Arq(ARQ) - 2023 Q2 - Quarterly Report

PART I. - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Presents unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity changes, cash flows, and detailed notes for specified periods Condensed Consolidated Balance Sheets Summarizes the company's financial position through its condensed consolidated balance sheets as of June 30, 2023, and December 31, 2022 Balance Sheet Summary (June 30, 2023 vs. December 31, 2022) | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Total Assets | $233,714 | $181,164 | | Total Liabilities | $58,899 | $41,185 | | Total Stockholders' Equity | $174,815 | $139,979 | Condensed Consolidated Statements of Operations Details the company's financial performance through condensed consolidated statements of operations for the three and six months ended June 30, 2023, and 2022 Statements of Operations (Three Months Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :-------------------------------------------------- | :------------------ | :------------------ | | Total Revenues | $20,445 | $24,739 | | Total Operating Expenses | $26,532 | $27,475 | | Operating Loss | $(6,087) | $(2,736) | | Net Loss | $(5,856) | $(326) | | Basic Loss per Common Share | $(0.21) | $(0.02) | Statements of Operations (Six Months Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :-------------------------------------------------- | :------------------ | :------------------ | | Total Revenues | $41,250 | $51,141 | | Total Operating Expenses | $55,164 | $57,212 | | Operating Loss | $(13,914) | $(6,071) | | Net Loss | $(13,364) | $(3,359) | | Basic Loss per Common Share | $(0.53) | $(0.18) | Condensed Consolidated Statements of Changes in Stockholders' Equity Outlines the changes in stockholders' equity for the six months ended June 30, 2023, reflecting capital transactions and net loss Stockholders' Equity Changes (January 1, 2023 to June 30, 2023) | Item | Amount (in thousands) | | :-------------------------------------------------- | :-------------------- | | Balances, January 1, 2023 | $139,979 | | Stock-based compensation | $1,108 | | Issuance of common stock pursuant to Arq Acquisition, net of offering costs | $12,437 | | Issuance of common stock related to PIPE Investment, net of offering costs | $15,220 | | Issuance of warrant | $826 | | Repurchase of common shares to satisfy minimum tax withholdings | $(160) | | Preferred stock dividends declared on redeemable preferred stock | $(157) | | Net loss | $(13,364) | | Balances, June 30, 2023 | $174,815 | Condensed Consolidated Statements of Cash Flows Presents the company's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2023, and 2022 Cash Flow Summary (Six Months Ended June 30) | Activity | 2023 (in thousands) | 2022 (in thousands) | | :------------------------------------------ | :------------------ | :------------------ | | Net cash (used in) provided by operating activities | $(21,159) | $1,758 | | Net cash (used in) provided by investing activities | $(10,482) | $1,305 | | Net cash provided by (used) in financing activities | $22,792 | $(1,024) | | (Decrease) increase in Cash and Restricted Cash | $(8,849) | $2,039 | | Cash and Restricted Cash, end of period | $67,583 | $90,819 | Notes to Condensed Consolidated Financial Statements Provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering various accounting policies and transactions Note 1 - Basis of Presentation Describes the company's business, recent significant acquisitions, financing activities, and the basis for financial statement preparation - Advanced Emissions Solutions, Inc. (ADES) is an environmental technology company manufacturing and selling activated carbon (AC) and chemical technologies for air and water treatment, primarily for coal-fired power generation, industrial, and water treatment markets, also owning the Five Forks Mine for raw material supply[20] - On February 1, 2023, ADES acquired Arq Ltd.'s subsidiaries for $31.2 million, consisting of common stock and Series A Convertible Preferred Stock, with Arq focused on transforming coal waste into microfine carbon powder (Arq Powder) for granular activated carbon (GAC) production, expected to begin in H2 2024[21][22] - On February 1, 2023, the Company entered into a $10.0 million Term Loan with CF Global (a related party), receiving net cash proceeds of $8.5 million after discounts and issuance costs, and issued a warrant to purchase 325,457 shares of Common Stock to CFG[23][24] - On February 1, 2023, the Company completed a PIPE Investment, selling 3,842,315 shares of Common Stock for $15.4 million at $4.00 per share to certain subscribers, including existing Arq Ltd. shareholders[25] Loss per Common Share (Three and Six Months Ended June 30) | Metric | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | | :-------------------------- | :------------------------------- | :----------------------------- | | Basic Loss per Share | $(0.21) | $(0.53) | | Diluted Loss per Share | $(0.21) | $(0.53) | Note 2 - Arq Acquisition Details the acquisition of Arq Ltd.'s subsidiaries, including purchase consideration, asset allocation, and pro forma financial effects - The total purchase consideration for the Arq Acquisition was $31.2 million, allocated to acquired assets and assumed liabilities, including $12.4 million for common stock and $18.8 million for preferred shares, with acquisition-related costs of $8.7 million expensed[42] Acquired Assets and Assumed Liabilities (as of Acquisition Date, in thousands) | Category | Amount | | :-------------------------------- | :------- | | Fair value of assets acquired | $55,330 | | Fair Value of liabilities assumed | $24,125 | | Net assets acquired | $31,205 | - Developed technology was identified as an intangible asset with a fair value of $7.7 million and a weighted-average useful life of 20 years[45] - On June 13, 2023, stockholders approved the conversion of all outstanding Series A Preferred Stock into Common Stock[47] Arq Financial Performance (Acquisition Date to June 30, 2023, in thousands) | Metric | Amount | | :------- | :------- | | Revenues | $0 | | Net loss | $(6,756) | Pro Forma Effects of Arq Acquisition (Six Months Ended June 30, in thousands) | Metric | 2023 | 2022 | | :------- | :--- | :--- | | Revenues | $41,250 | $51,141 | | Net loss | $(9,925) | $(38,965) | Note 3 - Marshall Mine Discusses the sale of Marshall Mine, LLC, including the cash payment received and liabilities assumed - On March 27, 2023, the Company completed the sale of Marshall Mine, LLC, receiving a $2.2 million cash payment from the buyer, who assumed approximately $4.9 million in liabilities, resulting in a recognized gain of $2.7 million for the six months ended June 30, 2023[57] Note 4 - Revenues Provides a breakdown of receivables and geographical revenue concentration for consumables Receivables, net (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :-------------------- | :-------------- | :---------------- | | Trade receivables, net | $10,235 | $13,789 | | Other receivables | $72 | $75 | | Total Receivables, net | $10,307 | $13,864 | - For the three and six months ended June 30, 2023, approximately 5% and 9% of Consumables revenues, respectively, were generated in Canada, with all other revenues from the U.S[60] Note 5 - Inventories, net Presents a detailed breakdown of product and raw material inventories, net, for specified periods Inventories, net (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :-------------------- | :-------------- | :---------------- | | Product inventory, net | $12,205 | $9,479 | | Raw material inventory | $10,833 | $8,349 | | Total inventories, net | $23,038 | $17,828 | Note 6 - Debt Obligations Outlines the company's debt obligations, including term loans, finance leases, and associated covenants Total Debt Obligations (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :-------------- | :---------------- | | Term Loan due February 2027, related party | $10,000 | $0 | | Arq Loan due January 2036 | $9,787 | $0 | | Finance lease obligations | $4,004 | $4,581 | | Unamortized debt discounts | $(943) | $0 | | Unamortized debt issuance costs | $(1,424) | $0 | | Total long-term debt obligations | $19,830 | $3,450 | - The Term Loan includes covenants requiring a minimum unrestricted cash balance of $5.0 million, minimum annual revenue ($70.0 million for FY2023, $85.0 million for FY2024, $100.0 million thereafter), and minimum Consolidated EBITDA ($3.0 million for FY2024, $16.0 million thereafter)[66] - On June 2, 2023, the Arq Loan was modified, clarifying terms, waiving certain financial delivery requirements and covenants for 2021-2023, and requiring Borrowers to establish operating bank accounts with the Bank by September 30, 2023[71][72][73] Note 7 - Leases Details the company's lease right-of-use assets, lease liabilities, and total lease costs for operating and finance leases Lease ROU Assets and Liabilities (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :------------------------------------------ | :-------------- | :---------------- | | Operating lease right-of-use assets, net | $11,292 | $7,734 | | Total operating lease obligation | $11,381 | $7,857 | | Finance lease right-of-use assets, net | $2,120 | $2,565 | | Total finance lease obligations | $4,004 | $4,581 | Total Lease Cost (in thousands) | Category | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :----------------------------- | | Finance lease cost | $286 | $577 | | Operating lease cost | $1,035 | $2,017 | | Short-term lease cost | $242 | $651 | | Variable lease cost | $56 | $64 | | Total lease cost | $1,619 | $3,309 | Note 8 - Commitments and Contingencies Discusses outstanding retention liabilities, surety bonds, cash collateral, and the absence of significant legal proceedings - The outstanding Retention Liability of $1.4 million as of December 31, 2022, was paid in full in January 2023[85] - As of June 30, 2023, the Company had $7.5 million in surety bonds for Five Forks Mine, $3.0 million for Corbin Facility land, and $0.7 million for Mine 4, with cash collateral of $8.6 million posted as long-term restricted cash[86][87][89] - The $16.6 million surety bond related to Marshall Mine was released upon its sale on March 27, 2023[88] - No significant legal proceedings were outstanding as of June 30, 2023[91] Note 9 - Supplemental Financial Information Provides additional details on other long-term assets, current and long-term liabilities, and mine reclamation liabilities Other Long-Term Assets, Net (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :-------------- | :---------------- | | Right of use assets, operating leases, net | $11,292 | $7,734 | | Intangible assets, net | $8,222 | $847 | | Spare parts, net | $7,647 | $6,789 | | Upfront Customer Consideration | $6,221 | $6,475 | | Mine development costs, net | $6,629 | $5,478 | | Mine reclamation asset, net | $1,591 | $1,641 | | Other | $2,622 | $1,683 | | Total other long-term assets, net | $44,224 | $30,647 | Other Current and Long-Term Liabilities (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :-------------- | :---------------- | | Other current liabilities | $6,375 | $6,645 | | Other long-term liabilities | $15,135 | $13,851 | Mine Reclamation Liabilities (ARO) (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :-------------- | :---------------- | | Asset retirement obligations, beginning of period | $8,533 | $9,959 | | Asset retirement obligations assumed (Corbin ARO, Mine 4 ARO) | $1,500 | $0 | | Liabilities settled (Marshall Mine ARO removal) | $(4,844) | $(2,071) | | Asset retirement obligations, end of period | $5,492 | $8,533 | Note 10 - Equity Method Investments Reports earnings, obligations, royalties, and cash distributions from equity method investees, primarily Tinuum Group - For the three and six months ended June 30, 2023, earnings from Tinuum Group were $0.2 million and $0.9 million, respectively, a decrease from $2.1 million and $3.1 million in the comparable 2022 periods, primarily due to Tinuum Group winding down services[104][175] - The Company's portion of the Tinuum Group Obligation was $1.7 million as of June 30, 2023, and December 31, 2022[105] - The Company recognized $0.3 million and $0.5 million in Tinuum Group Royalties for the three and six months ended June 30, 2023, respectively, on sales of M-Prove products[106] Cash Distributions from Equity Method Investees (Six Months Ended June 30, in thousands) | Category | 2023 | 2022 | | :-------------------------------------------------- | :--- | :--- | | Distributions from equity method investees, return on investment | $0 | $2,297 | | Distributions from equity method investees in excess of investment basis | $1,100 | $3,316 | | Total Distributions | $1,100 | $5,613 | Note 11 - Stockholders' Equity Details changes in stockholders' equity, including stock issuances, warrant grants, share repurchases, and the Tax Asset Protection Plan - On February 1, 2023, 3,814,864 shares were issued for the Arq Acquisition and 3,842,315 shares for the PIPE Investment[112] - All Series A Preferred Stock was converted into Common Stock on the Conversion Date (June 13, 2023) following stockholder approval[114] - 325,857 Warrant Shares were issued as consideration for the Term Loan, recorded at an estimated fair value of $0.8 million to Additional Paid-in Capital[115] - $7.0 million remained under the stock repurchase program as of June 30, 2023[116] - The Board approved the Sixth Amendment to the Tax Asset Protection Plan (TAPP), extending its duration to December 31, 2024, to protect the Company's ability to utilize net operating losses and tax credits[121] Note 12 - Stock-Based Compensation Presents the total stock-based compensation expense and unrecognized compensation costs for various equity awards Total Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | | :-------------------------------- | :------------------------------- | :----------------------------- | | RSA expense | $416 | $904 | | PSU expense | $129 | $204 | | Total stock-based compensation expense | $545 | $1,108 | Unrecognized Compensation Cost (as of June 30, 2023, in thousands) | Category | Unrecognized Compensation Cost | Expected Weighted Average Period of Recognition (in years) | | :-------------------------------- | :----------------------------- | :------------------------------------------------------- | | RSA expense | $2,418 | 2.24 | | PSU expense | $930 | 2.24 | | Total unrecognized stock-based compensation expense | $3,348 | 2.24 | Note 13 - Income Taxes Explains the company's income tax benefit and effective tax rate, noting the impact of a full valuation allowance - For the three and six months ended June 30, 2023 and 2022, the Company recorded no income tax benefit (or a minimal benefit of $33 thousand for H1 2023) and an effective tax rate of 0% due to a full valuation allowance against deferred tax assets, based on a forecast of pretax loss[129] Note 14 - Subsequent Events Reports on significant events occurring after the reporting period, including CEO appointment and related compensation agreements - On July 14, 2023, Robert Rasmus was appointed President and CEO, effective July 17, 2023, succeeding Greg Marken, and was also appointed to the Board[133] - Mr. Rasmus agreed to purchase 950,000 shares of common stock for $1.8 million (approximately $1.90 per share)[134] - Greg Marken's separation agreement includes severance payments, accelerated vesting of 49,715 restricted stock shares, and continued eligibility for pro rata PSU vesting (totaling 61,763 target PSUs), with the Company expecting to record an $0.8 million liability for severance[135] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and operational results, highlighting the Arq Acquisition's impact, demand drivers, and liquidity for the periods ended June 30, 2023 Overview Provides a high-level introduction to the company's business, recent strategic transactions, and key profitability drivers - Advanced Emissions Solutions, Inc. (ADES) is an environmental technology company specializing in activated carbon (AC) and chemical-based solutions for air and water treatment, serving coal-fired utilities, industrials, and municipal water customers, with raw materials sourced from its lignite mine[139] - The Company completed the Arq Acquisition, entered into a Term Loan, and executed a PIPE Investment, all on February 1, 2023, significantly impacting its financial structure and future operations[140][142][144] - Profitability is influenced by sales of consumables for various markets, manufacturing and sales volumes, average selling price and product mix, coal-fired dispatch and electricity generation sources, and demand for water contaminant removal[145] Drivers of Demand and Key Factors Affecting Profitability Analyzes factors influencing product demand and profitability, including natural gas prices and weather conditions - For Q2 and H1 2023, demand for products from coal-fired power generation customers decreased due to lower natural gas prices (Q2 2023 average $2.16/MMBtu vs. Q2 2022 average $7.47/MMBtu) and mild temperatures, leading to reduced coal-fired generation[146][151] - Natural gas prices are expected to remain low through 2023, which is anticipated to negatively impact sales volumes, even with potentially higher summer temperatures[146] Marshall Mine Details the sale of Marshall Mine, LLC, including the financial impact and liabilities assumed - The sale of Marshall Mine, LLC closed on March 27, 2023, involving a $2.2 million cash payment to the buyer and the assumption of $4.9 million in liabilities, resulting in a $2.7 million gain for the six months ended June 30, 2023[147] Results of Operations Compares the company's financial performance for the three and six months ended June 30, 2023, against the prior year - Net loss significantly increased to $5.9 million for Q2 2023 (from $0.3 million in Q2 2022) and $13.4 million for H1 2023 (from $3.4 million in H1 2022), primarily due to increased expenses from the Arq Acquisition and decreased demand for AC and chemical products[148] Comparison of the Three Months Ended June 30, 2023 and 2022 Compares the company's revenues, costs, and operating expenses for the three months ended June 30, 2023, and 2022 Revenue & Cost of Revenue (Q2 YoY, in thousands) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------------------------------- | :--- | :--- | :--------- | :--------- | | Consumables Revenues | $20,445 | $24,739 | $(4,294) | (17)% | | Consumables cost of revenue | $15,336 | $19,910 | $(4,574) | (23)% | - Consumables revenue decreased primarily due to $6.4 million lower volumes sold (driven by low natural gas prices and mild weather) and $0.1 million unfavorable product mix, partially offset by $2.2 million higher pricing[151] - Consumables gross margin increased due to decreased feedstock and additive prices, despite higher fixed costs as a percentage of total costs due to lower production volumes[152] Other Operating Expenses (Q2 YoY, in thousands) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :------------------------------------------ | :--- | :--- | :--------- | :--------- | | Payroll and benefits | $3,555 | $2,519 | $1,036 | 41% | | Legal and professional fees | $1,868 | $1,555 | $313 | 20% | | General and administrative | $3,345 | $1,869 | $1,476 | 79% | | Depreciation, amortization, depletion and accretion | $2,428 | $1,588 | $840 | 53% | - Operating expenses increased due to the addition of Arq employees, higher legal and professional fees related to the Arq Acquisition and intellectual property, increased general and administrative expenses from Arq operations ($0.9 million) and other corporate costs ($0.6 million), and higher depreciation/amortization from Arq assets ($0.9 million)[155][156][157][158] Other Income (Expense) (Q2 YoY, in thousands) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------------- | :--- | :--- | :--------- | :--------- | | Earnings from equity method investments | $462 | $2,389 | $(1,927) | (81)% | | Interest expense | $(834) | $(90) | $(744) | 827% | | Other | $603 | $111 | $492 | 443% | - Other income decreased primarily due to lower equity method earnings as Tinuum Group and Services wound down, and increased interest expense from the Term Loan ($0.5 million) and Arq Loan ($0.2 million), partially offset by $0.5 million in interest income from cash on hand[161][162][163] Comparison of the Six Months Ended June 30, 2023 and 2022 Compares the company's revenues, costs, and operating expenses for the six months ended June 30, 2023, and 2022 Revenue & Cost of Revenue (H1 YoY, in thousands) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------------------------------- | :--- | :--- | :--------- | :--------- | | Consumables Revenues | $41,250 | $51,141 | $(9,891) | (19)% | | Consumables cost of revenue | $32,511 | $41,417 | $(8,906) | (22)% | - Consumables revenue decreased primarily due to $12.9 million lower volumes sold and $1.0 million unfavorable product mix, partially offset by $4.0 million higher pricing[166] - Consumables gross margin was negatively impacted by decreased volumes, but offset by lower feedstock prices and increased product prices[167] Other Operating Expenses (H1 YoY, in thousands) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------------------------------- | :--- | :--- | :--------- | :--------- | | Payroll and benefits | $8,254 | $5,145 | $3,109 | 60% | | Legal and professional fees | $6,406 | $3,727 | $2,679 | 72% | | General and administrative | $6,123 | $3,795 | $2,328 | 61% | | Depreciation, amortization, depletion and accretion | $4,565 | $3,094 | $1,471 | 48% | | Gain on sale of Marshall Mine, LLC | $(2,695) | $0 | $(2,695) | * | - Payroll and benefits increased by $3.2 million due to Arq employees (including $1.1 million severance), offset by a $0.7 million decrease in retention bonuses[169] - Legal and professional fees increased by $2.4 million due to non-recurring Arq Acquisition costs[170] - General and administrative expenses increased by $1.5 million from Arq operations ($0.7 million rent) and $0.8 million from other corporate costs[171] - Depreciation and amortization increased by $1.5 million from Arq assets[172] Other Income (Expense) (H1 YoY, in thousands) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------------- | :--- | :--- | :--------- | :--------- | | Earnings from equity method investments | $1,100 | $3,222 | $(2,122) | (66)% | | Interest expense | $(1,368) | $(176) | $(1,192) | 677% | | Other | $785 | $(334) | $1,119 | (335)% | - Other income decreased primarily due to lower equity method earnings as Tinuum Group and Services wound down, and increased interest expense from the Term Loan ($0.9 million) and Arq Loan ($0.3 million), partially offset by $0.8 million in interest income on cash, contrasting with a $0.5 million loss in 2022 from early settlement of a receivable[175][176][177] Non-GAAP Financial Measures Presents and reconciles non-GAAP financial measures, including Consolidated EBITDA and Adjusted EBITDA Consolidated EBITDA and Adjusted EBITDA (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(5,856) | $(326) | $(13,364) | $(3,359) | | EBITDA (loss) | $(2,993) | $1,443 | $(7,980) | $107 | | Adjusted EBITDA (loss) | $(2,993) | $2,188 | $(10,675) | $3,067 | - EBITDA is net income (loss) adjusted for depreciation, amortization, depletion, accretion, upfront customer consideration amortization, net interest expense, and income taxes[182] - Adjusted EBITDA further adjusts EBITDA for non-cash equity earnings, gain on sale of Marshall Mine, cash distributions from equity method investments, loss on early settlement of long-term receivable, and loss on change in estimate for asset retirement obligation[182] Liquidity and Capital Resources Discusses the company's cash position, cash flow activities, future capital requirements, and funding strategies - Cash and restricted cash decreased from $76.4 million as of December 31, 2022, to $67.6 million as of June 30, 2023[186] Cash Flow Summary (Six Months Ended June 30, in thousands) | Activity | 2023 | 2022 | | :------------------------------------------ | :--- | :--- | | Operating activities | $(21,159) | $1,758 | | Investing activities | $(10,482) | $1,305 | | Financing activities | $22,792 | $(1,024) | - Cash flows used in operating activities increased by $22.9 million, primarily due to higher net loss, non-cash gain on Marshall Mine sale, decrease in accounts payable, increase in other long-term assets, and decreased distributions from equity method investees[187] - Cash flows used in investing activities increased by $11.8 million, mainly due to higher property, plant, and equipment additions, increased mine development costs, decreased distributions from equity earnings, and a cash payment for Marshall Mine sale, partially offset by cash acquired in Arq Acquisition[188] - Cash flows provided by financing activities increased by $23.8 million, driven by $8.5 million net borrowings from the Term Loan and $15.2 million net proceeds from the PIPE Investment[189] - Material cash requirements are expected to be funded by cash on hand for the next 12 months, despite increased liabilities from the Arq Acquisition and significant capital expenditures[190] - For 2023, capital expenditures are forecast between $40.0 million and $45.0 million, including $13.0 million-$15.0 million for Red River Plant improvements and $27.0 million-$30.0 million for growth capital to modify Red River and Corbin Plants for Arq Powder feedstock[191] - As of June 30, 2023, the Company had outstanding surety bonds totaling $7.5 million for Five Forks Mine and $3.0 million for Corbin Facility reclamation, backed by $7.7 million in restricted cash collateral[192][193] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that the information regarding quantitative and qualitative disclosures about market risk is not required for smaller reporting companies, which the registrant is - The Company is a smaller reporting company and is not required to provide information under this Item[201] Item 4. Controls and Procedures Management, including the principal executive and financial officers, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2023. The business acquired from Arq was excluded from the assessment of internal control over financial reporting for this period, as permitted by SEC guidance - Principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of June 30, 2023[202] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2023, and the acquired Arq business was excluded from the assessment of internal control over financial reporting for this period[203] PART II. - OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 8 'Commitments and Contingencies' for information regarding legal actions and proceedings, stating that no significant legal proceedings were outstanding as of June 30, 2023 - Information on legal proceedings is referenced in Note 8 'Commitments and Contingencies' of the financial statements[206] Item 1A. Risk Factors This section updates the Company's risk factors from the 2022 Form 10-K, specifically highlighting a new material risk related to potential bank failures or other events affecting financial institutions, which could adversely impact the Company's liquidity and operations due to its concentration of cash deposits in one bank - No material updates to risk factors from the 2022 Form 10-K, except for a new risk related to bank failures or other events affecting financial institutions[207] - The Company primarily uses one U.S. bank, with most cash deposits exceeding FDIC limits, and failure of this bank or adverse conditions in financial markets could disrupt access to cash, impact liquidity, or limit transaction processing[208] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section indicates that there were no unregistered sales of equity securities or use of proceeds to report for the period - No information to report under this item[210] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities to report for the period - No information to report under this item[211] Item 4. Mine Safety Disclosures This section notes that the required mine safety disclosures are provided in Exhibit 95.1 of this Quarterly Report - Mine safety disclosures are included in Exhibit 95.1[212] Item 5. Other Information This section indicates that there was no other information to report for the period - No information to report under this item[213] Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report, including amendments to the Tax Asset Protection Plan, loan modification agreements, officer certifications, mine safety disclosures, and XBRL interactive data files - Lists various exhibits filed with the report, including the Sixth Amendment to the Tax Asset Protection Plan, Loan Modification Agreement, Certifications of Principal Executive and Financial Officers, Mine Safety Disclosure Exhibit, and XBRL documents[215] Signatures This section contains the official signatures of the Company's Chief Executive Officer and Chief Accounting Officer, certifying the report's submission on August 9, 2023 - The report was signed by Robert Rasmus (Chief Executive Officer) and Morgan Fields (Chief Accounting Officer) on August 9, 2023[218]