumping margins do not adequately address the degree to which imports are unfairly traded, the anti-dumping order may be less effective in reducing the volume of these low-priced AC imports in the U.S., which could negatively affect demand and/or pricing for our products. 21 The market for consumables and other products that provide pollutant reduction is highly competitive, and some of our competitors are significantly larger and more established than we are, which could adversely impede our growth opportunities and financial results.
To the extent the anti-dumping margins do not adequately address the degree to which imports are unfairly traded, the anti-dumping order may be less effective in reducing the volume of these low-priced AC imports in the U.S., which could negatively affect demand and/or pricing for our products.
Specifically, the realization of the full benefits from the Arq Acquisition is dependent on our ability to construct new facilities and to integrate Arq’s Powder on the projected timeline and within the projected budget.
These benefits may not be achieved within the anticipated timeframe, or at all. 12 Specifically, the realization of the full benefits from the Arq Acquisition is dependent on our ability to construct expansions to existing facilities and to integrate Arq Powder on the projected timeline and within the projected budget.
The price of natural gas has remained relatively competitive for power generation and the use of natural gas is perceived as having a lower environmental impact than burning coal. Natural gas-fired plants are cheaper to construct, and permits to construct these plants are easier to obtain, and ongoing costs of natural gas-fired plants associated with meeting environmental compliance are lower.
The price of natural gas has remained relatively competitive for power generation and the use of natural gas is perceived as having a lower environmental impact than burning coal.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe majority of the Five Forks land is leased for mineral rights and right-of-use purposes that expire at varying dates over the next 30 years and contain options to renew. The remaining land is owned by us.
Biggest changeMining As of December 31, 2023, we owned or controlled, primarily through long-term leases, approximately 1,975 acres of coal land for surface mining located in Natchitoches Parish, Louisiana ("Five Forks"). The majority of the Five Forks land is leased for mineral rights and right-of-use purposes that expire at varying dates over the next 30 years and contain options to renew.
Based on the materiality and the vertically-integrated company guidelines contained in Regulation S-K of the Securities Act and the Exchange Act, we have concluded that no additional disclosures related to our mining operations are required under this Item.
Based on current operating assumptions, we intend to renew this lease for an additional five-year term. Based on the materiality and the vertically-integrated company guidelines contained in Regulation S-K of the Securities Act and the Exchange Act, we have concluded that no additional disclosures related to our mining operations are required under this Item.
Item 2. Properties Office and Facilities We lease approximately 24,000 square feet of office space in Greenwood Village, Colorado for our corporate headquarters and primary research and development laboratory. We own the Red River Plant, which is located on approximately 61 acres and leased approximately 22,000 square feet of warehouse space in Coushatta, Louisiana.
Item 2. Properties Office and Facilities We own or lease land and facilities in the following States: Colorado - We lease approximately 24,000 square feet for our corporate headquarters and primary research and development laboratory. Louisiana - We own the Red River Plant, which is located on approximately 61 acres.
We also lease approximately 60,000 square feet of warehouse space in Natchitoches Parish, Louisiana, where we operate a production and distribution facility. Further, we lease approximately 59,000 square feet of warehouse space and seven acres of land in Campti, Louisiana for storage of our products.
We also lease approximately 141,000 square feet in various locations that is used for production, distribution and storage. Kentucky - We lease approximately 470 acres in Corbin, Kentucky where we operate the Corbin Facility.
Removed
On February 1, 2023, following completion of the Arq Acquisition, we lease approximately 7,100 square feet of office space in Lexington, Kentucky and approximately 1,180 square feet in London, UK. Additionally, we also lease approximately 470 acres in Corbin, Kentucky where we operate the Corbin Facility.
Added
The remaining land is owned by us. We also have approximately 380 acres of land containing bituminous coal waste at the Corbin Facility for recovery of bituminous coal fines, which is leased through August 31, 2025 and contains options to renew for successive five year terms until all merchantable fines are removed from the premises.
Removed
Mining As of December 31, 2022, we owned or controlled, primarily through long-term leases approximately 4,425 acres of coal land for surface mining. Of those acres, approximately 1,975 acres are located in Natchitoches Parish, Louisiana ("Five Forks").
Removed
Under our current mining plans, substantially all leased reserves will be mined out within the period of existing leases or within the time period of assured lease renewals. Royalties are paid to lessors either as a fixed price per ton or as a percentage of the gross sales price of the mined coal.
Removed
The majority of the significant leases are on a percentage royalty basis. In some cases, a payment is required either at the time of execution of the lease or in annual installments. In most cases, the prepaid royalty amount is applied to reduce future production royalties.
Removed
The remaining 2,450 acres (of 4,425 acres of coal land for surface mining) pertain to the Marshall Mine, which is located in Harrison and Panola Counties, Texas. Mining operations on this land ceased in the third quarter of 2020.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings From time to time, we are involved in various litigation matters arising in the ordinary course of our business. Information with respect to this item may be found in Note 7 "Commitments and Contingencies" to the Consolidated Financial Statements included in Item 8 of this Report. Item 4.
Biggest changeItem 3. Legal Proceedings From time to time, we are involved in various litigation matters arising in the ordinary course of our business. Information with respect to this item may be found in Note 8 "Commitments and Contingencies" to the Consolidated Financial Statements included in Item 8 of this Report. Item 4.
Mine Safety Disclosures The statement concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this Report. 29 PART II
Mine Safety Disclosures The statement concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this Report. 23 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAs of December 31, 2022, $7.0 million of shares of our common stock remained outstanding for repurchase under the Stock Repurchase Program, which will remain in effect until all amounts are utilized or it is otherwise modified by the Board. It is unlikely for the foreseeable future that we will resume repurchasing of our common stock under the repurchase program.
Biggest changeNo purchases were made during the three months ended December 31, 2023. It is unlikely for the foreseeable future that we will resume repurchasing shares of our common stock under the Stock Repurchase Program.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market for Our Common Stock As of December 31, 2022, our common stock was quoted on the Nasdaq Global Market under the symbol "ADES." The trading volume for our common stock is relatively limited.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market for Our Common Stock Effective February 1, 2024, our common stock is quoted on the Nasdaq Global Market under the symbol "ARQ." Prior to that, our common stock was quoted on the Nasdaq Global Market under the symbol "ADES." The trading volume for our common stock is relatively limited.
There is no assurance that an active trading market will provide adequate liquidity for our existing stockholders or for persons who may acquire our common stock in the future. Dividends In June 2017, we commenced a quarterly cash dividend program of $0.25 per common share and made our most recent payment in March 2020.
There is no assurance that an active trading market will provide adequate liquidity for our existing stockholders or for persons who may acquire our common stock in the future. Dividends Our most recent dividend payment was in March 2020. We do not intend to declare or pay cash dividends in the foreseeable future.
We maintain a program to repurchase up to $20.0 million of shares of our common stock under a stock repurchase program (the "Stock Repurchase Program") through open market transactions at prevailing market prices.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers Share Repurchases We maintain a program to repurchase up to $20.0 million of shares of our common stock under a stock repurchase program (the "Stock Repurchase Program") through open market transactions at prevailing market prices, of which $7.0 million remained available at December 31, 2023.
Removed
Under the Loan Agreement with CF Global, we are generally prohibited from paying dividends on our common stock as long as the Term Loan remains outstanding. Even if the Term Loan with CF Global is repaid, it is unlikely for the foreseeable future that we will resume declaring quarterly cash dividends under a dividend program.
Added
Holders The Company had 875 holders of record of our common stock as of March 5, 2024.
Removed
Holders The number of holders of record of our common stock as of February 24, 2023 was approximately 900. The approximate number of beneficial stockholders is estimated at 8,300. Purchases of Equity Securities by the Company and Affiliated Purchasers We had no repurchases of our common stock for the three months ended December 31, 2022.
Added
The number of holders of record of our common stock is based upon the actual number of holders registered on the books of the Company as of such date and does not include holders of shares that are held in street name by brokers or other nominees.
Removed
The Board subsequently approved an amendment to The Stock Repurchase Program in which it authorized an incremental $7.1 million, resulting in a total of $10.0 million of shares of our common stock allowable to repurchase.
Added
Recent Sales of Unregistered Securities and Use of Proceeds from Registered Securities On February 1, 2023, we entered into subscription agreements with certain persons (the "Subscribers"), which included existing shareholders of Arq Ltd., three of which were appointed to our Board of Directors, pursuant to which the Subscribers subscribed for and purchased 3,842,315 shares of our 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").
Added
On July 17, 2023, we entered into a subscription agreement (the "Subscription Agreement") with Mr. Robert "Bob" Rasmus and entities controlled by Mr. Rasmus, in connection with his appointment as our President and Chief Executive Officer. Pursuant to the Subscription Agreement, Mr.
Added
Rasmus subscribed for and agreed to purchase 950,000 shares of our common stock, par value $0.001 per share, from the Company for an aggregate purchase price of $1.8 million (at a price per share of approximately $1.90). The securities issued to the Subscribers and Mr.
Added
Rasmus under the PIPE Investment and the Subscription Agreement, respectively, were issued pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act, Rule 506 of Regulation D, which is promulgated thereunder, and Regulations S of the Securities Act.
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We are relying on this exemption from registration based in part on representations made by each of the Subscribers and Mr. Rasmus under their respective subscription agreements. The sale of the securities pursuant to the PIPE Investment has been subsequently registered under the Securities Act on Registration No. 333-276375, which was declared effective on January 31, 2024.
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The sale of the securities pursuant to the Subscription Agreement (the "Subscriber Shares") has not been registered under the Securities Act or any state securities laws. The Subscriber Shares may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
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Tax Withholding The following table contains information about common shares that we withheld from delivering to employees during the fourth quarter of 2023 to satisfy their respective tax obligations related to stock-based awards. 24 Period Total Number of Common Shares Purchased Average Price Paid per Common Share Total Number of Common Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Dollar Value) of Common Shares that May Yet Be Purchased Under the Plans or Programs October 1, 2023 to October 31, 2023 — — N/A N/A November 1, 2023 to November 30, 2023 — $ — N/A N/A December 1, 2023 to December 31, 2023 7,969 $ 2.71 N/A N/A Item 6.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

54 edited+33 added−83 removed25 unchanged
Biggest changeYear ended December 31, 2022 2021 Net (loss) income (1) $ (8,917) $ 60,401 Depreciation, amortization, depletion and accretion 6,416 7,933 Amortization of Upfront Customer Consideration 508 508 Interest expense, net 97 1,164 Income tax expense 209 15,672 (EBITDA Loss) EBITDA (1,687) 85,678 Cash distributions from equity method investees 5,933 74,026 Equity earnings (3,541) (68,726) Gain on extinguishment of debt — (3,345) Loss (gain) on change in estimate, asset retirement obligation 34 (2,702) Loss on early settlement of Norit Receivable 535 — Adjusted EBITDA $ 1,274 $ 84,931 (1) Included in Net loss for the year ended December 31, 2022, was $5.0 million of transactions costs incurred related to the Arq Acquisition. 39 Liquidity and Capital Resources Current Resources and Factors Affecting Our Liquidity As of December 31, 2022, our principal future sources of liquidity included: • cash on hand, excluding restricted cash of $10.0 million pledged as collateral under a surety bond agreement; and • our operations For the year ended December 31, 2022, our principal uses of liquidity included: • our business operating expenses; • capital and spare parts expenditures; • payments on our lease obligations; and • payments for reclamation associated with the Five Forks Mine and Marshall Mine.
Biggest changeYear ended December 31, 2023 2022 Net loss (1) $ (12,249) $ (8,917) Depreciation, amortization, depletion and accretion 10,543 6,416 Amortization of Upfront Customer Consideration 508 508 Interest expense, net 1,168 97 Income tax expense 153 209 EBITDA (EBITDA Loss) 123 (1,687) Cash distributions from equity method investees 1,623 5,933 Equity earnings (1,623) (3,541) Gain on sale of Marshall Mine, LLC (2,695) — Loss (gain) on change in estimate, asset retirement obligation (37) 34 Loss on early settlement of an account receivable — 535 Adjusted (EBITDA Loss) EBITDA $ (2,609) $ 1,274 (1) Included in Net loss for the year ended December 31, 2023 and 2022 was $4.9 million and $5.0 million, respectively, of transaction and integration costs incurred related to the Arq Acquisition.
Components of Revenue, Expenses and Equity Method Investees The following briefly describes the components of revenues and expenses as presented in the Consolidated Statements of Operations. Descriptions of the revenue recognition policies are included in Note 1 to the Consolidated Financial Statements included in Item 8 of this Report.
Components of Revenue, Expenses and Equity Method Investees The following briefly describes the components of revenue and expenses as presented in the Consolidated Statements of Operations. Descriptions of the revenue recognition policies are included in Note 1 to the Consolidated Financial Statements included in Item 8 of this Report.
As of December 31, 2022, we concluded it is more likely than not we will not generate sufficient taxable income within the allowable carryforward periods to realize any of our net deferred tax assets, and fully reserved for such assets as of December 31, 2022. In reaching this conclusion, we primarily considered forecasts of future taxable losses.
As of December 31, 2023, we concluded it is more likely than not we will not generate sufficient taxable income within the allowable carryforward periods to realize any of our net deferred tax assets, and fully reserved for such assets as of December 31, 2023. In reaching this conclusion, we primarily considered forecasts of future taxable losses.
We expect that the obligations secured by these surety bonds will be performed in the ordinary course of business and in accordance with the applicable contractual terms. To the extent that the obligations are performed, the related surety bonds should be released and collateral requirements reduced.
We expect that the obligations secured by these surety bonds will be performed in the ordinary course of business and in accordance with the applicable contractual terms. To the extent that the obligations are performed, the related surety bonds may be released and collateral requirements may be reduced.
Remediation costs for the Five Forks Mine are accrued based on management’s best estimate of the costs expected to be incurred. Such cost estimates may include ongoing care, maintenance and monitoring costs. Reclamation obligations are based on the timing of estimated spending for an existing environmental disturbance.
Remediation costs are accrued based on management’s best estimate of the costs expected to be incurred. Such cost estimates may include ongoing care, maintenance and monitoring costs. Reclamation obligations are based on the timing of estimated spending for an existing environmental disturbance.
The difference between our reported income tax expense and the expected federal benefit, as a result of pretax loss recognized for the year ended December 31, 2022, was primarily due to permanent differences related to acquisition-related costs, an increase in the valuation allowance on our deferred tax assets and state income taxes, net of federal benefit.
The difference between our reported income tax expense and the expected federal benefit, as a result of pretax loss recognized for the year ended December 31, 2023, was primarily due to permanent differences related to acquisition-related costs and an increase in the valuation allowance on our deferred tax assets.
Five Forks Mine ARO - Reclamation costs related to the Five Forks Mine ARO are allocated to expense over the life of the related mine assets and are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation costs.
Reclamation costs related to AROs 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.
Examples of critical estimates in valuing certain of long-lived assets, including intangible assets, we have acquired or may acquire in the future include but are not limited to: • future expected cash flows from revenues; • historical and expected customer attrition rates and anticipated growth in revenues from acquired customers; • the acquired company’s developed technology as well as assumptions about the period of time the acquired developed technology will continue to be used in the combined company's product portfolio; • the expected use and useful lives of the acquired assets; and • valuation methods and discount rates used in estimating the values of the assets acquired and liabilities assumed.
Examples of critical estimates in valuing certain of long-lived assets, including intangible assets, we have acquired or may acquire in the future include but are not limited to: • future expected cash flows from revenue; • the acquired company’s developed technology as well as assumptions about the period of time the acquired developed technology will continue to be used in the combined company's product portfolio; • the expected use and useful lives of the acquired assets; and • valuation methods and discount rates used in estimating the values of the assets acquired and liabilities assumed.
Other Income (Expense), net Earnings from equity method investments Earnings from equity method investments represent our share of earnings (losses) related to our equity method investments. Through December 31, 2021, we had substantial earnings from Tinuum Group and Tinuum Services.
Other Income (Expense), net Earnings from equity method investments Earnings from equity method investments represent our share of earnings (losses) related to equity method investments, and in 2023, primarily from Tinuum Group. Through December 31, 2021, we had substantial earnings from Tinuum Group and Tinuum Services, LLC ("Tinuum Services").
With the expiration of the Section 45 tax credit program as of December 31, 2021, both Tinuum Group and Tinuum Services commenced winding down their operations related to the Section 45 tax credit program, although we have recognized earnings in 2022 related to cash distributions received.
With the expiration of the tax credit program under IRC Section 45 afforded to producers of refined coal as of December 31, 2021, both Tinuum Group and Tinuum Services commenced winding down their operations related to the Section 45 tax credit program, although we have recognized earnings in both 2022 and 2023 related to residual cash distributions received.
Our operating results are influenced by: (1) changes in our manufacturing production and sales volumes; (2) changes in price and product mix; (3) changes in coal-fired dispatch and electricity power generation sources and (4) changes in demand for contaminant removal within water treatment facilities. During 2022, we continued to see high demand for our AC products.
Our operating results are influenced by: (1) changes in our manufacturing production and sales volumes; (2) changes in price and product mix; (3) changes in coal-fired dispatch and electricity power generation sources and (4) changes in demand for contaminant removal within water treatment facilities.
Cash flows from investing activities Cash flows used in investing activities for the year ended December 31, 2022 was $4.6 million compared to cash flows provided by investing activities of $44.4 million for the year ended December 31, 2021.
Cash flows from investing activities Cash flows used in investing activities for the year ended December 31, 2023 was $28.5 million compared to cash flows used in investing activities of $4.6 million for the year ended December 31, 2022.
For the year ended December 31, 2021, our reported income tax expense of $15.7 million and was based on an effective rate of 21%.
For the year ended December 31, 2022, our reported income tax expense was $0.2 million and was based on an effective rate of (2)%.
We believe that the accounting estimates discussed below are critical to understanding our historical and future performance, as these estimates relate to the more significant areas involving management’s judgments and estimates.
Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting estimates discussed below are critical to understanding our historical and future performance, as these estimates relate to the more significant areas involving management’s judgments and estimates.
Consumables revenue continues to be affected by electricity demand, driven by seasonal weather and related power generation needs, as well as competitor prices related to alternative power generation sources such as natural gas and renewables.
Our consumables gross margin was negatively impacted by a decrease in volumes sold. Consumables revenue continues to be affected by electricity demand, driven by seasonal weather and related power generation needs, as well as competitor prices related to alternative power generation sources such as natural gas and renewables.
Cash Flows Cash and restricted cash decreased from $88.8 million as of December 31, 2021, to $76.4 million as of December 31, 2022, a decrease of $12.3 million.
Cash Flows Cash and restricted cash decreased from $76.4 million as of December 31, 2022, to $54.2 million as of December 31, 2023, a decrease of $22.3 million.
As of December 31, 2022, and as required by our surety bond provider, we held restricted cash of $10.0 million pledged as collateral related to performance requirements required under reclamation contracts for both the Five Forks Mine and Marshall Mine.
As of December 31, 2023, and as required by our surety bond provider, we held restricted cash of $8.5 million pledged as collateral related to performance requirements required under a reclamation contract for the Five Forks Mine and the Corbin Facility.
Recently Issued Accounting Standards Refer to Note 1 of the Consolidated Financial Statements included in Item 8 of this Report for information regarding recently issued accounting standards. 44
Refer to Note 13 of our Consolidated Financial Statements included in Item 8 of this Report for additional information regarding our deferred tax assets and liabilities. Recently Issued Accounting Standards Refer to Note 1 of the Consolidated Financial Statements included in Item 8 of this Report for information regarding recently issued accounting standards. 37
In the hypothetical event of an ownership change, as defined by IRC Section 382, utilization of general business credits ("Tax Credits") generated prior to the change would be subject to an annual limitation imposed by IRC Section 383 for Tax Credits.
As of December 31, 2023, we had approximately $86.1 million in Section 45 tax credit carryforwards. 30 In the hypothetical event of an "ownership change," as defined by IRC Sections 382, utilization of general business credits ("Tax Credits") generated prior to the change would be subject to an annual limitation imposed by IRC Section 383 for Tax Credits.
General and administrative General and administrative costs include director fees and expenses, bad debt expense, research and development expense and other general costs of conducting business. Research and development costs, net of reimbursements from cost-sharing arrangements, are charged to expense in the period incurred and are reported in the General and administrative line item in the Consolidated Statements of Operations.
Research and development costs provided by third parties, net of reimbursements from cost-sharing arrangements, are charged to expense in the period incurred and are reported in the General and administrative line item in the Consolidated Statements of Operations.
As of December 31, 2022 and 2021, we had a valuation allowance of $88.3 million and $87.5 million, respectively, on our deferred tax assets. 37 The ability to recognize the remaining deferred tax assets that continue to be subject to a valuation allowance is evaluated on a quarterly basis to determine if there are any significant events that would affect the ability to utilize those deferred tax assets.
The ability to recognize the remaining deferred tax assets that continue to be subject to a valuation allowance is evaluated on a quarterly basis to determine if there are any significant events that would affect the ability to utilize those deferred tax assets.
Tinuum Group and Tinuum Services Distributions The following table summarizes the cash distributions from our equity method investments for the years ended December 31, 2022 and 2021: Year ended December 31, (in thousands) 2022 2021 Tinuum Group $ 3,455 $ 65,224 Tinuum Services 2,476 8,802 Other 2 — Distributions from equity method investees $ 5,933 $ 74,026 Cash distributions from Tinuum Group and Tinuum Services for 2022 decreased by $68.1 million compared to 2021 primarily due to Tinuum Group and Tinuum Services ceasing material operations as of December 31, 2021.
Further, on February 1, 2023 we entered into the CFG Loan Agreement for $10.0 million, of which we received $8.5 million net proceeds. 33 Tinuum Group and Tinuum Services Distributions The following table summarizes the cash distributions from our equity method investments for the years ended December 31, 2023 and 2022: Year ended December 31, (in thousands) 2023 2022 Tinuum Group $ 1,148 $ 3,455 Tinuum Services 475 2,476 Other — 2 Distributions from equity method investees $ 1,623 $ 5,933 Cash distributions from Tinuum Group and Tinuum Services for 2023 decreased by $4.3 million compared to 2022 primarily due to Tinuum Group and Tinuum Services ceasing material operations as of December 31, 2021.
We define Adjusted EBITDA (EBITDA Loss) as EBITDA (EBITDA Loss), reduced by the non-cash impact of equity earnings from equity method investments, gain on change in estimate of asset retirement obligations and gain on extinguishment of debt, and increased by cash distributions from equity method investments, loss on early settlement of the Norit Receivable and the change in AROs as a result of a change in estimate.
EBITDA is defined as earnings before interest, taxes, depreciation and amortization, and Adjusted EBITDA is defined as EBITDA reduced by the non-cash impact of equity earnings from equity method investments and gain on sale of the Marshall Mine, increased by cash distributions from equity method investments, loss on early settlement of a long-term receivable and loss on change in estimate, asset retirement obligations.
Our Annual Report on Form 10-K for the year ended December 31, 2021 includes a discussion and analysis of our financial condition and results of operations for the year ended December 31, 2021 in Item 7 of Part II, "Management’s Discussion and Analysis of Financial Condition and Results of Operations." Year ended December 31, 2022 Compared to Year ended December 31, 2021 Total Revenues and Cost of Revenues A summary of the components of revenues and cost of revenue for the years ended December 31, 2022 and 2021 is as follows: Years Ended December 31, Change ( Amounts in thousands except percentages ) 2022 2021 ($) (%) Revenues: Consumables $ 102,987 $ 85,882 $ 17,105 20 % License royalties, related party — 14,368 (14,368) (100) % Other — 44 (44) (100) % Total revenues $ 102,987 $ 100,294 $ 2,693 3 % Consumables cost of revenues, exclusive of depreciation and amortization $ 80,465 $ 65,576 $ 14,889 23 % 34 Consumables revenues and consumables cost of revenues For the years ended December 31, 2022 and 2021, consumables revenue increased year over year primarily driven by higher volumes sold, which comprised $11.8 million of the total change.
Our Annual Report on Form 10-K for the year ended December 31, 2023 includes a discussion and analysis of our financial condition and results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022, disclosed in Item 7 of Part II, "Management’s Discussion and Analysis of Financial Condition and Results of Operations." 27 Year ended December 31, 2023 Compared to Year ended December 31, 2022 Total Revenue and Cost of Revenue A summary of the components of revenue and cost of revenue for the years ended December 31, 2023 and 2022 is as follows: Years Ended December 31, Change ( Amounts in thousands except percentages ) 2023 2022 ($) (%) Revenue: Consumables $ 99,183 $ 102,987 $ (3,804) (4) % Total revenue $ 99,183 $ 102,987 $ (3,804) (4) % Consumables cost of revenue, exclusive of depreciation and amortization $ 67,323 $ 80,465 $ (13,142) (16) % Consumables revenue and consumables cost of revenue For the years ended December 31, 2023 and 2022, consumables revenue decreased year over year primarily driven by lower volumes sold, which comprised $20.0 million of the total change.
License royalties payable to Tinuum Group In December 2022, the Company and Tinuum Group entered into an agreement (the "Tinuum Group Royalty Agreement") whereby we pay Tinuum Group a royalty (the "Tinuum Group Royalty") for certain of our 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.
Consumables cost of revenue Consumables cost of revenue is comprised of 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 cost of production of consumables. 26 License royalties payable to Tinuum Group In December 2022, the Company and Tinuum Group entered into an agreement (the "Tinuum Group Royalty Agreement") whereby we pay Tinuum Group a royalty (the "Tinuum Group Royalty") for certain of our sales of M-Prove TM products after the expiration of the tax credit program under IRC Section 45 ("Section 45 Tax Credit Program") (beginning January 1, 2022) to certain of the M-45 Facilities.
Tax Credits and Obligations Through December 31, 2021, we earned substantial tax credits under the Section 45 tax credit program, which program expired on December 31, 2021. As of December 31, 2022, we had approximately $86.1 million in Section 45 tax credit carryforwards.
Tax Assets Through December 31, 2021, we earned substantial tax credits under the Section 45 tax credit program, which expired on December 31, 2021.
Offsetting the net decrease in cash flows used in operating activities year over year were a decrease in Earnings from equity method investments of $65.2 million and Gain on extinguishment of debt of $3.3 million recorded in 2021.
Offsetting the net increase in cash flows used in operating activities year over year were (1) an increase in Depreciation, amortization, depletion and accretion of $4.1 million; and (2) a decrease in Earnings from equity method investments of $1.9 million.
Material Cash Requirements Our ability to continue to generate sufficient cash flow required to meet ongoing operational needs and obligations depends upon several factors. These include executing on our contracts and initiatives and increasing our share of the market for APT consumables, including expanding our overall AC business into additional adjacent markets and improving our customer and product mix.
These include executing on our contracts and initiatives and increasing our share of the market for APT consumables, including expanding our overall AC business into additional adjacent markets and increasing our gross margin from improving our customer and product mix.
Product volumes were higher among power generation customers primarily due to higher natural gas prices and higher demand for electricity compared to 2021, which contributed to increased utilization of coal-fired generation and increased demand for our products. Total consumables revenues also increased due to improved pricing for our products by approximately $6.3 million from 2021.
Product volumes decreased among power generation customers, primarily due to lower natural gas prices compared to 2022, which contributed to decreased utilization of coal-fired generation and decreased demand for our products.
As of December 31, 2022, our Consolidated Balance Sheet reflects a liability of $3.9 million for the Five Forks ARO.
As of December 31, 2023, our Consolidated Balance Sheet reflects a liability for AROs of $6.2 million.
The following table summarizes our cash flows for the years ended December 31, 2022 and 2021, respectively: Years Ended December 31, (in thousands) 2022 2021 Change Cash provided by (used in): Operating activities $ (6,061) $ 25,999 $ (32,060) Investing activities (4,608) 44,378 (48,986) Financing activities (1,679) (17,529) 15,850 Net change in Cash and Restricted Cash $ (12,348) $ 52,848 $ (65,196) 40 Cash flows from operating activities Cash flows used in operating activities for the year ended December 31, 2022 was $6.1 million compared to cash flows provided by operating activities of $26.0 million for the year ended December 31, 2021.
The following table summarizes our cash flows for the years ended December 31, 2023 and 2022, respectively: Years Ended December 31, (in thousands) 2023 2022 Change Cash provided by (used in): Operating activities $ (16,653) $ (6,061) $ (10,592) Investing activities (28,535) (4,608) (23,927) Financing activities 22,909 (1,679) 24,588 Net change in Cash and Restricted Cash $ (22,279) $ (12,348) $ (9,931) Cash flows from operating activities Cash flows used in operating activities for the year ended December 31, 2023 was $16.7 million compared to cash flows used in operating activities of $6.1 million for the year ended December 31, 2022.
Generally, we believe these non-GAAP measures are less susceptible to variances that affect our operating performance results. We expect the adjustments to EBITDA (EBITDA Loss) and Adjusted EBITDA (EBITDA Loss) in future periods will be generally similar.
We believe that the EBITDA and Adjusted EBITDA measures are less susceptible to variances that affect the Company's operating performance. We include these non-GAAP measures because management uses them in the evaluation of our operating performance, and believe they help to facilitate comparison of operating results between periods.
PIPE Investment As further described in Item 1 of this Report, on February 1, 2023, we closed the PIPE Investment for an aggregate purchase price of approximately $15.4 million and at a purchase price per common share of $4.00.
On February 1, 2023, in connection with the Arq Acquisition, we closed the PIPE Investment for an aggregate purchase price of $15.4 million.
Our estimates are based on historical experience and other assumptions believed to be reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.
Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. Our estimates are based on historical experience and other assumptions believed to be reasonable under the circumstances, and we evaluate these estimates on an ongoing basis.
The timing of payments may vary, and in valuing the Marshall Mine ARO, we account for these timing differences, as well as changes in actual reclamation costs, on a quarterly basis. Income Taxes We account for income taxes under the asset and liability method, which requires judgment in determining income tax expense and the related balance sheet amounts.
We review, on at least an annual basis, the future expected costs and the timing of such costs for AROs. 36 Income Taxes We account for income taxes under the asset and liability method, which requires judgment in determining income tax expense and the related balance sheet amounts.
Additionally, we own the Five Forks Mine, a lignite mine that supplies the primary raw material for the manufacturing of our products. Through December 31, 2021, we operated two segments: Refined Coal ("RC") and Advanced Purification Technologies ("APT").
Our AC products include both PAC and GAC. Additionally, we own the Five Forks Mine, a lignite mine that currently supplies the primary raw material for the manufacturing of our products.
In presenting our financial statements in conformity with GAAP, we are required to make estimates and assumptions that affect the amounts reported therein. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events.
Critical Accounting Policies and Estimates Our significant accounting policies are discussed in Note 1 to the Consolidated Financial Statements included in Item 8 of this Report. In presenting our financial statements in conformity with GAAP, we are required to make estimates and assumptions that affect the amounts reported therein.
Interest expense Interest expense decreased year over year by $1.2 million primarily due to the pay-off of a senior term loan as of June 1, 2021. Income tax expense For the year ended December 31, 2022, our reported income tax expense was $0.2 million and was based on an effective rate of (2)%.
Other The increase in Other is primarily driven by interest income of $1.8 million generated from the use of cash sweep accounts in 2023. Income tax expense For the year ended December 31, 2023, our reported income tax expense was $0.2 million and was based on an effective rate of (1)%.
Other Operating Expenses A summary of the components of our operating expenses, exclusive of cost of revenues items (presented above), for the years ended December 31, 2022 and 2021 is as follows: Years Ended December 31, Change (in thousands, except percentages) 2022 2021 ($) (%) Operating expenses: Payroll and benefits $ 10,540 $ 11,315 $ (775) (7) % Legal and professional fees 9,455 6,260 3,195 51 % General and administrative 8,145 7,060 1,085 15 % Depreciation, amortization, depletion and accretion 6,416 7,933 (1,517) (19) % Loss (gain) on change in estimate, asset retirement obligation 34 (2,702) 2,736 (101) % $ 34,590 $ 29,866 $ 4,724 16 % Payroll and benefits Payroll and benefits expenses decreased year over year primarily due to a decrease in payroll-related expenses of $1.0 million as our headcount decreased year over year.
Other Operating Expenses A summary of the components of our operating expenses, exclusive of cost of revenue items (presented above), for the years ended December 31, 2023 and 2022 is as follows: Years Ended December 31, Change (in thousands, except percentages) 2023 2022 ($) (%) Operating expenses: Payroll and benefits $ 15,154 $ 10,540 $ 4,614 44 % Legal and professional fees 9,588 9,455 133 1 % General and administrative 12,641 8,145 4,496 55 % Depreciation, amortization, depletion and accretion 10,543 6,416 4,127 64 % Gain on sale of Marshall Mine, LLC (2,695) — (2,695) * Other (36) 34 (70) (206) % $ 45,195 $ 34,590 $ 10,605 31 % * Calculation not meaningful Payroll and benefits Payroll and benefits expenses increased year over year primarily due to the addition of Legacy Arq employees, which increased expenses by $4.9 million for the year, of which $1.1 million related to severance expense of former executives of Legacy Arq.
The decrease was primarily due to a decrease in distributions from equity earnings in excess of cumulative earnings of $47.4 million and an increase in acquisitions of property and equipment year over year.
The increase was primarily due to an increase in acquisition of property, equipment and intangibles, net, of $18.6 million primarily related to acquisition costs related to the Arq Acquisition, a payment of $2.2 million related to the disposal of Marshall Mine, LLC, increased mine development costs of $2.1 million, and a decrease in distributions from equity earnings in excess of cumulative earnings of $2.0 million.
The results of a recent analysis indicated that we had not experienced an ownership change as of December 31, 2022, as defined by IRC Section 382. We performed an IRC Section 382 analysis related to the Arq Acquisition and PIPE Investment and determined we had not experienced an ownership change as of the Acquisition Date.
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. Prior to the Acquisition Date, Legacy Arq completed numerous equity offerings that resulted in ownership changes.
The net decrease was primarily due to the following: (1) a net change in net income (loss) of $69.3 million year over year as a result of net loss recognized for the year ended December 31, 2022; (2) a decrease in Distributions from equity method investees, return on investment of $20.6 million year over year; and (3) a decrease in the change in net working capital of $7.1 million year over year.
The increase in cash used in operating activities was primarily due to the following: (1) an increase in net loss of $3.3 million year over year; (2) a $2.7 million gain on the sale of the Marshall Mine, LLC; (3) a decrease in Distributions from equity method investees, return on investment of $2.3 million year over year; and (4) a net decrease in working capital of $8.9 million primarily as a result of significant payments made in 2023 on accounts payable and accrued expenses assumed in the Arq Acquisition.
Other Operating Expenses Payroll and benefits Payroll and benefits costs include personnel related fringe benefits, sales and administrative staff labor costs and stock compensation expenses. Payroll and benefits costs exclude direct labor included in Cost of revenues. 33 Legal and professional fees Legal and professional costs include external legal, audit and consulting expenses.
The Tinuum Group Royalty is included in Consumables cost of revenue. Other Operating Expenses 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.
As of December 31, 2022, the remaining outstanding amount due under the Amended Retention Agreements was $1.4 million, which was paid on January 27, 2023. Five Forks Mine and Marshall Mine Reclamation Obligations As of December 31, 2022, we had outstanding surety bonds with regulatory commissions totaling $24.1 million related to both the Five Forks Mine and Marshall Mine.
Surety Bonds As of December 31, 2023, we had outstanding surety bonds with regulatory commissions totaling $11.2 million primarily related to the Five Forks Mine and the Corbin Facility.
Capital expenditures planned for 2023 are dependent on many factors, including the approval of certain environmental permits. Approval of such permits can impact the timing and amount of capital expenditures. Retention Agreements In August 2022, we paid $1.0 million pursuant to the payment terms of the Amended Retention Agreements.
Capital expenditures planned for 2024 are dependent on many factors, including the ability to raise additional funding and approval of certain environmental permits, both of which may impact the timing and amount of capital expenditures.
Other Income (Expense), net A summary of the components of our other income (expense), net for the years ended December 31, 2022 and 2021 is as follows: Years Ended December 31, Change (Amounts in thousands, except percentages) 2022 2021 ($) (%) Other income (expense): Earnings from equity method investments $ 3,541 $ 68,726 $ (65,185) (95) % Gain on extinguishment of debt — 3,345 (3,345) (100) % Interest expense (336) (1,490) 1,154 (77) % Other 155 640 (485) (76) % Total other income $ 3,360 $ 71,221 $ (67,861) (95) % Earnings from equity method investments The following table presents the equity method earnings by investee for the years ended December 31, 2022 and 2021: Years Ended December 31, Change (in thousands) 2022 2021 ($) (%) Earnings from Tinuum Group $ 3,455 $ 61,837 $ (58,382) (94) % Earnings from Tinuum Services 85 6,952 (6,867) (99) % Earnings (loss) from other 1 (63) 64 (102) % Earnings from equity method investments $ 3,541 $ 68,726 $ (65,185) (95) % 36 For the year ended December 31, 2022, we recognized $3.5 million in equity earnings from Tinuum Group compared to our proportionate share of Tinuum Group's net loss of $1.3 million for the year.
Other Income (Expense), net A summary of the components of our other income (expense), net for the years ended December 31, 2023 and 2022 is as follows: Years Ended December 31, Change (Amounts in thousands, except percentages) 2023 2022 ($) (%) Other income, net: Earnings from equity method investments $ 1,623 $ 3,541 $ (1,918) (54) % Interest expense (3,014) (336) (2,678) 797 % Other 2,630 155 2,475 1,597 % Total other income, net $ 1,239 $ 3,360 $ (2,121) (63) % Earnings from equity method investments The following table presents the equity method earnings by investee for the years ended December 31, 2023 and 2022: Years Ended December 31, Change (in thousands) 2023 2022 ($) (%) Earnings from Tinuum Group $ 1,148 $ 3,455 $ (2,307) (67) % Earnings from Tinuum Services 475 85 390 459 % Earnings from other — 1 (1) (100) % Earnings from equity method investments $ 1,623 $ 3,541 $ (1,918) (54) % 29 Earnings from equity method investments for the year ended December 31, 2023 and 2022 represented cash distributions received from Tinuum Group and Tinuum Services.
We have included these non-GAAP measures because management believes that they help to facilitate period to period comparisons of our operating results and provide useful information to both management and users of the financial statements by excluding certain expenses, gains and losses which may not be indicative of core operating results and business outlook.
We believe the non-GAAP measures provide useful information to both management and users of the financial statements by excluding certain expenses, gains, and losses which can vary widely across different industries or among companies within the same industry and may not be indicative of core operating results and business outlook. 32 EBITDA and Adjusted EBITDA The following table reconciles net loss, our most directly comparable as-reported financial measure calculated in accordance with GAAP to EBITDA, (EBITDA Loss), (Adjusted EBITDA Loss) and Adjusted EBITDA.
Cash flows from financing activities Cash flows used in financing activities for the year ended December 31, 2022 decreased by $15.9 million compared to the year ended December 31, 2021 primarily due to the pay-off of a senior term loan of $16.0 million in 2021.
Cash flows from financing activities Cash flows provided by (used in) financing activities for the year ended December 31, 2023 increased by $24.6 million compared to the year ended December 31, 2022 primarily due to proceeds from common stock issued of $16.2 million, 34 including $1.0 million of proceeds from common stock issued to related parties, and net proceeds from the issuance of the CFG Loan Agreement of $8.5 million.
For the year ended December 31, 2021, we recorded a gain on change in estimate of $2.7 million related to a reduction in scope of our estimated future reclamation efforts of the Marshall Mine.
Gain on sale of Marshall Mine, LLC As discussed above, for the year ended December 31, 2023, we recognized a gain of $2.7 million on the sale of Marshall Mine, LLC.
We expect that our cash on hand as of December 31, 2022, as well as the cash proceeds related to the PIPE Investment and Term Loan, will provide sufficient liquidity to fund operations for the next 12 months.
Based on current operating levels, we expect that our cash on hand as of December 31, 2023 will provide sufficient liquidity to fund operations for the next 12 months. Capital expenditures We have targeted the end of 2024 for the completion of our Red River Plant expansion that is necessary to commence production of our new GAC products.
Reconciliation of Net (loss) income to (EBITDA Loss) EBITDA and Adjusted EBITDA The following table reconciles net (loss) income, our most directly comparable as-reported financial measure calculated in accordance with GAAP, to (EBITDA Loss) EBITDA and Adjusted EBITDA.
EBITDA and Adjusted EBITDA should be considered in addition to, and not as a substitute for, net income in accordance with GAAP as a measure of performance. See below for a reconciliation from Net income, the nearest GAAP financial measure, to EBITDA and Adjusted EBITDA.
Offsetting these increases to Consumable revenue was the impact of unfavorable product mix of approximately $1.4 million for the year ended December 31, 2022 compared to 2021. Our Consumables gross margin, exclusive of depreciation and amortization, decreased for the year ended December 31, 2022 compared to 2021.
Consumables gross margin, exclusive of depreciation and amortization, increased for the year ended December 31, 2023 compared to 2022. Driving the increase in gross margin were the impact of the MQ contracts and decreased cost of our feedstock and additives, primarily as a result of decreased production volumes during 2023.
The table above excludes our asset retirement obligation ("ARO") related to reclamation of the Five Forks Mine (the "Five Forks ARO"), as the timing and amount of payments to satisfy the Five Forks ARO are uncertain and are based on numerous factors including, but not limited to, the Five Forks Mine expected closure date.
Contractual Obligations Contractual obligations as of December 31, 2023 are as follows: Payment Due by Period (in thousands) Total Less than 1 year 1-3 years 4-5 years After 5 years CFG Loan $ 12,199 $ — $ — $ 12,199 $ — CTB Loan 13,413 1,110 2,220 2,220 7,863 Finance lease obligations 3,666 2,274 1,307 85 — Operating lease obligations 18,559 3,139 5,747 2,595 7,078 $ 47,837 $ 6,523 $ 9,274 $ 17,099 $ 14,941 The table above excludes our asset retirement obligation ("ARO") related to reclamation of the Five Forks Mine, as the timing and amount of payments to satisfy the ARO are uncertain and are based on numerous factors including, but not limited to, the expected closure date of the Five Forks Mine.
However, in the event any surety bond is called, our indemnity obligations could require us to reimburse the surety bond provider. 41 We intend to fund our mine reclamation costs associated with both the Five Forks Mine and Marshall Mine from cash on hand.
However, in the event any surety bond is called, our indemnity obligations could require us to reimburse the surety bond provider. Long Term Requirements For a discussion of our long-term cash requirements, see Item 8. Note 6 of this Report.
Removed
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview We sell consumable products that utilize AC and chemical-based technologies to a broad range of customers, including coal-fired utilities, industrials, water treatment plants, and other diverse markets through a customer supply agreement described below.
Added
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview We are an environmental technology company and are principally engaged in the sale of consumable air and water treatment solutions primarily based on AC.
Removed
Our primary products are comprised of AC, which is produced from a variety of carbonaceous raw materials. Our AC products include both PAC and GAC. Our proprietary technologies and associated product offerings provide purification solutions to enable our customers to reduce certain contaminants and pollutants to meet the challenges of existing and potential future regulations.
Added
Our proprietary AC products enable customers to reduce air, soil, and water contaminants, including mercury, PFAS and other pollutants, to help our customers maximize utilization effectiveness and to improve operating efficiencies to meet the challenges of existing and pending air quality, soil, and water regulations.
Removed
Our RC segment was comprised of our equity ownership in Tinuum Group and Tinuum Services, both of which are unconsolidated entities from which we generated substantial earnings through December 31, 2021.
Added
We manufacture and sell AC and other chemicals used to capture and remove contaminants for coal-fired power generation, industrial and water treatment markets, which we collectively refer to as the advanced purification technologies or "APT" market. Our primary products are comprised of AC, which is produced from a variety of carbonaceous raw materials.
Removed
We also earned royalties for technologies that we licensed to Tinuum Group, which were used at certain RC facilities to enhance combustion and reduce emissions of NOx and mercury from coal burned to generate electrical power. Effective December 31, 2021, the Section 45 tax credit period expired and, as a result, both Tinuum Group and Tinuum Services ceased their operations.
Added
In February 2023, we acquired 100% of the equity of the subsidiaries of Arq Limited (hereafter the Arq Limited subsidiaries referred to as "Legacy Arq", and the acquisition itself referred to as the "Arq Acquisition") to secure access to a feedstock, a manufacturing facility and certain patented processes as a means to manufacture additional GAC products for sale into the APT and other markets.
Removed
During 2022, we received additional cash distributions from both Tinuum Group and Tinuum Services as they wound down their operations. We may receive additional cash distributions until both entities are dissolved.
Added
With the Arq Acquisition, we now control bituminous coal waste reserves and own 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.
Removed
Given the wind-down of Tinuum Group and Tinuum Services and the impact on our financial statements, we determined the historical RC segment no longer met the qualitative or quantitative criteria to be considered a reporting segment under U.S. GAAP.
Added
Under this manufacturing process, we convert coal waste into a purified, microfine carbon powder known as Arq powder TM ("Arq Powder").
Removed
As a result, as well as the method in which the chief operating decision maker allocates resources, beginning January 1, 2022, we determined that we had one reportable segment, and therefore have removed segment disclosures for this Report.
Added
We expect to begin using Arq Powder as a feedstock to begin manufacturing GAC products by the end of 2024 to begin using Arq Powder as a feedstock to produce high-quality GAC products for sale in the APT and other markets. We believe Arq Powder has additional potential for us to access new markets and applications.
Removed
Drivers of Demand and Key Factors Affecting Profitability Drivers of demand and key factors affecting our profitability are sales of our consumables-based solutions for coal-fired power generation, industrials, municipal water customers and other diverse markets served by our major customer, Norit, to whom we sell product through the Supply Agreement discussed below.
Added
We expect to secure customer interest in Arq Powder as an additive into other markets, such as components for asphalt. These products utilizing Arq Powder are expected to have a lower carbon footprint compared to similar products utilizing conventional materials. These applications are currently in various stages of proof of concept testing or preliminary customer testing.
Removed
As such, we continued to purchase inventory to supplement customer demands in excess of our production capacity and to achieve our target inventory levels. Although we expect to continue to supplement inventories throughout 2023, we anticipate that those purchases will be at reduced levels compared to 2022.
Added
In February 2024, as part of a larger rebranding, the Company changed its name to Arq, Inc., and on February 1, 2024, our common stock commenced trading under the ticker symbol, "ARQ". Drivers of Demand and Key Factors Affecting Profitability Drivers of demand and current key factors affecting our profitability are sales of our AC products to the APT market.
Removed
Supply Agreement On September 30, 2020, we and Norit entered into the Supply Agreement, pursuant to which we agreed to sell and deliver to Norit, and Norit agreed to purchase and accept from us, our products.
Added
Revenue and cost of revenue Consumables Our revenue is comprised of the sale of AC products and other chemical-based technology products in the APT market, as well as the sale of other AC products to our largest customer, who services other diverse markets.
Removed
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. For 2022 and 2021, the Supply Agreement provided material incremental volume and allowed us to capture operating cost efficiencies at the Red River Plant.
Added
Legal and professional fees Legal and professional costs include external legal, audit and consulting expenses. General and administrative General and administrative costs include director fees and expenses, bad debt expense, research and development expense and other general costs of conducting business.
Removed
The incremental volumes from the Supply Agreement have improved fixed cost absorption and resulted in increased gross margins. Further, the Supply Agreement has expanded our AC products to diverse end markets that are outside of those we historically served.
Added
Partially offsetting the decrease was an increase due to improved pricing for our products of approximately $10.6 million, $4.7 million of revenue recognized from the settlement of certain contracts with customers containing minimum quantity purchases ("MQ Contacts") and the impact of favorable product mix of approximately $0.7 million.
Removed
On February 25, 2022, we received $10.6 million in cash from Norit as a result of the Change in Control, of which $8.5 million represented full payment of an outstanding reimbursement amount related to reclamation of the Marshall Mine. As a result of the Change in Control, we recognized a loss of $0.5 million in settlement of the outstanding reimbursement.
Added
In addition, for the year ended December 31, 2023, we incurred severance related costs of $1.7 million associated with the termination of three executive employees. These increases were partially offset by a decrease in incentive compensation related 28 to non-Legacy Arq employees for the year ended December 31, 2023 of $1.3 million compared to the corresponding period in 2022.

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