Arq, Inc. 10-K

Item 8. Financial Statements and Supplementary Data Arq, Inc. Index to Financial Statements Arq, Inc. Consolidated Financial Statements: Report of Independent Registered Public Accounting Firm (Baker Tilly US, LLP, Denver, Colorado, PCAOB ID: 23 ) 41 Consolidated Balance Sheets as of December 31, 2025 and 2024 43 Consolidated Statements of Operations for the years ended December 31, 202 5 and 202 4 44 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 202 5 and 202 4 45 Consolidated Statements of Cash Flows for the years ended December 31, 202 5 and 202 4 46 Notes to Consolidated Financial Statements 48 40 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors Arq, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Arq, Inc. (and subsidiaries) (the “Company”) as of December 31, 2025 and 2024, 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”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2025 and 2024, 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, 2025, 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 9, 2026, expressed an unqualified opinion on the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. 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 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. We conducted our audits in accordance with the standards of the PCAOB. 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. 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. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provides 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. Assessment of Impairment of Long-lived Assets Critical Audit Matter Description As described in Note 2 to the consolidated financial statements, as part of its periodic review for indicators of impairment in long-lived assets, the Company assessed its long-lived assets located at the Corbin Facility (“Corbin Asset Group”) and the GAC Facility assets located at the Red River Plant (“GAC Asset Group”) for potential impairment. The Company concluded that indicators for impairment were evident with both of the asset groups, and as of December 31, 2025, completed recoverability tests based on an undiscounted cash flow analysis for both asset groups. The Company determined for the Corbin Asset Group that the estimated undiscounted cashflows were less than its carrying value and the Corbin Asset Group was impaired. The Company further determined that the GAC Asset Group was not impaired as the estimated undiscounted cashflows exceeded its carrying value. As such, the Company completed an assessment of the Corbin Asset Group’s fair value, resulting in a $38.1 million impairment of net tangible assets and a $6.6 million impairment of intangible assets. 41 We identified the assessment of whether there were indicators of impairment and completion of the recoverability tests based on an undiscounted cash flow analysis for both the Corbin Asset Group and the GAC Asset Group, as well as the measurement of the impairment of the Corbin Asset Group, as a critical audit matter. Auditing the Company’s impairment assessment of long-lived assets is especially challenging due to the high degree of auditor judgment in evaluating management’s indicators of potential impairment for certain asset groups and determining the future cash flows and estimated fair values, where applicable, for certain asset groups where indicators of impairment were determined to be present, including the involvement of fair value specialists. How We Addressed the Matter in Our Audit Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included evaluating the design and testing the operating effectiveness of internal controls related to the Company’s impairment analysis. Our audit procedures related to the matter included the following, among others: Evaluating the significant judgments used by management in determining whether indicators of impairment were present, including searching for evidence contrary to such judgments. Testing management’s process for determining the projected cash flows used in the recoverability test for each of the asset groups, which included evaluating the reasonableness of the underlying assumptions, including the term of the cash flows and forecasted growth rates, as well as testing the mathematical accuracy of the calculation. With the assistance of fair value specialists, testing the estimated fair value of the Corbin Asset Group, including evaluating the appropriateness of the models used in the valuation, the reasonableness of certain significant assumptions used in the calculations, such as the percentage of physical deterioration of assets, the percentage of estimated obsolescence, and the sales comparison analysis, as well as testing the mathematical accuracy of the calculations. Testing the carrying value of other assets included in the Corbin Asset Group that were determined to be fully impaired. /s/ Baker Tilly US, LLP Denver, Colorado March 9, 2026 We have served as the Company’s auditor since 2017. 42 Arq, Inc. and Subsidiaries Consolidated Balance Sheets As of December 31, (in thousands, except share data) 2025 2024 ASSETS Current assets: Cash $ 6,573 $ 13,516 Receivables, net 14,980 14,876 Inventories, net 15,895 19,314 Prepaid expenses and other current assets 6,404 4,650 Total current assets 43,852 52,356 Restricted cash, long-term 8,467 8,719 Property, plant and equipment, net of accumulated depreciation of $ 28,375 and $ 26,619 , respectively 143,154 178,564 Other long-term assets, net 35,107 44,729 Total Assets $ 230,580 $ 284,368 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued expenses $ 15,269 $ 21,017 Revolving credit facility 18,950 13,828 Current portion of long-term debt obligations 1,063 1,624 Other current liabilities 7,015 8,184 Total current liabilities 42,297 44,653 Long-term debt obligations, net of current portion 8,452 9,370 Other long-term liabilities 11,868 13,069 Total Liabilities 62,617 67,092 Commitments and contingencies (Note 8) Stockholders’ equity: Preferred stock: par value of $ 0.001 per share, 50,000,000 shares authorized, none issued or outstanding — — Common stock: par value of $ 0.001 per share, 100,000,000 shares authorized, 47,348,394 and 46,639,930 shares issued, and 42,730,248 and 42,021,784 shares outstanding at December 31, 2025 and 2024, respectively 47 47 Treasury stock, at cost: 4,618,146 and 4,618,146 shares as of December 31, 2025 and 2024, respectively ( 47,692 ) ( 47,692 ) Additional paid-in capital 201,784 198,487 Retained earnings 13,824 66,434 Total Stockholders’ Equity 167,963 217,276 Total Liabilities and Stockholders’ Equity $ 230,580 $ 284,368 See Notes to the Consolidated Financial Statements. 43 Arq, Inc. and Subsidiaries Consolidated Statements of Operations Years Ended December 31, (in thousands, except per share data) 2025 2024 Revenue $ 120,336 $ 108,959 Cost of revenue, exclusive of depreciation and amortization 86,804 69,515 Operating expenses: Selling, general and administrative 22,554 28,695 Research and development 7,337 4,050 Depreciation, amortization, depletion and accretion 11,747 8,594 Impairment of long-lived assets 44,756 — Loss on sale of assets 96 64 Total operating expenses 86,490 41,403 Operating loss ( 52,958 ) ( 1,959 ) Other income (expense): Earnings from equity method investment 1,951 127 Interest expense ( 2,449 ) ( 3,257 ) Loss on extinguishment of debt — ( 1,422 ) Other income 858 1,238 Total other income (expense) 360 ( 3,314 ) Loss before income taxes ( 52,598 ) ( 5,273 ) Income tax expense (benefit) 12 ( 164 ) Net loss $ ( 52,610 ) $ ( 5,109 ) Loss per common share (Note 1): Basic $ ( 1.27 ) $ ( 0.14 ) Diluted $ ( 1.27 ) $ ( 0.14 ) Weighted-average number of common shares outstanding: Basic 41,522 36,051 Diluted 41,522 36,051 See Notes to the Consolidated Financial Statements. 44 Arq, Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders’ Equity Common Stock Treasury Stock (in thousands, except share data) Shares Amount Shares Amount Additional Paid-in Capital Retained Earnings/(Accumulated Deficit) Total Stockholders’ Equity Balances, January 1, 2024 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 Stock-based compensation 712,691 — — — 3,363 — 3,363 Repurchase of common shares to satisfy minimum tax withholdings ( 4,227 ) — — — ( 66 ) — ( 66 ) Net loss — — — — — ( 52,610 ) ( 52,610 ) Balances, December 31, 2025 47,348,394 $ 47 ( 4,618,146 ) $ ( 47,692 ) $ 201,784 $ 13,824 $ 167,963 See Notes to the Consolidated Financial Statements. 45 Arq, Inc. and Subsidiaries Consolidated Statements of Cash Flows Years Ended December 31, (in thousands) 2025 2024 Cash flows from operating activities Net loss $ ( 52,610 ) $ ( 5,109 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Impairment of long-lived assets 44,756 — Depreciation, amortization, depletion and accretion 11,747 8,594 Stock-based compensation expense 3,363 2,715 Operating lease expense 2,432 2,004 Amortization of debt discount and debt issuance costs 359 601 Loss on sale of long-term assets, net 96 64 Loss from extinguishment of debt — 1,422 Earnings from equity method investment ( 1,951 ) ( 127 ) Other non-cash items, net ( 678 ) 37 Changes in operating assets and liabilities: Receivables ( 104 ) 1,316 Prepaid expenses and other assets ( 2,030 ) 1,166 Inventories 3,250 1,636 Other long-term assets, net ( 4,128 ) ( 2,166 ) Accounts payable and accrued expenses ( 6,696 ) 216 Other current liabilities ( 260 ) 1,144 Operating lease liabilities 205 ( 1,272 ) Other long-term liabilities ( 481 ) ( 1,764 ) Net cash (used in) provided by operating activities ( 2,730 ) 10,477 Cash flows from investing activities Acquisition of property, plant, equipment and intangible assets, net ( 8,576 ) ( 85,170 ) Acquisition of mine development costs ( 531 ) ( 181 ) Proceeds from insurance recovery related to property and equipment 685 — Distributions from equity method investee in excess of cumulative earnings 251 127 Proceeds from sale of property and equipment 10 150 Net cash used in investing activities ( 8,161 ) ( 85,074 ) 46 Years Ended December 31, (in thousands) 2025 2024 Cash flows from financing activities Borrowings on revolving credit facility $ 128,941 $ 13,828 Repayments of revolving credit facility ( 123,818 ) — Principal payments on notes payable ( 914 ) ( 10,544 ) Principal payments on finance lease obligations ( 447 ) ( 1,022 ) Repurchase of common stock to satisfy tax withholdings ( 66 ) ( 1,135 ) Net proceeds from common stock issued in public offering — 26,654 Net proceeds from common stock issued in private placement transactions — 14,951 Net proceeds from common stock issued to related party — 800 Payment of debt issuance costs — ( 633 ) Payment of debt extinguishment costs — ( 220 ) Net cash provided by financing activities 3,696 42,679 Decrease in Cash and Restricted Cash ( 7,195 ) ( 31,918 ) Cash and Restricted Cash, beginning of year 22,235 54,153 Cash and Restricted Cash, end of year $ 15,040 $ 22,235 Supplemental disclosure of cash flow information: Cash paid for interest $ 661 $ 2,017 Cash received for income taxes $ ( 27 ) $ ( 100 ) Supplemental disclosure of non-cash investing and financing activities: Change in accrued purchases for property and equipment $ 949 $ 6,198 Purchase of property and equipment through note payable $ — $ 1,004 See Notes to the Consolidated Financial Statements. 47 Arq, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1 - Summary of Operations and Significant Accounting Policies Nature of Operations Arq Inc., together with its consolidated subsidiaries ("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 coal recovery and manufacturing operations located in Kentucky. The Company is an environmental technology company that 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 are collectively referred to as the advanced purification technologies ("APT") market. The Company’s primary products are comprised of AC, which is produced from a variety of carbonaceous raw materials. The Company’s AC products include powdered activated carbon ("PAC") and granular activated carbon ("GAC"). The Company owns a lignite coal mine located in Saline, Louisiana (the "Five Forks Mine") that currently supplies the primary raw material for the manufacturing of the majority of Company’s products at its facility in Coushatta, Louisiana (the "Red River Plant"). In addition, the Company leases land in Corbin, Kentucky where it operates a manufacturing facility (the "Corbin Facility") using a patented manufacturing process to reclaim bituminous coal fines into a purified, microfine carbon powder for high value applications (the "Corbin Wetcake"). Principles of Consolidation 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, 2025, the Company holds an equity interest of 42.5 % in Tinuum Group, LLC ("Tinuum Group"). Cash and restricted cash Cash consists of cash on hand and bank deposits. Restricted cash is primarily comprised of posted cash collateral required under a surety bond contract related to the Five Forks Mine and the Corbin Facility. Concentration of credit risk As of December 31, 2025, the Company held cash that exceeded the Federal Deposit Insurance Corporation ("FDIC") limits (currently $250 thousand) at three financial institutions. If a financial institution was unable to perform its obligations, the Company would be at risk regarding the amount of cash held in excess of the FDIC limits. Fair value measurements Fair value is the price the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy prioritizes inputs to valuation techniques as follows: • Level 1: Quoted prices for identical instruments in active markets. • Level 2: Quoted prices for similar instruments in active markets or identical instruments in inactive markets, or model-derived valuations with observable inputs. • Level 3: Significant inputs to the valuation model are unobservable. 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. Other assets and liabilities are measured at fair value on a nonrecurring basis. 48 Arq, Inc. 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 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, 2025 and 2024. Inventories, net The cost of inventory is determined using the average cost method. Inventories, net are stated at the lower of average cost or net realizable value and consist principally of raw materials and finished goods related to the Company's AC products. Inventories are periodically reviewed for both potential obsolescence and potential declines in anticipated selling prices. The Company makes assumptions about the future demand for and market value of the inventory and estimates the amount of any obsolete, unmarketable, slow moving or overvalued inventory. The composition of Inventories is included in Note 3. Intangible Assets Intangible assets consist of patents and developed technology. The Company has developed technologies resulting in patents being granted by the U.S. Patent and Trademark Office or other regulatory offices. Legal costs associated with securing the patent are capitalized and amortized over the legal or useful life beginning on the patent filing date. The following table details the components of the Company's intangible assets: As of December 31, 2025 2024 (in thousands, except years) Weighted Average Remaining Amortization Period (in years) Cost Net of Accumulated Amortization Cost Net of Accumulated Amortization Patents 9.3 $ 1,758 $ 570 $ 1,705 $ 575 Developed technology 0.0 — — 8,307 6,994 Total $ 1,758 $ 570 $ 10,012 $ 7,569 Included in the Consolidated Statements of Operations is amortization expense related to intangible assets of $ 0.4 million and $ 0.4 million for the years ended December 31, 2025 and 2024, respectively. The estimated future amortization expense for existing intangible assets as of December 31, 2025 is expected to be approximately $ 0.1 million for the year ended December 31, 2026 and each of the four succeeding fiscal years. Investments The investments in entities in which the Company does not have a controlling interest (financial or operating), but where it has the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method of accounting. Whether or not the Company exercises significant influence with respect to an investee depends on an evaluation of several factors including, among others, representation on the investee company’s board of directors and the Company's ownership percentage. Under the equity method of accounting, an investee company’s financial statements are not consolidated in the Company’s Consolidated Balance Sheets and Consolidated Statements of Operations; however, the Company’s share of the earnings or losses of the investee is reported in the "Earnings from equity method investment" line item in the Consolidated Statements of Operations, and the Company’s carrying value in an equity method investee is reported in the "Other long-term assets, net" line in the Consolidated Balance Sheets. 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 method earnings in the period the distributions occur to the extent that the Company has not guaranteed any obligations of the 49 Arq, Inc. and Subsidiaries Notes to Consolidated Financial Statements 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. 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. Thereafter, such distributions are reported as "distributions in excess of cumulative earnings" in Investing cash flows. Investments in partially-owned subsidiaries for which the Company has less than 20% ownership are accounted for in accordance with accounting guidance applicable to equity investments that do not qualify for the equity method of accounting. The Company evaluates these types of investments for changes in fair value and, if there is change, recognizes the change in the Consolidated Statement of Operations. If no such events or changes in circumstances have occurred related to these types of investments, the fair value is estimated only if practicable to do so. Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and include leasehold improvements. Depreciation on assets is computed using the straight-line method over the lesser of the estimated useful lives of the related assets or the lease term (ranging from 2 to 31 years). Maintenance and repairs that do not extend the useful life of the respective asset are charged to operating expenses as incurred. When assets are retired, or otherwise disposed of, the property accounts are relieved of costs and accumulated depreciation and any resulting gain or loss is credited or charged to income. The Company periodically evaluates the recoverability of the carrying value of property, plant and equipment for impairment. Amortization of right of use assets under finance lease is included in depreciation expense and is calculated using the straight-line method over the term of the lease. Leases The Company records a right of use ("ROU") asset and related liability under a contract or part of a contract when it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of an identified asset occurs when an entity has both the right to obtain substantially all of the economic benefits from the use of an identified asset and the right to direct the use of that identified asset. The determination of whether a contract contains a lease may require significant assumptions and judgments. For all classes of underlying assets, the Company does not separate nonlease components from lease components and accounts for each separate lease component and the nonlease components associated with that lease component as a single lease component. The Company records lease liabilities and related ROU assets for all leases that have a term of greater than one year. For short-term leases (leases with terms of less than one year), the Company expenses lease payments on a straight-line basis over the lease term. Variable lease payments represent payments made by a lessee for the right to use an underlying asset that vary because of changes in facts or circumstances occurring after the commencement date of a lease other than the passage of time. Variable lease payments that are based on an index or rate, calculated by using the index or rate that exists on the lease commencement date, are included in the measurement of a lease liability. Certain of the Company’s operating leases for office facilities contain variable lease components that are not based on an index or rate, and the Company recognizes these payments as variable lease expense in the period in which the obligation for those payments is incurred. The Company calculates lease liabilities based on the present value of lease payments discounted by the rate implicit in the lease or, if not readily determinable, the Company’s incremental borrowing rate. 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. Interest on finance lease liabilities is determined in each period during the lease term as the amount that produces a constant periodic 50 Arq, Inc. and Subsidiaries Notes to Consolidated Financial Statements 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. 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 Statements of Operations. 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. 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 "Selling, general and administrative" and "Cost of revenue, exclusive of depreciation and amortization" line items in the Consolidated Statements of Operations. Other Assets 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, 2025 is estimated to be approximately 16 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. Mine development costs are reported in the "Other long-term assets, net" line item in the Consolidated Balance Sheets. Spare Parts Spare parts include critical spares required to support plant operations. Parts and supply costs are determined using the lower of cost or estimated replacement cost. Parts are recorded as maintenance expenses or capitalized in the period in which they are consumed or put into use. Spare parts are reported in the "Other long-term assets, net" line item in the Consolidated Balance Sheets. Revenue Recognition The Company recognizes revenue from a contract with a customer when a performance obligation under the terms of a contract with a customer is satisfied, which is when the customer controls the promised goods or services that are transferred in satisfaction of the performance obligation. Revenue is measured as the amount of consideration that is expected to be received in exchange for transferring goods or providing services, and the transaction price is generally fixed and generally does not contain variable or noncash consideration. In addition, the Company’s contracts with customers generally do not contain customer refund or return provisions or other similar obligations. 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 of performance obligations and the allocation of the transaction price to multiple performance obligations, if any. Revenue 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. 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 accepted by a customer. Performance obligations for the sale of consumable products do not extend beyond one year. 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 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. 51 Arq, Inc. and Subsidiaries Notes to Consolidated Financial Statements 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" 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. Practical Expedients and Exemptions The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. Sales and other taxes that are collected concurrently with revenue-producing activities are excluded from 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 "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 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. The Tinuum Group Royalty is included in Cost of revenue in the Consolidated Statements of Operations. Payroll and Benefits 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 Legal and professional costs include external legal, audit and consulting expenses. General and Administrative 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. Research and Development 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, 2025 and 2024, the Company recorded total research and development costs of $ 7.3 million and $ 4.1 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 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. An ARO asset is depreciated over its estimated remaining life. Accounting for AROs requires the Company to estimate future costs 52 Arq, Inc. and Subsidiaries Notes to Consolidated Financial Statements unique to a specific mining operation that the Company expects to incur to complete the reclamation and remediation work required to comply with existing laws and regulations. AROs are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation costs. On an annual basis, unless otherwise deemed necessary, the Company reviews its estimates and assumptions of its AROs. Income Taxes 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. Under this method, deferred income taxes are provided for temporary differences between the financial reporting basis and tax basis of the Company's assets and liabilities and are tax-effected using enacted tax rates in effect for the year in which the temporary differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in operations in the period that includes the enactment date. The Company maintains valuation allowances where it is more likely than not that all or a portion of deferred tax assets will not be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. The Company records uncertain tax positions on the basis of a two-step process whereby (1) the Company determines whether it is more-likely-than-not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. Stock-Based Compensation Stock-based compensation expense is measured at the grant date based on the estimated fair value of the stock-based award and is generally expensed on a straight-line basis over the requisite service period and/or performance period of the award. Forfeitures are recognized when incurred. 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. Dividends When a sufficient amount of available earnings exists at the time of a dividend declaration, dividends are charged to Retained earnings when declared. If a sufficient amount of available earnings is not available, dividends declared are charged as a reduction to Additional paid-in capital. Loss per Common Share Basic loss per common share is computed using the weighted-average shares of common stock outstanding during the reporting period. Diluted loss per share is computed in a manner consistent with that of basic loss per share, while considering other potentially dilutive securities. Potentially dilutive securities consist of unvested restricted stock awards ("RSAs") and contingent performance stock units ("PSUs") (collectively, "Potential dilutive shares"). Potential dilutive shares are excluded from diluted weighted-average shares of common stock outstanding when their effect is anti-dilutive based on the treasury stock method. When there is a net loss for a period, all Potential dilutive shares are anti-dilutive and are excluded from the calculation of diluted weighted-average shares of common stock outstanding for that period. Each PSU represents a contingent right to receive shares of the Company’s common stock, and the number of shares may range from zero to two times the number of PSUs granted on the award date depending upon the price performance of the Company's common stock as measured against a general index and a specific peer group index over requisite performance periods. The number of Potential dilutive shares related to a PSU is based on the number of shares of the Company's common stock, if any, that would be issuable at the end of the respective reporting period, assuming that the end of the reporting period is the end of the contingency period applicable to a PSU. See Note 11 for additional information related to PSUs. 53 Arq, Inc. and Subsidiaries Notes to Consolidated Financial Statements The following table sets forth the calculations of basic and diluted loss per common share: Years Ended December 31, (in thousands, except per share amounts) 2025 2024 Net loss $ ( 52,610 ) $ ( 5,109 ) Basic weighted-average number of common shares outstanding 41,522 36,051 Add: dilutive effect of equity instruments — — Diluted weighted-average shares outstanding 41,522 36,051 Loss per share - basic $ ( 1.27 ) $ ( 0.14 ) Loss per share - diluted $ ( 1.27 ) $ ( 0.14 ) For the years ended December 31, 2025 and 2024, 2.5 million and 2.4 million weighted-average equity instruments, respectively, were outstanding but were not included in the computation of diluted loss per share because their effect would have been anti-dilutive. Use of Estimates The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires the Company’s management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates. Significant financial statement components in which the Company makes assumptions include: • business combinations, including asset acquisitions; • the carrying value of its long-lived assets; • AROs; and • income taxes, including the valuation allowance for deferred tax assets and assessment of uncertain tax positions. Risks and Uncertainties The Company is principally dependent on operations of its APT business, its cash on hand, and availability under its 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. During periods of low natural gas prices, natural gas provides a competitive alternative to coal-fired power generation and therefore, coal consumption may be reduced, which in turn reduces the demand for the Company's products. However, during periods of higher prices for competing power generation sources, there is generally an increase in coal consumption and thus demand for the Company's products also increases. In addition, coal consumption and demand for the Company's products are affected by the demand for electricity, which is higher in the warmer and colder months of the year. 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 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 current 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. 54 Arq, Inc. and Subsidiaries Notes to Consolidated Financial Statements Segments Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by a company's chief operating decision maker ("CODM"), or a decision-making group, in deciding how to allocate resources and in assessing financial performance. As of December 31, 2025, the Company's CODM was the Company's Chief Executive Officer, and the Company concluded that it had one reportable segment. New Accounting Standards Recently Adopted In December 2023, the FASB issued Accounting Standards Update 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"), which requires enhanced disclosures to certain income tax disclosures, most notably the effective tax rate reconciliation and income taxes paid. The Company adopted ASU 2023-09 for the year ended December 31, 2025 on a retrospective basis. See Note 12. Recently Issued In November 2024, the FASB issued Accounting Standards Update 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses ("ASU 2024-03"). ASU 2024-03 requires entities to disclose disaggregated information related to certain costs and expenses, including amounts relating to purchases of inventory, employee compensation, depreciation, intangible asset amortization and depletion, for each income statement line item that contains those expenses. For public entities, the amendments in ASU 2024-03 are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. ASU 2024-03 is required to be applied prospectively, but retrospective application is permitted. The Company is currently evaluating the impact of ASU 2024-03 on its financial statement disclosures. In July 2025, the FASB issued Accounting Standards Update 2025-05, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets ("ASU 2025-05"). ASU 2025-05 provides a practical expedient that all entities can use when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under ASC 606, Revenue from Contracts with Customers. Under this practical expedient, an entity is allowed to assume that the current conditions it has applied in determining credit loss allowances for current accounts receivable and current contract assets remain unchanged for the remaining life of those assets. ASU 2025-05 is effective for fiscal years beginning after December 15, 2025, and interim reporting periods in those years. Entities that elect the practical expedient and, if applicable, make the accounting policy election are required to apply the amendments prospectively. The Company is currently evaluating the impact of ASU 2025-05 on its financial statements and disclosures. Note 2 - Impairment In December 2025, the Company terminated substantially all of the Corbin Facility employees and elected to idle indefinitely the Corbin Facility effective January 1, 2026. As of December 31, 2025, the Company recorded a severance accrual for these employees in the amount of $ 0.3 million in accordance with employment agreements. In the second half of 2025, the Corbin Facility had commenced producing Corbin Wetcake to be used in the manufacturing process at the GAC facility constructed at the Red River Plant (the "GAC Facility"). The GAC Facility was commissioned in August 2025. Due to problems with the Corbin Wetcake composition and design flaws in our GAC Facility, the Company concluded that it was cost prohibitive to continue to produce GAC products using the Corbin Wetcake. In January 2026, the Company temporarily ceased production of GAC products and began testing of a bituminous coal feedstock purchased from a third party to produce GAC products. Based on these factors and as part of its periodic review for indicators of impairment in evaluating the carrying value of long-lived assets, the Company assessed its long-lived assets located at the Corbin Facility (the "Corbin Asset Group") and the GAC Facility assets located at the Red River Plant (the "GAC Asset Group") for potential impairment. The Company concluded that indicators of impairment were evident with both of these asset groups, and as of December 31, 2025, completed recoverability tests based on an undiscounted cash flow analysis for both asset groups. The Company determined for the Corbin Asset Group that the estimated undiscounted cash flows were less than its carrying value and the Corbin Asset Group was impaired. The Company further determined that the GAC Asset Group was not impaired as the estimated undiscounted cash flows exceeded its carrying value. 55 Arq, Inc. and Subsidiaries Notes to Consolidated Financial Statements Accordingly, the Company completed a valuation of the Corbin Asset Group to estimate its fair value. The Company engaged an independent third party to perform a valuation of the Corbin Asset Group as the basis of estimating its fair value. This valuation was based on a cost approach to determine an estimate of "ordinary liquidation value" of the Corbin Asset Group and incorporated the use of Level 3 inputs. The Company estimated the fair value of the Corbin Asset Group at $ 10.9 million and recorded an impairment charge (the "Corbin Impairment Charge") and corresponding write-down of the Corbin Asset Group in the amount of $ 38.1 million. Included in this amount is also $ 0.3 million of Corbin Wetcake inventory that was written-off as of December 31, 2025. In addition, the Company concluded that the intangible asset, developed technology, which comprised a number of patents and other intellectual property attributable to the proprietary manufacturing process for Corbin Wetcake, was also impaired and that its estimated fair value as of December 31, 2025 was zero . Accordingly, the Company recorded an impairment charge (the "Developed Technology Impairment Charge") and a corresponding write-down of the developed technology in the amount of $ 6.6 million as of December 31, 2025. The Corbin Impairment Charge and the Developed Technology Impairment Charge are included in "Impairment of long-lived assets" in the Consolidated Statements of Operations for the year ended December 31, 2025. The following table summarizes the allocation of the Corbin Impairment Charge and the Developed Technology Impairment Charge as of December 31, 2025: (in thousands) Corbin Impairment Charge Developed Technology Impairment Charge Inventories, net $ 321 $ — Property, plant and equipment, net 34,341 — Other long-term assets, net 3,485 6,609 Total impairment $ 38,147 $ 6,609 Note 3 - Inventories, net The following table summarizes the Company's inventories as of December 31, 2025 and 2024: As of December 31, (in thousands) 2025 2024 Product inventory $ 10,403 $ 11,166 Raw material inventory 5,492 8,148 $ 15,895 $ 19,314 56 Arq, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 4 - Property, Plant and Equipment The cost basis and accumulated depreciation of property, plant and equipment as of December 31, 2025 and 2024 are summarized in the table below: Life in Years As of December 31, (in thousands) 2025 2024 Land and land improvements 6 + (1) $ 2,100 $ 1,596 Plant and operating equipment 2 - 29 158,490 86,297 Furniture and fixtures 3 - 19 1,981 2,053 Machinery and equipment 2 - 12 1,165 2,124 Leasehold improvements 12 - 14 2,149 3,137 Construction in progress 5,644 109,976 171,529 205,183 Less accumulated depreciation ( 28,375 ) ( 26,619 ) Total property, plant and equipment, net $ 143,154 $ 178,564 (1) Land Improvements have a useful life between 6 and 31 years. Included in plant and operating equipment as of December 31, 2025 and 2024 is mining equipment financed under various lease facilities, and obligations due under these facilities are included in long-term debt in the Consolidated Balance Sheets. The total amount recorded for ROU assets as of December 31, 2025 and 2024 related to finance lease obligations was $ 0.3 million and $ 0.8 million, respectively, net of accumulated depreciation of $ 2.8 million and $ 3.2 million. Depreciation expense for the years ended December 31, 2025 and 2024 was $ 10.2 million and $ 6.9 million, respectively. Note 5 - Revenue For the years ended December 31, 2025 and 2024, all material performance obligations related to revenue recognized were satisfied at a point in time. Trade receivables Trade receivables represent an unconditional right to consideration in exchange for goods or services transferred to a customer. The Company invoices its customers in accordance with the terms of the contract. Credit terms are generally net 30 - 45 days from the date of invoice. The timing between the satisfaction of performance obligations and when payment is due from the customer is generally not significant. Other receivables The Company exercised its right under certain MQ Contracts and recognized $ 1.6 million of revenue from MQ Contracts for the year ended December 31, 2024. The Company did not have material revenue from MQ Contracts for the year ended December 31, 2025. 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: As of December 31, (in thousands) 2025 2024 Trade receivables, net $ 14,830 $ 13,265 Other 150 1,611 Receivables, net $ 14,980 $ 14,876 As of January 1, 2024, Trade receivables, net and Other receivables were $ 11.3 million and $ 4.9 million, respectively. 57 Arq, Inc. and Subsidiaries Notes to Consolidated Financial Statements 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, 2025 and 2024. Contract liabilities 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, 2025 and 2024. Note 6 - Debt Obligations As of (in thousands) December 31, 2025 December 31, 2024 Revolving credit agreement $ 18,950 $ 13,828 CTB Loan due January 2036 8,403 8,983 Finance lease obligations 319 1,269 Other 1,031 1,004 28,703 25,084 Unamortized debt discounts ( 24 ) ( 24 ) Unamortized debt issuance costs ( 214 ) ( 238 ) 28,465 24,822 Less: Current maturities ( 20,013 ) ( 15,452 ) Total long-term debt obligations $ 8,452 $ 9,370 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 Agreement. 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 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 58 Arq, Inc. and Subsidiaries Notes to Consolidated Financial Statements 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 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 Company and certain of its subsidiaries party thereto to maintain their aggregate Total Leverage Ratio at or below a maximum leverage ratio and to maintain minimum liquidity of $ 5.0 million, in each case as specified in the Revolving Credit Facility. On each of May 6, 2025, December 9, 2025, January 28, 2026, and February 27, 2026, the Company entered into amendments to the Revolving Credit Agreement, all of which provided for, among other things, a revision to the borrowing availability calculation and a reduction in the minimum liquidity requirement for the period beginning May 6, 2025 through March 31, 2026. As of April 1, 2026, the minimum liquidity requirement will reset to $ 5.0 million. As of December 31, 2025, the Company's borrowings under the Revolving Credit Facility totaled $ 19.0 million. CTB Loan On February 1, 2023, the Company assumed a term loan (the "CTB Loan") in the principal amount of $ 10.0 million held by certain subsidiaries acquired by the Company on that date (the "Borrowers"). The Company initially recorded the CTB Loan 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. The CTB Loan was originally entered into on January 27, 2021 and is comprised of two promissory notes (the "Notes"): (1) "Note A" in the principal amount of $ 8.0 million, which is guaranteed by the U.S. Department of Agriculture; and (2) "Note B" in the principal amount of $ 2.0 million. 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. 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 1.0 % of the outstanding principal if paid prior to January 27, 2026. Thereafter, the Notes may be prepaid without penalty. The CTB Loan is secured by substantially all assets of the Borrowers and includes among others, the following covenants with respect to the Borrowers, which are tested annually (capitalized terms are defined in the CTB Loan Agreement): (a) Total Indebtedness to Net Worth greater than 4 to 1; (b) Balance Sheet Equity greater than or equal to 20 % of the book value of all assets of the Borrowers; (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. On March 5, 2026, the Company entered into an amendment to the CTB Loan (the "CTB Second Amendment"). Under the CTB Second Amendment, the lender waived the Company’s obligation to satisfy certain financial covenants for the fiscal year ending December 31, 2025 and suspended financial covenant testing for the fiscal year ending December 31, 2026. As a condition of the waiver, the Company was required to increase its deposits held in reserve at CTB. 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. 59 Arq, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 7 - Leases The Company's operating and finance lease ROU assets and liabilities as of December 31, 2025 and 2024 consisted of the following items (in thousands): As of (in thousands) December 31, 2025 December 31, 2024 Operating Leases Operating lease right-of-use assets, net of accumulated amortization (1) $ 6,793 $ 9,312 Operating lease obligations, current $ 2,842 $ 2,081 Long-term operating lease obligations 6,086 7,460 Total operating lease obligation $ 8,928 $ 9,541 Finance Leases Finance lease right-of-use assets, net of accumulated amortization (2) $ 276 $ 824 Finance lease obligations, current $ 231 $ 855 Long-term finance lease obligations 88 414 Total finance lease obligations $ 319 $ 1,269 (1) Operating lease assets are reported net of accumulated amortization of $ 6.6 million and $ 4.5 million as of December 31, 2025 and 2024, respectively. (2) Finance lease assets are reported net of accumulated amortization of $ 2.8 million and $ 3.2 million as of December 31, 2025 and 2024, respectively. Finance leases ROU assets under finance leases are included 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, respectively, in the Consolidated Balance Sheets as of December 31, 2025 and 2024. 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 Statements of Operations for the years ended December 31, 2025 and 2024. Operating leases ROU assets under operating leases are included in the " Other long-term assets " line item, and operating lease liabilities are included in " Other current liabilities" and " Other long-term liabilities" line items, respectively, in the Consolidated Balance Sheets as of December 31, 2025 and 2024. Lease expense for operating leases for the year ended December 31, 2025 was $ 5.7 million, of which $ 5.0 million is included in the "Cost of revenue, exclusive of depreciation and amortization" line item and $ 0.7 million is included in the "Selling, general and administrative" line item in the Consolidated Statement of Operations for the year ended December 31, 2025. 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. In 2025, the Company renewed its lease of land where the Corbin Facility is located (the "Corbin Lease") through August 31, 2030 in accordance with the Corbin Lease renewal term, which allows for automatic five-year renewals by the Company. As of December 31, 2025 and based on the Company's decision to idle indefinitely the Corbin Facility, the Company revalued the Corbin Lease liability and the related ROU asset (the "Corbin ROU Asset") based on a reduction from its estimated expected 60 Arq, Inc. and Subsidiaries Notes to Consolidated Financial Statements termination date of August 31, 2040, to August 31, 2030. The revaluation resulted in a reduction to both the Corbin Lease Liability and the Corbin ROU Asset in the amount of $ 0.8 million. Lease financial information as of and for the years ended December 31, 2025 and 2024 is provided in the following table: Year ended December 31, (in thousands) 2025 2024 Finance lease cost: Amortization of right-of-use assets $ 396 $ 489 Interest on lease liabilities 131 194 Operating lease cost 3,600 3,229 Short-term lease cost 1,896 1,636 Variable lease cost (1) 240 417 Total lease cost $ 6,263 $ 5,965 Other Information: Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from finance leases $ 131 $ 194 Operating cash flows from operating leases $ 2,438 $ 1,996 Financing cash flows from finance leases $ 447 $ 1,022 Right-of-use assets obtained in exchange for new operating lease liabilities $ 2,643 $ 724 Weighted-average remaining lease term - finance leases 1.3 years 1.6 years Weighted-average remaining lease term - operating leases 3.8 years 7.3 years Weighted-average discount rate - finance leases 8.9 % 6.2 % Weighted-average discount rate - operating leases 11.3 % 12.2 % (1) Primarily includes common area maintenance, property taxes and insurance payable to lessors. The following table summarizes the Company's future lease payments under finance and operating leases as of December 31, 2025: (in thousands) Operating Lease Commitments Finance Lease Commitments Total Lease Commitments 2026 $ 3,862 $ 250 $ 4,112 2027 2,417 87 2,504 2028 1,612 — 1,612 2029 1,508 — 1,508 2030 1,098 — 1,098 Thereafter 242 — 242 Total lease payments 10,739 337 11,076 Less: Imputed interest ( 1,811 ) ( 18 ) ( 1,829 ) Present value of lease payments $ 8,928 $ 319 $ 9,247 61 Arq, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 8 - Commitments and Contingencies Surety Bonds and Restricted Cash As the owner of the Five Forks Mine, the Company is required to post a surety bond with a regulatory commission related to performance requirements associated with the Five Forks Mine. As of December 31, 2025, the amount of this surety bond was $ 7.5 million. The Company leases land adjacent to the Corbin Facility and is required to post surety bonds with a regulatory commission for reclamation. As of December 31, 2025, the amount of these surety bonds was $ 3.0 million. The Company holds permits for an abandoned mine in West Virginia ("Mine 4") and is required to post a surety bond with a regulatory commission for reclamation. As of December 31, 2025, the amount of this surety bond was $ 0.7 million. As of December 31, 2025 and 2024, the Company posted cash collateral of $ 8.5 million and $ 8.5 million, respectively, as required by the Company's surety bond providers, which is reported as long-term restricted cash in the Consolidated Balance Sheets. As of December 31, 2025, the Company holds a deposit of $ 0.4 million with a third party for collateral as required under a bonding arrangement for Mine 4. This deposit is included in "Other long-term assets, net" in the Consolidated Balance Sheet as of December 31, 2025. From time to time, the Company will enter into customer supply agreements which require the Company to obtain performance bonds equal to the annual contract values. The most significant of these was renewed January 1, 2026 and requires the Company to post a performance bond in an amount equal to the annual contract value of $ 4.0 million. As of December 31, 2025, the amount of performance bonds outstanding as required by other customer supply agreements was $ 0.2 million. Tinuum Group The Company also has certain limited obligations contingent upon future events in connection with the activities of Tinuum Group. 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. Under an agreement executed in December 2022 amongst certain owners of Tinuum Group, the Company became party to a distribution and repayment agreement (the "Repayment Agreement"). Under the terms of the Repayment Agreement, the Company became contractually liable for up to $ 1.7 million of a contingent liability of Tinuum Group (the "Tinuum Group Obligation") and recorded a liability 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 December 2025, the Company was released from its obligation under the Repayment Agreement, largely based on the expiration of the contingency, and the Tinuum Group Obligation was discharged in full. The Company recognized a gain of $ 1.7 million related to the release of the liability, which is presented in the "Earnings from equity method investment" line item in the Consolidated Statements of Operations for the year ended December 31, 2025. Legal Proceedings The Company is from time to time subject to various pending or threatened legal actions and proceedings, including those that arise in the ordinary course of its business. Such matters are subject to many uncertainties and outcomes, the financial impacts of which are not predictable with assurance and that may not be known for extended periods of time. 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. 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. On April 11, 2025, the design firm filed a counterclaim to recover certain fees associated with the services provided. 62 Arq, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 9 - Supplemental Financial Information Supplemental Balance Sheet Information The following table summarizes the components of "Prepaid expenses and other current assets" and "Other long-term assets, net" as presented in the Consolidated Balance Sheets: As of December 31, (in thousands) 2025 2024 Prepaid expenses and other current assets: Prepaid expenses $ 2,959 $ 2,021 Prepaid lender fees, net (1) 1,472 982 Prepaid taxes and tax refunds 147 233 Other 1,826 1,414 $ 6,404 $ 4,650 Other long-term assets, net: Spare parts, net $ 11,017 $ 11,178 Right of use assets, operating leases, net 6,793 9,312 Mine development costs, net 6,763 7,010 Upfront Customer Consideration (2) 5,639 5,459 Mine reclamation asset, net 1,645 1,620 Intangible assets, net 570 7,569 Other 2,680 2,581 $ 35,107 $ 44,729 (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. Spare parts include critical spares required to support plant operations. Parts and supply costs are determined using the lower of cost or estimated replacement cost. 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 approximately 16 years as of December 31, 2025. 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. Mine reclamation asset represents the ARO asset related to the Five Forks Mine and is depreciated over its estimated life. Highview Investment Other includes a long-term investment (the "Highview Investment") in Highview Enterprises Limited ("Highview"), a London, England based developmental stage company specializing in power storage. The Company accounts for the Highview Investment as an investment recorded at cost, less impairment, plus or minus observable changes in price for identical or similar investments of the same issuer. Fair value measurements, if any, represent Level 2 measurements. The Highview Investment is evaluated for indicators of impairment such as an event or change in circumstances that may have a significant adverse effect on the fair value of the investment. There were no changes to the carrying value of the Highview Investment for the years ended December 31, 2025 and 2024 as there were no indicators of impairment or observable price changes for equity issued by Highview. Since inception of Highview Investment, the Company has recognized $ 2.2 million of cumulative impairment losses. As of December 31, 2025 and 2024, the carrying value of the Highview Investment was $ 0.6 million and $ 0.6 million, respectively. 63 Arq, Inc. and Subsidiaries Notes to Consolidated Financial Statements The following table details the components of "Other current liabilities" and "Other long-term liabilities" as presented in the Consolidated Balance Sheets: As of December 31, (in thousands) 2025 2024 Other current liabilities: Current portion of operating lease obligations $ 2,842 $ 2,081 Sales, use and other taxes payable 1,304 2,325 Current portion of mine reclamation liability 1,037 1,037 Other current liabilities (1) 1,832 2,741 $ 7,015 $ 8,184 Other long-term liabilities: Operating lease obligations, long-term $ 6,086 $ 7,460 Mine reclamation liabilities 5,719 5,242 Other 63 367 $ 11,868 $ 13,069 (1) Included in Other current liabilities as of December 31, 2024 is $ 1.7 million related to the Repayment Agreement as defined in Note 8 . The Mine reclamation liabilities represent AROs. Changes in the AROs were as follows: As of December 31, (in thousands) 2025 2024 Asset retirement obligations, beginning of year $ 6,279 $ 6,163 Accretion 513 666 Liabilities settled ( 177 ) ( 77 ) Changes due to scope and timing of reclamation 141 ( 473 ) Asset retirement obligations, end of year 6,756 6,279 Less current portion 1,037 1,037 Asset retirement obligations, long-term $ 5,719 $ 5,242 Supplemental Consolidated Statements of Operations Information The following table details the components of "Interest expense" in the Consolidated Statements of Operations: Years Ended December 31, (in thousands) 2025 2024 Interest on Revolving Credit Facility $ 1,675 $ — Interest on CTB Loan 554 567 Interest on CFG Loan — 2,286 Other 220 404 Total Interest expense $ 2,449 $ 3,257 64 Arq, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 10 - Stockholders' Equity The Company has two classes of capital stock authorized, common stock and preferred stock, which are described as follows: Preferred Stock 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, 2025 and 2024, there were no shares of Preferred Stock designated or outstanding. Common Stock Holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Additionally, holders of common stock are entitled to receive dividends when and if declared by the Board, subject to any statutory or contractual restrictions on payment of dividends and to any restrictions on the payment of dividends imposed by the terms of any outstanding shares of preferred stock. Upon dissolution, liquidation or the sale of all or substantially all of the Company's assets, after payment in full of any amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of shares of common stock will be entitled to receive the Company's remaining assets for distribution on a pro rata basis. Equity Transactions On July 17, 2023, the Company entered into a Subscription Agreement (the "Subscription Agreement") with Mr. Robert Rasmus and entities controlled by Mr. Rasmus, in connection with his appointment as the Company’s President and Chief Executive Officer. Pursuant to the Subscription Agreement, Mr. Rasmus subscribed for and agreed to purchase 950,000 shares of common stock from the Company for an aggregate purchase price of $ 1.8 million (at a price per share of approximately $ 1.90 ). In September 2023, the Company received cash of $ 1.0 million and issued 527,779 shares of common stock to Mr. Rasmus pursuant to the Subscription Agreement. 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. 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"). On August 12, 2025, the Board voted to terminate the Stock Repurchase Program, under which $ 7.0 million was remaining at the time of its termination. No shares were repurchased during the years ended December 31, 2025 and 2024. Tax Asset Protection Plan U.S. 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 65 Arq, Inc. and Subsidiaries Notes to Consolidated Financial Statements 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 8, 2025, the Board approved the Eighth Amendment to the TAPP (the "Eighth Amendment"), which amends the TAPP, as previously amended by the First, Second, Third, Fourth, Fifth, Sixth and Seventh Amendments that were approved by the Board on April 6, 2018, April 5, 2019, April 9, 2020, April 9, 2021, March 15, 2022, April 13, 2023, and April 12, 2024, respectively. The Eighth 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 Eighth Amendment, the Final Expiration Date shall be the close of business on the earlier of (i) December 31, 2026 or (ii) December 31, 2025 if stockholder approval of the Eighth Amendment has not been obtained prior to such date. On June 3, 2025, the Company's stockholders approved the Eighth Amendment, and therefore the Final Expiration Date is the close of business on December 31, 2026, unless the TAPP is further amended. Note 11 - Stock-Based Compensation 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, 2025, the Company has 1,037,061 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. 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 2022 Plan. As of December 31, 2025, the Company has zero shares of its common stock authorized for issuance under the 2022 Plan. Expense RSAs - Restricted Stock Awards ("RSA's") are typically granted with vesting terms of three years . The fair value of RSAs is determined based on the closing price of the Company’s common stock on the authorization date of the grant multiplied by the number of shares subject to the stock award. Compensation expense for RSAs is generally recognized over the vesting term on a straight-line basis. PSUs - Performance share units ("PSU's") generally vest over three years and are based on the grantee’s continuous service with the Company, performance measures or a combination of both. Each PSU represents a contingent right to receive shares of the Company’s common stock if the Company meets certain performance measures over the requisite period. Compensation expense is recognized for PSU awards on a straight-line basis over the vesting period based on the estimated fair value at the date of grant using a Monte Carlo simulation model. The Company's Monte Carlo simulation models include the following assumptions: • Risk-free interest rate - The risk-free interest rate for PSUs granted during the period was determined by using a zero-coupon, U.S. Treasury rate for the periods that coincided with the expected terms listed above. • Dividends - As the PSUs granted receive dividend equivalent units, no discount was applied for any dividends declared. • Expected volatility - To calculate expected volatility, the historical volatility of the Company's common stock was used. • Performance period - The Company’s performance period is based on the vesting term of the Company’s PSU awards. 66 Arq, Inc. and Subsidiaries Notes to Consolidated Financial Statements Stock Options Stock options vest over three years and have a contractual limit of ten years from the date of grant to exercise. The fair value of stock options granted is determined on the date of grant using the Black-Scholes option pricing model, and the related expense is recognized on a straight-line basis over the entire vesting period. The determination of the grant date fair value of stock options issued is affected by a number of variables, including the fair value of the Company’s common stock, the expected common stock price volatility over the expected term of the stock option, the expected term of the stock option, risk-free interest rates, and the expected dividend yield of the Company’s common stock. The Company's Black Scholes option pricing models include the following assumptions: • Risk-free interest rate - The risk-free interest rate for stock options granted during the period was determined by using a zero-coupon U.S. Treasury rate for the periods that coincided with the expected term of the options. • Dividend yield - An expected dividend yield of zero was included in the calculations, as the Company does not currently pay nor does it anticipate paying dividends on its common stock as of the grant date of the stock options. • Expected volatility - To calculate expected volatility, the historical volatility of the Company's common stock was used. • 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 years ended December 31, 2025 and 2024. The Company recorded the following stock-based compensation expense for the years ended December 31, 2025 and 2024: Years Ended December 31, (in thousands) 2025 2024 RSA expense $ 2,357 $ 1,834 PSU expense 763 638 Stock option expense 243 243 Total stock-based compensation expense $ 3,363 $ 2,715 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. The amount of unrecognized compensation cost as of December 31, 2025, and the expected weighted-average period over which the cost will be recognized is as follows: As of December 31, 2025 (in thousands, except years) Unrecognized Compensation Cost Expected Weighted-Average Period of Recognition (in years) RSA expense $ 3,791 1.62 PSU expense 1,135 1.18 Stock option expense 132 0.54 Total unrecognized stock-based compensation expense $ 5,058 1.49 67 Arq, Inc. and Subsidiaries Notes to Consolidated Financial Statements Activity Restricted Stock A summary of activity of RSAs for the year ended December 31, 2025 is presented in the following table: Restricted Stock Weighted-Average Grant Date Fair Value (in thousands, except for share and per share amounts) Awards RSA's Non-vested at January 1, 2025 732,555 $ 4.99 Granted 778,901 $ 4.91 Vested ( 354,773 ) $ 4.86 Forfeited ( 88,034 ) $ 4.99 Non-vested at December 31, 2025 1,068,649 $ 4.97 The weighted-average grant date fair value of RSAs granted or modified for the years ended December 31, 2025 and 2024 was $ 4.91 and $ 5.79 , respectively. The total grant-date fair value of RSAs vested for the years ended December 31, 2025 and 2024 was $ 1.7 million and $ 2.0 million, respectively. The aggregate intrinsic value of non-vested RSAs outstanding as of December 31, 2025 was $ 3.5 million. PSUs 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 peer group performance index. A summary of PSU activity for the year ended December 31, 2025 is presented in the table below: Units Weighted-Average Grant Date Fair Value Aggregate Intrinsic Value (in thousands) Weighted-Average Remaining Contractual Term (in years) PSUs outstanding at January 1, 2025 877,045 $ 2.94 Granted 141,064 7.11 Vested / Settled ( 33,619 ) 9.11 Forfeited / Canceled ( 173,197 ) 3.25 PSUs outstanding at December 31, 2025 811,293 $ 3.34 $ 2,653 1.12 Stock Options A summary of stock option activity for the year ended December 31, 2025 is presented below: 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, 2025 1,000,000 $ 3.00 Options granted — — Options exercised — — Options expired / forfeited — — Options outstanding at December 31, 2025 1,000,000 $ 3.00 $ 270 7.54 Options vested and exercisable at December 31, 2025 666,666 $ 3.00 $ 180 7.54 68 Arq, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 12 - Income Taxes The sources of pretax loss are as follows: Years ended December 31, (in thousands) 2025 2024 Domestic $ ( 44,771 ) $ ( 3,435 ) Foreign ( 7,827 ) ( 1,838 ) $ ( 52,598 ) $ ( 5,273 ) The provision for income taxes consists of the following: Years Ended December 31, (in thousands) 2025 2024 Current portion of income tax expense (benefit): Federal $ — $ — State and other 12 ( 164 ) 12 ( 164 ) Deferred portion of income tax expense (benefit): Federal — — State and other — — — — Total income tax expense (benefit) $ 12 $ ( 164 ) Effective tax rate — % 3 % As discussed in Note 1 above, the Company adopted ASU 2023-09 effective for the year ended December 31, 2025 on a retrospective basis. The reconciliation of income taxes computed at the U.S. federal statutory rate of 21 % to the effective rate for the years ended December 31, 2025 and 2024 is as follows: Years ended December 31, (in thousands, except for rate) 2025 2024 Amount % of Pretax loss Amount % of Pretax loss U.S. federal statutory tax rate $ ( 11,045 ) 21 % $ ( 1,107 ) 21 % State income taxes, net of federal benefit (1) 10 — % ( 130 ) 3 % Foreign tax effects - United Kingdom Statutory tax rate difference between United Kingdom and U.S. ( 313 ) 1 % ( 73 ) 1 % Valuation allowance 304 ( 1 ) % 459 ( 9 ) % Other — — % 1 — % Nontaxable or nondeductible items Stock-based compensation 50 — % ( 363 ) 7 % Nondeductible compensation — — % 53 ( 1 ) % Other 43 — % 54 ( 1 ) % Valuation allowances 10,969 ( 21 ) % 1,035 ( 20 ) % Other adjustments ( 6 ) — % ( 93 ) 2 % Effective tax rate $ 12 — % $ ( 164 ) 3 % (1) State taxes in Texas comprise the majority (greater than 50%) of the tax effect in the category. 69 Arq, Inc. 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. These temporary differences result in taxable or deductible amounts in future years. Details of the Company’s deferred tax assets and liabilities are summarized as follows: As of December 31, (in thousands) 2025 2024 Deferred tax assets Tax credits $ 86,125 $ 86,125 Net operating loss carryforwards 22,264 18,985 Intangible assets 2,345 1,010 Employee related liabilities 1,386 1,553 Operating lease obligations 2,127 2,345 ARO, net of reimbursements 1,060 976 Research and development capitalization 1,092 1,591 Other investments 531 547 Inventory 508 680 Interest limitations 604 527 Other 359 622 Total deferred tax assets 118,401 114,961 Less valuation allowance ( 114,033 ) ( 101,598 ) Deferred tax assets 4,368 13,363 Less: Deferred tax liabilities Property and equipment and other ( 1,404 ) ( 9,730 ) Right of use operating lease assets ( 1,617 ) ( 2,289 ) Upfront customer consideration ( 1,347 ) ( 1,344 ) Total deferred tax liabilities ( 4,368 ) ( 13,363 ) 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 realized. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that is more likely than not to be realized. The Company assesses a valuation allowance recorded against deferred tax assets at each reporting date. The determination of whether a valuation allowance is appropriate requires the evaluation of positive and negative evidence that can be objectively verified. Consideration must be given to all sources of taxable income available to realize a deferred tax asset, including, as applicable, the future reversal of existing temporary differences, future taxable income forecasts exclusive of the reversal of temporary differences and carryforwards, taxable income in carryback years and tax planning strategies. In estimating taxes, the Company assesses the relative merits and risks of the appropriate tax treatment of transactions taking into account statutory, judicial and regulatory guidance. As of December 31, 2025, the Company concluded it is more likely than not the Company will not generate sufficient taxable income within the applicable net operating loss and tax credit carry-forward periods to realize any of its net deferred tax assets. For the year ended December 31, 2025, the Company increased a valuation allowance from December 31, 2024 by $ 12.4 million and as of December 31, 2025, has a valuation allowance equal to 100 % of its net deferred tax assets. In reaching this conclusion, the Company primarily considered its pretax losses incurred over a cumulative three-year lookback period. 70 Arq, Inc. and Subsidiaries Notes to Consolidated Financial Statements Net cash paid (refunded) for income tax consisted of the following: As of December 31, (in thousands) 2025 2024 Federal $ — $ — State Texas ( 27 ) 20 Illinois — ( 150 ) Pennsylvania — 44 Other — ( 14 ) $ ( 27 ) $ ( 100 ) 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: As of December 31, (in thousands) 2025 Beginning expiration year Ending expiration year Federal net operating loss carryforwards $ 13,329 2035 Indefinite Foreign net operating loss carryforwards $ 4,200 Indefinite Indefinite State and other net operating loss carryforwards $ 4,735 2026 Indefinite Federal tax credit carryforwards $ 86,125 2032 2041 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, 2025 and 2024: Years Ended December 31, (in thousands) 2025 2024 Balance as of January 1 $ — $ 54 Lapse of applicable statute of limitations — ( 54 ) Balance as of December 31 $ — $ — Interest and penalties related to uncertain tax positions are accrued and included in the "Interest expense" line item in the Consolidated Statements of Operations. Additional information related to the components of "Interest expense" is included in Note 9. For the year ended December 31, 2024, the Company did not record any adjustments or recognize interest expense for uncertain tax positions. The Company files income tax returns in the U.S., various states and the United Kingdom. The Company is no longer subject to U.S. federal examinations by tax authorities for years before 2022. The Company is generally no longer subject to state examinations by tax authorities for years before 2018. U.S. federal income tax rules, and Sections 382 of the Internal Revenue Code in particular, could substantially limit the use of Section 45 tax credits and other tax assets if the Company experiences an "ownership change" (as defined in the Internal Revenue Code). 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 ). 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. As of December 31, 2025, the Company performed an IRC Section 382 analysis and determined that it had not experienced an ownership change as of that date. 71 Arq, Inc. and Subsidiaries Notes to Consolidated Financial Statements In February 2023, the Company completed a business combination (the "Acquisition") in which it acquired certain tax assets (the "Acquisition Tax Assets") totaling approximately $ 12.5 million. The Acquisition Tax Assets are comprised of net operating loss carryforwards, of which $ 8.8 million were in the U.S. Prior to the Acquisition, the acquiree completed numerous equity offerings that resulted in ownership changes. The Company has not completed a formal IRC Section 382 analysis of the acquiree's equity changes from acquiree's inception through the date of the Acquisition. The Company believes that one or more "ownership changes" occurred prior to the date of the Acquisition as defined under Sections 382 and 383 and that a portion or all the Acquisition Tax Assets may subject to an annual limitation. Note 13 - Related Party Transactions Consumables Cost of Revenue For the year ended December 31, 2025, the Company recognized $ 0.6 million of Tinuum Group Royalty expense, which is included in the "Cost of revenue, exclusive of depreciation and amortization" line item in the Consolidated Statements of Operations. Tinuum Group Obligation As of December 31, 2024, the Company had an outstanding liability of $ 1.7 million related to its contractual amount due under the Tinuum Group Obligation, which is included in the "Other current liabilities" line item in the Consolidated Balance Sheet as of December 31, 2024. In December 2025, the Company was released from its obligation under the Repayment Agreement, largely based on the expiration of the contingency, and the Tinuum Group Obligation was discharged in full. The Company recognized a gain of $ 1.7 million related to the release of the liability, which is presented in the "Earnings from equity method investments" line item in the Consolidated Statements of Operations for the year ended December 31, 2025. Refer to Note 8 for further discussion. Note 14 - Defined Contribution Savings Plans The Company sponsors a qualified defined contribution savings plan (the "401(k) Plan") that allows participation by eligible employees who may defer a portion of their gross pay. 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. The following table presents the amount of the Company's contributions made to the 401(k) Plan: Years Ended December 31, (in thousands) 2025 2024 401(k) Plans employer contributions $ 752 $ 544 Note 15 - Segment Reporting Overall 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 PAC and GAC, 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 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 Consolidated Statements of Operations as consolidated net income. The measure of segment assets is reported on the Consolidated Balance Sheets 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. 72 Arq, Inc. and Subsidiaries Notes to Consolidated Financial Statements The level of detail used in reviewing operating financial performance and managing the business is contained in the Company's Consolidated Statements of Operations. Products and services The Company operates in one segment, APT, and all revenue reported represents sales of APT products to external customers 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, 2025 and 2024. Years ended December 31, (in thousands) 2025 2024 United States $ 111,423 $ 101,103 Canada 8,913 7,856 Total $ 120,336 $ 108,959 Major Customers Revenue from external customers who represent 10% or more of the Company’s revenue for the years ended December 31, 2025 and 2024 were as follows: Years ended December 31, Customer Revenue Type 2025 2024 A Consumables 24 % 21 % B Consumables 11 % 9 % 73 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.