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Item 7. Management’s Discussion and Analysis

2025-03-31 compared with 2024-04-16 · 189 added, 141 removed, 118 unchanged (74% of the section changed)

3 unchanged sentences

You should read the “Forward-Looking Statements” and “Risk Factors” sections of this report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Unless indicated otherwise, references in this discussion and analysis to the “Company,” “we,” “us,” or “our” refer collectively to Birchtech Corp.

(formerly Midwest Energy Emissions Corp.) and its consolidated subsidiaries.

Restatements of Previously Issued Consolidated Financial Statements

As described in Note 2—Restatement of Previously Issued Financial Statements, for the period ended December 31, 2024, management identified an error in the previously reported financial statements related to the under recognition of revenue during the year ended December 31, 2022.

The Company entered into a license agreement for which it should have recognized the entire proceeds receivable pursuant to the agreement as revenue during the year ended December 31, 2022.

The Company should also have recognized the financing component of the licensing agreement during the fiscal years ended December 31, 2023 and 2024.

As a result, the consolidated financial statements appearing elsewhere in this report reflect this restatement.

Business Operations

We are an environmental services and technologies company developing and delivering patented and proprietary solutions to the global power industry, specializing in mercury emissions removal technologies.

We provide mercury capture solutions driven by our patented two-part Sorbent Enhancement Additive (“SEA”) technology.

Our leading-edge services have been shown to achieve mercury emissions removal at a significantly lower cost and with less operational impact to coal-fired power plants than currently used methods, while maintaining and/or increasing power plant output and preserving the marketability of byproducts for beneficial use.

North America is currently the largest market for our technology.

EPA MATS (Mercury and Air Toxics Standards) rule requires that all coal and oil-fired power plants in the U.S., larger than 25MWs, must limit mercury in its emissions to below certain specified levels, according to the type of coal burned.

Power plants were required to begin complying with MATS on April 16, 2015, unless they were granted a one-year extension to begin to comply.

MATS, along with many state and provincial regulations, form the basis for mercury emission capture at coal fired plants across North America.

Under the MATS regulation, Electric Generating Units (“EGUs”) are required to remove about 90% of the mercury from their emissions.

We believe that we continue to meet the requirements of the industry as a whole and our technologies have been shown to achieve mercury removal levels compliant with all state, provincial and federal regulations at a lower cost and with less plant impact than our competition.

As is typical in this market, we are paid by the EGU based on how much of our material is injected to achieve the needed level of mercury removal.

Our current clients pay us as material is delivered to their facilities.

Clients will use our material whenever their EGUs operate, although EGUs are not always in operation.

EGUs typically may not be in operation due to maintenance reasons or when the price of power in the market is less than their cost to produce power.

Thus, our revenues from EGU clients will not typically be a consistent stream but will fluctuate, especially seasonally as the market demand for power fluctuates.

The MATS regulation has been subject to legal challenge since being enacted.

In June 2015, the U.S.

Supreme Court, in Michigan v.

EPA , held that the EPA unreasonably failed to consider costs in determining whether it is “appropriate and necessary” to regulate hazardous air pollutants, including mercury, from power plants, but left the rule in place.

In April 2016, the EPA issued a supplemental finding in response to the Michigan decision and found that, after consideration of costs, it remained appropriate and necessary to regulate such emissions from coal- and oil-fired power plants.

In May 2020, the EPA, then under the Trump Administration, reversed the determination, finding that, after weighing the costs of compliance against certain benefits of the regulation, the 2016 supplemental finding was erroneous but left the MATS rule in place.

Upon taking office, the Biden Administration in January 2021 directed the EPA to review the previous Administration’s actions on various environmental matters including the withdrawal of the May 2020 “appropriate and necessary” determination, for conformity with Biden Administration environmental policy.

On February 9, 2022, the EPA proposed to revoke the May 2020 finding and reaffirm the EPA’s 2016 finding.

On February 15, 2023, the EPA reaffirmed that it remains appropriate and necessary to regulate hazardous air pollutants, including mercury, from power plants after considering cost, and revoked the May 2020 finding.

On April 3, 2023, the EPA issued a proposal to strengthen and update MATS.

This proposal is currently pending.

Nevertheless, legal challenges may continue in the future with respect to the MATS regulation.

We remain focused on positioning the Company for short and long-term growth, including focusing on execution at our customer sites and on continual operation improvement.

We continue to make refinements to all of our key products, as we continue to focus on the customer and its operations.

As part of our overall strategy, we have a number of initiatives which we believe will be able to drive our short and long-term growth.

We continue to seek new utility customers for our technology in order for them to meet the MATS requirements as well as maintaining our contractual arrangements with our current customers.

We also seek license agreements with utilities while allowing them to use our SEA® technologies without our supply of products.

Since 2021, we have announced various supply contract extensions, new supply business and license agreements.

We expect additional supply business and license agreements during 2024 and thereafter, including converting certain licensees to supply customers.

Patent Litigation

On July 17, 2019, we initiated patent litigation against certain defendants in the U.S.

District Court for the District of Delaware for infringement of certain United States patents owned by the Company.

These patents relate to our two-part Sorbent Enhancement Additive (SEA ® ) process for mercury removal from coal-fired power plants.

Between July 2020 and January 2021, we entered into agreements with each of the four major utility defendants in such action which included certain monetary arrangements and pursuant to which we have dismissed all claims brought against each of them and their affiliates, and such parties have withdrawn from petitions for Inter Partes Review with the United States Patent and Trademark Office.

Such agreements entered into with such parties provide each of them and their affiliates with a non-exclusive license to certain Company patents (related to the Company’s two-part Sorbent Enhancement Additive (SEA®) process) for use in connection with such parties’ coal-fired power plants.

In May 2021, a U.S.

District Court Magistrate Judge issued a report and recommendation which was approved by the District Judge in September 2021 that such litigation should be permitted to proceed against various refined coal defendants named in the action directly involved in the refined coal program and operations, and be dismissed against certain other defendants, primarily affiliated entities of the refined coal operators.

Prior to the jury trial which was scheduled for November 13, 2023, we entered into a confidential binding term sheet on November 9, 2023 with Arthur J.

Gallagher & Co., and various of its affiliated entities (collectively “AJG”), and DTE Energy Resources LLC and various of its affiliated entities (collectively “DTE”), to resolve the patent litigation against these two groups of defendants.

Pursuant to the term sheet, all claims and counterclaims asserted by the parties in such patent litigation have been dismissed with prejudice, although such term sheet does not affect any other claim brought against the remaining CERT defendants.

The financial aspects of the term sheet remain confidential pursuant to its terms.

In addition, effective November 9, 2023, Alistar Enterprises, LLC (“Alistar”), one of the remaining CERT defendants, entered into a settlement agreement with us which provided that all claims and counterclaims asserted in the action between the Company and Alistar be dismissed with prejudice.

The financial terms of such settlement remain confidential.

Effective as of December 28, 2023, and in connection with the term sheet described above, we entered into a paid license with (a) Chem-Mod LLC (“Chem-Mod”), (b) Arthur J.

Gallagher & Co.

and AJG Coal, LLC, and (c) DTE Energy Co.

and DTE Energy Resources, LLC, relating to U.S.

8,168,147, U.S.

10,343,114, U.S.

10,589,225, U.S.

10,596,517 and U.S.

10,668,430 and their foreign equivalents and related patent applications and patents, which licenses the use of refined coal or the Chem-Mod Solution in conjunction with activated carbon.

This license applies to Chem-Mod and certain of its licensees, sub-licensees, and their customers, for the remaining term of such patents.

By its terms, the license does not cover the use of activated carbon with coal that is not either refined coal or coal made by or for use with the Chem-Mod Solution in a manner authorized by the license.

The parties to the license have mutually released all claims that any past use of the Chem-Mod Solution in connection with the production or use of refined coal with activated carbon by entities other than the CERT defendants and their customers infringes the asserted patents and related intellectual property, and all claims that could have been brought challenging the validity of such patents.

The remaining CERT defendants and their customers (for activities relating to the CERT defendants) were not included within the scope of the license.

The Court rescheduled the trial as to the claims against the remaining CERT defendants to begin on February 26, 2024.

Following a five-day trial, on March 1, 2024, a federal jury in the U.S.

District Court for the District of Delaware awarded a $57.1 million patent infringement verdict in favor of the Company against the remaining group of CERT defendants.

We are a provider of specialty activated carbon technologies, delivering innovative solutions for air and water purification.

We provide patented and proprietary technologies for mercury emissions capture to the coal-fired utility sector, and are developing disruptive water purification technologies with a specialization on forever chemicals such as PFAS and PFOS.

Mercury Emissions

We provide mercury capture solutions driven by our patented two-part Sorbent Enhancement Additive (SEA®) process using a powerful combination of science and engineering.

Our leading-edge services have been shown to achieve mercury emissions removal at a significantly lower cost and with less operational impact to coal-fired power plants than other used methods, while maintaining and/or increasing power plant output and preserving the marketability of byproducts for beneficial use.

We design systems and materials tailored and formulated specifically to each customer’s coal-fired units.

Our mercury removal technologies and systems will achieve mercury removal levels which meet or exceed the 2012 Coal- and Oil-Fired Electric Utility Steam Generating Units National Emission Standards for Hazardous Air Pollutants, as revised, known as the MATS, requirements with lower cost and plant systems impacts than typical PAC or BAC sorbent injection systems.

Our products have been shown to be successful across a myriad of fuel and system types, tunable to any configuration, and environmentally friendly, allowing for the recycling of fly ash for beneficial use.

North America is currently the largest market for our emissions technologies.

Our SEA® technology provides total mercury control with solutions that are based on a thorough scientific understanding of actual and probable interactions involved in mercury capture in coal-fired flue gas.

A complete understanding of the complexity of mercury-sorbent-flue gas interactions and chemisorption mechanisms allows for optimal control strategy and product formulation, resulting in effective mercury capture.

Combined with a thorough proprietary audit of the plant and its configuration and instrumentation, we believe our complete science and engineering approach for mercury-sorbent-flue gas interactions are well-understood, highly predictive, and critical to delivering total mercury control.

We believe that a significant percentage of coal-fired power plants in the United States have adopted and are infringing upon our two-part Sorbent Enhancement Additive (SEA®) process for mercury removal from coal-fired power plants.

Beginning in 2019, we began to actively enforce our patent rights against unauthorized use of our patented technologies, and have since initiated patent litigation in various jurisdictions against multiple infringers, claiming infringement of our patents related to our two-part process for mercury removal from coal-fired power plants.

We view such litigation as a last resort.

Our goal and overall strategy is to convert infringers to our supply chain of sorbent products for mercury removal, or otherwise license our patents to them on a non-exclusive basis in connection with their respective coal-fired power plants.

Water Treatment

In April 2024, we announced the introduction of our new division to address the potable (drinking) water market with new sorbent technologies under development.

These new technologies involve less use of activated carbon and are a much more environmentally friendly approach to water treatment.

AC is a form of carbon that has been processed to have a large surface area and a high degree of porosity.

This gives it the ability to adsorb a wide range of substances, making it highly effective at removing particles, toxins and impurities.

GAC and similar agglomerated activated carbons (or shaped activated carbons) are a form of activated carbon that is specifically produced in a granular, coarse form, as opposed to powdered or pelletized forms.

This granularity allows for better flow through filtration systems, which makes it ideal for use in applications that require a continuous flow of air, water or liquids.

GAC is commonly used in water filtration systems, including municipal water treatment plants.

It is particularly effective at removing chlorine, organic compounds, pesticides, heavy metals, and other contaminants.

Reactivated GAC is spent GAC that has been restored for reuse, making it more sustainable and cost-effective.

Utilizing renewal raw materials allows us to develop and provide shaped activated carbon that can compete with other commercially available GAC options, and provide a superior activated carbon technology to remove contaminants (including PFAS) from potable water.

While pending PFAS regulations are projected to significantly increase overall GAC demand, our products are expected to be successfully applied regardless of PFAS regulations reflecting significant competitive advantages (i.e., renewable raw material sources, low arsenic content, and overall performance) to presently available GAC products for the water market.

In addition, our product(s) may provide inherent performance advantages such as lower pressure drop relative to existing carbon products in the marketplace today.

While the initial focus for our water treatment technologies will be on the potable water market, we expect that our technologies will also be valuable for industrial wastewater remediation.

Industrial wastewater is the liquid waste generated by industrial activities, including manufacturing, processing, and production facilities.

It often contains pollutants such as organic matter, heavy metals, chemicals, oils, and other contaminants that must be treated before being discharged into the environment or reused.

We believe our water treatment technologies will be well suited to treat such industrial wastewater in an optimal and cost-effective manner.

Other Recent Developments

On February 27, 2024, and pursuant to a Debt Restructuring Agreement entered into on such date with AC Midwest Energy LLC (“AC Midwest”), we made an approximate $9.0 million principal payment against an approximate $13.2 million unsecured note held by AC Midwest Energy LLC (“AC Midwest”) and repaid in full the remaining principal balance of approximately $272,000 due on a secured note held by AC Midwest.

As part of the restructuring, we negotiated a reduction in the profit participation preference held by AC Midwest from approximately $17.7 million to $7.9 million (the “Restructured Profit Share”).

Such Restructured Profit Share is “non-recourse” and shall only be paid from net litigation proceeds from claims relating to our intellectual property.

In addition, pursuant to the Debt Restructuring Agreement, in March 2024, we were able to facilitate the private sale of certain shares of common stock held by AC Midwest and received a $960,000 credit toward the remaining balance due on the unsecured note.

In August 2024, we repaid in full the remaining principal balance of approximately $3.2 million due on the unsecured note held by AC Midwest.

As a result, the only remaining debt obligation to AC Midwest is the “non-recourse” Restructured Profit Share.

Following a five-day trial, on March 1, 2024, we were awarded a $57.1 million patent infringement verdict by a federal jury in the U.S.

District Court for the District of Delaware against a remaining group of defendants in the lawsuit commenced by us in 2019.

Such group of affiliated defendants included multiple limited liability companies with refined coal industry operations, including CERT Operations II LLC, CERT Operations IV LLC, CERT Operations V LLC, and CERT Operations RCB LLC.

The jury determined that these defendants infringed our patented technologies for mercury emissions and were liable for willful infringement, along with inducing and contributory infringement.

AC Midwest Energy

On February 27, 2024, we entered into an Unsecured Debt Restructuring Agreement (the “Debt Restructuring Agreement”) with AC Midwest Energy LLC (“AC Midwest”) which replaced and superseded the Unsecured Note Financing Agreement and Reaffirmation of Guaranty entered into with AC Midwest on February 25, 2019, as amended on October 28, 2022 (the “Unsecured Note Financing Agreement”).

Pursuant to the Unsecured Note Financing Agreement, prior to February 27, 2024, AC Midwest was the holder of an unsecured note with a principal amount outstanding of $13,154,931 which was issued on February 25, 2019 (the “Unsecured Note”).

The Unsecured Note was scheduled to mature on August 25, 2025 and bears a zero cash interest rate.

Pursuant to the Unsecured Note Financing Agreement, AC Midwest was also entitled to a “non-recourse” profit participation preference equal to $17,654,931 (the “Profit Share”).

Prior to maturity, the outstanding principal, as well as the Profit Share, were to be paid from Net Litigation Proceeds from claims relating to the Company’s intellectual property, Net Revenue Share, Adjusted Free Cash Flow and Equity Offering Net Proceeds (as such terms are defined in the Unsecured Note Financing Agreement).

Any remaining principal balance due on the Unsecured Note would be due and payable in full on the maturity date.

The Profit Share, however, if not paid in full on or before the maturity date would remain subject to the Unsecured Note Financing Agreement until full and final payment.

Prior to February 27, 2024, there also remained outstanding to AC Midwest a principal balance of $271,686 due under a secured noted of the Company issued on November 29, 2016 in the original principal amount of $9,646,686, which had a maturity date of August 25, 2025 (the “Secured Note”).

The Secured Note had been issued pursuant to an Amended and Restated Financing Agreement and Reaffirmation of Guaranty, dated as of November 1, 2016, as amended on June 14, 2018, September 12, 2019, February 25, 2019 and October 28, 2022 (the “Restated Financing Agreement”).

Pursuant to the Debt Restructuring Agreement, on February 27, 2024, we (i) paid AC Midwest $9,040,000 as a reduction in the outstanding principal balance of the Unsecured Note, (ii) issued to AC Midwest a new unsecured replacement note representing the remaining outstanding principal balance of the Unsecured Note in the principal amount of $4,114,931 (the “New Note”), and (iii) paid AC Midwest $275,626 representing the remaining principal balance under the Secured Note of $271,686 plus interest of $3,939.

In addition, within 30 days, we would either facilitate the private sale to third parties of certain shares of common stock of the Company held by AC Midwest for a purchase price of no less than $960,000, which amount shall be applied as a credit against the principal balance due on the New Note dollar for dollar, or pay AC Midwest $960,000 toward the principal balance due on the New Note.

The private sale of shares for the purchase price of $960,000 was completed on March 11, 2024.

Any remaining principal balance on the New Note shall be due August 27, 2024 (the “Maturity Date”), which is six months from February 27, 2024.

Until repaid in full, the New Note shall accrue interest at a rate equal to SOFR plus 2.0% per annum.

The New Note completely replaces and supersedes the Unsecured Note, which shall be of no further force and effect.

In addition, pursuant to the Debt Restructuring Agreement, AC Midwest shall be entitled to a profit participation preference equal to $7,900,000 (the “Restructured Profit Share”).

The Restructured Profit Share is “non-recourse” and shall only be paid from Net Litigation Proceeds (as defined in the Debt Restructuring Agreement) from claims relating to our intellectual property.

Following the receipt of any Net Litigation Proceeds, we shall prepay any remaining principal balance of the New Note and pay the Restructured Profit Share in an amount equal to 75.0% of such Net Litigation Proceeds until the New Note and Restructured Profit Share have been paid in full.

The Restructured Profit Share completely replaces and supersedes the terms and conditions of the Profit Share in the amount of $17,654,931 provided for in the Unsecured Note Financing Agreement, which shall be of no further force and effect.

The Restructured Profit Share, if not paid in full on or before the Maturity Date, shall remain subject to the terms of the Debt Restructuring Agreement.

In addition to facilitating the private sale to third parties as described above, AC Midwest has granted the Company the exclusive right until December 31, 2024 to facilitate the sale of all or a portion of the remaining balance of the shares of common stock of the Company held by AC Midwest, which proceeds above a certain amount will be applied as a credit against the Restructured Profit Share dollar for dollar.

As a result of the repayment of the remaining principal balance under the Secured Debt, we and AC Midwest executed a Satisfaction and Discharge of Secured Debt confirming the cancellation of the Secured Note and that all of the obligations under the Restated Financing Agreement have been fully satisfied and discharged.

Other Developments

We are in the process of developing and testing other business opportunities which include the extracting and processing of rare earth elements (REEs) in North America, remediation technologies for wastewater and coal ash from coal-fired power plants, as well as drinking water treatment technologies.

We believe the market for water treatment is large and significantly growing both in the United States and abroad.

This expansion in water treatment and wastewater remediation will allow us to support the growing needs of the energy sector, as well as provide vital technologies for considerable environmental concerns.

There can be no assurance that we will be successful in the development of these technologies.

On April 20, 2023, we received conditional approval to list our shares of common stock on the TSX Venture Exchange (the “TSX-V”).

The listing was subject to our fulfilling certain requirements of the TSX-V in accordance with the terms of the conditional approval letter.

On July 6, 2023, the Company received final approval from the TSX-V.

The Company’s shares commenced trading on the TSX-V on July 10, 2023 under the symbol “MEEC”.

The Company is listed as a Tier 1 Industrial, Technology, or Life Sciences Issuer.

Although we face a host of challenges and risks, we are optimistic about our future and expect our business operations to grow.

Following the trial, various post-trial motions and applications were made by the parties.

We are awaiting rulings from the Court.

In April 2024, the EPA issued the first-ever national, enforceable drinking water standard to protect communities from exposure to harmful per-and polyfluoroalkyl substances (“PFAS”), also known as “forever chemicals”.

The Rule sets limits for five individual PFAS:

PFOA, PFOS, PFNA, PFHxS, and HFPO-DA (known as GenX Chemicals).

The Rule also sets a hazard index level for two or more of four PFAS as a mixture:

PFNA, PFHxS, HFPO-DA, and PFBS.

Under the Rule, public water systems must monitor these PFAS and will have three years to complete initial monitoring (by 2027), followed by ongoing compliance monitoring.

Water systems must also provide the public with information on the levels of these PFAS in their drinking water beginning in 2027.

In May 2024, we announced the appointment of David Mazyck to head our new division to address the potable (drinking) water market with new sorbent technologies under development.

In addition, in May 2024, we announced the appointment of Dennis Baranik as Director of National Sales.

Baranik will oversee product sales and IP licensing in the Company’s core business for mercury emissions capture as well as support both product and business development for the water market.

In July 2024, we commenced three patent infringement lawsuits against 14 defendants, including coal-fired power utilities, in three separate U.S.

District Courts in Arizona, Iowa and Missouri.

In January 2025, we commenced another patent infringement lawsuit against four defendants in the U.S.

District Court for the Western District of Missouri.

Such lawsuit claims infringement of the Company’s patent rights related to the Company’s mercury emissions reduction technologies.

The United States Judicial Panel on Multidistrict Litigation has ordered that such patent infringement lawsuits be consolidated and centralized in the Southern District of Iowa.

Effective as of October 8, 2024, we entered into agreement with one of the utilities and an affiliated entity named as defendants in the patent infringement lawsuit commenced by the Company in July 2024 in Arizona.

Such agreement provides such parties and their affiliates with a non-exclusive license to certain Company patents for use in connection with a certain designated coal-fired power plant operated by such utility.

The agreement includes a one-time license fee and provides the Company with a right of first refusal for certain of such utility’s product supply for mercury emissions capture at such designated power plant.

Effective as of January 7, 2025, we entered into agreement with another one of the utilities named as a defendant in the Arizona action.

Such agreement provides such party and its affiliates with a non-exclusive license to certain Company patents for use in connection with a certain designated coal-fired power plant operated by such utility.

The agreement includes a one-time license fee and provides the Company with the right to be included in such party’s bidding process for certain product supply for mercury emissions capture at such party’s designated power plant.

In January 2025, we commenced another patent infringement lawsuit against four defendants in the U.S.

District Court for the Western District of Missouri.

Such lawsuit claims infringement of the Company’s patent rights related to the Company’s mercury emissions reduction technologies.

Named as defendants in the action are Evergy, Inc., Evergy Metro Inc., Evergy Missouri West, Inc.

and Evergy Kansas Central, Inc.

In the lawsuit, we request a trial by jury against the defendants and seek damages, costs, and legal expenses, along with a finding of willful infringement by the defendants, and an injunction prohibiting the defendants from further acts of infringement.

In February 2025, such lawsuit was consolidated with and transferred to the Southern District of Iowa.

Effective on October 17, 2024, as part of our rebranding, we changed our corporate name from Midwest Energy Emissions Corp.

to Birchtech, Inc.

pursuant to a certificate of amendment to our certificate of incorporation filed with the State of Delaware, and on October 17, 2024 our common stock commenced trading under the ticker symbol “BCHT”.

On October 9, 2024, we received conditional approval to list our shares of common stock on the Toronto Stock Exchange (“TSX”) and graduate from the TSX Venture Exchange (“TSXV”) to the TSX.

On November 12, 2024, our shares commenced trading on the TSX under the ticker symbol “BCHT”.

Results of Operations

We generated revenues of approximately $17,940,000 and $21,620,000 for the years ended December 31, 2023 and 2022, respectively.

We generated revenues of approximately $17,406,000 and $17,625,000 (as restated) for the years ended December 31, 2024 and 2023, respectively.

Such revenues were primarily derived from sorbent product sales which were approximately $14,482,000 and $17,093,000 for the years ended December 31, 2024 and 2023, respectively.

The decrease in revenues from the prior year was primarily due to the decreased supply demands from our customer base in 2023 compared to the prior year along with the closure of one of our customer’s power plants which occurred at the end of 2022, offset by an increase in licensing revenues for 2023 compared to 2022.

Licensing revenues were approximately $703,000 and $651,000 for the years ended 2023 and 2022, respectively.

Such increase was primarily due to greater licensing revenues generated in 2023 from one of our customers compared to 2022.

Revenues can be dependent on natural gas prices, extreme weather, and the maintenance and downtime requirements of customer plants.

The decrease in revenues from the prior year was primarily due to the mix of plants running in 2024 resulting in decreased product revenues for 2024 compared to the prior year, offset by an increase in licensing revenues for 2024 compared to 2023.

Licensing revenues were approximately $2,808,000 and $388,000 (as restated) for the years ended 2024 and 2023, respectively.

Such increase was primarily due to a new licensing agreement which was entered into in 2024 with a utility.

Equipment sales and other revenues for the years ended December 31, 2024 and 2023 were approximately $116,000 and $145,000, respectively.

This decrease was primarily due to increased equipment rental revenues in 2022 compared to 2023, partially offset by a decrease in demonstrations and consulting revenue.

Costs and Expenses

Total costs and expenses were approximately $39,171,000 and $23,184,000 during the years ended December 31, 2023 and 2022, respectively.

The increase in total costs and expenses from the prior year is primarily attributable to an increase on the loss on change in fair value of the profit share and the increase general and administrative expenses primarily attributable to an increase in legal fees during 2023 in connection with the patent litigation.

This was partially offset by a decrease in cost of sales due primarily to decreased sales in 2023, and a decrease in interest expense.

This decrease was primarily due to a decrease in demonstrations and consulting revenues offset by an increase in equipment sales revenues in 2024 compared to 2023.

Cost of Sales

Cost of sales were approximately $10,305,000 and $12,172,000 for the years ended December 31, 2024 and 2023, respectively.

The decrease in cost of sales is primarily attributable to decreased sales.

Selling, general and administrative expenses were approximately $14,207,000 and $6,117,000 for the years ended December 31, 2023 and 2022, respectively.

Such increase was primarily due to increased legal fees incurred in 2023 in connection with our patent litigation including the settlement reached with various defendants in the fourth quarter of 2023.

The decrease in cost of sales of approximately $1,867,000 was primarily attributable to decreased product sales in 2024 compared to the prior year, together with a decrease in the Company’s cost of carbon in 2024 compared to 2023.

Gross profit was approximately $7,101,000 and $5,453,000 (as restated) for the years ended December 31, 2024 and 2023, respectively.

This increase in gross profit of approximately $1,648,000 was primarily due to higher licensing revenues in 2024 compared to 2023, which typically carry higher margins than product sales, thus contributing to the overall improvement in gross profit.

Operating Expenses

Operating expenses consisted of selling, general and administrative expenses (“SG&A”) and an impairment loss of $43,000 in 2024 and SG&A and an impairment loss of approximately $220,000 in 2023.

SG&A expenses were approximately $14,216,000 and $14,207,000 for the years ended December 31, 2024 and 2023, respectively.

Although total SG&A expenses were largely unchanged in 2024 compared to the prior year, there were significant variances in individual categories.

Increases in salaries and wages, including bonus compensation and engagement of new senior personnel, increases in Board fees and increased stock-based compensation, were largely offset by reduced professional fees in 2024 compared to 2023.

The decrease in professional fees was mainly due to two settlement agreements reached in the fourth quarter of 2023 with various defendants in our patent litigation.

These agreements led to significant legal fees paid in 2023 to the patent litigation firm handling the cases, with no comparable expenses incurred in 2024.

Operating Loss

Our operating loss was approximately $7,158,000 and $8,973,000 (as restated) for the years ended December 31, 2024 and 2023, respectively.

Such decrease in operating loss was primarily due to our increased gross profit in 2024 compared to 2023 coupled with total operating expenses remaining relatively unchanged from year to year.

Other Income (Expense)

During the years ended December 31, 2024 and 2023, we had income from legal claims of $0 and approximately $27,608,000, respectively.

The income from legal claims in 2023 consisted of two settlement agreements reached in the fourth quarter of 2023 with various defendants in our patent litigation.

Interest expense related to the financing of capital was approximately $267,000 and $1,362,000 for the years ended December 31, 2024 and 2023, respectively.

1 unchanged sentence

Interest expense on notes payable

Other interest

Additional interest upon conversion of notes

Other interest expense

Amortization of discount of notes payable

Amortization of debt issuance costs

Loss on change in fair value of profit share liability were approximately $3,959,000 and $11,210,000 for the years ended December 31, 2024 and 2023, respectively.

The change in 2023 is primarily attributed to changes in the projected timing of the repayment of the profit share (See Note 2 to the consolidated financial statements).

The change is primarily attributed to the modification of the terms of the profit share liability (see Note 8 to the consolidated financial statements).

Net Income (Loss)

For the year ended December 31, 2023, we had a net income of approximately $5,904,000 compared to a net loss $1,581,000 for the year ended December 31, 2022.

Such change was primarily due to income from legal claims of $27,608,000 in 2023 compared to no such similar income in 2022, offset by reduced sales in our core business operations in 2023, the increase in total costs and expenses and the loss on change in fair value of the profit share liability recognized in 2023.

For the year ended December 31, 2024, we had a net loss of approximately $10,802,000 compared to net income of approximately $5,668,000 (as restated) for the year ended December 31, 2023.

Such change was primarily due to no income from legal claims in 2024 compared to $27,608,000 in 2023, offset by an increase in gross profit in 2024 compared to 2023, and a decrease in the loss on change in fair value of profit share recognized in 2024 compared to 2023.

Liquidity and Capital Resource

We had approximately $3,456,000 in cash on our balance sheet at December 31, 2024 compared to approximately $20,940,000 at December 31, 2023.

Total current assets were approximately $24,152,000 and total current liabilities were approximately $2,183,000 at December 31, 2023, resulting in working capital of approximately $21,969,000.

This compares to total current assets of approximately $5,540,000 and total current liabilities were approximately $3,225,000 at December 31, 2022, resulting in working capital of approximately $2,315,000.

Our accumulated deficit was approximately $62.8 million at December 31, 2023 compared to $68.7 million at December 31, 2022.

Additionally, we had a net income in the amount of approximately $5,904,000 and cash provided by operating activities of approximately $19,226,000 for the year ended December 31, 2023.

Total assets were approximately $27,468,000 at December 31, 2023 versus approximately $9,340,000 at December 31, 2022.

The change in total assets is primarily attributable to an approximate $19,436,000 increase in cash.

This was offset by decreases in accounts receivable, inventory, right of use asset, property and equipment and intellectual property.

Total current assets were approximately $6,099,000 and total current liabilities were approximately $8,806,000 at December 31, 2024, resulting in a working capital deficiency of approximately $2,707,000.

This compares to total current assets of approximately $24,995,000 (as restated) and total current liabilities of approximately $2,183,000 at December 31, 2023, resulting in working capital of approximately $21,812,000 (as restated).

Our accumulated deficit was approximately $72.8 million at December 31, 2024 compared to $62.0 million (as restated) at December 31, 2023.

Additionally, we had a net loss in the amount of approximately $10,802,000 and cash used in operating activities of approximately $4,105,000 for the year ended December 31, 2024.

Based on the Company’s current cash levels and burn rate, discussed above, the Company believes its cash and financial resources may be insufficient to meet the Company’s anticipated needs for the twelve months following the date of issuance of the financial statements for the year ended December 31, 2024, included elsewhere in this Annual Report, which raises substantial doubt about the Company’s ability to continue as a going concern within one year from the issuance date of the financial statements.

In addition to maintaining the revenue stream from our legacy mercury emissions control business, our plans and expectations over the next twelve months to mitigate such financial condition include receiving additional cash inflows from the judgment expected in connection with the $57.1 million jury verdict awarded to us in March 2024, additional licensing revenues and product sales from the other patent litigation recently commenced, and revenues from our entry into the water treatment business.

During 2024, we opened two new state of the art laboratories and have added personnel to support our entry into the water business which we believe will lead to a vibrant new revenue stream.

In addition, management is exploring additional financing opportunities.

While management believes these plans will alleviate substantial doubt, there is no assurance that they will be successfully realized or implemented.

Total assets were approximately $10,261,000 at December 31, 2024 versus approximately $28,311,000 (as restated) at December 31, 2023.

The change in total assets is primarily attributable to an approximate $17,484,000 decrease in cash and an approximate $1,253,000 decrease in accounts receivable, offset by an increase in property and equipment.

Total Liabilities

Total liabilities were approximately $9,069,000 at December 31, 2024 versus approximately $28,250,000 at December 31, 2023.

The increase is primarily due to an increase in the value of the unsecured note and profit share liability offset by a decrease in accounts payable and accrued expenses.

The decrease is primarily attributable to a decrease in outstanding debt as a result of the modification of the terms of the profit share liability, the repayment of the secured note and the repayment of the unsecured note.

Operating Activities

Net cash provided by operating activities consists of net income (loss), adjusted by certain non-cash items, and changes in operating assets and liabilities.

Net cash provided by operating activities was approximately $19,226,000 for the year ended December 31, 2023 compared to net cash provided by operating activities of approximately $71,000 for the year ended December 31, 2022.

Net cash (used in) provided by operating activities consists of net income (loss), adjusted by certain non-cash items, and changes in operating assets and liabilities.

Net cash used in operating activities was approximately $4,105,000 for the year ended December 31, 2024 compared to net cash provided by operating activities of approximately $19,226,000 for the year ended December 31, 2023.

The increase in net cash provided by operating activities was primarily due to the following:

(i) net income of $5.9 million in 2023 compared to a $1.6 million loss in 2022;

(ii) loss on change in fair value of profit share of $11.2 million in 2023 compared to $802,000 in 2022;

and (iii) certain other changes in operating assets and liabilities including accounts receivable, accounts payable and accrued liabilities, accrued salaries and operating lease liability.

(i) a net loss of $10.5 million in 2024 compared to net income of $5.9 million in 2023;

(ii) loss on change in fair value of profit share of $4.0 million in 2024 compared to $11.2 million in 2023;

and (iii) certain other changes in operating assets and liabilities including accounts receivable, inventory, prepaid expenses and other assets, accrued salaries, and accounts payable and accrued liabilities.

Investing Activities

The Company had no investing activities for the year ended December 31, 2023.

Net cash used in investing activities was approximately $11,000 for the year ended December 31, 2022 due to the purchase of property and equipment.

The Company had net cash used in investing activities of approximately $809,000 for the year ended December 31, 2024 for the purchase of a truck and lab equipment compared to no cash used in investing activities for the year ended December 31, 2023.

Financing Activities

Net cash provided by financing activities was approximately $210,000 for the year ended December 31, 2023, compared to net cash provided by financing activities of approximately $56,000 for the year ended December 31, 2022.

During the year ended December 31, 2023, the Company received approximately $210,000 from the exercise of stock options compared to approximately $58,000 received from the exercise of stock options during the year ended December 31, 2022.

Net cash used in financing activities was approximately $12,569,000 for the year ended December 31, 2024 compared to approximately $210,000 provided by financing activities for the year ended December 31, 2023.

During the year ended December 31, 2024, we repaid the remaining principal of approximately $272,000 on the AC Midwest secured note and approximately $12,315,000 of the principal remaining on the AC Midwest unsecured note.

During the years ended December 31, 2024 and 2023, we received approximately $17,500 and $210,000, respectively, from the exercise of stock options.

Critical Accounting Policies and Estimates

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In particular, our most critical accounting policies relate to the recognition of revenue, and the valuation of our stock-based compensation.

Inventories are stated at the lower of cost or net realizable value.

Inventories are periodically evaluated to identify obsolete or otherwise impaired products and are written off when management determines usage is not probable.

We estimate the balance of excess and obsolete inventory by analyzing inventory by age using last used and original purchase date and existing sales pipeline for which the inventory could be used.

In the past we have experienced a minimal valuation allowance on our inventory.

Property and Equipment

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Should impairment in value be indicated, the carrying value of the long-lived and/or intangible assets would be adjusted, based on estimates of future undiscounted cash flows.

We have evaluated the recoverability of the carrying value of the Company’s property and equipment, right of use asset and intellectual property.

After completing the assessment of property and equipment for impairment as of December 31, 2023, the Company recorded an impairment expense related to property and equipment of $219,707 which is included in Impairment loss in the Company’s consolidated statements of operations and comprehensive income (loss).

The Company has evaluated the recoverability of the carrying value of the Company’s property and equipment, right of use asset and intellectual property.

After completing the assessment of property and equipment for impairment as of December 31, 2024 and 2023, the Company recorded an impairment expense related to property and equipment of $43,000 (2023 - $219,707) which is included in Impairment loss in the Company’s consolidated statements of operations.

The expense was primarily related to the impairment of construction in process costs where management determined that the undiscounted future cash flows were not sufficient to recover the carrying value of these assets over the estimated useful life.

No impairment charges were recognized for the year ended December 31, 2022.

Stock-Based Compensation

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Revenue for product sales is recognized at the point of time in which the customer obtains control of the product, at the time title passes to the customer upon shipment or delivery of the product based on the applicable shipping terms.

Licensing revenue includes the licensing of the Company’s intellectual property (“IP”).

Revenue for IP rights is accounted for based on the nature of the promise to grant the license.

In determining whether our promise is to provide a right to access our IP or a right to use our IP, we consider the nature of our IP to which the customer will have rights.

IP is either functional IP which has significant standalone functionality or symbolic IP which does not have significant standalone functionality.

Revenue from functional IP is recognized at the point in time when control of the distinct license is transferred to the customer.

Revenue from symbolic IP is recognized over the access period to our IP.

The licenses provide the customer with the right to use our patented technologies as they exist at a point in time when the license is granted, for the duration of the contract term.

The patented technology has stand-alone functionality, and we have no obligation to provide any future updates.

During the year ended December 31, 2024 the Company recognized $2,773,750 (2023 - $356,250) of revenue for licenses for which revenue was recognized at a point in time and $34,375 (2023 - $31,250) for licenses for which revenue was recognized over time.

When a license arrangement contains payment terms beyond one year, a significant financing component may exist.

The significant financing component is calculated as the difference between the stated value and present value of the license fees and is recognized as interest income over the payment period.

Variable consideration is recorded as revenue only to the extent that a significant reversal of cumulative revenue recognized is not probable of occurring when the uncertainty associated with the variable consideration is subsequently resolved.

Significant judgment is required in estimating variable consideration for the performance obligation identified in the contract and this judgment involves assessing factors outside of our influence.

Revenue for equipment sales is recognized upon commissioning and customer acceptance of the installed equipment per the terms of the purchase contract.

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Our management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires disaggregated information about our effective tax rate reconciliation as well as information on income taxes paid.

The guidance will first be effective in our annual disclosures for the year ending December 31, 2025, and should be applied on a prospective basis with the option to apply retrospectively.

Early adoption is permitted.

The Company is in the process of assessing the impact of ASU 2023-09 on our disclosures.

Recently Issued Accounting Standards

Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying consolidated financial statements.

Recently issued, but not yet effective accounting pronouncements, that when adopted, may have a material effect on the accompanying consolidated financial statements are as follows:

Issued in June 2021, FASB Accounting Standards Update (ASU) No.

2016-13, Measurement of Credit Losses on Financial Instruments adds to U.S.

GAAP an impairment model known as the current expected credit loss (CECL) model, which is based on expected losses rather than incurred losses.

This guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Early application of the amendments is permitted.

Effective January 1, 2023, the Company adopted ASU No.

The adoption of ASU No.

2016-13 did not have a material effect on the accompanying consolidated financial statements.

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures , which amends and enhances the disclosure requirements for reportable segments.

All disclosure requirements under this standard will also be required for public entities with a single reportable segment.

The new standard will be effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within fiscal years beginning after December 15, 2024.

The Company adopted ASU 2023-07 effective for its Annual Report on Form 10-K for the year ended December 31, 2024 and subsequent interim periods.

Since ASU 2023-07 addresses only disclosures, the adoption of ASU 2023-07 did not have a significant impact on its consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures , which is intended to provide enhancements to annual income tax disclosures.

The standard will require more detailed information in the rate reconciliation table and for income taxes paid, among other enhancements.

The standard is effective for years beginning after December 15, 2024 and early adoption is permitted.

The Company is evaluating this standard to determine if adoption will have a material impact on the Company’s consolidated financial statements.

In November 2024, the FASB issued ASU No.

2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses .

This ASU requires entities to disaggregate expense items in the notes to the financial statements and requires disclosure of specified information related to purchases of inventory, employee compensation, depreciation, and intangible asset amortization.

The amendments in this ASU are effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027.

Companies have the option to apply the guidance either on a retrospective or prospective basis, and early adoption is permitted.

The Company is currently evaluating the impact of the ASU on its consolidated financial statements and related disclosures.

In January 2025, the FASB issued ASU No.

2025-01, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40):

Clarifying the Effective Date .

This ASU amends the effective date of ASU No.

2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027.

Early adoption of ASU No.

2024-03 is permitted.

Non-GAAP Financial Measures

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In the future, we may disclose different non-GAAP financial measures in order to help our investors and others more meaningfully evaluate and compare our future results of operations to our previously reported results of operations.

The following table shows our reconciliation of net loss to adjusted EBITDA for the year December 31, 2023 and 2022, respectively:

The following table shows our reconciliation of net income (loss) to adjusted EBITDA for the years ended December 31, 2024 and 2023, respectively:

For the Year Ended

(as restated)

(In thousands)

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

What changed 10-K

Item 7. Management’s Discussion and Analysis