UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2020~~2021

Commission file number 000-33067

MIDWEST ENERGY EMISSIONS CORP.

(Exact name of Registrant as Specified in its Charter)

Delaware

87-0398271

(State or other jurisdiction of

of incorporation or organization)

(I.R.S. Employer

Identification No.)

~~1810 Jester Drive~~

~~Corsicana, Texas~~

~~75109~~

~~(Address of principal Executive offices)~~1810 Jester Drive

Corsicana, Texas

75109

(Address of principal Executive offices)

(Zip Code)

(614) 505-6115

(Registrant’s Telephone Number, Including Area Code)

Not applicable

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

Securities registered pursuant to Section 12(b) of the Act: None.

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 ☒ No ☐

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 ☒ No ☐

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	☒	Smaller reporting company	☒
		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 ☒

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 ~~78,047,750~~89,265,951 outstanding as of November ~~23, 2020.~~15, 2021.

MIDWEST ENERGY EMISSIONS CORP.

TABLE OF CONTENTS

~~Table of Contents~~

PART I – FINANCIAL INFOMATION

Forward-Looking Statements

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 ~~2019~~2020 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.

Table of Contents

Item 1. Financial Information.

MIDWEST ENERGY EMISSIONS CORP. AND SUBSIDIARY

Index to Condensed Consolidated Financial Information

As of and for the three and nine months ended September 30, ~~2020~~2021

	Page

Condensed Consolidated Unaudited Balance Sheets	5	F-1

Condensed Consolidated Unaudited Statements of Operations	6	F-2

Condensed Consolidated Unaudited Statements of Stockholders’ Deficit	7	F-3

Condensed Consolidated Unaudited Statements of Cash Flows	8	F-5

Notes to Condensed Consolidated Unaudited Financial Statements	9	F-6

~~Table of Contents~~

~~MIDWEST ENERGY EMISSIONS CORP. AND SUBSIDIARY~~

~~CONDENSED CONSOLIDATED BALANCE SHEETS~~

~~SEPTEMBER 30, 2020 AND DECEMBER 31, 2019~~

Table of Contents

~~(UNAUDITED)~~

MIDWEST ENERGY EMISSIONS CORP. AND SUBSIDIARY								MIDWEST ENERGY EMISSIONS CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS								CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2021 AND DECEMBER 31, 2020								SEPTEMBER 30, 2021 AND DECEMBER 31, 2020
(UNAUDITED)								(UNAUDITED)

		September 30, 2020			December 31, 2019				September 30, 2021			December 31, 2020
		(Unaudited)							(Unaudited)
ASSETS	ASSETS							ASSETS
Current assets
Cash		$	318,931		$	1,499,287			$	866,013		$	591,019
Accounts receivable			1,474,952			1,222,874				3,066,521			1,116,082
Inventory			473,560			513,498				709,717			560,127
Prepaid expenses and other assets			185,248			316,199				329,484			107,443
Total current assets			2,452,691			3,551,858				4,971,735			2,374,671

Security deposits										10,175			0
Property and equipment, net			1,918,226			2,082,343				1,830,208			1,887,029
Right of use asset			894,203			1,106,575				493,366			795,869
Intellectual property			2,369,946			2,532,462
Intellectual property, net										2,165,346			2,318,796
Total assets		$	7,635,066		$	9,273,238			$	9,470,830		$	7,376,365

LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES AND STOCKHOLDERS’ DEFICIT								LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities
Accounts payable and accrued expenses (related party of $131,250 and $43,750)		$	1,617,465		$	1,676,757
Accounts payable and accrued expenses (related party of $181,250 and $168,750)									$	2,975,670		$	1,611,956
Current portion of equipment notes payable			30,233			53,304				8,294			29,255
Current portion of operating lease liability			402,918			383,307				386,984			407,975
Note payable			85,585			-				44,064			34,661
Current portion of convertible notes payable			-			990,000
Accrued interest			140,346			226,065				1,997			259,230
Customer credits			167,000			167,000				167,000			167,000
Accrued salaries			706,989			357,095				692,672			848,706
Secured note payable – related party										271,686			0
Unsecured note payable, net of discount and issuance costs – related party										11,367,533			0
Total current liabilities			3,150,536			3,853,528				15,915,900			3,358,783

Equipment notes payable, less current portion			8,293			22,386				0			789
Operating lease liability			498,535			807,409				111,560			394,625
Note payable			299,300			-				255,316			299,300
Convertible notes payable, net of discount and issuance costs			4,026,378			2,951,137				0			4,055,122
Profit share liability – related party			2,187,891			2,328,845				2,692,259			2,305,308
Secured note payable – related party			271,686			271,686				-			271,686
Unsecured note payable, net of discount and issuance costs – related party			9,395,979			7,911,898				0			9,894,284
Total liabilities			19,838,598			18,146,889				18,975,035			20,579,897

COMMITMENTS AND CONTINGENCIES (Note 11)

Stockholders' deficit
Stockholders’ deficit
Preferred stock, $0.001 par value: 2,000,000 shares authorized			-			-				0			0
Common stock; $0.001 par value; 150,000,000 shares authorized; 77,747,750 and 76,747,750 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively			77,748			76,748
Common stock; $0.001 par value; 150,000,000 shares authorized; 89,265,951 and 78,096,326 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively										89,266			78,096
Additional paid-in capital			49,179,979			48,708,085				56,244,900			50,202,478
Accumulated deficit			(61,461,259	)		(57,658,484	)			(65,838,371	)		(63,484,106	)

Total stockholders' deficit			(12,203,532	)		(8,873,651	)
Total stockholders’ deficit										(9,504,205	)		(13,203,532	)

Total liabilities and stockholders' deficit		$	7,635,066		$	9,273,238
Total liabilities and stockholders’ deficit									$	9,470,830		$	7,376,365

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

5F-1

~~Table of Contents~~

~~MIDWEST ENERGY EMISSIONS CORP. AND SUBSIDIARY~~

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS~~Table of Contents

~~FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019~~

~~(UNAUDITED)~~

MIDWEST ENERGY EMISSIONS CORP. AND SUBSIDIARY													MIDWEST ENERGY EMISSIONS CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS													CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020													FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)													(UNAUDITED)

	For the Three Months Ended September 30, 2020			For the Three Months Ended September 30, 2019			For the Nine Months Ended September 30, 2020			For the Nine Months Ended September 30, 2019				For the Three Months Ended September 30, 2021			For the Three Months Ended September 30, 2020			For the Nine Months Ended September 30, 2021			For the Nine Months Ended September 30, 2020

Revenues	$	2,812,197		$	3,596,107		$	5,812,375		$	8,893,177			$	5,019,717		$	2,812,197		$	10,317,051		$	5,812,375

Costs and expenses:
Cost of sales		1,881,742			2,477,673			4,198,125			6,438,998				3,240,507			1,881,742			6,221,073			4,198,125
Selling, general and administrative expenses (related party of $75,000, $76,991, $200,000 and $227,530)		1,271,351			1,186,280			3,576,796			5,116,487
Interest expense & letter of credit fees (related party of $509,300, $508,886, $1,514,735 and $1,450,215)		672,355			623,237			1,987,102			1,690,855
(Gain) loss on change in fair value of profit share		111,436			112,575			(140,954	)		255,847
Selling, general and administrative expenses (related party of $75,000, $75,000, $250,373, and $200,000)															1,340,585			1,271,351			4,054,221			3,576,796
Interest expense & letter of credit fees (related party of $503,189, $509,300, $1,504,152, and $1,514,735)															506,592			672,355			2,302,298			1,987,102
Gain on extinguishment of debt															0						(299,300	)		0

Loss (gain) on change in fair value of profit share															137,126			111,436			386,951			(140,954	)
Gain on sale of equipment		-			-			(5,919	)		-				0			0			0			(5,919	)
Total costs and expenses		3,936,884			4,399,765			9,615,150			13,502,187				5,224,810			3,936,884			12,665,243			9,615,150

Loss before provision for income taxes		(1,124,687	)		(803,658	)		(3,802,775	)		(4,609,010	)			(205,093	)		(1,124,687	)		(2,348,192	)		(3,802,775	)

Provision for income taxes		-			-			-			-				(1,555	)		0			(6,073	)		0
																		��
Net loss	$	(1,124,687	)	$	(803,658	)	$	(3,802,775	)	$	(4,609,010	)		$	(206,648	)	$	(1,124,687	)	$	(2,354,265	)	$	(3,802,775	)

Net loss per common share-basic and diluted:	$	(0.01	)	$	(0.01	)	$	(0.05	)	$	(0.06	)		$	(0.00	)	$	(0.01	)	$	(0.03	)	$	(0.05	)

Weighted average common shares outstanding - basic and diluted		77,747,750			76,730,400			77,744,087			76,463,246				89,255,299			77,747,750			84,666,319			77,744,087

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

6F-2

Table of Contents

MIDWEST ENERGY EMISSIONS CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)

Nine Months Ended September 30, 2021
					Additional
	Common Stock				Paid-in			Accumulated
	Shares		Par Value		Capital			(Deficit)			Total

Balance - January 1, 2021		78,096,326	$	78,096	$	50,202,478		$	(63,484,106	)	$	(13,203,532	)

Stock issued for interest payable on convertible notes		494,400		494		246,706			0			247,200

Stock issued for conversion of convertible notes		3,700,000		3,700		1,846,300			0			1,850,000

Stock issued for exercise of warrants		705,166		705		246,103			0			246,808

Stock issued for cashless exercise of warrants		194,690		195		(195	)		0			0

Stock issued for services		525,000		525		643,725			0			644,250

Share based compensation expense		-		0		5,878			0			5,878

Net loss		-		0		0			(417,934	)		(417,934	)

Balance - March 31, 2021		83,715,582		83,715		53,190,995			(63,902,040	)		(10,627,330	)

Stock issued for interest payable on convertible notes		229,500		230		367,909			0			368,139

Stock issued for conversion of convertible notes		5,160,000		5,160		2,574,840			0			2,580,000

Stock issued for exercise of stock options		125,000		125		101,125			0			101,250

Stock issued for cashless exercise of stock options		15,869		16		(16	)		0			0

Share based compensation expense		-		0		67			0			67

Net loss		-		0		0			(1,729,683	)		(1,729,683	)

Balance - June 30, 2021		89,245,951	$	89,246	$	56,234,920		$	(65,631,723	)	$	(9,307,557	)

Issuance of stock for conversion of convertible notes		20,000		20		9,980			-			10,000

Net loss		-		0		-			(206,648	)		(206,648	)

Balance – September 30, 2021		89,265,951	$	89,266	$	56,244,900		$	(65,838,371	)	$	(9,504,205	)

F-3

Table of Contents

MIDWEST ENERGY EMISSIONS CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(UNAUDITED)

Nine Months Ended September 30, 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 )

Issuance of stock options

-

-

19,921

-

19,921

Net loss

-

-

-

(904,217 )

(904,217 )

Balance -  June 30, 2020

77,747,750

77,748

48,927,006

(60,336,572 )

(11,331,818 )

Issuance of stock options

-

-

252,973

-

252,973

Net loss

-

-

-

(1,124,687 )

(1,124,687 )

Balance -  September 30, 2020

77,747,750

$ 77,748

$ 49,179,979

$ (61,461,259 )

$ (12,203,532 )

Nine Months Ended September 30, 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 )

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

-

-

-

(2,746,573 )

(2,746,573 )

Balance -  June 30, 2019

76,710,630

$ 76,710

$ 48,158,130

$ (55,366,550 )

$ (7,131,710 )

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

-

-

-

(803,658 )

(803,658 )

Balance -  September 30, 2019

76,747,750

$ 76,747

$ 48,294,413

$ (56,170,208 )

$ (7,799,048 )

Nine Months Ended September 30, 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		0			200,000

Net loss		-		0		0		(1,773,871	)		(1,773,871	)

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

Issuance of stock options		-		0		19,921		0			19,921

Net loss		-		0		0		(904,217	)		(904,217	)

Balance - June 30, 2020		77,747,750		77,748		48,927,006		(60,336,572	)		(11,331,818	)

Issuance of stock options		-		0		252,973		0			252,973

Net loss		-		0		0		(1,124,687	)		(1,124,687	)

Balance – September 30, 2020		77,747,750	$	77,748	$	49,179,979	$	(61,461,259	)	$	(12,203,532	)

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

7F-4

Table of Contents

MIDWEST ENERGY EMISSIONS CORP. AND SUBSIDIARY	MIDWEST ENERGY EMISSIONS CORP. AND SUBSIDIARY							MIDWEST ENERGY EMISSIONS CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS							CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020								FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)	(UNAUDITED)							(UNAUDITED)

		For the Nine Months Ended September 30, 2020			For the Nine Months Ended September 30, 2019				For the Nine Months Ended September 30, 2021			For the Nine Months Ended September 30, 2020

Cash flows from operating activities
Net loss		$	(3,802,775	)	$	(4,609,010	)		$	(2,354,265	)	$	(3,802,775	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation – amortization of prepaid services			619,176			1,762,736				447,107			619,176
Stock-based compensation										5,945			0
Amortization of discount of notes payable			1,477,771			1,200,780				1,777,243			1,477,771
Amortization of debt issuance costs			91,551			99,515				90,883			91,551
Amortization of right to use assets			212,372			283,551				302,503			212,372
Amortization of customer acquisition costs			-			34,467
Amortization of patent rights			162,516			150,900				153,450			162,516
Depreciation expense			160,537			247,954				56,824			160,537
Gain on sale of equipment			(5,919	)		-				0			(5,919	)
Gain on forgiveness of debt										(299,300	)		0
(Gain) Loss on change in fair value of profit share			(140,954	)		255,847				386,951			(140,954	)
Changes in operating assets and liabilities
(Increase) Decrease in accounts receivable			(252,078	)		211,060
Increase in accounts receivable										(1,950,439	)		(252,078	)
(Increase) Decrease in inventory			39,938			(120,011	)			(149,591	)		39,938
Decrease in security deposits										2,080			0
Increase in prepaid expenses and other assets			(15,331	)		(119,785	)			(37,154	)		(15,331	)
Increase (Decrease) in accounts payable and accrued liabilities			204,882			(424,686	)
Increase in accounts payable and accrued liabilities										1,565,786			204,882
Decrease in operating lease liability			(289,263	)		(277,944	)			(304,056	)		(289,263	)

Net cash used in operating activities			(1,537,577	)		(1,304,626	)			(306,033	)		(1,537,577	)

Cash flows provided by investing activities
Cash flows from investing activities
Cash received from sale of equipment			9,500			-				0			9,500
Net cash provided by investing activities			9,500			-				0			9,500

Cash flows from financing activities
Payment of debt issuance costs			-			(46,683	)
Payments of notes payable			(114,415	)		(59,672	)			(34,661	)		(114,415	)
Payments of equipment notes payable			(37,164	)		-				(21,750	)		(37,164	)
Proceeds from the issuance of convertible promissory notes and related warrants			-			1,825,000
Proceeds from exercise of warrants										246,808			0
Proceeds from exercise of stock options										101,250			0
Payment of convertible notes										(10,000	)
Proceeds from the issuance of notes payable			499,300			-				299,380			499,300
Net cash provided by financing activities			347,721			1,718,645				581,027			347,721

Net increase (decrease) in cash and cash equivalents			(1,180,356	)		414,019				274,994			(1,180,356	)

Cash and cash equivalents - beginning of period			1,499,287			584,877				591,019			1,499,287

Cash and cash equivalents - end of period		$	318,931		$	998,896			$	866,013		$	318,931

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest		$	488,265		$	237,575			$	41,082		$	488,265
Taxes		$	-		$	-			$	4,518		$	0

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Cumulative effect on accumulated deficit of lease accounting change		$	-		$	77,866
Stock issued for prepaid services		$	200,000		$	-			$	644,250		$	200,000
Discount on convertible promissory notes payable		$	-		$	333,984
Net adjustment for extension of lease		$	-		$	145,267
Capital contribution related to debt restructuring		$	-		$	3,412,204
Stock issued for conversion of convertible notes									$	4,440,000		$	0
Stock issued for interest payable									$	615,339		$	0

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

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MIDWEST ENERGY EMISSIONS CORP. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Organization

Midwest Energy Emissions Corp.

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 $0.001 per share and 2,000,000 authorized shares of preferred stock, par value $0.001 per share.

MES, Inc.

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.

Note 2 - Summary of Significant Accounting Policies

Basis of Presentation

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, ~~2019~~2020 filed on ~~May 14, 2020,~~April 5, 2021, from which the accompanying condensed consolidated balance sheet dated December 31, ~~2019~~2020 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, ~~2020,~~2021, 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.

Principles of Consolidation

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.

~~Restatement of previously issued financial statements (unaudited)~~

On April 13, 2020, the Company concluded that a gain on debt restructuring recognized during the first quarter of 2019 (relating to the New AC Midwest Unsecured Note) should have been accounted for as a capital transaction. Since the New AC Midwest Unsecured Note was held by a related party, the gain should have been recorded as a capital transaction under ASC 470-50-40. The profit-sharing portion also should have been bifurcated from the loan and shown separately on the consolidated balance sheets of the financial statements. For more information please review Note 14 in the Form 10-K filed on May 14, 2020 which includes the restated financial statements. Accordingly, the restated amounts are reflected in the results of operations in this Form 10-Q for the three and nine months ended September 30, 2019.

Use of Estimates

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.

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Recoverability of Long-Lived and Intangible Assets

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 property and equipment, right of use asset and intellectual property. No impairment charges were recognized for both of the three and nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020.

Fair Value of Financial Instruments

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, ~~2020~~2021 and December 31, ~~2019~~2020 and is considered to be Level 1.

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Financial instruments include cash, accounts receivable, accounts payable, customer credits and short-term debt. The carrying amounts of these financial instruments approximated fair value at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 due to their short-term maturities.

The fair value of the promissory notes payable at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 approximated the carrying amount as the notes were recently issued ~~during the nine months ended September 30, 2020 and 2019~~ at interest rates prevailing in the market and interest rates have not significantly changed as of September 30, 2021 and December 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.

The fair value of the profit share liability at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 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~~estimates.

~~Table of Contents~~

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								Fair Value Measurement as of
			September 30, 2020								September 30, 2021
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets:
Cash	$	318,931	$	318,931	$	-	$	-		866,013		866,013		0		0
Total Assets	$	318,931	$	318,931	$	-	$	-	$	866,013	$	866,013	$	0	$	0

Liabilities:
Promissory notes	$	14,117,454	$	-	$	14,117,454	$	-		11,946,893		0		11,946,893		0
Profit share liability – related party		2,187,891		-		-		2,187,891		2,692,258		0		0		2,692,258
Total Liabilities	$	16,305,345	$	-	$	14,117,454	$	2,187,891	$	14,639,151	$	0	$	11,946,893	$	2,692,258

			Fair Value Measurement as of December 31, 2019								Fair Value Measurement as of December 31, 2020
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets:
Cash	$	1,499,287	$	1,499,287	$	-	$	-		591,019		591,019		0		0
Total Assets	$	1,499,287	$	1,499,287	$	-	$	-	$	591,019	$	591,019	$	0	$	0

Liabilities:
Promissory notes	$	12,200,411	$	-	$	12,200,411	$	-		14,585,097		0		14,585,097		0
Profit share liability		2,328,845		-		-		2,328,845		2,305,308		0		0		2,305,308
Total Liabilities	$	14,529,256	$	-	$	12,200,411	$	2,328,845	$	16,890,405	$	0	$	14,585,097	$	2,305,308

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Foreign Currency ~~Transactions~~Translation

The Company’s functional currency is the United States Dollar (the “U.S. Dollar”). ~~Transactions~~The Company engages in foreign currency denominated transactions with customers that operate in functional currencies other than the U.S. ~~Dollar~~Dollar. Assets and liabilities denominated in foreign currencies are ~~re-measured to the~~translated into U.S. Dollar amounts at the period-end exchange rates. ~~Any associated transactional~~Sales and purchases and income and expense transactions that are denominated in foreign currencies are translated into U.S. Dollar amounts at the prevailing rates of exchange on the transaction date. Adjustments arising from foreign currency ~~re-measurement gains~~transactions are reflected in the statement of operations. For the three and ~~losses are recognized in current operations. At both~~nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, there were no material foreign exchange gains or losses ~~recognized.~~recognized by the Company in its statements of operations.

Revenue Recognition

The Company records revenue in accordance with ASC 606, Revenue from Contracts with Customers. 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 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

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.

~~Table of Contents~~

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.~~

Disaggregation of Revenue

The Company generated revenue for the three and nine months ended September 30, ~~2020,~~2021 and ~~2019~~2020 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.~~demonstrations and (iv) licensing its technology to customers.

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.

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The following table presents sales by operating segment disaggregated based on the type of product and geographic region for the three months ended September 30, ~~2020,~~2021 and ~~2019.~~2020.

	Three months ended September 30, 2020						Three months ended September 30, 2019						Three months ended September 30, 2021						Three months ended September 30, 2020
	United States		International		Total		United States		International		Total		United States		International		Total		United States		International		Total
Product revenue	$	2,780,638	$	-	$	2,780,638	$	3,505,038	$	-	$	3,505,038	$	4,687,595	$	0	$	4,687,595	$	2,780,638	$	0	$	2,780,638
License revenue														195,547		0		195,547		0		0		0
Demonstrations & Consulting revenue		27,000		-		27,000		40,392		-		40,392		78,870		0		78,870		27,000		0		27,000
Equipment revenue		1,950		2,609		4,559		50,677		-		50,677		57,705		0		57,705		1,950		2,609		4,559
	$	2,809,588	$	2,609	$	2,812,197	$	3,596,107	$	-	$	3,596,107	$	5,019,717	$	0	$	5,019,717	$	2,809,588	$	2,609	$	2,812,197

The following table presents sales by operating segment disaggregated based on the type of product and geographic region for the nine months ended September 30, ~~2020,~~2021 and ~~2019.~~2020.

Nine months ended
September 30, 2020
Nine months ended
September 30, 2019

United
States

International

Total

United
States

International

Total

Product revenue

$ 5,573,643

$ 113,600

$ 5,687,243

$ 8,369,788

$ 212,640

$ 8,582,428

Demonstrations & Consulting revenue

109,372

-

109,372

146,224

95,543

241,767

Equipment revenue

9,394

6,366

15,760

68,982

-

68,982

$ 5,692,409

$ 119,966

$ 5,812,375

$ 8,584,994

$ 308,183

$ 8,893,177

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Nine months ended
September 30, 2021

Nine months ended
September 30, 2020

United
States

International

Total

United
States

International

Total

Product revenue

$ 8,779,645

$ 0

$ 8,779,645

$ 5,573,643

$ 113,600

$ 5,687,243

License revenue

1,286,641

0

1,286,641

0

0

0

Demonstrations & Consulting revenue

140,180

0

140,180

109,372

0

109,372

Equipment revenue

110,585

0

110,585

9,394

6,366

15,760

$ 10,317,051

$ 0

$ 10,317,051

$ 5,692,409

$ 119,966

$ 5,812,375

Income Taxes

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 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 change in tax rates is recognized in income in the 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 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 September 30, ~~2020~~2021 and December 31, ~~2019.~~2020. 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~~”NOLs”) originating between 2018 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 entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act.

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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 and Diluted Loss Per Common Share

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. There were no dilutive potential common shares as of September 30, ~~2020~~2021 and ~~2019,~~2020, 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,

2020

2019

Stock Options

14,044,826

12,463,326

Warrants

5,690,378

3,915,378

Convertible debt

9,157,100

7,350,000

Total common stock equivalents excluded from diluted net loss per share

28,892,304

23,728,704

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September 30,

September 30,

2021

2020

Stock Options

16,068,326

14,044,826

Warrants

4,285,000

5,690,378

Convertible debt

-

9,157,100

Total common stock equivalents excluded from diluted net loss per share

20,353,326

28,892,304

Concentration of Credit Risk

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, ~~2020~~2021 and December 31, ~~2019~~2020 is maintained at high-quality financial institutions and has not incurred any losses to date.

Customer and Supplier Concentration

For each of the nine months ended September 30, ~~2020~~2021 and ~~2019, 100%~~2020,100% of the Company’s revenue related to ~~ten~~sixteen and ~~eight~~ten customers respectively. At September 30, ~~2020~~2021 and ~~2019,~~2020, 100% of the Company’s accounts receivable related to ~~eight~~eleven and ~~seven~~eight customers, respectively.

For each of the nine months ended September 30, 2021 and 2020, 86% and ~~2019,~~ 85% ~~and 77%~~ of the Company’s purchases related to two suppliers, respectively. At September 30, 2021 and 2020, 66% and ~~2019,~~ 67% ~~and 78%~~ of the Company’s accounts payable and accrued expenses related to two vendors, respectively. The Company believes there are numerous other suppliers that could be substituted should the supplier become unavailable or non-competitive.

Contingencies

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.
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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.

Recently Adopted Accounting Standards

Effective January 1, 2020, the Company adopted ASU No. 2018-07, Compensation — Stock Compensation (Topic 718). ASU 2018-07 is intended to reduce cost and complexity and to improve financial reporting for nonemployee share based payments. Prior to the issuance of this guidance, the accounting requirements for nonemployee and employee share-based payment transactions were significantly different. ASU 2018-07 expands the scope of Topic 718, Compensation — Stock Compensation (which only 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 is substantially aligned. This ASU supersedes Subtopic 505-50, Equity — Equity-Based Payments to Nonemployees. The adoption of ASU 2018-07 did not have a material impact on its ~~condensed~~ consolidated financial statements.

Effective January 1, 2020, the Company adopted ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value 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 adoption of ASU 2018-13 did not have a material impact on its ~~condensed~~ consolidated financial statements.
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~~Table of Contents~~
~~Recently Issued Accounting Standards~~

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 annual periods after December 15, 2020, including interim periods within those annual periods (beginning with the quarter ended March 31, 2021 for the Company). The ~~Company is currently evaluating the potential~~adoption of ASU 2019-12 did not have a material impact ~~of this guidance~~ on its ~~condensed~~ consolidated financial statements.
Recently Issued Accounting Standards

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

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Note 3 – Going Concern and Financial Condition

Under ASC 205-40, Presentation of Financial Statements—Going Concern, 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.

The accompanying condensed consolidated financial statements as of September 30, ~~2020~~2021 have been prepared assuming the Company will continue as a going concern. As reflected in the condensed consolidated financial statements, the Company had $866,000 in cash, working capital deficit of $10.9 million and an accumulated deficit of ~~$61.5~~$65.8 million ~~and a negative working capital of $697,845~~ at September 30, ~~2020. Additionally, the~~2021. The Company also had a net loss in the amount of ~~$3.8~~$2.4 million and cash used byin operating activities of ~~$1.5 million~~$306,000 for the nine months ended September 30, ~~2020.~~ 2021. All existing secured and unsecured debt held by its principal lender in the principal amount of $13.4 million matures on August 25, 2022 which is within one year from the issuance of these condensed consolidated financial statements within the Company’s Quarterly Report on Form 10-Q.
These factors raise substantial doubt about the Company’s ability to continue as a going concern for the next twelve months from the issuance of these condensed consolidated financial ~~statements within~~statements. The Company has taken steps to alleviate the ~~Company’s Quarterly Report on Form 10-Q.~~doubt raised by the application of ASC 205-40. During the first nine months of 2021, the Company eliminated $4,440,000 of convertible notes through conversions to shares of common stock and repaid $10,000 of convertible notes, leaving no convertible notes outstanding as of September 30, 2021. In addition, in June 2021, the Company announced that it had entered into a Debt Repayment and Exchange Agreement with its principal lender which, subject to various closing conditions, including but not limited to the completion of an offering of equity securities resulting in net proceeds of at least $12.0 million by December 31, 2021, will repay all existing secured and unsecured debt obligations held by such lender. Although we anticipate continued significant revenues ~~for products~~ in our business operations and that we will be ~~used in MATS compliance activities,~~able to raise the funds necessary to complete the transaction contemplated by the Debt Repayment and Exchange Agreement, no assurances can be given that ~~the Company~~we can obtain sufficient working capital through ~~these activities and additional financing may~~our business operations or that we will be ~~needed~~able to ~~meet its obligations. In April 2020,~~raise the ~~Company received loan proceeds in the amount of $299,300 pursuant~~funds necessary to ~~the Paycheck Protection Program~~close 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~~Debt Repayment Agreement by December 31, 2021 or ~~debt financing. While the Company believes~~at all, 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 futureorder 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.

Note 4 - Inventory

Inventory was comprised of the following at September 30, ~~2020~~2021 and December 31, ~~2019:~~2020:

September 30,
2020

December 31,
2019

Raw Materials

$ 136,663

$ 223,790

Work in Process

19,484

43,814

Spare Parts

27,632

27,632

Finished goods

289,781

218,262

$ 473,560

$ 513,498

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September 30,
2021

December 31,
2020

Raw Materials

$ 310,415

$ 169,803

Spare Parts

69,756

23,432

Finished goods

329,546

366,892

$ 709,717

$ 560,127

Note 5 - Property and Equipment, Net

Property and equipment at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 are as follows:

September 30,

December 31,

September 30,

December 31,

2020

2019

2021

2020

Equipment & installation

$ 1,965,659

$ 1,965,659

$ 1,965,659

$ 1,965,659

Trucking equipment

895,587

922,441

834,375

834,375

Computer equipment and software

67,126

67,126

14,768

67,126

Office equipment

27,155

27,155

5,528

27,155

Total property and equipment

2,955,527

2,982,381

Total equipment

2,820,330

2,894,315

Less: accumulated depreciation

(2,845,008 )

(2,707,745 )

(2,797,829 )

(2,814,993 )
Construction in process

1,807,707

1,807,707

1,807,707

1,807,707

Property and equipment, net

$ 1,918,226

$ 2,082,343

$ 1,830,208

$ 1,887,029

The Company uses the straight-line method of depreciation over 2 to 5 years. During the three months ended September 30, ~~2020~~2021 and ~~2019~~2020 depreciation expense was ~~$37,933,~~$12,445, and ~~$84,918,~~$37,933, respectively. During the nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 depreciation expense was ~~$160,537,~~$56,824, and ~~$247,954,~~$160,537, respectively.

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Note 6 –- Intellectual Property

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”).~~entity. Under the terms of the Agreement, the Company has been granted an exclusive license by ~~EERCF~~the Energy and Environmental Research Center Foundation 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 of all patent rights from ~~EERCF~~the Energy and Environmental Research Center Foundation 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~~the Energy and Environmental Research Center Foundation and 296,002 were issued to the inventors who had been designated by ~~EERCF.~~the Energy and Environmental Research Center Foundation. The shares issued were valued at $518,000 ($0.56 per share), representing the value as of the closing date.

16
~~Table of Contents~~
License and patent costs capitalized as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020 are as follows:

September 30,

December 31,

September 30,

December 31,

2020

2019

2021

2020

Patents

$ 3,068,995

$ 3,068,995

$ 3,068,995

$ 3,068,995

Less: Accumulated amortization

(699,049 )

(536,533 )

(903,649 )

(750,199 )
License, net

$ 2,369,946

$ 2,532,462

$ 2,165,346

$ 2,318,796

Amortization expense for the three months ended September 30, ~~2020~~2021 and ~~2019~~2020 was $51,150 and ~~$50,300,~~$51,150, respectively. Amortization expense for the nine months ended September 30, 2021 and 2020 was $153,450 and ~~2019 was~~ $162,516, ~~and $150,900,~~ respectively. Estimated annual amortization for each of the next five years is $204,600.

Note 7 ~~–Notes~~- Notes Payable

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. ~~During~~In February 2021, the ~~nine months ended September 30, 2020 the Company~~loan was repaid ~~$114,415 of principal and $7,922 of interest.~~in full.
F-14
Table of Contents

On April 14, 2020, the Company 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. In January 2021, the PPP Loan was forgiven, and the Company recorded a gain on extinguishment of debt of $299,300.

In February 2021, the Company received second draw loan proceeds in the amount of $299,380 from First International Bank & Trust pursuant to the Paycheck Protection Program (the “Second PPP Loan”) under the CARES Act. The Second PPP Loan is in the form of a Note dated February 2, 2021, matures on April 14, 2026 and bears interest at a rate of 1.0% per annum, with one interest payment on February 2, 2022, 47 monthly consecutive principal and interest payments of $6,366.89 each, beginning March 2, 2022, and one final principal and interest payment of $6,366.92 on February 2, 2026. The principal and accrued interest under the Second PPP Loan is forgivable after eight or twenty-four weeks if the Company uses the Second PPP Loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and otherwise complies with the PPP requirements. In October 2021, the Second PPP Loan was forgiven.
Note 8 ~~–Convertible~~- Convertible Notes Payable

The Company has the following convertible notes payable outstanding as of September 30, ~~2020~~2021 and December 31, ~~2019:~~2020:

September 30,

December 31,

September 30,

December 31,

2020

2019

2021

2020

Secured convertible promissory notes which mature upon the retirement of the New AC Midwest Secured Debt (see Note 9), bear interest at 10% per annum, are convertible into shares of common stock at $0.50 per share, and are secured by the assets of the Company.

$ 990,000

$ 990,000

$
0

$
990,000

Unsecured convertible promissory notes which mature beginning on June 15, 2023 through October 31, 2023, bear interest at 12% per annum, and are convertible into shares of common stock at $0.50 per share.

860,000

860,000

0

860,000

Unsecured convertible promissory notes which mature beginning on June 18, 2024 through October 23, 2024, bear interest at 12% per annum, and are convertible into shares of common stock at $0.50 per share.

2,600,000

2,600,000

0

2,600,000

Total convertible notes payable before discount

4,450,000

4,450,000

0

4,450,000

Less discounts and debt issuance costs

(423,622 )

(508,863 )

0

(394,878
)

Total convertible notes payable

4,026,378

3,941,137

0

4,055,122

Less current portion

-

(990,000 )

0

0

Convertible notes payable, net of current portion

$ 4,026,378

$ 2,951,137

$
0

$
4,055,122



17F-15
Table of Contents

From July 30, 2013 through December 24, 2013, the Company sold convertible notes and warrants to unaffiliated accredited investors totaling $1,902,500. The notes bear interest at 10% per annum, are secured by the Company’s assets, and are convertible into one share of common stock, par value $0.001 per share, with the initial conversion ratio equal to $0.50 per share. The notes had an initial term of three years, but the maturity of the notes was extended during 2014 to match the retirement of the New AC Midwest Secured Debt. From February 8, 2021 to February 15, 2021, the Company issued 1,880,000 shares of common stock to certain holders of such convertible promissory notes issued in 2013 for the conversion of the outstanding principal of such notes in the aggregate amount of $940,000, based upon a conversion rate of $0.50 per share. On April 9, 2021, the Company issued 60,000 shares of common stock to another certain holder of such notes issued in 2013 for the conversion of outstanding principal in the amount of $30,000, based upon a conversion rate of $0.50 per share. On August 18, 2021, the Company issued 20,000 shares of common stock to another certain holder of such notes issued in 2013 for the conversion of outstanding principal in the amount of $10,000, based upon a conversion rate of $0.50 per share. On August 24, 2021, the Company prepaid the outstanding principal balance of another of such notes issued in 2013 in the principal amount of $10,000. As of September 30, 2021 and December 31, 2020, ~~remaining scheduled~~total principal ~~payments due~~of $0 and $990,000, respectively, was outstanding on ~~convertible notes payable are as follows:~~ these notes.

Twelve months ended September 30,

2021

$ -

2022

990,000

2023

760,000

2024

1,925,000

2025

775,000

$ 4,450,000

On June 15, 2018, the Company issued 2018 Unsecured Convertible Notes (the “2018 Unsecured Notes”) totaling $560,000 and warrants to certain holders of the 2013 Notes in exchange for their secured 2013 Notes. The 2018 Unsecured Notes have a term of five years, bear interest at 12% per annum, and are convertible into one share of common stock, par value $0.001 per share, with the initial conversion ratio equal to $0.50 per share. For each dollar exchanged, the investor received a warrant to purchase one share of common stock of the Company at an exercise price of $0.70 per share. The 2018 Unsecured Notes may be converted at any time and from time to time in whole or in part prior to the maturity date thereof. From August 31, 2018 through October 30, 2018, the Company issued additional 2018 Unsecured Notes totaling $300,000 and warrants to unaffiliated investors. Pursuant to the terms of the 2018 Unsecured Notes, if at any time after six months from the issuance of the 2018 Notes, the closing price of the Company’s common stock exceeds $1.00 per share for 10 consecutive trading days, the Company shall have the right to force convert all of the outstanding principal of such Notes. Pursuant to notice dated February 17, 2021, the Company notified all such holders that as a result closing price of the Company’s common stock having exceeded $1.00 per share for 10 consecutive trading days, the Company was electing to force convert all such outstanding principal. Between February 26, 2021 and March 8, 2021, the Company issued 690,000 shares of common stock to certain holders of the 2018 Unsecured Notes for conversion of the outstanding principal of such Notes in the aggregate amount of $345,000, and on March 17, 2021, the Company issued 1,030,000 shares of common stock to the remaining holders of the 2018 Unsecured Notes for the conversion of the remaining outstanding principal in the aggregate amount of $515,000, all based upon a conversion rate of $0.50 per share. As of September 30, 2021 and December 31, 2020, total principal of $0 and $860,000, respectively, was outstanding on the ~~remaining future amortization of discounts are as follows:~~2018 Unsecured Notes.

Twelve months ended September 30,

Discounts

2021

$ 114,040

2022

114,040

2023

110,721

2024

82,912

2025

1,909

$ 423,622

From June 18, 2019 through October 23, 2019, the Company sold 2019 Unsecured Convertible Notes (the “2019 Unsecured Notes”) totaling $2,600,000 and warrants to unaffiliated accredited investors. The 2019 Unsecured Notes bear interest at 12% per annum, and are convertible into one share of common stock, par value $0.001 per share, with the initial conversion ratio equal to $0.50 per share. The 2019 Unsecured Notes have a term of five years. On February 26, 2021, the Company issued 100,000 shares of common stock to a certain holder of the 2019 Unsecured Notes for the conversion of outstanding principal in the amount of $50,000, based upon a conversion rate of $0.50 per share. Pursuant to a letter dated June 14, 2021, the Company offered each of the holders of the 2019 Unsecured Notes the opportunity to voluntarily convert the outstanding principal into shares of common stock at conversion ratio of $0.50 per share and, if converted prior to June 30, 2021, still be paid interest through September 30, 2021. With such offer, all accrued and unpaid interest, and additional interest through September 30, 2021, would be paid in shares of common stock at a rate of $1.00 per share, in lieu of payment in cash. As a result thereof, and between June 17, 2021 and June 23, 2021, (i) the outstanding principal totaling $2,550,000 was voluntarily converted by the holders thereof into an aggregate of 5,100,000 shares of common stock of the Company at a conversion price of $0.50 per share, and (ii) all accrued and unpaid interest thereon, together with additional interest through September 30, 2021, which together totaled $229,500, was converted into an aggregate of 229,500 shares of common stock of the Company. The Company recognized a conversion inducement cost of $98,515 related to the conversion. As of September 30, 2021 and December 31, 2020, total principal of $0 and $2,600,000, respectively, was outstanding on the 2019 Unsecured Notes. There is no further liability related to the profit share due to the voluntary conversion of all of the 2019 Unsecured Notes.
F-16
Table of Contents

Note 9 - Related Party

Secured Note Payable

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 AC~~“AC Midwest Secured Note”) in the original principal amount of $9,646,686, which was to mature on December 15, 2018. AC Midwest is wholly-owned by a stockholder 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. Interest expense for the three months ended September 30, 2021 and 2020 was $10,415 and ~~2019 was~~ $10,215, ~~and $10,415~~ respectively. Interest expense for the nine months ended September 30, 2021 and 2020 was $30,904 and ~~2019 was~~ $30,653 ~~and $30,904~~ respectively. On February 25, 2019, per Amendment No. 3 to the Amended and Restated 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 both September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, total principal of $271,686 was outstanding on this note.
18
~~Table of Contents~~

Unsecured Note Payable

The Company has the following unsecured note payable - related party outstanding as of September 30, ~~2020~~2021 and December 31, ~~2019:~~2020:

September 30,

December 31,

September 30,

December 31,

2020

2019

2021

2020

Unsecured note payable

$ 13,154,931

$ 13,154,931

$ 13,154,931

$ 13,154,931

Less discounts and debt issuance costs

(3,758,952 )

(5,243,033 )

(1,787,398 )

(3,260,647 )

Total unsecured note payable

9,395,979

7,911,898

11,367,533

9,894,284

Less current portion

-

-

(11,367,533 )

0

Unsecured note payable, net of current portion

$ 9,395,979

$ 7,911,898

$ 0

$ 9,894,284

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 Midwest Subordinated Note”) in the 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.

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 Capital contribution of $3,412,204 on this exchange which is primarily related to the difference in fair value of the note on the date of the exchange. 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 nine months ended September 30, 2021 and 2020 was $1,382,366 and ~~2019 was~~ $1,484,082, ~~and $1,175,349,~~ respectively. As of September 30, ~~2020,~~2021, the unamortized balance of the discount was ~~$3,758,952.~~$1,677,469 and unamortized balance of the debt issuance costs was $109,929 at September 30, 2021.

19F-17
Table of Contents

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.

AC Midwest shall be entitled to a profit participation preference equal to 1.0 times the original principal amount (the “Profit Share”). If the original principal amount had been paid in full on or prior to August 25, 2020, AC Midwest would have been entitled to a profit participation preference equal to 0.5 times the original principal amount.
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).

The Profit Share

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 to have a fair value of $1,954,383 upon grant. ~~This was calculated with~~The discounted cash flow model ~~with~~assumptions used at September 30, 2021 to calculate the ~~following key valuation assumptions:~~Profit Share liability included: estimated term of ~~eighteen~~sixteen years with ~~$1 million~~between $100,000 to $350,000 paid ~~yearly after the first five years,~~quarterly starting in February 2024, and an annual market interest rate of 21%. The profit share liability will be marked to market every quarter utilizing ~~managements~~management’s estimates.

The following are the changes in the profit share liabilities during the nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020.

Profit Share as of January 1, 2020

$ 2,328,845

Addition

-

Gain on change in fair value of profit share

(140,954 )
Profit Share as of September 30, 2020

$ 2,187,891

Profit Share as of January 1, 2021

$ 2,305,308

Addition

0

Loss on change in fair value of profit share

386,951

Profit Share as of September 30, 2021

$ 2,692,259

Profit Share as of January 1, 2019

$ -

Addition

1,954,383

Loss on change in fair value of profit share

255,847

Profit Share as of September 30, 2019

$ 2,210,230

Profit Share as of January 1, 2020

$
2,328,845

Addition

0

Gain on change in fair value of profit share

(140,954
)
Profit Share as of September 30, 2020

$
2,187,891

20F-18
Table of Contents
~~Table of Contents~~
Debt Repayment and Exchange Agreement
On June 1, 2021, the Company, along with MES, entered into a Debt Repayment and Exchange Agreement with AC Midwest, which will repay all existing secured and unsecured debt obligations presently held by AC Midwest (the “Debt Repayment Agreement”).
Pursuant to the Debt Repayment Agreement, the Company shall at closing repay the principal balance outstanding on the AC Midwest Secured Note in cash, together with any other amounts due and owing under such note, and repay the outstanding debt under the New AC Midwest Unsecured Note by paying and issuing a combination of cash and shares of common stock which AC Midwest has agreed to accept in full and complete repayment of the obligations thereunder.
At closing, and with regard to the New AC Midwest Unsecured Note, the Company shall pay AC Midwest $6,577,465.30 in cash representing 50.0% of the aggregate outstanding principal balance of such note, and issue shares of common stock to AC Midwest in exchange for the remaining 50.0% of the aggregate outstanding principal balance at an exchange price equal to 100% of the offering price of common stock in the Qualifying Offering (as defined below). With regard to the Profit Share, at closing the Company shall pay AC Midwest $2,305,308.00 in cash representing the Profit Share Valuation, and issue shares of common stock for $4,026,567.76 representing the Adjusted Profit Share Valuation (as such terms are defined in the Debt Repayment Agreement) at the same exchange price indicated above. The Company has agreed to provide certain registration rights with respect to the shares issued thereunder.
The closing is subject to various conditions including but not limited to the completion of an offering of equity securities resulting in net proceeds of at least $12.0 million by December 31, 2021 (the “Qualifying Offering”). In the event that the closing does not occur by December 31, 2021, either party may terminate the Debt Repayment Agreement and the existing notes with AC Midwest will continue in their current forms.

Related Party Transactions

Kaye Cooper Kay & Rosenberg, LLP provides certain legal services to the Company and was paid $212,873 and $137,500 infor the nine months ended September 30, 2021 and 2020, respectively, for legal services rendered and disbursement incurred. David M. Kaye, a Director and Secretary of the Company, is a partner of the law firm. At September 30, ~~2020~~2021 and December 31, ~~2019, $131,250~~2020, $181,250 and ~~$43,750,~~$168,750, respectively, was owed to the firm for services rendered.

Note 10 - Operating Leases

In 2016, the Company entered into a 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 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 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. 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 lease for office space in Grand Forks, North Dakota. Monthly rent ~~was~~is $590 a month through August 2020. The lease ~~has~~was not ~~been~~ renewed and ~~has been terminated.~~the Company vacated the space.
F-19
Table of Contents

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

For the twelve months ended September 30,

2021

$ 438,840

2022

402,520

$ 402,520

2023

92,040

92,040

2024

22,500

22,500

Total

955,900

517,060

Less discount

(54,447 )

(18,516 )
Total lease liabilities

901,453

498,544

Less current portion

(402,918 )

(386,984 )
Operating lease obligation, net of current portion

$ 498,535

$ 111,560

The weighted average remaining lease term for operating leases is ~~2.27~~1.25 years and the weighted average discount rate used in calculating the operating lease asset and liability is 5.0%. For the nine months ended September 30, ~~2020,~~2021, payments on lease obligations were $329,130 and amortization on the right of use assets was ~~$212,372.~~$302,503.
21
~~Table of Contents~~

For the three and nine months ended September 30, ~~2020,~~2021, 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:

Three Months
Ended
September 30,
2020

Nine Months
Ended
September 30,
2020

Three Months
Ended
September 30,
2021

Nine Months
Ended
September 30,
2021

Operating lease cost

$ 92,133

$ 289,263

$ 102,622

$ 304,056

Short-term lease cost (1)

1,770

5,310

1,770

5,310

Total lease cost

$ 93,903

$ 294,573

$ 104,392

$ 309,366

_____________
(1)
Short-term lease costs ~~include~~includes any lease with a term of less than 12 months

Note 11 –- Commitments and Contingencies

Fixed Price Contract

The Company’s multi-year contracts with its commercial customers contain fixed prices for product. These contracts expire between ~~2020~~2021 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.

Legal proceedings

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.~~

F-20
Table of Contents
~~On April 21,~~
During 2020, ~~NRG Energy, Inc., Talen Energy Corporation and Vistra Energy Corp., three~~each of the four major utility 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~~patents which are subject to the ~~‘147 Patent. On or about~~litigation.
Between July ~~15,~~ 2020 ~~AEP Generation Resources, Inc., another defendant in the above action, filed four petitions for IPR~~and January 2021, we entered into agreements with ~~the USPTO, seeking to invalidate certain claims to the ‘114 Patent and ‘147 Patent. The Company believes that all~~each of the ~~foregoing claims of invalidity are without merit.~~
~~On July 30, 2020, the Company~~four major utility defendants in such action which included certain monetary arrangements and ~~Vistra Corp. executed a multi-year fleetwide license and supply agreement~~pursuant to provide Vistra a non-exclusive license to certain Company patents for use in connection with Vistra’s coal-fired power plants, and to facilitate the parties’ ongoing business relationship. Such patents licensed to Vistra relate to the Company’s two-part Sorbent Enhancement Additive (SEA®) process for mercury removal from coal-fired power plants. The Company haswhich we have dismissed all claims brought against ~~Vistra in the patent litigation initiated by the Company~~each of them and ~~Vistra has agreed to withdraw~~their affiliates, and such parties have withdrawn from petitions for ~~IPR filed~~Inter Partes Review with the ~~USPTO.~~
On October 26, 2020, and with respect to the two IPRs filed on April 21, 2020, the Board determined that the petitioners demonstrated a reasonable likelihood of prevailing with respect to at least one claim of the ‘114United States Patent and ~~accordingly, instituted such IPRs.~~
22
~~Table of Contents~~
~~On November 9, 2020, the Company~~Trademark Office. Such agreements entered into ~~an agreement~~ with ~~another defendant to~~such parties provide ~~such defendant~~each of them and ~~its affiliated entities~~their affiliates with a non-exclusive license to certain Company patents (related to the Company’s two-part Sorbent Enhancement Additive ~~(SEA~~^®(SEA®) process) for use in connection with such parties’ coal-fired power plants. ~~The Company has agreed to~~ dismiss all claims brought against such defendant and its affiliated entities in the above referenced patent litigation and such defendant has agreed to withdraw from petitions for IPR filed with the USPTO.

The above described proceedings ~~will continue~~are continuing with respect to the other parties involved. On May 20, 2021, a U.S. District Court Magistrate Judge issued a report and recommendation that the above action should be permitted to proceed against 16 refined coal defendants named in the action directly involved in the refined coal program and operations, and be dismissed against 12 other defendants, primarily affiliated entities of the refined coal operators. Such report was issued in connection with certain motions to dismiss filed by the refined coal defendants. In September 2021, such report and recommendation was approved by the District Judge for the United States District Court for the District of Delaware.

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.

Note 12 - Stock Based Compensation

Stock Based Compensation

Stock based compensation consists of the amortization of common stock, stock options and warrants issued for prepaid services. For the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, stock based compensation expense amounted to ~~$369,427~~$197,143 and ~~$0,~~$369,427, respectively. For the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, stock based compensation expense amounted to ~~$619,176~~$453,051 and ~~$1,762,736,~~$619,176, respectively. Such expense is classified in selling, general and administrative expenses.

Common Stock

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.

On March 23, 2021, and pursuant to a consulting agreement dated November 1, 2020, as amended on March 19, 2021, with a nonaffiliated third party, the Company issued 500,000 shares of common stock to such party as part of its compensation thereunder. These shares of common stock were valued at $615,000 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 ten months.
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On March 30, 2021, and pursuant to a business development agreement dated March 30, 2021 with a nonaffiliated third party, the Company issued 25,000 shares of common stock to such party for its compensation thereunder. These shares of common stock were valued at $29,250 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 three months.
Stock Options

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 months ended September 30, ~~2020~~2021 is presented below:

Number of
Shares

Weighted Average Exercise Price

Weighted Average Remaining Contractual Life (years)

Aggregate
Intrinsic
Value

January 1, 2020

12,553,326

$ 0.55

4.02

$ 927

Grants

2,250,000

0.19

4.77

Expirations

(758,500 )

0.68

-

September 30, 2020

14,044,826

$ 0.48

3.60

$ 843,586

Options exercisable at:

September 30, 2020

13,919,826

$ 0.49

3.59

$ 823,586

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Number of
Shares

Weighted
Average
Exercise
Price

Weighted
Average
Remaining Contractual
Life (years)

Aggregate
Intrinsic
Value

January 1, 2021

16,218,326

$ 0.50

3.57

$ 3,588,631

Grants

-

-

-

-

Exercises

(150,000 )

0.75

-

-

Expirations

-

-

-

-

September 30, 2021

16,068,326

$ 0.49

2.87

$ 3,701,564

Options exercisable at:

September 30, 2021

16,068,326

$ 0.49

2.87

$ 3,701,564

The aggregate intrinsic value in the table above represents the total intrinsic value, based on the Company’s closing stock price of ~~$0.35~~$0.65 as of September 30, ~~2020,~~2021, which would have been received by the option holders had all option holders exercised their options as of that date.

The Company utilized the Black-Scholes options pricing model to value its options granted. The assumptions used for options granted during the nine months ended September 30, 2020 and 2019 are as follows:

September 30,
2020

September 30,
2019

Exercise price

$ 0.19

$ 0.27

Expected dividends

0 %

0 %
Expected volatility

103-84
%

100 %
Risk free interest rate

0.33–0.30
%

3 %
Expected life

5–4.12 years

5 years

On ~~June 15, 2020,~~May 1, 2021, the Company ~~granted nonqualified stock options to acquire an aggregate of 250,000~~issued 15,869 shares of ~~the Company’s~~ common stock ~~under~~to a certain option holder upon the ~~Company’s 2017 Equity Incentive Plan (the “2017 Plan”)~~cashless exercise of an option to ~~an employee. The options granted are exercisable at $0.19 per share, representing the fair market value~~purchase 25,000 shares of ~~the~~ common stock ~~on the date~~at an exercise price off $0.42 based upon a market price of ~~grant~~$1.15 per share as determined under the ~~2017 Plan. Fifty percent~~terms of the options are fully vested and exercisable as of the date of grant and fifty percent of the options vest on April 1, 2021. The options will expire five years from the date of grant. Based on a Black-Scholes valuation model, these options were valued at $37,882 in accordance with FASB ASC Topic 718 which will be expensed over the vesting period in selling, general and administrative expenses within the Company’s consolidated statements of operations.
option. On ~~July 8, 2020, the Board of Directors of~~June 30, 2021, the Company ~~approved an amendment to the 2017 Plan to increase the maximum number of~~issued 125,000 shares of common stock ~~that may be issued under the 2017 Plan from 8,000,0000~~ to ~~12,000,000 shares. On the same date, the Company granted nonqualified stock options~~a certain option holder upon a cash exercise of an option to ~~the following executive officers to each acquire 500,000~~purchase 125,000 shares of the Company’s common stock: Richard MacPherson (President and Chief Executive Officer), John Pavlish (Senior Vice President and Chief Technology Officer) and James Trettel (Vice President of Operations); and, also granted nonqualified stock options to the following persons to each acquire 250,000 shares of the Company’s common stock: Christopher Greenberg (Chairman of the Board) and David M. Kaye (director). All of such options were granted under the 2017 Plan and are exercisable at $0.19 per share, representing the fair market value of the common stock onat an exercise price of $0.81 or $101,250 in the date of grant as determined under the 2017 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 $246,965 in accordance with FASB ASC Topic 718 which was expensed on the grant date in selling, general and administrative expenses within the Company’s consolidated statements of operations.aggregate.

Note 13 - Warrants

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 interest rate and the life of the warrant for the exercise period.

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From January 23, 2021 to February 16, 2021, the Company issued 705,166 shares of common stock to certain warrant holders upon the cash exercise of warrants to purchase an aggregate of 705,166 shares of common stock at an exercise price of $0.35 per share or $246,808 in the aggregate.
On February 17, 2021, the Company issued 97,675 shares of common stock to a certain warrant holder upon the cashless exercise of a warrant to purchase 150,000 shares of common stock at an exercise price of $0.45 per share based upon a market value of $1.29 per share as determined under the terms of the warrant.
On March 8, 2021, the Company issued an aggregate of 97,015 shares of common stock to certain warrant holders upon the cashless exercise of warrants to purchase an aggregate of 175,000 shares of common stock at an exercise price of $0.70 per share based upon market values from $1.44 to $1.63 per share as determined under the terms of the warrants.

The following is a summary of the Company’s warrant activity:

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

January 1, 2020

5,690,378

$ 0.63

3.72

$ -

January 1, 2021

5,595,378

$ 0.63

2.85

$ 314,260

Grants

-

-

-

-

Exercises

(1,030,166 )

$ 0.42

-

-

Expirations

-

-

-

(280,212 )

$ 0.35

-

-

September 30, 2020

5,690,378

$ 0.63

2.97

$ -

September 30, 2021

4,285,000

$ 0.70

2.72

$ 0

Warrants exercisable at:

September 30, 2020

5,690,378

$ 0.63

2.97

$ -

September 30, 2021

4,285,000

$ 0.70

2.72

$ 0

The aggregate intrinsic value in the table above represents the total intrinsic value, based on the Company’s closing stock price of ~~$0.35~~$0.65 as of September 30, ~~2020,~~2021, 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, ~~2020:~~2021:

Outstanding and Exercisable
Exercise Price

Number
Outstanding

Weighted
Average
Remaining
Contractual
Life (years)

Weighted
Average
Exercise
Price

$
0.70

4,460,000

3.70

$ 0.70

0.45

150,000

0.17

0.45

0.35

1,080,378
*

0.38

0.35

$
0.35-$0.70

5,690,378

2.97

$ 0.63

~~__________~~
* 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.
Outstanding and Exercisable
Exercise Price

Number Outstanding

Weighted Average
Remaining
Contractual
Life (years)

Weighted Average
Exercise Price

$
0.70

4,285,000

2.72

$ 0.70

$
0.70

4,285,000

2.72

$ 0.70

Note 14 –- Subsequent Events
On October 1, 2020, the Company extended the expiration date of a previously issued warrant to acquire 150,000 shares of common stock of the Company at an exercise price of $0.45 per share. Such warrant was issued to a nonaffiliated third-party providing investor relations consulting services to the Company. The warrant will now expire November 30, 2023.
~~On October 5, 2020, the Company issued 300,000 shares of common stock of the Company to a nonaffiliated third-party pursuant to a consulting agreement entered into on October 1, 2020.~~

See Note 117 for information on the ~~agreement entered into on November 9, 2020~~Second PPP Loan received by the Company ~~with one of~~in February 2021. In October 2021, the defendants in the patent litigation commenced in 2019 which agreement will provide such defendant and its affiliated entities a non-exclusive license to certain Company patents (related to the Company’s two-part Sorbent Enhancement Additive (SEA^®) ~~process)~~ ~~for use in connection with such parties’ coal-fired power plants.~~Second PPP Loan was forgiven.


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

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, ~~2019,~~2020, 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.

Background

Midwest Energy Emissions Corp. (the “Company”, “we”, “us” and “our”) is an environmental services and ~~technology~~technologies company ~~specializing in mercury emission control technologies, primarily to utility~~developing and ~~industrial coal-fired units. We deliver~~delivering patented and proprietary solutions to the global ~~coal-power industry to remove mercury from~~ power ~~plant emissions, providing performance guarantees, and~~industry. Our leading-edge ~~emissions services. We have developed patented technology and proprietary products that~~services have been shown to achieve mercury emissions removal at a significantly lower cost and with less operational impact to coal-fired power plants than currently used methods, while maintaining and/or increasing ~~unit~~power plant output and preserving the marketability of ~~fly-ash~~byproducts 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~~since being enacted. 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,~~plants, but left the rule in place. ~~In December 2015,~~On remand, following the ~~D.C. Circuit remanded the rule back~~Supreme Court’s instructions to consider costs, 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 isremains under review by the D.C. ~~Circuit, and~~Circuit. In April 2017, 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 isthen under the Trump Administration was reviewing the supplemental finding to determine whether it should be reconsidered in whole or in part. The court granted the EPA’s abeyance request onwhich has remained in place. In April ~~27, 2017, and ordered EPA to file 90-day status reports starting July 26, 2017. In February 2019,~~2020, the EPA ~~published a proposed revised supplemental cost-benefits finding for MATS in which EPA proposed to conclude~~concluded that the 2016 supplemental finding was flawed in part due to its reliance on co-benefits to justify ~~MATS. Nevertheless, the EPA proposed to leave the~~ MATS ~~rule in place. At the same time, EPA also requested public comment on whether MATS may or must be rescinded if EPA 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. Following the close of the public comment period, on April 16, 2020, the EPA issued a final rule which finalized the proposed supplemental cost-benefits finding in substantially the form proposed in 2019. The final rule withdrawswithdrew EPA’s 2016 “appropriate-and-necessary” determination as erroneous, but ~~leaves~~left 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 the EPA. ~~EPA’s final action will almost certainly be challenged~~Upon taking office, the Biden Administration in January 2021 directed the ~~courts, some~~EPA to review the previous Administration’s actions on various environmental matters including the withdrawal of ~~which has already begun, both by those who favor retention of~~the “appropriate and necessary” determination, for conformity with Biden Administration environmental policy. Nevertheless, legal challenges may continue with respect to the MATS ~~(such as the electric utility industry) and by those who oppose it (such as certain coal interests and deregulatory groups). This litigation~~regulation which 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.

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Executive Overview

We remain focused on positioning the Company for short and long-term ~~growth. During 2018, we focused~~growth, including focusing on execution at our customer sites and on continual operation improvement. We continue to make refinements to all of our key products, as we continue to focus on the customer and its operations. As part of our overall strategy, we have a number of initiatives which we believe will be able to drive our short and long-term growth.

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, during the first quarter of 2021, we announced that we had secured supply contract extensions with two long-term customers. In July 2021, we announced that we had secured new multi-year supply business with a coal-fired power plant located in the Midwest, which power plant is part of the fleet of a large utility and a long-standing customer based in the Southwest region of the United States.
In Europe, we had been working to penetrate this market through our licensing agreement entered into in March 2018 with one of our primary suppliers. Such arrangement has been terminated effective as of December 6, 2020. We intend to continue to pursue the European market when certain new regulations are expected to take effect in 2021 and 2022 although no assurance can be made that any such efforts will be successful.

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~~reflected the commitment of our financial partner in our efforts to attract new business, manage our present customers and monetize our patent portfolio. In June 2021, we announced that we had entered into a Debt Repayment and Exchange Agreement with AC Midwest which will repay all existing secured and unsecured debt obligations held by AC Midwest. Pursuant to such agreement, we will repay the existing $0.3 million secured note outstanding in cash as well as the existing $13.2 million principal amount outstanding under the unsecured note held by AC Midwest through a combination of cash and stock. AC Midwest is also entitled to a certain non-recourse profit share under the unsecured note which will be satisfied through a combination of cash and stock. The closing is subject to various conditions including but not limited to the completion of an offering of equity securities resulting in net proceeds of at least $12.0 million by December 31, 2021.

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 February 2021, $50,000 of such principal was voluntarily converted into shares of common stock, and in June 2021, the remaining principal balance of $2,550,000 was voluntarily converted by the holders thereof into shares of common stock of the Company.

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. Between July 2020 and January 2021, we entered into agreements with each of the four major utility defendants in the patent litigation commenced in 2019 which agreements included certain monetary arrangements and pursuant to which we have dismissed all claims brought against each of them and their affiliates, and such parties have withdrawn from petitions for Inter Partes Review with the U.S. Patent and Trademark Office. Such agreements entered into with such parties provide each of them and their affiliates with a non-exclusive license to certain Company patents (related to our two-part Sorbent Enhancement Additive (SEA^®) process) for use in connection with such parties’ coal-fired power plants. One of the agreements has facilitated an ongoing business relationship with that party. The above described proceedings are continuing with respect to the other parties involved. In May 2021, a U.S. District Court Magistrate Judge issued a report and recommendation that such litigation should be permitted to proceed against 16 refined coal defendants named in the action directly involved in the refined coal program and operations, and be dismissed against 12 other defendants, primarily affiliated entities of the refined coal operators. In September 2021, such report and recommendation was approved by the District Judge for the United States District Court for the District of Delaware which will allow us to proceed against certain refined coal entities named in the lawsuit.
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Table of Contents

In October 2019, we entered into a license and development agreement with ~~an unaffiliated~~a nonrelated third party entity located in Alabama pursuant to which the parties ~~will~~have agreed to 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. In addition, during the first quarter of 2021, we announced new technologies under development intended to improve the processing of rare earth elements (REEs) in North America. Our new technologies are under development in conjunction with our collaboration with such Alabama third party entity and its affiliates. Such technologies focus on improving the cost of extracting rare earth minerals along with improving the environmental footprint of extracting those REEs from their solvent state. In October 2021, we announced that we had completed phase 1 testing of our REE technology with Pennsylvania State University’s College of Earth and Mineral Sciences confirming 80-90% efficiency rate in extracting select REEs. While there is no established timeline for the introduction of these technologies after further testing is performed, we hope that if such further testing is successful, these technologies can be commercialized in 2022 and thereafter.

~~On July 30, 2020,~~During the first quarter of 2021, we ~~executed a multi-year fleetwide license and supply agreement with Vistra Corp. (“Vistra”), one of the defendants~~announced that we are in the ~~patent litigation commenced in 2019, to provide Vistra~~process of developing a ~~non-exclusive license to certain~~proprietary methane gas emissions control technology which we believe can be adopted within the oil and gas industry. While we have not established a timeline for the introduction of our ~~patents for use~~methane gas emissions control technology, we hope to be able to commercialize our efforts in ~~connection with Vistra’s coal-fired power plants,~~2022 and thereafter.
In addition to ~~facilitate~~ the ~~parties’ ongoing business relationship. Such patents licensed~~$2.6 million in convertible notes which were converted into shares of common stock in the first and second quarters as described above, during the first quarter of 2021, we eliminated $1,830,000 of other convertible notes originally issued in 2013 and 2018 through conversions to ~~Vistra relate~~shares of common stock. During the third quarter of 2021, we issued 20,000 shares of common stock to ~~our two-part Sorbent Enhancement Additive (SEA~~^®) ~~process for mercury removal from coal-fired power plants. Pursuant thereto, Vistra has agreed to purchase from the Company~~ a certain holder of notes issued in 2013 for the conversion of outstanding principal in the amount of ~~product or services or pay us a certain amount quarterly over a four-year period.~~
~~On November 9, 2020, we entered into an agreement with~~$10,000 and prepaid the outstanding principal balance of another ~~defendant~~of such notes issued in 2013 in the ~~patent litigation~~principal amount of $10,000. As a result, there are no convertible notes outstanding as of September 31, 2021 compared to ~~provide such defendant and its affiliated entities a non-exclusive license to the Company’s patents (as referenced~~$4,450,000 in ~~the preceding paragraph) for use in connection with such parties’ coal-fired power plants.~~convertible notes outstanding as of December 31, 2020.

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

Effects of the COVID-19 Pandemic
It should be noted that the coronavirus (COVID-19) pandemic has impacted various businesses throughout the world since early 2020, including travel restrictions and the extended shutdown of certain businesses in impacted geographic regions. During this time, we have continued to conduct our operations ~~may be affected by~~while responding to the ~~recent~~pandemic with actions to mitigate adverse consequences to our employees, business, supply chain and ~~ongoing outbreak~~customers. Nevertheless, the duration and scope of the COVID-19 pandemic continues to be uncertain. If the coronavirus ~~disease (COVID-19) which was declared a pandemic by~~situation does not improve during the ~~World Health Organization in March 2020. The ultimate disruption which~~rest of 2021 or should worsen, we may ~~be caused by the outbreak is uncertain; however, it may result in a material adverse impact on~~experience disruptions to our ~~financial position, operations and cash flow. Such disruptions may include,~~business including, 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.

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Results of Operations

Revenues

We generated revenues of approximately ~~$2,812,000~~$5,020,000 and ~~$3,596,000~~$2,812,000 for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively and approximately ~~$5,812,000~~$10,317,000 and ~~$8,893,000~~$5,812,000 for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Such revenues were primarily derived from sorbent product sales which were approximately ~~$2,781,000~~$4,688,000 and ~~$3,505,000~~$2,781,000 for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and approximately ~~$5,687,000~~$8,780,000 and ~~$8,582,000~~$5,687,000 for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The ~~decrease~~increase in revenues from the prior year ~~period is~~periods was primarily driven by increased sorbent product sales due to the increased supply demands in the coal-fired market as well as expansion of our customer base.
Licensing revenues for the three months ended September 30, 2021 and 2020 were approximately $196,000 and $0, respectively, and approximately $1,287,000 and $0 for the nine months ended September 30, 2021 and 2020, respectively. Such increases were primarily due to ~~decreased generation~~the licensing revenues generated from the agreements entered into with certain of the defendants in the ~~coal fired power sector principally due to renewables and low natural gas prices.~~patent litigation commenced in 2019.

Equipment sales and other revenues for the three months ended September 30, ~~2020~~2021 and ~~2019~~2020 were approximately ~~$31,600~~$58,000 and ~~$91,100,~~$5,000, respectively, and approximately ~~$125,100~~$111,000 and ~~$310,700~~$16,000 for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. This ~~decrease~~increase was primarily due to ~~decreased demonstration~~increased equipment rental revenues in ~~the first nine months of 2020~~2021 compared to ~~the same period~~ last year.

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Costs and Expenses

Total costs and expenses were approximately ~~$3,937,000~~$5,225,000 and ~~$4,400,000~~$3,937,000 during the three months ended September 30, 2021 and 2020, respectively, and ~~2019,~~approximately $12,665,000 and $9,615,000 during the nine months ended September 30, 2021 and 2020, respectively. The ~~decrease~~increase in costs and expenses ~~for~~from the ~~three months ended September 30, 2020~~prior year is ~~primarily~~mainly attributable to the ~~decrease~~increase in cost of sales principally due to the ~~decrease~~increase in ~~sales, as well as a decrease in the loss on change in fair value~~sales.
Cost of ~~profit share. This was partially offset by increases in selling, general and administrative expense and interest expense. Total costs and expenses~~sales were approximately ~~$9,615,000~~$3,241,000 and ~~$13,502,000 during~~$1,882,000 for the ~~nine~~three months ended September 30, 2021 and 2020, respectively, and ~~2019, respectively. The decrease in costs~~approximately $6,221,000 and ~~expenses~~$4,198,000 for the nine months ended September 30, ~~2020 is primarily attributable to the decrease in cost of sales principally due to the decrease in sales, as well as a decrease in selling, general~~2021 and ~~administrative expenses and a gain on change in fair value of profit share. This was partially offset by increases in interest expense.~~
~~Cost of sales were approximately $1,882,000 and $2,478,000 for the three months ended September 30,~~ 2020, ~~and 2019, respectively and approximately $4,198,000 and $6,439,000 for the nine months ended September 30, 2020 and 2019,~~ respectively. This ~~year to date the decrease~~year-to-date increase in cost of sales is primarily attributable to ~~decreased~~increased sales.

Selling, general and administrative expenses were approximately ~~$1,271,000~~$1,341,000 and ~~$1,186,000~~$1,271,000 for the three months ended September 30, 2021 and 2020, respectively, and ~~2019,~~approximately $4,054,000 and $3,577,000 for the nine months ended September 30, 2021 and 2020, respectively. The increase in selling, general and administrative expenses ~~for the three months ended September 30, 2020~~ is primarily attributed to an increase in ~~stock-based compensation~~legal fees compared to the comparable period of 2019. Selling, general and administrative expenses were approximately $3,577,000 and $5,116,000 for the nine months ended September 30, 2020 and 2019, respectively. The decrease in selling, general and administrative expenses for the nine months ended September 30, 2020 is primarily attributed to a decrease in stock-based compensation compared to the comparable period of 2019. 2020.

Interest expense related to the financing of capital was approximately ~~$672,000~~$507,000 and ~~$623,000~~$672,000 for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and approximately ~~$1,987,000~~$2,302,000 and ~~$1,691,000~~$1,987,000 for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The ~~year~~decrease for the three months is the result the decrease in notes payable outstanding as a result of conversion of certain notes to ~~date~~stock. The increase ~~in 2020~~for the nine months is due to the stock conversion incentives provided ~~with the~~to certain notes ~~issued in 2019,~~and accelerated interest expense upon conversion of notes, partially offset by the reduced interest on the notes payable. The breakdown of interest expense for the three and nine months ended September ~~2020~~30, 2021 and ~~2019~~2020 is as follows:

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

(In thousands)

(In thousands)

Interest expense on notes payable

$ 144

$ 105

$ 417

$ 390

Amortization of discount of notes payable

497

$ 488

1478

1201

Amortization of debt issuance costs

31

$ 30

92

100

$ 672

$ 623

$ 1,987

$ 1,691

28
~~Table of Contents~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020

(In thousands)

(In thousands)

Interest expense on notes payable

$ 13

$ 144

$ 265

$ 417

Accelerated interest expense upon conversion of notes

-

-

343

-

Additional interest upon conversion of notes

-

-

221

-

Amortization of discount of notes payable

463

497

1,382

1,478

Amortization of debt issuance costs

31

31

91

92

$ 507

$ 672

$ 2,302

$ 1,987

~~(Gain) loss~~Loss on change in fair value of profit share liability (relating to the restructured unsecured debt obligation held by AC Midwest Energy LLC) were approximately $137,000 and $387,000 for the three and nine months ended September 30, 2021, respectively. The change is primarily attributed to an increase in the fair value of the profit share liability. There were no significant changes to the underlying model during the three and nine months ended September 30, 2021.
Loss (gain) on change in fair value of profit share liability (relating to the restructured unsecured debt obligation held by AC Midwest Energy LLC) were approximately $111,000 and ~~$113,000~~$(141,000) for the three ~~months ended September 30, 2020~~ and ~~2019, respectively and approximately $(141,000) and $256,000 for the~~ nine months ended September 30, 2020, ~~and 2019,~~ respectively. The change is primarily attributed to ~~a decrease~~an increase (decrease) in the fair value of the profit share liability. There were no significant changes to the underlying model during the three and nine months ended September 30, 2020.

Gain on forgiveness of debt of $299,300 relates to the loan proceeds we received in April 2020 pursuant to the Paycheck Protection Program (“PPP”) under the CARES Act. Such loan was forgiven in January 2021 pursuant to the applicable PPP requirements.
8
Table of Contents
Net Income (Loss)

For the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, we had a net loss of approximately ~~$1,125,000~~$207,000 and ~~$804,000,~~$1,125,000, respectively. Such ~~increase~~change was primarily due to ~~a decrease in revenues for the three-month period.~~increased sales and improved margin on such sales.

For the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, we had a net loss of approximately $2,354,000 and $3,803,000, ~~and $4,609,000,~~ respectively. Although revenues decreased for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, the net loss for the nine months ended September 30, 2020 compared to the prior year period decreased by approximately $806,000Such change was primarily due to ~~the substantial decrease in total costs~~increased sales and ~~expenses principally due to the decrease in stock based compensation allocated in selling, general and administrative expenses and~~improved margin on such sales as well as the gain ~~recognized during~~on extinguishment of debt partially offset by the ~~nine months ended September 30, 2020 from the on~~ change in the fair value of the profit ~~share.~~share liability and the change in interest expense due principally to the stock conversion incentive provided to certain note holders and related accelerated interest.

Liquidity and Capital Resources

We had approximately ~~$319,000~~$866,000 in cash on our balance sheet at September 30, ~~2020~~2021 compared to approximately ~~$1,499,000~~$591,000 at December 31, ~~2019.~~2020. Total current assets were approximately ~~$2,453,000~~$4,972,000 and total current liabilities were approximately ~~$3,151,000~~$15,916,000 at September 30, 2021, resulting in working capital deficit of approximately $10,944,000. This compares to total current assets of approximately $2,375,000 and total current liabilities of approximately $3,359,000 at December 31, 2020, resulting in a working capital deficit of approximately $698,000. This compares to total current assets of approximately $3,552,000 and total current liabilities of approximately $3,854,000 at December 31, 2019, resulting in a working capital deficit of approximately $302,000.$984,000. Our accumulated deficit was approximately ~~$61.5~~$65.8 million at September 30, ~~2020~~2021 compared to ~~$57.7~~$63.5 million at December 31, ~~2019.~~2020. Additionally, we had a net loss in the amount of approximately ~~$3,803,000~~$2,354,000 and cash used in operating activities of approximately ~~$1,538,000~~$306,000 for the nine months ended September 30, ~~2020.~~2021.

During 2018, we restructured convertible notes totaling $560,000 into new loans that mature in 2023. In February 2019, we completed the restructuring of our unsecured and secured debt obligations held 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 October 2019, we sold $2,600,000 new convertible notes which mature in 2024 to investors. Nevertheless, theThe accompanying condensed consolidated financial statements as of September 30, ~~2020~~2021 have been prepared assuming we will continue as a going concern. As reflected above and in the condensed consolidated financial statements, ~~included with this report,~~ we had $866,000 in cash, working capital deficit of $10.9 million and an accumulated deficit of ~~approximately $61.5~~$65.8 million ~~and a negative working capital of approximately $696,000~~ at September 30, ~~2020. Additionally, we~~2021. We also had a net loss in the amount of ~~approximately $3.8~~$2.4 million and cash used in operating activities of ~~$1.5 million~~$306,000 for the nine months ended September 30, ~~2020.~~2021. All existing secured and unsecured debt held by our principal lender in the principal amount of $13.4 million matures on August 25, 2022 which is within one year from the issuance of these condensed consolidated financial statements. These factors raise substantial doubt about our ability to continue as a going concern for the next twelve months from the issuance of ~~this Quarterly Report on Form 10-Q.~~these condensed consolidated financial statements.
We have taken steps to alleviate such doubt. During the first nine months of 2021, we eliminated $4,440,000 of convertible notes through conversions to shares of common stock and repaid $10,000 of convertible notes, leaving no convertible notes outstanding as of September 30, 2021. In addition, in June 2021, we announced that we had entered into a Debt Repayment and Exchange Agreement with our principal lender which, subject to various closing conditions, including but not limited to the completion of an offering of equity securities resulting in net proceeds of at least $12.0 million by December 31, 2021, will repay all existing secured and unsecured debt obligations held by such lender. Although we anticipate continued significant revenues ~~for products~~in our business operations and that we will be able to ~~be used in MATS compliance activities,~~raise the funds necessary to complete the transaction contemplated by the Debt Repayment and Exchange Agreement, no assurances can be given that we can obtain sufficient working capital through ~~these activities and additional financing may~~our business operations or that we will be ~~needed~~able to ~~meet its obligations. In February 2020, we closed on a one-year secured loan with a bank in~~raise the ~~principal amount of $200,000, and in April 2020, we received loan proceeds in the amount of $299,300 (the “PPP Loan”) pursuant~~funds necessary to ~~the Paycheck Protection Program~~close 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 8Debt Repayment Agreement by December 31, 2021 or ~~24 week period from the date of the loan, including payroll, benefits, rent and utilities, and we otherwise comply with the PPP requirements. In~~at all, 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 efforts, or that the continued implementation of our business plan will generate sufficient revenues in the future to sustain ongoing operations.

The accompanying condensed consolidated financial statements do not include 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 us to continue as a going concern.

299
Table of Contents
~~Table of Contents~~
Total Assets

Total assets were approximately ~~$7,635,000~~$9,471,000 at September 30, ~~2020~~2021 versus approximately ~~$9,273,000~~$7,376,000 at December 31, ~~2019.~~2020. The change in total assets is primarily attributable to ~~decreases~~an increase in ~~cash and prepaid expenses and other assets.~~accounts receivable.
Total Liabilities

Total liabilities were approximately ~~$19,839,000~~$18,975,000 at September 30, ~~2020~~2021 versus approximately ~~$18,147,000~~$20,580,000 at December 31, ~~2019.~~2020. The ~~increase~~decrease in liabilities is primarily due to ~~an increase in notes payable and convertible notes payable offset by~~ a decrease in ~~accounts payable and accrued expenses.~~debt.
Operating Activities

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

Net cash used in operating activities was approximately ~~$1,538,000~~$306,000 for the nine months ended September 30, ~~2020~~2021 compared to net cash used in operating activities of approximately ~~$1,305,000~~$1,538,000 for the nine months ended September 30, ~~2019.~~2020. The ~~increase~~decrease in cash used in operating activities of approximately ~~$233,000~~$1,232,000 was primarily due to an approximate ~~$652,000 increase~~$1,449,000 decrease in net loss, ~~after adjusting for non-cash items from period to period, offset by a~~$299,000 change in ~~operating assets~~amortization of discount of notes payable, $528,000 change in fair value of profit share and ~~liabilities of approximately $420,000 primarily attributable to an increase~~$1,361,000 change in accounts payable and accrued liabilities, ~~plus a decrease in inventory,~~partially offset by a ~~decreases~~$1,698,000 change in ~~operating lease liability.~~accounts receivable.
Investing Activities

Net cash provided by investing activities was ~~$9,500~~$0 for the nine months ended September 30, ~~2020~~2021 compared to net cash provided by investing activities of $0$9,500 for the nine months ended September 30, ~~2019.~~2020. The ~~increase is attributed~~activity for 2020 related to ~~the~~ cash received from the sale of equipment.
Financing Activities

Net cash provided by financing activities was approximately ~~$348,000~~$581,000 for the nine months ended September 30, ~~2020~~2021 compared to net cash provided by financing activities of approximately ~~$1,719,000~~$348,000 for the nine months ended September 30, ~~2019.~~2020. During the nine months ended September 30, ~~2020, we~~2021, the Company received ~~$499,000~~$299,000 from the issuance of notes payable, ~~while during the nine months ended September 30, 2019, we received $1,825,000~~$247,000 from the ~~issuance~~exercise of ~~convertible promissory notes~~warrants and ~~warrants.~~$101,000 from the exercise of stock options.

Off-Balance Sheet Arrangements

We do not have any 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.

Critical Accounting Policies and Estimates

For detailed information regarding our critical accounting policies and estimates, see our financial statements and notes thereto included in this Report and in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. There have been no material changes to our critical accounting policies and estimates from those disclosed in our most recent Annual Report on Form 10-K.
10
Table of Contents

Non-GAAP Financial Measures

Adjusted EBITDA

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.

30
~~Table of Contents~~
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.

The following table shows our reconciliation of ~~Net~~net loss to adjusted EBITDA for the three and nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively:

For the Three Months Ended

For the Nine Months Ended

For the Three Months Ended

For the Nine Months Ended

September 30,
2020

September 30,
2019

September 30,
2020

September 30,
2019

September 30,
2021

September 30,
2020

September 30,
2021

September 30,
2020

(In thousands)

(In thousands)

(In thousands)

(In thousands)

Net loss

$ (1,125 )

$ (804 )

$ (3,803 )

$ (4,609 )

$ (207 )

$ (1,125 )

$ (2,354 )

$ (3,803 )

Non-GAAP adjustments:

Depreciation and amortization

108

230

535

717

63

108

210

535

Interest and letter of credit fees

672

623

1,987

1,691

507

672

2,302

1,987

Gain on extinguishment of debt

-

-

(299 )

-

Income taxes

-

-

-

-

2

-

6

-

Stock based compensation

369

-

619

1,763

197

369

453

619

Adjusted EBITDA

$ 24

$ 49

$ (662 )

$ (438 )

$ 562

$ 24

$ 318

$ (662 )

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

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.

11
Table of Contents
Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

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.
31
~~Table of Contents~~

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.

Changes in Internal Control over Financial Reporting

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. As of October 21, 2020, our Controller was appointed and promoted to Chief Accounting Officer and Principal Accounting Officer of the ~~Company.~~Company, and as of June 1, 2021, was appointed and promoted to Chief Financial Officer and Principal Financial Officer. 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 ~~2020~~2021 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.

3212
Table of Contents

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

~~Reference is hereby made~~See Note 11 “Commitments and Contingencies” to ~~the Annual Report on Form 10-K~~our unaudited condensed consolidated financial statements included in Part I, Item 1 of this report for ~~the year ended 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~~a summary 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.
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. On or about July 15, 2020, AEP Generation Resources, Inc., another defendant in the above action, filed four petitions for IPR with the USPTO, seeking to invalidate certain claims to the ‘114 Patent and ‘147 Patent.
~~An IPR is a~~ trial proceeding for challenging the validity of a US patent before the Patent and Trial and Appeal Board (the “Board”) of the USPTO. To institute an IPR, the Board must determine that the information presented in the petition shows there is a reasonable likelihood that the petitioner would prevail with respect to at least one of the claims challenged in the petition. If the proceeding is instituted and not dismissed, a final determination by the Board will be issued within one year which may be extended for good cause.
On July 30, 2020, the Company and Vistra Corp. executed a multi-year fleetwide license and supply agreement to provide Vistra a non-exclusive license to certain Company patents for use in connection with Vistra’s coal-fired power plants, and to facilitate the parties’ ongoing business relationship. Such patents licensed to Vistra relate to the Company’s two-part Sorbent Enhancement Additive (SEA^®) process for mercury removal from coal-fired power plants. The Company has dismissed all claims brought against Vistra in the above referenced patent litigation and Vistra has agreed to withdraw from petitions for IPR filed with the USPTO.
On October 26, 2020, and with respect to the two IPRs filed on April 21, 2020, the Board determined that the petitioners demonstrated a reasonable likelihood of prevailing with respect to at least one claim of the ‘114 Patent and, accordingly, instituted such IPRs.
On November 9, 2020, the Company entered into an agreement with another defendant to provide such defendant and its affiliated entities a non-exclusive license to certain Company patents (related to the Company’s two-part Sorbent Enhancement Additive (SEA^®) ~~process)~~ ~~for use in connection with such parties’ coal-fired power plants. The Company has agreed to~~ dismiss all claims brought against such defendant and its affiliated entities in the above referenced patent litigation and such defendant has agreed to withdraw from petitions for IPR filed with the USPTO.
~~The above described proceedings will continue with respect to the other parties involved.~~
~~Other than the foregoing, there are no material pending~~our 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~~incorporated by ~~governmental authorities.~~reference herein.

Item 1A. Risk Factors.

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.

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

~~None.~~On August 18, 2021, the Company issued 20,000 shares of common stock to a certain holder of a convertible promissory note issued in 2013 for the conversion of outstanding principal of such note in the amount of $10,000, based upon a conversion rate of $0.50 per share.
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 (the “1933 Act”), and where applicable, under Section 3(a)(9) of the 1933 Act.

Item 3. Default Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.


3313
Table of Contents

Item 6. Exhibits.

Exhibit
Number

Description

31.1*

Certification by Principal Executive Officer, ~~and~~required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act
31.2*
Certification by Principal Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act
32.1*

Certification by 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 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*101.INS*

~~The following financial information from our Quarterly Report on Form 10-Q for the three months ended September 30, 2020 formatted~~Inline XBRL Instance Document
101.SCH*
Inline XBRL Taxonomy Extension Schema Document
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*
Cover Page Interactive Data File (formatted as inline XBRL and contained 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 StatementsExhibit 101)
_______
* Filed herewith.


3414
Table of Contents

SIGNATURES

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 23, 2020~~ ~~By:~~ ~~/s/ Richard MacPherson~~

~~Richard MacPherson~~
Dated: November 15, 2021
By:
/s/ Richard MacPherson
Richard MacPherson
President and Chief Executive Officer
(Principal Executive Officer)
Dated: November 15, 2021
By:
/s/ Jami L. Satterthwaite
Jami L. Satterthwaite
Chief Financial Officer ~~and~~
(Principal Financial Officer)


3515

			Page
PART I ‑ FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements.		4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		265
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		3111
Item 4.	Controls and Procedures.		3112

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings.		3313
Item 1A.	Risk Factors		3313
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		3313
Item 3.	Default upon Senior Securities.		3313
Item 4.	Mine Safety Disclosures.		3313
Item 5.	Other Information.		3313
Item 6.	Exhibits.		3414

SIGNATURES		35	15

MIDWEST ENERGY EMISSIONS CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(UNAUDITED)

Nine Months Ended September 30, 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	)

Issuance of stock options		-		-		19,921		-			19,921

Net loss		-		-		-		(904,217	)		(904,217	)

Balance - June 30, 2020		77,747,750		77,748		48,927,006		(60,336,572	)		(11,331,818	)

Issuance of stock options		-		-		252,973		-			252,973

Net loss		-		-		-		(1,124,687	)		(1,124,687	)

Balance - September 30, 2020		77,747,750	$	77,748	$	49,179,979	$	(61,461,259	)	$	(12,203,532	)

	Nine months ended September 30, 2021						Nine months ended September 30, 2020
	United States		International		Total		United States		International		Total
Product revenue	$	8,779,645	$	0	$	8,779,645	$	5,573,643	$	113,600	$	5,687,243
License revenue		1,286,641		0		1,286,641		0		0		0
Demonstrations & Consulting revenue		140,180		0		140,180		109,372		0		109,372
Equipment revenue		110,585		0		110,585		9,394		6,366		15,760
	$	10,317,051	$	0	$	10,317,051	$	5,692,409	$	119,966	$	5,812,375

	September 30,		September 30,
	2020		2019

Stock Options		14,044,826		12,463,326
Warrants		5,690,378		3,915,378
Convertible debt		9,157,100		7,350,000
Total common stock equivalents excluded from diluted net loss per share		28,892,304		23,728,704

	September 30,		September 30,
	2021		2020

Stock Options		16,068,326		14,044,826
Warrants		4,285,000		5,690,378
Convertible debt		-		9,157,100
Total common stock equivalents excluded from diluted net loss per share		20,353,326		28,892,304

	September 30, 2020		December 31, 2019
Raw Materials	$	136,663	$	223,790
Work in Process		19,484		43,814
Spare Parts		27,632		27,632
Finished goods		289,781		218,262
	$	473,560	$	513,498

	September 30,			December 31,			September 30,			December 31,
	2020			2019			2021			2020

Equipment & installation	$	1,965,659		$	1,965,659		$	1,965,659		$	1,965,659
Trucking equipment		895,587			922,441			834,375			834,375
Computer equipment and software		67,126			67,126			14,768			67,126
Office equipment		27,155			27,155			5,528			27,155
Total property and equipment		2,955,527			2,982,381
Total equipment								2,820,330			2,894,315

Less: accumulated depreciation		(2,845,008	)		(2,707,745	)		(2,797,829	)		(2,814,993	)
Construction in process		1,807,707			1,807,707			1,807,707			1,807,707
Property and equipment, net	$	1,918,226		$	2,082,343		$	1,830,208		$	1,887,029

Twelve months ended September 30,
2021	$	-
2022		990,000
2023		760,000
2024		1,925,000
2025		775,000
	$	4,450,000

Twelve months ended September 30,	Discounts
2021	$	114,040
2022		114,040
2023		110,721
2024		82,912
2025		1,909
	$	423,622

Profit Share as of January 1, 2020	$	2,328,845
Addition		-
Gain on change in fair value of profit share		(140,954	)
Profit Share as of September 30, 2020	$	2,187,891

Profit Share as of January 1, 2021	$	2,305,308
Addition		0
Loss on change in fair value of profit share		386,951
Profit Share as of September 30, 2021	$	2,692,259

Profit Share as of January 1, 2019	$	-
Addition		1,954,383
Loss on change in fair value of profit share		255,847
Profit Share as of September 30, 2019	$	2,210,230

For the twelve months ended September 30,
2021	$	438,840
2022		402,520		$	402,520
2023		92,040			92,040
2024		22,500			22,500
Total		955,900			517,060
Less discount		(54,447	)		(18,516	)
Total lease liabilities		901,453			498,544
Less current portion		(402,918	)		(386,984	)
Operating lease obligation, net of current portion	$	498,535		$	111,560

	Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020		Three Months Ended September 30, 2021		Nine Months Ended September 30, 2021

Operating lease cost	$	92,133	$	289,263	$	102,622	$	304,056
Short-term lease cost (1)		1,770		5,310		1,770		5,310
Total lease cost	$	93,903	$	294,573	$	104,392	$	309,366

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

January 1, 2020		12,553,326		$	0.55		4.02	$	927
Grants		2,250,000			0.19		4.77
Expirations		(758,500	)		0.68		-
September 30, 2020		14,044,826		$	0.48		3.60	$	843,586

Options exercisable at:
September 30, 2020		13,919,826		$	0.49		3.59	$	823,586

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

January 1, 2021		16,218,326		$	0.50		3.57	$	3,588,631
Grants		-			-		-		-
Exercises		(150,000	)		0.75		-		-
Expirations		-			-		-		-
September 30, 2021		16,068,326		$	0.49		2.87	$	3,701,564

Options exercisable at:
September 30, 2021		16,068,326		$	0.49		2.87	$	3,701,564

	September 30, 2020			September 30, 2019
Exercise price	$	0.19		$	0.27
Expected dividends		0	%		0	%
Expected volatility	103-84		%		100	%
Risk free interest rate	0.33–0.30		%		3	%
Expected life	5–4.12 years			5 years

	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

January 1, 2020		5,690,378	$	0.63		3.72	$	-
January 1, 2021										5,595,378		$	0.63		2.85	$	314,260
Grants		-		-		-				-
Exercises										(1,030,166	)	$	0.42		-		-
Expirations		-		-		-				(280,212	)	$	0.35		-		-
September 30, 2020		5,690,378	$	0.63		2.97	$	-
September 30, 2021										4,285,000		$	0.70		2.72	$	0

Warrants exercisable at:
September 30, 2020		5,690,378	$	0.63		2.97	$	-
September 30, 2021										4,285,000		$	0.70		2.72	$	0

Outstanding and Exercisable
Exercise Price		Number Outstanding			Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price
$	0.70		4,460,000			3.70	$	0.70
	0.45		150,000			0.17		0.45
	0.35	1,080,378		*		0.38		0.35
$	0.35-$0.70		5,690,378			2.97	$	0.63

Outstanding and Exercisable
Exercise Price		Number Outstanding		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price
$	0.70		4,285,000		2.72	$	0.70

$	0.70		4,285,000		2.72	$	0.70

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

Interest expense on notes payable	$	144	$	105	$	417	$	390
Amortization of discount of notes payable		497	$	488		1478		1201
Amortization of debt issuance costs		31	$	30		92		100

	$	672	$	623	$	1,987	$	1,691

	For the Three Months Ended						For the Nine Months Ended						For the Three Months Ended						For the Nine Months Ended
	September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019			September 30, 2021			September 30, 2020			September 30, 2021			September 30, 2020
	(In thousands)						(In thousands)						(In thousands)						(In thousands)

Net loss	$	(1,125	)	$	(804	)	$	(3,803	)	$	(4,609	)	$	(207	)	$	(1,125	)	$	(2,354	)	$	(3,803	)

Non-GAAP adjustments:
Depreciation and amortization		108			230			535			717			63			108			210			535
Interest and letter of credit fees		672			623			1,987			1,691			507			672			2,302			1,987
Gain on extinguishment of debt														-			-			(299	)		-
Income taxes		-			-			-			-			2			-			6			-
Stock based compensation		369			-			619			1,763			197			369			453			619

Adjusted EBITDA	$	24		$	49		$	(662	)	$	(438	)	$	562		$	24		$	318		$	(662	)

Exhibit Number		Description

31.1*		Certification by Principal Executive Officer, ~~and~~required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act
31.2*		Certification by Principal Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act
32.1*		Certification by 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 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
101101.INS		~~The following financial information from our Quarterly Report on Form 10-Q for the three months ended September 30, 2020 formatted~~Inline XBRL Instance Document
101.SCH*		Inline XBRL Taxonomy Extension Schema Document
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*		Cover Page Interactive Data File (formatted as inline XBRL and contained 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 StatementsExhibit 101)

	MIDWEST ENERGY EMISSIONS CORP.

~~Dated: November 23, 2020~~	~~By:~~	~~/s/ Richard MacPherson~~
		~~Richard MacPherson~~
Dated: November 15, 2021	By:	/s/ Richard MacPherson
		Richard MacPherson
		President and Chief Executive Officer
		(Principal Executive Officer)

Dated: November 15, 2021	By:	/s/ Jami L. Satterthwaite
		Jami L. Satterthwaite
		Chief Financial Officer ~~and~~
		(Principal Financial Officer)