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spk00: And welcome to ME2C Environmental First Quarter 2021 Earnings Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. This conference is being recorded today, May 17th, 2021, and the earnings press release accompanying this conference call was issued before today's call. On today's call, is ME2C's President and CEO, Richard McPherson. Before we get started, I will read the disclaimer about forward-looking statements. This conference call may contain, in addition to historical information, forward-looking statements within the meanings of the federal securities laws regarding ME2C's environmental. Forward-looking statements include statements about plans, objectives, goals, strategies, future events, or performance in underlying assumptions and other statements that are different than historical facts. Forward-looking statements are generally identified by using words such as anticipate, believe, plan, expect, intend, will, and similar expressions. But these words are not exclusive means of identifying forward-looking statements. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Investors are questioned that forward-looking statements involve risks, uncertainties that could cause actual results to differ materially from the statements made. Matters that may cause actual results to differ materially from those in the forward-looking statements include, among other factors, the gain or loss of a major customer, change in environmental regulations, disruption in supply of materials, capacity factor fluctuations of power plant operations and power demands, a significant change in general economic conditions in any change of the regions where our customers' utilities may experience significant changes in electrical demand, significant disruption in the supply of our coal to our customers' units, loss of key management personnel, availability of capital, and any major litigation regarding the company. In addition, this conference call contains time sensitive information that reflects management's best analysis only as of the date of this conference call. The company does not undertake any obligation to publicly update or revise any forward looking statements to reflect future events, information, or circumstances that arise after the date of this conference call. Further information concerning issues that could materially affect financial performance related to forward-looking statements contained in this presentation can be found on the company's periodical findings with the Securities and Exchange Commission. And we would also refer you to the company's website for more supporting industrial information. At this time, I would like to turn the call over to Rick McPherson, Chief Executive Officer of ME2C Environmental. Sir, please go ahead.
spk01: Thank you, Operator, and thank you to everybody for joining us on today's call. Well, we're off to an incredibly strong start in 2021 as we make significant headway towards the full monetization of our patented environmental technologies. Our efforts during the first quarter built off the momentum that we had coming into this year as we seek to elevate our position as a leading clean tech enterprise across the U.S. power sector. Those that have been following our company likely noticed that we rebranded to ME2C Environmental in February. We feel this new trade name suitably reflects our dedication to the important cause of combating climate change. Our emissions control technologies continue to be recognized by the power industry as premier solutions. improving plant efficiency, and diminishing toxic emissions in an extremely cost-effective manner. Let me begin by providing an update on our multi-pronged litigation strategy, where much of our efforts are focused during the first quarter. To recap, our patented sorbent-enhancing additive, or SEA, technologies are most widely adopted emission capture system in plain North America. SEA was created in the early 2000s with the objective of creating the best approach to mercury emissions. This proprietary process was so well received by the industry that we believe today 44% of the coal-fired plants throughout the U.S. have adopted these, our technologies. While this has undoubtedly reduced emissions across North America and improved air quality for everyone, we as the firm that invented the technologies were pretty much left out of the commercial process of adoption to a large degree. left to compete against our own technologies with the various suppliers of the materials used in them, we made the decision to reset our business strategy using our robust patent portfolio to initiate a litigation approach to assure enterprise value for ME2C environmental shareholders. Our objective has been and continues to be the monetization of this heavy adoption of our technologies. And we've been very successful with this approach so far, having signed agreements between the second half of 2020 and the first quarter of this year with four major U.S. coal-fired producers that we're addressing using our technologies. In addition, we believe that we're nearing a court decision that would potentially allow us to realize the value stake of our technologies, which have had a big effect in the refined coal sector. We also engage with many more utility operators recently in an effort to have them acquire licenses to continue operating our process or to become an actual supply-side customer. We can leverage our team's deep knowledge and expertise to improve their plant efficiencies while creating cleaner, more sustainable communities for all of us. We're continuing to build a stable, reoccurring revenue base from solid margin licensing and supply agreements with top utilities across the U.S. So let me briefly address the refined coal segment of our legal proceedings. To put it simply, we believe our technologies have been used to underpin a massive tax credit scheme across a variety of different operators in the coal-fired utility business over the past nine years, which continues today. We have laid claim against this annual billion-dollar industry and expect to receive a decision to proceed or not after due consideration by by the judge sometime in the very near future. Our legal partners, Caldwell, Cassidy, and Curry, are effectively communicating our patent position and providing the continued guidance needed to monetize its adoption across the United States and beyond. Notably, under their legal guidance, we are taking a business-first approach to our conversations with infringing parties, meaning that we prefer to enter into business agreements with supply-side customers versus long-term litigation. This allows us to leverage our existing production facilities, which are capable of handling well over $100 million in annual revenue of products. We also made continued efforts to secure new business and extend agreements with our existing customer base during this past quarter. In March, we secured a multi-year contract with a large utility in the southwest U.S. to provide our SEA technology for mercury emission capture. We achieved this new supply business with a long-term customer through a competitive bid process. We also received another two-year extension contract with a coal utility in the Midwest for licenses relating to our SEA technologies and a supply of custom sorbents. These agreements are collectively valued at over $3 million on an annual basis going forward. In preparation for our expected revenue growth, we've made strategic investments in our production facilities to support our expected capacity, as mentioned, in terms of being able to supply product. Our fully paid for manufacturing and distribution center in Texarkana, Texas, is now being commissioned for service to meet the expected uptick in business this year. Now on the front of new technologies, which has led us to change the name While the foundation of our business today is largely still in the mercury emissions capture business, we've announced several new developing initiatives during the quarter that will round out our suite of sustainable solutions for the energy industry. This state-of-the-art technology package offer promising solutions to the most pressing issues facing our world today. Allow me to comment on each of these new verticals and what the opportunity for each might look like for ME2C long term. First, our methane gas emissions control technology for the oil and gas industry, which has been under development by our internal team of expert chemists over the last couple of years. A study we conducted leads us to believe that the 178 million metric tons of methane released annually by the United States alone equals a potential $10 billion a year in commercial value for remediation. We believe our new proprietary technology could be as important to the oil and gas industry as our mercury emissions control technology was for the coal-fired power industry. And we are positioned to initiate pilot-scale testing in the near term. We've just recently finished a round of testing which makes us feel very good about where we are right now. Of note, methane emissions are quickly becoming a central point of the Biden administration's effort to curb greenhouse gas emissions, calling for federal monetary support for the oil and gas sector in an effort to achieve substantial reductions in methane emissions. Now, one of the other areas that we're focused on is developing new technologies for water and soil remediations. Together with Dr. Scott Drummond, we've participated in the creation of new technologies firm, Eliclair Technologies, which is the commercial vehicle to further develop these technologies and take them to market. These technologies being developed by Eliclair will also move to full-pile scale testing in the very near future. And finally, last but not least, we're also working with Dr. Drummond to develop technologies that are intended to improve the processing of rare earth elements available from both coal mining and the coal-fired power industry in North America. These rare earth elements are used across many industries with uses in automobile catalysts, television, magnets, batteries, and medical devices. The over $13 billion global market for rare earth elements is poised to grow significantly, and the U.S. currently imports all of the rare earth element it consumes. This presents an opportunity for solutions to enable a more efficient manufacturing process of extracting these highly valuable elements, and in doing so, allowing the U.S. to compete economically on a global scale while significantly reducing environmental impacts. So that's the area in particular that we're focused on, and that is the area of improving the actual manufacturing process of these rare earth elements. We're working diligently at the forefront of the cleantech industry and are incredibly excited to bring what we anticipate being game-changing new technologies to markets. We are presently working on an agreement with Penn State University, and we hope to conclude in the near future a working contract with them, they being a leading research arm to further our rare earth element extraction processes. to continue the final stages of research prior to initiating infield testing. On the capital markets front, our plan moves to a major exchange such as NASDAQ or the NYSE in 2021. We'll ensure the company receives the broad investor exposure it deserves to generate increased liquidity and to reach a fair market valuation. We're working diligently to accomplish this task and have a plan to do so in a timely fashion this year. We'll make further announcements on this topic as we move through 2021. Shifting gears, I'll now provide an overview of our first quarter financials. Let me begin by saying we are significantly making progress with returning to the commercial growth we exhibited in the 2014 to 2016 timeframe, during which we grew our annual revenue to 32 million in 2016 prior to the initiation of our needed defense of patent positioning. The value proposition of our technologies in play across the US fleet has an annual potential of up to 100 million on the supply side revenue, which would occur once all infringers were converted to a supply side approach rather than licensing. We continue to expect to see substantial revenue growth and expect to see significant growth in Q2 in particular with even more growth increases incurring in Q3 and Q4 of 2021 as the supply side option of the initial agreements take hold. Revenue in the first quarter for this year was just over 3 million, an increase of 171 percent from the 1.1 million of a year ago. Total costs and expenses in the first quarter of 2021 were 3.4 million compared to 2.9 in the year-ago quarter. The increase in cost of sales is primarily attributed to the increase in the solvent product sales and legal fees to process the increased sales. Net loss for the first quarter in 2021 was less than a half million, 0.04 million, or 0.01 cent per basic diluted share, compared to a net loss of 1.8 million or 0.02 per diluted share in the year-ago quarter. Adjusted EBITDA in the first quarter of 2021 was positive 69,000 compared to a loss of 878,000 in the same year-ago period. Our cash on hand increased in the first quarter by 1.4 million from year-end. Product sales increased over a million dollars. over the same quarter last year. And we received initial licensing revenue of a million, a little over a million in the quarter, and also cash exercise of warrants of a quarter of a million dollars. So our working capital is a positive half million compared to a negative one million a year ago. In addition, we eliminated 1.85 million of convertible debt through conversion to shares during the first quarter and gained an improvement of $2.6 million in shareholders' deficit. And we finished the quarter with about $2 million in cash on hand. Again, we're very pleased to have the operational momentum and exhibit top-line growth and improvements with profitability. And I want to emphasize that our efforts with monetizing our patented technologies will be increasingly realized. in the latter half of this year in particular. We've closely managed our operating framework and reduced our operating cost base to ensure we're equipped to manage through the changes in this dynamic industry. Our management team, starting with myself, have worked diligently in the recent years, deferring a significant portion of our wages. Those commitments combined with exceptional fiscal management have kept us in play to get where we are today and where we're going tomorrow. On that note, we recently appointed Jamie Slatterwaite as Chief Financial Officer, so she'll be CFO effective June 1st. Jamie currently serves as our Chief Accounting Officer, where she's contributed significantly to the growth of our company since joining our team in 2019. She has a deep understanding of her business and operations, and will continue to play a major part in overseeing our company's financial strategy and initiatives going forward and keeping our costs in line. So folks, in closing, we're making substantial progress with monetizing our patent-protected technologies by reoccurring long-term contracts and licenses. We're excited with both our core business as well as our new ventures in methane gas, rare earth element extraction, and wastewater and soil remediation, each of which present a significant growth opportunity that we are working on and are extremely well positioned to take advantage of, given our track record to date and the partnerships that we've built around them. ME2C is uniquely positioned to be a leading environmental technology company and an impactful steward of the environment in the years to come. We look forward to creating sustainable value for our shareholders, our customers, and their communities over the long term. And with that, I'll turn the call back over to the operator and look forward to some questions. Operator?
spk00: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Jerry Sweeney with Roth Capital. Please proceed.
spk03: Good afternoon, Rick. Thanks for taking my questions.
spk01: Sure, Jerry.
spk03: I'm going to see if I can answer this in a way that... that maybe they ask this question in a way that maybe you can answer it, but obviously I think you have these four agreements with U.S. coal-fired producers. How much of that 44% that you mentioned in your prepared remarks do those four represent? And then I guess the harder part of the question may be what follows after that and how many people are you talking to to sort of round out the remaining percentage?
spk01: Sure. So in terms of actual usage of the technology in the field from a megawatt point of view, they probably account for about 20% of the outstanding infringement. And so significant, but certainly not the majority of it. The rest of the fleet that are using it are still about 80% of the unclaimed usage. And with regards to the second part of your question, we have active negotiations and discussions ongoing right now with nine significant utility corporations and are engaged at different levels of engagement, I guess I could say, at this point with each of them. And once we proceed through that group, then we would move on to the next group of folks that we feel need to either be licensed or be buying from us. And unfortunately, I can't give any specific details on that, but we will be announcing settlements as we go forward.
spk03: Got it. And are those nine, are the discussions, I'm assuming... The infringement, that's basically water under the bridge, and the discussions are a little bit more around licensing versus purchasing some of the supply side agreements.
spk01: Yeah, that's basically it. There's actually quite a bit of back and forth that needs to take place before you can get down to the actual discussions with the plant operators on this stuff. you go through a whole process of putting the patents out there, explaining the patents, explaining how they are actually taking advantage of the patents. Sometimes they don't even know they are. And then you get back through to the point of identifying how many plants they've got that are using the system, how big are the plants, how much megawatts do they put out, the value statements, trying to get a handle on the longer-term use and value positions. So There's quite a bit of work to go through to actually come to a point where you've got a working document that makes sense on both sides. And we're at various stages of that process right now. With the nine, some very close to completion and some still in the weeds going through the details.
spk03: Got it. And another question, this is maybe a little bit on the technical side as well. Every plant is different. So even if it's a smaller plant in terms of megawatt capacity, it could use more sorbent than some other plants that may be larger. Is that correct? It's just depending on how it's set up.
spk01: That is possible. Not most probable, but that is true. And the other thing is some corporations may only have, say, three boilers in their whole fleet, but they all are large and they all use the process. Well, that could be of more economic interest to us than a large corporation that may have shuttered most of its coal fleet and only have a few of the units using our process. So it's a bit deceiving as to which of the folks we're dealing with have more value.
spk03: So just to go back, if it's a predominantly coal-fired power utility, there's a a little bit more economic incentive as opposed to the – Yes. You got it. Okay, got it. Yeah. I think – could you go over – I mean, we've discussed in the past the refined coal side. I mean, obviously, you talked about the pending court case, and it sounds like it's coming to closure soon. But that's a pretty significant market. I thought it may be worth just touching upon what's going on there for a minute.
spk01: Yeah, and – Jerry, I'll be cautious with my words, but I'll just give you a general overview. We filed suit against 39 different defendants a year and a half ago based on what we felt was the usage of our patented technologies in a tax credit program, which is aimed at reducing emissions and it provides basically a billion dollars a year as noted by the federal government to the providers of this tax credit program. We feel very much that this program is based on the integrity of our patented technologies and the judge has been looking at both sides of our submissions for the past year and a half and is expected to make a decision any day now with regards to whether or not he would dismiss the case based on the merits of the defendant's information that was put forward or allow it to proceed to discovery, which of course is what we're hoping for to have our day in court. And so we're just waiting to see how that shakes out. It's a very lucrative program for those that were operating it. And we feel our shareholders have, lost significant value if indeed they're not compensated for the use of that patented technology.
spk03: Got it. That makes sense. And then also, you know, on the future, right, you talked about methane capture, water and soil remediation, and then rare earth elements. I think I got that right. I don't want to call it rare earth metals, but I think you said elements. Which of those three are probably the furthest along or probably – the closest to maybe commercialization?
spk01: I would say most likely the rare earth elements. We feel very good about where we are with that. As I mentioned in the call, we've been talking with and are now just in the negotiation on the paper side, contract side with Penn State, which is an extremely well-known research group in the field we felt that they were the best in the industry for us to work with. So we have a great deal of technology that we're looking forward after developing at our level to take there for those folks to pick up the ball and work with us to go further. But we feel very good about where we are in that field. And I guess one of the key factors of what we bring to the space is not that we've found a different place to work, to mine rare earth elements or any of that nature, but we feel that we've developed a process due to our expertise in our field that will allow pretty much any and all folks that are dealing in this mineral field to be able to take advantage of. So our effort is not only to try to extract rare earth elements from residuals from coal mining and from coal-fired power plants, but also to introduce that technology to the industry as a whole. And I think through that approach, we will have a multifaceted success to the technologies that we're working on.
spk03: Got it. Great. I appreciate it. Thanks for taking my questions. Sure.
spk00: As a reminder to star one on your telephone keypad, if you would like to ask a question. Our next question is from John Nobile. with Taglich Brothers. Please proceed.
spk02: Good afternoon, Rick, and thanks again for this call, taking the questions. I wanted to just bring up the rare earth elements technologies that you're working on. When I looked at the press release, I believe you alluded to the fact that approximately 16,500 tons is produced, or the demand is that much annually. So I'm just curious, how much of that market do you believe that you could penetrate, you know, when everything is fully developed? And I was hoping you might be able to quantify or give a rough estimate as to what you believe that would equate to in potential revenue.
spk01: John, thank you for the question, and I wish I had the answer for you. At this point in time, you know, with this point of our development, what we're looking for is, as I mentioned just earlier there now, is to try to create a technology that improves the extraction of the minerals to the point where it becomes economically viable to extract rare earths from the coal and coal-fired byproducts, from the coal mining and coal-fired byproducts. And if we create that technology, which we're working on, It not only will help us extract rare earth elements from those areas, but also improve the efficiency of the overall extraction of those rare earth elements from all mining. With regards to trying to get a number as to what percentage we'd be able to extract, it's just way too early for me to give any kind of an estimate or even guess at this point. But what we've got is we've got our head down focused on what we do best, which is creating new chemical approaches to extraction of something that's very valuable. In the past, it was taking the mercury out of flue gas. Now it's being able to take rare earth elements out of solution in order to be able to make them a much more economically viable approach from the traditional way that they're extracted, but also very important, to be able to reduce the environmental footprint of that process, which today is very frightful in terms of what it takes to actually extract the rare earth elements, whether it's a mining operation or whatever. So we're taking a more holistic approach to it, John. I should have some real economic numbers at some point this year, but right now we're just focused on getting the technology right. And then once we feed it into the system, we'll have a much better sense of what its economic value is. Suffice to say, if we can play an important role in this industry, it'll not only benefit the country, but it'll be extremely valuable to the shareholders.
spk02: Okay. I mean, it sounds like it would be definitely well accepted. I mean, obviously it's too early to tell, but I mean, you know, When this does come to fruition, I would think it should be a decent market share. But anyway, I just wanted to ask one more, if I could ask you to provide an update on how things are progressing with the development of your methane gas emissions control technology.
spk01: So the most recent round of testing that we finished, John, was about two weeks ago. We're just crunching the economics of it with regards to what the capture rate was versus the cost to capture and trying to do some models in terms of putting that into the field. We're probably another couple of weeks away from having some definitive answers, but we're very pleased with the actual results fact that it works. We just need to crunch the economics on it now to see where we are in terms of how economically viable it is. We're a company that not only tries to do something that actually works, but only follow up on things that have an economical commercial viability. And that's what we're focused on now. I would say that In the next earnings call, I should have a very good handle on where that sits, and we will have developed by that time not only revenue models but figured out how and who we should be working with to be able to move it to the next stage.
spk02: Okay. And if I could just ask you to repeat, you mentioned it earlier, the time to development, first to development, did you say it was – Rare earth elements or the methane gas emission technology?
spk01: I actually think the rare earth element will progress quicker given what we've seen most recently and the work that we have planned with Penn State I think will put us in stay that I would say late summer, early fall we'll have some very significant developments if indeed it proves out to work as we are hoping it will. Great, that's all I have. Thank you for taking my questions. Thank you, John.
spk00: We have reached the end of the question and answer session. I would like to turn the call back over to Mr. Rick McPherson for his closing remarks.
spk01: Thank you, operator and folks. Thanks very much for listening in today. As you can see from the first quarter, we've started off as we expected on a very positive note with good earnings, good cash in hand. Things are developing nicely with regards to the uplisting to a main exchange. I very much expect that we're going to continue to clean up the balance sheet. The increase in revenue is expected to continue. on an increasing fashion, quarter over quarter. So I think we're going to have a very good year. And as I get a sense in particular of these nine folks that we're dealing with now on the infringement side, we'll have a better sense of whether or not it's going to, in the majority, convert to licensing or supply side. And the big unknown for us at this point is Where we go from here on the refined coal side of things, that's also a very significant decision that we're waiting to come down. And we will be reporting back to everybody on that as soon as we find out. So with that, I'll say thank you again and look forward to reporting back at the end of next quarter. Cheers.
spk00: Thank you. This concludes today's call. Thank you for your participation.
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