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Item 8. Financial Statements and Supplementary Data

2025-03-05 compared with 2024-03-12 · 372 added, 352 removed, 723 unchanged (50% of the section changed)

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

and Subsidiaries

The Shareholders and the Board of Directors

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Arq, Inc.

and Subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the consolidated financial statements).

(and subsidiaries) (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2024 and 2023, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 5, 2025, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

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Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Business Combination – Valuation of Acquired Property, Plant, and Equipment and Developed Technology Intangible Asset

As described in Notes 1 and 2 to the consolidated financial statements, in February 2023, the Company acquired 100% of the equity of the subsidiaries of Arq Ltd.

(the “Arq Acquisition”) in exchange for total consideration of $31.2 million.

The Company accounted for the Arq Acquisition as an acquisition of a business and recorded the assets acquired and liabilities assumed at their respective fair values, including $39.2 million of property, plant, and equipment, and a $7.7 million developed technology intangible asset.

Management estimated the fair value of the acquired property, plant and equipment using a combination of valuation methodologies, including the cost and market approaches and the fair value of the developed technology intangible asset using an income approach.

The significant assumptions used by management in determining the fair value of the acquired property, plant and equipment primarily included estimated replacement costs and sales prices of the acquired assets as well as the estimated useful lives of the acquired assets.

The significant assumptions used by management in determining the fair value of the developed technology intangible asset included the Company’s best estimate of projected financial information, including revenues, growth rates, production ramp-up and capacity, and cost of revenue as well as discount and royalty rates.

The principal considerations for our determination that performing procedures relating to the valuation of the acquired property, plant and equipment and developed technology intangible asset relating to the Arq Acquisition is a critical audit matter are (i) the significant judgment by management when determining the significant assumptions used in projecting future financial performance of the acquired business;

(ii) especially challenging and subjective auditor judgment involved when performing procedures and evaluating management’s significant assumptions related to revenue and its growth rate, production ramp-up and capacity, and cost of revenue, and the discount and royalty rates utilized;

and (iii) involving the use of professionals with specialized skill and knowledge.

The primary procedures we performed to address this critical audit matter included:

– Obtaining and reading the Securities Purchase Agreement to develop an understanding of the Arq Acquisition.

– Evaluating management’s process for determining the fair value of the acquired property, plant and equipment and developed technology intangible asset, including the appropriateness of the valuation methods used.

– Testing the completeness and accuracy of the underlying data used in the valuation models.

– Evaluating the reasonableness of the significant assumptions used by management related to projected financial information, which primarily related to production ramp-up and capacity, revenue growth, cost of revenues and the discount and royalty rates.

Specifically, when evaluating the assumptions related to production ramp-up and capacity and revenue growth rates, we compared the assumptions to industry and market trends, along with updated management forecasts, to evaluate the reasonableness of management’s estimates as of the date of the transaction.

– Utilizing professionals with specialized skill and knowledge to assist in evaluating the appropriateness of the valuation models used and the reasonableness of certain significant assumptions including estimated replacement costs and sales prices as well as discount and royalty rates.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements;

and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there are no critical audit matters.

/s/ Moss Adams LLP

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Accounts payable and accrued expenses $ 21,017 $ 14,603

Current portion of long-term debt 2,653 1,131

Revolving credit facility 13,828 —

Current portion of long-term debt obligations 1,624 2,653

Other current liabilities 8,184 5,792

Total current liabilities 44,653 23,048

Long-term debt, net of current portion 18,274 3,450

Long-term debt obligations, net of current portion 9,370 18,274

Other long-term liabilities 13,069 15,780

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Preferred stock:

par value of $ .001 per share, 50,000,000 shares authorized, none outstanding

par value of $ 0.001 per share, 50,000,000 shares authorized, none issued or outstanding

Common stock:

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(in thousands, except per share data) 2024 2023

Consumables $ 99,183 $ 102,987

Total revenue 99,183 102,987

Revenue $ 108,959 $ 99,183

Cost of revenue, exclusive of depreciation and amortization 69,515 67,323

Operating expenses:

Consumables cost of revenue, exclusive of depreciation and amortization 67,323 80,465

Payroll and benefits 15,154 10,540

Legal and professional fees 9,588 9,455

General and administrative 12,641 8,145

Selling, general and administrative 28,695 34,069

Research and development 4,050 3,314

Depreciation, amortization, depletion and accretion 8,594 10,543

Gain on sale of Marshall Mine, LLC ( 2,695 ) —

Other ( 36 ) 34

Loss (gain) on sale of assets 64 ( 2,731 )

Total operating expenses 41,403 45,195

Operating loss ( 1,959 ) ( 13,335 )

Other income, net:

Other (expense) income:

Earnings from equity method investments 127 1,623

Interest expense ( 3,257 ) ( 3,014 )

Loss on extinguishment of debt ( 1,422 ) —

Other 1,238 2,630

Total other income, net 1,239 3,360

Loss before income tax expense ( 12,096 ) ( 8,708 )

Income tax expense 153 209

Total other (expense) income ( 3,314 ) 1,239

Loss before income taxes ( 5,273 ) ( 12,096 )

Income tax (benefit) expense ( 164 ) 153

Net loss $ ( 5,109 ) $ ( 12,249 )

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Balances, January 1, 2023 23,788,319 $ 24 ( 4,618,146 ) $ ( 47,692 ) $ 103,698 $ 83,949 $ 139,979

Stock-based compensation 389,312 1 — — 1,980 — 1,981

Repurchase of common shares to satisfy tax withholdings ( 61,205 ) — — — ( 388 ) — ( 388 )

Accrued dividends cancelled on common stock — — — — — 2 2

Net loss — — — — — ( 8,917 ) ( 8,917 )

Balances, December 31, 2022 23,788,319 $ 24 ( 4,618,146 ) $ ( 47,692 ) $ 103,698 $ 83,949 $ 139,979

Issuance of common stock upon conversion of preferred stock 5,362,926 5 — — 18,921 — 18,926

Issuance of common stock related to PIPE Investment, net of offering costs 3,842,315 4 — — 15,216 — 15,220

Issuance of common stock related to private placement transaction, net of offering costs 3,842,315 4 — — 15,216 — 15,220

Issuance of common stock pursuant to Arq Acquisition, net of offering costs 3,814,864 4 — — 12,433 — 12,437

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Issuance of common stock to related party 527,779 1 — — 999 — 1,000

Repurchase of common shares to satisfy tax withholdings ( 117,175 ) — — — ( 230 ) — ( 230 )

Repurchase of common shares to satisfy minimum tax withholdings ( 117,175 ) — — — ( 230 ) — ( 230 )

Issuance of warrant — — — — 826 — 826

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Balances, December 31, 2023 37,791,084 $ 38 ( 4,618,146 ) $ ( 47,692 ) $ 154,511 $ 71,543 $ 178,400

Issuance of common stock in public offering, net of offering costs 5,485,500 5 — — 26,649 — 26,654

Issuance of common stock related to private placement transaction, net of offering costs 2,142,858 2 — — 14,949 — 14,951

Stock-based compensation 616,684 1 — — 2,714 — 2,715

Issuance of common stock to related party 422,221 1 — — 799 — 800

Exercise of warrant, net 324,955 — — — — — —

Repurchase of common shares to satisfy minimum tax withholdings ( 143,372 ) — — — ( 1,135 ) — ( 1,135 )

Net loss — — — — — ( 5,109 ) ( 5,109 )

Balances, December 31, 2024 46,639,930 $ 47 ( 4,618,146 ) $ ( 47,692 ) $ 198,487 $ 66,434 $ 217,276

See Notes to the Consolidated Financial Statements.

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Net loss $ ( 5,109 ) $ ( 12,249 )

Adjustments to reconcile net loss to net cash used in operating activities:

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation, amortization, depletion and accretion 8,594 10,543

Operating lease expense 2,757 2,709

Gain on sale of Marshall Mine, LLC ( 2,695 ) —

Stock-based compensation expense 2,715 2,648

Earnings from equity method investments ( 1,623 ) ( 3,541 )

Operating lease expense 2,004 2,757

Loss from extinguishment of debt 1,422 —

Amortization of debt discount and debt issuance costs 601 546

Loss (gain) on sale of assets 64 ( 2,731 )

Earnings from equity method investments ( 127 ) ( 1,623 )

Other non-cash items, net 37 ( 75 )

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Receivables and related party receivables 1,316 ( 2,264 )

Prepaid expenses and other current assets 4,777 ( 876 )

Prepaid expenses and other assets 1,166 4,777

Inventories, net 1,636 ( 2,571 )

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Other long-term liabilities ( 1,764 ) 764

Distributions from equity method investees, return on investment — 2,297

Net cash used in operating activities ( 16,653 ) ( 6,061 )

Net cash provided by (used in) operating activities 10,477 ( 16,653 )

Cash flows from investing activities

Acquisition of property, equipment and intangible assets, net ( 27,516 ) ( 8,914 )

Mine development costs ( 2,690 ) ( 583 )

Cash and restricted cash acquired in acquisition of business 2,225 —

Payment for disposal of Marshall Mine, LLC ( 2,177 ) —

Distributions from equity method investees in excess of cumulative earnings 1,623 3,636

Acquisition of property, plant, equipment and intangible assets, net ( 85,170 ) ( 27,516 )

Acquisition of mine development costs ( 181 ) ( 2,690 )

Proceeds from sale of property and equipment 150 —

Distributions from equity method investees in excess of cumulative earnings 127 1,623

Cash and restricted cash acquired in business acquisition — 2,225

Payment for disposal of Marshall Mine, LLC — ( 2,177 )

Net cash used in investing activities ( 85,074 ) ( 28,535 )

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Cash flows from financing activities

Net proceeds from common stock issuance $ 15,220 $ —

Net proceeds from CFG Loan, related party, net of discount and issuance costs 8,522 —

Net proceeds from common stock issued in public offering $ 26,654 $ —

Net proceeds from common stock issued in private placement transactions 14,951 15,220

Borrowings on revolving credit facility 13,828 —

Net proceeds from common stock issued to related party 800 1,000

Principal payments on notes payable ( 10,544 ) ( 473 )

Repurchase of common stock to satisfy tax withholdings ( 1,135 ) ( 230 )

Principal payments on finance lease obligations ( 1,022 ) ( 1,130 )

Net proceeds from common stock issuance, related party 1,000 —

Principal payments on Arq Loan ( 473 ) —

Repurchase of shares to satisfy tax withholdings ( 230 ) ( 388 )

Dividends paid — ( 45 )

Net cash provided by (used in) financing activities 22,909 ( 1,679 )

Payment of debt issuance costs ( 633 ) —

Payment of debt extinguishment costs ( 220 ) —

Net proceeds from CFG Loan, related party, net of discount and issuance costs — 8,522

Net cash provided by financing activities 42,679 22,909

Decrease in Cash and Restricted Cash ( 31,918 ) ( 22,279 )

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Cash paid for interest $ 2,017 $ 1,727

Cash (received) paid for income taxes $ ( 1,697 ) $ 3

Cash received for income taxes $ ( 452 ) $ ( 1,697 )

Supplemental disclosure of non-cash investing and financing activities:

Equity issued as consideration for acquisition of business $ 31,206 $ —

Change in accrued purchases for property and equipment $ 6,198 $ 914

Purchase of property and equipment through note payable $ 1,004 $ —

Equity issued as consideration for acquisition of business $ — $ 31,206

Paid-in-kind dividend on Series A Preferred Stock $ — $ 157

Acquisition of property and equipment under finance lease $ — $ 1,641

See Notes to the Consolidated Financial Statements.

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Nature of Operations

("Arq" or the "Company", formerly known as Advanced Emissions Solutions, Inc.

("ADES")) is a Delaware corporation with its principal office located in Greenwood Village, Colorado, manufacturing, mining and logistic operations located in Louisiana and mining and manufacturing operations in Kentucky.

The Company is an environmental technology company and is principally engaged in the sale of consumable air, water, and soil treatment solutions including activated carbon ("AC") and chemical technologies.

The Company's proprietary AC products enable customers to reduce air, water, and soil contaminants, including mercury, per and polyfluoroalkyl substances ("PFAS") and other pollutants, to help our customers meet the challenges of existing and pending air quality and water regulations.

The Company manufactures and sells AC and other chemicals used to capture and remove contaminants for coal-fired power generation, industrial, municipal water and air, water, and soil treatment and remediation markets (collectively, the advanced purification technologies or "APT" market).

In February 2023, the Company acquired 100 % of the equity of the subsidiaries of Arq Limited (the "Arq Acquisition," and hereafter the Arq Limited subsidiaries referred to as "Legacy Arq") to secure access to a feedstock, a manufacturing facility and certain patented processes as a means to manufacture additional granular activated carbon ("GAC") products for sale into the APT and other markets.

With the Arq Acquisition, the Company now controls bituminous coal waste reserves and owns a manufacturing facility, both located in Corbin Kentucky (the "Corbin Facility"), and a process to recover and purify the bituminous coal fines for sale or further conversion to GAC products.

Under this manufacturing process, the Company expects to be able to convert bituminous coal waste into a purified, microfine carbon powder known as Arq powder TM ("Arq Powder").

("Arq" or the "Company", formerly known as Advanced Emissions Solutions, Inc.) is a Delaware corporation with its principal office located in Greenwood Village, Colorado, with manufacturing, mining and logistics operations located in Louisiana and mining and manufacturing operations in Kentucky.

The Company is an environmental technology company and is principally engaged in the sale of consumable air, water, and soil treatment solutions, primarily based on activated carbon ("AC").

The Company's proprietary AC products enable customers to reduce air, water, and soil contaminants, including mercury, per and polyfluoroalkyl substances ("PFAS") and other pollutants, to meet the challenges of existing and pending air quality and water regulations.

The Company manufactures and sells AC and other chemicals used to capture and remove impurities, contaminants, and pollutants for the coal-fired power generation, industrial, water treatment, and water and soil remediation markets, which we collectively refer to as the advanced purification technologies ("APT") market.

In February 2023, the Company acquired 100 % of the equity interests, assets and liabilities of the subsidiaries of Arq Limited, an environmental technology company incorporated under the laws of Jersey (the "Arq Acquisition," and hereafter the Arq Limited subsidiaries referred to as "Legacy Arq") to secure access to additional U.S.

based bituminous coal feedstock, a manufacturing facility located in Corbin, Kentucky (the "Corbin Facility") and certain patented processes to manufacture new advanced GAC products for sale into the APT and other markets.

Under this manufacturing process, the Company expects to be able to convert recovered bituminous coal fines into a purified, microfine carbon powder known as Arq powder TM ("Arq Powder").

See further discussion of the Arq Acquisition in Note 11.

Principles of Consolidation

The Consolidated Financial Statements include accounts of wholly-owned subsidiaries and variable interest entities ("VIEs") in which the Company is the primary beneficiary.

The Consolidated Financial Statements include accounts of wholly-owned subsidiaries and variable interest entities in which the Company is the primary beneficiary.

All significant intercompany balances and transactions have been eliminated in consolidation.

All investments in partially owned entities for which the Company has the ability to exercise significant influence and holds a 20% or greater ownership interest based on the legal form of the Company's ownership percentage are accounted for using the equity method and are included in the Other long-term assets, net line item in the Consolidated Balance Sheets.

As of December 31, 2023, the Company holds equity interests of 42.5 % and 50.0 % in Tinuum Group, LLC ("Tinuum Group") and Tinuum Services, LLC ("Tinuum Services"), respectively.

As of December 31, 2024, the Company holds an equity interest of 42.5 % in Tinuum Group, LLC ("Tinuum Group").

Cash and restricted cash

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The carrying amounts of our cash, restricted cash, accounts receivable, accounts payable and other current liabilities approximate fair value as recorded due to the short-term nature of these instruments.

and Subsidiaries

Notes to Consolidated Financial Statements

Receivables, net

Receivables, net are recorded at net realizable value, which includes an appropriate allowance for estimated uncollectible amounts to reflect any loss anticipated on the receivables.

Increases and decreases in the allowance for doubtful accounts are established based upon changes in the credit quality of receivables and are included as a component of the General and administrative line item in the Consolidated Statements of Operations.

Increases and decreases in the allowance for doubtful accounts are established based upon changes in the credit quality of receivables and are included as a component of the Selling, general and administrative line item in the Consolidated Statements of Operations.

The allowance for doubtful accounts is based on historical experience, general economic conditions and the credit quality of specific accounts and was no t material as of December 31, 2024 and 2023.

and Subsidiaries

Notes to Consolidated Financial Statements

Inventories, net

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Intangible Assets

Intangible assets consist of customer relationships, patents, and developed technology.

Intangible assets consist of patents and developed technology.

The Company has developed technologies resulting in patents being granted by the U.S.

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(in thousands, except years) Weighted Average Remaining Amortization Period (in years) Cost Net of Accumulated Amortization Cost Net of Accumulated Amortization

Customer relationships 0.0 $ 835 $ — $ 835 $ 226

Patents 10.5 1,705 575 1,600 520

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The Company recognizes equity earnings from equity method investments based on its percentage ownership in the investee.

The Company recognizes distributions received in excess of the carrying value of an equity method investment as equity

and Subsidiaries

Notes to Consolidated Financial Statements

method earnings in the period the distributions occur to the extent that the Company has not guaranteed any obligations of the investee or is not contractually required to provide additional funding to the investee.

The Company recognizes distributions received in excess of the carrying value of an equity method investment as equity method earnings in the period the distributions occur to the extent that the Company has not guaranteed any obligations of the investee or is not contractually required to provide additional funding to the investee.

Subsequent earnings from investees where the Company has recognized earnings from distributions in excess of the carrying value of the equity method investment are recognized for the excess of cumulative earnings over previously recognized earnings from distributions.

Additionally, when the Company's carrying value in an equity method investment is zero, and the Company has not guaranteed any obligations of the investee or is not required to provide additional funding to the investee, the Company will not recognize its share of any reported losses by the investee until future earnings are generated to offset previously unrecognized losses.

Therefore, equity income (loss) reported in the Company's Consolidated Statements of Operations for certain equity method investees may differ from a mathematical calculation of net income or loss attributable to its equity interest based on the percentage ownership of the Company's equity interest and the net income or loss attributable to equity owners as shown in the investee's statements of operations.

and Subsidiaries

Notes to Consolidated Financial Statements

percentage ownership of the Company's equity interest and the net income or loss attributable to equity owners as shown in the investee's statements of operations.

Distributions from equity method investees are reported in the Consolidated Statements of Cash Flows as "return on investment" in Operating cash flows until such time as the carrying value in an equity method investee is reduced to zero.

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Finance lease liabilities are subsequently measured by increasing the carrying amount to reflect interest expense on the finance lease liability and reducing the carrying amount of the lease liability to reflect lease payments made during the period.

and Subsidiaries

Notes to Consolidated Financial Statements

on finance lease liabilities is determined in each period during the lease term as the amount that produces a constant periodic discount rate on the remaining balance of the lease liability.

Interest on finance lease liabilities is determined in each period during the lease term as the amount that produces a constant periodic discount rate on the remaining balance of the lease liability.

ROU assets under finance leases are amortized over the remaining lease term on a straight-line basis.

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Operating lease liabilities are subsequently measured at the present value of the lease payments not yet paid, discounted using the discount rate for the lease established at the inception date of the lease.

ROU assets under operating leases are subsequently measured at the amounts of the related operating lease liability, adjusted for, as applicable, prepaid or accrued lease payments, the remaining balance of any lease incentives received, unamortized initial direct costs and impairment.

ROU assets under operating leases are subsequently measured at the amounts of the related operating lease liability, adjusted for, as applicable, prepaid or accrued lease payments,

and Subsidiaries

Notes to Consolidated Financial Statements

the remaining balance of any lease incentives received, unamortized initial direct costs and impairment.

Lease expense from operating leases is recognized as a single lease cost over the remaining lease term on a straight-line basis.

Variable lease payments not included in operating lease liabilities are recognized as expense in the period in which the obligation for those payments is incurred.

Lease expense from operating leases is included in the "General and administrative" and "Consumables Cost of revenue, excluding depreciation and amortization" line items in the Consolidated Statements of Operations.

Lease expense from operating leases is included in the "Selling, general and administrative" and "Cost of revenue, exclusive of depreciation and amortization" line items in the Consolidated Statements of Operations.

Mine Development Costs

Mine development costs are related to the Five Forks Mine and are stated at cost less accumulated depletion and include acquisition costs, the cost of other development work and mitigation costs.

Costs are amortized over the estimated life of the related mine reserves, which as of December 31, 2023 is estimated to be 14 years.

Costs are amortized over the estimated life of the related mine reserves, which as of December 31, 2024 is estimated to be approximately 14 years.

The Company performs an evaluation of the recoverability of the carrying value of mine development costs to determine if facts and circumstances indicate that their carrying value may be impaired and if any adjustment is warranted.

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Transfer of control and satisfaction of performance obligations are further discussed below.

The Company uses estimates and judgments in determining the nature and timing of satisfaction of performance obligations, the standalone selling price ("SSP") of performance obligations and the allocation of the transaction price to multiple performance obligations, if any.

The Company’s revenue component is Consumables.

The Company is principally engaged in the sale of consumable products that utilize AC and chemical-based technologies to a broad range of customers, including coal-fired utilities, industrial and water treatment plants, and other diverse markets.

The sale of consumable products is comprised of a single performance obligation and is recognized at the point in time when control transfers and the Company's obligation has been fulfilled, which is when the product is shipped or delivered to a customer.

The Company uses estimates and judgments in determining the nature and timing of satisfaction of performance obligations, the standalone selling price of performance obligations and the allocation of the transaction price to multiple performance obligations, if any.

The Company is principally engaged in the sale of consumable products, which are primarily AC products, to a broad range of customers, including coal-fired utilities, industrial and water treatment plants, and other diverse markets.

Performance obligations for the sale of consumable products do not extend beyond one year.

and Subsidiaries

Notes to Consolidated Financial Statements

Certain contracts with customers require the customers to purchase minimum quantities over the contractual period ("MQ Contracts").

Under these MQ Contracts, the Company reserves the right to bill a customer for any shortfall in the actual quantity purchases and minimum quantity purchases as of the end of the contractual period.

The Company recognizes revenue on MQ Contracts based on the satisfaction of all three of the following criteria:

(1) the likelihood of a customer not meeting its MQ contract obligations is probable, (2) the amount of the shortfall can be quantified and (3) the Company elects to exercise it right to enforce the billing of the shortfall at some point during the contractual period through a billing subsequent to the contractual period.

The determination of when all three criteria are satisfied requires significant judgment.

The Company recognizes revenue on MQ Contracts generally at the end of a contractual period and at a point in time when it has determined it will enforce billing the shortfall and the shortfall can be quantified.

The Company performs shipping and handling activities through the use of third-party shippers and such activities occur prior to a customer obtaining control of goods.

As such, the Company accounts for these activities as fulfillment activities and not as separate performance obligations.

Shipping and handling costs incurred by the Company in delivering products to customers are billed to customers and are included in the transaction price and included in the "Revenue - Consumables" line item in the Consolidated Statements of Operations.

Costs for shipping and handling activities incurred by the Company are included in the "Consumables cost of revenue, excluding depreciation and amortization" line item in the Consolidated Statements of Operations.

Shipping and handling costs incurred by the Company in delivering products to customers are billed to customers and are included in the transaction price and included in the "Revenue" line item in the Consolidated Statements of Operations.

Costs for shipping and handling activities incurred by the Company are included in the "Cost of revenue, exclusive of depreciation and amortization" line item in the Consolidated Statements of Operations.

and Subsidiaries

Notes to Consolidated Financial Statements

Practical Expedients and Exemptions

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Sales and other taxes that are collected concurrently with revenue-producing activities are excluded from revenue.

The Company generally expenses sales commissions when incurred, as the amortization period of the asset that the Company would have recognized is one year or less.

These costs are recorded in sales and marketing expenses in the "General and administrative" line item in the Consolidated Statements of Operations.

Consumables Cost of Revenue

Consumables cost of revenue includes all labor, fringe benefits, subcontract labor, additive and coal costs, materials, equipment, supplies, travel costs and any other costs and expenses directly related to the Company’s production of revenue.

The Company generally expenses sales commissions, if any, when incurred, as the amortization period of the asset that the Company would have recognized is one year or less.

These costs are recorded in sales and marketing expenses in the "Selling, general and administrative" line item in the Consolidated Statements of Operations.

Cost of Revenue

Cost of revenue includes all labor, fringe benefits, subcontract labor, additive and coal costs, materials, equipment, supplies, travel costs and any other costs and expenses directly related to the Company’s production of revenue.

License Royalties Payable to Tinuum Group

In December 2022, the Company and Tinuum Group entered into an agreement (the "Tinuum Group Royalty Agreement") whereby the Company agreed to pay Tinuum Group a royalty (the "Tinuum Group Royalty") on sales of M-Prove TM to certain power plants where Tinuum Group had operated refined coal facilities (the "M-45 Facilities") prior to the expiration of the Section 45 Tax Credit Program on December 31, 2021.

In December 2022, the Company and Tinuum Group entered into an agreement (the "Tinuum Group Royalty Agreement") whereby the Company agreed to pay Tinuum Group a royalty (the "Tinuum Group Royalty") on sales of M-Prove TM to certain power plants where Tinuum Group had operated refined coal facilities (the "Refined Coal Facilities") prior to the expiration of the Section 45 Tax Credit Program on December 31, 2021.

Amounts due under the Tinuum Group Royalty Agreement commenced on January 1, 2022.

The Tinuum Group Royalty is calculated based on "Net Profit" (as defined in the Tinuum Royalty Agreement) on the Company's sales of M-Prove TM product to the M-45 Facilities.

The Tinuum Group Royalty is calculated based on "Net Profit" (as defined in the Tinuum Royalty Agreement) on the Company's sales of M-Prove TM product to the Refined Coal Facilities.

The Tinuum Group Royalty Agreement is for an initial term of five years with automatic renewals of five years unless the Company and Tinuum Group agree to terminate it.

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Payroll and Benefits

Payroll and benefits costs include payroll costs, payroll related fringe benefits and stock based compensation expense of research and development, sales and administrative personnel, but exclude such costs related to direct labor that are included in Cost of revenue.

Payroll and benefits costs include direct payroll, personnel related fringe benefits, sales and administrative staff labor costs and stock compensation expense.

Payroll and benefits costs exclude direct labor included in Cost of revenue.

Payroll and benefits costs include direct payroll costs, payroll related fringe benefits, stock based compensation expense and other labor costs related to sales and administrative personnel, but exclude such costs related to direct labor that are included in Cost of revenue or Research and development.

Legal and Professional

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General and administrative costs include director fees and expenses, rent, insurance and occupancy-related expenses, bad debt expense, impairments, research and development and other general costs of conducting business.

and Subsidiaries

Notes to Consolidated Financial Statements

Research and Development

Research and development costs are charged to expense in the period incurred and are reported within the "Payroll and Benefits" and "General and administrative" line items in the Consolidated Statements of Operations.

Research and development costs include payroll expenses related to research and development personnel and other expenses incurred related to research and development activities and are charged to expense in the period incurred.

Research and development costs are reported within the "Research and development" line item in the Consolidated Statements of Operations.

For the years ended December 31, 2024 and 2023, the Company recorded total research and development costs of $ 4.1 million and $ 3.3 million, respectively.

Asset Retirement Obligations

Asset retirement obligations ("ARO") are comprised of mine reclamation activities required under agreements related primarily to the Five Forks Mine and a coal waste site adjacent to the Corbin Facility (the "Corbin ARO") and are recognized when incurred and recorded as liabilities at fair value.

Asset retirement obligations ("ARO") are comprised of mine reclamation activities required under agreements related primarily to the Five Forks Mine and a coal fine impoundment adjacent to the Corbin Facility (the "Corbin ARO") and are recognized when incurred and recorded as liabilities at fair value.

An ARO is accreted over time through periodic charges to earnings.

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On an annual basis, unless otherwise deemed necessary, the Company reviews its estimates and assumptions of its AROs.

and Subsidiaries

Notes to Consolidated Financial Statements

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.

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Forfeitures are recognized when incurred.

Stock-based compensation expense related to manufacturing employees and administrative employees is included in the "Consumables Cost of revenue, exclusive of depreciation and amortization" and "Payroll and benefits" line items, respectively, in the Consolidated Statements of Operations.

Stock-based compensation expense related to non-employee directors and consultants is included in the "General and administrative" line item in the Consolidated Statements of Operations.

Stock-based compensation expense related to manufacturing employees and administrative employees is included in the "Cost of revenue, exclusive of depreciation and amortization" and "Selling, general and administrative" line items, respectively, in the Consolidated Statements of Operations.

Stock-based compensation expense related to non-employee directors and consultants is included in the "Selling, general and administrative" line item in the Consolidated Statements of Operations.

When a sufficient amount of available earnings exists at the time of a dividend declaration, dividends are charged to Retained earnings when declared.

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The treasury stock method is used to determine the dilutive effect of potentially dilutive securities.

and Subsidiaries

Notes to Consolidated Financial Statements

Potentially dilutive securities consist of restricted stock awards ("RSAs") and contingent performance stock units ("PSUs") (collectively, "Potential dilutive shares").

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The following table sets forth the calculations of basic and diluted earnings (loss) per common share:

and Subsidiaries

Notes to Consolidated Financial Statements

Years Ended December 31,

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Risks and Uncertainties

The Company is principally dependent on operations of its APT business and its cash on hand to provide liquidity over the near and long term.

The Company is principally dependent on operations of its APT business, its cash on hand, and availability under its recently secured revolving credit facility (the "Revolving Credit Facility") to provide liquidity over the near and long term.

The Company's revenue, sales volumes, earnings and cash flows are significantly affected by prices of competing power generation sources such as natural gas and renewable energy.

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As a result, the Company's operating results are subject to seasonal variations whereby its revenue and cost of revenue tend to be higher in its first and third fiscal quarters compared to its second and fourth fiscal quarters.

Abnormal temperatures during the summer and winter months may significantly affect coal

Abnormal temperatures during the summer and winter months may significantly affect coal consumption and impurities within various municipalities' water sources, and thus impact the demand for the Company's products.

Another significant market driver for the Company’s existing products and services and those planned in the future are existing and expected environmental laws and regulations, particularly those addressing the reduction of mercury and other emissions from coal-fired electricity generating units and regulation of PFAS and other pollutants.

For example, the Company expects revenue and sales volumes to increase in the coming years as a result of U.S.

Environmental Protection Agency regulations of PFAS substances in drinking water finalized in April 2024.

If, as a result of the new U.S.

presidential administration or developments in administrative law jurisprudence, such laws and regulations are delayed, not enacted, repealed, amended to be less strict, or include prolonged phase-in periods, or are not enforced, the Company’s business would be adversely affected by declining demand for such products and services.

and Subsidiaries

Notes to Consolidated Financial Statements

consumption and impurities within various municipalities' water sources, and thus impact the demand for the Company's products.

Reclassifications

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Recently Adopted

Effective January 1, 2023, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments ("ASU 2016-13").

The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

The adoption of ASU 2016-13 did not have a material impact on the Company's financial statements and disclosures.

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

Upon adoption of this ASU, the company has disclosed significant segment expenses, the title and position of the CODM, and an explanation of how the reported measure of segment profit or loss is used by the CODM to assess segment performance and make resource allocation decisions.

Effective December 31, 2024, the company adopted the provisions of this ASU on a retrospective basis.

Refer to Note 16.

Recently Issued

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The Company is currently evaluating the impact of ASU 2023-09 on its income tax disclosures.

Note 2 - Arq Acquisition

On February 1, 2023 (the "Acquisition Date"), the Company entered into a securities purchase agreement (the "Purchase Agreement") with Arq Ltd.

for the Arq Acquisition in exchange for consideration (the "Purchase Consideration") totaling $ 31.2 million and consisting of (i) 3,814,864 shares of the Company's common stock, par value $ 0.001 per share (the "Common Stock"), valued at $ 12.4 million based on the closing price of the Common Stock on the Acquisition Date and (ii) 5,294,462 shares of the Company's Series A Convertible Preferred Stock, par value $ 0.001 per share (the "Series A Preferred Stock" or the "Preferred Shares"), valued at $ 18.8 million.

The Company also incurred $ 8.7 million in acquisition-related costs, which have been expensed as incurred.

Legacy Arq's principal location is in Corbin, Kentucky where it operates the Corbin Facility, which processes bituminous coal waste into Arq Powder and can be used as an alternative to oil or in-ground mined coal to produce a range of carbon products.

With the completion of the Arq Acquisition, the Company intends to sell Arq Powder as a feedstock to produce high-quality AC for use in water and air purification markets.

The Company expects to begin using Arq Powder to produce granular activated carbon products by the end of 2024.

The Company accounted for the Arq Acquisition as an acquisition of a business.

The total Purchase Consideration was $ 31.2 million and was allocated to the acquired assets and assumed liabilities of Legacy Arq based on their estimated fair values as of the Acquisition Date.

The Purchase Consideration was comprised of the fair values as of the Acquisition Date of 3,814,864 shares of Common Stock, valued at $ 12.4 million, and 5,294,462 Preferred Shares, valued at $ 18.8 million.

The Company also incurred $ 8.7 million in acquisition-related costs, which were expensed as incurred and included in the "General and administrative" and "Legal and professional fees" line items in the Statements of Operations.

and Subsidiaries

Notes to Consolidated Financial Statements

The following table provides the final purchase price allocation to the assets acquired and liabilities assumed as of the date of the Arq Acquisition:

(in thousands) Purchase Price Allocation

Fair value of assets acquired:

Prepaid expenses and other current assets 2,229

Restricted cash, long-term 814

Property, plant and equipment, net 39,159

Other long-term assets, net 11,717

Amount attributable to assets acquired 55,330

Fair Value of liabilities assumed:

Accounts payable and accrued expenses 9,806

Current portion of long-term debt 494

Other current liabilities 103

Long-term debt, net of current portion 9,199

Other long-term liabilities 4,523

Amount attributable to liabilities assumed 24,125

Net assets acquired $ 31,205

The following represents the intangible asset identified as part of the Arq Acquisition and which is included in "Other long-term-assets, net" in the table above:

(in thousands) Amount Weighted Average Useful Life (years)

Developed technology $ 7,700 20

Series A Preferred Stock

In connection with the issuance of the Series A Preferred Stock pursuant to the Purchase Agreement, the Company filed the Certificate of Designations of Preferred Stock for the Series A Preferred Stock (the "Certificate of Designations") with the Secretary of State of the State of Delaware.

Under the Certificate of Designations, 8.9 million preferred shares were designated as Series A Preferred Stock.

On June 13, 2023 (the "Conversion Date"), the Company's stockholders approved the conversion of all of the outstanding shares of Series A Preferred Stock, including the "Escrow Shares," as defined below, and the corresponding issuance of shares of Common Stock.

Upon such approval, each outstanding share of Series A Preferred Stock was automatically converted into the number of shares of Common Stock described below.

Each share of Series A Preferred Stock was deemed to have an original issue price of $ 4.00 per share (the "Original Issue Amount").

The number of shares of Common Stock issued upon conversion of each share of Series A Preferred Stock was equal to the product of (i) the sum of (A) the Original Issue Amount plus (B) an amount equal to the cumulative amount of the accrued and unpaid dividends on such share at such time divided by (ii) the Original Issue Amount, subject to adjustment.

Holders of the Series A Preferred Stock were entitled to receive cumulative dividends, which accrued quarterly on the last day of each applicable quarter (whether or not declared or funds for their payment are lawfully available) and were payable quarterly, in arrears, on the earlier to occur of (a) the date any dividend is paid to holders of Common Stock with respect to such quarter and (b) 30 days after the end of each quarter (the "Series A Quarterly Dividend") at the rate per share of Series A Preferred Stock equal to the greater of (i) if the Company declared a cash dividend on the Common Stock with respect to such quarter, the amount of the cash dividend that would be received by a holder of Common Stock in which such share of Series A Preferred Stock would be convertible on the record date for such cash dividend and (ii) an annual rate (the "Rate") of 8.0 % of

and Subsidiaries

Notes to Consolidated Financial Statements

the Original Issue Amount compounded quarterly with respect to such quarter.

On March 31, 2023, the Company declared a dividend of 68,464 Series A PIK Shares with respect to the accrued dividends on the Preferred Shares for the first quarter of 2023 (the "PIK Dividend").

The PIK Dividend was recorded at the estimated fair value of $ 0.2 million as of March 31, 2023 and was paid on April 21, 2023.

Of the total Preferred Shares issued in the Arq Acquisition, 833,914 were held in escrow (the "Escrow Shares") based on a contingent redemption feature, (the "Contingent Redemption Feature," as defined below).

The fair value of the Preferred Shares issued was determined to be $ 3.46 per Preferred Share on the Acquisition Date (the ("Preferred Share Price") plus the value of the Contingent Feature related to the Escrow Shares.

The Escrow Shares were converted into shares of Common Stock on the Conversion Date and continue to be held in escrow (the "Escrow Common Shares").

The Escrow Common Shares are being withheld pending a determination by the IRS that no tax withholding is required on the Purchase Consideration issued to Arq Ltd.

(the "Arq Ltd.

Tax Liability").

The Company estimated the fair value of the potential Arq Ltd.

Tax Liability at $ 3.3 million.

In the event that the IRS determines that no withholding is required by Arq Ltd.

in connection with the Purchase Consideration received by Arq Ltd., all of the Escrow Common Shares will be released and delivered to Arq Ltd.

In the event that the IRS determines that any amount of withholding is required by Arq Ltd., the Company has agreed to redeem a sufficient number of Escrow Common Shares to fund the required payment to the IRS, and that number of Escrow Common Shares will be returned to the Company.

The number of Escrow Common Shares to be returned to the Company is equal to the required withholding amount divided by the Original Issue Amount, not to exceed a maximum of 833,914 Escrow Common Shares, and is equal to $ 3.3 million based on the Original Issue Amount (the "Maximum Contingent Redemption Amount").

The fair value of the Preferred Escrow Shares was determined on the Acquisition Date and was comprised of the Maximum Contingent Redemption Amount and the fair value of the non-escrowed Preferred Shares ("Non-Preferred Escrow Shares").

The Series A Preferred Stock contained a mandatory redemption feature in the event the Preferred Shares, including future issuances of Series A Preferred Stock issued under dividend requirements, were not converted into shares of Common Stock prior to February 1, 2028.

The Company concluded that both the Escrow Shares and the Non Escrow Shares did not meet the definition of mandatorily redeemable financial instruments as there was a substantive conversion feature, and were therefore not classified as liabilities.

As both the Escrow Shares and Non Escrow Shares represented financial instruments that were redeemable for cash, SEC guidance mandates that preferred securities which are redeemable upon the occurrence of an event that is not solely within the control of the issuer be classified outside of permanent equity as "temporary equity." Accordingly, the Company classified and reported the Series A Preferred Stock as temporary equity and in the Consolidated Balance Sheet as of as of the Acquisition Date.

On the Conversion Date, all shares of Series A Preferred Stock were converted into 5,362,926 shares of Common Stock, and the Company reclassified all of the Series A Preferred Stock to Common Stock as of June 30, 2023.

PIPE Investment

On February 1, 2023 and pursuant to the Arq Acquisition, the Company entered into Subscription Agreements with certain persons (the "Subscribers"), which included existing shareholders of Arq Ltd., three of which were appointed to the Company's Board of Directors (the "Board"), pursuant to which the Subscribers subscribed for and purchased 3,842,315 shares of Common Stock for an aggregate purchase price of $ 15.4 million and at a price per share of $ 4.00 (such transaction, the "PIPE Investment").

and Subsidiaries

Notes to Consolidated Financial Statements

Unaudited Pro Forma Financial Information

The following represents the pro forma effects of the Arq Acquisition as if it had occurred on January 1, 2022.

The pro forma net loss for each of the two years presented has been calculated after applying the Company’s accounting policies in effect for those years.

In addition, pro forma net loss includes:

(1) for the years ended December 31, 2023 and 2022, increases in depreciation and amortization resulting from fair value adjustments to Property, plant, equipment of $ 0.2 million and $ 0.1 million, respectively;

(2) for the years ended December 31, 2023 and 2022, increases in amortization resulting from fair value adjustments to Intangibles of $ 0.1 million and $ 0.4 million, respectively;

(3) for the year ended December 31, 2023 and 2022, increases to interest expense for:

(a) the issuance of the CFG Loan (as defined below) including stated interest and the amortization of the CFG Loan's discount and issuance costs and (b) amortization of debt discount related to a fair value adjustment to the assumed CTB Loan (as defined below) of Arq of $ 0.2 million and $ 2.0 million, respectively;

(4) the removal of $ 1.9 million of Payroll and benefits for compensation expense payable to certain Arq employees triggered by change in control provisions in employment agreements, as well as in employee severance agreements, for the year ended December 31, 2023 but included as additional Payroll and benefits expense for the year ended December 31, 2022;

(5) for the years ended December 31, 2023 and 2022, decreases to general and administrative expenses resulting from fair value adjustments to operating leases acquired of $ 0.1 million and $ 0.5 million, respectively, and (6) for the year ended December 31, 2022, the addition of $ 2.4 million of transaction costs incurred for the period from January 1, 2023 through the Arq Acquisition Date, together with the income tax effects on (1) through (6).

Since Arq had no revenue for the years ended December 31, 2023 or 2022, pro forma revenue is the same as the Company's reported revenue for those years.

Years ended December 31,

(in thousands) 2023 2022

Revenue $ 99,183 $ 102,987

Net loss $ ( 11,119 ) $ ( 75,788 )

The amounts of year to date revenue and net loss for Arq for the period from the Acquisition Date to December 31, 2023 are as follows:

Year ended December 31,

(in thousands) 2023

Net loss $ ( 11,660 )

Note 2 - Inventories, net

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For the years ended December 31, 2024 and 2023, all material performance obligations related to revenue recognized were satisfied at a point in time.

For each of the years ended December 31, 2023 and 2022, approximately 8 %, respectively, of Consumables revenue was generated in Canada, and all other revenue was generated in the U.S.

In accordance with its revenue recognition policy for MQ Contracts, in December 2023, the Company exercised its right under certain MQ Contracts and recognized $ 4.7 million of consumables revenue and recorded an unbilled receivable.

Trade receivables

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The timing between the satisfaction of performance obligations and when payment is due from the customer is generally not significant.

Contract assets

Contract assets are comprised of unbilled receivables from customers and are included in Receivables, net in the Consolidated Balance Sheets.

Unbilled receivables represent a conditional right to consideration in exchange for goods or services transferred to a customer.

Other receivables

The Company exercised its right under certain MQ Contracts and recognized $ 1.6 million and $ 4.7 million of revenue from MQ Contracts for the years ended December 31, 2024 and 2023, respectively.

Receivables from MQ contracts are included as "Other receivables" within Receivables, net on the Consolidated Balance Sheets.

The following table shows the components of the Company's Receivables, net:

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Trade receivables, net $ 13,265 $ 11,289

Unbilled receivables 4,862 —

Other 1,611 4,903

Receivables, net $ 14,876 $ 16,192

Contract assets

Contract assets are comprised of unbilled receivables from customers and are included in Receivables, net in the Consolidated Balance Sheets.

Unbilled receivables represent a conditional right to consideration in exchange for goods or services transferred to a customer.

The Company did no t have material contract assets outstanding as of December 31, 2024 and 2023.

and Subsidiaries

2 unchanged sentences

Contract liabilities are comprised of deferred revenue, which represents an obligation to transfer goods or services to a customer for which the Company has received consideration from the customer and, if deliverable within one year or less, is included in "Other current liabilities" in the Consolidated Balance Sheets and, if deliverable outside of one year, is included in "Other long-term liabilities" in the Consolidated Balance Sheets.

The Company did no t have material contract liabilities outstanding as of December 31, 2024 and 2023.

Note 5 - Debt Obligations

(in thousands) December 31, 2024 December 31, 2023

CFG Loan due February 2027, related party $ 10,000 $ —

Revolving credit agreement $ 13,828 $ —

CTB Loan due January 2036 8,983 9,527

Finance lease obligations 1,269 3,465

CFG Loan due February 2027, related party — 10,000

Other 1,004 —

25,084 22,992

Unamortized debt discounts ( 24 ) ( 815 )

Unamortized debt issuance costs ( 238 ) ( 1,250 )

24,822 20,927

Current maturities ( 15,452 ) ( 2,653 )

Total long-term debt obligations $ 9,370 $ 18,274

CFG Term Loan

As required under the Purchase Agreement, and on February 1, 2023 (the "Closing Date"), the Company, as borrower, certain of its subsidiaries, as guarantors, and CF Global ("CFG"), a related party, as administrative agent and lender (the "Lender"), entered into a term loan (the "CFG Loan") in the amount of $ 10.0 million, less original issue discount ("OID") of $ 0.2 million, upon execution of a Term Loan and Security Agreement (the "CFG Loan Agreement").

Revolving Credit Agreement

In December 2024, the Company and certain of its subsidiaries entered into a credit agreement (the “Revolving Credit Agreement”) with MidCap Funding IV Trust (the "Lender"), providing for a five-year $ 30.0 million secured revolving credit facility (the "Revolving Credit Facility").

Pursuant to the terms of the Revolving Credit Facility, Arq may borrow up to $ 30.0 million, the availability of which is determined based on a borrowing base equal to percentages of certain eligible accounts receivable and inventory carrying balances of the Company and certain of its subsidiaries, less applicable reserves established under the Revolving Credit Facility (together, the "Revolving Loan Commitment"), in accordance with a formula set forth in the Revolving Credit Facility.

All borrowings under the Revolving Credit Facility are subject to the satisfaction of customary conditions, including the absence of default, the accuracy of representations and warranties in all material respects and the delivery of an updated borrowing base certificate on a periodic basis.

The Company's obligations under the Revolving Credit Facility are secured by first-priority liens on substantially all of the Company's assets, including, without limitation, all inventory, equipment, accounts, intellectual property and other assets, subject to certain negotiated exceptions.

Borrowings under the Revolving Credit Facility bear interest at the Standard Overnight Financing Rate (SOFR) plus an applicable margin of 4.50 % per annum, subject to a SOFR floor of 2.50 % per annum.

In addition to paying interest on the outstanding loans under the Revolving Credit Facility, the Company is also required to pay an unused line fee equal to 0.50 % per annum in respect of unused commitments under the Revolving Credit Facility, a fee for failure to maintain a minimum balance under the Revolving Credit Facility, a collateral management fee under the Revolving Credit Facility equal to 0.25 % per annum of the amount outstanding under the Revolving Credit Facility, and certain other customary fees related to the Lender's administration of the Revolving Credit Facility.

If the Revolving Loan Commitment is terminated prior to its maturity date, the Company is required to make certain prepayment fees in an amount equal to (i) 2.00 % of the terminated amount of the Revolving Loan Commitment in the first year following the Closing Date, (ii) 1.00 % of the terminated amount of the Revolving Loan Commitment in the second year following the Closing Date, (iii) 0.50 % of the terminated amount of the Revolving Loan Commitment in the third year following the Closing Date and (iv) 0.00 % at any time thereafter.

The Revolving Credit Facility contains affirmative and negative covenants customarily applicable to senior secured credit facilities, including, without limitation, covenants that, among other things, require delivery of certain financial statements, projections and reports, require maintenance of property and insurance, limit or restrict the ability of the Company, subject to

and Subsidiaries

Notes to Consolidated Financial Statements

negotiated exceptions, to incur additional indebtedness and additional liens on their assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments, and change the nature of their businesses.

In addition, the Revolving Credit Facility requires the Borrowers to maintain their aggregate Total Leverage Ratio at or below a maximum leverage ratio and to maintain a minimum cash balance of $ 5.0 million, in each case as specified in the Revolving Credit Facility.

As of December 31, 2024, the Company's borrowings under the Revolving Credit Facility totaled 13.8 million.

On February 1, 2023, the Company, as borrower, certain of its subsidiaries, as guarantors, and CF Global ("CFG"), a related party, as administrative agent and lender, entered into a term loan (the "CFG Loan") in the amount of $ 10.0 million, less original issue discount ("OID") of $ 0.2 million, upon execution of a Term Loan and Security Agreement (the "CFG Loan Agreement").

The Company received net cash proceeds of $ 8.5 million after deducting the OID and debt issuance costs of $ 1.3 million.

The CFG Loan Agreement also required the issuance of a warrant (the "Warrant") to CFG to purchase 325,457 shares of Common Stock (the "Warrant Shares"), which represented 1 % of the post-Arq Acquisition and PIPE Investment (as defined below) fully diluted share capital (as defined in the CFG Loan Agreement), at an exercise price of $ 0.01 per share.

The Warrant has a term of 7 years and contains a cashless exercise provision.

The Company allocated the cash proceeds of the CFG Loan Agreement to both the CFG Loan and the Warrant based on their relative fair values.

One of the Company's directors is a principal with CFG.

The CFG Loan Agreement also required the issuance of a warrant (the "Warrant") to CFG to purchase 325,457 shares of the Company's common stock at an exercise price of $ 0.01 per share.

The Warrant had a term of 7 years and contained a cashless exercise provision.

On March 29, 2024, CFG exercised the warrant in full and the Company issued CFG 324,955 shares of its common stock, net of shares representing the exercise price of the warrant.

The Company allocated the cash proceeds of the CFG Loan to both the CFG Loan and the Warrant based on their relative fair values.

The amount allocated to the Warrant was recorded as a debt discount and is amortized to interest expense over the term of the CFG Loan.

The standalone fair value of the CFG Loan was based on a comparison of borrowings and associated credit ratings consistent with those of the Company.

The Warrant is exercisable for $ 0.01 per share, and the fair value is deemed to be equal to the fair value of the underlying shares.

Accordingly, the fair value of the Warrant was determined as the number of shares issuable from the exercise of the Warrant (based on 1.0 % of post-transaction fully diluted share capital, as defined in the Purchase Agreement) multiplied by the closing share price of the Company's common stock on the Acquisition Date.

The CFG Loan matures on February 1, 2027 and bears interest at a rate equal to either (a) Adjusted Term SOFR (subject to a 1.00 % floor and a cap of 2.00 %) plus a margin of 9.00 % paid in cash and 5.00 % paid in kind or (b) Base Rate plus a margin of 8.00 % paid in cash and 5.00 % paid in kind, which interest on the CFG Loan in each case shall be payable (or capitalized, in the case of in kind interest) quarterly in arrears.

The Company may prepay the CFG Loan at any time subject to the following prepayment premium:

(i) prior to the twelve month anniversary of the Closing Date, the Make-Whole Amount (as defined below), (ii) thereafter but prior to the thirty-six month anniversary of the Closing Date, 2.00 % of the outstanding principal amount of the CFG Loan being repaid or prepaid or (iii) thereafter until the maturity date, 1.00 % of the outstanding principal amount of the CFG Loan being repaid or prepaid.

The "Make-Whole Amount," with respect to any repayment or prepayment, is (i) an amount equal to all required interest payable (except for currently accrued and unpaid interest) on the aggregate principal amount of the CFG Loan subject to such

and Subsidiaries

Notes to Consolidated Financial Statements

prepayment or repayment from the date of such prepayment or repayment through but excluding the date that is the first anniversary of the Closing Date calculated using an interest rate equal to (x) Adjusted Term SOFR for an interest period of one month in effect on the third U.S.

Government Securities Business Day prior to such prepayment or repayment plus (y) 14.00 % per annum and assuming all interest was paid in cash, plus (ii) a prepayment premium of 2.00 % on the aggregate principal amount of the CFG Loan subject to such prepayment or repayment.

The CFG Loan is secured by substantially all of the assets of the Company and its subsidiaries (including those acquired in the Arq Acquisition, but excluding those pledged as collateral (the "Arq Loan Assets") under the "CTB Loan," as defined and described below), subject to customary exceptions.

The CFG Loan Agreement includes, among others, the following covenants:

(1) beginning with the first fiscal quarter after March 31, 2023 and as of the end of each fiscal quarter thereafter, the Company must maintain a minimum unrestricted cash balance of $ 5.0 million;

(2) (x) as of December 31, 2023, for the fiscal year then ended, the Company must have a minimum annual revenue, on a consolidated basis, of $ 70.0 million, (y) as of December 31, 2024, for the fiscal year then ended, the Company must have a minimum annual revenue, on a consolidated basis, of $ 85.0 million and (z) for any fiscal year thereafter, the Company must have a minimum annual revenue, on a consolidated basis, of $ 100.0 million;

(3) (x) as of December 31, 2024, for the fiscal year then ended, the Company must have a minimum Consolidated EBITDA of $ 3.0 million and (y) for any fiscal year thereafter, the Company must have a minimum Consolidated EBITDA of $ 16.0 million;

and (4) beginning after the fiscal quarter ending September 30, 2023, during an LTV Trigger Period, Arq must not exceed a loan to value ratio of 0.40 :1.00 (based on the consolidated total assets of the Company and its subsidiaries, but excluding the Arq Loan Assets).

CTB Term Loan

As consideration in the Arq Acquisition, the Company assumed a term loan (the "CTB Loan") held by certain Arq subsidiaries, as borrowers, as set out in the Arq Loan (the "Arq Subsidiaries") held by Community Trust Bank ("CTB") in the principal amount of $ 10.0 million.

As the Warrant was exercisable for $ 0.01 per share, the fair value was deemed to be equal to the fair value of the underlying shares, and accordingly, the fair value of the Warrant was determined as the number of shares issuable from the exercise of the Warrant (based on 1.0 % of post-transaction fully diluted share capital, as defined in the Purchase Agreement) multiplied by the closing share price of the Company's common stock on the Acquisition Date.

On December 27, 2024, the Company elected to prepay its outstanding balance under the CFG Loan and terminate the CFG Loan Agreement.

The Company made a final payment of $ 11.5 million to CF Global, which included payment of outstanding principal and accrued interest of $ 11.1 million, a prepayment premium of approximately $ 0.2 million, as determined by the prepayment provision of the CFG Loan Agreement, and was equal to 2.0 % of the carrying balance of the CFG Loan, and other fees and expenses amounting to approximately $ 0.2 million.

In connection with the termination of the CFG Loan Agreement, the Company recognized a loss of $ 1.4 million, which is presented within the Loss on extinguishment of debt line item in the Consolidated Statement of Operations for the year ended December 31, 2024.

Upon completion of the Arq Acquisition, the Company assumed a term loan (the "CTB Loan") held by certain Arq subsidiaries as set out in the CTB Loan (the "Arq Subsidiaries") with a financial institution ("CTB") in the principal amount of $ 10.0 million.

The Company recorded the CTB Loan on the Acquisition Date at its estimated fair value of $ 9.7 million, with the difference of $ 0.3 million between the estimated fair value and the principal amount recorded as a debt discount and recognized as interest expense over the term of the CTB Loan.

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The Notes mature on January 27, 2036 and bear interest at 6.0 % per annum through January 2026 and at the prime rate plus 2.75 % thereafter.

Beginning January 27, 2023 and for the balance of the term of the CTB Loan, the Arq Subsidiaries are required to make combined interest and principal payments monthly in the fixed amount of $ 0.1 million.

The Company is required to make combined interest and principal payments monthly in the fixed amount of $ 0.1 million.

Interest is computed and payable on the outstanding principal as of the end of the prior month and the balance of the fixed monthly payment amount is applied to the outstanding principal.

The Notes carry a prepayment penalty of 3.0 % of the outstanding principal if paid prior to January 27, 2024, 2.0 % of the outstanding principal if paid prior to January 27, 2025 and 1.0 % of the outstanding principal if paid prior to January 27, 2026.

Thereafter, the CTB Loan may be prepaid without penalty.

Thereafter, the Notes may be prepaid without penalty.

On June 2, 2023 (the "Amendment Date"), certain of the Arq Subsidiaries, which included Corbin Project LLC, Arq Projects Holding Company LLC, Arq St.

Rose LLC, Arq Corbin LLC and Arq Corbin Land LLC (collectively, the "Borrowers") and CTB entered into a loan modification agreement (the "CTB Loan Modification Agreement") to the CTB Loan, as amended by that certain letter agreement by and among the CTB and Borrowers dated January 21, 2022, and as otherwise amended, modified and/or extended by the parties from time to time (collectively, the "CTB Loan Agreement").

Rose LLC, Arq Corbin LLC and Arq Corbin Land LLC (collectively, the "Borrowers") and CTB entered into a loan modification agreement (the "CTB Loan Modification Agreement") to the CTB Loan, as amended by that certain letter agreement by and among CTB and Borrowers dated January 21, 2022, and as otherwise amended, modified

and Subsidiaries

Notes to Consolidated Financial Statements

and/or extended by the parties from time to time (collectively, the "CTB Loan Agreement").

As consideration for CTB entering into the CTB Loan Modification Agreement, the Borrowers agreed to pay a fee of $ 50,000 plus additional fees incurred by CTB and were required to deposit an additional $ 0.7 million into a deposit account (the "Interest Reserve Account" as defined in the CTB Loan Agreement), where the Interest Reserve Account is held as collateral by CTB.

3 unchanged sentences

• The Borrowers are not entitled to any further disbursements of proceeds under those promissory notes described in the CTB Loan Modification Agreement;

• CTB agreed to waive certain financial delivery requirements for fiscal years 2021 and 2022;

and Subsidiaries

Notes to Consolidated Financial Statements

• CTB agreed to waive certain required financial covenants required as of December 31, 2022 and certain required financial covenants as of December 31, 2023;

• The Borrowers were required to establish their operating bank accounts with CTB no later than September 30, 2023;

• CTB agreed to waive certain required financial covenants as of December 31, 2023;

• CTB is authorized to amend and/or amend and restate its then-current security instruments to include additional collateral represented by the Borrowers' acquisition of any equipment or other fixed and/or operating assets in which CTB does not then hold a lien or security interest.

3 unchanged sentences

(c) (i) net income plus interest, taxes, depreciation and amortization divided by (ii) interest expense plus current maturities on long-term debt greater than or equal to 1.25 to 1.

The carrying value of our long-term debt under the CFG Loan and CTB Loan approximates its fair value because it bears interest at rates indexed to market rates.

CTB agreed to waive certain required financial covenants as of December 31, 2024.

The carrying values of both the Revolving Credit Facility and the CTB Loan approximate their fair values as both instruments bear interest at rates indexed to market rates for similar instruments.

Note 6 - Leases

The Company's operating and finance lease right-of-use ("ROU") assets and liabilities as of December 31, 2023 and 2022 consisted of the following items (in thousands):

The Company's operating and finance lease ROU assets and liabilities as of December 31, 2024 and 2023 consisted of the following items (in thousands):

(in thousands) December 31, 2024 December 31, 2023

12 unchanged sentences

(1) Operating lease assets are reported net of accumulated amortization of $ 4.5 million and $ 5.1 million as of December 31, 2024 and 2023, respectively.

and Subsidiaries

Notes to Consolidated Financial Statements

(2) Finance lease assets are reported net of accumulated amortization of $ 3.2 million and $ 2.7 million as of December 31, 2024 and 2023, respectively.

1 unchanged sentence

ROU assets under finance leases are reported in the "Property, plant and equipment" line item, and finance lease liabilities are included in the "Current portion of long-term debt" and "Long-term debt, net of current portion" line items in the Consolidated Balance Sheets as of December 31, 2024 and 2023.

and Subsidiaries

Notes to Consolidated Financial Statements

Interest expense related to finance lease liabilities and amortization of ROU assets under finance leases are included in the "Interest expense" and "Depreciation, amortization, depletion and accretion" line items respectively, in the Consolidated Statement of Operations for the years ended December 31, 2024 and 2023.

1 unchanged sentence

ROU assets under operating leases are included in the " Other long-term assets " line item, and operating lease liabilities are included in " Other liabilities" and " Other long-term liabilities" line items, respectively, in the Consolidated Balance Sheets as of December 31, 2024 and 2023.

Lease expense for operating leases for the year ended December 31, 2023 was $ 5.9 million, of which $ 4.5 million is included in "Consumables cost of revenue, exclusive of depreciation and amortization" line item and $ 1.4 million is included in "General and administrative" line item in the Consolidated Statement of Operations for the year ended December 31, 2023.

Lease expense for operating leases for the year ended December 31, 2022 was $ 4.4 million, of which $ 4.0 million is included in the "Consumables cost of revenue, exclusive of depreciation and amortization" line item and $ 0.4 million is included in the "General and administrative" line item in the Consolidated Statement of Operations for the year ended December 31, 2022.

Lease expense for operating leases for the year ended December 31, 2024 was $ 5.3 million, of which $ 3.8 million is included in the "Cost of revenue, exclusive of depreciation and amortization" line item and $ 1.5 million is included in the "Selling, general and administrative" line item in the Consolidated Statement of Operations for the year ended December 31, 2024.

Lease expense for operating leases for the year ended December 31, 2023 was $ 5.9 million, of which $ 4.5 million is included in the "Cost of revenue, exclusive of depreciation and amortization" line item and $ 1.4 million is included in the "Selling, general and administrative" line item in the Consolidated Statement of Operations for the year ended December 31, 2023.

Lease financial information as of and for the years ended December 31, 2024 and 2023 is provided in the following table:

13 unchanged sentences

Financing cash flows from finance leases $ 1,022 $ 1,130

Right-of-use assets obtained in exchange for new finance lease liabilities $ — $ 1,641

Right-of-use assets obtained in exchange for new operating lease liabilities $ 724 $ 2,719

31 unchanged sentences

The Company has a customer supply agreement, which was renewed January 1, 2024, that requires the Company to post a performance bond in an amount equal to the annual contract value of $ 3.7 million.

Red River Plant Construction Contract

In January 2024, the Company executed a contract with a third-party contractor for the construction of a GAC facility at the Red River Plant, and immediately commenced construction operations.

The Company expects to complete the GAC Facility by the end of 2024 and estimates that total construction costs will be in the range of $ 62.0 - $ 67.0 million.

and Subsidiaries

1 unchanged sentence

The Company also has certain limited obligations contingent upon future events in connection with the activities of Tinuum Group.

The Company, NexGen Refined Coal, LLC ("NexGen") and two entities affiliated with NexGen have provided another Tinuum Group owner with limited guarantees (the "Tinuum Group Party Guarantees") related to certain losses it may suffer as a result of inaccuracies or breach of representations and covenants.

The Company also is a party to a contribution agreement with NexGen under which any party called upon to pay on a Tinuum Group Party Guaranty is entitled to receive contribution from the other party equal to 50 % of the amount paid.

The Company, along with certain other owners of Tinuum Group, have provided another Tinuum Group owner with limited guarantees (the "Tinuum Group Party Guarantees") related to certain losses it may suffer as a result of inaccuracies or breach of representations and covenants.

The Company also is a party to a contribution agreement under which any party called upon to pay on a Tinuum Group Party Guaranty is entitled to receive contribution from the other party equal to 50 % of the amount paid.

No liability or expense provision has been recorded by the Company related to this contingent obligation as the Company believes that it is not probable that a loss will occur with respect to Tinuum Group Party Guarantees.

2 unchanged sentences

In December 2022, the Company received its percentage share of the Distributions in the amount of $ 2.0 million and became contractually liable for $ 1.7 million of the Tinuum Group Obligation.

As of December 31, 2022, the Company recorded the contractual obligation of $ 1.7 million as a liability in the "Other current liabilities" line item in the Consolidated Balance Sheet, with the difference between the cash distribution of $ 0.3 million recorded to equity method earnings for the year ended December 31, 2022.

The Company recorded a liability related to the contractual obligation in the amount of $ 1.7 million , which is presented in the "Other current liabilities" line item in the Consolidated Balance Sheet as of December 31, 2024.

In the event that the Tinuum Group Obligation is discharged in its entirety or settled for an amount that is less than the total Tinuum Group Obligation, the Company will recognize future equity earnings for the difference in its contractual obligation amount and its pro rata share of the actual payment made by Tinuum Group, if any, for the Tinuum Group Obligation.

Marken Separation Agreement

Pursuant to Mr.

Marken's termination as CEO of the Company effective July 17, 2023, the Company and Mr.

Marken executed a separation agreement under which Mr.

Marken will receive the following payments and benefits:

(i) the severance payments and benefits set forth in the terms of his employment agreement upon a termination without "cause," (ii) accelerated vesting of 49,715 shares of restricted stock, (iii) continued eligibility for possible vesting of a pro rata target number of 25,941 performance share units ("PSUs") granted in 2021, subject to achievement of applicable performance measures, (iv) continued eligibility for possible vesting of a pro rata target number of 15,988 PSUs granted in 2022, subject to achievement of applicable performance measures, and (v) continued eligibility for possible vesting of a pro rata target number of 19,834 PSUs granted in 2023, subject to achievement of applicable performance measures.

As of December 31, 2023, the amount of the liability related to (i) and (ii) above was $ 0.4 million.

Legal Proceedings

2 unchanged sentences

The Company records a liability in its consolidated financial statements for costs related to claims, settlements, and judgments where management has assessed that a loss is probable and an amount can be reasonably estimated.

There were no significant legal proceedings as of December 31, 2023.

Note 9 - Marshall Mine, LLC

On March 27, 2023, (the "MM Closing Date"), the Company completed the sale of all of its membership interests in Marshall Mine, LLC to a third party (the "Buyer") in exchange for cash payment of $ 2.2 million (the "MM Purchase Price") made by the Company to the Buyer and the assumption by the Buyer of certain liabilities of Marshall Mine, LLC.

As of the MM Closing Date, Marshall Mine, LLC had outstanding liabilities of approximately $ 4.9 million that were discharged upon payment of the MM Purchase Price by the Company, and the Company recognized a gain of approximately $ 2.7 million in the Statement of Operations for the year ended December 31, 2023.

On February 7, 2025, the Company announced that it had commenced legal proceedings against the firm engaged for design of the GAC Facility.

The Company believes that the design firm was, among other things, negligent and breached its contract with the Company and as a direct result, the Company suffered material damages including a material increase in costs and time delays associated with the project versus original forecasts.

The Company is now seeking to recover damages resulting from such negligence and contractual breaches.

and Subsidiaries

7 unchanged sentences

Prepaid expenses $ 2,021 $ 2,430

Prepaid lender fees, net (1)

Prepaid income taxes and income tax refunds 233 349

1 unchanged sentence

$ 4,650 $ 5,215

Other long-term assets:

Right of use assets, operating leases, net $ 10,592 $ 7,734

Other long-term assets, net:

Spare parts, net $ 11,178 $ 9,147

Upfront customer consideration (1)

Mine reclamation asset, net 1,955 1,641

Right of use assets, operating leases, net 9,312 10,592

Intangible assets, net 7,569 7,899

Mine development costs, net 7,010 7,377

Other long-term assets 2,663 1,683

Upfront Customer Consideration (2)

Mine reclamation asset, net 1,620 1,955

Other 2,581 2,663

$ 44,729 $ 45,600

(1) Represent remaining balance on consideration paid to a customer under a long-term supply contract executed in 2020.

(1) Represents legal and administrative costs incurred to obtain the Revolving Credit Agreement.

This asset is being amortized on a straight-line basis over the five-year contractual period of the Revolving Credit Agreement.

(2) Represents remaining balance on consideration paid to a customer under a long-term supply contract executed in 2020.

This asset is being amortized as a reduction to revenue on a straight-line basis over the expected 15 -year contractual period of the contract.

2 unchanged sentences

Parts are recorded as maintenance expenses or capitalized in the period in which they are consumed or put into use.

Mine development costs include acquisition costs, the cost of other development work and mitigation costs related to the Five Forks Mine and are depleted over the estimated life of the related mine reserves, which is estimated to be 14 years as of December 31, 2023.

13 unchanged sentences

Other current liabilities:

Current portion of operating lease obligations $ 1,944 $ 2,724

Sales, use and other taxes payable $ 2,325 $ 948

Current portion of operating lease obligations 2,081 1,944

Current portion of mine reclamation liability 1,037 182

2 unchanged sentences

Other long-term liabilities:

Mine reclamation liabilities $ 5,981 $ 7,985

Operating lease obligations, long-term $ 7,460 $ 8,870

Mine reclamation liabilities 5,242 5,981

Other 367 929

14 unchanged sentences

Asset retirement obligations, long-term $ 5,242 $ 5,981

(1) Represents the Corbin Facility ARO and Mine 4 ARO in the amounts of $ 0.5 million and $ 1.0 million, respectively.

(2) Includes the removal of a reclamation liability associated with Marshall Mine, LLC as a result of its sale to a third party in March 2023.

(1) Represents the Corbin Facility ARO and Mine 4 ARO in the amounts of $ 0.5 million and $ 1.0 million, respectively, assumed during the period ended December 31, 2023.

(2) Included in liabilities settled during the period ended December 31, 2023 is $ 4.7 million related to the removal of the ARO associated with Marshall Mine, LLC as a result of the sale of Marshall Mine, LLC in March 2023.

Supplemental Consolidated Statements of Operations Information

17 unchanged sentences

Preferred Stock

The Company's Board of Directors (the "Board") is authorized to provide out of the unissued shares of Preferred Stock and to fix the number of shares constituting a series of Preferred Stock and, with respect to each series, to fix the number of shares and designation of such series, the voting powers, if any, the preferences and relative, participating, option or other special rights, if any, and any qualifications, limitations or restrictions thereof, of the shares of such series.

The Company's Board of Directors (the "Board") is authorized to issue shares of Preferred Stock and to fix the number of shares constituting a series of Preferred Stock and, with respect to each series, to fix the number of shares and designation of such series, the voting powers, if any, the preferences and relative, participating, option or other special rights, if any, and any qualifications, limitations or restrictions thereof, of the shares of such series.

As of December 31, 2024 and 2023, there were no shares of Preferred Stock designated or outstanding.

17 unchanged sentences

Rasmus pursuant to the Subscription Agreement.

Stock Repurchase Programs

In November 2018, the Board authorized the Company to purchase up to $ 20.0 million of its outstanding common stock under a stock repurchase program (the "Stock Repurchase Program").

In November 2019, the Board authorized an incremental $ 7.1 million to the Stock Repurchase Program and provided that it will remain in effect until all amounts are utilized or it is

In April 2024, the Company received $ 0.8 million in cash and issued 422,221 shares of its common stock to Mr.

Rasmus pursuant to the Subscription Agreement.

On May 15, 2024, the Company entered into a securities purchase agreement with certain accredited investors for the sale of an aggregate of 2,142,858 shares of the Company’s common stock, at a selling price of $ 7.00 per share (the "Private Placement").

After deducting offering costs, the Company raised net cash proceeds of $ 15.0 million from the Private Placement.

and Subsidiaries

Notes to Consolidated Financial Statements

otherwise modified by the Board.

On September 20, 2024, the Company entered into an underwriting agreement (the "Underwriting Agreement") with certain underwriters, relating to the issuance and sale of 4,770,000 shares of the Company's common stock at a price to the public of $ 5.25 per share, as well as an overallotment option to purchase an additional 715,500 shares within 30 days following the date of the Underwriting Agreement (the "Public Offering").

The Company issued a total of 5,485,500 shares, inclusive of 715,500 shares issued pursuant to the underwriters' fully exercised overallotment option, and received net proceeds, after deducting offering costs, of approximately $ 26.7 million from the Public Offering.

Stock Repurchase Programs

In November 2018, the Board authorized the Company to purchase up to $ 20.0 million of its outstanding common stock under a stock repurchase program (the "Stock Repurchase Program").

In November 2019, the Board authorized an incremental $ 7.1 million to the Stock Repurchase Program and provided that it will remain in effect until all amounts are utilized or it is otherwise modified by the Board.

As of December 31, 2024, the Company had $ 7.0 million remaining under the Stock Repurchase Program.

Tax Asset Protection Plan

federal income tax rules, and Section 382 of the Internal Revenue Code in particular, could substantially limit the use of net operating losses and tax credits if the Company experiences an "ownership change" (as defined in the Internal Revenue Code).

In general, an ownership change occurs if there is a cumulative change in the ownership of the Company by "5 percent stockholders" that exceeds 50 percentage points over a rolling three-year period.

An entity that experiences an ownership change generally will be subject to an annual limitation on its pre-ownership change tax loss and credit carryforwards equal to the equity value of the entity immediately before the ownership change, multiplied by the long-term, tax-exempt rate posted monthly by the Internal Revenue Service (subject to certain adjustments).

The annual limitation would be increased each year to the extent that there is an unused limitation in a prior year.

On May 5, 2017, the Board approved the declaration of a dividend of rights to purchase Series B Junior Participating Preferred Stock for each outstanding share of common stock as part of a tax asset protection plan (the "TAPP"), which is designed to protect the Company’s ability to utilize its net operating losses and tax credits.

The TAPP is intended to act as a deterrent to any person acquiring beneficial ownership of 4.99 % or more of the Company’s outstanding common stock.

On April 12, 2024, the Board approved the Seventh Amendment to the TAPP (the "Seventh Amendment"), which amends the TAPP, as previously amended by the First, Second, Third, Fourth, Fifth and Sixth Amendments that were approved by the Board on April 6, 2018, April 5, 2019, April 9, 2020, April 9, 2021, March 15, 2022, and April 13, 2023, respectively.

The Seventh Amendment amends the definition of "Final Expiration Date" under the TAPP to extend the duration of the TAPP and makes associated changes in connection therewith.

Pursuant to the Seventh Amendment, the Final Expiration Date shall be the close of business on the earlier of (i) December 31, 2025 or (ii) December 31, 2024 if stockholder approval of the Seventh Amendment has not been obtained prior to such date.

At the Company's 2024 Annual Meeting of Stockholders held on June 10, 2024, the Company's stockholders approved the Seventh Amendment, thus the final expiration date will be the close of business on December 31, 2025.

Note 10 - Stock-Based Compensation

On May 16, 2022, the Company's stockholders approved the 2022 Omnibus Incentive Plan (the "2022 Plan"), which permits grants of awards to employees, directors and consultants.

On June 10, 2024, the Company's stockholders approved the 2024 Omnibus Incentive Plan (the "2024 Plan"), which permits grants of awards to employees, directors and consultants.

Awards may be in the form of options (both nonqualified stock options and incentive stock options), stock appreciation rights, restricted stock, restricted stock units, performance share units, and other stock-based awards and cash-based awards as described under the 2024 Plan.

As of December 31, 2024, the Company has 1,906,407 shares of its common stock authorized for issuance under the 2024 Plan.

On May 16, 2022, the Company's stockholders approved the 2022 Omnibus Incentive Plan (the "2022 Plan"), which permits grants of awards to employees, directors and consultants.

As of December 31, 2024, the Company has zero shares of its common stock authorized for issuance under the 2022 Plan.

On June 20, 2017, the Company's stockholders approved the 2017 Omnibus Incentive Plan (the "2017 Plan"), which permits grants of awards to employees, directors and non-employees.

Awards may be in the form of shares, rights to purchase restricted stock, bonuses of restricted stock, or other rights or benefits as described under the 2017 Plan.

Awards may be in the form of shares, rights to purchase restricted

and Subsidiaries

Notes to Consolidated Financial Statements

stock, bonuses of restricted stock, or other rights or benefits as described under the 2017 Plan.

As of December 31, 2024, the Company has zero shares of its common stock authorized for issuance under the 2017 Plan.

20 unchanged sentences

• Expected volatility - To calculate expected volatility, the historical volatility of the Company's common stock was used.

and Subsidiaries

Notes to Consolidated Financial Statements

• Expected term - The Company’s expected term of stock options was calculated using a simplified method whereby the midpoint between the vesting date and the end of the contractual term is utilized to compute the expected term, as the Company does not have sufficient historical data for options with similar vesting and contractual terms.

No stock options were granted during the year ended December 31, 2024.

The following table indicates the weighted average assumptions that were used related to the awards granted during the year ended December 31, 2023:

and Subsidiaries

Notes to Consolidated Financial Statements

Year ended December 31, 2023

11 unchanged sentences

Total stock-based compensation expense $ 2,715 $ 2,648

Stock-based compensation expense related to manufacturing employees and administrative employees is included in the "Consumables cost of revenue, excluding depreciation and amortization" and "Payroll and benefits" line items in the Consolidated Statements of Operations.

Stock-based compensation expense related to non-employee directors is included in the "General and administrative" line item in the Consolidated Statements of Operations.

Stock-based compensation expense related to manufacturing employees and administrative employees is included in the "Cost of revenue" and "Selling, general and administrative" line items, respectively, in the Consolidated Statements of Operations.

Stock-based compensation expense related to non-employee directors and consultants is included in the "Selling, general and administrative" line item in the Consolidated Statements of Operations.

The Company recognizes forfeitures as they occur.

1 unchanged sentence

As of December 31, 2024

(in thousands) Unrecognized Compensation Cost Expected Weighted-Average Period of Recognition (in years)

(in thousands, except years) Unrecognized Compensation Cost Expected Weighted-Average Period of Recognition (in years)

RSA expense $ 2,763 1.62

Stock option expense 618 2.54

PSU expense 1,156 1.03

Stock option expense 374 1.54

Total unrecognized stock-based compensation expense $ 4,293 1.45

and Subsidiaries

Notes to Consolidated Financial Statements

Restricted Stock

2 unchanged sentences

(in thousands, except for share and per share amounts) Awards RSA's

For the year ended December 31, 2023

Non-vested at January 1, 2024 790,005 $ 3.10

3 unchanged sentences

Non-vested at December 31, 2024 732,555 $ 4.99

and Subsidiaries

Notes to Consolidated Financial Statements

The weighted-average grant date fair value of RSAs granted or modified for the years ended December 31, 2024 and 2023 was $ 5.79 and $ 1.91 , respectively.

1 unchanged sentence

The aggregate intrinsic value of non-vested RSAs outstanding as of December 31, 2024 was $ 5.5 million.

PSUs outstanding remain unvested until either the requisite performance condition of the grant is met, or the third anniversary of their issuance date, at which time the actual number of vested shares will be determined based on the actual price performances of the Company’s common stock relative to a broad stock index and a peer group performance index.

A summary of PSU activity for the year ended December 31, 2024 is presented in the table below:

2 unchanged sentences

Term (in years)

For the year ended December 31, 2023

PSU's outstanding, January 1, 2023 148,591 $ 7.85

PSUs outstanding at January 1, 2024 968,918 $ 2.06

Granted 115,877 10.94

1 unchanged sentence

Forfeited / Canceled ( 14,925 ) 2.48

PSU's outstanding, December 31, 2023 968,918 $ 2.06 $ 2,887 1.33

and Subsidiaries

Notes to Consolidated Financial Statements

PSUs outstanding at December 31, 2024 877,045 $ 2.94 $ 6,639 1.01

Stock Options

A summary of stock option activity for the year ended December 31, 2024 is presented below:

Number of Options

Outstanding and

Exercisable Weighted-Average

Exercise Price Aggregate Intrinsic Value Weighted-Average

Remaining Contractual

Term (in years)

For the year ended December 31, 2023

Options outstanding, Options outstanding at January 1, 2023 — $ —

Number of Options Outstanding and Exercisable Weighted-Average Exercise Price Aggregate Intrinsic Value

(in thousands) Weighted-Average Remaining Contractual Term (in years)

Options outstanding at January 1, 2024 1,000,000 $ 3.00

Options granted — —

1 unchanged sentence

Options expired / forfeited — —

Options outstanding, Options outstanding at December 31, 2023 1,000,000 $ 3.00 $ — 9.54

Options outstanding at December 31, 2024 1,000,000 $ 3.00 $ 4,570 8.54

Options vested and exercisable at December 31, 2024 333,333 $ 3.00 $ 1,523 8.54

Note 11 - Arq Acquisition

On February 1, 2023 (the "Acquisition Date"), the Company entered into a securities purchase agreement (the "Purchase Agreement") with Arq Ltd.

for the Arq Acquisition in exchange for consideration (the "Purchase Consideration") totaling $ 31.2 million and consisting of (i) 3,814,864 shares of the Company's common stock, valued at $ 12.4 million based on the closing price of the common stock on the Acquisition Date and (ii) 5,294,462 shares of the Company's Series A Convertible Preferred Stock, par value $ 0.001 per share (the "Series A Preferred Stock" or the "Preferred Shares"), valued at $ 18.8 million.

The Company also incurred $ 8.7 million in acquisition-related costs, which were expensed as incurred.

Legacy Arq's principal location is in Corbin, Kentucky where it operates the Corbin Facility, which processes recovered bituminous coal fines into Arq Powder that can be used as an alternative to oil or in-ground mined coal to produce a range of carbon products.

With the completion of the Arq Acquisition, the Company intends to sell Arq Powder as a feedstock to produce high-quality AC for use in water and air purification markets.

The Company expects to begin using Arq Powder to produce granular activated carbon products during the first quarter of 2025.

The Company accounted for the Arq Acquisition as an acquisition of a business.

The total Purchase Consideration was $ 31.2 million and was allocated to the acquired assets and assumed liabilities of Legacy Arq based on their estimated fair values as of the Acquisition Date.

The Purchase Consideration was comprised of the fair values as of the Acquisition Date of 3,814,864

and Subsidiaries

Notes to Consolidated Financial Statements

shares of common stock, valued at $ 12.4 million, and 5,294,462 Preferred Shares, valued at $ 18.8 million.

The following table provides the final purchase price allocation to the assets acquired and liabilities assumed as of the date of the Arq Acquisition:

(in thousands) Purchase Price Allocation

Fair value of assets acquired:

Prepaid expenses and other current assets 2,229

Restricted cash, long-term 814

Property, plant and equipment, net 39,159

Other long-term assets, net 11,717

Amount attributable to assets acquired 55,330

Fair value of liabilities assumed:

Accounts payable and accrued expenses 9,806

Current portion of long-term debt 494

Other current liabilities 103

Long-term debt, net of current portion 9,199

Other long-term liabilities 4,523

Amount attributable to liabilities assumed 24,125

Net assets acquired $ 31,205

The following represents the intangible asset identified as part of the Arq Acquisition and which is included in "Other long-term-assets, net" in the table above:

(in thousands) Amount Weighted Average Useful Life (years)

Developed technology $ 7,700 20

Series A Preferred Stock

Under the Certificate of Designations, 8.9 million preferred shares were designated as Series A Preferred Stock.

Upon such approval, each outstanding share of Series A Preferred Stock was automatically converted into the number of shares of common stock described below.

Each share of Series A Preferred Stock was deemed to have an original issue price of $ 4.00 per share (the "Original Issue Amount").

The number of shares of common stock issued upon conversion of each share of Series A Preferred Stock was equal to the product of (i) the sum of (A) the Original Issue Amount plus (B) an amount equal to the cumulative amount of the accrued and unpaid dividends on such share at such time divided by (ii) the Original Issue Amount, subject to adjustment.

and Subsidiaries

Notes to Consolidated Financial Statements

Preferred Stock equal to the greater of (i) if the Company declared a cash dividend on the common stock with respect to such quarter, the amount of the cash dividend that would be received by a holder of Common Stock in which such share of Series A Preferred Stock would be convertible on the record date for such cash dividend and (ii) an annual rate (the "Rate") of 8.0 % of the Original Issue Amount compounded quarterly with respect to such quarter.

On March 31, 2023, the Company declared a dividend of 68,464 Series A PIK Shares with respect to the accrued dividends on the Preferred Shares for the first quarter of 2023 (the "PIK Dividend").

The PIK Dividend was recorded at the estimated fair value of $ 0.2 million as of March 31, 2023 and was paid on April 21, 2023.

The fair value of the Preferred Shares issued was determined to be $ 3.46 per Preferred Share on the Acquisition Date (the "Preferred Share Price") plus the value of the Contingent Feature related to the Escrow Shares.

The Escrow Shares were converted into shares of common stock on the Conversion Date and continue to be held in escrow (the "Escrow Common Shares").

The Escrow Common Shares were withheld pending a determination by the IRS that no tax withholding is required on the Purchase Consideration issued to Arq Ltd.

(the "Arq Ltd.

Tax Liability").

The Company estimated the fair value of the potential Arq Ltd.

Tax Liability at $ 3.3 million.

In April 2024, the IRS determined that no withholding was required by Arq Ltd.

in connection with the Purchase Consideration received by Arq Ltd., all of the Escrow Common Shares were released and delivered to Arq Ltd.

PIPE Investment

and Subsidiaries

Notes to Consolidated Financial Statements

Unaudited Pro Forma Financial Information

The following represents the pro forma effects of the Arq Acquisition as if it had occurred on January 1, 2022.

The pro forma net loss has been calculated after applying the Company’s accounting policies in effect for those years.

In addition, pro forma net loss or the year ended December 31, 2023 includes:

(1) an increase in depreciation and amortization resulting from fair value adjustments to Property, plant, equipment of $ 0.2 million;

(2) an increase in amortization resulting from fair value adjustments to Intangibles of $ 0.1 million;

(3) an increase to interest expense for:

(a) the issuance of the CFG Loan including stated interest and the amortization of the CFG Loan's discount and issuance costs and (b) amortization of debt discount related to a fair value adjustment to the assumed CTB Loan of Arq of $ 0.2 million;

(5) a decrease to general and administrative expenses resulting from fair value adjustments to operating leases acquired of $ 0.1 million, and (6) the addition of $ 2.4 million of transaction costs incurred for the period from January 1, 2023 through the Arq Acquisition Date, together with the income tax effects on (1) through (6).

Since Arq had no revenue for the year ended December 31, 2023, pro forma revenue is the same as the Company's reported revenue for that year.

Year ended December 31,

(in thousands) 2023

Revenue $ 99,183

Net loss $ ( 11,119 )

The amounts of year to date revenue and net loss for Arq for the period from the Acquisition Date to December 31, 2023 are as follows:

Year ended December 31,

(in thousands) 2023

Net loss $ ( 11,660 )

Note 12 - Income Taxes

5 unchanged sentences

$ ( 5,273 ) $ ( 12,096 )

and Subsidiaries

Notes to Consolidated Financial Statements

The provision for income taxes consists of the following:

1 unchanged sentence

(in thousands, except for rate) 2024 2023

Current portion of income tax expense:

Current portion of income tax (benefit) expense:

Federal $ — $ —

State and other ( 164 ) 153

Deferred portion of income tax expense (benefit):

Deferred portion of income tax (benefit) expense:

State and other — —

Total income tax expense $ 153 $ 209

Total income tax (benefit) expense $ ( 164 ) $ 153

Effective tax rate 3 % ( 1 ) %

and Subsidiaries

Notes to Consolidated Financial Statements

Income tax expense (benefit) differed from the amount that would be computed by applying the U.S.

Income tax (benefit) expense differed from the amount that would be computed by applying the U.S.

statutory federal income tax rate of 21% to loss before income taxes for the years ended December 31, 2024 and 2023 as follows:

8 unchanged sentences

Return to provision and other true-ups ( 11 ) 144

Income tax expense $ 153 $ 209

Income tax (benefit) expense $ ( 164 ) $ 153

and Subsidiaries

Notes to Consolidated Financial Statements

Deferred income taxes are provided for the effects of temporary differences between the tax basis of an asset or liability and their reported amounts in the accompanying Consolidated Balance Sheets.

12 unchanged sentences

Other investments 547 515

Equity method investments — 325

Inventory 680 612

11 unchanged sentences

Net deferred tax assets $ — $ —

Accounting for income taxes requires that companies assess whether a valuation allowance should be recorded against a deferred tax asset based on an assessment of the amount of the deferred tax asset that is "more likely than not" to be

and Subsidiaries

Notes to Consolidated Financial Statements

Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that is more likely than not to be realized.

5 unchanged sentences

For the year ended December 31, 2024, the Company increased a valuation allowance from December 31, 2023 by $ 2.8 million and as of December 31, 2024, has a valuation allowance equal to 100 % of its net deferred tax assets.

In reaching this conclusion, the Company primarily considered forecasts of future taxable losses.

In reaching this conclusion, the Company primarily considered its pretax losses incurred over a cumulative three-year lookback period.

and Subsidiaries

Notes to Consolidated Financial Statements

The following table presents the approximate amount of federal and state net operating loss carryforwards and federal tax credit carryforwards available to reduce future taxable income, along with the respective range of years that the net operating loss and tax credit carryforwards would expire if not utilized:

5 unchanged sentences

Federal tax credit carryforwards $ 86,125 2032 2041

(1) Approximately $ 8.8 million of the federal net operating loss carryforwards were acquired in the Arq Acquisition, of which $ 6.2 million have expiration dates beginning in 2035.

The following table sets forth a reconciliation of the beginning and ending unrecognized tax positions on a gross basis for the years ended December 31, 2024 and 2023:

13 unchanged sentences

In general, an ownership change occurs if the aggregate stock ownership of certain stockholders (generally 5 % stockholders, applying certain look-through rules) increases by more than 50 percentage points over such stockholders' lowest percentage ownership during the testing period (generally three years ).

and Subsidiaries

Notes to Consolidated Financial Statements

The annual limitation would be increased each year to the extent that there is an unused limitation in a prior year.

In connection with the Arq Acquisition and PIPE Investment, we issued additional shares of our common stock.

We performed an IRC Section 382 analysis as of the Acquisition Date and determined that we had not experienced an ownership change as of that date.

In connection with the equity offerings completed at various dates during 2024, the Company issued additional shares of its common stock.

The Company performed an IRC Section 382 analysis as of those dates and determined that it had not experienced an ownership change as of those dates.

The Company acquired certain tax assets (the "Legacy Arq Tax Assets") in the Arq Acquisition, totaling approximately $ 12.5 million.

1 unchanged sentence

Prior to the Acquisition Date, Legacy Arq completed numerous equity offerings that resulted in ownership changes.

We have not completed a formal IRC Section 382 analysis of Legacy Arq equity changes from its inception through the Acquisition Date, however, the Company believes that one or more "ownership changes" occurred during this time period as defined under Sections 382 and 383 and that a portion or all the Legacy Arq Tax Assets may subject to an annual limitation.

The TAPP is intended to act as a deterrent to any person acquiring beneficial ownership of 4.99 % or more of the Company’s outstanding common stock.

During the years 2018-2023, we executed amendments to the TAPP (the "TAPP Amendments"), which amended the definition of "Final Expiration Date" under the TAPP to extend the duration of the TAPP and makes associated changes in connection therewith.

The most recent TAPP Amendment was approved at our 2023 annual meeting of stockholders and extended the Final Expiration Date to the close of business on December 31, 2024.

Note 14 - Major Customers

Revenue from external customers who represent 10% or more of the Company’s revenue for the years ended December 31, 2023 and 2022 were as follows:

Years ended December 31,

Customer Revenue Type 2023 2022

A Consumables 19 % 18 %

B Consumables 9 % 11 %

The Company has not completed a formal IRC Section 382 analysis of Legacy Arq equity changes from its inception through the Acquisition Date, however, the Company believes that one or more "ownership changes" occurred during this time period as defined under Sections 382 and 383 and that a portion or all the Legacy Arq Tax Assets may subject to an annual limitation.

and Subsidiaries

Notes to Consolidated Financial Statements

Note 13 - Marshall Mine, LLC

Note 14 - Related Party Transactions

Consumables Cost of Revenue

For the year ended December 31, 2023, the Company recognized $ 0.7 million of Tinuum Group Royalty expense, which is included in the "Consumables cost of revenue, exclusive of depreciation and amortization" line item in the Consolidated Statement of Operations.

For the year ended December 31, 2024, the Company recognized $ 0.9 million of Tinuum Group Royalty expense, which is included in the "Cost of revenue, exclusive of depreciation and amortization" line item in the Consolidated Statement of Operations.

Tinuum Group Obligation

4 unchanged sentences

The Company makes contributions to the 401(k) Plan based on percentages of an employee's eligible compensation as specified in the 401(k) Plan, and such employer contributions are in the form of cash.

and Subsidiaries

Notes to Consolidated Financial Statements

The following table presents the amount of the Company's contributions made to the 401(k) Plans:

The following table presents the amount of the Company's contributions made to the 401(k) Plan:

Years Ended December 31,

1 unchanged sentence

401(k) Plans employer contributions $ 544 $ 613

Note 16 - Segment Reporting

The Company has one reportable segment – advanced purification technologies or "APT." The APT segment primarily manufactures and sells AC based environmental remediation products, comprised of powdered activated carbon and granular activated carbon, and other chemicals used to capture and remove contaminants for coal-fired power generation, industrial, municipal water and air, water, and soil treatment and remediation markets.

The Company derives revenue primarily in the U.S.

and manages the business activities on a consolidated basis.

The Company manufactures all of its finished goods at the Red River Plant.

The Company's chief operating decision maker ("CODM") is the Company's chief executive officer.

The Company's accounting policies of the APT segment are the same as those described in the summary of significant accounting policies which are provided in Note 1.

The CODM assesses performance for the APT segment and decides how to allocate resources based on net income that also is reported on the income statement as consolidated net income.

The measure of segment assets is reported on the balance sheet as total consolidated assets.

The CODM uses net income to evaluate income generated from APT assets (return on assets) in deciding how to allocate cash flows from operations within the APT segment.

Net income is used to monitor budget versus actual operating results in assessing performance of the APT segment.

The level of detail used in reviewing operating financial performance and managing the business is contained in the Company's Consolidated Statements of Operations.

and Subsidiaries

Notes to Consolidated Financial Statements

Products and services

The Company operates in one segment, APT, and all revenue reported to external customers represents sales of APT products and are presented in the Consolidated Statements of Operations.

Geographic areas

The Company is domiciled in the U.S.

The table below shows revenue by country for the years ended December 31, 2024 and 2023.

Year ended December 31,

(in thousands) 2024 2023

United States $ 101,103 $ 91,366

Canada 7,856 7,817

Total $ 108,959 $ 99,183

Major Customers

Revenue from external customers who represent 10% or more of the Company’s revenue for the years ended December 31, 2024 and 2023 were as follows:

Years ended December 31,

Customer Revenue Type 2024 2023

A Consumables 21 % 19 %

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data