Advanced Emissions Solutions (ADES): Clean-up Solutions Company Faces Its Biggest Mess Ever - Itself

by Sonya Colberg, Senior Investigative Reporter - 7/11/2014 10:04:56 AM

Investing in Advanced Emissions Solutions (ADES) is a little like buying land in Florida, sight unseen.

It looks incredibly gorgeous, “green” and tempting at first. Yet after digging deeper, you discover you’ve bought swampland infested with alligators flashing toothy grins. That’s what TheStreetSweeper found in this Highlands Ranch, Colo. holding company specializing in clean solutions for coal-fired power plants.

A superficial look shows its stock price flying near $23, not very far below its $29 record, as the company peels out optimistic press releases on a plant lease deal and a new finance committee.


But with deeper inspection, ADES’ alligators look awfully ugly and hungry. The company stands knee-deep in class action lawsuits alleging securities law violations and “false and/or misleading” statements tied to financial reports that must be restated – and a NASDAQ delisting threat that ADES can’t seem to shake.


Unfortunately, ADES very efforts to try to clean up three quarters – and likely more - of unreliable, consequently misleading financial statements are already snake-bitten.


ADES has hand-picked a rogues’ gallery of handsome men to fix its financial mess and restore investors’ confidence. We’re calling it a rogues’ gallery because this line-up, includes:


*Directors of companies wallowing in the risky penny stock world.

*Co-founders and former top executives of an emotion-charged company tottering just this side of crash and burn.

*Leaders who suddenly ran out on a company where delinquent financials almost killed its NASDAQ listing.

*Audit team members who oversaw ADES’ messy financials to begin with.


Yet these are some of the very people ADES selected to fix its financial reports. We’ll explain the details later in this report.


Investors may find various viewpoints on ADES here. ADES declined to comment.


Let’s take a closer look at issues that make the ADES denizen-infested swampland look so treacherous to today’s investors:




 The June 23 Supreme Court ruling is likely to further shrink the pool of potential customers for ADES.


The Court said the EPA can’t require all companies to reduce emissions.

The ruling allows the agency to regulate 83 percent of greenhouse-gas emissions, rather than the 86 percent requested by the EPA, according to Justice Antonin Scalia.


The ruling doesn’t affect certain efforts to cut power plant emissions by 30 percent. However, the big facilities blamed for huffing out most of the pollutants believed responsible for climate change will continue to need federal permits – that 83 percent referenced by Justice Scalia.


But millions of little guys - such as the little guys that make up ADES’ customer base – will not have to meet those regulations. So there’s no urgent need for ADES.


Unfortunately, it also appears larger companies have no reason to suddenly seek out ADES. That’s because the company is a virtual unknown, up against huge, established companies like General Electric, Wilcox, Norit, Seimens and Alstom, which sell widely acknowledged solutions to big plants.


Any hopes of any new construction of coal-burning units – producing future potential customers for ADES - were dashed in 2010, under President Obama’s Climate Action Plan.


“Can you build a coal plant after this? No. It’s not commercially feasible to build a new coal plant, period,” Sierra Club Executive Director Michael Brune then bluntly told the L.A. Times.



On top of the government’s “war on coal,” ADES’ prospects were already on trend to grow bleaker.

It’s sort of like the way buggy whips got tossed out when the automobile drove horse-drawn buggies off the road. Or the way today’s online companies are rapidly grabbing business away from newspapers.

The decline of coal was set in motion decades ago as innovation sparked a natural gas bonanza in the United States. Natural gas production surged, prices fell and many utilities shifted from coal-fired power plants to natural gas, just the way American Electric Power has been eliminating its coal units, according to a representative of that mammoth company.

 “Already, EPA regulations have contributed to the closure of more than 300 coal units in 33 states,” warned the American Coalition for Clean Coal Electricity last fall.


The reality of coal’s loss of power is stunningly clear in coal companies’ stock charts.  

Below, investors can see the sad story illustrated by Arch Coal (ACI). Formerly a major ADES investor, this coal supplier was so anxious to cash in its entire investment in ADES last year that it sold its 262,499 shares for $5.90 per share - even though more than half of those cost Arch Coal $6.95.

The chart shows Arch Coal stock fetched about $74 per share in 2008. Today, it’s just about $3.

The chart looks almost identical to the stock charts of coal companies Peabody Energy (BTU) $84 in 2008, about $16 now; Alpha Natural Resources (ANR) $104 in 2008, about $3 now; and Walter Energy (WLT) $108 in 2008, now about $5. The hot stocks have turned ice-cold.

It makes sense that ADES will face a similar level of downfall over time.

Competitor stats also outshine ADES:

ADES                  GE                      BWC

Market Cap         458m                 262B                       4B

Revenue             269m                 145B                       3B   

EPS                    -.46                    1.22                       3.08                          

Profit Margin       1%                       9%                       11%

Ret. On Equity     7%                    11%                       30%


Based simply on the above factors, we believe even half its current value would be a generous valuation for ADES.

But ADES must also deal with the fact that, as the country gallops faster and faster away from coal, its primary, little-known chemical product to reduce emissions appears somewhat off-point. It is designed to reduce mercury while the toxic substance on the radar right now is carbon dioxide. The company merely hopes to develop an effective solution to that emission problem. But such commercial technology is 10 or 20 years away.

While some of those issues are generally beyond ADES’ control, others land squarely on the company’s shoulders. These include the messy financials, NASDAQ issues and the cleanup crew.


The company’s Securities and Exchange Commission filings reveal a peculiar lack of quarterly and annual reports for good reason. After the company hired a big auditing firm, it discovered that for at least three quarters in 2013, the very revenues investors depended upon were messed up and must be restated.

March 18 served as a turning point for ADES as it filed notice that it couldn’t get its annual report to the SEC on time. It seemed the company “may have a material weakness related to its revenue recognition.”


But ADES had already calmed the alligator and warmed up investors by announcing a 2-for-1 stock split in February to double shares outstanding to 20 million, “effected in the form of a stock dividend.”


So ADES began trading on a split-adjusted basis March 17 and the stock remained pretty much in that comfortable $24 to $25 level until ADES’ financial waters started to look even murkier a few weeks later.


ADES disclosed on April 9 that NASDAQ notified the company six days earlier that it no longer met listing requirements due to a delinquent annual report.


Though volume is usually in the six digits, it dropped that day to 83,900 and the stock actually closed up almost a buck at $23.92. On news of a possible delisting.


With the clock ticking, the company last month was granted another extension to file its 2013 annual report and first quarter 2014 report by Sept. 29. It’s now also looking for irregularities in the 2011 and 2012 statements.


The company estimates that its financial mistakes in 2013 will increase losses by about $2.3 million, increase backlog and decrease revenue by $10.8 million.


Attorneys began lining up plaintiffs months ago and are still busy scouting for more. According to one class action lawsuit, the whole mess ultimately resulted in massive losses to hundreds or even thousands of ADES shareholders duped into believing alleged misstated financials and acting on them.




The company had already cut its litigious teeth – and managed to avoid federal prosecution - over allegations that it stole trade secrets in 2011. And this was a costly experience. Without admitting any wrongdoing, ADES agreed to pay $40.5 million after Norit filed suit claiming defendants misappropriated Norit’s trade secrets about activated carbon.


 “We vehemently disagree with the decision by the arbitrators and strongly feel that there was no unauthorized use of any trade secrets on our part,” Michael Durham, president and CEO of ADA-ES (Advanced Emissions Solutions’ previous name), told the Denver Business Journal.


The U.S. Attorney’s Office investigation into conspiracy, mail fraud, wire fraud and interstate transportation of stolen property ended just last September when the office agreed not to prosecute ADES in order to finally resolve the issue.


Long over its indignation, ADES put on a happy face with this headline on Sept., 12, 2013, published on GlobeNewswire:


Advanced Emissions Solutions Provides Update Closing Legal Matter Arising From Attempted 2006 Acquisition by Subsidiary

The Denver Business Journal Online headline was more pointed and less misleading: Justice Department won’t pursue case against Colorado company.


Upon close inspection, ADES’ choices of people to oversee the troublesome financial reports is interesting.

In connection with the financial restatements, ADES announced on May 28 the formation of a revamped audit committee headed by Taylor Simonton, who offers over 35 years of auditing and financial accounting experience. His experience extends to Red Robin restaurants (RRGB) trading around $71 per share, and Keating Capital (KIPO) now around $6.08, but also Escalera Resources (ESCR), trading around $2.54, and Zynex (ZYXI), fetching around 24 cents.

Not surprisingly, the director who previously led the audit committee during part of the time the financial records became troublesome, announced plans to retire June 30.

But three other audit committee members remain in place, including Derek Johnson, who holds relatively limited experience in finances and corporate boardrooms. The president of a small specialty supplier to the retail industry, Mr. Johnson is also a director of Qualmark Corp. (OTC:QMRK), a $3 million Denver, Colo. company that is one of the loneliest of the Pink Sheets, with zero trading volume and a puny 32 cent price tag.

W. Phillip Marcum, ADES chairman, obviously immersed in the financial review, is also well acquainted with the risky world of penny stocks. In 2008, he became a director of Applied Natural Gas Fuels (OTC: AGAS), a liquefied natural gas producer that has recently changed its name and appears to be no longer traded.

Just as interesting, Mr. Marcum and A. Bradley Gabbard, director and former audit committee chairman - both closely involved in the effort to resolve ADES’ financial issues - co-founded and served as top executives in the early 2000s in a company that is currently suffering its own serious financial struggle. In fact, much like ADES, lawyers are circling their former company, PowerSecure International (NYSE: POWR), after its recent financial disclosures. In a recent emotion-charged earnings call, the CEO invoked hopes and prayers, and told investors, “We are very disappointed to have failed you …” with a revenue decline and 17 cent loss. Troubles multiplied as analyst downgrades piled up and the stock plummeted overnight from nearly $21 to about $6 in May – and is still fluttering at just about $8.

According to the audit committee announcement, Mr. Gabbard will resign from ADES’ audit committee to become a company consultant who will focus on the financial flubs – which may look familiar since they happened on his watch.  

Along with his experience with PowerSecure, the announcement touts Mr. Gabbard’s experience as a former chief financial officer with the previously mentioned Applied Natural Gas Fuels (OTC:AGAS), and also Lilis Energy (NASDAQ GM:LLEX).

Lilis is a Denver-based oil and gas company that recently faced its own NASDAQ delisting issues. 

It’s the old stomping grounds for both Mr. Gabbard and Mr. Marcum, ADES Chairman of the Board since 2008. Mr. Marcum became CEO and chairman of Lilis in November 2012, before the stock plunged 58 percent to the current price of about $1.67. He stayed with the company until after it got trampled by a revenue drop and a $10 million loss last year.

Coincidentally, a few days after the NASDAQ threatened ADES with delisting – April 17, 2014 (though company documents say April 17, 2017) – the NASDAQ notified Lilis that it could get delisted, too. This was thanks to its delinquent SEC financial report. 

Mr. Marcum got out of Lilis the very next day.  Mr. Marcum announced his decision to give up his CEO and Chairman of the Board positions, effective immediately on April 18, 2014. He slung that $220,000 bag of severance dough over his shoulder and walked out without “any disagreement with the Company.”

Lilis tacked a note on the bottom of the filing disclosing Mr. Marcum’s departure. It says:

“A. Bradley Gabbard, who formerly served as both Chief Operating Officer and Chief Financial Officer of the Company, will continue his role as Chief Financial Officer of the Company.”

That was correct. For less than a month.

On May 16, Mr. Gabbard announced his resignation from his remaining title of CFO “effective immediately to pursue other interests.”

Weeks after their departure, Lilis regained NASDAQ compliance.


Let’s face it. ADES is standing hip-deep in swampland and has been handed an armful of alligators. The potential customer pool shrinks more each day as power companies shut down more coal units. Worse yet, rather than pushing more small companies toward ADES’ solutions, the recent Supreme Court ruling appears poised to have just the opposite effect.

Though many troubles may be beyond its control, ADES has been hand-feeding its own congregation of alligators. Its stumbles range from the accounting wreck that clearly shows investors’ confidence was misplaced, to the continual begging that NASDAQ give it more time, to the selection of a clean-up crew that seems to make financial messes faster than it can mop them up.

That writhing, grinning ADES alligator, we believe, is about to go into a death roll.

* Important Disclosure: The owners of TheStreetSweeper hold a short position in ADES and stand to profit on any future declines in the stock price. 

  • Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to

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