Midwest Energy Emission

Good day and welcome to the ME2C Environmental Second 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, August 16th, 2021, and the earnings press release accompanying this conference call was issued before this call today. On the call today, is Richard McPherson, President and CEO of ME2C, and Jamie Satterthwaite, CFO of ME2C. Before we get started, I will read the disclaimer about forward-looking statements. The conference call may contain, in addition to historical information, forward-looking statements within the meaning of the federal securities laws regarding ME2C environmental. Forward-looking statements include statements about plans objectives, goals, strategies, future events, or performance, and 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 the exclusive means of identifying forward-looking statements. These statements are based on management's current expectations and are subject to uncertainty and change in circumstances. Investors are cautioned that forward-looking statements involve risks and 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 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 demand, a significant change in general economic conditions in any of the regions where our customers' utilities may experience significant changes in electric demand, significant disruption in the supply of coal to our customers' units, loss of key management personnel, availability of capital, and any major litigation regarding to 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 in the company's periodic filings with the Securities and Exchange Commission, and we would also refer you to the company's website for more supporting industry information. At this time, I would like to turn the call over to Richard from Pearson, Chief Executive Officer of ME2C Environmental. Sir, please go ahead.

Thank you, Danielle, and thank you to everyone for joining us on today's call. 2021 is shaping up to be a breakout year for ME2C Environmental as we continue to experience momentum with our monetization of the patented experimental environmental technologies. We worked diligently in the second quarter to make advancements across our operational and strategic priorities. Over the years, our emissions control technologies have provided a significant amount of value to the U.S. power industry by improving plant efficiencies and diminishing toxic emissions. Our solutions are being increasingly recognized as the best in the industry for these operational benefits, as well as the significant cost efficiencies they provide. Most importantly, as a leading clean tech enterprise, we're pleased to play an important role in addressing the critical climate-related issues that we are facing as a global community. I'll begin with an update on our multi-pronged litigation strategy, which progressed meaningfully in the second quarter. Before I discuss the progress with this strategy that we have achieved to date, allow me to provide a brief background on why it was necessary to take this approach for those that are new to our story. So our patented sorbent enhancing additives, or SEA technologies, were created in the early 2000s as a revolutionary innovation for mercury emissions control. The industry had an incredible response to our proprietary process. In fact, we believe that currently about 44% of the coal-fired plants across the U.S. have adopted these technologies, making our SEA technology package one of the most widely adopted emissions capture systems at work today in North America to improve our environment. However, we were largely removed from the commercial process of adoption and found ourselves competing against the very technologies that we invented with the utilities and suppliers of the materials that were used in these technologies. So with a robust patent portfolio, we pivoted our business strategy in late 2017 to initiate a litigation approach in order to defend the value of our intellectual property for our shareholders. And so we initiated a lawsuit in 2019 against four major utilities, also including a number of key defendants in the refined coal program. Refined coal is coal that has been treated with a chemical solution prior to being applied to the boiler. And many utilities across the country use refined coal, and it's our belief that that refined coal would not exist without our patented technologies. In May, the U.S. District Court in Delaware issued a report and recommendation that this pending litigation should indeed be allowed to go forward and proceed against certain refined coal entities that we named in our 2019 lawsuit. So the court's recommendation significantly increases the upside potential for realizing the true value of our patented technologies, which have had a considerable impact on the annual billion-dollar refined coal tax program. And we're working with exceptional legal counsel, the firm of Caldwell, Cassidy & Currie, a team with extensive experience in patent litigation. Under their legal guidance, we've taken a business-first approach to our engagements with entrenching parties, which means they're focused on securing supply-side agreements with the utility customers rather than pursuing just long-term litigation efforts. Our existing production facilities are able to handle in excess of $100 million in annual revenue of products, and we believe that this approach that we're following will allow us to scale up our production over the next few years. Over the last year, we successfully signed agreements with four major coal-fired utilities to provide license agreements that would allow these utilities to continue using our patent process for mercury emissions capture. Our goal is to convert these and the many more utilities that we're in contact with to supply side customers. To that end, we recently secured a multi-year supply contract with one of those settled major utilities that had entered into a license agreement with us last year. And we believe we'll continue to grow our supply business with other licensees in the coming months. Let me speak about our new technologies efforts. Our core mercury emissions capture business continues to be the foundation of our business. However, we have evaluated and are pursuing other verticals that we believe ME2C Environmental can provide substantial value due to our skill set in these areas. Earlier in the year, we announced our work with Dr. Scott Drummond, focused on the development of new technologies to improve the processing of rare earth elements available from both coal mining and the coal-fired power industry in North America. This $13 billion annual global market for rare earth elements is a hyper growth segment that the private and public sectors of the U.S. have not yet capitalized on. In the U.S., rare earth elements, or RREs, are used in many industries, including high demand applications such as electric vehicles, among others. Notably, all of the rare earth elements consumed in the U.S. are imported from other countries, 80% coming from China, which has hindered the U.S.' 's potential for economic growth. Our country is rich in RREs, critical minerals that are found in mines, but also present in coal ash ponds surrounding many coal-fired plants, both active and abandoned. In some cases, the coal ash can leach into the soil and water runoff, which is then called wastewater. There are more than 1,100 coal ash ponds in over 37 states across the U.S., and 200 sites are believed to have contaminated water. Under President Biden, the new EPA director, Michael Regan, recently announced stricter regulations that will be forthcoming to address wastewater remediation. And we believe that the coal ash cleanup is one of the largest environmental concerns currently facing the U.S. and the energy sector. We started in years ago on our new technologies, and we will support the processing of rare earth minerals and earths, either mined or extracted from coal ash, while removing these harmful contaminants from wastewater. Presently, the mining of our EEs in the U.S. is very challenging, both from an economic and environmental perspective, with the administration leaning on importing the raw materials rather than developing the mining stock and materials because of those challenges. We aim to help in reversing that decision with our new technology. Now, to aid in the advancement of these technologies, we've retained Penn State University, a notable leader in this field, to perform confirmation testing of our results today as we seek to commercialize these technologies. The testing by Penn State will run through the end of September this year after which we will advance to the infield testing stage, given confirmation of our results that we've had to date. Under the Biden administration, the U.S. will have an increasing reliance and need for these critical minerals across its infrastructure. And we, ME2C, are uniquely positioned to enhance the USA's ability to compete economically on a global scale while significantly impacting the environmental efforts should our technologies prove to be as effective as we think they will be. In collaboration with Dr. Drummond, we participated in the creation of a new technologies firm earlier this year, Eleclear Technologies. Eleclear is the vehicle for further development of these environmental technologies. This new vertical is an incredibly promising opportunity, and we look forward to the next stages of development for these clean tech technologies. Finally, a quick update on our capital market initiatives. Our anticipated graduation to a major exchange such as NASDAQ or the NYSE remains on track. During the second quarter, we worked to fortify our balance sheet and simplify our capital structure ahead of this planned uplifting. We eliminated more than 4 million in convertible debt and have an agreement in place with one of our long-term partners to eliminate more than $13 million in debt. In addition, we have completed the conversion of all outstanding 2019 promissory notes. This was the last major tranche of convertible debt on our balance sheet and a key step in positioning our capital structure for the next phase of our company's growth. The goal of this uplifting is to broaden our company's exposure to institutional investors, and in doing so, generate increased liquidity while reaching a fair market valuation through strong analyst coverage. We'll make further announcements on this topic as the process materializes in the relatively near term. I'd like to now introduce Jamie Satherway, who we recently appointed as Chief Financial Officer. Jamie previously served as our chief accounting officer, where she made significant contributions to the growth of our business since joining ME2C in early 2019. She will be instrumental in our anticipated uplisting, and we're excited to have her on our leadership team to oversee our company's financial strategy. I'll now turn the call over to Jamie for an overview of our second quarter financials. Jamie?

Thank you, Rick, and hello, everyone. It's a pleasure to address you today as Chief Financial Officer of ME2C. We're making significant progress returning to the growth we experienced prior to initiating the defense of our patent. Revenue increased substantially during the second quarter, and we anticipate further increases in the third and fourth quarter of this year as we secure additional supply agreements. Revenue in the second quarter of 2021 was $2.3 million, a 21% increase from $1.9 million in the same quarter last year. The increase is primarily due to the increase in capacity factor experienced by our customers' coal-fired EGU. Cost and expenses in the second quarter of 2021 were $4 million, compared to $2.8 million in the same quarter last year. The increase in cost and expenses is mainly attributed to the increase in cost of sales driven by the increase in sales, along with an increase in interest expense due primarily to a one-time stock conversion incentive provided to certain note holders and related accelerated interest, which together totals $521,000, and a loss on change in fair value of profit share liability of $505,000. The net loss in the second quarter of 2021 was $1.7 million or minus two cents per basic and diluted share compared to a net loss of $904,000 or negative one cent per basic and diluted share in the same quarter last year. The change was primarily due to the interest expense and change in fair value of the profit share liability which I described. Adjusted EBITDA in the second quarter of 2021 was a loss of $312,000 compared to positive 96,000 in the same quarter last year. As of June 30th, 2021, the company had a cash balance of $1.7 million, an increase from the balance of $591,000 on December 31st, 2020. Also during the second quarter of 2021, the company eliminated $2.58 million of convertible debt through conversion to shares. Taking into consideration the elimination of convertible debt in the principal amount of $4.4 million this year, the previously announced debt repayment agreement entered into with our principal lender in June of 2021, the company's current cash position and recent positive cash flow trends, management believes that the substantial doubt regarding the company's ability to continue as a going concern has been mitigated. which is evaluated quarterly. While we're very pleased with the revenue growth and improvements, our efforts to realize the value of our patented technologies will continue in the second half of this year. As we move forward, we will continue to closely manage our operating costs to ensure we are well positioned for the next phase of growth. With that, I will hand the call back over to Rick for his concluding remarks. Rick?