Edgar Filing: ADA-ES INC

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller Reporting Company

FORM 10-K/A

United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Amendment No. 2)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-50216

ADA-ES, Inc.

(Name of registrant as specified in its charter)

Colorado

84-1457385

(State of incorporation)

(IRS Employer

Identification No.)

9135 South Ridgeline Boulevard, Suite 200, Highlands Ranch, Colorado 80129

(Address of principal executive offices) (Zip Code)

(Registrant’s telephone number, including area code): (303) 734-1727

Securities registered under Section 12(b) of the Act:


Title of each class		Name of each exchange on which registered
Common Stock, no par value		NASDAQ Capital Market

Securities registered under Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. ¨ Yes x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) ¨ Yes x No

The aggregate market value of the voting common stock held by non-affiliates as of June 30, 2011 was $106,666,000.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.


Class		Outstanding at March 9, 2012
Common Stock, no par value		10,001,809

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Definitive Proxy Statement to be filed pursuant to Regulation 14A for ADA-ES, Inc.’s annual shareholder meeting for 2012 are incorporated by reference into Part III of this Form 10-K.

EXPLANATORY NOTE

ADA-ES, Inc. (the “Company”) is filing this Amendment No. 2 on Form 10-K/A (this “Amendment”) to amend its Annual Report on Form 10-K for the fiscal year ended December 31, 2011 originally filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2012 (the “Original Filing”) and subsequently amended on April 30, 2012. This Amendment reflects the restatement of the Company’s consolidated financial statements and amendment of related disclosures as of and for the fiscal years ended December 31, 2011 and 2010 as discussed below and in Note 16 to the accompanying restated consolidated financial statements.

1. Background of the Restatement

As discussed in the Company’s Current Reports on Form 8-K dated June 20, 2012 and August 14, 2012, the Company’s management determined, after consultation with the Company’s Board of Directors, Audit Committee, independent registered public accounting firm and outside tax experts, that the Company’s previously issued audited consolidated financial statements included in its Annual Reports on Form10-K for the fiscal years ended December 31, 2010 and 2011 and the interim unaudited consolidated financial statements included in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2011, June 30, 2011, September 30, 2011, March 31, 2012 and June 30, 2012 needed to be restated as a result of certain corrections to the figures and disclosures contained therein and therefore could no longer be relied upon.

Reclassification of Equity Interest

The Company had previously classified the equity interest of an affiliate of the Goldman Sachs Group (“GS”) in our joint venture, Clean Coal Solutions, LLC (“Clean Coal”), as a non-controlling interest in stockholders’ equity (deficit) on the Company’s Consolidated Balance Sheet as of June 30, 2011, September 30, 2011, December 31, 2011 and March 31, 2012. In June 2012, after completion of a review and evaluation of the operating agreement of Clean Coal and the members’ rights and obligations thereof and applicable accounting authoritative literature, management determined that the GS interest would be more appropriately classified as temporary equity as of June 30, 2011 and for each subsequent quarter thereafter because of a provision in the Clean Coal operating agreement that permits GS to require redemption of its interest under certain limited circumstances. As a result, the Company is restating its consolidated financial statements for the fiscal year ended December 31, 2011 to reflect the GS interest as temporary equity on the Company’s consolidated balance sheet.

Deferred Tax Assets Valuation Allowance

In August 2012, after extensive discussions with the SEC’s Division of Corporation Finance and Office of the Chief Accountant and the Company’s outside tax experts, independent registered public accounting firm, Audit Committee and Board of Directors, management determined that the Company should have recognized a full valuation allowance against its net deferred tax assets as of December 31, 2010 and for each subsequent quarter thereafter. Management determined that it was necessary to record the valuation allowance against the Company’s net deferred tax assets after reconsidering the weight given in the original assessment to the relevant information used to measure the positive and negative evidence regarding the potential for ultimate realization of the deferred tax assets.

Realization of the deferred tax assets is dependent upon the Company’s ability to generate future taxable income. In its reassessment, management concluded that the objective and verifiable negative evidence represented by historical losses outweighed more subjective positive evidence of anticipated future income. As a result, management determined that it was necessary to record a full valuation allowance against the Company’s deferred tax assets and is restating the consolidated financial statements for the fiscal years ended December 31, 2011 and 2010.

2. Impact on the Consolidated Financial Statements

The financial statement effect of these changes on the Company’s Consolidated Balance Sheets as of December 31, 2011 and 2010 and the Consolidated Statement of Operations, Consolidated Statement of Changes in Stockholders’ Equity (Deficit) and Consolidated Statement of Cash Flows for the fiscal years ended December 31, 2011 and 2010 is discussed in Note 16 in the accompanying consolidated financial statements. The restatement reflects non-cash adjustments and has no effect on previously reported operating income results. The Company also amended its Annual Report on Form 10-K for the fiscal year ended December 31, 2010 on October 19, 2012.

3. Internal Control over Financial Reporting and Disclosure Controls and Procedures Considerations

Management has concluded that material weaknesses in the Company’s internal control over financial reporting existed related to the accounting for the equity investment in Clean Coal that has been held by an affiliate of GS since May 2011 and the establishment and maintenance of a valuation allowance against the Company’s deferred tax assets. Accordingly, this Amendment amends the Company’s disclosures regarding the effectiveness of the Company’s internal control over financial reporting and disclosure controls and procedures as of December 31, 2011.

4. Amended Items

No attempt has been made in this Amendment to modify or update the disclosures in the Original Filing except as required to reflect the effect of the restatement discussed herein. Except as otherwise noted herein, this Amendment continues to describe conditions as of the date of the Original Filing and the disclosures contained herein have not been updated to reflect events, results or developments that occurred after the date of the Original Filing, or to modify or update those disclosures affected by subsequent events. Among other things, forward-looking statements made in the Original Filing have not been revised to reflect events, results or developments that occurred or facts that became known to us after the date of the Original Filing, other than the restatement, and such forward-looking statements should be read in conjunction with our filings with the SEC subsequent to the filing of the Original Filing. Accordingly, this Amendment should be read in conjunction with the Original Filing and the Company’s other filings with the SEC.

Part II – Item 6 (Selected Financial Data), Part II – Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations), Part II – Item 8 (Consolidated Financial Statements and Supplementary Data) and Part II – Item 9A (Controls and Procedures) have been amended from the Original Filing as a result of the restatement. Part II – Item 5 (Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities) has been amended to reflect the issuance of unregistered shares of our common stock pursuant to our Amended and Restated 2007 Equity Incentive Plan and 2005 Director’s Compensation Plan. Part IV – Item 15 (Exhibits and Financial Statement Schedules) has also been amended to, among other things, include currently dated certifications from the Company’s principal executive officer and principal financial officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The certifications of the Company’s principal executive officer and principal financial officer are attached to this Amendment as Exhibits 31.1, 31.2, 32.1 and 32.2.

Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (restated).

Market Information

Our common stock currently trades on the NASDAQ Capital Market under the symbol “ADES.” The table below sets forth the price range of our common stock for each quarter of 2011 and 2010:


	2011				2010
	High		Low		High		Low
1st Quarter	$	24.92	$	10.53	$	9.50	$	4.72
2nd Quarter	$	24.75	$	7.58	$	8.31	$	5.00
3rd Quarter	$	19.37	$	13.26	$	7.17	$	4.72
4th Quarter	$	23.41	$	13.52	$	11.70	$	4.54

Holders

The number of record holders of our common stock as of March 9, 2012 was approximately 1,500. The approximate number of beneficial shareholders is estimated at 3,300.

Dividends

We have not paid dividends since inception. We currently have no plans to pay dividends in the foreseeable future.

Securities Authorized for Issuance under Equity Compensation Plans

The disclosure required by this Item is included under Item 12 of this Report.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

In 2011, we issued 74,291 unregistered shares of our common stock under our Amended and Restated 2007 Equity Incentive Plan (the “2007 Plan”), which was originally adopted by our Board of Directors on April 27, 2007 and approved by our shareholders on June 19, 2007. The 2007 Plan was amended and restated by our Board of Directors to make non-material changes on August 31, 2010 and amended pursuant to Amendment No. 1 and approved by our Board of Directors on January 25, 2011. The 2007 Plan was re-approved by our Board of Directors on February 24, 2012 and approved by our shareholders on July 19, 2012. The details of such issuances are set forth as follows:

We issued 2,516 unregistered shares of our common stock under the 2007 Plan to Christine Amrhein, our Vice President and Corporate Counsel at the time (now our General Counsel) on July 18, 2011 in connection with her employment agreement.

For their service as executive officers of the Company, we issued the following unregistered shares of our common stock under the 2007 Plan:


Executive Officer:	February 4 2011(a)		February 7, 2011(b)		Total
Michael D. Durham		14,015
C. Jean Bustard				2,000
Cameron Martin				2,000
Mark H. McKinnies				2,000
Sharon Sjostrom				1,480


Total		14,015		7,480		21,495

(a)	Of the shares issued to Dr. Durham on February 4, 2011, 11,845 shares were issued in connection with salary recoupment for 2009 and 2,170 shares were issued in connection with a discretionary executive bonus for 2009.

(b)	The shares issued to Ms. Bustard, Mr. Martin, Mr. McKinnies and Ms. Sjostrom on February 7, 2011 were issued in connection with a discretionary executive bonus for 2010.

As fees for their service on the Board of Directors of the Company, we issued the following unregistered shares of our common stock under the 2007 Plan:


Director:	February 4, 2011		July 1, 2011		July 12, 2011		Total
John Eaves (shares issued to Arch Coal, Inc.)		4,394		3,239				7,633
Robert Caruso (shares issued to B/3 Management Resources)		3,689		3,789				7,478
Derek Johnson		3,898				3,239		7,137
Ronald Johnson (shares issued to Twin-Kem International)		3,509		3,239				6,748
W. Phillip Marcum		3,841				3,390		7,231
Jeffrey C. Smith		4,330				3,277		7,607
Richard Swanson		3,094				3,352		6,446


Total		26,755		10,267		13,258		50,280

Under our 2005 Directors’ Compensation Plan, adopted by our Board of Directors on March 17, 2005 and approved by our shareholders on May 12, 2005 (the “2005 Plan”), as fees for their service on the Board of Directors of the Company, we issued the following unregistered shares of our common stock:


Director:	February 4, 2011
John Eaves (shares issued to Arch Coal, Inc.)		1,000
Robert Caruso (shares issued to B/3 Management Resources)		1,000
Ronald Johnson (shares issued to Twin-Kem International)		1,000


Total		3,000

The issuances of all of these shares were exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, as sales of securities that do not involve a public offering or distribution. No underwriters were involved, no sales commission or other remuneration was paid, and we did not receive any cash proceeds in connection with these issuances.

Purchases of Equity Securities by the Company and Affiliated Purchasers

Neither we nor any “affiliated purchaser,” as defined in SEC Rule 10b-18(a)(3), purchased any of our equity securities during the quarter ended December 31, 2011.

Item 6. Selected Financial Data.

FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA


(Amounts in thousands, except per share data)	Years Ended December 31,
Income Statement Data	2011 (restated)			2010 (restated)			2009			2008			2007
Revenues	$	53,316		$	22,281		$	20,061		$	16,193		$	19,248
Net income (loss)	$	(22,819	)	$	(31,127	)	$	(8,771	)	$	(4,106	)	$	247
Net income (loss), per common share, basic and diluted	$	(2.85	)	$	(4.21	)	$	(1.26	)	$	(0.67	)	$	0.05
Dividends declared per common share	$	—		$	—		$	—		$	—		$	—

	As of December 31,
Balance Sheet Data	2011 (restated)			2010 (restated)			2009			2008			2007
Total assets	$	87,474		$	41,011		$	40,967		$	75,142		$	34,906
Long-term debt	$	3,624		$	—		$	—		$	—		$	—
Stockholders’ equity (deficit)	$	(29,446	)	$	(2,213	)	$	24,351		$	56,987		$	28,552

See the audited financial statements attached hereto under Item 8 for additional information.

QUARTERLY FINANCIAL DATA – UNAUDITED


	2011										2010
	1st Quarter (restated)			2nd Quarter (restated)		3rd Quarter (restated)			4th Quarter (restated)		1st Quarter			2nd Quarter			3rd Quarter			4th Quarter (restated)
	(Amounts in thousands, except per share data)
Revenues	$	8,467		$	7,026	$	13,232		$	24,591	$	3,867		$	1,937		$	7,509		$	8,968
Gross margin	$	7,173		$	5,175	$	7,154		$	4,850	$	1,355		$	8		$	5,826		$	6,479
Net income (loss )	$	(41,798	)	$	6,416	$	(4,603	)	$	17,166	$	(2,820	)	$	(3,710	)	$	(5,823	)	$	(18,774	)

Common Stock Data
Basic net income (loss) per share	$	(5.51	)	$	0.84	$	(0.60	)	$	1.94	$	(0.39	)	$	(0.50	)	$	(0.78	)	$	(2.51	)
Diluted net income (loss) per share	$	(5.51	)	$	0.82	$	(0.60	)	$	1.90	$	(0.39	)	$	(0.50	)	$	(0.78	)	$	(2.51	)
Average common shares outstanding:
Basic		7,579			7,601		7,661			8,832		7,194			7,412			7,455			7,494
Diluted		7,579			7,803		7,661			9,015		7,194			7,412			7,455			7,494

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation (restated).

Restatement

With this Amendment we have restated the following previously filed consolidated financial statements, data and related disclosures: Consolidated Balance Sheet as of December 31, 2011 and 2010, and the Consolidated Statement of Operations, Consolidated Statement of Changes in Stockholders’ Equity (Deficit) and Consolidated Statement of Cash Flows for the fiscal years ended December 31, 2011 and 2010. The restatement reflects non-cash adjustments and has no effect on previously reported operating income results or cash flows from operations. The following Management Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the audited consolidated financial statements and notes thereto and the MD&A included in the Company’s Amendment No. 2 to its Annual Report on Form 10-K/A for the fiscal year ended December 31, 2010 filed on October 19, 2012, as well as the Company’s other filings with the SEC.

The restatement results from management’s determination that the Company had not properly accounted for the interest held by an affiliate of the Goldman Sachs Group (“GS”) in our joint venture, Clean Coal Solutions, LLC (“Clean Coal”) since May 2011 and that a full valuation allowance against the Company’s deferred tax assets should have been recognized as of December 31, 2010 and all subsequent quarters thereafter.

The following MD&A incorporates the restated figures reflecting these changes. For this reason the data set forth in this section may differ from that presented in discussions and data in our previously filed Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Overview

We develop, offer and implement proprietary environmental technology and market equipment and specialty chemicals to the coal-burning electric power generating industry, to the Portland cement industry and to industrial boiler operators. We have three operating segments: RC (refined coal), EC (emission control) and CC (CO₂capture). The RC segment includes revenues from the leasing of two RC facilities and coal sales which approximates the cost of coal acquired to demonstrate new RC facilities placed in service. The EC segment includes revenue from the supply of emissions control systems including powdered activated carbon injection systems (“ACI”), dry sorbent injection systems (“DSI”) to control SO₂ and other acid gases and the sale of specialty chemicals, equipment and services for flue gas conditioning projects, the licensing of certain technology, consulting services related to such matters and other applications. The CC segment includes revenue from projects relating to the CO₂ capture and control market, including projects co-funded by government agencies, such as the Department of Energy (“DOE”) and industry supported contracts.

We conduct research and development efforts in CO₂ capture and control from coal-fired boilers. In September 2010, we signed our second significant contract related to CO₂ capture with the DOE, which is scheduled to continue through the end of 2014. We are marketing our RC facilities through our interest in our Clean Coal joint venture with NexGen, an affiliate of NexGen Resources Corporation.

Refined Coal

Environmental Legislation and Regulations

Clean Coal’s primary opportunity is based on certain tax credits that are available under Section 45 of the Internal Revenue Code (“Section 45 tax credits”), as it was amended by the American Jobs Creation Act of 2004, the Emergency Economic Stabilization Act of 2008, the American Recovery and Reinvestment Act of 2009 for qualifying RC and the Tax Relief and Job Creation Act of 2010. In December 2009, the IRS issued the anticipated guidance as to the specifics concerning how the emissions reductions are to be measured and certified to demonstrate compliance necessary to qualify for the Section 45 tax credits. Clean Coal placed two RC facilities in service prior to January 1, 2010 and demonstrated the required emission reductions for their RC product to qualify for the Section 45 tax credits. In December 2010, the Tax Relief and Job Creation Act of 2010 extended the placed in service deadline for the Section 45 tax credits to January 1, 2012. The tax credits amount to an annually escalating $6.33 per ton (in 2011) of RC for a period of ten years.

Clean Coal

On June 29, 2010, Clean Coal executed contracts in which the two RC facilities were leased by Clean Coal’s wholly owned subsidiaries AEC-TH, LLC and AEC-NM, LLC (the “Lessors”) to GS RC Investment, LLC (the “Lessee”), with initial two and one half year terms and annual renewals that were set to expire in 2019. The two facilities are installed at two different power plants in the Midwest each of which operates two cyclone boilers burning PRB coal from Wyoming.

On November 21 and December 15, 2011, Clean Coal, the Lessors and the Lessee entered into two Exchange Agreements (each agreement related to the facility owned by each Lessor) pursuant to which the parties agreed to exchange the leased RC facilities at each power plant with newly constructed, redesigned RC facilities which resulted in termination of the original leases and issuance of new lease agreements (the “Exchange Transactions”). The new leases carry over many of the substantive terms and conditions of the initial leases, have initial terms that run through December 31, 2012 (the “Initial Term”) and automatically renew for annual terms through 2021.

Each lease may be terminated by the Lessee for various reasons, the most significant of which are:

•

For any reason as of the end of the Initial Term by giving notice by no later than July 1, 2012.

•

If the Total Operating Expenses (as defined in each lease) paid by the Lessee for two consecutive quarters exceed 140% of the projected operating costs for the RC facility.

•

If any of Lessors’ representations or warranties were breached as of the date made and such breach is not cured within 30 days after notice.

•

If a change of law, or certain other specified events affecting the availability of the Section 45 tax credits, occurs.

•

Upon the occurrence of a governmental regulatory event that would make the contemplated transaction impermissible.

In June 2010, the Lessee entered into supply agreements for each RC facility pursuant to which it continues to supply RC to the applicable power plant owner. Clean Coal Solution Services (“CCSS”), a Colorado limited liability company owned 50% by us and 50% by NexGen, will (subject to oversight by the Lessee) continue to operate and maintain the RC facilities under two Operating and Maintenance Agreements entered into with the Lessee in June 2010. CCSS also arranges for the purchase and delivery of certain chemical additives necessary for Lessee’s production of RC under two supply agreements entered into with the Lessee as part of the original transaction. The term of each supply agreement runs coincident with the leases.

Since its inception, we have been considered the primary economic beneficiary of Clean Coal and have consolidated its accounts in our financial statements, but we do not consolidate the results of CCSS because NexGen controls the entity pursuant to the operating agreement of the entity. Historically, the utilities at which the facilities operate have used over six million tons of coal per year, which amount can vary based on several factors. The total annual contribution to our operating income will ultimately depend on the utilities’ use of coal in the generation of electricity, which use will likely fluctuate over the term of the Section 45 tax credits. In order to maintain our interest in Clean Coal, we are obligated to fund half of its operating costs and capital expenditures.

We, Clean Coal and the Lessee also entered into a technology sublicense, as amended pursuant to two amendments entered into as part of the Exchange Transactions (the “Technology Sublicense”). Pursuant to the Technology Sublicense, we licensed and Clean Coal sublicensed to the Lessee certain technology required to operate each RC facility and to produce RC. The Technology Sublicense parallels the license previously granted by us to Clean Coal and requires that we stand behind Clean Coal if it fails to perform its obligations under the sublicense, other than as a result of a default by Lessee. The Technology Sublicense contains representations and warranties customary for such agreements regarding intellectual property, and, subject to certain liability limits, requires us to indemnify the Lessee in the event of certain infringement claims by a third party. We are also obligated to actively prosecute infringement of the technology by third parties, or to cooperate with the Lessee if it does so, in which case any award would go to the Lessee and any other sublicensee who prosecutes the infringement. The annual license fee payable to Clean Coal for the sublicense is $10,000 per year, but this amount is deductible from the amount the Lessee pays in rent under the leases.

In addition, pursuant to the Exchange Transactions, we, NexGen and two entities affiliated with NexGen have provided the Lessee with new joint and several guaranties (the “CCS Guaranties”) guaranteeing all payments and performance due under the agreements described above. We also entered into a contribution agreement (the “Contribution Agreement”) with NexGen under which any party called upon to pay on a CCS Guaranty is entitled to receive contribution from the other party equal to 50% of the amount paid. The parent of Lessee provided Clean Coal with a guaranty as to the payment only of all fixed rent payments under the leases, which, although terminable at any time, cannot be terminated without the substitution of such guaranty with another guaranty on similar terms from a creditworthy guarantor

In December 2010, the Tax Relief and Job Creation Act of 2010 extended the placed in service deadline for the Section 45 tax credits to January 1, 2012. In consideration of the extension, Clean Coal built and qualified an additional 26 RC facilities using a combination of the CyClean^TM and M-45^TM technologies, which met the extended placed in service date. ADA expects several of these RC facilities to begin routine operations in 2012. Once the final utility site and financing partner have been determined, it takes an average of approximately six months to obtain environmental permits for full-time operation, secure necessary approvals from state Public Utility Commissions, negotiate and complete all necessary contracts and obtain private letter rulings (“PLRs”) from the IRS in some instances where plants blend different types of coal. Since the IRS did not provide explicit guidance on blending of coal to qualify for Section 45 tax credits, some of these facilities will likely require PLRs, which may take two to three months to obtain after formal contracts are completed. Clean Coal has received $14.9 million from our first monetizer as initial deposits on 15 million tons of RC, which reserves its right to negotiate for specific RC facilities. We are currently in discussions with a number of other major financial institutions and corporate investors to reserve the right to negotiate on a number of the remaining facilities.

We expect that the transactions for the new leases of the new RC facilities over the next year will be structured similarly to the lease transactions previously entered into for the two initial RC facilities placed in service in June of 2010. As was the case in those transactions, generally the lease of the RC facilities and the monetization of the Section 45 tax credits involve a relationship between the utility, a financial institution and Clean Coal. By leasing the RC facility and producing RC, the financial institution receives the benefit of the annually escalating per ton Section 45 tax credit ($6.33 per ton in 2011) and is able to deduct depreciation. In return it pays, and may also deduct, a fee to the utility for land use to site the RC facility and operational costs. In addition, the financial institution pays a combination of fixed and contingent rents to Clean Coal for the lease of the RC facility. In addition to the site payment, the utility receives the benefit of the resulting mercury reductions which have an estimated value of between $1.00- $4.00 per ton. In some transactions, Clean Coal may choose to operate the facility in order to directly receive the benefit of the Section 45 tax credit.

Based on the current Section 45 tax credits, we expect Clean Coal to generate revenues from leasing or selling RC facilities to financial parties or generate tax credits by retaining and operating the 26 RC facilities that met the placed in service deadline through December 31, 2021. Upon expiration of the tax credits on December 31, 2021, the leases of our RC facilities to financial parties will terminate. We may then lease the RC facilities directly to the utilities or operate them on behalf of utility customers given the significant benefit of the resulting mercury reductions such facilities provide. The tax credits would no longer be available absent further extension by Congress.

In May 2011, ADA and NexGen entered into a transaction in which Clean Coal sold an effective 15% interest of the equity in Clean Coal, equal to approximately 15.8 units of non-voting Class B membership interests, to an affiliate of GS for $60 million in cash (the “Purchase Price”) pursuant to a Class B Unit Purchase Agreement (the “Purchase Agreement”). In conjunction with the closing of the Purchase Agreement, we, NexGen and GS entered into a Second Amended and Restated Operating Agreement for Clean Coal (as amended, the “Restated Operating Agreement”) and an Exclusive Right to Lease Agreement (the “Lease Agreement”). Pursuant to the Restated Operating Agreement, we and NexGen each exchanged 50 units of membership interests in Clean Coal for approximately 42.1 voting Class A Units in Clean Coal, representing a total of approximately 84.2% of the equity interests in Clean Coal following the transaction. ADA and NexGen each received $30 million as a result of the sale, and subsequent to the transaction with GS, NexGen paid the Company the remaining balance due of $1.8 million as payment in full of the amount owing by NexGen to maintain its interest in Clean Coal, including payment in full of all other amounts owing to us totaling $480,000 under certain previously issued “tonnage notes.”

Pursuant to the transaction with GS, we and NexGen provided GS with joint and several guarantees (the “Limited Guarantees”) guaranteeing the performance by Clean Coal of its obligation to indemnify GS against certain losses it may suffer as a result of inaccuracies or breaches of the representations and warranties made by Clean Coal in the Purchase Agreement or the Lease Agreement, or if Clean Coal breaches its covenants in the Purchase Agreement or the Lease Agreement. Clean Coal’s indemnification obligations for breaches of representations, warranties and covenants, other than for breaches of the representations involving organization, subsidiaries, capitalization and voting rights, authority and non-contravention and valid issuance, are subject to a non-recoverable deductible of $500,000 and a cap of the Purchase Price. We also entered into a contribution agreement with NexGen under which any party called upon to pay on a Limited Guaranty is entitled to receive contribution from the other party equal to 50% of the amount paid.

The rights and obligations of the parties are set forth in detail in the Restated Operating Agreement, which provides, among other related terms and conditions, that prior to April 1, 2012, Distributable Cash (as defined in the Restated Operating Agreement) will be distributable 85% to us and NexGen as holders of the Class A Units and 15% to GS as the holder of the Class B Units. Beginning with distributions made after December 31, 2012, Clean Coal must distribute no less than 70% of Distributable Cash, at least annually. Within 10 days of April 1, 2012, and prior to making any distribution thereafter, Clean Coal must calculate a “Projected Distributable Value,” which is defined in the Restated Operating Agreement as an estimated amount equal to the net present value, using a 15% discount rate, that Clean Coal projects it will receive through the end of the term of all effective (i.e., contractually committed) RC facilities. For distributions occurring after April 1, 2012, if 15% of the Projected Distributable Value is equal to or greater than GS’ “Unrecovered Investment Balance” (which is the dollar amount necessary, at any given time, to return GS at least its $60 million investment, plus a 15% return thereon, taking into account all prior distributions to GS), GS is entitled to receive 15% of each distribution. If the “Projected Investment Value” (which is 15% of the Projected Distributable Value) is less than the Unrecovered Investment Balance as of the time for any given distribution, then an adjustment will be made to the distribution ratios to compensate GS for this deficiency. This adjustment is to be updated from time to time over the life of the investment, and at any time when Projected Investment Value becomes equal to or greater than GS’ Unrecovered Investment Balance, the amount payable to GS again becomes 15% of the distribution (or a lesser amount if amounts previously distributed have resulted in overpayments to GS). Clean Coal may make greater distributions to GS than required at any given time in order to shorten the time in which the Unrecovered Investment Balance will be reduced to $0.

In addition, the Restated Operating Agreement provides that upon the occurrence of a Liquidation Event (as defined in the Restated Operating Agreement), GS will be entitled to receive the greater of (A) a liquidation preference in an amount equal to the Unrecovered Investment Balance as of the date of such Liquidation Event (the “Liquidation Preference”) or (B) GS’ pro rata share of the proceeds from such Liquidation Event.

Furthermore, the Restated Operating Agreement states that on or after the earlier of (i) a breach of any material provision of the Purchase Agreement or Clean Coal’s organizational documents that is not cured in accordance with the Restated Operating Agreement and that results in damages to GS of at least $10 million or (ii) the ten year anniversary of the date the last refined coal facility owned by Clean Coal or one of its subsidiaries is placed in service (but in no event later than December 31, 2021), and if the Unrecovered Investment Balance has not been reduced to zero, GS may require its Class B Units to be redeemed by Clean Coal for an amount equal to its Unrecovered Investment Balance, payable within 180 days of the notice of redemption. In addition, the Restated Operating Agreement contains provisions in regard to GS’ right to a board observer, each parties’ rights and obligations with respect to capital calls, preemptive rights, approval of certain transactions, drag-along and tag-along rights, a covenant not to compete, an obligation for us to present certain related “business opportunities” to Clean Coal for its consideration and related matters.

Pursuant to the Lease Agreement, Clean Coal granted GS the exclusive right (but not the obligation) to lease facilities that will produce up to approximately 12 million tons (+/- 10%) (the “Target Tons”) of refined coal per year on pre-established lease terms similar to those currently in effect for Clean Coal’s two existing facilities, but which are more economically favorable to Clean Coal than the rates in the present leases for the existing refined coal facilities that Clean Coal leased to another GS affiliate in June 2010. Clean Coal is required to submit a package to GS with respect to each RC facility it proposes that GS consider for leasing (being all RC facilities developed by Clean Coal until the Target Tons are met), and upon certification and acceptance of the certification for a given RC facility by GS, GS is required to pay Clean Coal, as a deposit, an agreed amount for each 1 million tons of projected annual refined coal production. Upon closing of a lease of a RC facility from Clean Coal, GS is required to pay Clean Coal an additional

amount per 1 million tons of projected annual refined coal production. These payments are paid as advance rent, and actual amounts due under the leases (with true-ups) will be paid in accordance with the operative lease and related agreements, which will be based on the forms of documents that were used in the transactions for the existing RC facilities leased to the Lessee and will include guaranties by us and NexGen. The initial lease terms will be five years, with annual renewals for five successive one-year periods. If GS determines that it wishes not to lease a RC facility after it has paid the deposit, it can demand the return of the deposit paid for that RC facility, and the deposit must be paid within 30 days of the end of the quarter in which the demand is made. The amount of any deposit will earn interest from the date of demand until the deposit is paid.

In connection with the transaction, including the entry into the Lease Agreement, Clean Coal and the Lessee agreed to cancel the existing “first right of refusal” that was previously granted to the Lessee under the existing agreement to lease in connection with the leasing by the Lessee of two existing RC facilities. Under the cancelled first right of refusal the Lessee had the first right to lease RC facilities with up to 14 million tons of refined coal production per year.

In September 2011, ADA, NexGen, and GS entered into a First Amendment to the Restated Operating Agreement pursuant to which we and NexGen each transferred our 2.5% member interests in each of Clean Coal’s subsidiaries back to Clean Coal in return for an increase in our interest in Clean Coal to 42.5% from 42.1%. This restructuring of ownership interests did not change the financial relationships of the parties.

In September 2011, we successfully demonstrated a new patent-pending technology for producing RC for use at coal-fired power plants. ADA’s new technology, called “M-45”, complements and expands ADA’s market for RC beyond its patented CyClean technology licensed to Clean Coal, which is limited to cyclone boilers. During full-scale tests the M-45 technology achieved greater than 20% reduction in emissions of NOx and greater than 40% reduction in mercury emissions, thus demonstrating that this new technology also meets the standards necessary to qualify for IRS Section 45 tax credits.

In November 2011, we signed a non-binding term sheet for an exclusive license of the new M-45 RC technology to Clean Coal in order to leverage Clean Coal’s operating expertise, to place as many facilities in service before the year-end placed in service deadline and to take advantage of the other synergies that can be obtained by Clean Coal having the ability to provide and use either the CyClean or M-45 technology. With this license, Clean Coal could provide customers with both the patent-pending M-45 technology and ADA’s patented CyClean technology to produce RC that qualifies for Section 45 tax credits. This allows Clean Coal to potentially use some facilities placed in service using CyClean technology to treat larger annual volumes of coal if applied at a different plant using the M-45 technology.

We expect the license, which is subject to due diligence and negotiation and closing of definitive agreements, will provide ADA with a royalty based on a percent of operating income from future production of RC produced with the M-45 technology and prepaid royalties that included an initial refundable payment of $2 million, which was eliminated in the consolidation, paid to ADA upon signing of the term sheet with additional refundable payments of up to $8 million upon meeting certain milestones. The prepaid royalty payments are refundable via a withholding from 50% of future distributions or payments to ADA from Clean Coal if certain conditions are not satisfied.

To date, Clean Coal has installed and operated a total of 26 additional RC systems using a combination of the CyClean and M-45 technologies. We expect that each of these RC facilities satisfies the placed in service requirements from initial operations. If all planned RC systems become fully operational, after obtaining environmental permits for full-time operation and completing all necessary contracts, they could produce a total of more than 60 million tons of RC per year.

Our RC business opportunities do not depend upon any new environmental or tax regulations. The current ten year tax credits do not require any additional approval by Congress, which provides us with a high degree of confidence that Clean Coal and the M-45 technologies will generate long-term cash flows.

ADA expects to generate pre-tax income of greater than $1.00 per ton of RC produced per year for facilities leased to others after payments to its joint venture partners of Clean Coal for the ten year life of the tax credits. From RC facilities leased to others, ADA expects revenue and earnings before interest and taxes (“EBIT”) of approximately $100 million and $50 million per year, respectively, by the end of 2012, with the potential to double the revenue and EBIT figures by the end of 2013. During 2012, new facilities are also expected to generate greater than $70 million in cash receipts from prepaid rent for Clean Coal. Clean Coal is also evaluating plans to keep as much as 20% of the RC volume to offset federal tax obligations. For the RC production that Clean Coal retains, in addition to operating costs, Clean Coal will record coal sales and costs of coal that may be significant, which will result in increased revenues (over and above the revenue increases from the monetized RC facilities) and expenses, and will likely keep margin dollars similar to levels as if the RC was not retained. As a result, we expect that ADA’s corporate tax rate will decrease to approximately 10%.

Emission Control

Many power companies recognize the urgency of the issued and pending environmental regulations, and as a result are contracting with us to evaluate mercury and acid gas control options at a number of their plants. Utilities need to know as soon as possible whether their existing EC components are sufficient to meet the new emissions standards with the installation of low capital systems such as ACI and DSI systems. If utilities need to upgrade their equipment with new large capital equipment such as fabric filters or SO₂ scrubbers, they need to quickly begin procurement of these systems due to long required lead times. As a result we expect additional near-term ACI and DSI demonstration revenue and further bidding on related ACI and DSI equipment.

Activated Carbon Injection and Dry Sorbent Injection Systems

To date, we have obtained contracts for or are in the process of installing 50 ACI systems intended to control mercury emissions from 55 coal-fired EGU boilers. Some market demand continues in 19 states and six Canadian provinces that either have passed their own mercury control regulations or have entered agreements with power plants to reduce mercury emissions for new power plants. We remain active in the bid and proposal process and bid activity picked up in the second half of 2011 on individual and fleet wide projects due to the anticipated release of the final MATS that occurred in December. We anticipate the need for 400 to 600 ACI systems to be supplied between 2012 and 2015, which would require rapid scale-up of our production capabilities to maintain our target and present 35% market share. For an average size EGU, the ACI equipment costs are between $600,000 and $ 1 million.

In addition to the mercury control applications for ACI systems, we have also developed and are offering commercial DSI systems to inject dry alkali sorbents for control of acid gases such as SO₃ and HCl as well as for control of the criteria pollutant SO₂. DSI systems, which cost approximately $2 million to $3 million for an average size EGU, provide a low CAPEX alternative to scrubbers for meeting certain provisions of the MATS and CSAPR. We conducted full-scale tests of the DSI equipment in 2010 and 2011 for the control of HCl, SO₂ and SO₃ on plants burning bituminous, PRB, and lignite coals. We believe several contracts for ACI and DSI systems will be awarded this year and that MATS will generate up to $300 million in sales of both ACI and DSI systems for the Company.

Enhanced Coal

Since 2004, we have been working with Arch Coal to explore certain unique characteristics of some types of coals mined by Arch Coal that allow them to be burned with lower emissions. We believe a technical breakthrough that involves the application of proprietary chemicals to coal mined by Arch Coal in the PRB likely reduces emissions of mercury and other metals when this “enhanced” PRB coal (“Enhanced Coal”) is eventually burned at power plants. As a result, on June 25, 2010, we entered into a Development and License Agreement (the “License Agreement”) with Arch Coal. Pursuant to the License Agreement, we provided Arch Coal with an exclusive, non-transferable license to use certain technology to produce Enhanced Coal by the application of ADA’s proprietary coal treatment technology to Arch Coal’s PRB mined coal. We expect that use of this Enhanced Coal will help utilities meet the mercury emissions requirements in the MATS. Pursuant to the License Agreement, we are providing development services to Arch Coal aimed at applying the technology to the PRB coal. In addition, if we develop improvements to the technology that are related to the reduction of certain emissions from the burning of PRB coal, that technology will either be included in the license at no additional cost, or, under certain circumstances, we will negotiate with Arch Coal to determine if Arch Coal wants to use the additional improvements. We retain all right, title and interest, including all intellectual property rights, in and to any technology we license to Arch Coal. The initial demonstration of coal treated at the mine and shipped by rail to a power plant produced promising results.

In consideration for the development work and the license to Arch Coal, Arch Coal paid us an initial, non-refundable license and development fee in cash totaling $2 million in June 2010 and we recognized $1.3 million as revenue in 2011 and $.7 million in 2010. Under the License Agreement, we are entitled to royalties of as much as $1 per ton of a portion of the premium for Enhanced Coal sold by Arch Coal, depending upon the successful implementation of the technology and the premium Arch Coal is able to charge on future sales of the Enhanced Coal product. Any royalty ultimately payable under the License Agreement will first be subject to credit to Arch Coal of an amount equal to the initial license fee, other development and operational costs paid by Arch Coal plus a rate of return on such payments.

We believe the Enhanced Coal product may provide a $1 to $4 per ton of coal benefit to power plants. The MATS will likely create a market for reduction in mercury emissions for a significant percentage of the greater than 100 million tons per year of PRB coal mined by Arch Coal. Because of our focus on placing in service additional RC facilities prior to the end of 2011, we decided to delay additional demonstrations of our Enhanced Coal product. We expect to resume these tests in 2012, which is expected to provide sufficient time to further develop the technology and grow this business as the national mercury control market expands through 2015.

As a part of entering into the License Agreement we agreed to negotiate and enter into a Supply Agreement under which Arch Coal will purchase the additives described in the License Agreement exclusively from us, and we will supply Arch Coal with the additives it needs. We expect to finalize the terms of the Supply Agreement in 2012.

CO₂Capture

In addition to our two key growth areas, RC and emission control, we continue to demonstrate our position as a premier developer of innovative clean energy technologies. We expect that CO₂ capture technologies will be required to control CO₂ emissions from coal-fired power plants in the future as a result of the impact of CO₂ emissions on climate change. A number of permits for new coal-fired plants were rejected by various state officials in response to protests by environmental groups. We see this as an opportunity and continue to develop technologies to address the long-term needs of our customers to reduce CO₂ from their existing and new plants.

On December 15, 2009, EPA issued an endangerment finding that triggered a Clean Air Act requirement that the agency regulate CO₂ emissions from stationary sources such as power plants. Industry and states have filed an extensive consolidated litigation before the U.S. Court of Appeals for the District of Columbia Circuit challenging numerous aspects of EPA’s Greenhouse Gas (“GHG”) rules. The U.S. Court of Appeals for the D.C. Circuit is considering arguments regarding EPA’s guidance memo on the timing of GHG regulations, such as when GHGs become a “regulated pollutant” under the Clean Air Act and thus New Source Review (“NSR”) and Prevention of Significant Deterioration (“PSD”) regulations apply.

EPA anticipates proposing its first new source performance standards (“NSPS”) for CO₂ emissions from new power plants within the next few months as a result of a separate settlement with states and environmental groups in 2010.

DOE is funding CO₂ control projects and in September 2010, we signed a contract with DOE to continue development of clean coal technology to capture CO₂ from coal-fired power plants and other industrial sources of CO₂ emissions. The agreements with the DOE provide that any inventions we create as a result of the work become our property and we retain the rights to commercialize any products we develop under the contracts. We participated in two such agreements in 2011 pursuant to which we are researching and developing a novel process to capture CO₂ from coal-fired power plants.

In 2010 we began the first field tests of our CO₂ control technology on a $3.8 million program co-funded by DOE, as well as several major forward-thinking utility companies. The initial results at a plant confirmed the promising performance we had demonstrated in our laboratory. The pilot plant was moved to another plant for additional testing. Once captured, the CO₂ could be either stored underground (sequestration) or beneficially used in processes such as enhanced oil recovery. This technology appears to offer potential cost and energy advantages over competing liquid-solvent-based technologies.

In October 2010, we began work on a second major CO₂ project, which is expected to run for a total of 51 months to scale-up the technology to the one-megawatt level, which is a key step in the technology development process. We are the prime contractor for the approximately $19 million project administered by DOE’s National Energy Technology Laboratory which is providing $15 million of the funding. The project provides funding to advance our commercialization plan for regenerable solid-sorbent technology, which is designed to capture CO₂ generated by coal-fired power plants.

We have completed the first budget period of the 51-month DOE project. Continued project funding is dependent on approval of the DOE and our industry partners. We anticipate the DOE will make a positive decision about continuation within the next few months.

We anticipate that DOE funded CO₂ programs will continue to represent an important component of the revenue stream of the Company over the next several years as we position ourselves for the market growth for ACI systems, enhanced coal additives and related technology with Arch Coal and other technologies for emissions control.

Results of Operations – 2011 versus 2010

Revenues totaled $53.3 million for 2011 versus $22.3 million in 2010, representing an increase of 139%. The change is due primarily to revenues from operations at the RC facilities we leased to a third party and coal sales for new RC placed in service facilities plus a 49% increase in our CC segment revenues. We expect overall revenues for 2012 to be significantly higher than those reported for 2011.

Cost of revenues increased by $20.3 million or 236% in 2011 from 2010 primarily as a result of costs of coal incurred related to demonstration and testing by Clean Coal of new RC facilities. In addition, costs increased in the CC segment due to the increased activity in this segment and in the EC segment due to the hiring of additional staff required to meet expected growth in this segment. Gross margins were 46% for the year compared to 61% in 2010. The decrease primarily reflects such increased costs. For the near term, we expect the RC segment to represent an increasing source of revenues, for which the anticipated gross margins are higher than our EC and CC segments. As a result, we expect the gross margin for fiscal year 2012 to be higher than the overall margin realized in 2011.

Refined Coal

Revenues in our RC segment totaled $40.3 million in 2011 compared to $10.4 million in 2010, representing an increase of 288%. The two operating RC facilities were placed into routine operations during the second quarter of 2010 and were in operation throughout 2011. In addition to recognition of rental income totaling $20.1 million from the two operating facilities, the current year includes sales of RC totaling $20 million as a result of demonstrating and placing additional RC facilities into service. We expect our quarterly revenues to continue to fluctuate based on seasonal variations in electricity demand as well as planned and unplanned outages required by the power plants for equipment repair and maintenance. On an ongoing basis, we expect the two RC facilities to process approximately 6 million tons of RC annually, qualifying for the present $6.33 per ton Section 45 tax credit through 2021.

Cost of revenues for the RC segment increased by $18.8 million or 1303% for 2011 from 2010. Costs increased in 2011 due primarily to the cost of coal acquired to test new RC facilities which costs approximate the revenues realized on its sale noted above, due to the RC facilities being in operation for a full year, and an increase in activities undertaken to place additional facilities into service. We expect future RC margins irrespective of coal purchases and sales to be at a level near 90%.

RC segment profits increased by $10.1 million or 129% for 2011 compared to 2010 as the two facilities were leased for the full year in 2011 and placed in routine operation in the middle of 2010. These amounts are prior to the allocation of such profits to the non-controlling interest of Clean Coal.

Emission Control

Revenues in our EC segment totaled $10 million in 2011 compared to $9.8 million in 2010, representing an increase of 1%. The amounts reported for 2011 and 2010 excludes the work ADA has conducted for Clean Coal, as further described below, which was eliminated in our consolidation. Revenues from the EC segment for the year ended December 31, 2011 were comprised of sales of ACI systems and services (42%), flue gas chemicals and services (9%) and other services (49%), compared to 56%, 6%, and 38%, respectively, in 2010. For the near term, we expect the consulting services in our EC segment to increase as a percentage of EC revenues as the industry seeks to analyze and evaluate the MATS. We expect our EC segment revenues related to ACI systems to start growing in 2012 when we expect utilities, cement plants and industrial boilers to start reacting to the MATS and other MACT regulations. We expect overall gross margin dollars for the EC segment for 2012 to be higher than amounts achieved in 2011 due to increased equipment sales and consulting activity.

Our consulting revenues increased $1.3 million during 2011 compared to 2010 as a result of continued demonstrations and other work related to recent changes with the MATS and included revenues totaling $1.3 million from our Arch Coal non-refundable license. Our consulting revenues contributed $4.9 million during 2011 and we expect our consulting revenue to increase for the next year as several customers are seeking advice on how best to comply with the MATS.

As of December 31, 2011, we had contracts in progress for work related to our EC segment totaling $736,000 which we expect to recognize as revenue in 2012. Our ACI systems revenues totaled $4.1 million for 2011, representing a decrease of 25% compared to 2010. In the EC segment, we performed work related to RC systems provided to Clean Coal valued at $8.3 million and $3.7 million for the years ended December 31, 2011 and 2010, respectively, which would otherwise be recognized as revenue but was eliminated in the consolidation of Clean Coal. The amounts for 2010 include our participation in the construction and installation of the initial RC facilities. In 2011, Clean Coal utilized a number of third-party resources to construct and install the new RC facilities. However, we provided services toward the construction and installation of 26 facilities in 2011 compared to 2 facilities in 2010.

Cost of revenues for the EC segment increased by $732,000 or 12% in 2011 from 2010, primarily as a result of increased costs related to our ACI systems activities including hiring additional staff required for expected growth. Gross margin for the EC segment was 31% for 2011 compared to 38% for 2010. The decrease in gross margin from the prior year is primarily a result of the increase in costs related to our ACI systems.

EC segment profits decreased by $764,000 or 36% for 2011 compared to 2010. The decrease was primarily a result of costs associated with hiring additional staff required for expected growth in future ACI systems sales.

CO₂ Capture

Revenues in our CC segment totaled $3.1 million in 2011 compared to $2.1 million in 2010 representing an increase of 49%. We had outstanding DOE contracts, including anticipated industry cost share in progress totaling $15.7 million as of December 31, 2011. We expect to recognize approximately $5.6 million from these contracts in 2012 including participation by other industry partners. As discussed above, back on September 30, 2010 we signed a contract on a DOE project totaling approximately $19 million (including expected contributions by other industry partners).

Cost of revenues for the CC segment increased by $858,000 or 80% for 2011 from 2010, primarily from increased activities related to our development of CO₂capture technology. Gross margin for this segment was 38% in 2011 compared to 49% in 2010. The decrease in gross margin from 2011 to 2010 is due primarily to greater use of subcontractors for which our margins are lower under these projects. Lower cost share participation from third parties also contributed to higher costs and lower margins. We expect overall gross margins for the CC segment for 2012 to be lower than the levels achieved in 2011, due to our likely share of costs and the mixture of direct costs (labor versus equipment) associated with this segment.

CC segment profits decreased by $654,000 or 73% for 2011 compared to 2010. As discussed above, the decrease was primarily the result of greater use of subcontractors and lower cost share participation by others.

Our contracts with the government are subject to audit by the federal government, which could result in adjustments to previously recognized revenue. Our historical experience with these audits has not resulted in significant adverse adjustments to amounts previously received; however the audits for the years 2004 and later have not been finalized. Revenues recognized from 2005 through 2011 that are subject to government audit totaled approximately $32 million. In addition, we had $15.7 million of remaining unearned amounts under contracts subject to audit as of December 31, 2011. We believe, however, that we have complied with all requirements of the contracts and future adjustments, if any, will likely not be material. In addition, the federal government must appropriate funds on an annual basis to support DOE contracts, and funding is always subject to unknown and uncontrollable contingencies.

Other Items

General and administrative expenses decreased by $15.3 million or 47% to $17.5 million in 2011. Legal costs decreased $20.4 million or 83% in 2011 primarily due to a decrease in non-routine expenses associated with litigation and settlements which totaled $24.5 million in 2010. We believe our legal expenses have now returned to more routine levels. This decrease was offset by increases in compensation costs and other general and administrative costs totaling $1.5 million and $3.6 million, respectively, from 2010 which are primarily due to a 46% increase in staff in anticipation of increased business. We expect general and administrative expenses to increase as we continue to add additional resources to prepare for increased business opportunities over that time. We expect general and administrative expenses to be approximately $4 million per quarter for ADA and as much as $1 million per quarter for CCS in 2012.

We incur research and development (“R&D”) expenses not only on direct activities that we conduct but also by sharing a portion of the costs in the government and industry programs in which we participate. Total R&D expense increased by $1.4 million or 151% in 2011 compared to 2010 as a result of increases in RC and CC activities. We incurred $343,000 for direct cost share for R&D under DOE related contracts in 2011. We had no significant direct cost share for R&D under DOE related contracts in 2010. The increase in total R&D is related to preparing for growth in the delivery of our ACI systems, as well as our RC activities. Future consolidated research and development expenses, except for those anticipated to be funded by the DOE contracts and others that may be awarded, are expected to be higher in 2012 compared to 2011. We continue to anticipate that our future R&D expenses will grow in direct proportion to DOE funded CO₂ work we perform for the next several years and other technology development we choose to pursue.

We had net other income including interest of $2.2 million in 2011 compared to $2.5 million in 2010 related primarily to interest on notes receivable and other amounts received from NexGen. We had interest expense of $1.6 million in 2011 related to the line of credit and deferred gain for income tax purposes on the Clean Coal lease transactions. There was $16,000 in interest expense in 2010. We recognized $42 million in expenses in 2011 related to the Norit matter, and a $20 million gain from the settlement with Carbon Solutions/ECP as discussed below. We recognized a net $6.1 million gain in 2010 related to the settlement with our damage claim against Calgon Carbon Corporation (“Calgon”) also as discussed below.

In November 2011, an Indemnity Settlement Agreement was entered into whereby ADA agreed to settle certain indemnity obligations asserted against ADA and relinquished all of its interest in the Carbon Solutions joint venture with ECP. The interest in Carbon Solutions was accounted for under the equity method of accounting and considerable losses had been recorded since its inception in 2008. We recorded the transactions resulting from the Indemnity Settlement Agreement for the satisfaction of the indemnity obligations and the relinquishment of ADA’s interest which resulted in a gain of $20 million which is included other income (loss) in the consolidated statements of operations.

ADA’s equity in the net loss of Carbon Solutions for 2011 and 2010 totaled $7.2 million and $8.2 million, respectively and is included in other income (expense) in the consolidated statement of operations. The amount is reported net of our equity in the net income of CCSS which amounted to $189,000 and $118,000 for 2011 and 2010, respectively.

The income tax provisions for 2011 and 2010 represent an effective tax benefit (expense) rate of approximately 41% (restated) and (35%) (restated) for the years ended December 31, 2011 and 2010, respectively. The deferred income tax benefit of $10.4 million (restated) for the fiscal year ended December 31, 2011 represents the income tax effect of the sale of the equity interest in Clean Coal to GS in May 2011. The consolidated financial statements have been restated to include a full valuation allowance against the net deferred tax assets discussed in Notes 13 and 16 of the notes to the restated consolidated financial statements. The primary jurisdictions in which we file income tax returns are the U.S. federal government and State of Colorado. We are no longer subject to U.S. federal examinations by tax authorities for years before 2008 and Colorado state examinations for years before 2007. Our income tax rate does not include any material amount of Section 45 tax credits from Clean Coal as those tax benefits will primarily be realized by the Lessee under the RC facilities’ leases.

The net operating loss from continuing operations before income tax benefit (expense) and non-controlling interest was $25.2 million in 2011 compared to a loss of $20.4 million in 2010. The net operating loss is due in large part to the costs associated with our settlement of litigation involving Norit and our equity in the losses incurred by Carbon Solutions.

Results of Operations – 2010 versus 2009

Revenues totaled $22.3 million for 2010 versus $20.1 million in 2009, representing an increase of 11%. The change is due primarily to initiation of revenues from operations at the RC facilities we leased to a third party offset by the decrease in our EC segment revenues.

Cost of revenues decreased by $5.3 million or 38% in 2010 from 2009 primarily as a result of decreased revenues in our EC segment and lower RC segment costs described below. Gross margin was 61% for the year compared to 31% in 2009. The increase primarily reflects the increased RC margins and revenues as described below.

Refined Coal

Revenues in our RC segment totaled $10.4 million in 2010 versus $2.6 million in 2009, representing an increase of 301%, as the leased RC facilities initiated routine operations. As discussed above, in June 2010 we leased the two RC facilities and earn related rent revenues, which began in July 2010.

Cost of revenues for the RC segment decreased by $1.9 million or 57% for 2010 from 2009, primarily due to the two RC facilities ramping up production levels in the fourth quarter of 2010. In 2009, we recorded the sales of RC which were made essentially on a cost basis with no margin.

RC segment profits increased by $9.2 million or 697% for 2010 compared to 2009 as the two facilities were leased and placed in routine operation in the middle of 2010.

Emission Control

Revenues in our EC segment totaled $9.8 million in 2010 versus $15.9 million in 2009, representing a decrease of 38%. The amounts reported for 2010 and 2009 excludes the work ADA conducted for Clean Coal, as further described below, which was eliminated in our consolidation. Revenues from the EC segment for the year ended December 31, 2010 were comprised of sales of ACI systems and services (56%), flue gas chemicals and services (6%) and other services (38%), compared to 66%, 2%, and 32%, respectively, in 2009.

Our consulting revenues decreased $1.3 million during 2010 compared to 2009 as we completed nearly all of our mercury control demonstrations and analysis. Such decline is offset by our Arch Coal non-refundable license revenue. Our consulting revenues contributed $3.6 million during 2010.

As of December 31, 2010, we had contracts in progress for work related to our EC segment totaling approximately $2.9 million. Our ACI systems revenues totaled $5.5 million for 2010, representing a decrease of 48% compared to 2009. In the EC segment, we performed work related to RC systems provided to Clean Coal valued at $3.7 million and $1.3 million for the years ended December 31, 2010 and 2009, respectively, which would otherwise be recognized as revenue but was eliminated in the consolidation of Clean Coal.

Cost of revenues for the EC segment decreased by $3.4 million or 36% in 2010 from 2009, primarily as a result of the decreased revenue-generating activities from our ACI system sales. Gross margins for this segment were 38% in 2010 compared to 40% for 2009. The decrease in gross margins from the prior year is primarily a result of the impact of our consulting and ACI system margins.

EC segment profits decreased by $3.2 million or 60% for 2010 compared to 2009. The decrease was primarily a result of decreased ACI systems sales.

CO₂ Capture

Revenues in our CC segment totaled $2.1 million versus $1.5 million for 2009 representing an increase of 36%. As discussed above, on September 30, 2010 we signed a contract on a DOE project totaling approximately $19 million (including expected contributions by other industry partners) with work ramping up in the fourth quarter of 2010.

Cost of revenues for the CC segment increased by $97,000 or 10% for 2010 from 2009, primarily from increased activities related to our development of CO₂capture technology. Gross margins for this segment were 49% for 2010 compared to 37% for 2009. The increase in gross margins from 2010 to 2009 is due primarily to the increased work being performed under these projects.

CC segment profits increased by $546,000 or 156% for 2010 compared to 2009. The increase was primarily the result of increased activities related to our development of CO₂ capture technology, which ramped up significantly in 2010.

Other Items

General and administrative expenses increased by $16 million or 96% to $32.8 million in 2010. The dollar increase for 2010 resulted primarily from legal costs related to our legal proceedings with Norit and Calgon, which comprised approximately 75% of the overall general and administrative expense for 2010.

We incur R&D expenses not only on direct activities we conduct but also by sharing a portion of the costs in the government and industry programs in which we participate. Total R&D expense increased by $202,000 or 28% in 2010 compared to 2009 as a result of increases in RC and CC activities. We had no significant direct cost share for R&D under DOE related contracts in either 2010 or 2009. The increase in total R&D is related to preparing for growth in the delivery of our ACI systems, as well as our RC activities.

We had net interest and other income of $8.6 million in 2010 compared to $34,000 for 2009. In December 2010, we accepted a $7.2 million payment (recognized a net of $6.1 million after payment of certain contingent legal fees) and recognized income related to the settlement of our damage claim against Calgon. In addition, during the second quarter of 2010, we recognized approximately $1.8 million related to the notes payable delivered by NexGen, by which NexGen paid us as a portion of the amounts required to maintain its interest in Clean Coal. Such payments were recorded as other income. During the second half of 2010, we recognized approximately $200,000 in interest and other income related to the notes receivable and other amounts due from NexGen.

The income tax provisions for 2010 and 2009 represent an effective tax benefit (expense) rate of approximately (35%) (restated) and 37% for the years ended December 31, 2010 and 2009, respectively. The consolidated financial statements have been restated to include a full valuation allowance in 2010 against the deferred tax assets as discussed in Notes 13 and 16 of the notes to the restated consolidated financial statements. Our income tax rate does not include any material amount of Section 45 tax credits from Clean Coal as those tax benefits will primarily be realized by the Lessee under the RC facilities’ leases.

In June 2009, our partner in the Carbon Solutions joint venture, ECP, converted a portion of its preferred equity contributions in Carbon Solutions to ordinary capital contributions thereby reducing our ownership interest below 50%. Accordingly, we deconsolidated Carbon Solutions in June 2009 as we no longer held a controlling interest and began to account for our investment in Carbon Solutions under the equity method of accounting. Additional preferred equity contributions were converted and common equity contributions were made by ECP since that time and our interest in Carbon Solutions decreased to 25.9% as of December 31, 2010. Our net investment of $13.6 million as of December 31, 2010 in Carbon Solutions was accounted for under the equity method of accounting. Accordingly, our equity in the net loss of Carbon Solutions for the year ended December 31, 2010 is recognized in other income (expense) in the consolidated statement of operations and our investment in Carbon Solutions was reduced by our respective share of such loss. For 2010, we recorded a loss of $8.0 million, which represents our share of Carbon Solution’s net loss for the year. The amount is reported net of our equity in the net income of CCSS which amounted to $118,000 for the year.

The net operating loss from continuing operations was $20.4 million in 2010 compared to a net operating loss of $15 million in 2009. The net operating loss is due in large part to the costs associated with our litigation matters involving Norit and Calgon and the losses incurred by Carbon Solutions. We would have a net income after tax of approximately $5.1 million or $0.69 per share for the year excluding the non-routine legal expenses related to the Calgon and Norit matters and disregarding the non-cash loss from Carbon Solutions.

Liquidity and Capital Resources

Our principal sources of liquidity are our anticipated cash flows from RC activities and other operations and net proceeds of $32.7 million from the sale of 2.3 million shares of our common stock that occurred in October and November of 2011. We had consolidated cash and cash equivalents totaling $40.9 million at December 31, 2011 compared to consolidated cash and cash equivalents of $9.7 million at December 31, 2010.

At December 31, 2011, we had working capital of $1.4 million (restated) compared to $9.9 million (restated) at December 31, 2010, which includes a reduction of $2.4 million and $188,000 attributable to the recognition of a valuation allowance against the Company’s net deferred tax assets for 2011 and 2010, respectively. We have recorded long-term liabilities of $5 million related to the final settlement obligations related to the Norit matter, and $200,000 related to the Carbon Solutions/ECP settlement as of December 31, 2011. We have additional long-term liabilities of $3.6 million for the long-term portion of the CCS line of credit, and $632,000 for accrued warranty and other liabilities as of December 31, 2011.

Decreases in working capital during 2011 resulted primarily from:

•

$33 million payment and $2.5 million accrual related to the Norit matter,

•

$2.2 million in payments and $1.4 million accrual related to the Carbon Solutions/ECP settlement, and

•

$33.7 million in capital expenditures including amounts to construct, install and place in service 26 additional RC facilities.

The above were offset by increases in cash and cash equivalents which included:

•

$32.7 million from the public sale of 2.3 million shares of our common stock,

•

$30 million from the sale of an effective 15% interest in the equity of Clean Coal to GS,

•

$3 million from NexGen on notes receivable and other payments to maintain its interest in Clean Coal,

•

$14.5 million for net borrowings under the Clean Coal line of credit, and

•

Prepaid deposits for new systems placed in service and rents received related to the lease of Clean Coal’s RC facilities, net of current deferred revenues.

Our stockholders’ deficit was $29.4 million (restated) as of December 31, 2011 compared to $2.2 million (restated) as of December 31, 2010. The increase in the deficit is primarily due to the settlement payment and expenses related to the Norit matter, the recording of a valuation allowance against the Company’s net deferred tax assets and the distribution to the non-controlling interest of Clean Coal offset by the sale of temporary equity in Clean Coal to GS, net of taxes, the sale of common stock in November and December of 2011 and the gain from the Carbon Solutions/ECP settlement (see Note 16 for the effect of the restatement on stockholders’ deficit).

Our ability to maintain the financial liquidity required to meet ongoing operational needs will likely depend upon several factors, including our ability to maintain a significant share of the market for emissions control equipment, Clean Coal’s continued operation of the two RC facilities placed in service and success in monetizing Section 45 tax credits through the sale or lease of a portion of the additional 26 facilities placed in service in 2011 to third party investors.

Clean Coal Related Items

Clean Coal, our joint venture with NexGen, placed two RC production facilities into service in 2010 (which were exchanged for two newly constructed, redesigned RC facilities in November and December 2011), which are leased to a third party. Based on the amount of RC that we expect will be produced from these RC facilities, we expect to recognize pre-tax tax cash flows between $7 million to $10 million per year through 2021, the expected period for which Section 45 tax credits are available for these facilities.

NexGen elected to retain its interest in Clean Coal by paying us $4 million plus interest. In addition, we, NexGen and two entities affiliated with NexGen have provided Clean Coal’s sublessee with joint and several guaranties guaranteeing any payments and performance due the lessee under the various agreements Clean Coal executed in the lease of the RC facilities.

Other Liquidity and Capital Resource Items

Our trade receivables balance is comprised of both amounts billed to customers as well as unbilled revenues that have been recognized. As of December 31, 2011 our trade receivables balance was $5.9 million, which was offset by billings in excess of recognized income of $173,000 or a net of $5.7 million compared to $8.6 million at December 31, 2010. Our trade receivables balance was lower at December 31, 2011 compared to 2010 primarily due to the nature and timing of our billing milestones for our ACI systems contracts and the significant level of work performed for Clean Coal in the fourth quarter of 2011, the receivables for which are eliminated in consolidation.

Under our defined contribution and 401(k) retirement plan, in 2011 and 2010 we matched up to 7% of limited salary amounts deferred by employees in the Plan. During 2011 and 2010, we recognized $349,000 and $282,000, respectively, of matching expense which payment was made with our stock. In 2011, we made a discretionary contribution in the form of our stock and recorded $220,000 of expense related thereto. We did not make any such discretionary contributions in 2010. Our matching expense is expected to amount to $460,000 for 2012 depending on employee participation in the plan.

We had recorded net current deferred tax assets of $2.4 million and long-term deferred tax assets of $16.2 million as of December 31, 2011 compared to net current deferred tax asset of $188,000 and net long-term deferred tax assets of $15.4 million as of December 31, 2010. The current and long-term amounts for both periods have subsequently been reduced to zero by recording a valuation allowance. As discussed above and in Notes 13 and 16 to the restated consolidated financial statements, in August 2012, after extensive discussions with the SEC’s Division of Corporation Finance and Office of the Chief Accountant and the Company’s outside tax experts, independent registered public accounting firm, Audit Committee and Board of Directors, management determined that a full valuation allowance against the Company’s net deferred tax assets should have been recognized as of December 31, 2010 and for each subsequent quarter thereafter. Management determined that it was necessary to record the valuation allowance against the Company’s deferred tax assets after reconsidering the weight given in the original assessment to the relevant information used to measure the positive and negative evidence regarding the potential for ultimate realization of the net deferred tax assets.

Cash flows used in operations totaled $8.0 million for 2011 compared to cash provided by operations of $11.7 million in 2010. The decrease in operating cash flows primarily resulted from increases in prepaid and other assets of $1.3 million, accounts payable and other liabilities of $7.1 million, deposits of $14.9 million and obligations related to Norit and the Carbon Solutions/ECP settlement of $8.3 million. These increases were offset by decreases in our accounts receivable of $3.2 million and deferred revenue and other liabilities of $4.6 million. These changes in our operating assets and liabilities correspond to the nature and timing of our procurement and billing cycle and development activities. In addition, adjustments related to our net loss of $22.8 million (restated) for non-cash operating activities, which included expenses paid with stock and restricted stock of $1.1 million, depreciation and amortization of $1.6 million, non-controlling interest in Clean Coal of $8 million and our net equity in the net income/loss of unconsolidated entities of $7 million, offset by the gain on relinquishment of our interest in Carbon Solutions of $20 million, all of which increased our cash flow during 2011, and were partially offset by an increase in recorded deferred tax benefits of $10.4 million (restated) related to the sale of equity in Clean Coal to GS.

Net cash used in investing activities was $32.2 million (restated) for 2011 compared to $3.1 million for 2010. The cash used consisted primarily of purchases of equipment and costs to build the 26 additional RC facilities of $33.8 million. Offsetting cash provided by investing activities were payments received from NexGen related to their note receivable of $1.6 million.

Cash provided by financing activities was $71.4 million (restated) in 2011 compared to cash used in financing activities of $356,000 in 2010. Cash provided during 2011 included the $60 million equity contribution from the sale of the interest in Clean Coal, advances on the line of credit of $14.5 million, $250,000 in capital contributions by the non-controlling interest in Clean Coal and the sale of stock for proceeds totaling $35.1 million and the exercise of stock options totaling $106,000. Uses of cash consisted of the distribution to the non-controlling interest of $36.2 million (restated) and stock issuance and registration costs of $2.4 million.

We had the following contractual commitments as of December 31, 2011:


	Payment Due by Period
	Total		2012		2013 and 2014		2015 and 2016		2017 and Beyond
	(in thousands)
Purchase obligations	$	410	$	410	$	—	$	—	$	—
Operating lease obligations		3,044		214		690		999		1,141

Total	$	3,454	$	624	$	690	$	999	$	1,141

Off-Balance Sheet Arrangements

We do not have any significant off-balance sheet arrangements except for the operating leases disclosed above and the commitments and contingencies disclosed in Note 9 of our consolidated financial statements contained in Item 8 of this Annual Report.

Critical Accounting Policies and Estimates (restated)

Revenue Recognition – We follow the percentage of completion method of accounting for all significant contracts excluding RC leases, government contracts, coal and chemical sales and technology license royalties. The percentage of completion method of reporting income takes into account the estimated costs to complete and estimated gross margin for contracts in progress. RC base rents, which are fixed, are recognized over the life of the lease. RC contingent rents are recognized as they are earned. We recognize revenue on government contracts generally based on the time and expenses incurred to date. Royalties from technology licenses are recognized when earned.

Significant estimates are used in preparation of our financial statements and include:

•

our allowance for doubtful accounts, which is based on historical experience;

•

our warranty costs;

•

our percentage of completion method of accounting for significant long-term contracts, which is based on estimates of gross margins and of the costs to complete such contracts; and

•

the period over which we estimate we will earn up-front license payments.

In addition, amounts invoiced for government contracts are subject to change based on the results of future audits by the federal government. We have not experienced significant adjustments in the past, and we do not expect significant adjustments will be required in the future. We also use our judgment to support the current net book value of goodwill and other intangible assets of $789,000 on the consolidated balance sheets. Management believes the value of other recorded intangibles is not impaired, although market demand for our products and services could change in the future, which would require a write-down in recorded values. As with all estimates, the amounts described above are subject to change as additional information becomes available, although we are not aware of anything that would cause us to believe that any material changes will be required in the near term.

Under certain contracts we may grant performance guaranties or equipment warranties for a specified period and the achievement of certain plant operating conditions. In the event the equipment fails to perform as specified, we are obligated to correct or replace the equipment. Estimated warranty costs are recorded at the time of sale based on current industry factors. The amount of the warranty liability accrued reflects our best estimate of expected future costs of honoring our obligations under the warranty section of each contract. We believe the accounting estimate related to warranty costs is a critical accounting estimate because changes in it can materially affect net income, it requires us to forecast the amount of equipment that might fail to perform in the future, and it requires a large degree of judgment.

Income taxes are accounted for under the asset and liability approach. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. At each reporting date, management reviews deferred tax assets and liabilities and any related valuation allowance and, if necessary, revises them to reflect changed circumstances. In a situation where recent losses have been incurred, the accounting standards require convincing evidence that there will be sufficient future taxable income to realize deferred tax assets. Deferred tax assets have been reduced to zero by a valuation allowance because, in the opinion of management, it is more likely than not that all of the deferred tax assets will not be realized. A change in laws can have a material effect on the amount of income tax we are subject to. We are not aware of anything that would cause us to believe that any material changes will be required in the near term.

We recognize all share-based payments, including grants of stock options, restricted stock units and employee stock purchase rights in our financial statements based upon their respective grant date fair values. Under this standard, the fair value of each employee stock option and employee stock purchase right is estimated on the date of grant using an option pricing model that meets certain requirements. We currently use the Black-Scholes option pricing model to estimate the fair value of our stock options and stock purchase rights. The Black-Scholes model meets the requirements of FASB Topic 718 but the fair values generated by the model may not be indicative of the actual fair values of our equity awards, as it does not consider certain factors important to those awards to

employees, such as continued employment and periodic vesting requirements. The determination of the fair value of share-based payment awards utilizing the Black-Scholes model is affected by our stock price and a number of assumptions, including expected volatility, expected life and risk-free interest rate. We use a historical volatility rate on our stock options. The fair value of our restricted stock is based on the closing market price of our Common Stock on the date of grant. If there are any modifications or cancellations of the underlying securities, we may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. To the extent that we grant additional equity securities to employees or we assume unvested securities in connection with any acquisitions, our stock-based compensation expense will be increased by the additional unearned compensation resulting from those additional grants or acquisitions.

Consolidation of Subsidiaries – Our equity partner in Clean Coal, NexGen, paid us $4 million to maintain its interest in Clean Coal. Since inception, ADA has been considered the primary economic beneficiary of the joint venture with Clean Coal and, therefore, we have consolidated its accounts with ours.

We hold a 50% interest in CCSS. However, we control only two of the five seats on the board of managers and our equity partner controls the other three seats. Therefore, we believe our 50% interest does not constitute control of CCSS and we have recorded our interest under the equity method.

Recently Issued Accounting Policies

In September 2011, the Financial Accounting Standards Board issued updated guidance allowing the use of a qualitative approach to test goodwill for impairment. The updated guidance would permit the Company to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of one of its reporting units is less than its carrying value. If the Company concluded that this is the case, it is then necessary for the Company to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. The updated guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 with early adoption permitted. The Company is currently evaluating the impact of our pending adoption of this update.

Item 8. Financial Statements and Supplementary Data (restated).

Our Financial Statements can be found at pages F-1 through F-26 of this report.


Index to Financial Statements
Report of Independent Registered Public Accounting Firm			F-2
Financial Statements:
ADA-ES, Inc. and Subsidiaries
Consolidated Balance Sheets, December 31, 2011 and 2010			F-4
Consolidated Statements of Operations, For the Years Ended December 31, 2011, 2010 and 2009			F-5
Consolidated Statements of Changes in Stockholders’ Equity, For the Years Ended December 31, 2011, 2010 and 2009			F-6
Consolidated Statements of Cash Flows, For the Years Ended December 31, 2011, 2010 and 2009			F-7
Notes to Consolidated Financial Statements			F-8

Item 9A. Controls and Procedures (restated).

We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s control objectives.

Evaluation of Disclosure Controls and Procedures

When our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 was filed on March 15, 2012, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2011. Subsequent to that evaluation, our management identified errors related to the accounting for the equity investment in Clean Coal that has been held by an affiliate of GS since May 2011 and the establishment and maintenance of a valuation allowance against deferred tax assets, as discussed below. These errors had a material effect on our previously issued consolidated financial statements. As a result of these errors, we determined that our consolidated financial statements for the fiscal years ended December 31, 2010 and

2011 and the quarters ended March 31, 2011, June 30, 2011, September 30, 2011, March 31, 2012 and June 30, 2012 should not be relied upon and needed to be restated (see Note 16 in the accompanying restated consolidated financial statements for further discussion) and identified the material weaknesses described below.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) is defined as a process designed by, or under the supervision of, a company’s principal executive and financial officers, or persons performing similar functions, and effected by a company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally acceptable accounting principles and includes those policies and procedures that: (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

A material weakness is a control deficiency, or combination of control deficiencies, that result in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected. Our management assessed our internal control over financial reporting as of December 31, 2011. Management based its assessment on criteria set forth in the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Ehrhardt Keefe Steiner & Hottman PC, an independent registered public accounting firm, has audited our Consolidated Financial Statements included in this Form 10-K, and as part of the audit, has issued a report, included herein, on the effectiveness of our internal control over financial reporting as of December 31, 2011.

Changes in Internal Control Over Financial Reporting

In connection with the identification of the errors related to our financial statements described above and in Note 16 to our restated consolidated financial statements, management has identified the following deficiencies that constituted material weaknesses in our internal control over financial reporting for the periods described above:

•

We did not maintain an effective control environment, as evidenced by not utilizing appropriate personnel or consultants qualified to review complex, non-routine business transactions that require additional review and impact decisions requiring accounting treatment, financial statement presentation and disclosure.

•

We did not establish adequate criteria to assess positive and negative evidence over the establishment and maintenance of a valuation allowance against deferred tax assets and an appropriate review process over the inputs and conclusions from this assessment was not in place.

Accounting errors resulting from the material weaknesses described above resulted in the need to restate our annual and interim consolidated financial statements.

Remediation of Material Weakness

To address these material weaknesses, we have undertaken the following remedial steps. First, in July 2012, in order to remedy the material weakness related to the accounting for the equity investment in Clean Coal that has been held by an affiliate of GS since May 2011 described above, we engaged an accounting and tax expert for the purpose of performing detailed accounting analysis of complex, non-routine business transactions. This enables management to make timely decisions regarding required disclosure relating to such items. Management has re-evaluated the operational effectiveness of our internal controls over financial reporting and with the addition of the reviews now being provided by our external resources believes that the material weakness which had previously existed has been fully remediated.

Second, by establishing a valuation allowance against the Company’s deferred tax assets, management believes that the material weakness which had previously existed with respect to the deferred tax assets has been fully remediated. As disclosed in previous amended filings, to ensure that such an issue does not arise again in the future the Company is in the process of creating a formal process related to the design and implementation of controls and establishment of adequate criteria to assess the positive and negative evidence over the establishment and maintenance of a valuation allowance against deferred tax assets. Management anticipates that this process will include periodic oversight by the Audit Committee and anticipates completing this remediation effort before the Annual Report on Form 10-K for the fiscal year ending December 31, 2012 is filed.

We will continue to monitor the effectiveness of our internal control over financial reporting in the areas affected by the material weaknesses described above and employ any additional tools and resources as appropriate to provide reasonable assurance that our financial statements are fairly stated in all material respects.

As previously disclosed, there were no changes in our internal control over financial reporting during the quarter ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As described above, we have taken steps subsequent to the period covered by this Amendment to remedy the material weaknesses in our internal control over financial reporting.

PART IV

Item 15. Exhibits and Financial Statement Schedules (restated).

(a)

The following documents are filed as part of this Annual Report on Form 10-K:

(1)

Financial Statements – see Part II, Item 8, which is incorporated herein by this reference;

(2)

Financial Statement Schedules – None required or applicable; and

(3)

Exhibits – as described in the following index.

Index to Exhibits


No.		Description

3.1		Amended and Restated Articles of Incorporation of ADA-ES (1)

3.2		Second Amended and Restated Bylaws of ADA-ES (2)

4.1		Form of Specimen Common Stock Certificate (3)

4.2		Registration Rights Agreement dated October 21, 2005 (4)

4.3		Standstill and Registration Rights Agreement between ADA-ES, Inc. and Arch Coal, Inc. dated September 19, 2003 (5)

4.4		Standstill and Registration Rights Agreements dated August 3-6, 2004 (6)

4.5		Registration Rights Agreement among ADA-ES, Inc., Perella Weinberg Partners Oasis Master Fund L.P., Black River Commodity Select Fund and Black River Small Capitalization Fund Ltd. dated August 26, 2008 (7)

4.6		ADA-ES, Inc. Profit Sharing Retirement Plan Adoption Agreement (8)

4.7		American Funds Distributors, Inc. Nonstandarized 401(K) Plan (9)

4.8		American Funds Distributors, Inc. Defined Contribution Prototype Plan and Trust (10)

4.9		Amended ADA-ES, Inc. Plan Policy Document (11)

4.10		Employer Stock Addendum to Trust Agreement (12)

4.11		Registration Rights Agreement between ADA-ES, Inc. and Arch Coal, Inc. dated March 23, 2010 (13)

4.12		Stockholder Agreement dated July 7, 2003, between ADA-ES, Inc. and Arch Coal, Inc. (14)

4.13		Credit Agreement by and between Clean Coal Solutions, LLC and CoBiz Bank (Colorado Business Bank in the State of Colorado) dated March 30, 2011 (15)

10.1		2003 ADA-ES, Inc. Stock Option Plan** (16)

10.2		2003 Stock Compensation Plan #1** (17)

10.3		2003 Stock Compensation Plan #2** (18)

10.4		ADA-ES, Inc. 2004 Executive Stock Option Plan** (19)

10.5		Employment Agreement dated May 1, 1997 between C. Jean Bustard and ADA Environmental Solutions, LLC (assigned to ADA-ES, Inc.) ** (20)

10.6		Employment Agreement dated May 1, 1997 between Michael D. Durham and ADA Environmental Solutions, LLC (assigned to ADA-ES, Inc.) ** (21)

10.7		Employment Agreement dated January 2, 2000 between Mark H. McKinnies and ADA Environmental Solutions, LLC (assigned to ADA-ES, Inc.) ** (22)

10.8		Employment Agreement dated January 1, 2000 between Richard J. Schlager and ADA Environmental Solutions, LLC (assigned to ADA-ES, Inc.) ** (23)

10.9		2004 Stock Compensation Plan #2 and model stock option agreements** (19)


No.		Description

10.10		2004 Directors Stock Compensation Plan #1** (24)

10.11		2005 Directors’ Compensation Plan** (25)

10.12		Chemicals, Equipment, and Technical Engineering Services Supply Agreement dated as of November 3, 2006 by and between ADA-ES, Inc. and Clean Coal Solutions, LLC (f/k/a ADA-NexCoal, LLC). (26)

10.13		Purchase and Sale Agreement dated as of November 3, 2006 by and among ADA-ES, Inc., NexGen Refined Coal, LLC and Clean Coal Solutions, LLC (f/k/a ADA-NexCoal, LLC). (27)

10.14		Second Amended and Restated Operating Agreement of Clean Coal Solutions, LLC dated May 27, 2011, by and among Clean Coal Solutions, LLC, ADA-ES, Inc., GSFS Investments I Corp. and NexGen Refined Coal, LLC*** (28)

10.15		Employment Agreement dated March 1, 2003 between Sharon M. Sjostrom and ADA Environmental Solutions, LLC (assigned to ADA-ES, Inc.)** (29)

10.16		Executive Compensation Plan dated November 4, 2004** (30)

10.17		Amended and Restated 2007 Equity Incentive Plan, dated August 31, 2010** (31)

10.18		Employment Agreement dated November 28, 2005 between Richard Miller and ADA-ES, Inc.** (32)

10.19		Employment Agreement dated January 1, 2008 between Cameron E. Martin and ADA-ES, Inc.** (33)

10.20		Intellectual Property License Agreement between ADA-ES, Inc. and Crowfoot Development, LLC dated October 1, 2008*** (34)

10.21		First Amendment to Purchase and Sale Agreement dated as of October 26, 2009 by and among ADA-ES, Inc., NexGen Refined Coal, LLC and Clean Coal Solutions, LLC (f/k/a ADA-NexCoal, LLC) (35)

10.22		First Amendment to Chemicals, Equipment, and Technical Engineering Services Supply Agreement dated as of October 26, 2009 by and among ADA-ES, Inc., and Clean Coal Solutions, LLC (36)

10.23		Development and License Agreement with Arch Coal, Inc. dated June 25, 2010*** (37)

10.24		Technology Sublicense Agreement between ADA-ES, Inc., Clean Coal Solutions, LLC and GS RC Investments LLC dated June 29, 2010 (38)

10.25		Agreement to Lease between Clean Coal Solutions, LLC, AEC-NM, LLC, AEC-TH, LLC, and GS RC Investments LLC dated June 29, 2010*** (39)

10.26		Amended and Restated License Agreement between ADA-ES, Inc. and Clean Coal Solutions, LLC dated October 30, 2009 (40)

10.27		Refined Coal Activities Supplemental Compensation Plan for Employees, Contractors and Consultants of ADA-ES, Inc.** (41)

10.28		Intentionally left blank

10.29		US Department of Energy Cooperative Agreement No. DE-FE0004343 “Evaluation of Solid Sorbents as an Industrial Retrofit Technology for Carbon Dioxide Capture”, dated September 30, 2010 (42)

10.30		First Amendment to the Amended and Restated License Agreement between ADA-ES, Inc. and Clean Coal Solutions, LLC dated as of August 4, 2010 (43)

10.31		Amended and Restated 2010 Non-Management Compensation and Incentive Plan**(53)

10.32		Credit Agreement by and between Clean Coal Solutions, LLC and Cobiz Bank (Colorado Business Bank in the State of Colorado) dated as of March 31, 2011 (44)

10.33		Exclusive Right to Lease Agreement dated May 27, 2011 between Clean Coal Solutions, LLC and GSFS Investments I Corp ***(45)

10.34		Class B Unit Purchase Agreement dated May 27, 2011 between Clean Coal Solutions, LLC and GSFS Investments I Corp (46)

10.35		ADA-ES, Inc. Guaranty for the benefit of GSFS Investments I Corp. dated May 27, 2011 (47)

10.36		Contribution Agreement dated May 27, 2011 between ADA-ES, Inc. and NexGen Refined Coal, LLC (48)



10.37		Settlement Agreement by and among ADA-ES, Inc., ADA Environmental Solutions, LLC, Norit Americas, Inc. and Norit International N.V. f/k/a Norit N.V. dated August 29, 2011 (49)

10.38		The First Amendment to the Second Amended and Restated Operating Agreement of Clean Coal Solutions, LLC, by and among Clean Coal Solutions, LLC, ADA-ES, Inc., GSFS Investments I Corp. and NexGen Refined Coal, LLC dated September 9, 2011 (50)

10.39		The Omnibus Amendment and Reaffirmation Agreement between Clean Coal Solutions, LLC and Cobiz Bank (Colorado Business Bank in the State of Colorado) dated September 9, 2011 (51)

10.40		Omnibus Amendment by and among ADA-ES, Inc., Clean Coal Solutions, LLC, AEC-NM, LLC, AEC-TH, LLC and GS RC INVESTMENTS LLC dated August 10, 2010 (52)

10.41		Exchange Agreement between Clean Coal Solutions, LLC, AEC-NM, LLC and GS RC Investments, LLC dated November 21, 2011 ***(53)

10.42		New Equipment Lease between AEC-NM, LLC, and GS RC Investments, LLC dated November 21, 2011 ***(53)

10.43		Amendment to Technology Sublicense Agreement between ADA-ES, Inc., GS RC Investments, LLC and Clean Coal Solutions, LLC dated November 21, 2011***(53)

10.44		ADA-ES, Inc. Guaranty for the benefit of GS RC Investments LLC dated November 21, 2011(53)

10.45		Indemnity Settlement Agreement between ADA-ES, Inc., ADA Environmental Solutions, LLC and Energy Capital Partners, LLC, Energy Capital Partners I, LP, Energy Capital Partners I-A, LP, Energy Capital Partners I-B IP, LP and Energy Capital Partners I (Crowfoot IP), LP and ADA Carbon Solutions, LLC (f/k/a Crowfoot Development, LLC ), ADA Carbon Solutions (Red River), LLC (f/k/a Red River Environmental Products, LLC), Morton Environmental Products, LLC, Underwood Environmental Products, LLC, Crowfoot Supply Company, LLC, and Five Forks Mining, LLC dated November 28, 2011(53)

10.46		Office Building Lease between ADA-ES, Inc. and Ridgeline Technology Center, LLC, dated November 9, 2011(53)

10.47		Exchange Agreement between Clean Coal Solutions, LLC, AEC-TH, LLC and GS RC Investments, LLC dated December 15, 2011 ***(53)

10.48		Equipment Lease between AEC-TH, LLC and GS RC Investments, LLC dated December 15, 2011 ***(53)

10.49		Amendment #2 to Technology Sublicense Agreement between ADE-ES, Inc, GS RC Investments, LLC and Clean Coal Solutions, LLC dated December 15, 2011(53)

10.50		ADA-ES, Inc. Guaranty for the benefit of GS RC Investments LLC dated December 15, 2011(53)

10.51		Amended and Restated Refined Coal Activities Supplemental Compensation Plan dated November 9, 2011 **(53)

10.52		Amendment No.1 to Intellectual Property License Agreement by and between ADA-ES, Inc. and ADA Carbon Solutions, LLC (f/k/a Crowfoot Development Company, LLC) dated November 28, 2011(53)

10.53		Amendment No. 1 to the ADA-ES 2007 Equity and Incentive Plan **(53)

21.1		Subsidiaries of ADA-ES, Inc. (53)

23.1		Consent of Ehrhardt Keefe Steiner & Hottman PC*

31.1		Certification of Chief Executive Officer of ADA-ES, Inc. Pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a)*

31.2		Certification of Chief Financial Officer of ADA-ES, Inc. Pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a)*

32.1		Certification of Chief Executive Officer of ADA-ES, Inc. Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

32.2		Certification of Chief Financial Officer of ADA-ES, Inc. Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

101		The following financial statements, formatted in XBRL: (i) Consolidated Balance Sheets as of December 31, 2011 and 2010, (ii) Consolidated Statements of Operations for the years ended December 31, 2011, 2010 and 2009, (iii) Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2011, 2010 and 2009, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009; and (v) Notes to the Consolidated Financial Statements, tagged as blocks of text. The information in Exhibit 101 is “furnished” and not “filed” as provided in Rule 401 of Regulation S-T.

Notes:

*	– Filed herewith.

**	– Management contract or compensatory plan or arrangement.

***	– Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The non-public information has been separately filed with the Securities and Exchange Commission.

(1)	Incorporated by reference to Exhibit 3.1 to the Form 10-QSB for the quarter ended September 30, 2005 filed on November 10, 2005 (File No. 000-50216).

(2)	Incorporated by reference to Exhibit 3.2 to the Form 10-Q for the quarter ended September 30, 2010 filed on November 12, 2010 (File No. 000-50216).

(3)	Incorporated by reference to Exhibit 4.1 to the Form 8-K dated October 21, 2005 filed on October 26, 2005 (File No. 000-50216).

(4)	Incorporated by reference to Exhibit 10.1 to the Form 8-K dated October 21, 2005 filed on October 26, 2005 (File No. 000-50216).

(5)	Incorporated by reference to the same numbered Exhibit to the Form 10-KSB for the year ended December 31, 2005 filed on March 30, 2006 (File No. 000-50216).

(6)	Incorporated by reference to Exhibit A to Exhibit 10.1 to the Form S-3 filed on October 18, 2004 (File No. 333-119795).

(7)	Incorporated by reference to the same numbered Exhibit to the Form 10-Q for the quarter ended September 30, 2008 filed on November 07, 2008 (File No. 000-50216).

(8)	Incorporated by reference to Exhibit 4.1 to the form S-8 filed on June 3, 2009 (File No. 333-159715).

(9)	Incorporated by reference to Exhibit 4.1 to the form S-8 filed on June 3, 2009 (File No. 333-159715).

(10)	Incorporated by reference to Exhibit 4.2 to the form S-8 filed on June 3, 2009 (File No. 333-159715).

(11)	Incorporated by reference to Exhibit 4.9 to the Form 10-K for the year ended December 31, 2010 filed on March 28, 2011 (File No. 000-50216).

(12)	Incorporated by reference to Exhibit 4.4 to the form S-8 filed on June 3, 2009 (File No. 333-159715).

(13)	Incorporated by reference to Exhibit 4.1 to the Form 10-Q for the quarter ended March 31, 2010 filed on May 13, 2010 (File No. 000-50216).

(14)	Incorporated by reference to Exhibit 4.12 to the Form 8-K dated September 9, 2011 filed on September 14, 2011 (File No. 000-50216).

(15)	Incorporated by reference to Exhibit 4.13 to the Form 8-K dated September 9, 2011 filed on September 14, 2011 (File No. 000-50216).

(16)	Incorporated by reference to Exhibit 10.2 to the Form 10-KSB for the year ended December 31, 2005 filed on March 30, 2006 (File No. 000-50216).

(17)	Incorporated by reference to Exhibit 99.2 to the Form S-8 filed on November 14, 2003 (File No. 333-110479).

(18)	Incorporated by reference to Exhibit 99.1 to the Form S-8 filed on February 6, 2004 (File No. 333-112587).

(19)	Incorporated by reference to Exhibit 99.3 to the Form S-8 filed on December 14, 2004 (File No. 333-121234).

(20)	Incorporated by reference to Exhibit 10.23 to the Form 10-KSB for the year ended December 31, 2004 filed on March 30, 2005 (File No. 000-50216).

(21)	Incorporated by reference to Exhibit 10.24 to the Form 10-KSB for the year ended December 31, 2004 filed on March 30, 2005 (File No. 000-50216).

(22)	Incorporated by reference to Exhibit 10.25 to the Form 10-KSB for the year ended December 31, 2004 filed on March 30, 2005 (File No. 000-50216).

(23)	Incorporated by reference to Exhibit 10.26 to the Form 10-KSB for the year ended December 31, 2004 filed on March 30, 2005 (File No. 000-50216).

(24)	Incorporated by reference to Exhibit 99.1 to the Form S-8 filed on April 16, 2004 (File No. 333-114546).

(25)	Incorporated by reference to Exhibit 10.29 to the Form 10-KSB for the year ended December 31, 2005 filed on March 30, 2006 (File No. 000-50216).

(26)	Incorporated by reference to Exhibit 10.2 to the Form 10-Q for the quarter ended September 30, 2006 filed on November 8, 2006 (File No. 000-50216).

(27)	Incorporated by reference to Exhibit 10.3 to the Form 10-Q for the quarter ended September 30, 2006 filed on November 8, 2006 (File No. 000-50216).

(28)	Incorporated by reference to Exhibit 10.33 to the Form 10-Q/A for the quarter ended June 30, 2010 filed on September 28, 2011 (File No. 000-50216).

(29)	Incorporated by reference to Exhibit 10.34 to the Form 10-K for the year ended December 31, 2006 filed on March 27, 2007 (File No. 000-50216).

(30)	Incorporated by reference to Exhibit 10.35 to the Form 10-K for the year ended December 31, 2006 filed on March 27, 2007 (File No. 000-50216).

(31)	Incorporated by reference to Exhibit 10.79 to the Form 10-Q for the quarter ended September 30, 2010 filed on November 12, 2010 (File No. 000-50216).

(32)	Incorporated by reference to Exhibit 10.39 to the Form 10-K for the year ended December 31, 2007 filed on March 14, 2008 (File No. 000-50216).

`(33)

Incorporated by reference to Exhibit 10.43 to the Form 10-K for the year ended December 31, 2007 filed on March 14, 2008 (File No. 000-50216).

(34)	Incorporated by reference to Exhibit 10.56 to the Form 10-Q for the quarter ended September 30, 2008 filed on November 07, 2008 (File No. 000-50216).

(35)	Incorporated by reference to Exhibit 10.64 to Form 10-K for the year ended December 31, 2009 filed on March 29, 2010 (File No. 000-50216).

(36)	Incorporated by reference to Exhibit 10.66 to Form 10-K for the year ended December 31, 2009 filed on March 29, 2010 (File No. 000-50216).

(37)	Incorporated by reference to Exhibit 10.71 to the Form 10-Q for the quarter ended June 30, 2010 filed on August 16, 2010 (File No. 000-50216).

(38)	Incorporated by reference to Exhibit 10.74 to the Form 10-Q for the quarter ended June 30, 2010 filed on August 16, 2010 (File No. 000-50216).

(39)	Incorporated by reference to Exhibit 10.76 to the Form 10-Q for the quarter ended June 30, 2010 filed on August 16, 2010 (File No. 000-50216).

(40)	Incorporated by reference to Exhibit 10.77 to the Form 10-Q for the quarter ended June 30, 2010 filed on August 16, 2010 (File No. 000-50216).

(41)	Incorporated by reference to Exhibit 10.78 to the Form 10-Q for the quarter ended June 30, 2010 filed on August 16, 2010 (File No. 000-50216).

(42)	Incorporated by reference to Exhibit 10.80 to the Form 10-Q for the quarter ended September 30, 2010 filed on November 12, 2010 (File No. 000-50216).

(43)	Incorporated by reference to Exhibit 10.81 to the Form 10-K for the year ended December 31, 2010 filed on March 28, 2011 (File No. 000-50216).

(44)	Incorporated by reference to Exhibit 10.83 to the Form 10-Q for the quarter ended March 31, 2011 filed on May 13, 2011 (File No. 000-50216).

(45)	Incorporated by reference to Exhibit 10.84 to the Form 10-Q/A for the quarter ended June 30, 2011 filed on September 28, 2011 (File No. 000-50216).

(46)	Incorporated by reference to Exhibit 10.85 to the Form 10-Q/A for the quarter ended June 30, 2011 filed on September 28, 2011 (File No. 000-50216).

(47)	Incorporated by reference to Exhibit 10.86 to the Form 10-Q for the quarter ended June 30, 2011 filed on August 12, 2011 (File No. 000-50216).

(48)	Incorporated by reference to Exhibit 10.87 to the Form 10-Q for the quarter ended June 30, 2011 filed on August 12, 2011 (File No. 000-50216).

(49)	Incorporated by reference to Exhibit 10.88 to the Form 10-Q for the quarter ended September 30, 2011 filed on November 14, 2011 (File No. 000-50216).

(50)	Incorporated by reference to Exhibit 10.89 to the Form 10-Q for the quarter ended September 30, 2011 filed on November 14, 2011 (File No. 000-50216).

(51)	Incorporated by reference to Exhibit 10.90 to the Form 10-Q for the quarter ended September 30, 2011 filed on November 14, 2011 (File No. 000-50216).

(52)	Incorporated by reference to Exhibit 10.91 to the Form 8-K dated November 21, 2011 filed November 22, 2011 (File No. 000-50216).

(53)	Incorporated by reference to the same numbered Exhibit to the Form 10-K for the year ended December 31, 2011 filed on March 15, 2012 (File No. 000-50216).

(b)

See (a)(3) above.

(c)

See (a)(2) above.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


ADA-ES, Inc.
(Registrant)

By	/s/ Mark H. McKinnies	/s/ Michael D. Durham
Mark H. McKinnies, Senior Vice		Michael D. Durham
President and Chief Financial Officer		President (Chief Executive Officer)
(Principal Financial and Accounting Officer)

Date: October 19, 2012		Date: October 19, 2012

INDEX TO FINANCIAL STATEMENTS


	PAGE

Report of Independent Registered Public Accounting Firm		F-2

Consolidated Balance Sheets – December 31, 2011 and 2010		F-4

Consolidated Statements of Operations – For the Years Ended December 31, 2011, 2010 and 2009		F-5

Consolidated Statements of Changes in Stockholders’ Equity (Deficit) – For the Years Ended December 31, 2011, 2010 and 2009		F-6

Consolidated Statements of Cash Flows – For the Years Ended December 31, 2011, 2010 and 2009		F-7

Notes to Consolidated Financial Statements		F-8

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

ADA-ES, Inc. and Subsidiaries

Littleton, Colorado

We have audited the accompanying consolidated balance sheets of ADA-ES, Inc. and Subsidiaries (collectively, the “Company”) as of December 31, 2011 and 2010 and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2011. We also have audited the Company’s internal control over financial reporting as of December 31, 2011, based upon the criteria established in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company was not required to have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting as of December 31, 2010. Accordingly, we express no such opinion as of December 31, 2010. The Company’s management is responsible for these financial statements and for maintaining effective internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting included in Item 9A. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform our audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control, based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.

F-2

Board of Directors and Stockholders of

ADA-ES, Inc. and Subsidiaries

Page Two

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that: 1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; 2) provide reasonable assurance that transactions are recorded as necessary to permit accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and 3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment. The Company did not maintain an effective control environment, as evidenced by not utilizing appropriate personnel or consultants qualified to review complex, non-routine business transactions that require additional review and impact decisions requiring accounting treatment, financial statement presentation and disclosure. In addition, the Company did not establish criteria to assess positive and negative evidence over the establishment and maintenance of a valuation allowance against deferred tax assets and an appropriate review process over the inputs and conclusions from this assessment was not in place.

In our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

As discussed in Note 7, Note 8, Note 9, Note 13, Note 15 and Note 16 to the consolidated financial statements, the Company amended its consolidated financial statements to reflect the restatement of the Company’s consolidated financial statements and related disclosures as of December 31, 2011. The Company’s consolidated financial statements have been restated to reflect the non-controlling interest in the Company’s joint venture, Clean Coal Solutions, LLC as temporary equity and to record a full valuation allowance against the Company’s net deferred tax assets as of December 31, 2011 and 2010.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated balance sheets and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2011, and our report dated March 15, 2012 expressed an unqualified opinion.

/s/ Ehrhardt Keefe Steiner & Hottman PC

March 15, 2012, except for Notes 7, 8, 9, 13, 15 and 16 as to which the date is October 19, 2012

Denver, Colorado

F-3

ADA-ES, Inc. and Subsidiaries

Consolidated Balance Sheets

December 31, 2011 and 2010

(Amounts in thousands, except share data)


	2011			2010
	(Restated, see Note 16)			(Restated, see Note 16)
ASSETS
Current Assets
Cash and cash equivalents	$	40,879		$	9,696
Receivables, net of allowance for doubtful accounts		5,914			9,066
Investment in securities		508			505
Notes receivable		—			1,580
Prepaid expenses and other assets		1,532			415

Total current assets		48,833			21,262

Property and Equipment, at cost		41,771			8,041
Less accumulated depreciation and amortization		(4,651	)		(3,235	)

Net property and equipment		37,120			4,806


Intangible assets, net of amortization		354			260
Goodwill, net of amortization		435			435
Investment in unconsolidated entities		590			14,021
Other assets		142			227

Total other assets		1,521			14,943

Total Assets	$	87,474		$	41,011


LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ DEFICIT
Current Liabilities
Accounts payable	$	8,849		$	3,441
Accounts payable - related parties		1,209			205
Accrued payroll and related liabilities		2,545			1,852
Line of credit		10,873			—
Deposits		14,900			—
Deferred revenues and other liabilities		5,105			5,883
Settlement awards and related accrued liabilities		3,983			—

Total current liabilities		47,464			11,381


Long-term Liabilities
Line of credit		3,624			—
Settlement awards and indemnity liability		5,200			27,411
Accrued warranty and other liabilities		632			4,432

Total long-term liabilities		9,456			31,843

Total Liabilities		56,920			43,224


Commitments and Contingencies (Note 10)

Temporary Equity - Non-controlling Interest Subject to Possible Redemption		60,000			—


Stockholders’ Deficit
ADA-ES, Inc. stockholders’ deficit
Preferred stock: 50,000,000 shares authorized, none outstanding		—			—
Common stock: no par value, 50,000,000 shares authorized, 9,996,144 and 7,538,861 shares issued and outstanding at December 31, 2011 and 2010, respectively		63,184			39,627
Accumulated deficit		(66,694	)		(43,875	)

Total ADA-ES, Inc. stockholders’ deficit		(3,510	)		(4,248	)
Non-controlling interest		(25,936	)		2,035

Total Stockholders’ Deficit		(29,446	)		(2,213	)

Total Liabilities, Temporary Equity and Stockholders’ Deficit	$	87,474		$	41,011

See accompanying notes.

F-4

ADA-ES, Inc. and Subsidiaries

Consolidated Statements of Operations

For the Years Ended December 31, 2011, 2010 and 2009

(Amounts in thousands, except per share data)


	2011			2010			2009
	(Restated, see Note 16)			(Restated, see Note 16)
Revenues
Refined coal	$	40,253		$	10,383		$	2,588
Emission control		9,967			9,825			15,947
CO₂ capture		3,096			2,073			1,526

Total revenues		53,316			22,281			20,061

Cost of Revenues
Refined coal		20,201			1,440			3,357
Emission control		6,839			6,107			9,544
CO₂ capture		1,924			1,066			969

Total cost of revenues		28,964			8,613			13,870


Gross Margin before Depreciation and Amortization		24,352			13,668			6,191

Other Costs and Expenses
General and administrative		17,468			32,790			16,745
Research and development		2,289			911			709
Depreciation and amortization		1,568			917			577

Total expenses		21,325			34,618			18,031


Operating Income (Loss)		3,027			(20,950	)		(11,840	)

Other Income (Expense)
Net equity in net income (loss) from unconsolidated entities		(6,967	)		(8,037	)		(3,243	)
Other income including interest		2,218			2,510			34
Interest expense		(1,584	)		(16	)		—
Settlement of litigation and arbitration award, net		(21,932	)		6,072			—

Total other income (expense)		(28,265	)		529			(3,209	)


Loss from Continuing Operations Before Income Tax Benefit and Non-controlling Interest		(25,238	)		(20,421	)		(15,049	)

Income Tax Benefit (Expense)		10,400			(7,093	)		5,546


Net Loss Before Non-controlling Interest		(14,838	)		(27,514	)		(9,503	)

Non-controlling Interest		(7,981	)		(3,613	)		732


Net Loss Attributable to ADA-ES, Inc.	$	(22,819	)	$	(31,127	)	$	(8,771	)


Net Loss Per Common Share – Basic and Diluted Attributable to ADA-ES, Inc.	$	(2.85	)	$	(4.21	)	$	(1.26	)


Weighted Average Common Shares Outstanding		8,020			7,393			6,973


Weighted Average Diluted Common Shares Outstanding		8,020			7,393			6,973

See accompanying notes.

F-5

ADA-ES, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

For the Years Ended December 31, 2011, 2010 and 2009

(Amounts in thousands, except share data)


	Common Stock					(Accumulated			Total ADA-ES Stockholders’ Equity			Non- controlling			Total Equity
	Shares		Amount			Deficit)			(Deficit)			Interest			(Deficit)

Balances, December 31, 2008		6,755,932	$	35,812		$	(3,977	)	$	31,835		$	25,152		$	56,987
Stock-based compensation		265,649		997			—			997			—			997
Issuance of stock to 401(k) plan		71,100		204			—			204			—			204
Issuance of stock on exercise of options		1,250		4			—			4			—			4
Equity contributions													738			738
Deconsolidation of ADA
Carbon Solutions, LLC		—		—			—			—			(25,059	)		(25,059	)
Expense of stock issuance and registration		—		(17	)		—			(17	)		—			(17	)
Net loss		—		—			(8,771	)		(8,771	)		(732	)		(9,503	)

Balances, December 31, 2009		7,093,931	$	37,000		$	(12,748	)	$	24,252		$	99		$	24,351

Stock-based compensation		214,089		1,024			—			1,024			—			1,024
Issuance of stock to 401(k) plan		45,106		282			—			282			—			282
Issuance of stock for cash		143,885		1,000			—			1,000			—			1,000
Issuance of stock on exercise of options		41,850		347			—			347			—			347
Equity contributions by non-controlling interest		—		—			—			—			2,090			2,090
Distributions to non-controlling interest		—		—			—			—			(3,767	)		(3,767	)
Expense of stock issuance and registration		—		(26	)		—			(26	)		—			(26	)
Net income (loss) (restated)		—		—			(31,127	)		(31,127	)		3,613			(27,514	)

Balances, December 31, 2010 as restated, see Note 16		7,538,861	$	39,627		$	(43,875	)	$	(4,248	)	$	2,035		$	(2,213	)

Stock-based compensation		114,582		786			—			786			—			786
Issuance of stock to 401(k) plan		27,769		349			—			349			—			349
Issuance of stock for cash		2,300,000		35,075			—			35,075			—			35,075
Issuance of stock on exercise of options		14,932		106			—			106			—			106
Income tax impact of sale of temporary equity in joint venture (restated)		—		(10,400	)		—			(10,400	)		—			(10,400	)
Equity contributions by non-controlling interest		—		—			—			—			250			250
Distributions to non-controlling interest (restated)		—		—			—			—			(36,202	)		(36,202	)
Expense of stock issuance and registration		—		(2,359	)		—			(2,359	)		—			(2,359	)
Net income (loss) (restated)		—		—			(22,819	)		(22,819	)		7,981			(14,838	)

Balances, December 31, 2011, as restated, see Note 16		9,996,144	$	63,184		$	(66,694	)	$	(3,510	)	$	(25,936	)	$	(29,446	)

See accompanying notes.

F-6

ADA-ES, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Years Ended December 31, 2011, 2010 and 2009

(Amounts in thousands)


	2011			2010			2009
	(Restated, see Note 16)			(Restated, see Note 16)
Cash Flows from Operating Activities
Net loss	$	(22,819	)	$	(31,127	)	$	(8,771	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		1,568			917			577
Deferred tax (benefit) expense		(10,400	)		7,093			(5,555	)
Loss on disposal of assets		37			—			17
Provision for doubtful accounts		—			(7	)		—
Expenses paid with stock, restricted stock and stock options		1,135			1,306			1,201
Net equity in net (income) loss from unconsolidated entities		6,967			8,037			3,243
Non-cash gain from joint venture partner		—			(1,768	)		—
Non-cash gain from indemnity claim settlement		(20,034	)		—			—
Non-controlling interest in income (loss) from subsidiaries		7,981			3,613			(732	)
Changes in operating assets and liabilities:
Receivables, net		3,152			(3,247	)		282
Assets held for resale and inventory		—			—			(2,056	)
Prepaid expenses and other assets		(1,258	)		289			(155	)
Accounts payable		6,412			(1,666	)		2,567
Accrued payroll, expenses and other related liabilities		693			1,274			(407	)
Deposits		14,900			—			—
Deferred revenue and other liabilities		(4,578	)		6,412			1,364
Settlement awards and related accrued liabilities		3,983			—			—
Accrued indemnity liabilities		4,288			20,589			6,822

Net cash provided by (used in) operating activities		(7,973	)		11,715			(1,603	)


Cash Flows from Investing Activities
Investment in securities		(3	)		(105	)		(400	)
Cash balance held in deconsolidated entity		—			—			(25,171	)
Principal payments received on notes receivable		1,580			188			—
Capital expenditures for equipment, patents and development projects		(33,788	)		(2,919	)		(296	)
Cash paid for equity contributions to unconsolidated entity		—			(283	)		—

Net cash used in investing activities		(32,211	)		(3,119	)		(25,867	)


Cash Flows from Financing Activities
Net borrowings under line of credit		14,497			—			—
Non-controlling interest equity contributions		250			2,090			738
Distributions to non-controlling interest (restated)		(36,202	)		(3,767	)		—
Exercise of stock options		106			347			4
Sale of temporary equity in joint venture (restated)		60,000			—			—
Issuance of common stock		35,075			1,000			—
Stock issuance and registration costs		(2,359	)		(26	)		(17	)

Net cash provided by (used in) financing activities		71,367			(356	)		725


Increase (Decrease) in Cash and Cash Equivalents		31,183			8,240			(26,745	)
Cash and Cash Equivalents, beginning of period		9,696			1,456			28,201

Cash and Cash Equivalents, end of period	$	40,879		$	9,696		$	1,456


Supplemental Schedule of Non-Cash Flow Financing Activities
Stock and stock options issued for services	$	1,135		$	1,306		$	1,201

Cash paid for interest	$	1,311		$	24		$	—

See accompanying notes.

F-7

1.	SUMMARY OF NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations – ADA-ES, Inc. (“ADA”), its wholly-owned subsidiaries, Advanced Emissions Solutions, Inc., a Delaware corporation (“ADES”) and ADA Intellectual Property, LLC, a Colorado limited liability company (“ADA IP”) both of which had no activity in 2011, and ADA Environmental Solutions, LLC, a Colorado limited liability company (“ADA LLC”), and ADA’s joint venture interest in Clean Coal Solutions, LLC (“Clean Coal”) are collectively referred to as the “Company”. The Company is principally engaged in providing environmental technologies and specialty chemicals to the coal-burning electric power generation industry. The Company generates a substantial part of its revenue from the sale of refined coal (“RC”), Activated Carbon Injection (“ACI”) systems, contracts co-funded by the government and industry, and development and lease of equipment for the RC market. The Company’s sales occur principally throughout the United States.

Principles of Consolidation – The consolidated financial statements include the accounts of ADES, ADA IP, ADA LLC and Clean Coal and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Cash and Cash Equivalents – The Company considers all highly liquid debt instruments with purchased maturities of three months or less to be cash equivalents. The Company maintains the majority of its cash in certificates of deposit and money market accounts. The amount on deposit at December 31, 2011 was held in one commercial bank and deposits were in excess of the insurance limits of the Federal Deposit Insurance Corporation.

Receivables and Credit Policies – Trade receivables are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. Management reviews trade receivables periodically and reduces the carrying amount by a valuation allowance that reflects management’s best estimate of the amount that may not be collectible. The balance was as follows:


	As of December 31,
	2011		2010
	(in thousands)
Receivables balance	$	4,919	$	8,239
Unbilled revenues balance		995		827

Total	$	5,914	$	9,066

Intangible Assets – Intangible assets principally consist of patents.


	As of December 31,
	2011			2010
	(in thousands)
Cost of patents	$	436		$	331
Less accumulated amortization		(82	)		(71	)

Total	$	354		$	260


	Year ended December 31,
	2011		2010		2009
Amortization expense of intangible assets for the year	$	11,000	$	10,000	$	12,000
Amortization life in years of patents		17		17		17
Anticipated annual amortization expense over the next five years	$	11,000	$	15,000	$	13,000
Weighted average amortization period in years		11		14		13

Goodwill – The Company reviews the recoverability of goodwill at least annually as of December 31 and any time business conditions indicate a potential change in recoverability. During 2011 and 2010, we did not recognize any goodwill impairment charges.

Investments – Investments in securities represent certificates of deposit which are recorded at fair value.

Investment in Unconsolidated Entities – On January 20, 2010, the Company, together with NexGen Resources Corporation (“NexGen”), formed Clean Coal Solutions Services, LLC (“CCSS”) for the purpose of operating the RC facilities leased to third parties. The Company has a 50% ownership interest in CCSS (but does not control it) and accordingly has accounted for the investment under the equity method of accounting. The Company evaluates this investment annually for impairment other than temporary declines in value. At December 31, 2011 and 2010, no such declines existed on this investment.

On November 28, 2011, the Company relinquished all of its interest in ADA Carbon Solutions, LLC (“Carbon Solutions”) (See Notes 6 and 10). As of December 31, 2010, ADA owned a 25.9% interest in Carbon Solutions and our net investment in Carbon

F-8

Solutions of $13.6 million was being accounted for under the equity method of accounting. Our respective share of Carbon Solutions’ income and losses for the years ended December 31, 2011, 2010 and 2009 has been recognized in the consolidated statements of operations.

Property and Equipment – Property and equipment is stated at cost. Depreciation on assets is provided using the straight-line method based on estimated useful lives ranging from 3 to 10 years. Maintenance and repairs are charged to operations as incurred and maintenance and repair of the leased RC facilities are the responsibility of CCSS under agreements with the lessee of the facilities. When assets are retired, or otherwise disposed of, the property accounts are relieved of costs and accumulated depreciation and any resulting gain or loss is credited or charged to income.

Leasehold Improvements – Leasehold improvements are recorded at cost and included with property and equipment. Amortization expense is computed using the straight-line method over the shorter of the estimated useful lives of the assets or the period of the related lease.

Warranty Costs – Under certain ACI and DSI systems contracts, the Company may grant performance guaranties for a specified period and the achievement of a certain system operating conditions. In the event the equipment fails to perform as specified, the Company is obligated to correct or replace the equipment. Estimated warranty costs are recorded at the time of sale based on current experience factors.

Impairment of Long-Lived Assets (other than Goodwill) – The Company routinely performs an evaluation of the recoverability of the carrying value of its long-lived assets to determine if facts and circumstances indicate that the carrying value of assets or intangible assets may be impaired and if any adjustment is warranted. Based on the Company’s evaluation as of December 31, 2011 and 2010, no impairment of value existed for long-lived assets.

Fair Value of Financial Instruments – The carrying amounts of financial instruments, including cash, cash equivalents, accounts receivable, line of credit, accounts payable and accrued expenses approximate fair value due to the short maturity of these instruments.

Revenue Recognition – ADA follows the percentage of completion method of accounting for all significant contracts which have a fixed contract price excluding government contracts and coal and chemical sales. The percentage of completion method of reporting income takes into account the percent of work completed and overall revenue for contracts in progress. The Company recognizes revenue on government contracts based on the time and expenses incurred to date.


	As of December 31,
	2011		2010
	(in thousands)
Costs in excess of billings included in accounts receivable, net	$	452	$	602
Billings in excess of recognized income included in deferred revenue	$	173	$	452

RC revenues are recognized when RC production and coal sales occur. Chemical sales are recognized when products are shipped to customers. Based upon historical trends no reserve has been established for any returns. RC is typically produced by adding proprietary chemicals to coal at the customer’s site and title passes to the customer when the production process is complete. Chemicals are shipped FOB shipping point and title passes to the customer when the chemicals are shipped. The Company’s sales agreements for chemicals do not contain a right of inspection or acceptance provision and products are generally received by customers within one day of shipment. The Company has had no significant history of non-acceptance, or of replacing goods damaged or lost in transit.

Consulting revenue is recognized as services are performed and collection is assured.

Cost of Revenues – Costs of revenues include all labor, fringe benefits, subcontract labor, chemical and coal costs, materials, equipment, supplies and travel costs directly related to the Company’s production of revenue.

General and Administrative – General and administrative costs include personnel related fringe benefits, sales and administrative staff labor costs, legal expenses, facility costs and other general costs of conducting business.

Penalties and Interest Costs – Under certain circumstances, the Company might have a penalty or interest charge that is classified as an expense and is shown in our general and administrative costs. The cost is charged in the period the Company was notified of the charge.


	Years Ended December 31,
	2011		2010		2009
	(in thousands)
Penalty and interest costs	$	35	$	1	$	6

Research and Development Costs – Research and development costs are charged to operations in the period incurred.

F-9

Income Taxes – The Company accounts for income taxes under the liability method whereby deferred tax assets and liabilities are determined based on tax rates and laws enacted as of the date of the consolidated balance sheets. A valuation allowance is provided if and when deferred tax assets are not expected to be realized. At each reporting date, management reviews deferred tax assets and liabilities and any related valuation allowance and, if necessary, revises them to reflect changed circumstances. In a situation where recent losses have been incurred, the accounting standards require convincing evidence that there will be sufficient future taxable income to realize deferred tax assets. Clean Coal is a flow-through tax entity and therefore the owners are taxed or receive tax benefits based on their respective ownership interests.

Net Loss Per Share – Basic EPS is calculated by dividing the income or (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS is calculated using the same numerator as basic EPS and further reflects the potential dilution that could occur if outstanding stock options were exercised. No stock options were included in the calculations for 2011, 2010 or 2009 as their inclusion would be anti-dilutive due to the Company’s net losses per share for those periods.

Stock-Based Compensation –The Company records equity compensation to employees at estimated fair value.


	Years Ended December 31,
	2011			2010			2009
	(in thousands)
Stock based compensation before tax	$	1,135		$	1,306		$	1,201
Stock based compensation after tax		714			833			720
Basic and diluted loss per share		(0.09	)		(0.11	)		(0.11	)

Use of Estimates – The preparation of the Company’s consolidated financial statements in conformity with generally accepted accounting principles requires the Company’s management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates.

The Company makes significant assumptions concerning:

•

the impairment of and the remaining realizability of its long-lived assets including equity method investments, goodwill and intangibles;

•

estimates of certain overhead and other rates on research contracts with the U.S. Government, which are subject to future audits;

•

fair value of stock options;

•

warranty costs;

•

the allowance for doubtful accounts, which is based on historical experience;

•

the percentage of completion method of accounting for significant long-term fixed price contracts, which is based on estimates of gross margins and of the costs to complete such contracts;

•

the deferred tax assets expected to be realized in future periods; and

•

the period over which we estimate we will earn up front license payments.

Segment Information – The Company follows established standards on the way that public companies report financial information about operating segments in annual financial statements and required reporting of selected information about operating segments in interim financial statements issued to the public. These standards provide for disclosures regarding products and services, geographic areas, and major customers. These standards also define operating segments as components of a company about which discrete financial information is available that is evaluated regularly by the chief operating decision makers in deciding how to allocate resources and in assessing performance.

In applying these standards, the Company has defined its components as three reportable segments:

•

Refined coal (“RC”),

•

Emission control (“EC”), and

•

CO₂ Capture (“CC”).

Reclassification – Certain amounts in the 2010 and 2009 consolidated financial statements have been reclassified to conform to the 2011 presentation. Such reclassification had no effect on net income.

Recently Issued or Newly Adopted Accounting Standards – In September 2011, the Financial Accounting Standards Board issued updated guidance allowing the use of a qualitative approach to test goodwill for impairment. The updated guidance would permit the Company to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of one of its reporting units is less than its carrying value. If concluded that this is the case, it is then necessary for the Company to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. The updated guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 with early adoption permitted. The Company is currently evaluating the impact of our pending adoption of this update.

F-10

2.	NOTES RECEIVABLE

NexGen Refined Coal, LLC (“NexGen”), the Company’s partner in Clean Coal, was required to pay the Company up to $4 million in order to maintain its 50% interest in Clean Coal. In June 2010, NexGen executed notes payable to the Company for approximately $1.8 million with a due date of June 2012. During the second quarter of 2011, NexGen paid the notes receivable and the entire remaining balance due to maintain its interest in Clean Coal.

The outstanding balance of the notes receivable at December 31, 2010 totaled approximately $1.6 million. During the second quarter of 2010, the Company recognized a non-operating gain of $1.8 million as a result of these notes, which is included in interest and other income including interest on the consolidated statements of operations.

3.	PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at the dates indicated:


	Life in	As of December 31,
	Years	2011			2010
		(in thousands)
Machinery and equipment	3-10	$	3,937		$	2,497
Leasehold improvements	2-5		624			535
Furniture and fixtures	3-7		281			284
RC assets placed in service	10		33,800			—
RC assets under lease (See Note 10)	10		3,129			4,725

			41,771			8,041
Less accumulated depreciation and amortization			(4,651	)		(3,235	)

Total property and equipment, net		$	37,120		$	4,806


	Years Ended December 31,
	2011		2010		2009
	(in thousands)
Depreciation and amortization	$	1,568	$	906	$	565

4.	DEFERRED REVENUES AND DEPOSITS

Deferred revenues consist of:

•

billings in excess of costs and earnings on uncompleted contracts;

•

unearned revenues on licensing of the Company’s intellectual property to Arch Coal, Inc. (“Arch”) (as discussed further below); and

•

deferred rent revenue related to Clean Coal’s lease of its RC facilities (also as discussed further below).

Arch Coal – In June 2010, the Company entered into a Development and License Agreement with Arch in which the Company licensed, on an exclusive non-transferable basis, the use of certain of its technology to enhance coal by a proprietary treatment process and received a non-refundable license fee of $2 million in cash. Revenues of $1.3 million and $700,000 related to this agreement were recognized in 2011 and 2010, respectively. As part of the agreement, Arch is required to purchase from the Company the chemicals required to enhance the coal.

Clean Coal – In June 2010, Clean Coal executed agreements to lease two RC facilities. These agreements provided for, among other things, a “prepaid rent payment” of $9 million for both facilities that was received before June 30, 2010. In November and December 2011, Clean Coal entered into transactions to exchange the existing facilities (see Notes 7 and 10). There was no change to the prepaid rent payment or amortization period as a result of the exchanges.

During 2011 and 2010, the Company recognized $20.1 million and $10.4 million in total rent revenues, respectively, related to these RC facilities which includes $3.6 million and $1.8 million from amortization of the initial prepaid rent payment for the years ended December 31, 2011 and 2010, respectively. Future revenues expected to be recognized with respect to the prepaid rent paid totaling $3.6 million are included in deferred revenues and other liabilities on the consolidated balance sheets as of December 31, 2011.

During 2011, Clean Coal received deposits of $14.9 million towards RC facilities which may be leased upon attainment of certain milestones. Such amount is included in deposits on the consolidated balance sheets.

5.	GOVERNMENT AND INDUSTRY FUNDED CONTRACTS

The Company has participated in several contracts awarded by the Department of Energy (the “DOE”). The Company typically invoices the DOE and industry cost-share partners monthly for labor and expenditures plus estimated overhead factors, less any cost share amounts. The contracts under which the Company has performed are subject to audit and future appropriation of funds by Congress. The Company has not experienced adverse adjustments as a result of government audits, however, the government audits for years ended 2004 through 2011 have not yet been finalized.

F-11


	Years Ended December 31,
	2011		2010		2009
	(in thousands)
Revenue recognized related to CC segment	$	3,096	$	2,073	$	1,526
Unearned contract amount	$	15,706	$	18,800	$	1,600
Expected revenue in 2012	$	5,579

6.	INVESTMENTS IN UNCONSOLIDATED ENTITIES

Clean Coal Solutions Services – As discussed in Note 1 above, on January 20, 2010, the Company, together with NexGen, formed CCSS. The Company’s investment includes its share of CCSS income since its formation, which has been accounted for under the equity method of accounting. Following is unaudited summarized information as to assets, liabilities and results of operations of CCSS:


	As of December 31,
	2011		2010
	(in thousands)
Current assets	$	22,609	$	34,534
Property, equipment, and other long-term assets		3,682		89

Total Assets	$	26,291	$	34,623



Total Liabilities	$	15,988	$	33,896


	Years Ended December 31,
	2011		2010
	(in thousands)
Net revenue	$	153,684	$	90,854
Net income- attributed to CCSS	$	189	$	236

During 2011 and 2010, the Company recorded revenues of $131,000 and $272,000, respectively, for management fees provided to CCSS. This management fee arrangement was terminated in May 2011. During 2011 and 2010, the Company recorded $3.4 million and $64,000, respectively, for development and operating costs. At December 31, 2011 and 2010, the amount due to CCSS totaled $1.2 million and $105,000, respectively, and is included in accounts payable to related parties on the consolidated balance sheets.

Carbon Solutions – On October 1, 2008, ADA entered into a Joint Development Agreement (“JDA”), a Limited Liability Company Agreement (“LLC Agreement”), and other related agreements with Energy Capital Partners I, LP and its affiliated funds (“ECP”) and formed Carbon Solutions for the purposes of funding and constructing the activated carbon (“AC”) manufacturing facility in Red River Parish, Louisiana and similar projects. In November 2011, ADA relinquished all of its interest in Carbon Solutions. The Company had been accounting for the investment in Carbon Solutions under the equity method and recorded $7.2 million as its share of Carbon Solution’s losses for 2011.

Under the terms of the JDA, ADA was required to indemnify ECP and Carbon Solutions for certain damages and expenses they had incurred with respect to ADA’s litigation with Norit Americas, Inc. (“Norit”) which was settled in August 2011. On November 28, 2011, an Indemnity Settlement Agreement was entered into whereby ADA agreed to settle the indemnity obligations asserted against ADA and relinquish all of its interest in Carbon Solutions (See Note 9). As of December 31, 2010, the Company recorded a long-term liability to Carbon Solutions of approximately $27.4 million related to such damages and expenses paid by Carbon Solutions.

During the fourth quarter of 2011, we recorded the transactions resulting from the Indemnity Settlement Agreement for the satisfaction of the indemnity obligations and the relinquishment of ADA’s interest which resulted in other income of $20 million.

The Company has the following related agreements with Carbon Solutions:

Master Services Agreement – Pursuant to a Master Services Agreement (“MSA”), the Company provides certain accounting, administrative, oversight, and other services to Carbon Solutions at agreed-upon rates.

F-12


	Years Ended December 31,
	2011		2010		2009
	(in thousands)
Service revenue included in EC segment	$	63	$	293	$	1,100

Intellectual Property License – Pursuant to an Intellectual Property License Agreement (as amended in November 2011 pursuant to the Indemnity Settlement Agreement discussed above), the Company has licensed to Carbon Solutions all intellectual property relating primarily to the manufacture of AC (that was not transferred to Carbon Solutions under the JDA) or any application or use of AC competitive with the control of mercury emissions from coal-fired power plants (the “Field”) on an exclusive, perpetual, royalty-free basis and has provided certain rights of first refusal to Carbon Solutions with respect to intellectual property relating to the Field the Company may develop in the future.

7.	JOINT VENTURE INVESTMENT IN CLEAN COAL (restated)

In November 2006, the Company sold a 50% interest in its RC technology to a joint venture called Clean Coal Solutions, LLC, which was formed in 2006 with NexGen, to market RC technology. Clean Coal’s function is to supply chemicals, additives, equipment and technical services to cyclone-fired and other boiler users, but Clean Coal’s primary purpose is to put into operation facilities that produce RC that qualifies for tax credits that are available under Section 45 of the Internal Revenue Code (“Section 45 tax credits”). Clean Coal qualified two facilities in 2009 for such purposes and leased those facilities to a third party. The operating agreement of Clean Coal required NexGen and ADA to each pay 50% of the costs of operating Clean Coal and specified certain duties that both parties were obligated to perform.

In May 2011, ADA and NexGen entered into a transaction in which Clean Coal sold an effective 15% interest of the equity in Clean Coal to an affiliate of The Goldman Sachs Group, Inc. (“GS”) (see Notes 8 and 16 for discussion regarding the classification as temporary equity of GS’s interest obtained through this transaction). GS’s interest has certain preferences over ADA and NexGen as to liquidation and profit distribution. GS has no further capital call requirements and does not have a voting interest but does have approval rights over certain corporate transactions. In conjunction with the closing of the purchase agreement, ADA, NexGen and GS entered into a Second Amended and Restated Operating Agreement and an Exclusive Right to Lease Agreement pursuant to which Clean Coal granted GS the exclusive right (but not the obligation) to lease facilities that will produce up to approximately 12 million tons of RC per year on pre-established lease terms similar to those currently in effect for Clean Coal’s first two facilities.

In September 2011, ADA, NexGen, and GS entered into a First Amendment to Second Amended and Restated Operating Agreement pursuant to which ADA and NexGen each transferred our 2.5% member interests in each of Clean Coal’s subsidiaries back to Clean Coal in return for an increase in our interest in Clean Coal to 42.5% from 42.1%. This restructuring of ownership interests did not change the financial relationships of the parties. Since its inception, ADA has been considered the primary economic beneficiary of this joint venture and has consolidated the accounts of Clean Coal.

In November and December 2011, ADA entered into transactions with Clean Coal to exchange the two leased RC facilities with newly constructed, redesigned RC facilities (See Note 11).

Following is summarized information as to assets, liabilities and results of operations of Clean Coal:


	As of December 31,
	2011		2010
	(in thousands)
Primary assets
Cash and cash equivalents	$	8,804	$	1,335
Accounts receivable, net		3,177		4,835
Prepaid expenses and other assets		3,028		19
Property, plant and equipment including assets under lease and assets placed in service		36,751		5,066
Development costs		—		215

Primary liabilities
Accounts payable and accrued liabilities	$	10,526	$	157
Accounts payable, related parties		1,209		205
Line of credit		14,497		—
Deferred revenue, current and deposits		18,500		3,600
Deferred revenue, long-term		—		3,600

F-13


	Years Ended December 31,
	2011		2010		2009
	(in thousands)
Net revenue	$	40,253	$	10,378	$	2,588
Net income (loss)	$	13,658	$	6,873	$	(1,406	)

During 2011 and 2010, the Company recorded $2.6 million and $687,000, respectively, for management fees and labor costs provided by NexGen related to capital improvements for assets under lease and placed in service. At December 31, 2011 and 2010, the amount payable to NexGen was $138,000 and $55,000, respectively, and is included in accounts payable and accrued liabilities on the consolidated balance sheets.

8.	TEMPORARY EQUITY (RESTATED)

As described in Note 7, in May 2011, ADA and NexGen entered into a transaction in which Clean Coal sold an effective 15% interest of the equity in Clean Coal to GS. Approximately 15.8 units of non-voting Class B membership interests were issued to GS for $60 million in cash. ADA and NexGen each received $30 million as a result of the sale. In conjunction with the closing of the purchase agreement, ADA, NexGen and GS entered into a Second Amended and Restated Operating Agreement and ADA and NexGen each exchanged 50 units of membership interests for approximately 42.1 voting Class A units in Clean Coal (each of which represents a 50% voting interest). Since the transaction did not result in a change in control of Clean Coal, the amount received from this transaction was originally recorded to stockholders’ equity (deficit) net of the tax effect of $10.4 million (restated).

The terms of the Operating Agreement permit GS to require redemption of the unreturned portion of its initial $60 million investment in Clean Coal plus a return of 15% under certain limited circumstances. In June 2012, after completion of a review and evaluation of the applicable agreement and accounting authoritative literature, management determined that GS’s interest in Clean Coal is more appropriately classified as temporary equity as a result of the provision in the agreement for possible redemption of the unreturned portion of GS’s investment plus the required return under certain limited circumstances. As a result, this transaction has been recorded as temporary equity on the restated consolidated balance sheet as of December 31, 2011. See Notes 9 and 16 for additional discussion.

9.	STOCKHOLDERS’ EQUITY (DEFICIT) (RESTATED)

Stockholders’ equity (deficit) has been restated. The restated ADA portion of stockholders’ equity (deficit) for the fiscal year ended December 31, 2011 includes a $30 million reduction attributable to the reclassification of temporary equity as discussed in Note 8 and an $18.6 million and $15.7 million reduction attributable to the recognition of a valuation allowance against the Company’s deferred tax assets for the fiscal years ended December 31, 2011 and 2010, respectively. See Notes 13 and 16 for additional discussion.

On October 28, 2011, ADA closed on an underwritten public offering selling 2 million shares of common stock for $15.25 per share generating $28.4 million in net proceeds to ADA. In November 2011, the underwriters exercised their over-allotment option to purchase an additional 300,000 shares, generating an additional $4.3 million in net proceeds to ADA.

Non-Controlling Interest

For the years ended December 31, 2011 and 2010, the non-controlling interest portion of stockholders’ equity (deficit) includes a non-controlling interest related to Clean Coal. As discussed in Note 8, the restated non-controlling interest portion of stockholders’ equity (deficit) for the fiscal years ended December 31, 2011 and 2010 includes a $30 million reduction attributable to the reclassification of temporary equity. See Note 16 for additional discussion.

Pursuant to certain agreements, on March 23, 2010, ADA issued 143,885 shares of its common stock to Arch and received proceeds, net of issuance costs, totaling $974,000. ADA filed a registration statement, which was effective September 1, 2010, to register these shares in accordance with provisions of the registration rights agreement, which was executed at the time of the stock subscription agreement.

Since 2003, ADA has had several stock and option plans, including the Amended and Restated 2007 Equity Incentive Plan dated as of August 31, 2010 (the “2007 Plan”) and the ADA-ES, Inc. Profit Sharing Retirement Plan, which is a plan qualified under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”) described below. These plans allow ADA to issue stock or options for shares of common stock to employees, Board of Directors and non-employees.

F-14

Following is a table summarizing the option activity for the two years ended December 31, 2011 and 2010:


	Employee and Director Options			Non-Employee Options			Weighted Average Exercise Price
Options outstanding, December 31, 2009		270,265			9,000		$	10.23
Options granted		—						—
Options expired		(14,495	)		(9,000	)		14.11
Options exercised		(41,850	)		—			8.60

Options outstanding, December 31, 2010		213,920			—		$	10.18
Options granted		—			—			—
Options expired		(15,000	)		—			15.20
Options exercised		(15,978	)		—			8.18

Options outstanding, December 31, 2011		182,942			—		$	9.95

Following is a table of aggregate intrinsic value of options exercised and exercisable for the two years ended December 31, 2011 and 2010:


	Value			Average Market Price
Exercised, December 31, 2011	$	140,155		$	15.38
Exercised, December 31, 2010	$	(86,000	)	$	6.23


	Value		Market Price
Exercisable, December 31, 2011	$	2,322,000	$	22.64
Exercisable, December 31, 2010	$	209,000	$	11.16

Stock options outstanding and exercisable at December 31, 2011 are summarized in the table below:


Range of Exercise Prices	Number of Options Outstanding and Exercisable		Weighted Average Exercise Price		Weighted Average Remaining Contractual Lives
$8.60 - $10.20		143,743	$	8.66		3.9
$13.80 - $15.20		39,199	$	14.68		3.5

		182,942	$	9.95		3.8

No stock options were granted and/or vested during the year ended December 31, 2011.

Although ADA adopted the 2007 Plan in 2007, it was further amended and restated as of August 31, 2010 to make non-material changes to assure Internal Revenue Code Section 409A compliance and to increase the non-management director annual grant limit to 15,000 shares of common stock from 10,000 shares. The 2007 Plan authorizes the issuance to employees, directors and non-employees of up to 1 million shares of common stock, either as restricted stock grants or to underlie options to purchase shares of ADA’s common stock.

In 2009, ADA revised its 401(k) Plan. The revision permits ADA to issue shares of its common stock to employees to satisfy its obligation to match employee contributions under the terms of the plan in lieu of matching contributions in cash. ADA reserved 300,000 shares of its common stock for this purpose. The value of common stock issued as matching contributions under the plan is determined based on the per share market value of ADA’s common stock on the authorization date.

F-15

Following is a table summarizing the activity under various stock issuance plans for the two years ended December 31, 2011 and 2010:


Stock Issuance Plans
	2007 Plan			401(k) Plan			Other Stock Plans
Balance available, December 31, 2009		267,232			228,900			19,065
Evergreen addition		33,800			—			—
Restricted stock issued to new and anniversary employees		(34,175	)		—			—
Restricted stock repurchased		4,918			—			—
Stock issued based on incentive and matching programs to employees		(51,345	)		(45,106	)		—
Stock issued to executives, directors and non-employees		(126,487	)					(7,000	)

Balance available, December 31, 2010		93,943			183,794			12,065
Evergreen addition		44,593			—			—
Restricted stock issued to new and anniversary employees		(21,477	)		—			—
Stock issued based on incentive and matching programs to employees		(35,825	)		(27,769	)		—
Stock issued to executives, directors and non-employees		(50,280	)		—			(7,000	)

Balance available, December 31, 2011		30,954			156,025			5,065

Expense recognized under the different plans for the three years ended:


	(in thousands)
December 31, 2011	$	747	$	349	$	39
December 31, 2010	$	983	$	282	$	41
December 31, 2009	$	954	$	204	$	43

Unrecognized expense under the different plans for the three years ended:


	(in thousands)
December 31, 2011	$	512	$	—	$	—
December 31, 2010	$	341	$	—	$	—
December 31, 2009	$	363	$	—	$	—

A summary of the status of the non-vested shares for the two years ended December 31, 2011 and 2010 is presented below:


	Shares			Weighted Average Grant Date Fair Value
Non-vested at December 31, 2009		116,313		$	6.65
Granted		34,175			5.94
Vested		(52,634	)		8.06
Forfeited		(4,918	)		5.55

Non-vested at December 31, 2010		92,936		$	5.46
Granted		22,849			14.95
Vested		(6,422	)		10.38
Forfeited		(1,372	)		7.48

Non-vested at December 31, 2011		107,991		$	6.98

10.	COMMITMENTS AND CONTINGENCIES

Line of Credit – Clean Coal has available a revolving line of credit with a bank that is secured by substantially all assets of Clean Coal (including its subsidiaries). The line of credit expires in March 2013 and requires four equal quarterly installments of principal (plus all accrued interest at such time) to be paid beginning June 30, 2012. Borrowings under the line of credit bear

F-16

interest at the higher of the “Prime Rate” (as defined in the related credit agreement) plus one percent (1%) or 5% per annum. The original line of credit limit of $10 million was amended in September 2011 to $15 million. At December 31, 2011, the outstanding balance on the line of credit was $14.5 million and the effective interest rate was 5% per annum. Borrowings under the line of credit are subject to certain financial covenants applicable to Clean Coal.

Retirement Plan – The Company assumed the 401(k) plan covering all eligible employees as of January 1, 2003 which was revised in 2009, and makes matching contributions to the plan in the form of cash and its common stock. Such contributions are as follows:


	Years Ended December 31,
	2011		2010		2009
	(in thousands)
Matching contributions in stock	$	349	$	282	$	204
Matching contributions in cash		—		—		63

Total	$	349	$	282	$	267

Performance Guarantee on AC Injection Systems – Under certain contracts to supply ACI systems, the Company may guarantee the performance of the associated equipment for a specified period to the owner of the power plant. The Company may also guarantee the achievement of a certain level of mercury removal based upon the injection of a specified quantity of a qualified AC at a specified rate given other plant operating conditions. In the event the equipment fails to perform as specified, the Company may have an obligation to correct or replace the equipment. In the event the level of mercury removal is not achieved, the Company may have a “make right” obligation within the contract limits. The Company assesses the risks inherent in each applicable contract and accrues an amount that is based on estimated costs that may be incurred over the performance period of the contract. Such costs are included in the Company’s accrued warranty and other liabilities in the accompanying consolidated balance sheets. Any warranty costs paid out in the future will be charged against the accrual. The adequacy of warranty accrual balance is assessed at least quarterly based on the then current facts and circumstances and adjustments are made as needed. The changes in the carrying amount of the Company’s performance guaranties are as follows:


	As of December 31,
	2011			2010
	(in thousands)
Beginning balance	$	612		$	604
Performance guaranties accrued		88			74
Expenses paid		(153	)		(66	)

Ending balance	$	547		$	612

In some cases, a performance bond may be purchased and held for the period of the warranty that can be used to satisfy the obligation.

Purchase Obligations – As of December 31, 2011, the Company expects to pay purchase obligations totaling approximately $410,000 primarily for the purchase of components and services related to our Emission Control Segment in 2012.

Operating Lease Obligations – ADA leases office and warehouse facilities under non-cancellable operating lease agreements. Our facilities leases generally provide for periodic rent increases and renewal options. ADA’s lease for the majority of the current facilities covering approximately 26,000 square feet of combined office and warehouse space in Littleton, Colorado expires in August 2012.

In October 2011, ADA entered into a new lease agreement covering approximately 30,000 square feet of office space in Highlands Ranch, Colorado. The lease term began in March 2012 and expires in February 2019 with the option to renew for two additional five-year periods. The lease includes abatement of base rent and operating expenses for the first six months and abatement of base rent for an additional thirteen months. In addition, ADA has temporarily leased approximately 2,700 square feet in this property complex until such time as the relocation is complete.

The lease also includes a one-time tenant improvement allowance in an amount up to approximately $480,000. ADA plans to move its headquarters to the new offices once construction and improvements are completed and is considering renewing a portion of the existing leased facilities for additional office and warehouse space.

In February 2012, ADA entered into a new lease agreement covering approximately 15,000 square feet of warehouse space in Highlands Ranch, Colorado. The lease covers five suites in the building with rent for the first two suites beginning in April 2012, an additional two suites beginning in May 2012, and the last suite beginning in September 2012. The lease expires in February 2019 and includes the option to renew for two additional five-year periods. The lease also includes a one-time tenant improvement allowance of approximately $150,000.

F-17

Annual minimum commitments under the leases are as follows:


Years Ending December 31,	Operating Lease Commitments (in thousands)
2012	$	214
2013		210
2014		480
2015		493
2016		506
Thereafter		1,141

Total	$	3,044

Rental expense incurred for the years ended December 31, is as follows:


	Years Ended December 31,
	2011		2010		2009
	(in thousands)
Rent expense	$	395	$	339	$	259

Clean Coal – The Company also has certain guaranties and obligations in connection with the activities of Clean Coal. The Company, NexGen and two entities affiliated with NexGen have provided the lessee of its RC facilities and GS with joint and several guaranties (the “CCS Party Guaranties”) guaranteeing all payments and performance due under the related transaction agreements. The Company also entered into a contribution agreement with NexGen under which any party called upon to pay on a CCS Party Guaranty is entitled to receive contribution from the other party equal to 50% of the amount paid. The parent of the lessee in the RC facilities lease transactions has provided Clean Coal with a guaranty as to the payment only of all the initial term fixed rent payments and the renewal term fixed rent payments under the related leases, which, although terminable at any time, cannot be terminated without the substitution of such guaranty with another guaranty on similar terms from a creditworthy guarantor.

Carbon Solutions/ECP Indemnity Liability Settlement – As discussed above in Note 6, in November 2011, ADA entered into an Indemnity Settlement Agreement whereby ADA agreed to settle certain indemnity obligations asserted against the Company related to the Norit litigation. Under the terms of the Indemnity Settlement Agreement, ADA paid Carbon Solutions a $2 million payment on November 28, 2011 and agreed to make 16 additional monthly payments of $100,000 with the first one paid on November 28, 2011, and the remaining 15 payments commencing on December 1, 2011, relinquished all of its equity interest in Carbon Solutions to Carbon Solutions and amended the Intellectual Property License Agreement dated October 1, 2008 between ADA and Carbon Solutions.

The Company has accrued a current liability of $1.2 million which is included in settlement awards and related accrued liabilities and a long-term liability of $200,000 which is included in settlement awards and indemnity liability on the consolidated balance sheets related to this agreement.

Litigation – As previously reported in various filings, the Company had been engaged in litigation with Norit. The Norit lawsuit initially filed in Texas was moved to arbitration, and on April 8, 2011, the arbitration panel issued an interim award holding ADA liable for approximately $37.9 million for a non-solicitation breach of contract claim and held ADA and certain other defendants liable for royalties of 10.5% for the first three years beginning in mid-2010 and 7% for the following five years based on adjusted sales of AC from the Red River plant.

On August 29, 2011, ADA and Norit entered into a settlement agreement whereby the Company paid a lump-sum payment to Norit totaling $33 million on August 30, 2011. In addition, the Company agreed to pay an additional $7.5 million over a three-year period commencing on August 29, 2012, payable in three installments without interest of $2.5 million. Under the terms of the settlement agreement, ADA is also required to pay the royalty noted above and a lesser royalty on certain treated activated carbons. Payments of amounts due under the royalty award for each quarter are payable three months after such quarter ends. On October 18, 2011, the arbitration panel endorsed and confirmed the terms of the settlement agreement.

The Company has accrued a current liability of $2.8 million which is included in settlement awards and related accrued liabilities and a long-term liability of $5 million which is included in settlement awards and indemnity liability on the consolidated balance sheets related to this agreement.

11.	CLEAN COAL LEASING ACTIVITIES

Clean Coal leased two RC Facilities in June 2010 to an independent third party. The leases had initial terms that ran through December 31, 2012 and automatically renewed for annual terms through the end of 2019. As discussed in Note 7 above, in November and December 2011, ADA entered into Exchange Agreements with Clean Coal to exchange the two leased RC facilities with newly constructed, redesigned RC facilities which resulted in termination of the original leases and issuance of new lease agreements. The new leases carry over many of the substantive terms and conditions of the initial leases, have initial terms that run through December 31, 2012 and automatically renew for annual terms through 2021, subject to a number of termination clauses.

F-18

Clean Coal receives fixed and contingent rent payments as defined in the lease agreements. In addition, the lessee paid $9 million at the inception of the leases, which was recorded as deferred revenue and is being amortized into revenue under the straight-line method over the initial term of the leases through December 31, 2012. During the years ended December 31, 2011 and 2010, $3.6 million and $1.8 million, respectively, of deferred revenue was recognized. Contingent rental income received during 2011 and 2010 totaled $8.6 million and $6 million, respectively. Future minimum lease payments shown below do not include contingent rentals, which are based on the production of RC.

The following is a schedule, by year, of total fixed lease payments to be received, if all term extension options are exercised, through December 31, 2021.


Years Ending December 31,	Lease Payments Expected (in thousands)
2012	$	10,352
2013		14,196
2014		14,744
2015		15,332
2016		15,857
Thereafter		90,027

Total minimum lease payments	$	160,508

12.	MAJOR CUSTOMERS

Sales to unaffiliated customers who represent 10% or more of the Company’s sales were as follows:


	As of December 31,
Customer	2011			2010
A		38	%		47	%

The Company’s receivables were as follows:


Receivables as of:	Number of Customers That Make up Percentage of Balance		Percentage of Balance
December 31, 2011		2		63	%
December 31, 2010		1		67	%

F-19

13.	INCOME TAXES (RESTATED)

Income taxes are accounted for under the asset and liability approach. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using the enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided if and when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. At each reporting date, management reviews existing income tax assessments and, if necessary, revises them to reflect changed circumstances. In a situation where recent losses have been incurred, the accounting standards require convincing evidence that there will be sufficient future taxable income to realize deferred tax assets.

In August 2012, after extensive discussions with the SEC’s Division of Corporation Finance and Office of the Chief Accountant and the Company’s outside tax experts, independent registered public accounting firm, Audit Committee and Board of Directors, management determined that the objective and verifiable negative evidence represented by historical losses outweighed more subjective positive evidence of anticipated future income. As a result, management determined it necessary to record a full valuation allowance against the Company’s net deferred tax assets and is restating the consolidated financial statements with this Amendment for the fiscal years ended December 31, 2011 and 2010. See Note 16 for additional discussion.

The Company has provided a full valuation allowance against the deferred tax assets of $18.6 million and $15.7 million as of December 31, 2011 and 2010 respectively.

The tax benefit included in the consolidated statement of operations for fiscal year ended December 31, 2011 was recorded as a result of the sale of the equity interest in Clean Coal to GS in May 2011. Since the transaction did not result in a change in control of Clean Coal, the $10.4 million tax effect of the amount received from this transaction was recorded to stockholders’ equity (deficit).

The Company’s income tax benefit (expense) from continuing operations consists of the following:


	Years Ended December 31,
	2011 (restated)		2010 (restated)			2009
	(in thousands)
Current	$	—	$	—		$	(9	)
Deferred	$	10,400	$	(7,093	)	$	5,555

Income tax benefit (expense)	$	10,400	$	(7,093	)	$	5,546

F-20

The following lists the Company’s deferred tax assets and liabilities:


	As of December 31,
	2011 (restated)			2010 (restated)
	(in thousands)
Deferred tax assets
Deferred warranty, settlements and other	$	3,439		$	223
Allowance for doubtful accounts		4			4
Property and equipment		48			—
Deferred revenues, compensation and other		1,174			306
Net equity in net loss of unconsolidated entities		—			459
Net operating loss carryforward		13,944			14,072
Tax credits		2,210			753

Total tax assets		20,819			15,817


Deferred tax liabilities
Prepaid expenses		129			122
Intangible assets and other		21			38
Net equity in net loss of unconsolidated entities		2,044			—

Total tax liabilities		2,194			160


Deferred tax assets, net of liabilities		18,625			15,657
Valuation allowance		(18,625	)		(15,657	)

Net deferred tax assets	$	—		$	—

A reconciliation of expected federal income taxes on income from operations at statutory rates with the benefit (expense) for income taxes follows:


	Years Ended December 31,
	2011			2010			2009
	(percent)
Expected income tax rate		34			34			34
Valuation allowance		(12	)		(77	)		—
Non-controlling interest		11			6			—
Permanent differences		<1			<1			<1
Tax credits		6			1			2
State income taxes		2			2			4
Other		—			(1	)		(3	)

Actual effective income tax rate		41			(35	)		37

The primary jurisdictions in which the Company files income tax returns are the U.S. federal government and State of Colorado. The Company is no longer subject to U.S. federal examinations by tax authorities for years before 2008 and Colorado state examinations for years before 2007.

The Company has a federal net operating loss carryforward of approximately $38.1 million that will expire in the years ranging from 2029 to 2031 and a state net operating loss carryforward of approximately $27.3 million that will expire in years ranging from 2016 to 2031. The Company has federal tax credit carryforwards of approximately $2.2 million that will expire in the years ranging from 2025 to 2031.

14.	RELATED PARTY TRANSACTIONS

As discussed above in Note 4 and Note 9, the Company entered into a Development and License Agreement and executed a Securities Subscription and Investment Agreement with Arch in 2010.

F-21


	Years Ended December 31,
	2011		2010		2009
	(in thousands)
Revenues recognized from activities with Arch	$	1,402	$	784	$	30

John Eaves is the President and Chief Operating Officer and a director of Arch and was one of the members of the Company’s Board of Directors (the “Board”) until November 10, 2011 when he resigned from the Board. Robert E. Shanklin, Vice President –Coal Technology of Arch was appointed to the Board in place of Mr. Eaves. The initial appointment of Mr. Eaves, and subsequent appointment of Mr. Shanklin, to the Board was made pursuant to a 2003 Subscription and Investment Agreement with Arch whereby the Company’s management agreed to make available one seat on our Board for an Arch designee and to vote all shares and proxies they are entitled to vote in favor of such designee for so long as Arch continues to hold at least 100,000 shares of our common stock. Mr. Eaves abstained from voting on the above-described transactions. In addition, as required by our related-party transaction policy, the transactions were approved by the Company’s audit committee before being recommended to the Board for approval and were then approved by the disinterested members of the Board.

15.	BUSINESS SEGMENT INFORMATION (RESTATED)

The following information relates to the Company’s three reportable segments: Emissions control (“EC”), CO₂ capture (“CC”) and Refined coal (“RC”). All assets are located in the U.S. and are not evaluated by management on a segment basis. All significant customers are U.S. companies and the U.S. Government.


	Years Ended December 31,
	2011		2010		2009
	(in thousands)
Revenue
RC	$	40,253	$	10,383	$	2,588
EC		9,967		9,825		15,947
CC		3,096		2,073		1,526

Total	$	53,316	$	22,281	$	20,061


Segment profit (loss)
RC	$	17,984	$	7,842	$	(1,313	)
EC		1,350		2,114		5,326
CC		241		895		349

Total	$	19,575	$	10,851	$	4,362

F-22

A reconciliation of the reported total segment profit to net income for the periods shown above is as follows:


	Years Ended December 31,
	2011 (Restated)			2010 (Restated)			2009
	(in thousands)
Total segment profit	$	19,575		$	10,851		$	4,362
Non-allocated general and administrative expenses		(14,980	)		(30,884	)		(15,625	)
Depreciation and amortization		(1,568	)		(917	)		(577	)
Interest and other income		2,218			2,510			34
Interest expense		(1,584	)		(16	)		—
Settlement of litigation and arbitration award, net		(21,932	)		6,072			—
Net equity in net income (loss) of unconsolidated entities		(6,967	)		(8,037	)		(3,243	)
Deferred income tax benefit (expense)		10,400			(7,093	)		5,546
Net (income) loss attributable non-controlling interest		(7,981	)		(3,613	)		732

Net loss attributable to ADA-ES, Inc.	$	(22,819	)	$	(31,127	)	$	(8,771	)

Non-allocated general and administrative expenses include costs that benefit the business as a whole and are not directly related to one of our segments. Such costs include but are not limited to accounting and human resources staff, information systems costs, legal fees, facility costs, audit fees and corporate governance expenses.

16.	RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

Reclassification of Equity Interest

On its Current Report on Form 8-K dated June 20, 2012, the Company reported management’s determination that the Company’s consolidated financial statements contained in its Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and its Quarterly Reports on Form 10-Q for the quarters ended June 30, 2011, September 30, 2011 and March 31, 2012 should no longer be relied upon and should be restated. Management made this determination following an assessment of the accounting treatment of the equity in Clean Coal that has been held by an affiliate of GS since May 2011.

After completion of a review and evaluation of the operating agreement of Clean Coal and the members’ rights and obligations thereunder and accounting authoritative literature, management determined that GS’s interest in Clean Coal would be more appropriately classified as temporary equity because of a provision in the agreement that permits GS to require redemption of the unreturned portion of its initial investment plus a return of 15% under certain limited circumstances.

As a result, the Company has restated its consolidated financial statements in this Amendment for the fiscal year ended December 31, 2011. The effect of the restatement on the Company’s consolidated balance sheet and consolidated statement of changes in stockholders’ equity (deficit) for the fiscal year ended December 31, 2011 is that GS’s interest in Clean Coal has been reclassified as temporary equity rather than as part of stockholders’ equity (deficit). In addition, the consolidated statement of cash flows for the fiscal year ended December 31, 2011 has been restated to reflect the entire investment by GS as a financing activity rather than an investing activity.

Deferred Tax Assets Valuation Allowance

On its Current Report on Form 8-K dated August 14, 2012, the Company reported management’s determination that the Company’s consolidated financial statements contained in its Annual Report on Form 10-K for the fiscal years ended December 31, 2010 and 2011 and its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2011, June 30, 2011, September 30, 2011, March 31, 2012 and June 30, 2012 should no longer be relied upon and should be restated. After extensive discussions with the SEC’s Division of Corporation Finance and Office of the Chief Accountant and the Company’s outside tax experts, independent registered public accounting firm, Audit Committee and Board of Directors, management determined that a full valuation allowance against the Company’s net deferred tax assets should have been recognized as of December 31, 2010 and for each subsequent quarter thereafter. Management determined that it was necessary to record the valuation allowance against the Company’s deferred tax assets after reconsidering the weight given in the original assessment to the relevant information used to measure the positive and negative evidence regarding the potential for ultimate realization of the net deferred tax assets.

Realization of the deferred tax assets is dependent upon the Company’s ability to generate future taxable income. In its reassessment, management concluded that the objective and verifiable negative evidence represented by historical losses outweighed more subjective positive evidence of anticipated future income. As a result, the Company has restated its consolidated financial statements in this Amendment for the fiscal years ended December 31, 2011 and 2010.

F-23

Financial Statement Effect of the Restatement

The tables below show the effect of the above restatement on the Consolidated Balance Sheets as of December 31, 2011 and 2010, and the Consolidated Statements of Operations, Consolidated Statements of Changes in Stockholders’ Equity (Deficit) and Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2011 and 2010. The restatement reflects non-cash adjustments and has no effect on previously reported operating income results or cash flows from operations. The Company also amended its Annual Report on Form 10-K for the fiscal year ended December 31, 2010 on October 19, 2012.

Effect on Consolidated Balance Sheets


	As Previously Reported December 31, 2010			Restatement Adjustments					As Restated December 31, 2010
	As Previously Reported December 31, 2010			Deferred Tax Valuation Allowance			Temporary Equity		As Restated December 31, 2010
	(Amounts in thousands)
Current Assets
Cash and cash equivalents	$	9,696		$	—		$	—	$	9,696
Receivables, net of allowance for doubtful accounts		9,066			—			—		9,066
Investment in securities		505			—			—		505
Notes receivable		1,580			—			—		1,580
Prepaid expenses and other assets		603			(188	)		—		415

Total current assets		21,450			(188	)		—		21,262

Property and Equipment, at cost		8,041			—			—		8,041
Less accumulated depreciation and amortization		(3,235	)		—			—		(3,235	)

Net property and equipment		4,806			—			—		4,806


Intangible assets, net of amortization		260			—			—		260
Goodwill, net of amortization		435			—			—		435
Investment in unconsolidated entities		14,021			—			—		14,021
Other assets		—			—			227		227
Deferred taxes and other assets		15,696			(15,696	)		—		—

Total other assets		30,412			(15,696	)		227		14,943

Total Assets	$	56,668		$	(15,884	)	$	227	$	41,011


Total Liabilities	$	43,224		$	—		$	—	$	43,224


Stockholders’ Equity (Deficit)
ADA-ES, Inc. stockholders’ equity (deficit)
Preferred stock: 50,000,000 shares authorized, none outstanding		—			—			—		—
Common stock: no par value, 50,000,000 shares authorized, 7,538,861 shares issued and outstanding		39,627			—			—		39,627
Accumulated deficit		(28,218	)		(15,657	)		—		(43,875	)

Total ADA-ES, Inc. stockholders’ equity (deficit)		11,409			(15,657	)		—		(4,248	)
Non-controlling interest		2,035			—			—		2,035

Total Stockholders’ Equity (Deficit)		13,444			(15,657	)		—		(2,213	)

Total Liabilities and Stockholder’s Equity (Deficit)	$	56,668		$	(15,657	)	$	—	$	41,011


	As Previously Reported December 31, 2011			Restatement Adjustments						As Restated December 31, 2011
	As Previously Reported December 31, 2011			Deferred Tax Valuation Allowance			Temporary Equity			As Restated December 31, 2011
	(Amounts in thousands)
Current Assets
Cash and cash equivalents	$	40,879		$	—		$	—		$	40,879
Receivables, net of allowance for doubtful accounts		5,914			—			—			5,914
Investment in securities		508			—			—			508
Prepaid expenses and other assets		3,924			(2,392	)		—			1,532

Total current assets		51,225			(2,392	)		—			48,833

Property and Equipment, at cost		41,771			—			—			41,771
Less accumulated depreciation and amortization		(4,651	)		—			—			(4,651	)

Net property and equipment		37,120			—			—			37,120


Intangible assets, net of amortization		354			—			—			354
Goodwill, net of amortization		435			—			—			435
Investment in unconsolidated entities		590			—			—			590
Other assets		—			142			—			142
Deferred taxes and other assets		16,375			(16,375	)		—			—

Total other assets		17,754			(16,233	)		—			1,521

Total Assets	$	106,099		$	(18,625	)	$	—		$	87,474


Total Liabilities	$	56,920		$	—		$	—		$	56,920


Temporary Equity - Non-controlling Interest Subject to Possible Redemption		—			—			60,000			60,000


Stockholders’ Equity (Deficit)
ADA-ES, Inc. stockholders’ equity (deficit)
Preferred stock: 50,000,000 shares authorized, none outstanding		—			—			—			—
Common stock: no par value, 50,000,000 shares authorized, 9,996,144 shares issued and outstanding		93,184			—			(30,000	)		63,184
Accumulated deficit		(48,069	)		(18,625	)		—			(66,694	)

Total ADA-ES, Inc. stockholders’ equity (deficit)		45,115			(18,625	)		(30,000	)		(3,510	)
Non-controlling interest		4,064			—			(30,000	)		(25,936	)

Total Stockholders’ Equity (Deficit)		49,179			(18,625	)		(60,000	)		(29,446	)

Total Liabilities, Temporary Equity and Stockholders’ Equity (Deficit)	$	106,099		$	(18,625	)	$	—		$	87,474

F-24

Effect on Consolidated Statements of Operations

Year Ended December 31, 2010

Restatement Adjustments

As Previously Reported

Deferred Tax
Valuation Allowance

Temporary Equity

As Restated

(Amounts in thousands)

Loss from Continuing Operations Before Income Tax Benefit (Expense) and Non-controlling Interest

(20,421

)

—

(20,421

)

Income Tax Benefit (Expense)

8,564

(15,657

)

—

(7,093

)

Net Loss Before Non-controlling Interest

(11,857

)

(15,657

)

—

(27,514

)

Non-controlling Interest

(3,613

)

—

(3,613

)

Net Loss Attributable to ADA-ES, Inc.

(15,470

)

(15,657

)

—

(31,127

)

Net Loss Per Common Share - Basic and Diluted Attributable to ADA-ES, Inc.

(2.09

)

(2.12

)

—

(4.21

)

Year Ended December 31, 2011

Restatement Adjustments

As Previously Reported

Deferred Tax
Valuation Allowance

Temporary Equity

As Restated

(Amounts in thousands)

Loss from Continuing Operations Before Income Tax Benefit (Expense) and Non-controlling Interest

(25,238

)

—

(25,238

)

Income Tax Benefit (Expense)

13,368

(2,968

)

—

10,400

Net Loss Before Non-controlling Interest

(11,870

)

(2,968

)

—

(14,838

)

Non-controlling Interest

(7,981

)

—

(7,981

)

Net Loss Attributable to ADA-ES, Inc.

(19,851

)

(2,968

)

—

(22,819

)

Net Loss Per Common Share - Basic and Diluted Attributable to ADA-ES, Inc.

(2.48

)

(0.37

)

—

(2.85

)

F-25

Effect on Consolidated Statements of Changes in Stockholders’ Equity (Deficit)


				Restatement Adjustments
	As Previously Reported December 31, 2010			Deferred Tax Valuation Allowance			Temporary Equity		As Restated December 31, 2010
	(Amounts in thousands)
ADA-ES Stockholders’ Equity (Deficit)
Balance, December 31, 2009	$	24,252		$	—		$	—	$	24,252
Stock-based compensation		1,024			—			—		1,024
Issuance of stock to 401(k) plan		282			—			—		282
Issuance of stock for cash		1,000			—			—		1,000
Issuance of stock on exercise of options		347			—			—		347
Expense of stock issuance and registration		(26	)		—			—		(26	)
Net loss		(15,470	)		(15,657	)		—		(31,127	)

Balance, December 31, 2010		11,409			(15,657	)		—		(4,248	)
Non-controlling interest, December 31, 2010		2,035			—			—		2,035


Total Stockholders’ Equity (Deficit)	$	13,444		$	(15,657	)	$	—	$	(2,213	)



				Restatement Adjustments
	As Previously Reported December 31, 2011			Deferred Tax Valuation Allowance			Temporary Equity			As Restated December 31, 2011
	(Amounts in thousands)
ADA-ES Stockholders’ Equity (Deficit)
Balance, December 31, 2010	$	11,409		$	(15,657	)	$	—		$	(4,248	)
Stock-based compensation		786			—			—			786
Issuance of stock to 401(k) plan		349			—			—			349
Issuance of stock for cash		35,075			—			—			35,075
Issuance of stock on exercise of options		106			—			—			106
Equity contribution from sale of interest in joint venture, net of income taxes		19,600			10,400			(30,000	)		—
Income tax impact of sale of temporary equity in joint venture		—			(10,400	)		—			(10,400	)
Expense of stock issuance and registration		(2,359	)		—			—			(2,359	)
Net loss		(19,851	)		(2,968	)					(22,819	)

Balance, December 31, 2011	$	45,115		$	(18,625	)	$	(30,000	)	$	(3,510	)


Non-controlling Interest
Balance, December 31, 2010	$	2,035		$	—		$	—		$	2,035
Equity contributions by non-controlling interest		250			—			—			250
Distributions to non-controlling interest		(6,202	)		—			(30,000	)		(36,202	)
Net income		7,981			—			—			7,981

Balance, December 31, 2011	$	4,064		$	—		$	(30,000	)	$	(25,936	)


Total Stockholders’ Equity (Deficit)	$	49,179		$	(18,625	)	$	(60,000	)	$	(29,446	)

F-26

Effect on Consolidated Statements of Cash Flows


	Year Ended December 31, 2010
				Restatement Adjustments
	As Previously Reported			Deferred Tax Valuation Allowance			Temporary Equity		As Restated
	(Amounts in thousands)
Net loss	$	(15,470	)	$	(15,657	)	$	—	$	(31,127	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		917			—			—		917
Deferred tax (benefit) expense		(8,563	)		15,656			—		7,093
Provision for doubtful accounts		(7	)		—			—		(7	)
Expenses paid with stock, restricted stock and stock options		1,306			—			—		1,306
Net equity in net loss from unconsolidated entities		8,037			—			—		8,037
Non-cash gain from joint venture partner		(1,768	)		—			—		(1,768	)
Non-controlling interest in income from subsidiaries		3,613			—			—		3,613
Changes in operating assets and liabilities:										—
Receivables, net		(3,247	)		—			—		(3,247	)
Prepaid expenses and other assets		288			1			—		289
Accounts payable		(1,666	)		—			—		(1,666	)
Accrued payroll, expenses and other related liabilities		1,274			—			—		1,274
Deferred revenues and other liabilities		6,412			—			—		6,412
Accrued indemnity liabilities		20,589			—			—		20,589

Net cash provided by operating activities		11,715			—			—		11,715

Net cash used in investing activities		(3,119	)		—			—		(3,119	)

Net cash used in financing activities		(356	)		—			—		(356	)


Increase in Cash and Cash Equivalents		8,240			—			—		8,240
Cash and Cash Equivalents, beginning of period		1,456			—			—		1,456

Cash and Cash Equivalents, end of period	$	9,696		$	—		$	—	$	9,696



	Year Ended December 31, 2011
				Restatement Adjustments
	As Previously Reported			Deferred Tax Valuation Allowance			Temporary Equity			As Restated
	(Amounts in thousands)
Net loss	$	(19,851	)	$	(2,968	)	$	—		$	(22,819	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,568			—			—			1,568
Deferred tax benefit		(13,368	)		2,968			—			(10,400	)
Loss on disposal of assets		37			—			—			37
Expenses paid with stock, restricted stock and stock options		1,135			—			—			1,135
Net equity in net loss from unconsolidated entities		6,967			—			—			6,967
Non-cash gain from indemnity claim settlement		(20,034	)		—			—			(20,034	)
Non-controlling interest in income from subsidiaries		7,981			—			—			7,981
Changes in operating assets and liabilities:											—
Receivables, net		3,152			—			—			3,152
Prepaid expenses and other assets		(1,258	)		—			—			(1,258	)
Accounts payable		6,412			—			—			6,412
Accrued payroll, expenses and other related liabilities		693			—			—			693
Deposits		14,900			—			—			14,900
Deferred revenues and other liabilities		(4,578	)		—			—			(4,578	)
Settlement awards and related accrued liabilities		3,983			—			—			3,983
Accrued indemnity liabilities		4,288			—			—			4,288

Net cash used in operating activities		(7,973	)		—			—			(7,973	)


Cash Flows from Investing Activities
Investment in securities		(3	)		—			—			(3	)
Principal payments received on notes receivable		1,580			—			—			1,580
Equity contribution from sale of interest in joint venture		30,000			—			(30,000	)		—
Capital expenditures for equipment, patents and development projects		(33,788	)		—			—			(33,788	)

Net cash used in investing activities		(2,211	)		—			(30,000	)		(32,211	)


Cash Flows from Financing Activities
Net borrowings under line of credit		14,497			—			—			14,497
Non-controlling interest equity contributions		250			—			—			250
Distributions to non-controlling interest		(6,202	)		—			(30,000	)		(36,202	)
Exercise of stock options		106			—			—			106
Sale of temporary equity in joint venture		—			—			60,000			60,000
Issuance of common stock		35,075			—			—			35,075
Stock issuance and registration costs		(2,359	)		—			—			(2,359	)

Net cash provided by financing activities		41,367			—			30,000			71,367


Increase in Cash and Cash Equivalents		31,183			—			—			31,183
Cash and Cash Equivalents, beginning of period		9,696			—			—			9,696

Cash and Cash Equivalents, end of period	$	40,879		$	—		$	—		$	40,879

F-27