This Report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 that involve risks and uncertainties. Words or phrases such as “anticipate,” “assume,” “believe,” “hope,” “expect,” “intend,” “plan,” the negative expressions of such words, or similar expressions are used in this Report to identify forward-looking statements, and such forward-looking statements include, but are not limited to, statements or expectations regarding:

The forward-looking statements included in this Report involve risks and uncertainties. Actual events or results could differ materially from those discussed in the forward-looking statements as a result of various factors including, but not limited to, lack of working capital to operate our businesses, pay ongoing legal expenses and satisfy our indemnity obligations relating to the Norit legal proceedings; timing of new and pending regulations and any legal challenges to them; the government’s failure to enact legislation, promulgate regulations or appropriate funds that benefit our business; changes in laws and regulations, prices, economic conditions and market demand; impact of competition and legal proceedings; availability, cost of and demand for alternative energy sources and other technologies; technical, start up and operational difficulties; inability to commercialize our technologies on favorable terms; our inability to ramp up our operations to effectively address expected growth in our target markets; loss of key personnel; failure to satisfy performance guaranties; risks related to Carbon Solutions, including the changes in the costs and timing of commencement of full production at the AC Facility; the willingness and ability of ECP to continue to fund costs of operating Carbon Solutions pending receipt of additional financing; ECP’s conversion of outstanding loans to Red River or preferred equity to ordinary capital contributions in Carbon Solutions; demand by ECP of payment on its loans to Red River or our indemnity obligations to it or Carbon Solutions; ECP’s control of Carbon Solutions and potential further dilution of our interest; failure to satisfy conditions in our existing agreements; inability of Carbon Solutions to close acceptable debt financing or off-take agreements with respect to the AC Facility in a timely manner; inability of Carbon Solutions to obtain necessary permits for its mining operations or for new AC production facilities; inability of Carbon Solutions to respond to the expected increase in demand for AC through the construction of additional AC facilities or our inability to participate in such projects due to lack of funds or otherwise; the failure of the facilities leased by Clean Coal to continue to produce coal that qualifies for Internal Revenue Service (“IRS”) Section 45 tax credits; termination of the leases of such facilities; decreases in the production of Refined Coal (“RC”) by the lessees of Clean Coal’s RC facilities; failure of Congress to extend the Section 45 tax credit deadline; availability of raw materials and equipment for our businesses; our inability to realize our deferred tax assets; failure of Calgon Carbon Corporation (“Calgon”) to pay the judgment recently awarded to us or its appeal of such judgment; as well as other factors relating to our business, as described in our filings with the U.S. Securities and Exchange Commission, with particular emphasis on the risk factor disclosures contained in those filings and in Item 1A of our Annual Report on Form 10-K. You are cautioned not to place undue reliance on the forward-looking statements made in this report, and to consult filings we have made and will make with the SEC for additional discussion concerning risks and uncertainties that may apply to our business and the ownership of our securities. The forward-looking statements contained in this Report are presented as of the date hereof, and we disclaim any duty to update such statements unless required by law to do so.

Overview

We develop and implement proprietary environmental technology and provide specialty chemicals to the coal-burning electric utility industry. Beginning this year, we have changed our segment reporting structure to better reflect the way we manage and measure the performance of our business. We have three operating segments: EC (emissions control); CC (CO ₂ capture) and RC (refined coal). The EC segment includes the supply of emissions control systems including powdered activated carbon injection (“ACI”) systems, acid gas mitigation systems and the sale of specialty chemicals, equipment and services for flue gas conditioning projects, the licensing of certain technology and other applications. The CC segment includes projects relating to the CO ₂ capture and control market, including projects co-funded by government agencies, such as the DOE. The RC segment includes the development and sale of technology, services and equipment for the RC market.

We conduct research and development efforts in CO ₂ capture and control from coal-fired boilers, and in 2008, we commenced work on our first significant contract related to CO ₂ capture, which is scheduled to continue through the end of 2010 and could be extended into 2011. We are marketing our RC technology, services and equipment through our

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50% interest in a joint venture with NexGen Refined Coal, LLC (“NexGen”), an affiliate of NexGen Resources Corporation, called Clean Coal Solutions, LLC (“Clean Coal”). We currently own two RC facilities which are leased through subsidiaries of Clean Coal and operated by Clean Coal Solutions Services, LLC (“CCSS”), a Colorado limited liability company owned 50% by us and 50% by NexGen. In addition, the Carbon Solutions joint venture, of which we owned 30.2% as of June 30, 2010, is in the final stages of start up of the AC Facility primarily for emissions control applications related to mercury emissions from coal burning utilities. Carbon Solutions, through a wholly owned subsidiary, has been processing and supplying AC to utility customers from interim sources until such time as the AC Facility is fully operational. References to Carbon Solutions include its wholly-owned subsidiaries including Red River and Crowfoot Supply Company, LLC (“Crowfoot Supply”).

Emissions Control

Environmental Legislation and Regulations

Mercury has been identified as a toxic substance and, pursuant to a court order, the U.S. Environmental Protection Agency (“EPA”) issued regulations for its control in March 2005, which were known as the “Clean Air Mercury Rule” or “CAMR.” CAMR has been subject to significant challenges since it was issued and was ultimately declared invalid. Most recently, in April 2010, the U.S. District Court of Appeals of the District of Columbia approved the consent agreement reached last year between EPA and a coalition of public health and environmental groups that sued in 2008 to force the agency to set tight emission limits. That settlement requires EPA to issue a draft rule requiring strict plant-specific controls for power plants’ toxic air pollutants by March 16, 2011, and a final rule no later than November 16, 2011. These rules are expected to establish a Maximum Achievable Control Technology (“MACT”)-based hazardous pollutant regulation, which will include control of mercury from power plants, organics and volatile metals such as arsenic, selenium and acid gases such as hydrogen chloride (“HCI”). The MACT standard is expected to be based upon the best-performing 12% of the power plants and will allow minimal averaging or trading. We estimate that based on the performance of ACI systems recently installed, and the co-benefits achieved from controls for sulfur dioxide and nitrogen oxides, the MACT standard for mercury will require between 90 and 95% mercury capture from utility boilers.

Pending the EPA’s issuance of final rules, a lack of clear mercury emission regulations has led to uncertainty among independent power producers and utilities as to what will be required of them as far as mercury controls, and is adversely impacting their ability to include mercury control costs in their rate bases. It is of course possible that Congress could also enact new legislation requiring stricter mercury emission control within the next year or two, with implementation deadlines over the subsequent two to three years.

In addition to our two key growth areas, emissions control and RC, we continue to demonstrate our position as a premier developer of innovative clean energy technologies. Control of CO ₂ from coal-fired power plants is currently a topic of discussion in Washington and a significant issue for the coal industry as a result of the impact of CO ₂ emissions on climate change. A number of permits for new coal-fired plants were rejected by various state officials in 2009 in response to protests by environmental groups. We see this as an opportunity and have begun developing technologies to address the needs of our customers through reduction of CO ₂ generation, CO ₂ capture and beneficial use of CO ₂ .

In addition to the independent power producers and utilities, EPA has been developing a MACT-based mercury emissions regulation for the Portland cement industry through proposed amendments to the National Emission Standards for Hazardous Air Pollutants (“NESHAP”) for the Portland Cement Manufacturing Industry issued in May 2009, for which the EPA accepted public comments through September 4, 2009. The cement MACT regulation was finalized on August 9, 2010. This regulation will require cement plants to reduce hazardous air pollutants by 2013 including 92% of mercury and 83% of hydrocarbons. This regulation could require ACI systems on up to 90 cement kilns in the U.S. We are in contract negotiations with three cement companies and are discussing several testing programs to define their emissions and evaluate how our ACI equipment and sorbents will work in that industry. The tests are designed to evaluate the effectiveness of collecting mercury and organics from cement kiln exhaust gas streams. We believe this cement MACT regulation is likely to increase the market for both ACI systems and AC.

The EPA is also developing a new MACT regulation for coal-fired boilers that provide mostly steam and/or electricity for small industrial and institutional power needs with no more than 25 MW of electricity sold to the grid. A draft regulation was released on April 30, 2010, with a final regulation anticipated to be issued by the court-mandated deadline of December 16, 2010, with compliance deadlines in late 2013 or early 2014. This regulation, which is currently open for public comment, could impact over 600 existing coal-fired industrial boilers. The proposed emission limit of three pounds of mercury per Trillion BTU for existing and two pounds per Trillion BTU for new coal-fired industrial boilers would require 60-70% capture of mercury from boilers burning bituminous coals and 40-50% capture of mercury from boilers burning sub bituminous coals. We believe a new industrial boiler regulation could increase the market for ACI systems by several hundred and the associated AC by 50 to 100 million pounds per year with the

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possibility of significantly higher quantities of as many as 400+ units when considering biomass and wood fired boilers which will also be covered under this regulation and, as with coal-fired units, require both mercury and other hazardous air pollutant reductions such as dioxins and furans, both controlled by activated carbon injection. We are in discussions with several companies that own and operate a number of industrial boilers regarding how our technology can help such companies comply with the new regulations.

The Clean Air Act requires that all regulations be met within 36 months. We believe that substantial long-term growth of the EC market for the independent power producer and utilities industry will most likely depend on how industry chooses to respond to the pending federal and state regulations. We anticipate federal regulations will create an even larger market for our mercury control products beyond 2010. As many as 1,200 existing coal-fired boilers may be affected by such regulations, if and when they are fully implemented. DOE’s latest report, issued in 2010, includes 77 existing and planned new coal-fired power plant projects totaling 44 GW of capacity. Permitting of new coal-fired plants generally requires them to meet more stringent requirements that likely include EC. Many power companies recognize the urgency of these pending regulations, and as a result we have contracts in place or are in negotiations with seven different power companies to evaluate ACI at a number of their plants. This could result in approximately $2.5 million in near-term ACI demonstration revenue, puts us in close contact with companies that could purchase ACI equipment and could result in long-term contracts for AC.

ACI Systems and Services

Thus far in 2010, we have installed or are in the process of installing 46 ACI systems. Some market demand continues in 19 states and 6 Canadian provinces that either have passed their own mercury control regulations or have entered agreements with power plants to reduce mercury emission for new power plants. We remain active in the bid and proposal process and expect fewer new systems to be awarded for the remainder of the year compared to last year until the final MACT rule is finalized. Because many of our current and potential customers would be affected by new federal regulations replacing CAMR, after the invalidation of CAMR, many independent power producers and utilities postponed the award of projects and existing projects as they revised their long-term plans for compliance. Revenue from ACI system contracts totaled $1.1 million and $ 3.6 million for the three and six months ended June 30, 2010, respectively. We had contracts in progress at June 30, 2010 for supply of ACI systems totaling approximately $2.3 million, $400,000 of which we except to complete and realize in 2010 with the balance in 2011. Although we expect this market to continue to decline in the near-term, we believe we have the opportunity for significant revenue growth for our EC products and services when final federal regulations or legislation impacts a significant portion of previously uncontrolled and existing boilers. Given the current expected timing for a MACT-based regulation, we see the need for 600 to 800 ACI systems to be supplied between 2011 and 2014, which would require rapid scale-up of our production capabilities to maintain our approximate 30% market share.

We are investigating, developing and providing services or systems to measure and mitigate acid gasses from coal fired boilers. These acid gas emissions are often the unintended result of the retrofit and operation of NOx control technology on medium to high sulfur coal-fired boilers.

Flue Gas Chemicals and Services

The market for our flue gas chemicals (“FGC”) and services has declined in recent years, but we are seeing increased interest in our product due to demonstrated interferences with mercury capture caused by competing products such as SO ₃ injection. We are performing tests for interested customers to demonstrate the ability of our technology to meet their needs with stringent mercury control regulations. With a defined mercury rule or legislation, there will be opportunities to combine FGC with AC, as FGC can enhance the performance of AC in specific applications without detriment to the existing electrostatic precipitator operation. Margins on these products are typically higher than what we recognize for our other EC sales and may represent an important contribution to our future overall revenue and profit potential. Revenues from FGC chemicals and services were not material in 2009 or thus far in 2010.

Arch Coal Development and License Agreement

Since 2004, we have been working with Arch Coal, Inc. (“Arch Coal”) to explore certain unique characteristics of some types of coals produced by Arch Coal that allow them to be burned with lower emissions. We believe a recent technical breakthrough provides a potential means to obtain similar performance improvements from all of Arch Coal’s Powder River Basin (“PRB”) coals. 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 enhance coal by the application of additives for coal mined by Arch Coal at mines and sites located in the PRB. We expect that the technology will reduce certain emissions from the burning of the PRB coal, which should help to meet standards that are in the process of being promulgated by the EPA.

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Pursuant to the License Agreement, we will be 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. In consideration for the development work and the license to Arch Coal, Arch Coal paid us an initial, non-refundable license fee in cash of $2 million. Arch Coal may be obligated to make royalty payments to us that could amount to as much as $1 per ton of coal sold by Arch Coal, depending upon the successful implementation of the technology and Arch Coal’s future sales of the resulting enhanced coal product. Arch Coal currently produces more than 100 million tons of PRB coal per year. 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.

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 are still negotiating the final terms of the Supply Agreement.

CO ₂ Capture

DOE is funding CO ₂ control projects related to our business and we expect this to continue. Revenue from DOE and industry contracts totaled $337,000 and $1.1 million for the three and six months ended June 30, 2010, respectively. We had DOE contracts in progress totaling approximately $500,000 as of June 30, 2010. We expect to recognize approximately $500,000 from these contracts during the last six months of 2010 and any additional funded amounts in 2011. This year we began the first field tests of its CO ₂ control technology on a $3.2 million program co-funded by DOE, as well as several major forward-thinking utility companies, and the initial results confirmed the promising performance we had demonstrated in our laboratory. Once captured, the carbon dioxide 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.

On July 7, 2010, DOE announced that we were selected to be the prime contractor for a follow on new 39 month project for approximately $11.1 million. We are currently in the process of negotiating and finalizing the contract. The project will provide funding to advance our commercialization plan for regenerable solid-sorbent technology and will allow pilot-testing of our concept at the one megawatt scale. We expect the final contract to be in place around October 2010 and total at least $14.1 million with co-funding and support to be provided by several major power generation companies including American Electric Power, Luminant, DTE Energy and the Electric Power Research Institute. We expect to start recognizing revenues for this project in the fourth quarter of this year The anticipated work to be performed under this contract is expected to be evenly recognized throughout the contract life with greater costs anticipated in late 2011 to early 2012. We anticipate that overall gross margins for this contract will be approximately 30%.

We anticipate that DOE programs will continue to represent an important segment in supporting the revenue stream of the company over the next few years as we position ourselves for the market growth for ACI systems for emissions control.

Refined Coal

Clean Coal develops and sells or leases facilities that produce RC that qualifies for Section 45 tax credits. The tax credits amount to an escalating $6.20 per ton of RC for a period of ten years. In December 2009, the IRS issued the anticipated guidance as to the specifics concerning how the emissions reductions achieved when RC is burned are to be measured and certified to demonstrate the compliance necessary to qualify for the tax credits. Clean Coal placed two facilities in service prior to January 1, 2010 and demonstrated the required emission reductions for their RC product to qualify for the tax credits.

On June 29, 2010, Clean Coal executed contracts in which the two facilities were leased to GS RC Investments LLC, the lessee, an affiliate of The Goldman Sachs Group, Inc. The leases have base terms that run through December 31, 2012 (the “Initial Term”), and automatically renew for annual terms through the end of 2019. The RC produced at the facilities is expected to be eligible for federal credits that are available for the production of RC pursuant to Section 45. The other 50% of Clean Coal is owned by NexGen and the two RC facilities are owned, respectively, by two special purpose entities (the “Lessors”). Clean Coal owns 95%, and we and NexGen each own 2.5% of the Lessors. The lessee has entered into supply agreements for each RC facility pursuant to which it will supply RC to the applicable power plant owner.

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CCSS will (subject to oversight by the lessee) operate and maintain the RC facilities under two Operating and Maintenance Agreements entered into with the lessee as part of the transaction. In addition to reimbursement for costs incurred, CCSS will receive a fee of $.08 per ton of coal processed through the RC facilities for its services. The lessee will pay the costs for operating and maintaining the RC facilities, subject to certain limitations. CCSS will also arrange 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 transaction. CCSS will receive a fee for its services in the amount of five percent of the cost of chemical additives and transportation costs. The term of each supply agreement runs coincident with the leases.

We control and consolidate the results of CCS in our financial statements, but do not expect to consolidate the results of CCSS because NexGen controls the entity pursuant to the operating agreement of the entity.

The leases included an upfront payment of approximately $4.5 million in prepaid rent for each facility and provide for fixed rent and contingent rent based upon future production of RC, each of which is payable on a quarterly basis. The prepaid rent is expected to be recognized over the Initial Terms of the leases. Such revenues are recorded as they are earned. Based on the amount of RC that we expect will be produced from the RC facilities, we expect to recognize operating income, before the deduction of NexGen’s 50% equity interest in that income, of approximately $2.00 per ton of RC produced, or approximately $12.0 million per year, average annual consolidated revenues from all lease payments of approximately $20.0 million per year, and after tax cash flows of approximately $9.0 million per year, over the almost 10-year period for which Section 45 tax credits are available. Historically, the utilities at which the facilities operate have used approximately 6.5 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 tax credits. A portion of the lease payments made by lessee during the Initial Term will be held in an escrow account, which was established to provide a fund from which the lessee can reclaim a portion of the lease payments if certain circumstances arise that affect the availability of Section 45 Credits for RC from the RC facilities.

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

In order to maintain our 50% interest in Clean Coal, we are obligated to fund half of its operating costs and capital expenditures. In order to satisfy a portion of the 2009 capital needs of Clean Coal, Clean Coal entered into a Loan Commitment Agreement with NexGen in October 2009, by which NexGen loaned Clean Coal $1.0 million. The note was paid in full prior to April 30, 2010. In the future, we expect the operations of the facilities to generate sufficient working capital to meet their operating needs. Our consolidated net operating loss for the three and six months ended June 30, 2010 included net costs of $888,000 and $1.5 million, respectively, related to our RC efforts.

We, Clean Coal and the lessee entered into a Technology Sublicense pursuant to which 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 agreement 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.

We, NexGen and two entities affiliated with NexGen have provided the lessee with 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 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.

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Under a First Amendment to Purchase and Sale Agreement entered into in October 2009, NexGen may elect to retain its interest in Clean Coal by paying us up to $4.0 million (plus any accrued interest under the note described below) as follows: (a) an amount based on the projected annual tons of RC to be sold by the utility at which the facility operates payable after a related monetization, which NexGen elected to pay by its issuance of two-year promissory notes in the aggregate principal amount of $1.8 million on June 29, 2010, plus (b) 25% of cash distributions (other than for income taxes) due to NexGen from Clean Coal. NexGen’s promissory notes are shown as notes receivable, bear interest at 5% per annum, are payable out of 35% of cash distributions to NexGen and are secured by NexGen’s interest in Clean Coal. We expect to receive approximately $1.5 million under these notes within one year of issuance and the remaining balance in the following six months. We expect to receive approximately $3.0 million of the $4.0 million by June 30, 2011and the remaining $1.0 million over the following year, respectively. We expect to report these amounts upon receipt as other income. NexGen is not obligated to make those payments, but if it does not do so, it will forfeit a part of its interest in Clean Coal in direct proportion to the amount that it elects not to pay (including any election not to pay under any notes issued). Once it fails to make any one payment, it cannot reclaim its interest by making later payments. We are not required to refund any of the cash paid by NexGen.

Clean Coal is working with Congress to obtain a one-year extension for the placed-in-service deadline for Section 45 facilities. An extension, if put into law, would provide Clean Coal with the opportunity to expand this business further through additional potential customers that have been identified as viable candidates for this technology. However to date, Congress has not been able to package a tax extenders bill into a form to receive sufficient bipartisan support for passage. At this point in time, an extension well into 2011 would be necessary to provide enough time for Clean Coal to build and install additional RC facilities. Clean Coal has been discussing additional RC facilities with other potential customers so that it is positioned to move forward if the deadline is extended.

Carbon Solutions

Carbon Solutions, our joint venture company with ECP, has constructed the AC Facility through its wholly owned subsidiary Red River. The AC Facility achieved partial commercial operation starting in May 2010 and is expected to be fully operational by the end of the year. Many of the state mercury regulations already in place require compliance in 2010 and as such there are several utilities and independent power producers engaged in an AC procurement process this year. Red River expects to be able to sell the majority of its AC output under long-term contracts to owners of coal-fired power plants for the purpose of mercury mitigation but anticipates that such level of sales may not be achieved until 2012.

Crowfoot Supply has developed an offsite processing and logistics facility that commenced operations in the second quarter of 2009 and operates in conjunction with the AC Facility. Red River has been selling and processing AC on a continuous basis from this facility to meet delivery obligations under existing supply contracts to customers in the U.S. and Canada. Those contracts, which to date total over 200 million pounds, represent approximately 32% of the plant’s planned capacity. Shipment of product to some customers from the AC Facility began in July. As inventories at Crowfoot Supply are depleted, all deliveries will be shifted to AC Facility production. Five Forks is developing a lignite and feedstock mine that will supply Red River.

Under the terms of the Limited Liability Company Agreement (the “LLC Agreement”) of Carbon Solutions among ECP and ADA, we have contributed $25.6 million in cash and other property and ECP has contributed cash of $157.6 million, including preferred equity contributions of $98.5 million, through June 30, 2010. Effective June 30, 2009, ECP converted some of its preferred equity contributions to ordinary capital contributions resulting in a dilution of our ownership percentage to under 50%. Since that time, ECP has converted additional preferred equity contributions to ordinary capital contributions resulting in a dilution of our ownership percentage to 30.2% as of June 30, 2010. We do not have any further capital commitments to Carbon Solutions, and expect that all future funding for the AC Facility will come from ECP and third-party debt financing. Through June 30, 2010, ECP had loaned $182.4 million to Red River pursuant to secured convertible demand notes. See “Liquidity and Capital Resources” below for additional information.

We predict a significant gap between AC production and demand starting in 2012, with the gap growing close to a billion pounds per year by 2015. We believe that the growth we anticipate will require as many as five additional AC production lines of the same size and capacity as Red River. Carbon Solutions is working on obtaining permits for these facilities in anticipation of federal regulations, and ADA has certain rights to participate by up to 50% in capacity additions.

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Results of Operations – 2 ^nd Quarter and YTD 2010 versus 2 ^nd Quarter and YTD 2009

Revenues totaled $1.9 million and $5.8 million for the three and six months ended June 30, 2010, respectively, versus $4.8 million and $9.7 million for the three and six months ended June 30, 2009, representing a decrease of 59% and 40% for the quarter and year to date. We expect overall revenues in the remaining half of 2010 to be lower than those reported for the 2009 period.

Cost of revenues decreased by $1.0 million and $1.3 million or 35% and 23% for the three and six months ended June 30, 2010, respectively, from the same periods in 2009 primarily as a result of decreased volume in our EC and CC segments. Gross margins were less than 1% and 23% for the three and six months ended June 30, 2010 respectively, as compared to 38% and 41% for the same periods in 2009. The decrease in the gross margin was the result of increased RC costs for future development in the technology, decreased consulting margins and lower ACI systems margins.

Emissions Control

Revenues in our EC segment for 2010 decreased for the second quarter and first six months by $2.8 million and $4.5 million, respectively (64% and 49%). The amounts reported for 2010 exclude the work ADA has conducted for Clean Coal, as further described below, that is eliminated in our consolidation. Revenues from the EC segment for the six months ended June 30, 2010 were comprised of sales of ACI systems (77%), flue gas chemical sales (3%) and consulting services (20%), compared to 64%, 2%, and 34%, respectively, in 2009. For the near term, in our EC segment, we expect the sales of ACI systems will continue to represent the most significant source of revenues, for which the anticipated gross margins are lower than for our specialty chemical sales and DOE demonstration work that typically involves industry cost-sharing. We expect revenues in the EC segment to decline from 2009 levels through the remainder of 2010 until revised emissions control regulations are implemented. We expect overall gross margins for the EC segment for fiscal year 2010 to be consistent with the levels achieved in fiscal year 2009.

We had contracts in progress at quarter-end for supply of ACI systems with remaining revenue of approximately $2.3 million, of which $400,000 is expected to be recognized during the remaining six months of 2010 with the balance expected to be realized in 2011. Our ACI systems revenues were $1.1 million and $3.6 million for the three and six months ended June 30, 2010, representing a decrease of 61% and 39% compared to those same periods in 2009. Over the last quarter, our ACI systems group devoted substantial effort to the RC facilities in order to complete modifications and restarted the units by the end of the quarter. Accordingly, efforts on other projects were impacted. We expect our EC segment revenues to decline until such time as utilities, cement plants, and industrial boilers start to react to the anticipated new federal emission control regulations. In the EC segment, we performed work related to RC systems provided to Clean Coal valued at $2.7 million and $3.2 million for the three and six months ended June 30, 2010, respectively, that would otherwise be recognized as revenue but were eliminated in the consolidation of Clean Coal.

Our consulting revenues have decreased approximately $1.1 million and $2.2 million during the three and six month ended June 30, 2010 as compared to the same periods in 2009 as we have completed nearly all of our mercury control demonstrations and analysis. We expect a continued reduction in consulting revenue although we are focusing more efforts on SO ₃ control demonstrations and analyses, which have growth potential.

Cost of revenues for the EC segment decreased by $1.4 million and $2.3 million or 54% and 43% for the three and six months ended June 30, 2010, respectively, from the same periods in 2009, primarily as a result of the decreased revenue-generating activities from our ACI system sales and other consulting services. Gross margins for the EC segment were 25% and 35% for the three and six months ended June 30, 2010, respectively, as compared to 41% and 42% for the 2009 periods. The decrease in gross margins from the prior year resulted from a decrease in our other consulting margins which generally has higher margins than our ACI systems. Further we eliminated $2.3 million and $2.7 million for the three and six months ended June 30, 2010, respectively, related to our efforts on Clean Coal’s RC facilities. Looking ahead, we expect EC margins to decline from prior levels as competition is expected to increase.

EC segment profits decreased by $1.6 million and $2.3 million or 96% and 70% for the three and six months ended June 30, 2010, respectively from the same periods in 2009. The decrease was primarily a result of lower margins on other consulting work, chemical sales and ACI systems sales for the period.

CO ₂ Capture

Revenues in our CC segment for 2010 increased by $55,000 and $597,000 for the second quarter and first six months, respectively (20% and 110%). Our DOE and industry consulting contract revenues related to our CC segment totaled $337,000 and $1.1 million for the three and six months ended June 30, 2010. The remaining unearned amount on these contracts totaled approximately $500,000 as of June 30, 2010 which we expect to recognize during the last six months of 2010 (including cash contributions by other industry partners) and any additional funding in 2011. As discussed above, we have been selected to be the prime contractor on a DOE project in July 2010 totaling $14.1 million (including contributions by other industry partners). The anticipated work to be performed under this contract is expected to be evenly recognized throughout the contract life with greater costs anticipated in late 2011 to early 2012.

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Cost of revenues for the CC segment decreased by $6,000 and increased by $149,000 for the three and six months ended June 30, 2010, respectively, from the same periods in 2009. Gross margins for this segment were 57% and 64% for the three and six months ended June 30, 2010 respectively, as compared to 47% and 52% for the comparable 2009 periods. The increase in gross margins from 2010 to 2009 is due primarily to the amount of direct product costs and higher labor involved in these projects. We expect overall gross margins for the CC segment for fiscal year 2010 to be consistent with the levels achieved in fiscal year 2009.

CC segment profits increased by $80,000 and $466,000 or 89% and 231% for the three and six months ended June 30, 2010, respectively, from the same periods in 2009. The increase was primarily the result of increased activities related to our development of CO ₂ capture technology, which ramped up significantly in 2010.

Our contracts with the government are subject to audit by the federal government, which could result in adjustment(s) to previously recognized revenue. 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.

Refined Coal

We had no material revenues for our RC segment for the three and six months ended June 30, 2010. As discussed above, on June 29, 2010 we leased the two RC facilities to the lessee and expect to earn related rent revenues beginning in July 2010. The revenues are expected to be uneven during the first few months as the new operators deal with start-up issues with the new equipment. However, once issues are resolved and the plants begin supplying Refined Coal for four generating units, the first two systems are expected to produce approximately 6.5 million tons of Refined Coal annually, qualifying for the approximately $6.20 per ton federal tax credit over the next 10 years.

Cost of revenues for the RC segment increased to $586,000 and $1.0 million for the three and six months ended June 30, 2010 up from $169,000 and $181,000 for the same periods in 2009 as we increased our efforts in further developing the technology and modifying the equipment. Costs of revenues are expected to level off as these projects are complete and the RC facilities are now leased to a monetizer.

RC segment losses increased by $737,000 and $1.3 million for the three and six months ended June 30, 2010 over the same periods in 2009 as our efforts to realize value from production of coal that qualifies for the Section 45 credits and make modifications to the RC facilities substantially increased in 2010.

Other Items

General and administrative expenses increased by $2.7 million and $5.2 million or 77% and 93% to approximately $6.2 million and $10.8 million for the three and six months ended June 30, 2010, respectively, from the same periods in 2009. The dollar increase for the three and six months ended June 30, 2010 resulted primarily from legal costs related to our legal proceedings with Norit and Calgon described in Part II, Item 1 of this report which comprises approximately 70% of the overall general and administrative expense for the quarter. We expect legal fees to continue at the same level or increase in the third and fourth quarters as we prepare for the Norit arbitration later this year. With regard to the recent damage award in the Calgon lawsuit we do not expect to recognize income until payment is received from Calgon.

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. Direct research and development expenses increased by $146,000 and $149,000 or 79% and 38% for the three and six months ended June 30, 2010 as compared to 2009 as a result of increases in CC and RC activities. We anticipate that our future R&D expenses will grow in direct proportion to DOE-funded CO ₂ work and future RC activities we perform for the next several years.

We had net interest and other income of $1.8 million for both the three and six months ended June 30, 2010, as compared to $10,000 and $20,000, respectively from the same periods in 2009. During the 2010 periods, we recognized approximately $1.8 million related to the notes payable executed by NexGen, as discussed above, by which NexGen has paid us as a portion of the amounts required to maintain its 50% interest in Clean Coal. Such payments have been recorded as other income.

Our net operating loss includes our equity in the losses incurred by Carbon Solutions totaling $1.5 million and $2.7 million for the three and six months ended June 30, 2010, respectively. We expect to continue to report equity in loss to Carbon Solutions for the remainder of 2010 as commercial operations are initiated and other development activities continue this year.

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The deferred income tax benefit for the six months ended June 30, 2010 represents our expected effective tax rate of approximately 33% for 2010, which is lower than the rate of 36% we recognized for the six months ended June 30, 2009. The change in effective rates is primarily the result of smaller impact of R&D tax credits for the six months ended June 30, 2010 as compared to the amount estimated for the six months ended June 30, 2009. 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.