Delaware

87-0398271

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

~~670 D Enterprise Drive~~

~~Lewis Center, Ohio~~

~~43035~~

1810 Jester Drive

Corsicana, Texas

75109

(Address of principal Executive offices)

(Zip Code)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes xNo ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes xNo ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x	Smaller reporting company	x
		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ¨No x

State the number of shares outstanding of each of the Issuer’s classes of common stock, as of the latest practicable date: Common, $.001 par value per share ~~76,747,750~~77,747,750 outstanding as of ~~November 14, 2019.~~July 6, 2020.

We are filing this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the “Quarterly Report”) pursuant to an order issued by the Securities and Exchange Commission (the “SEC”) on March 25, 2020 (which extended and superseded a prior order issued on March 4, 2020), pursuant to Section 36 of the Securities Exchange Act of 1934, as amended (Release No. 34-88465) (the “Order”), regarding exemptions granted to certain public companies. The Order allows a registrant up to an additional 45 days after the original due date of certain reports required to be filed with the SEC if a registrant’s ability to file such report timely is affected due to COVID-19. On May 15, 2020, we filed a current report on Form 8-K with the SEC to avail ourselves of such 45-day grace period to file this Quarterly Report provided by the Order. In such Form 8-K, we acknowledged experiencing disruptions including, but not limited to, the limited availability of key Company personnel and professional advisors who are needed to prepare the Quarterly Report due in part to suggested and mandated social quarantining and work from home orders. This has, in turn, delayed the Company’s ability to prepare and complete this Quarterly Report.

This Quarterly Report on Form 10-Q contains “forward-looking statements,” as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and reflect our current expectations regarding our future growth, results of operations, cash flows, performance and business prospects, and opportunities, as well as assumptions made by, and information currently available to, our management. 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. Forward-looking statements in this report are subject to risks and uncertainties that could cause actual events or results to differ materially from those expressed in or implied by the statements. These statements are based on information currently available to us and are subject to various risks, uncertainties, and other factors, including, but not limited to, those discussed under the caption “Risk Factors” in the Company’s ~~2018~~2019 Form 10-K. In addition, 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 of the regions where our customer utilities might experience significant changes in electric demand, a significant disruption in the supply of coal to our customer units, the loss of key management personnel, availability of capital and any major litigation regarding the Company.

Except as expressly required by the federal securities laws, we undertake no obligation to update such factors or to publicly announce the results of any of the forward-looking statements contained herein to reflect future events, developments, or changed circumstances or for any other reason. Investors are cautioned that all forward-looking statements involve risks and uncertainties, including those detailed in the Company’s filings and with the Securities and Exchange Commission.

As of ~~the~~ and for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020

September 30,
2019

December 31,
2018

(Unaudited)

ASSETS
Current assets

Cash

$ 998,896

$ 584,877

Accounts receivable

1,431,066

1,642,126

Inventory

629,427

509,416

Prepaid expenses and other assets

256,413

136,628

Customer acquisition costs, net

-

34,467

Total current assets

3,315,802

2,907,514

Property and equipment, net

2,149,737

2,397,691

Right of use asset

1,201,285

-

Intellectual property, net

2,582,762

2,733,662

Total assets

$ 9,249,586

$ 8,038,867

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities

Accounts payable and accrued expenses

$ 1,826,908

$ 1,858,326

Current portion of equipment notes payable

53,304

63,424

Current portion of operating lease liability

383,307

-

Accrued interest

94,957

96,902

Customer credits

167,000

167,000

Deferred compensation

409,623

555,877

Total current liabilities

2,935,099

2,741,529

Equipment notes payable, less current portion

54,675

104,226

Operating lease liability

901,450

-

Convertible notes payable, net of discount and issuance costs

3,261,901

1,760,570

Secured note payable

271,686

271,686

Unsecured note payable, net of discount and issuance costs

9,752,882

11,781,952

Total liabilities

17,177,693

16,659,963

COMMITMENTS AND CONTINGENCIES (Note 11)

Stockholders' deficit

Preferred stock, $.001 par value: 2,000,000 shares authorized

-

-

Common stock; $.001 par value; 150,000,000 shares authorized; 76,747,750 shares issued and outstanding as of September 30, 2019 76,246,113 shares issued and outstanding as of December 31, 2018

76,747

76,246

Additional paid-in capital

44,882,209

42,785,990

Accumulated deficit

(52,887,063 )

(51,483,332 )

Total stockholders' deficit

(7,928,107 )

(8,621,096 )

Total liabilities and stockholders' deficit

$ 9,249,586

$ 8,038,867

The accompanying notes are an integral part of these condensed consolidated financial statements.

For the Three Months Ended September 30,
2019

For the Three Months Ended September 30,
2018

For the Nine
Months Ended September 30,
2019

For the Nine
Months Ended Sepbember 30,
2018

Revenues

$ 3,596,107

$ 4,209,091

$ 8,893,177

$ 8,781,754

Costs and expenses:

Cost of sales

2,477,673

3,009,656

6,438,998

6,600,582

Selling, general and administrative expenses

1,186,280

1,364,312

5,116,487

4,855,442

Interest expense & letter of credit fees

782,695

471,086

2,075,761

1,529,670

(Gain)/Loss on debt restructuring

-

-

(3,412,204 )

44,036

Total costs and expenses

4,446,648

4,845,054

10,219,042

13,029,730

Net loss

$ (850,541 )

$ (635,963 )

$ (1,325,865 )

$ (4,247,976 )
Net loss per common share - basic and diluted:

$ (0.01 )

$ (0.01 )

$ (0.02 )

$ (0.06 )

Weighted average common shares outstanding

76,730,400

76,246,113

76,463,246

76,246,113

The accompanying notes are an integral part of these condensed consolidated financial statements.

Nine Months Ended September 30, 2019

Common Stock

Additional

Accumulated

Shares

Par Value

Paid-in Capital

(Deficit)

Total

Balance - January 1, 2019

76,246,113

$ 76,246

$ 42,785,990

$ (51,483,332 )

$ (8,621,096 )

Cumulative effect of change in accounting principle related to accounting for leases

-

-

-

(77,866 )

(77,866 )

Net income

-

-

-

2,363,797

2,363,797

Balance - March 31, 2019

76,246,113

$ 76,246

$ 42,785,990

$ (49,197,401 )

$ (6,335,165 )

Stock issued per resignation agreements

464,517

464

118,076

-

118,540

Issuance of stock options

-

-

898,207

-

898,207

Extension of certain stock option expiration dates

-

-

745,989

-

745,989

Issuance of warrants, recorded as discount on convertible notes payable

-

197,664

-

197,664

Net loss

-

-

-

(2,839,121 )

(2,839,121 )

Balance - June 30, 2019

76,710,630

$ 76,710

$ 44,745,926

$ (52,036,522 )

$ (7,213,886 )

Stock issued upon cashless warrant exercise

37,120

37

(37 )

-

-

Issuance of warrants, recorded as discount on convertible notes payable

-

136,320

-

136,320

Net loss

-

-

-

(850,541 )

(850,541 )

Balance - September 30, 2019

76,747,750

$ 76,747

$ 44,882,209

$ (52,887,063 )

$ (7,928,107 )

The accompanying notes are an integral part of these condensed consolidated financial statements.

For the Nine
Months Ended September 30,
2019

For the Nine
Months Ended September 30,
2018

Cash flows from operating activities

Net loss

$ (1,325,865 )

$ (4,247,976 )

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

Stock based compensation

1,762,736

437,966

Amortization of discount of notes payable

1,585,686

523,871

Amortization of debt issuance costs

99,515

94,294

Amortizaton of right to use assets

283,551

-

Amortization of customer acquisition costs

34,467

103,400

Amortization of patent rights

150,900

150,900

Depreciation expense

247,954

346,562

Loss os debt exchange

-

44,036

Gain on debt restructuring

(3,412,204 )

-

Change in assets and liabilities

Decrease in accounts receivable

211,060

1,154,486

(Increase) decrease in inventory

(120,011 )

191,251

(Increase) in prepaid expenses and other assets

(119,785 )

(207,707 )
(Decrease) Increase in accounts payable and accrued liabilities

(424,686 )

807,868

(Decrease) in operating lease liability

(277,944 )

-

(Decrease) in deferred revenue and customer credits

-

(517,060 )
Net cash used in operating activities

(1,304,626 )

(1,118,109 )

Cash flows used in investing activities

Purchase of property and equipment

-

(130,665 )
Net cash used in investing activities

-

(130,665 )

Cash flows from financing activities

Payment of debt issuance costs

(46,683 )

-

Payments of notes payable

(59,672 )

(920,107 )
Proceeds from the issuance of convertible promissory notes and related warrants

1,825,000

200,000

Net cash provided by (used in) financing activities

1,718,645

(720,107 )

Net increase (decrease) in cash and cash equivalents

414,019

(1,968,881 )

Cash and cash equivalents - beginning of period

584,877

2,418,427

Cash and cash equivalents - end of period

$ 998,896

$ 449,546

SUPPLEMENTAL CASH FLOW INFORMATION:

Cash paid during the period for:

Interest

$ 237,575

$ 1,044,193

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS

Cumulative effect on accumulated deficit of lease accounting change

$ 77,866

$ -

Discount on convertible promissory notes payable

$ 333,984

$ -

Net adjustment for extension of lease

$ 145,267

$ -

The accompanying notes are an integral part of these condensed consolidated financial statements.

Midwest Energy Emissions Corp. (the “Company”) is organized under the laws of the State of Delaware with 150,000,000 authorized shares of common stock, par value ~~$.001~~$0.001 per share and 2,000,000 authorized shares of preferred stock, par value $0.001 per share.

MES, Inc. is incorporated in the State of North Dakota. MES, Inc. is a wholly owned subsidiary of Midwest Energy Emissions Corp. and is engaged in the business of developing and commercializing state of the art control technologies relating to the capture and control of mercury emissions from coal fired boilers in the United States and Canada.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of Rule 8-03 of Regulation S-X promulgated by the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, these financial statements do not include all of the information and footnotes required for complete financial statements and should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019 filed on May 14, 2020, from which the accompanying condensed consolidated balance sheet dated December 31, 2019 was derived.

In management’s opinion, the unaudited condensed consolidated financial statements reflect all adjustments necessary to present fairly the financial position as of ~~September 30, 2019,~~March 31, 2020, and results of operations, changes in stockholders’ deficit and cash flows for all periods presented. The interim results presented are not necessarily indicative of results that can be expected for a full year.

The condensed consolidated financial statements include the accounts of Midwest Energy Emissions Corp. and its wholly-owned subsidiary, MES, Inc. Intercompany balances and transactions have been eliminated in consolidation.

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, valuation of equity issuances and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The Company uses estimates in accounting for, among other items, profit share liability, revenue recognition, allowance for doubtful accounts, stock-based compensation, income tax provisions, excess and obsolete inventory reserve and impairment of intellectual property. Actual results could differ from those estimates.

Long-lived assets and certain identifiable intangibles held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. 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 discounted cash flows. The Company evaluated the recoverability of the carrying value of the Company’s ~~equipment.~~property and equipment, right of use asset and intellectual property. No impairment charges were recognized for both of the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018, respectively.~~2019.

In February 2016, the FASB issued new guidance which requires lessees to recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. The accounting standard, effective January 1, 2019, requires virtually all leases to be recognized on the Balance Sheet. Effective January 1, 2019, we adopted the standard using the modified retrospective method, under which we elected the package of practical expedients and transition provisions allowing us to bring our existing operating leases onto the Condensed Consolidated Balance Sheet without adjusting comparative periods, but recognizing a cumulative-effect adjustment to the opening balance of accumulated deficit on January 1, 2019. Under the guidance, we have also elected not to separate lease and non-lease components in recognition of the lease-related assets and liabilities, as well as the related lease expense.

We have operating leases for office space in two multitenant facilities, which are not recorded as assets and liabilities as those leases do not have terms greater than 12 months. We have an operating leases for a multi-purpose facility and bulk trailers used in operations which is recorded as an asset and liability as the lease has a terms greater than 12 months. Lease-related assets, or right-of-use assets, are recognized at the lease commencement date at amounts equal to the respective lease liabilities, adjusted for prepaid lease payments, initial direct costs, and lease incentives received. Lease-related liabilities are recognized at the present value of the remaining contractual fixed lease payments, discounted using our incremental borrowing rate. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred.

Upon adoption of the standard on January 1, 2019, we recorded $1,339,569 of right of use assets and $1,417,435 of lease-related liabilities, with the difference charged to accumulated deficit at that date.

For the three and nine months ended September 30, 2019, the Company’s lease cost consist of the following components, each of which is included in costs and expenses within the Company’s consolidated statements of operations:

Three
Months
Ended
September 30,
2019

Nine
Months
Ended
September 30,
2019

Operatig lease cost

$ 109,710

$ 329,130

Short-term lease cost (1)

6,465

19,365

Total lease cost

$ 116,175

$ 348,495

~~(1)~~

~~Short-term lease costs includes any lease with a term of less than 12 months~~

The fair value hierarchy has three levels based on the inputs used to determine fair value, which are as follows:

	·☐	Level 1 — Unadjusted quoted prices available in active markets for the identical assets or liabilities at the measurement date.

	· ☐	Level 2 — Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.

	☐
	·	Level 3 — Unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

The fair value hierarchy requires the use of observable market data when available. In instances where the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.

Cash was the only asset measured at fair value on a recurring basis by the Company at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 and is considered to be Level 1.

Financial instruments include cash, accounts receivable, accounts payable, ~~deferred revenue,~~ customer credits and short-term debt. The carrying amounts of these financial instruments approximated fair value at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 due to their short-term maturities.

The fair value of the promissory notes payable at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 approximated the carrying amount as the notes were issued during the ~~years~~three months ended ~~December~~March 31, ~~2018~~2020 and ~~2017~~2019 at interest rates prevailing in the market and interest rates have not significantly changed as of ~~September 30, 2019.~~March 31, 2020. The fair value of the promissory notes payable was determined on a Level 2 measurement. Discounts on issued debt, as well as debt issuance costs, are amortized over the term of the individual promissory notes.

~~Table of Contents~~

The fair value of the profit share liability at March 31, 2020 and December 31, 2019 was calculated using a discounted cash flow model based on estimated future cash payments. The fair value of the profit share liability was determined on a Level 3 measurement. These values are determined using pricing models for which the assumptions utilized management’s estimates.

The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy.

Fair Value Measurement as of
September 30, 2019

Total

Level 1

Level 2

Level 3

Assets:

Cash

998,896

998,896

Total Assets

$ 998,896

$ 998,896

$ -

$ -

Liabilities

Promissory notes

13,286,469

-

13,286,469

Total Libilities

$ 13,286,469

$ -

$ 13,286,469

$ -

The Company’s functional currency is the United States Dollar (the “U.S. Dollar”). Transactions denominated in currencies other than the U.S. Dollar are re-measured to the U.S. Dollar at the period-end exchange rates. Any associated transactional currency re-measurement gains and losses are recognized in current operations. At both ~~September 30,~~March 31, 2020 and 2019, ~~and December 31, 2018,~~ there were no material gains or losses recognized.

The Company records revenue in accordance with ASC 606, Revenue from Contracts with Customers ~~(“ASC 606”)~~. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

Revenue is recognized when the Company satisfies its performance obligation under the contract by transferring the promised product to its customer that obtains control of the product. A performance obligation is a promise in a contract to transfer a distinct product to a customer. Most of the Company’s contracts have a single performance obligation, as the promise to transfer products or services is not separately identifiable from other promises in the contract and, therefore, not distinct.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products. As such, revenue is recorded net of returns, allowances, customer discounts, and incentives. Sales and other taxes are excluded from revenues. Invoiced shipping and handling costs are included in revenue. The adoption of this standard did not have a material impact on the Company’s financial statements.

The Company generated revenue for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ by (i) delivering product to its commercial customers, (ii) completing and commissioning equipment projects at commercial customer sites and (iii) performing demonstrations of its technology at customers with the intent of entering into long term supply agreements based on the performance of the Company’s products during the demonstrations.

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.

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

Revenue for demonstrations and consulting services is recognized when performance obligations contained in the contract have been completed, typically the completion of necessary field work and the delivery of any required analysis per the terms of the agreement.

~~Customer Acquisition Costs~~The following table presents sales by operating segment disaggregated based on the type of product and geographic region for the three months ended March 31, 2020 and 2019.

~~Customer acquisition costs~~The Company follows the asset and liability method of accounting for income taxes under FASB ASC 740, Income Taxes. Deferred tax assets and liabilities are ~~amortized~~recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a ~~straight-line bases over~~change in tax rates is recognized in income in the ~~life~~period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

FASB ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of ~~the initial customer contract. The capitalized balance~~tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. There were no unrecognized tax benefits as of ~~customer acquisition costs was $0 and $34,467 on September 30, 2019~~March 31, 2020 and December 31, 2019. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”). Corporate taxpayers may carryback net operating losses (“NOLs”) originating between 2018 ~~respectively. Amortization expense~~and 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the ~~three and nine months ended September 30, 2019 was $0 and $34,467, respectively and for~~entire amount of the ~~three and nine months ended September 30, 2018 was $34,467 and $68,934, respectively. Amortization expense was included in cost~~credits instead of ~~sales.~~recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act.

In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act did not result in any material adjustments to our income tax provision.

Basic net loss per common share is computed using the weighted average number of common shares outstanding. Diluted loss per share reflects the potential dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants. ~~For the three and nine months ended September 30, 2019 and 2018 basic and diluted earnings per share approximated each other.~~ There were no dilutive potential common shares as of ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ because the Company incurred net losses and basic and diluted losses per common share are the same. The following common stock equivalents were excluded from the computation of diluted net loss per share of common stock because they were anti-dilutive. The exercise of these common stock equivalents would dilute earnings per share if the Company becomes profitable in the future.

	September 30		September 30		March 31,		March 31,
	2019		2018		2020		2019

Stock Options		12,463,326		9,012,289
Stock options						12,553,326		8,526,510
Warrants		3,915,378		5,823,322		5,690,378		4,105,398
Convertible debt		7,350,000		3,500,000		9,157,100		3,700,000
Total common stock equivalents excluded from diluted net loss per share		23,728,704		18,335,611		27,400,804		16,331,908

Financial instruments that subject the Company to credit risk consist of cash and equivalents on deposit with financial institutions and accounts receivable. The Company’s cash as of ~~September 30,~~March 31, 2020 and December 31, 2019 is maintained at high-quality financial institutions and has not incurred any losses to date.

For each of the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ 100% of the Company’s revenue related to nine and eight ~~customers.~~customers, respectively. At ~~September 30,~~March 31, 2020 and 2019, , 100% of the Company’s accounts receivable related to seven ~~customers.~~customers, respectively.

For each of the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, 86% and ~~2018, 77% and 72%~~96% of the Company’s purchases related to two suppliers, respectively. At ~~September 30,~~March 31, 2020 and 2019, ~~78%~~47% and 75% of the Company’s accounts payable and accrued expenses related to two ~~vendors.~~vendors, respectively. The Company believes there are numerous other suppliers that could be substituted should the supplier become unavailable or non-competitive.

Certain conditions may exist which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company, or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.

Loss contingencies considered remote are generally not disclosed unless they arise from guarantees, in which case the guarantees would be disclosed.

~~In June 2018,~~Effective January 1, 2020, the ~~FASB issued~~Company adopted ASU No. 2018-07, ~~“Compensation~~Compensation — Stock Compensation (Topic 718)~~” (“ASU 2018-07”)~~. ASU 2018-07 is intended to reduce cost and complexity and to improve financial reporting for nonemployee share based payments. ~~Currently,~~Prior to the issuance of this guidance, the accounting requirements for nonemployee and employee share-based payment transactions ~~are~~were significantly different. ASU 2018-07 expands the scope of Topic 718, Compensation — Stock Compensation (which ~~currently~~ only ~~includes~~included share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees ~~will be~~is substantially aligned. This ASU supersedes Subtopic 505-50, Equity — Equity-Based Payments to Nonemployees. The ~~amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and including interim periods within that fiscal year. Early~~ adoption ~~is permitted, but no earlier than a company’s adoption date~~ of ~~Topic 606, Revenue from Contracts with Customers. The Company is currently evaluating~~ ASU 2018-07 ~~and its~~did not have a material impact on its condensed consolidated financial statements.

~~In August 2018,~~Effective January 1, 2020, the ~~FASB issued~~Company adopted ASU No. 2018-13, ~~“Fair~~Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value ~~Measurement (“ASU 2018-13”).~~Measurement. The amendments in ASU 2018-13 modify the disclosure requirements associated with fair value measurements based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The ~~amendments are~~adoption of ASU 2018-13 did not have a material impact on its condensed consolidated financial statements.

In December 2019, the FASB issued authoritative guidance intended to simplify the accounting for income taxes (ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”). This guidance eliminates certain exceptions to the general approach to the income tax accounting model and adds new guidance to reduce the complexity in accounting for income taxes. This guidance is effective for ~~all entities for fiscal years beginning~~annual periods after December 15, ~~2019, and~~2020, including interim periods within those ~~fiscal years. Early adoption is permitted, including adoption in an interim period.~~annual periods (beginning with the quarter ended March 31, 2021 for the Company). The Company is currently evaluating ~~ASU 2018-13 and~~the potential impact of this guidance on its ~~impact on its~~condensed consolidated financial statements.

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

Under ~~ASU 2014-15~~ ASC 205-40, Presentation of Financial Statements—Going Concern ~~(Subtopic 205-40) (“ASC 205-40”)~~, the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations as they become due within one year after the date that the financial statements are issued. As required by ASC 205-40, this evaluation shall initially not take into consideration the potential mitigating effects of plans that have not been fully implemented as of the date the financial statements are issued. Management has assessed the Company’s ability to continue as a going concern in accordance with the requirement of ASC 205-40.

As reflected in the condensed consolidated financial statements, the Company had approximately $999,000 in cash on its balance sheet at September 30, 2019. The Company had working capital of $381,000 and an accumulated deficit $52.9 million. Additionally, the Company had a net loss in the amount of $1.3 million and cash used by operating activities of $1.3 million for the nine months ended September 30, 2019, respectively.

The accompanying condensed consolidated financial statements as of ~~September 30, 2019~~March 31, 2020 have been prepared assuming the Company will continue as a going concern. ~~During 2018,~~As reflected in the condensed consolidated financial statements, the Company ~~restructured convertible notes totaling $560,000 into new loans that mature in 2023. In February 2019,~~had an accumulated deficit of $59.4 million and a negative working capital of $134,888 at March 31, 2020. Additionally, the Company ~~completed~~had a net loss in the ~~restructuring~~amount of ~~its unsecured~~$1.8 million and ~~secured debt obligations held its largest promissory noteholder, extending~~cash used by operating activities of $1.2 million for the maturity dates of these debts and the remaining convertible notes until 2022 and eliminating quarterly principal payment requirements. From June 2019 through October 2019, the Company sold $2,600,000 of new convertible notes which mature in 2024. Based on the extended maturities the Company negotiated with its note holders, historical sales and gross margin trends with its current customers under contract and the incremental sales and gross margin from the newly announced customer contracts, management believesthree months ended March 31, 2020. These factors raise substantial doubt ~~regarding~~about the Company’s ability to continue as a going concern ~~has been mitigated. The Company believes it will have sufficient working capital to fund operations~~ for ~~at least~~ the next twelve months from the ~~date of~~ issuance of these condensed consolidated financial ~~statements.~~statements within the Company’s Quarterly Report on Form 10-Q. Although we anticipate continued significant revenues for products in be used in MATS compliance activities, no assurances can be given that the Company can obtain sufficient working capital through these activities and additional financing may be needed to meet its obligations. In April 2020, the Company received loan proceeds in the amount of $299,300 pursuant to the Paycheck Protection Program under the Cares Act which was enacted on March 27, 2020 as a result of the COVID-19 pandemic. Nevertheless, the Company may need to raise additional equity or debt financing. While the Company believes in its ability to raise additional funds, no assurances can be given that the Company can maintain sufficient working capital through these efforts, or that the continued implementation of its business plan will generate sufficient revenues in the future to sustain ongoing operations.

The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.

~~The Company held product supply inventory valued~~Inventory was comprised of the following at ~~$317,285 and $306,651, raw materials inventory valued at $190,971 and $87,730 and equipment and parts inventory valued at $121,171 and $113,035 as of September 30, 2019~~March 31, 2020 and December 31, ~~2018, respectively.~~2019:

Property and equipment at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are as follows:

	September 30			December 31			March 31,			December 31,
	2019			2018			2020			2019

Equipment & Installation	$	1,965,659		$	1,965,659
Equipment & installation							$	1,965,659		$	1,965,659
Trucking equipment		983,948			983,948			922,441			922,441
Computer equipment and software		117,212			117,212			67,126			67,126
Office equipment		27,155			27,155			27,155			27,155
Total equipment		3,093,974			3,093,974			2,982,381			2,982,381

Less: accumulated depreciation		(2,751,944	)		(2,503,990	)		(2,774,334	)		(2,707,745	)
Construction in process		1,807,707			1,807,707			1,807,707			1,807,707
Property and equipment, net	$	2,149,737		$	2,397,691		$	2,015,754		$	2,082,343

The Company uses the straight-line method of depreciation over 2 to 5 years. During the three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ depreciation expense was ~~$84,918,~~$66,589, and ~~$119,799. During the nine months ended September 30, 2019 and 2018 depreciation expense was $247,954, and $347,766.~~$82,597, respectively.

On January 15, 2009, the Company entered into an “Exclusive Patent and Know-How License Agreement Including Transfer of Ownership” with the Energy and Environmental Research Center Foundation, a non-profit entity (“EERCF”). Under the terms of the Agreement, the Company has been granted an exclusive license by EERCF for the technology to develop, make, have made, use, sell, offer to sell, lease, and import the technology in any coal-fired combustion systems (power plant) worldwide and to develop and perform the technology in any coal-fired power plant in the world.

On April 24, 2017, the Company closed on the acquisition ~~from EERCF~~ of all patent rights from EERCF including all patents and patents pending, domestic and foreign, relating to the foregoing technology. A total of 42 domestic and foreign patents and patent applications were included in the acquisition. In accordance with the terms of the License Agreement, the patent rights were acquired for the purchase price of (i) $2,500,000 in cash, and (ii) 925,000 shares of common stock of which 628,998 shares were issued to EERCF and 296,002 were issued to the inventors who had been designated by EERCF. The shares issued were valued at $518,000 ($0.56 per share), representing the value as of the closing date.

License and patent costs capitalized as of ~~September 30, 2019~~March 31, 2020 and December ~~31, 2018~~31,2019 are as follows:

September 30

December 31

2019

2018

Patents

$ 3,068,995

$ 3,068,995

Less: Accumulated Amortization

(486,233 )

(335,333 )
License, Net

$ 2,582,762

$ 2,733,662

Amortization expense for ~~each of~~ the three months ended ~~September 30,~~March 31, 2020 and 2019 was $50,300 and ~~2018 was $50,300. Amortization expense for each of the nine months ended September 30, 2019 and 2018 was $150,900.~~$50,301, respectively. Estimated annual amortization for each of the next five years is ~~approximately~~ $201,200.

On February 25, 2020, and pursuant to a Business Loan Agreement entered into with a banking institution, the Company’s wholly owned subsidiary, MES, Inc. closed on a one-year secured loan in the principal amount of $200,000 bearing interest at 8.75% per annum. Principal and interest is to be paid in equal monthly installments until the loan is paid in full on February 26, 2021. The note is secured by substantially all of the assets of MES, Inc. Interest expense for the three months ended March 31, 2020 was $1,410.

The Company has the following convertible notes payable outstanding as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:

September 30

December 31

2019

2018

Secured convertible promissory notes which mature upon the retirement of the New AC Midwest Secured Debt, bear interest at 10% per annum, and are convertible into one share of common stock, par value $0.001 per share.

$ 990,000

$ 990,000

Unsecured convertible promissory notes which mature beginning on June 15, 2023, bear interest at 12% per annum, and are convertible into one share of common stock, par value $0.001 per share.

860,000

860,000

Unsecured convertible promissory notes which mature beginning on June 18, 2024, bear interest at 12% per annum, and are convertible into one share of common stock, par value $0.001 per share.

$ 1,825,000

$ -

Total convertible notes payable before discount

3,675,000

1,850,000

Less discounts and debt issuance costs

(413,099 )

(89,430 )

Convertible notes payable

3,261,901

1,760,570

As of ~~September 30, 2019,~~March 31, 2020, remaining scheduled principal payments due on convertible notes payable are as follows:

Twelve months ended December 31,

2019

$
-

2020

-

2021

-

2022

990,000

2023

860,000

thereafter

1,825,000

$
3,675,000

As of ~~September 30, 2019,~~March 31, 2020, the remaining future amortization of discounts ~~debt issuance costs~~ are as follows:

Twelve months ended September 30,

Discounts

2019

$ 22,413

2020

90,387

2021

90,387

2022

90,387

2023

82,318

thereafter

37,207

$ 413,099

On November 29, 2016, pursuant to a new restated financing agreement entered with AC Midwest Energy, LLC (“AC Midwest”) on November 1, 2016, the Company closed on a new secured note with AC Midwest ~~(“The New~~(the “New AC Midwest Secured Note”) in the ~~principle~~original principal amount of $9,646,686, which was to mature on December 15, ~~2018.The~~2018. AC Midwest beneficially owns 5% or more of the common stock of the Company. The New AC Midwest Secured Note is guaranteed by MES, is non-convertible and bears interest at a rate of 15.0% per annum, payable quarterly in arrears on or before the last day of each fiscal quarter. ~~The New AC Midwest Secured Note is secured by all of the assets of the Companies.~~ Interest expense for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 was ~~$10,415~~$9,937 and ~~$30,904, respectively. Interest expense for the three and nine months ended September 30, 2018 was $10,415 and $56,127,~~$40,753, respectively. On February 25, 2019, per Amendment No. 3 ~~(“Amendment No. 3”)~~ to the Amended and Restate Financing Agreement, AC Midwest agreed to waive compliance with a certain financial covenant of the Restated Financing Agreement and strike this covenant in its entirety as of the effective date of the amendment. Also, pursuant to Amendment No. 3, the parties agreed that the maturity date for the remaining principal balance due under the AC Midwest Secured Note would be extended from December 15, 2018 to August 25, 2022. The amendment was accounted for as an extinguishment in accordance with ASC 470-50 with no gain or loss recorded. As of ~~September 30, 2019~~both March 31, 2020 and December 31, ~~2018,~~2019, total principal of ~~$271,686 and~~ $271,686 was outstanding on this note.

The Company has the following unsecured note payable - related party outstanding as of March 31, 2020 and December 31, 2019:

On November 29, 2016, pursuant to a new restated financing agreement entered with AC Midwest on November 1, 2016, the Company closed on an unsecured note with AC Midwest ~~(“The AC~~(the “AC Midwest ~~Unsecured~~Subordinated Note”) in the ~~principle~~principal amount of $13,000,000, which was to mature on December 15, 2020. On February 25, 2019, the Company, entered into an Unsecured Note Financing Agreement (the “Unsecured Note Financing Agreement”) with AC Midwest, pursuant to which AC Midwest issued an unsecured note in the principal amount of $13,154,931 (the “New AC Midwest Unsecured Note”), which represented the outstanding principal and accrued and unpaid interest at closing. ~~The~~

In accordance with ASC 470-60-15-5, since the present value of the cash flows under the new debt instrument was at least ten percent different from the present value of the remaining cash flows under the terms of the original debt instrument, the Company accounted for the amendment to note as a debt extinguishment. Accordingly, the Company wrote off the remaining debt discount on the original debentures of $1,070,819. Since the amendment was with a related party defined in ASC 470-50-40-2 the Company recorded a ~~gain~~Capital contribution of $3,412,204 on this exchange which is primarily related to the difference in fair value of the ~~notes~~note on the date of the exchange.

~~Table of Contents~~

The Company determined that the rate of interest on the AC Midwest Subordinated Note was a below market rate of interest and determined that a discount of $6,916,687 should be recorded. This discount is based on an applicable market rate for unsecured debt for the Company of 21% and will be amortized as interested expense over the life of the loan. Amortized discount recorded as interest expense for the three months ended March 31, 2020 and 2019 was $462,483 and 273,526, respectively. As of March 31, 2020, the unamortized balance of the discount was $4,750,146.

The New AC Midwest Unsecured Note, which has been issued in exchange for the AC Midwest Subordinated Note which has now been cancelled, will mature on August 25, 2022 (the “Maturity Date”). It bears a zero cash interest rate.

If the original principal amount is paid in full on or before August 25, 2020 (18 months from issuance), AC Midwest shall be entitled to a profit participation preference equal to 0.5 times the original principal amount, and if the original principal amount is paid in full after August 25, 2020, AC Midwest shall be entitled to a profit participation preference equal to 1.0 times the original principal amount (the “Profit Share”). The Profit Share is “non-recourse” and shall only be derived from and computed on the basis of, and paid from, Net Litigation Proceeds from claims relating to the Company’s intellectual property (see Note 11), Net Revenue Share and Adjusted Free Cash Flow (as such terms are defined in the Unsecured Note Financing Agreement).

In connection with the New AC Midwest Unsecured Note the Company shall pay the principal outstanding, as well as the Profit Share, in an amount equal to 60.0% of Net Litigation Proceeds until such time as any litigation funder has been paid in full and, thereafter, in an amount equal to 75.0% of such Net Litigation Proceeds until the Unsecured Note and Profit Share have been paid in full. In addition, and within 30 days following the end of each fiscal quarter, the Company shall pay the principal outstanding and Profit Share in an aggregate amount equal to the Net Revenue Share (which means 60.0% of Net Licensing Revenue (as defined) from licensing the Company’s intellectual property) plus Adjusted Free Cash Flow until the Unsecured Note and Profit Share have been paid in full, provided, however, that such payments shall exclude the first $3,500,000 of Net Licensing Revenue and Adjusted Free Cash Flow achieved commencing with the fiscal quarter ending March 31, 2019. Any remaining principal balance due on the Unsecured Note shall 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, shall remain subject to Unsecured Note Financing Agreement until full and final payment.

The Company is utilizing the methodology behind the ASC 815, Derivatives and Hedging and ASC 480, Distinguishing Liabilities from Equity to determine how to account for the profit-sharing portion of the note payable. Although the transaction is not indexed to MEEC’s common stock the profit sharing has the characteristics of a freestanding financial instrument because the profit sharing is not callable by the lender, it will be paid out past the maturity of the Unsecured Note Payable and, the fair value will fluctuate over time based on payment predictions. The Profit Share was determined ~~that~~to have a fair value of $1,954,383 upon grant. This was calculated with discounted cash flow model, with the following key valuation assumptions: estimated term of seventeen years with $250,000 paid quarterly after the first three years, and an annual market interest rate of ~~interest on~~21%. The profit share liability will be marked to market every quarter utilizing managements estimates.

The following are the ~~AC Midwest Subordinated Note was a below market rate of interest~~changes in the profit share liabilities during the three months ended March 31, 2020 and ~~determined that a discount of $11,123,087 should be recorded. This discount is based on an applicable market rate for unsecured debt for~~2019.

Kaye Cooper Kay & Rosenberg, LLP provides certain legal services to the Company ~~of 21%~~ and ~~will be amortized as interested expense over the life~~was paid $62,500 in 2020 for legal services rendered and disbursement incurred. David M. Kaye, a Director and Secretary of the loan. Amortized discount recorded as interest expense for the three and nine months ended September 30, 2019 was $628,286 and $1,466,000, respectively. As of September 30, 2019, the unamortized balanceCompany, is a partner of the ~~discount~~law firm. At March 31, 2020 and December 31, 2019, $56,250 and $43,750, respectively, was ~~$9,647,087.~~owed to the firm for services rendered.

In 2016, the Company entered into a ~~six year~~six-year agreement to lease trailers used in the delivery of its products. Monthly payments currently total $32,820.

On January 27, 2015, the Company entered into a lease for office space in Lewis Center, Ohio, commencing February 1, 2015 which lease as amended ~~expires~~expired in February 2020. The lease provides for the option to extend the lease for up to five additional years. Monthly rent is $1,575 through February 2020. The Company did not renew this lease.

On July 1, 2015, the Company entered into a ~~five year~~five-year lease for warehouse space in Corsicana, Texas. Rent is $3,750 monthly throughout the term of the lease. The Company is also responsible for the pro rata share of the projected monthly expenses for the property taxes. The current pro rata share is $882. The lease was extended on June 1, 2019 for five years.

~~Table of Contents~~

The Company recorded a right of use asset and an operating lease liability of $145,267. This amount represents the difference between the value from the remaining lease and the extended lease.

On September 1, 2019, the Company entered into a ~~one year~~one-year lease for office space in Grand Forks, North Dakota. Monthly rent is $590 a month through August 2020.

Future remaining minimum lease payments under these non-cancelable leases are ~~approximately~~ as follows:

For the the twelve months ended December 31
2019	$	116,205
2020		446,710
For the twelve months ended March 31,
2021		438,840		$	438,840
2022		333,960			438,840
2023		45,000			252,567
thereafter		11,250
2024					45,000
Total		1,391,800			1,175,247
Less discount		(92,843	)		(79,753	)
Less short term leases		(14,365	)
Total lease liabilities		1,284,757			1,095,494

Less current portion		(383,307	)		(364,213	)
Operating lease obligation, net of current portion	$	901,450		$	731,281

The weighted average remaining lease term for operating leases is ~~2.0~~2.94 years and the weighted average discount rate used in calculating the operating lease asset and liability is 5.0%. For the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, payments on lease obligations were ~~$345,345~~$109,710 and amortization on the right of use assets was ~~$350,952.~~$94,710.

For the three months ended March 31, 2020, the Company’s lease cost consists of the following components, each of which is included in costs and expenses within the Company’s consolidated statements of operations:

The Company’s multi-year contracts with its commercial customers contain fixed prices for product. These contracts expire ~~through 2019~~between 2020 and 2025 and expose the Company to the potential risks associated with rising material costs during that same period. Revenue reported during interim periods were recorded based on the facts and circumstances at the time and any differences noted when the final revenue is determined is considered to be a change in estimate for the period.

On July 17, 2019, the Company initiated patent litigation against certain defendants in the U.S. District Court for the District of Delaware for infringement of United States Patent Nos. 10,343,114 (the “‘114 Patent”) and 8,168,147 (the “‘147 Patent”) owned by the Company. These patents relate to the Company’s two-part Sorbent Enhancement Additive (SEA^®) process for mercury removal from coal-fired power plants. Named as defendants in the lawsuit are (i) Vistra Energy Corp., AEP Generation Resources Inc., NRG Energy, Inc., Talen Energy Corporation, and certain of their respective affiliated entities, all of which are owners and/or operators of coal-fired power plants in the United States, and (ii) Arthur J. Gallagher & Co., DTE REF Holdings, LLC, CERT Coal Holdings LLC, Chem-Mod LLC, and certain of their respective affiliated entities, and additional named and unnamed defendants, all of which operate or are involved in operations of coal facilities in the United States. In the lawsuit, the Company alleges that each of the defendants has willfully infringed the Company’s ‘114 Patent and ‘147 Patent and seeks a permanent injunction from further acts of infringement and monetary damages. Such litigation is currently pending and in its early stages.

On April 21, 2020, NRG Energy, Inc., Talen Energy Corporation and Vistra Energy Corp., three of the defendants in the above action, filed two petitions for Inter Partes Review (“IPR”) with the United States Patent and Trademark Office (“USPTO”), seeking to invalidate certain claims to the ‘114 Patent. On May 27, 2020, such defendants filed two additional petitions for IPR with the USPTO, seeking to invalidate certain claims to the ‘147 Patent. The Company ~~is involved in various~~believes that all of the foregoing claims ~~and legal proceedings arising from the normal course~~ of business. While the ultimate liability, if any, from these proceedings is presently indeterminable, in the opinion of management, these matters should not have a material adverse effect on the Company’s consolidated financial statements.invalidity are without merit.

Except for the foregoing disclosures, the Company is not presently aware of any other material pending legal proceedings to which the Company is a party or of which any of its property is the subject.

Litigation, including patent litigation, is inherently subject to uncertainties. As such, there can be no assurance that the Company will be successful in litigating and/or settling any of these claims.

Stock based compensation consists of the amortization of common stock, stock options and warrants issued for prepaid services. For the three months ended March 31, 2020 and 2019, stock based compensation amounted to $114,640 and $0, respectively. Such expense is classified in selling, general and administrative expenses.

As of January 1, 2020, and pursuant to an advisory agreement dated as of November 20, 2019 and effective as of January 1, 2020 for a term of one year with a nonaffiliated third party, the Company issued 1,000,000 shares of common stock of the Company to such third party as and for the entire compensation to be paid for all services to be rendered during the term. These shares of common stock were valued at $200,000 in accordance with FASB ASC Topic 718. The fair value of the shares is being amortized to selling, general and administrative expenses within the Company’s condensed consolidated statements of operations over one year.

The Company accounts for stock-based compensation awards in accordance with the provisions of ASC 718, which addresses the accounting for employee stock options which requires that the cost of all employee stock options, as well as other equity-based compensation arrangements, be reflected in the condensed consolidated financial statements over the vesting period based on the estimated fair value of the awards.

A summary of stock option activity for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 is presented below:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value		Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value

December 31, 2018		9,161,510			1.15		2.00		-
January 1, 2020											12,553,326	$	0.55		4.02	$	927
Grants		4,600,000			0.27		4.75		-		-		-		-
Expirations		(1,298,184	)		-		-		-		-		-		-
September 30, 2019		12,463,326			0.55		4.26		-
March 31, 2020											12,553,326	$	0.55		3.77	$	-

Options exercisable at:
September 30, 2019		12,463,326			0.55		4.26		-
March 31, 2020											12,553,326	$	0.55		3.77	$	-

The ~~Company utilized~~aggregate intrinsic value in the ~~Black-Scholes options pricing model. The significant assumptions utilized for~~table above represents the ~~Black Scholes calculations consist of an expected life of equal to the expiration term of the option, historical volatility of 100%, and a risk free interest rate of 3%.~~

On May 14, 2019, Frederick Van Zijl resigned as a director of the Company. In connection with such resignation, the Company has agreed to issue, and Mr. Van Zijl has agreed to accept, an aggregate of 235,184 shares of common stock of the Company in full and complete payment for service on the Board since his appointment in October 2018. Compensation of $63,500total intrinsic value, based on the ~~market~~Company’s closing stock price of $0.16 as of March 31, 2020, which would have been received by the ~~shares on the date~~option holders had all option holders exercised their options as of ~~issuance was included in selling, general and administrative expenses within the Company’s condensed consolidated statements of operations.~~that date.

On June 4, 2019, Allan T. Grantham resigned as a director of the Company. In connection with such resignation, the Company has agreed to issue, and Mr. Grantham has agreed to accept, an aggregate of 229,333 shares of common stock of the Company in full and complete payment for service on the Board for 2018 and 2019. Compensation of $55,040 based on the market price of the shares on the date of issuance was included in selling, general and administrative expenses within the Company’s condensed consolidated statements of operations.

On June 28, 2019, the Company granted nonqualified stock options to acquire an aggregate of 4,600,000 shares of the Company’s common stock under the Company’s 2017 Equity Plan to certain executive officers, employees and others. The options granted are exercisable at $0.27 per share, representing the fair market value of the common stock on the date of grant as determined under the 2017 Equity Plan. The options are fully vested and exercisable as of the date of grant and will expire five years thereafter. Based on a Black-Scholes valuation model, these options were valued at $898,207 in accordance with FASB ASC Topic 718 which was included in selling, general and administrative expenses within the Company’s condensed consolidated statements of operations.

Also on June 28, 2019, the Company extended the expiration dates of previously granted nonqualified stock options to acquire an aggregate of 4,675,000 shares of the Company’s common stock under the Company’s 2014 Equity Plan to certain executive officers, employees and others. The extended options are exercisable from $0.42 to $1.36 per share, representing the original fair market value of the common stock on the date of grant as determined under the 2014 Equity Plan. The options are fully vested and exercisable and will now expire five years from the date of the extension. Based on a Black-Scholes valuation model, these options were valued at $745,989 in accordance with FASB ASC Topic 718 which was included in selling, general and administrative expenses within the Company’s condensed consolidated statements of operations.

~~Unless sold~~Sold and issued warrants are subject to the provisions of FASB ASC 815-10, the Company utilized a Black-Scholes options pricing model to value the warrants sold and issued. This model requires the input of highly subjective assumptions such as the expected stock price volatility and the expected period until the warrants are exercised. When calculating the value of warrants issued, the Company uses a volatility factor of 100%, a ~~risk free~~risk-free interest rate and the life of the warrant for the exercise period.

The aggregate intrinsic value in the table above represents the total intrinsic value, based on the Company’s closing stock price of $0.16 as of March 31, 2020, which would have been received by the option holders had all option holders exercised their options as of that date.

The following table summarizes information about common stock warrants outstanding at ~~September 30, 2019:~~March 31, 2020:

Outstanding

Exercisable

Exercise Price

Number
Outstanding

Weighted
Average
Remaining
Contractual
Life (years)

Weighted
Average
Exercise
Price

Number
Exercisable

Weighted
Average
Exercise
Price

$
0.70

2,685,000

4.45

0.70

2,685,000

0.70

0.45

150,000

1.17

0.45

150,000

0.45

0.35

1,080,378 *

1.39

0.35

1,080,378

0.35

$
0.50 - $3.30

3,915,378

1.35

3,915,378

~~Note~~ * 205,000 warrants exercisable at $0.35 contain dilution protections that increase the number of shares purchasable at exercise upon the issuance of securities at a price below the current exercise price.

On ~~August 12, 2019,~~April 14, 2020, the Company ~~issued 37,210~~received loan proceeds in the amount of $299,300 from First International Bank & Trust pursuant to the Paycheck Protection Program (the “PPP Loan”) under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020. The loan, which is in the form of a Note dated April 14, 2020, matures on April 14, 2022 and bears interest at a rate of 1.0% per annum, with one interest payment on April 14, 2021 and one principal and interest payment on maturity. The principal and accrued interest under the PPP Loan is forgivable after eight or twenty-four weeks if the Company uses the PPP Loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and otherwise complies with the PPP requirements. In order to obtain forgiveness of the PPP Loan, the Company must submit a request and provide satisfactory documentation regarding its compliance with applicable requirements.

On June 15, 2020, the Company granted a nonqualified stock option to the Company’s controller to acquire 250,000 shares of the Company’s common stock ~~upon~~under the ~~cashless exercise of warrants to purchase 167,039 shares of common stock for $0.35~~Company’s 2017 Equity Plan. The option granted is exercisable at $0.19 per share, ~~based on a~~representing the fair market value of ~~$0.45 per share~~the common stock on the date of grant as determined under the ~~terms~~2017 Equity Plan. Fifty percent (50.0%) of the ~~warrant.~~option is exercisable immediately and the balance shall vest and become exercisable on April 1, 2021.

From June through September 2019, the Company issued unsecured convertible notes and five-year warrants to unaffiliated accredited investors totaling $1,875,000. The notes are convertible into shares of common stock, with the initial conversion ratio equal to $0.50 per share. The investors received warrants to purchase a total of 1,875,000 shares of common stock with an exercise price of $0.70 per share. These securities were sold in reliance upon the exemption provided by Section 4(a)(2) of the Securities Act and the safe harbor of Rule 506 under Regulation D promulgated under the Securities Act. Using a Black-Scholes Valuation model these warrants had a value of $333,984 which was recorded as a discount on the notes payable and will be amortized over the life of the associated notes payable.

On October 23, 2019, the Company issued an unsecured convertible note and five-year warrants to an unaffiliated accredited investor totaling $775,000. The note is convertible into shares of common stock, with the initial conversion ratio equal to $0.50 per share. The investor received warrants to purchase a total of 775,000 shares of common stock with an exercise price of $0.70 per share. These securities were sold in reliance upon the exemption provided by Section 4(a)(2) of the Securities Act and the safe harbor of Rule 506 under Regulation D promulgated under the Securities Act.

On October 23, 2019, and pursuant to an advisory agreement executed on that date for a term of one year with an unaffiliated third party, the Company granted such unaffiliated third party a vested three-year warrant to purchase 1,000,000 shares of common stock with an exercise price of $0.50 per share, exercisable on a cash basis only. Such warrants were issued as and for the entire compensation to paid to the advisor for all services to be rendered during the term.

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes that appear elsewhere within this report. Certain statements we make under this Item 2 constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. See “Forward-Looking Statements” in “Part I” preceding “Item 1 – Financial Information.” You should consider our forward-looking statements in light of the risks discussed under the heading “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, as well as our unaudited condensed consolidated financial statements, related notes and other financial information appearing elsewhere in this report and our other filings with the Securities and Exchange Commission.

Midwest Energy Emissions Corp. (the “Company”, “we”, “us” and “our”) is an environmental services and technology company specializing in mercury emission control technologies, primarily to utility and industrial coal-fired units. We deliver patented and proprietary solutions to the global coal-power industry to remove mercury from power plant emissions, providing performance guarantees, and leading-edge emissions services. We have developed patented technology and proprietary products that have been shown to achieve mercury removal at a significantly lower cost and with less operational impact than currently used methods, while maintaining and/or increasing unit output and preserving the marketability of fly-ash for beneficial use.

North America is currently the largest market for our technology. The U.S. 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 facility. 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, and in June 2015, the U.S. Supreme Court 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. The Court remanded the case back to the U.S. Court of Appeals for the District of Columbia Circuit for further proceedings, but left the rule in place. In December 2015, the D.C. Circuit remanded the rule back to the EPA for further consideration while allowing MATS to remain in effect pending the EPA’s finding; the Supreme Court later denied a petition challenging the lower court’s decision to remand without vacating. On April 14, 2016, EPA issued a final supplemental finding reaffirming the MATS rule on the ground that it is supported by the cost analysis the Supreme Court required. That supplemental finding is under review by the D.C. Circuit, and the Company is unable to predict with certainty the outcome of these proceedings. On April 18, 2017, EPA asked the court to place that litigation in abeyance, stating that the Agency is reviewing the supplemental finding to determine whether it should be reconsidered in whole or in part. The court granted EPA’s abeyance request on April 27, 2017, and ordered EPA to file 90-day status reports starting July 26, 2017. In February 2019, the EPA published ~~its~~a proposed revised supplemental cost-benefits finding for MATS in which ~~concludes~~EPA proposed to conclude that the 2016 supplemental finding was flawed in part due to its reliance on co-benefits to justify MATS. Nevertheless, the EPA ~~is proposing~~proposed to leave the MATS rule in place. At the same time, EPA also requested public comment ~~however,~~ on whether MATS may or must be rescinded if EPA ~~reverses~~reversed its earlier conclusion that it is “appropriate and necessary” to regulate power plant emissions of mercury and other hazardous air pollutants under the statutory provision authorizing MATS. ~~The~~Following the close of the public comment period, ~~ended~~on April ~~17, 2019. A draft~~16, 2020, the EPA issued a final rule which we understand to be similar to the proposal, was sent to the Office of Management and Budget for inter-agency review pursuant to Executive Order 12,866 on October 4, 2019. Because draft final rules can change as a result of the inter-agency review process, as of the date of the filing of this report, we are unable to predict whetherfinalized the proposed supplemental cost-benefits finding ~~will be finalized~~ in substantially the form proposed in 2019. The final rule withdraws EPA’s 2016 “appropriate-and-necessary” determination as ~~proposed, or finalized at all. Any such~~erroneous, but leaves the 2011 MATS rule in place pursuant to D.C. Circuit case law holding that a source category may only be removed from the list of categories to be regulated through a rigorous delisting process that cannot currently be satisfied by EPA. EPA’s final action will almost certainly be challenged in the courts, ~~which~~both by those who favor retention of MATS (such as the electric utility industry) and by those who oppose it (such as certain coal interests and deregulatory groups). This litigation could extend uncertainty over the status of MATS for a number of years. Investors should note that any changes to the MATS rule could have a negative impact on our business.

We remain focused on positioning the Company for short and long-term growth. During 2018, we focused 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:~~growth.

Our acquisition of all the patent rights, including all patents and patents pending, domestic and foreign, which forms the basis of our mercury control technology, which acquisition was completed in April 2017 provides a strong foundation for us to seek new customers for product using a two-part mercury control process or to offer licenses on a case by case basis. In the United States, 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. In this regard, in October 2018, we secured a supply contract extension with our largest customer and also expanded into this customer’s fleet by securing two additional coal-fired boilers to which we supply our technology and products. In March 2019, we secured two additional coal-fired boilers within this customer’s fleet. In addition, in March 2019, we secured a contract renewal with another long-term customer and entered into an agreement with a new utility customer to supply our technology and products. In May 2019, we announced that we had signed a multi-year contract renewal with a long-term customer located in the U.S. Southwest, and in July 2019 we announced a two-year contract extension with another long-term customer. In Europe, we are working to penetrate this market through our licensing agreement entered into in March 2018 with one of our primary suppliers. We believe such arrangement will make our technology more marketable throughout Europe and which will benefit the Company from such supplier’s knowledge and operations in the region. On February 25, 2019, we were able to complete the restructuring of our unsecured and secured debt obligations held by AC Midwest Energy LLC extending the maturity dates of these debts until 2022 and eliminating quarterly principal payment requirements. This restructuring reflects the commitment of our financial partner in our efforts to attract new business, manage our present customers and monetize our patent portfolio. From June through October 2019, we raised $2,600,000 in a private placement offering of 12.0% unsecured convertible promissory notes and warrants sold and issued to certain accredited investors. In July 2019, we announced that we had initiated patent litigation against defendants in the U.S. District Court for the District of Delaware for infringement of certain patents which relate to our two-part Sorbent Enhancement Additive (SEA^®) process for mercury removal from coal-fired power plants.	·	Our acquisition of all the patent rights, including all patents and patents pending, domestic and foreign, which forms the basis of our mercury control technology, which acquisition was completed in April 2017 provides a strong foundation for us to seek new customers for product using a two-part mercury control process or to offer licenses on a case by case basis.

	·	In the United States, 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. In this regard, in October 2018, we secured a supply contract extension with our largest customer and also expanded into this customer’s fleet by securing two additional coal-fired boilers to which we supply our technology and products. In March 2019, we secured two additional coal-fired boilers within this customer’s fleet. In addition, in March 2019, we secured a contract renewal with another long-term customer and entered into an agreement with a new utility customer to supply our technology and products. In May 2019, we announced that we had signed a multi-year contract renewal with a long-term customer located in the U.S. Southwest, and in July 2019 we announced a two-year contract extension with another long-term customer.

	·	In Europe, we are working to penetrate this market through our licensing agreement entered into in March 2018 with one of our primary suppliers. We believe such arrangement will make our technology more marketable throughout Europe and which will benefit the Company from such supplier’s knowledge and operations in the region.

	·	On February 25, 2019, we were able to complete the restructuring of our unsecured and secured debt obligations held by AC Midwest Energy LLC extending the maturity dates of these debts until 2022 and eliminating quarterly principal payment requirements. This restructuring reflects the commitment of our financial partner in our efforts to attract new business, manage our present customers and monetize our patent portfolio.

	·	~~From June through October 2019, we raised $2,600,000 in a private placement offering of 12.0% unsecured convertible promissory notes and warrants sold and issued to certain accredited investors.~~

	·	In July 2019, we announced that we had initiated patent litigation against defendants in the U.S. District Court for the District of Delaware for infringement of certain patents which relate to our two-part Sorbent Enhancement Additive (SEA®) process for mercury removal from coal-fired power plants.

	·	In October 2019, we entered into a license and development agreement with an unaffiliated entity located in Alabama pursuant to which the parties will work together to develop a plan to commercialize and market certain technology owned by such unaffiliated entity related to the removal of mercury from air and water emissions generated by coal burning power plants.

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

It should be noted that our operations may be affected by the recent and ongoing outbreak of the coronavirus disease (COVID-19) which was declared a pandemic by the World Health Organization in March 2020. The ultimate disruption which may be caused by the outbreak is uncertain; however, it may result in a material adverse impact on our financial position, operations and cash flow. Such disruptions may include, but are not limited to, the availability of raw materials and equipment, and disruptions to our workforce or to our business relationships with other third parties.

~~Sales~~ - We generated revenues of approximately ~~$3,596,000~~$1,117,000 and ~~$4,209,000~~$2,787,000 for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively and $8,893,000 and $8,782,000 for the nine months ended September 30, 2019 and 2018,~~ respectively. ~~Total~~Such revenues were primarily derived from sorbent product sales which were approximately $1,069,000 and $2,758,000 for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018 were $3,486,000 and $4,114,000, respectively and $8,563,000 and $8,615,000 for the nine months ended September 30, 2019 and 2018.~~respectively. The ~~increase~~decrease from the prior year period is primarily due to decreased generation in the ~~increase in customer EGU’s.~~coal fired power sector principally due to renewables and low natural gas prices.

Equipment sales and other revenues for the three months ended ~~September 30,~~March 31, 2020 and 2019 were approximately $47,000 and ~~2018 were $110,000 and $95,000 respectively and $330,000 and $166,000 for~~$29,000, respectively. This increase was primarily due to increased demonstration revenues in the ~~nine months ended September 30, 2019 and 2018.~~first quarter of 2020 compared to the same period last year.

~~Costs~~Total costs and expenses were ~~$4,447,000~~approximately $2,891,000 and ~~$4,845,000~~$3,846,000 during the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively and $10,219,000 and $13,030,000 for the nine months ended September 30, 2019 and 2018.~~respectively. The decrease in costs and expenses from the prior year ~~to date~~ is primarily attributable to ~~a gain on debt restructuring recognized in~~ the 1^st ~~quarter. The~~ decrease in ~~costs~~cost of sales principally due to the decrease in sales. This was partially offset by increases in selling, general and administrative expenses and interest expense, and an increase in loss on change in fair value of profit share.

Cost of sales were approximately $931,000 and $2,166,000 for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~as compared to September 30, 2018 is primarily due to a decrease in cost of sales.~~

~~Costs of sales were~~ $2,478,000 and $3,010,000 for the three months ended September 30, 2019 and 2018, respectively and $6,439,000 and $6,601,000 for the nine months ended September 30, 2019 and 2018. The three months ended and therespectively. This year to date decrease in cost of sales is primarily attributable to ~~a decrease in salaries and wages and cost of goods sold.~~decreased sales.

Selling, general and administrative expenses were ~~$1,186,000~~approximately $1,172,000 and ~~$1,364,000~~$1,140,000 for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively and $5,116,000 and $4,855,000 for the nine months ended September 30, 2019 and 2018.~~respectively. The increase in ~~the year to date~~ selling, general and administrative expenses is primarily attributed to an increase ~~in stock based~~of stock-based compensation ~~to $1,763,000~~and accounting related fees compared to ~~$438,000 in~~ the ~~year to date~~comparable period of ~~2018.~~2019. This ~~increase~~ was offset by ~~decreases~~a decrease in salaries, ~~sales commissions~~legal, and ~~benefits~~investor relation related fees.

Loss on change in ~~2019 compared~~fair value of profit share liability (relating to ~~2018. The decrease in selling, general~~the restructured unsecured debt obligation held by AC Midwest Energy LLC) were approximately $124,000 and ~~administrative expenses~~$38,000 for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~as compared to September 30, 2018~~respectively. The increase is primarily ~~due~~attributed to ~~decreases~~an increase in ~~salaries, sales commissions and benefits.~~the fair value of the profit share liability.

Interest expenserelated to the financing of capital was ~~$783,000~~approximately $664,000 and ~~$471,000~~$502,000 for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively and $2,076,000 and $1,501,000 for~~respectively. The increase in the ~~nine~~three months ended ~~September 30,~~2020 is due to the incentives provided with the notes issued in 2019, ~~and 2018.~~offset by the reduced interest on the notes payable. The breakdown of interest expense for the three ~~and nine~~ months ended ~~September~~March 2020 and 2019 ~~and 2018~~ is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2019		2018		2019		2018		2020		2019
	(In thousands)				(In thousands)				(In thousands)

Interest expense on notes payable	$	107	$	300	$	390	$	870	$	143	$	218
Amortization of discount of notes payable		647		153		1,586		537		491		277
Amortization of debt issuance costs		29		18		100		94		30		7

	$	783	$	471	$	2,076	$	1,501	$	664	$	502

For the three months ~~ended September 30,~~March 31, 2020 and 2019, ~~and 2018~~ we had a net loss of approximately ~~$851,000~~$1,774,000 and ~~$636,000. For the nine months ended September 30, 2019 and 2018 we had a net loss of approximately $1,326,000 and $4,248,000.~~$1,059,000. The change ~~in net loss for the nine months ended September 30, 2019 is primarily due to the gain on debt restructuring recognized during the 1~~^st~~quarter of 2019. The increase~~ in net loss for the three months ended ~~September 30, 2019 as~~March 31, 2020 compared to ~~September 30, 2018~~the prior year period is primarily due to the decrease in sales partially offset by the decrease in total costs and ~~also an increase~~expenses principally due to the decrease in ~~interest expense.~~cost of sales.

~~The Company~~We had ~~$999,000~~approximately $461,000 in cash on ~~its~~our balance sheet at ~~September 30,~~March 31, 2020 compared to approximately $1,499,000 at December 31, 2019. ~~The Company had~~Total current assets were approximately $1,818,000 and total current liabilities were approximately $1,953,000 at March 31, 2020, resulting in a working capital deficit of ~~$381,000~~approximately $135,000. This compares to total current assets of approximately $3,552,000 and antotal current liabilities of approximately $3,854,000 at December 31, 2019, resulting in a working capital deficit of approximately $302,000. Our accumulated deficit ~~$52.9 million.~~was approximately $59.4 million at March 31, 2020 compared to $57.7 million at December 31, 2019. Additionally, ~~the Company~~we had a net loss in the amount of ~~$1,326,000~~approximately $1,774,000 and cash used byin operating activities of ~~$1,305,000~~approximately $1,211,000 for the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020.

During 2018, ~~the Company~~we restructured convertible notes totaling $560,000 into new loans that mature in 2023. In February 2019, ~~the Company~~we completed the restructuring of ~~its~~our unsecured and secured debt obligations held ~~its largest promissory noteholder,~~by a principal shareholder, extending the maturity dates of these debts and the remaining convertible notes until 2022 and eliminating quarterly principal payment requirements. From June through ~~September~~October 2019, ~~the Company~~we sold ~~$1,825,000~~$2,600,000 new convertible notes which mature in 2024 to investors. ~~An additional $775,000~~Nevertheless, the accompanying condensed consolidated financial statements as of ~~such new convertible notes were sold~~March 31, 2020 have been prepared assuming we will continue as a going concern. As reflected in ~~October 2019. Based on~~ the ~~extended maturities~~condensed consolidated financial statements included with this report, we had an accumulated deficit of approximately $59.4 million and a negative working capital of approximately $135,000 at March 31, 2020. Additionally, we had a net loss in the ~~Company negotiated with its note holders, historical sales~~amount of approximately $1.8 million and ~~gross margin trends with its current customers under contract and~~cash used in operating activities of $1.2 million for the ~~incremental sales and gross margin from the newly announced customer contracts, management believes~~three months ended March 31, 2020. These factors raise substantial doubt ~~regarding the Company’s~~about our ability to continue as a going concern ~~has been mitigated. The Company believes it will have sufficient working capital to fund operations~~ for ~~at least~~ the next twelve months from the issuance of this Quarterly Report on Form 10-Q. Although we anticipate continued significant revenues for products to be used in MATS compliance activities, no assurances can be given that we can obtain sufficient working capital through these activities and additional financing may be needed to meet its obligations. In February 2020, we closed on a one-year secured loan with a bank in the principal amount of $200,000, and in April 2020, we received loan proceeds in the amount of $299,300 (the “PPP Loan”) pursuant to the Paycheck Protection Program under the CARES Act which was enacted on March 27, 2020 as a result of the COVID-19 pandemic. The principal and accrued interest under the PPP Loan is forgivable if we use the PPP Loan proceeds for eligible purposes during an 8 or 24 week period from the date of ~~issuance~~the loan, including payroll, benefits, rent and utilities, and we otherwise comply with the PPP requirements. In order to obtain forgiveness of the PPP Loan, we must submit a request and provide satisfactory documentation regarding our compliance with applicable requirements. Notwithstanding the foregoing loans, we may need to raise additional equity or debt financing. While we believe in our ability to raise additional funds, no assurances can be given that we can maintain sufficient working capital through these ~~financial statements.~~efforts, or that the continued implementation of our business plan will generate sufficient revenues in the future to sustain ongoing operations.

Total assets were ~~$9,250,000~~approximately $7,328,000 at ~~September 30, 2019~~March 31, 2020 versus ~~$8,039,000~~approximately $9,273,000 at December 31, ~~2018.~~2019. The change in total assets is primarily attributable to ~~the increase~~decreases in ~~right of use assets.~~cash and accounts receivable.

Total liabilities were ~~$17,178,000~~approximately $17,776,000 at ~~September 30, 2019~~March 31, 2020 versus ~~$16,660,000~~approximately $18,147,000 at December 31, ~~2018.~~2019. The ~~increase~~decrease in liabilities is primarily due to ~~an increase in convertible notes payable and operating lease liabilities offset by~~ a decrease in accounts payable and accrued expenses partially offset by increases in secured note payable, profit share liability and unsecured convertible notes payable, net of discount and issuance costs.

~~Operating activities~~ ~~used $1,305,000 and $1,118,000 of cash during the nine months ended September 30, 2019 and 2018, respectively. The increase in~~Net cash used in operating activities was approximately $1,211,000 for the three months ended March 31, 2020 compared to net cash provided from operating activities of approximately $68,000 for the three months ended March 31, 2019. This change is primarily attributable to a decrease in ~~net loss~~accounts payable and isaccrued liabilities, offset by ~~the non-cash gain on debt restructuring offset by an increase~~a decrease in ~~stock based compensation~~accounts receivable and decrease in ~~2019.~~inventory.

~~Investing~~There was no cash from or used by investing activities ~~used $0 and $131,000 during~~ for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018, respectively. The~~2019.

Net cash provided by financing activities was approximately $173,000 for the three months ended March 31, 2020 compared to net cash used in financing activities of approximately $42,000 for the three months ended March 31, 2019. During the three months ended March 31, 2020, the Company ~~has not made any property and equipment purchases during 2019.~~received $200,000 from the issuance of notes payable.

~~Financing activities~~ provided $1,719,000 during the nine months ended September 30, 2019 and used $720,000 during the nine months ended September 30, 2019 and 2018, respectively. In 2019, the Company raised $1,825,000 in unsecured convertible debt.

We do not have any ~~off balance~~off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.

~~Our discussion and analysis of~~For detailed information regarding our financial conditions and results of operation are based upon the accompanying consolidated financial statements which have been prepared in accordance with the generally accepted accounting principles in the U.S. The preparation of the consolidated financial statements requires that we make estimates and assumptions that affect the amounts reported in assets, liabilities, revenues and expenses. Management evaluates on an on-going basis our estimates with respect to the valuation allowances for accounts receivable, income taxes, accrued expenses and equity instrument valuation, for example. We base these estimates on various assumptions and experience that we believe to be reasonable. The following critical accounting policies ~~are those that are important to the presentation of~~and estimates, see our financial ~~condition~~statements and ~~results of operations. These policies require management’s most difficult, complex, or subjective judgments, often as a result of~~notes thereto included in this Report and in our Annual Report on Form 10-K for the ~~need~~year ended December 31, 2019. There have been no material changes to ~~make estimates of matters that are inherently uncertain.~~

~~The following~~our critical accounting policies ~~affect our more significant~~and estimates ~~used~~from those disclosed in ~~the preparation of our consolidated financial statements. In particular,~~ our most ~~critical accounting policies relate to the recognition of revenue, and the valuation of our stock-based compensation.~~recent Annual Report on Form 10-K.

Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. Past due balances over 90 days and other higher risk amounts are reviewed individually for collectability. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.

The Company records revenue in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). The Company’s revenues are primarily comprised of sales of products. Revenue is recognized when the Company satisfies its performance obligation under the contract by transferring the promised product to its customer that obtains control of the product. A performance obligation is a promise in a contract to transfer a distinct product to a customer. Most of the Company’s contracts have a single performance obligation, as the promise to transfer products or services is not separately identifiable from other promises in the contract and, therefore, not distinct.

The Company generated revenue for the years ended December 31, 2018 and 2017 by (i) delivering product to its commercial customers, (ii) completing and commissioning equipment projects at commercial customer sites and (iii) performing demonstrations of its technology at customers with the intent of entering into long term supply agreements based on the performance of the Company’s products during the demonstrations.

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

Share-based payments be reflected as an expense based upon the grant-date fair value of those grants over their vesting period. Accordingly, the fair value of each option grant, non-vested stock award and shares issued under our employee stock purchase plan, were estimated on the date of grant. We estimate the fair value of these grants using the Black-Scholes model which requires us to make certain estimates in the assumptions used in this model, including the expected term the award will be held, the volatility of the underlying common stock, the discount rate, dividends and the forfeiture rate. The expected term represents the period of time that grants and awards are expected to be outstanding. Expected volatilities were based on historical volatility of our stock. The risk-free interest rate approximates the U.S. treasury rate corresponding to the expected term of the option. Dividends were assumed to be zero. Forfeiture estimates are based on historical data. These inputs are based on our assumptions, which we believe to be reasonable but that include complex and subjective variables. Other reasonable assumptions could result in different fair values for our stock-based awards. Stock-based compensation expense, as determined using the Black-Scholes option-pricing model, is recognized on a straight-line basis over the service period, net of estimated forfeitures. To the extent that actual results or revised estimates differ from the estimates used, those amounts will be recorded as an adjustment in the period that estimates are revised.

To supplement our consolidated financial statements presented in accordance with GAAP and to provide investors with additional information regarding our financial results, we consider and are including herein Adjusted EBITDA, a Non-GAAP financial measure. We view Adjusted EBITDA as an operating performance measure and, as such, we believe that the GAAP financial measure most directly comparable to it is net income (loss). We define Adjusted EBITDA as net income adjusted for interest and financing fees, income taxes, depreciation, amortization, stock based compensation, and other non-cash income and expenses. We believe that Adjusted EBITDA provides us an important measure of operating performance because it allows management, investors, debtholders and others to evaluate and compare ongoing operating results from period to period by removing the impact of our asset base, any asset disposals or impairments, stock based compensation and other non-cash income and expense items associated with our reliance on issuing equity-linked debt securities to fund our working capital.

Our use of Adjusted EBITDA has limitations as an analytical tool, and this measure should not be considered in isolation or as a substitute for an analysis of our results as reported under GAAP, as the excluded items may have significant effects on our operating results and financial condition. Additionally, our measure of Adjusted EBITDA may differ from other companies’ measure of Adjusted EBITDA. When evaluating our performance, Adjusted EBITDA should be considered with other financial performance measures, including various cash flow metrics, net income and other GAAP results. 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.

~~We prepare and publicly release quarterly unaudited financial statements prepared in accordance with GAAP.~~ The following table shows our reconciliation of Net ~~Loss~~Income to Adjusted EBITDA for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively:

Quarter Ended
September 30,

Nine Months Ended
September 30,

2019

2018

2019

2018

(In thousands)

(In thousands)

Net loss

$ (851 )

$ (636 )

$ (1,326 )

$ (4,248 )

Non-GAAP adjustments:

Depreciation and amortization

230

205

717

602

Interest and letter of credit fees

783

471

2,076

1,530

Income taxes

-

4

-

12

Stock based compensation

-

53

1,763

438

(Gain)/Loss on debt exchange

-

-

(3,412 )

44

Adjusted EBITDA

$ 162

$ 97

$ (182 )

$ (1,622 )

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer (who is the same person), we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive officer and principal financial officer concluded, as of the end of the period covered by this report, that the Company’s disclosure controls and procedures were not effective as a result of material weaknesses in our internal control over financial reporting. The ineffectiveness of our disclosure controls and procedures was due to the following material weaknesses in our internal control over financial reporting, which are common to many small companies: (i) lack of a sufficient complement of personnel commensurate with the Company’s reporting requirements; and (ii) insufficient written documentation or training of our internal control policies and procedures which provide staff with guidance or framework for accounting and disclosing financial transactions.

Despite the existence of the material weaknesses above, we believe that the consolidated financial statements contained in this Form 10-Q fairly present our financial position, results of operations and cash flows as of and for the periods presented in all material respects.

~~There~~Except as discussed below, there have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15 (f) under the Exchange Act) during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting except the updated business processes and internal controls made in support of the adoption of the new lease accounting standard.

Certain actions have been taken to address certain aspects of the material weaknesses disclosed above. As of January 1, 2020, we replaced our previous accounting software with a more efficient software package to manage our business activities and accounting needs. Although we no longer have a full-time CFO, during the fourth quarter of 2019 we hired a new full-time Controller at our Corsicana, Texas location, closed our Lewis Center, Ohio office and moved our corporate headquarters to our Corsicana, Texas address which has allowed us to consolidate our manufacturing and distribution activities, bookkeeping and accounting at one location. Also, in the fourth quarter of 2019, we hired a financial consulting firm to assist us in bookkeeping and preparing financial statements for our SEC filings, assist us in evaluating our internal controls over financial reporting and assist us in other related matters. We continue to actively plan for and implement additional control procedures to improve our overall control environment and expect these efforts to continue throughout ~~2019~~2020 and beyond. Due to the nature of the remediation process, the need to have sufficient resources (cash or otherwise) to devote to such efforts, and the need to allow adequate time after implementation to evaluate and test the effectiveness of the controls, no assurance can be given as to the timing of achievement of remediation.

Reference is hereby made to the ~~Quarterly~~Annual Report on Form ~~10-Q~~10-K for the ~~period~~year ended ~~June 30,~~December 31, 2019 for information on patent litigation initiated by us on July 17, 2019 against certain defendants in the U.S. District Court for the District of Delaware for infringement of United States Patent Nos. 10,343,114 (the “‘114 Patent”) and 8,168,147 (the “‘147 Patent”) owned by the Company. In the lawsuit, the Company alleges that each of the defendants has willfully infringed the Company’s ‘114 Patent and ‘147 Patent and seeks a permanent injunction from further acts of infringement and monetary damages. Such litigation is currently pending and in its early stages.

Other than the foregoing, there are no material pending legal proceedings to which we are a party or to which any of our property is subject, nor are there any such proceedings known to be contemplated by governmental authorities.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

~~On August 12,~~As of January 1, 2020, and pursuant to an advisory agreement dated as of November 20, 2019 and effective as of January 1, 2020 for a term of one year with a nonaffiliated third party, we issued ~~37,210~~1,000,000 shares of common stock ~~upon~~to such third party as and for the ~~cashless exercise of warrants~~entire compensation to ~~purchase 167,039 shares of common stock~~be paid for ~~$0.35 per share based on a market value of $0.45 per share as determined under~~all services to be rendered during the ~~terms of the warrant.~~

term. The foregoing securities were issued in reliance upon the exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as ~~amended, and /or Rule 506 thereunder, and where applicable, under Section 3(a)(9) under the Securities Act of 1933, as~~ amended.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MIDWEST ENERGY EMISSIONS CORP.

Dated: ~~November 14, 2019~~July 6, 2020	By:	/s/ Richard MacPherson
		Richard MacPherson
		President and Chief Executive Officer
		~~President and Chief~~(Principal Executive Officer and Principal Financial and Accounting Officer)

			Page
PART I ‑ FINANCIAL INFORMATION
~~PART I ‑ FINANCIAL INFORMATION~~

Item 1.	Condensed Consolidated Financial Statements.	5	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	24	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		29

Item 4.	Controls and Procedures.		29

PART II - OTHER INFORMATION

	Item 1.	Legal Proceedings.		30

Item 1A.	Risk Factors		30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		30

Item 3.	Default upon Senior Securities.		30

Item 4.	Mine Safety Disclosures.		30

Item 5.	Other Information.		30

Item 6.	Exhibits.		31

SIGNATURES			32

	~~Page~~	Page

Condensed Consolidated Unaudited Balance Sheets	6	5

Condensed Consolidated Unaudited Statements of Operations	7	6

Condensed Consolidated Unaudited Statements of Stockholders’ Deficit	8	7

Condensed Consolidated Unaudited Statements of Cash Flows	9	8

Notes to Condensed Consolidated Unaudited Financial Statements	10	9

MIDWEST ENERGY EMISSIONS CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2020 AND DECEMBER 31, 2019
(UNAUDITED)

	March 31, 2020			December 31, 2019
	(Unaudited)
ASSETS
Current assets
Cash	$	461,300		$	1,499,287
Accounts receivable		499,560			1,222,874
Inventory		464,812			513,498
Prepaid expenses and other assets		392,795			316,199
Total current assets		1,818,467			3,551,858

Property and equipment, net		2,015,754			2,082,343
Right of use asset		1,011,865			1,106,575
Intellectual property		2,482,162			2,532,462
Total assets	$	7,328,248		$	9,273,238

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities
Accounts payable and accrued expenses (related party of $56,250 and $43,750)	$	655,726		$	1,676,757
Current portion of equipment notes payable		43,016			53,304
Current portion of operating lease liability		393,147			383,307
Note payable		183,982			-
Current portion of convertible notes payable, net of discount and issuance costs		-			990,000
Accrued interest		128,550			226,065
Customer credits		167,000			167,000
Accrued salaries		381,934			357,095
Total current liabilities		1,953,355			3,853,528

Equipment notes payable, less current portion		21,460			22,386
Operating lease liability		702,347			807,409
Convertible notes payable, net of discount and issuance costs		3,969,642			2,951,137
Profit share liability – related party		2,452,495			2,328,845
Secured note payable – related party		271,686			271,686
Unsecured note payable, net of discount and issuance costs – related party		8,404,785			7,911,898
Total liabilities		17,775,770			18,146,889

COMMITMENTS AND CONTINGENCIES (Note 11)

Stockholders' deficit
Preferred stock, $0.001 par value: 2,000,000 shares authorized		-			-
Common stock; $0.001 par value; 150,000,000 shares authorized; 77,747,750 and 76,747,750 shares issued and outstanding as of March 31, 2020 and December 31, 2019 respectively		77,748			76,748
Additional paid-in capital		48,907,085			48,708,085
Accumulated deficit		(59,432,355	)		(57,658,484	)

Total stockholders' deficit		(10,447,522	)		(8,873,651	)

Total liabilities and stockholders' deficit	$	7,328,248		$	9,273,238

MIDWEST ENERGY EMISSIONS CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
(UNAUDITED)

	September 30, 2019			December 31, 2018
	(Unaudited)
ASSETS
Current assets
Cash	$	998,896		$	584,877
Accounts receivable		1,431,066			1,642,126
Inventory		629,427			509,416
Prepaid expenses and other assets		256,413			136,628
Customer acquisition costs, net		-			34,467
Total current assets		3,315,802			2,907,514

Property and equipment, net		2,149,737			2,397,691
Right of use asset		1,201,285			-
Intellectual property, net		2,582,762			2,733,662
Total assets	$	9,249,586		$	8,038,867

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities
Accounts payable and accrued expenses	$	1,826,908		$	1,858,326
Current portion of equipment notes payable		53,304			63,424
Current portion of operating lease liability		383,307			-
Accrued interest		94,957			96,902
Customer credits		167,000			167,000
Deferred compensation		409,623			555,877
Total current liabilities		2,935,099			2,741,529

Equipment notes payable, less current portion		54,675			104,226
Operating lease liability		901,450			-
Convertible notes payable, net of discount and issuance costs		3,261,901			1,760,570
Secured note payable		271,686			271,686
Unsecured note payable, net of discount and issuance costs		9,752,882			11,781,952
Total liabilities		17,177,693			16,659,963

COMMITMENTS AND CONTINGENCIES (Note 11)

Stockholders' deficit
Preferred stock, $.001 par value: 2,000,000 shares authorized		-			-
Common stock; $.001 par value; 150,000,000 shares authorized; 76,747,750 shares issued and outstanding as of September 30, 2019 76,246,113 shares issued and outstanding as of December 31, 2018		76,747			76,246
Additional paid-in capital		44,882,209			42,785,990
Accumulated deficit		(52,887,063	)		(51,483,332	)

Total stockholders' deficit		(7,928,107	)		(8,621,096	)

Total liabilities and stockholders' deficit	$	9,249,586		$	8,038,867

	For the Three Months Ended March 31, 2020			For the Three Months Ended March 31, 2019

Revenues	$	1,116,676		$	2,787,321

Costs and expenses:
Cost of sales		930,534			2,166,340
Selling, general and administrative expenses (related party of $62,500 and $75,000)		1,171,975			1,140,195
Interest expense & letter of credit fees (related party of $502,825 and $438,645)		664,388			502,008
Loss on change in fair value of profit share		123,650			37,557
Total costs and expenses		2,890,547			3,846,100

Loss before provision for income taxes		(1,773,871	)		(1,058,779	)

Provision for income taxes		-			-

Net loss	$	(1,773,871	)	$	(1,058,779	)

Net loss per common share-basic and diluted:	$	(0.02	)	$	(0.01	)

Weighted average common shares outstanding - basic and diluted		77,736,639			76,246,113

Three Months Ended March 31, 2020
					Additional
	Common Stock				Paid-in		Accumulated
	Shares		Par Value		Capital		(Deficit)			Total

Balance - January 1, 2020		76,747,750	$	76,748	$	48,708,085	$	(57,658,484	)	$	(8,873,651	)

Stock issued for prepaid services		1,000,000		1,000		199,000		-			200,000

Net loss		-		-		-		(1,773,871	)		(1,773,871	)

Balance - March 31, 2020		77,747,750	$	77,748	$	48,907,085	$	(59,432,355	)	$	(10,447,522	)

Three Months Ended March 31, 2019
					Additional
	Common Stock				Paid-in		Accumulated
	Shares		Par Value		Capital		(Deficit)			Total

Balance - January 1, 2019		76,246,113	$	76,246	$	42,785,990	$	(51,483,332	)	$	(8,621,096	)

Cumulative effect of change in accounting principle related to accounting for leases		-		-		-		(77,866	)		(77,866	)

Capital contribution related to debt restructuring		-		-		3,412,204		-			3,412,204

Net loss		-		-		-		(1,058,779	)		(1,058,779	)

Balance - March 31, 2019		76,246,113	$	76,246	$	46,198,194	$	(52,619,977	)	$	(6,345,537	)

	Nine Months Ended September 30, 2019
	Common Stock				Additional			Accumulated
	Shares		Par Value		Paid-in Capital			(Deficit)			Total

Balance - January 1, 2019		76,246,113	$	76,246	$	42,785,990		$	(51,483,332	)	$	(8,621,096	)

Cumulative effect of change in accounting principle related to accounting for leases		-		-		-			(77,866	)		(77,866	)

Net income		-		-		-			2,363,797			2,363,797

Balance - March 31, 2019		76,246,113	$	76,246	$	42,785,990		$	(49,197,401	)	$	(6,335,165	)

Stock issued per resignation agreements		464,517		464		118,076			-			118,540

Issuance of stock options		-		-		898,207			-			898,207

Extension of certain stock option expiration dates		-		-		745,989			-			745,989

Issuance of warrants, recorded as discount on convertible notes payable				-		197,664			-			197,664

Net loss		-		-		-			(2,839,121	)		(2,839,121	)

Balance - June 30, 2019		76,710,630	$	76,710	$	44,745,926		$	(52,036,522	)	$	(7,213,886	)

Stock issued upon cashless warrant exercise		37,120		37		(37	)		-			-

Issuance of warrants, recorded as discount on convertible notes payable				-		136,320			-			136,320

Net loss		-		-		-			(850,541	)		(850,541	)

Balance - September 30, 2019		76,747,750	$	76,747	$	44,882,209		$	(52,887,063	)	$	(7,928,107	)

	Nine Months Ended September 30, 2018
	Common Stock				Additional		Accumulated
	Shares		Par Value		Paid-in Capital		(Deficit)			Total

Balance - Janaury 1, 2018		76,246,113	$	76,246	$	42,165,620	$	(46,666,652	)	$	(4,424,786	)

Issuance of stock options		-		-		231,165		-			231,165

Vesting of stock issued to non-employees in prior year		-		-		69,375		-			69,375

Net loss		-		-		-		(1,911,071	)		(1,911,071	)

Balance - March 31, 2018		76,246,113	$	76,246	$	42,466,160	$	(48,577,723	)	$	(6,035,317	)

Issuance of stock options		-		-		14,705		-			14,705

Issuance of warrants, recorded as discount on convertible notes payable		-		-		89,500		-			89,500

Vesting of stock issued to non-employees in prior year		-		-		69,375		-			69,375

Net loss		-		-		-		(1,700,942	)		(1,700,942	)

Balance - June 30, 2018		76,246,113	$	76,246	$	42,639,740	$	(50,278,665	)	$	(7,562,679	)

Issuance of stock options		-		-		53,346		-			53,346

Issuance of warrants, recorded as discount on convertible notes payable		-		-		28,900		-			28,900

Net loss		-		-		-		(635,964	)		(635,964	)

Balance - September 30, 2018		76,246,113	$	76,246	$	42,721,987	$	(50,914,629	)	$	(8,116,396	)

MIDWEST ENERGY EMISSIONS CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
(UNAUDITED)

	For the Three Months Ended March 31, 2020			For the Three Months Ended March 31, 2019

Cash flows from operating activities
Net loss	$	(1,773,871	)	$	(1,058,779	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Stock-based compensation – amortization of prepaid services		114,640			-
Amortization of discount of notes payable		490,988			276,512
Amortization of debt issuance costs		30,406			7,174
Amortization of right to use assets		94,710			94,353
Amortization of customer acquisition costs		-			34,467
Amortization of patent rights		50,300			50,301
Depreciation expense		66,589			82,597
Loss on change in fair value of profit share		123,650			37,557
Changes in operating assets and liabilities:
Decrease in accounts receivable		723,314			673,961
(Increase) Decrease in inventory		48,686			(16,961	)
Decrease in prepaid expenses and other assets		8,764			20,129
(Decrease) in accounts payable and accrued liabilities		(1,093,709	)		(40,690	)
(Decrease) in operating lease liability		(95,222	)		(92,376	)
Net cash provided by (used in) operating activities		(1,210,755	)		68,245

Cash flows from financing activities:
Payment of debt issuance costs		-			(26,683	)
Payments of notes payable		(16,018	)		(14,892	)
Payments of equipment notes payable		(11,214	)		-
Proceeds from the issuance of notes payable		200,000			-
Net cash provided by (used in) financing activities		172,768			(41,575	)

Net increase (decrease) in cash		(1,037,987	)		26,670

Cash - beginning of period		1,499,287			584,877

Cash - end of period	$	461,300		$	611,547

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	228,458		$	108,928

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Cumulative effect on accumulated deficit of lease accounting change	$	-		$	77,866
Stock issued for prepaid services	$	200,000		$	-
Capital contribution related to debt restructuring	$	-		$	3,412,204

	For the Nine Months Ended September 30, 2019			For the Nine Months Ended September 30, 2018
Cash flows from operating activities
Net loss	$	(1,325,865	)	$	(4,247,976	)

Adjustments to reconcile net loss to net cash used in operating activities:
Stock based compensation		1,762,736			437,966
Amortization of discount of notes payable		1,585,686			523,871
Amortization of debt issuance costs		99,515			94,294
Amortizaton of right to use assets		283,551			-
Amortization of customer acquisition costs		34,467			103,400
Amortization of patent rights		150,900			150,900
Depreciation expense		247,954			346,562
Loss os debt exchange		-			44,036
Gain on debt restructuring		(3,412,204	)		-
Change in assets and liabilities
Decrease in accounts receivable		211,060			1,154,486
(Increase) decrease in inventory		(120,011	)		191,251
(Increase) in prepaid expenses and other assets		(119,785	)		(207,707	)
(Decrease) Increase in accounts payable and accrued liabilities		(424,686	)		807,868
(Decrease) in operating lease liability		(277,944	)		-
(Decrease) in deferred revenue and customer credits		-			(517,060	)
Net cash used in operating activities		(1,304,626	)		(1,118,109	)

Cash flows used in investing activities
Purchase of property and equipment		-			(130,665	)
Net cash used in investing activities		-			(130,665	)

Cash flows from financing activities
Payment of debt issuance costs		(46,683	)		-
Payments of notes payable		(59,672	)		(920,107	)
Proceeds from the issuance of convertible promissory notes and related warrants		1,825,000			200,000
Net cash provided by (used in) financing activities		1,718,645			(720,107	)

Net increase (decrease) in cash and cash equivalents		414,019			(1,968,881	)

Cash and cash equivalents - beginning of period		584,877			2,418,427

Cash and cash equivalents - end of period	$	998,896		$	449,546

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	237,575		$	1,044,193

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Cumulative effect on accumulated deficit of lease accounting change	$	77,866		$	-
Discount on convertible promissory notes payable	$	333,984		$	-
Net adjustment for extension of lease	$	145,267		$	-

	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019

Operatig lease cost	$	109,710	$	329,130
Short-term lease cost (1)		6,465		19,365
Total lease cost	$	116,175	$	348,495

			Fair Value Measurement as of March 31, 2020
	Total		Level 1		Level 2		Level 3
Assets:
Cash		461,300		461,300		-		-
Total Assets	$	461,300	$	461,300	$	-	$	-

Liabilities:
Promissory notes		12,894,571		-		12,894,571		-
Profit share liability		2,452,495		-		-		2,452,495
Total Liabilities	$	15,347,066	$	-	$	12,894,571	$	2,452,495

			Fair Value Measurement as of December 31, 2019
	Total		Level 1		Level 2		Level 3
Assets:
Cash		1,499,287		1,499,287		-		-
Total Assets	$	1,499,287	$	1,499,287	$	-	$	-

Liabilities:
Promissory notes		12,200,411		-		12,200,411		-
Profit share liability		2,328,845		-		-		2,328,845
Total Liabilities	$	14,529,256	$	-	$	12,200,411	$	2,328,845

			Fair Value Measurement as of September 30, 2019
	Total		Level 1		Level 2		Level 3
Assets:
Cash		998,896		998,896
Total Assets	$	998,896	$	998,896	$	-	$	-

Liabilities
Promissory notes		13,286,469		-		13,286,469
Total Libilities	$	13,286,469	$	-	$	13,286,469	$	-

			Fair Value Measurement as of December 31, 2018
	Total		Level 1		Level 2		Level 3
Assets:
Cash		584,877		584,877
Total Assets	$	584,877	$	584,877	$	-	$	-

Liabilities
Promissory notes		13,814,208		-		13,814,208
Total Libilities	$	13,814,208	$	-	$	13,814,208	$	-

	Three months ended March 31, 2020						Three months ended March 31, 2019
	United States		International		Total		United States		International		Total
Product revenue	$	984,160	$	85,200	$	1,069,360	$	2,715,282	$	42,600	$	2,757,882
Demonstrations & Consulting revenue		42,767		-		42,767		24,000		-		24,000
Equipment revenue		4,549		-		4,549		5,439		-		5,439
	$	1,031,476	$	85,200	$	1,116,676	$	2,744,721	$	42,600	$	2,787,321

	March 31, 2020		December 31, 2019
Raw materials	$	173,692	$	223,790
Work in process		59,475		43,814
Spare parts		27,632		27,632
Finished goods		204,013		218,262
	$	464,812	$	513,498

Twelve months ended December 31,
2019	$	-
2020		-
2021		-
2022		990,000
2023		860,000
thereafter		1,825,000
	$	3,675,000

Twelve months ended March 31,
2021	$	-
2022		-
2023		990,000
2024		860,000
2025		2,600,000
	$	4,450,000

Twelve months ended March 31,	Discounts
2021	$	114,334
2022		114,334
2023		114,334
2024		101,604
2025		35,752
	$	480,358

Twelve months ended September 30,	Discounts
2019	$	22,413
2020		90,387
2021		90,387
2022		90,387
2023		82,318
thereafter		37,207
	$	413,099

Profit Share as of January 1, 2020	$	2,328,845
Addition		-
Loss on change in fair value of profit share		123,650
Profit Share as of March 31, 2020	$	2,452,495

Profit Share as of January 1, 2019	$	-
Addition		1,954,383
Loss on change in fair value of profit share		37,557
Profit Share as of March 31, 2019	$	1,991,940

	Three Months Ended March 31, 2020

Operating lease cost	$	95,222
Short-term lease cost (1)		1,770
Total lease cost	$	96,992

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value

January 1, 2020		5,690,378	$	0.63		3.72	$	-
Grants		-		-		-
Expirations		-		-		-
March 31, 2020		5,690,378	$	0.63		3.47	$	-

Warrants exercisable at:
March 31, 2020		5,690,378	$	0.63		3.47	$	-

Outstanding and Exercisable
Exercise Price		Number Outstanding			Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price
$	0.70		4,460,000			4.20	$	0.70
	0.45		150,000			0.67		0.45
	0.35		1,080,378	*		0.88		0.35
$	0.35-$0.70		5,690,378			3.47	$	0.63

Outstanding									Exercisable
Exercise Price		Number Outstanding			Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$	0.70		2,685,000			4.45		0.70		2,685,000		0.70
	0.45		150,000			1.17		0.45		150,000		0.45
	0.35		1,080,378	*		1.39		0.35		1,080,378		0.35
$	0.50 - $3.30		3,915,378			1.35				3,915,378

	Three Months Ended March 31,
	2020			2019
	(In thousands)

Net loss	$	(1,774	)	$	(1,059	)

Non-GAAP adjustments:
Depreciation and amortization		212			262
Interest and letter of credit fees		664			502
Income taxes		-			-
Stock based compensation		115			-

Adjusted EBITDA	$	(783	)	$	(295	)

	Quarter Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(In thousands)						(In thousands)

Net loss	$	(851	)	$	(636	)	$	(1,326	)	$	(4,248	)

Non-GAAP adjustments:
Depreciation and amortization		230			205			717			602
Interest and letter of credit fees		783			471			2,076			1,530
Income taxes		-			4			-			12
Stock based compensation		-			53			1,763			438
(Gain)/Loss on debt exchange		-			-			(3,412	)		44

Adjusted EBITDA	$	162		$	97		$	(182	)	$	(1,622	)

Exhibit Number		Description

31.1*		Certification by ~~Chief~~Principal Executive Officer ~~required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act~~
31.2*		~~Certification by Chief~~and Principal Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act
32.1*		Certification by ~~Chief~~Principal Executive Officer ~~required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act~~ and ~~Section 1350 of Chapter 63 of Title 18 of the United States Code~~
32.2*		~~Certification by Chief~~Principal Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code
101*		The following financial information from our Quarterly Report on Form 10-Q for the three months ended ~~September 30, 2019~~March 31, 2020 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Unaudited Balance Sheets, (ii) the Condensed Consolidated Unaudited Statements of Operations, (iii) the Condensed Consolidated Unaudited Statements of Stockholders’ Deficit, (iv) the Condensed Consolidated Unaudited Statements of Cash Flows, and (v) Notes to Condensed Consolidated Unaudited Financial Statements

		~~(Principal Executive Officer)~~

~~Dated:~~ ~~November 14, 2019~~	~~By:~~	~~/s/ Richard H. Gross~~
		~~Chief Financial Officer~~
		~~(Principal Financial Officer)~~	32