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Midwest Energy Emissions (MEEC)

Filed: 16 Apr 18, 8:00pm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended: December 31, 2017

 

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 incorporation or organization)

(I.R.S. Employer Identification No.)

 

670 D Enterprise Dr., Lewis Center, Ohio 43035

(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: (614) 505-6115

 

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

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

 

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 x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or 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. (Check one):

 

Large accelerated filer

o

Accelerated filer

o

Non-accelerated filer

o

Smaller reporting company

x

Emerging growth company

o

 

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. o

 

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

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2017, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $19,118,000.

 

The number of shares outstanding of the Common Stock ($.001 par value) of the Registrant as of the close of business on April 17, 2018 was 76,246,113.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the proxy statement for the Annual Meeting of Stockholders scheduled to be held on June 18, 2018 are incorporated by reference into Part III of this report.

 

 
 
 
 

 

TABLE OF CONTENTS

 

 

 

Page

 

 

PART I

 

 

 

 

 

 

Item 1.

Business

4

 

Item 1A.

Risk Factors

9

 

Item 1B.

Unresolved Staff Comments

 14

 

Item 2.

Properties

 14

 

Item 3.

Legal Proceedings

 14

 

Item 4.

Mine Safety Disclosures

 14

 

 

 

 

 

PART II

 

 

 

 

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 15

 

Item 6.

Selected Financial Data

 16

 

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 17

 

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

 21

 

Item 8.

Financial Statements and Supplementary Data

 22

 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 23

 

Item 9A.

Controls and Procedures

 23

 

Item 9B.

Other Information

 24

 

 

 

 

 

PART III

 

 

 

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

 25

 

Item 11.

Executive Compensation

 25

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 25

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

 25

 

Item 14.

Principal Accountant Fees and Services

 25

 

 

 

 

 

PART IV

 

 

 

 

 

 

Item 15.

Exhibits and Financial Statement Schedules

 26

 

Item 16.

Form 10-K Summary

29

 

 

 
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TABLE OF DEFINED TERMS

 

TERM

DEFINITION

BAC

Brominated Powdered Activated Carbon

 

EERC

Energy and Environmental Research Center

 

EGU

Electric Generating Unit

 

EPA

The U.S. Environmental Protection Agency

 

ESP

Electrostatic Precipitator

 

Hg

Mercury

 

IGCC

Integrated Gasification Combined Cycle

 

MATS

Mercury and Air Toxics Standards

 

MEEC

Midwest Energy Emissions Corp.

 

MW

Megawatt

 

NOX

Oxides of Nitrogen

 

OTCQB

Over The Counter Venture Marketplace

 

PAC

Powdered Activated Carbon

 

SCR

Selective Catalytic Reduction

 

SEC

U.S. Securities and Exchange Commission

 

SOX

Oxides of Sulfur

 

 
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PART I

 

Forward-Looking Statements

 

This Annual Report on Form 10-K 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 herein under the caption “Risk Factors”. 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 MEEC’s filings and with the Securities and Exchange Commission. See “Risk Factors” in Item 1A.

 

ITEM I – BUSINESS

 

As used in this Annual Report on Form 10-K, the terms “we”, “us”, “our”, “the Company”, “MEEC”, and “Midwest Energy Emissions Corp.” refer to Midwest Energy Emissions Corp. and our wholly-owned subsidiaries.

 

Background

 

Midwest Energy Emissions Corp., a Delaware corporation, is an environmental services and technology company specializing in mercury emission control technologies, primarily to utility and industrial coal-fired units. Our business plan is to deliver cost-effective mercury capture technologies to coal-fired power plants in the United States, Canada, Europe and Asia. We believe that our patented, proprietary technology allows customers to meet the highly restrictive standards the U.S. Environmental Protection Agency (EPA) issued on December 21, 2011 for mercury emissions in an effective and economical manner with the least disruption to the current equipment and on-going operations.

 

MEEC was incorporated under the laws of the State of Utah on July 19, 1983 under the name of Digicorp. In 2006, MEEC entered into a merger agreement with Digicorp, Inc., a Delaware corporation, for the purpose of effecting a change of the corporation’s domicile and in February 2007 the Company changed its domicile from Utah to Delaware. In October 2008, Digicorp changed its name to China Youth Media, Inc.

 

In December 2008, Midwest Energy Emissions Corp. was incorporated in the state of North Dakota (“Midwest”) under the name RLP Energy, Inc. and subsequently changed its name in January 2011 to Midwest Energy Emissions Corp. Midwest was 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.

 

On June 21, 2011, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Midwest pursuant to which at closing China Youth Media Merger Sub, Inc., the Company’s wholly-owned subsidiary formed for the purpose of the merger (the “Merger Sub”), merged into Midwest, the result of which Midwest would become the Company’s wholly-owned subsidiary (the “Merger”). The Merger closed effective on June 21, 2011 (the “Closing”). As a result of the Closing and the Merger, the Merger Sub merged with and into Midwest and with Midwest surviving as a wholly-owned subsidiary of China Youth Media, Inc. Effective at the time of the Closing, Midwest changed its name to MES, Inc. For accounting purposes, the Merger was treated as a reverse merger and a recapitalization of the Company.

 

 
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Pursuant to a Certificate of Amendment to our Certificate of Incorporation filed with the State of Delaware and effective as of October 7, 2011, China Youth Media, Inc. (i) changed its corporate name from “China Youth Media, Inc.” to “Midwest Energy Emissions Corp.”, (ii) effected a reverse stock split of all the outstanding shares of our common stock at an exchange ratio of one for one hundred ten (1:110) (the “Reverse Stock Split”) and (iii) changed the number of authorized shares of common stock, par value $.001 per share, from 500,000,000 to 100,000,000. Pursuant to an additional Certificate of Amendment to our Certificate of Incorporation filed with the State of Delaware and effective as of November 18, 2014, the number of authorized shares of common stock was increased to 150,000,000.

 

As a result of the Merger, all of the outstanding shares of common stock of Midwest were exchanged for 10,000 shares of newly created Series B Convertible Preferred Stock (the “Merger Shares”) of China Youth Media, Inc. The former shareholders of Midwest, upon conversion of all the Merger Shares, which occurred automatically on the filing of an October 2011 amendment to China Youth Media, Inc.’s certificate of incorporation to increase the number of authorized shares (see below) then owned approximately 90% of the Company’s issued and outstanding common stock which were deemed issued and outstanding as of the closing of the Merger and conversion.

 

As a result of the Merger, our business is now focused on the delivery of mercury capture technologies to power plants in North America, Europe and Asia. Our prior businesses - focusing on youth marketing and media in China by providing advertisers and corporations with direct and centralized access to China’s massive but difficult to reach student population, including the business of aggregation and distribution of international content and advertising for Internet or online consumption in China - have been terminated.

 

In November 2011, MEEC moved its corporate headquarters to Worthington, Ohio and on March 1, 2015 moved its corporate headquarters to 670 D Enterprise Drive, Lewis Center, Ohio 43035. We currently have 17 fulltime employees. Our employees are not represented by labor unions. We believe that relations with our employees are good.

 

Regulations and Markets

 

The markets for mercury removal from plant emissions are largely driven by regulations (state, provincial and federal). Changes in regulations have profound effects on these markets and the companies that compete in these markets. This is especially true for smaller companies such as MEEC.

 

On December 21, 2011 the EPA issued its Mercury and Air Toxics Standards (“MATS”) for power plants in the U.S. The MATS rule is intended to reduce air emissions of heavy metals, including mercury (Hg), from all major U.S. power plants burning coal or oil, which are the leading source of non-natural mercury emissions in the U.S. Existing power plants were granted three years (plus a potential one year extension in cases of hardship, ruled on by State EPA’s where the plant is domiciled) from April 16, 2012, to comply with the new emission limits. The MATS rule applies to Electric Generating Units (“EGUs”) that are larger than 25 megawatts (“MW”) that burn coal or oil for the purpose of generating electricity for sale and distribution through the national electric grid to the public. They include investor-owned units, as well as units owned by the Federal government, municipalities, and cooperatives that provide electricity for commercial, industrial, and residential uses. At the time of MATS being promulgated, there were approximately 1,250 coal-fired EGU’s affected by this new rule. Since this time, many of such EGU’s have been shut down as a result of this regulation and due to competitive disadvantage to newer or gas-fired EGUs. We believe that at the end of 2017, there are approximately 450 coal-fired EGU’s remaining in the power market which make up the large mercury-emissions control market into which we sell.

 

The final MATS rule identifies two subcategories of coal-fired EGUs, four subcategories of oil-fired EGUs and a subcategory for units that combust gasified coal or solid oil (integrated gasification combine cycle [IGCC] units) based on the design, utilization, and/or location of the various types of boilers at different power stations. The rule includes emission standards and/or other requirements for each subcategory. The rule sets nationwide emission limits and is estimated to reduce mercury emissions in coal-fired plants by about 90%.

 

 
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These on-going annual operating costs increases include all functions of the MATS regulation, and not just mercury emissions reductions. It is also important to note that more than 20 states currently have regulations to limit mercury emissions, and these regulations remain in place.

 

With the adoption of the MATS rule, utilities have and will continue to explore and have conducted and will conduct numerous demonstrations of various technologies to determine which will work best to achieve the required reductions to bring each individual unit under the maximum allowed emissions rate. There are several choices of pollution control technologies available to reduce mercury emissions, but they do not all work consistently or cost-effectively for every plant design or for all of the various types of coal. The most common technology employed to reduce mercury emissions is the injection of powdered activated carbon (“PAC”) or brominated PAC (“BAC”) into the flue-gas of an EGU after the boiler itself but in front of the Electro-Static Precipitators (“ESP”). Such injections have proven effective with many coals, especially at reduction levels of 70% or less. At required mercury reduction levels above 80%, these injection systems require substantial injection rates which often have severe operational issues including over-loading the ESP and rendering the fly ash unfit for sale to concrete companies, and at times even causing combustion concerns with the fly ash itself.

 

Mercury is also removed as a co-benefit by special pollution control equipment installed to remove oxides of sulfur (“SOX”) and nitrogen (“NOX”). To achieve very high levels of SOX reduction, large, complex and expensive (capital costs in the hundreds of millions of dollars for a medium-sized EGU) systems called Scrubbers can be installed in the plant exhaust system, typically just before the flue-gas goes up the stack for release. As a co-benefit to their primary mission, Scrubbers have been shown to remove significant quantities of oxidized mercury. Mercury is typically found in two basic forms in coal: elemental and oxidized. The amount of each form varies in any given seam of coal and is affected by the other natural elements (such as chlorine) which might also be present in the coal. We believe about 40% of the mercury in the post-combustion flue-gas exists in the oxidized state. Mercury is found in only tiny trace amounts in coal and its presence is difficult to detect. It is in the burning of millions of tons of coal that these trace amounts become problematic, and why MATS was promulgated.

 

The other major pollution control system which contributes significantly to the co-benefits of mercury removal is a Selective Catalytic Reduction (“SCR”) system which can be installed to achieve high levels of removal of NOX. SCRs are also very large and expensive systems (costing hundreds of millions of dollars in capital costs to install on a medium-size EGU) that are typically installed just after the flue-gas exits from the unit boiler. As a co-benefit, SCRs have been shown to oxidize a considerable percentage of the elemental mercury in many types of coal. If the EGU then has a combination of an SCR and a Scrubber, we estimate that the EGU might achieve an overall reduction of 80-85% of the mercury in many types of coal. The exact level of mercury emission reductions depends on the designs of these systems and the types of coal being burned.

 

It is thus anticipated that the large majority of the approximately 450 coal-fired EGUs in the U.S. will employ some sort of sorbent injection system to achieve the very low mercury emission levels required by the MATS rule. Either the sorbent injection system will be the primary removal method or such a system will likely be employed as a supplemental system to SCR/Scrubber combinations to achieve the new emission limits.

 

MEEC’s Technology

 

We provide customer-focused mercury capture solutions driven by our patented technology using a powerful combination of science and engineering. We offer designed systems and materials tailored and formulated specifically to each customer’s unique application. Our mercury removal technology and systems have been shown in long-term, full-scale trials on operating units to achieve mercury removal levels above the new MATS requirements and to do so with lower cost and plant systems impacts than typical PAC or BAC sorbent injection systems. Our technology was originally developed by the University of North Dakota’s Energy and Environmental Research Center (“EERC”). It was tested and refined on numerous operating coal-fired EGUs, with the founder of MES, Inc. participating with the EERC on these tests since 2008. The Energy and Environmental Research Center Foundation, a non-profit entity (“EERCF”), obtained patents on this technology.

 

 
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On January 15, 2009, we entered into an “Exclusive Patent and Know-How License Agreement Including Transfer of Ownership” (the “License Agreement”) with the EERCF. Under the terms of the License Agreement, we were granted an exclusive license by EERCF with respect to this patented 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. Amendments No. 4 and No. 5 to the License Agreement were made effective as of December 16, 2013 and August 14, 2014, respectively, expanding the number of patents covered, eliminated certain contract provisions and compliance issues and restructured the fee payments and buyout provisions while granting EERCF equity in the Company. The License Agreement applied to various domestic and foreign patents and patent applications which formed the basis of our mercury control technology.

 

Under the terms of the License Agreement, we were required to pay EERCF monthly license maintenance fees and annual running royalties on operational systems of the Company, and we had the right to purchase the patent rights for a payment specified therein.

 

On April 24, 2017, we closed on the acquisition from EERCF of all such patent rights, including all patents and patents pending, domestic and foreign, relating to the foregoing technology. A total of 42 domestic and foreign patents and patent applications were included in the acquisition. In accordance with the terms of the License Agreement, the patent rights were acquired for the purchase price of (i) $2,500,000 in cash, and (ii) 925,000 shares of common stock of which 628,998 shares were issued to EERCF and 296,002 were issued to the inventors who had been designated by EERCF. As a result of the acquisition of the patent rights, no additional monthly license maintenance fees and annual running royalties shall be due and owing to the EERCF following closing which fees and royalties have now been eliminated.

 

Intellectual Property

 

We have a patent portfolio consisting of 42 patents throughout the U.S., Canada, Europe and China and 19 patents pending. We believe that our patent position is strong in the U.S., Canada and Europe.

 

Markets for Our Technology

 

North America is currently the biggest market of activated carbon for mercury control in flue gas. The U.S. is the largest consumer of activated carbon for mercury control, projected to reach $6,112.11 Million by 2019. The coal burning (all uses including power plants) application market is projected to reach $5,638.96 Million by 2019. The market size, in terms of value, for coal burning (all uses including power plants) in North America is estimated to register a CAGR of 21.99% between 2014 and 2019.

 

In the U.S. market, our success depends, in part, on the success of demonstrations performed with utility customers and the resulting contract awards to meet the MATS requirements in the long-term period and our operational performance with EGUs under contract. With approximately 450 operational coal-fired EGUs in the U.S. required to comply with MATS, MEEC’s near-term business goal is to achieve at least 5-10% of this available market.

 

In Canada, there is a Canada-Wide Standard among all the provinces which was initially implemented in 2010, and which provides for increasingly stricter emissions control through 2020, although individual provinces may move faster to more stringent levels. We believe we have the most effective technology for the EGUs in Canada and a strong patent position there.

 

In 2010, we were awarded our first commercial contract to design, build and install our solution on two large (670MW each) coal units in the western part of the U.S. This was a multi-million dollar, three year renewable contract, which was awarded as a result of a competitive demonstration process. We invested more than $1.4 million in the capital equipment for this project. Our systems out-performed the contract guarantees in all operational areas during startup and testing and went into commercial operation at the start of 2012. The system is used for mercury control whenever the plant is in operation.

 

At the present time, there are 15 EGUs in North America which currently use our technologies. In the U.S., our technologies have been employed on a total of 20 EGU’s since the inception of MATS, 11 of which are still operational. In Canada, we have 4 EGUs which currently use our technology, with 3 more expected in the near term. We will continue to conduct numerous demonstrations on prospective customer units throughout 2018 and thereafter. We feel that further contract wins in 2018 and beyond will come because of the improvements that utilities will achieve in their compliance activity using our patented technologies.

 

 
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With regard to business opportunities in China, there currently exists no specific mandate for mercury capture that demands services such as ours. Nevertheless, we are optimistic of the prospects for mercury emissions regulations in China in the coming years, and because we have very broad patent rights in China, this has the potential to become a large business opportunity for us in future years. We estimate that the China market could be many times the size of the U.S. market, and with the Minimata Convention of 2013, we are hopeful that all countries will follow the U.S. in regulating mercury emissions.

 

In order to achieve significant near and long-term sales success and control overhead, MEEC employs a model of using Manufacturer Sales Representatives (“Reps”) under the leadership of our CEO and Regional Managers of Sales. These Reps cover most of the country and are highly incentivized on a commission-only basis to introduce our technology into their customer EGUs. This approach has been very successfully employed by other companies operating in the electric utility industry market.

 

*Source: MarketReportsHub.com Activated Carbon for Mercury Control Market in Flue Gas by Application and Region Trends & Forecasts to 2019.

 

Other Business Opportunities

 

Our acquisition of all such patent rights, including all patents and patents pending, domestic and foreign, which forms the basis of our mercury control technology, which acquisition was completed on April 24, 2017 (see “MEEC’s Technology” above) positions us to license systems using a two-part mercury control process. In this regard, we anticipate being able to license our technologies to utilities and others across North America and elsewhere.

 

In March 2018, we entered into an agreement for a term of ten years with one of the Company’s primary suppliers to commercialize our technology throughout Europe. Under the terms of the agreement, we have granted such supplier an exclusive, non-transferable license to make, use, sell, import and otherwise exploit the Company’s technology during the term throughout Europe. We believe such arrangement will make our technology more marketable throughout Europe and which will benefit the Company from such supplier’s knowledge and operations in this region. We have agreed to provide certain technical support throughout the term and shall continue to have the right to market and seek customers for our technology throughout Europe provided any opportunities are turned over to the supplier. The parties shall meet at least quarterly during the term to discuss progress, results and ongoing plans with regard to the technology. We believe such agreement will contribute meaningfully to our growth in 2019 and beyond and positions us to make inroads in the European market sooner than we could achieve otherwise.

 

Raw Materials

 

We buy all the materials needed for our systems and do not manufacture our products or systems. Material components of our proprietary Sorbent Enhancing Additive (“SEATM”) Technology are readily available from numerous sources in the market. Our current principal suppliers include companies, some of whom are our major competitors in the mercury control market. When we use PAC as a component of our sorbent material, we buy it in the market from large activated carbon manufacturers. We believe that we have excellent relationships with our suppliers. If any of our suppliers should become unavailable to us for any reason, we believe that there are a number of potential replacements, although we might incur some delay in identifying such replacements.

 

Competition

 

Our major competitors in the U.S. and Canada include companies such as Cabot Corporation, Calgon Carbon Corporation, Albemarle Corporation, Carbonxt, Inc., Nalco Company, Novinda Corporation, ADS-ES, Inc. and ADA Carbon Solutions LLC. These companies employ large sales staff and are well established in the market. However, we believe our technology has consistently performed better in mercury removal in operational tests than PAC or BAC injections alone. We believe our technology is superior to offerings of our competitors, and with our experienced team of sales representatives, we believe we can compete effectively in these markets.

 

 
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Seasonality

 

Although our business model is generally not seasonal in nature, we have experienced some seasonal declines in the winter months due to our current customer concentration in the Southwestern United States, where many of our customers decrease capacity in such winter months. We expect this seasonality to become less of a factor as we secure customers in various geographic regions, such as Canada and other areas of the United States.

 

Backlog

 

We do not consider backlog to be a significant indicator of the level of future sales activity. In general, we do not manufacture our products against a backlog of orders. Production and inventory levels are based on the level of incoming orders as well as projections of future demand. Therefore, we believe that backlog information is not material to understanding our overall business and is not a reliable indicator of our ability to achieve any particular level of revenue or financial performance.

 

Available Information

 

We file with or submit to the SEC annual, quarterly and current periodic reports, proxy statements and other information meeting the informational requirements of the Exchange Act. You may inspect and copy these reports, proxy statements and other information at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Copies of these reports, proxy and information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549. The SEC maintains an Internet website that contains reports, proxy and information statements and other information filed electronically by us with the SEC and is available on the SEC’s website at www.sec.gov.

 

ITEM 1A – RISK FACTORS

 

In your evaluation of the Company and our business, you should carefully consider the risks and uncertainties described below, together with the information included elsewhere in this report and the other documents we file with the SEC. The following factors describe the risks and uncertainties that we consider significant to the operation of our business, but should not be considered a complete listing of all potential risks and uncertainties that could adversely affect our operating results, financial position or liquidity. Additionally, our business is subject to the same general risks and uncertainties that affect many other companies, such as but not limited to the overall economic conditions, changes in laws or accounting rules, fluctuations in interest and exchange rates or other disruptions of expected economic and business conditions.

 

Risks Related to our Business

 

Our business focus is mercury removal from power plant emissions, which is driven primarily by regulation. Any significant changes in mercury emission regulation could have a major impact on the Company.

 

Our business focus is mercury reduction in flue gas emissions from large coal-fired utility and industrial boilers. This market is primarily based on air pollution control regulations and enforcement of those regulations. Any significant change in these regulations would have a dramatic effect on the Company. Specifically, on December 16, 2011, the EPA published the Mercury and Air Toxics Standards (MATS), which sets forth federal mercury emission levels. 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. The MATS regulation has been subject to legal challenge, and in June 2015, the U.S. Supreme Court held that the EPA unreasonably failed to consider costs in determining whether it is “appropriate and necessary” to regulate hazardous air pollutants, including mercury, from power plants. The Court remanded the case back to the U.S. Court of Appeals for the District of Columbia Circuit for further proceedings, but left the rule in place. In December 2015, the D.C. Circuit remanded the rule back to the EPA for further consideration while allowing MATS to remain in effect pending the EPA’s finding; the Supreme Court later denied a petition challenging the lower court’s decision to remand without vacating. On April 14, 2016, EPA issued a final supplemental finding reaffirming the MATS rule on the ground that it is supported by the cost analysis the Supreme Court required. That supplemental finding is under review by the D.C. Circuit, and the Company is unable to predict with certainty the outcome of these proceedings. On April 18, 2017, EPA asked the court to place that litigation in abeyance, stating that the Agency is reviewing the supplemental finding to determine whether it should be reconsidered in whole or in part. The court granted EPA’s abeyance request on April 27, 2017, and ordered EPA to file 90-day status reports starting July 26, 2017. While the litigation continues to be stayed, the EPA has not issued any further official proceedings regarding the MATS rule. The Company is unable to predict how EPA will proceed, but any changes to the MATS rule could have a negative impact on our business.

 

 
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The risks associated with technological change may make the Company’s products and services obsolete.

 

The market for new technology in which the Company is involved is characterized by periodic new product introductions and evolving industry standards and regulations. The emerging nature of these products and services with their rapid evolution will require that we continually improve the performance, features, and reliability of our service, particularly in response to possible competitive offerings. There can be no assurance that we will be successful in achieving widespread acceptance before competitors offer products and services with features similar to or better than the Company, but we continue to invest into innovation, while believing that our licensed patent portfolio is defensible within an industry that has high barriers to entry.

 

We compete against large, well-established companies which are highly competitive. We may not be able to compete effectively.

 

We are an emerging company operating in a market currently dominated by much larger companies. The size and financial strength of these competitors may enable them to offer incentives such as free large scale demonstrations that the Company may not be able to offer. In addition, these large corporations have the ability to spend significantly more on research and development and may develop a technology superior to that employed by the Company and these corporations also have large, established sales forces that are highly-experienced in fending off competing, including superior technologies on their client units. This is especially true in the utility market which is very risk averse and where long-standing trusted supplier relationships are common.

 

We may not be able to successfully defend our patents or protect proprietary aspects of our technology.

 

We own a number of significant patents, and patents pending covering the U.S., Canada, Europe and China for our technology. There can be no assurance that outstanding patents will not be challenged or circumvented by competitors. Certain critical technology related to our systems and products is protected by trade secret laws and confidentiality and licensing agreements. There can be no assurance that such protection will prove adequate or that we will have adequate remedies against contractual counterparties for disclosure or our trade secrets or violation of MEEC’s intellectual property rights. As a result, we may not be able to successfully defend our patents or protect proprietary aspects of our technology.

 

We are reliant upon third-party manufacturers for our materials; any problems they encounter may detrimentally impact our business.

 

As we do not manufacture any of the chemicals that we use, we are dependent upon key suppliers of our materials, some of whom are also competitors of ours. There can be no assurance that such manufacturers will be reliable in meeting delivery schedules, or that such manufacturers will not experience their own financial difficulties or encounter other problems which could detrimentally impact our business. In the event we need to secure other manufacturers, there can be no assurance that we will be able to secure such arrangements on terms acceptable to the Company.

 

Our operations are subject to operational risks and have the potential to cause environmental or other damage as well as personal injury, which could adversely affect our business, results of operations and cash flows.

 

Our operations involve safety, health and environmental risks. Mercury removal from power plant emissions involves the handling, transportation, manufacture or use of certain substances or components that may be considered toxic or hazardous. Our operations entail risks such as leaks, fires, explosions, toxic releases, mechanical failures or unscheduled downtime. If operational risks materialize, they could result in injury or loss of life, damage to the environment or damage to property. Although we maintain insurance coverage, in the event we incur substantial loss or liabilities and our insurance does not cover such losses or liabilities adequately or at all, our business, results of operations and cash flows may be materially and adversely affected. In addition, the occurrence of any of such losses or liabilities could harm our reputation.

 

 
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We are dependent on key customers. A significant adverse change in such relationships could adversely impact our results of operations and financial condition.

 

Our customers are concentrated, so the loss of one or more key customers or a material reduction in business performed for them could significantly harm our business. In addition, there can be no assurance that such customers will not experience financial difficulties or other problems which could delay such customers in paying for product and services on a timely basis or at all. Any problems with such customers can be expected to have a material adverse impact on our results of operations and financial condition.

 

Various coal-fired EGU’s in the United States have shut down in recent years, including certain of our customers.

 

At the time MATS was promulgated, there were approximately 1,250 coal-fired EGU’s in the United States which were affected by this new rule. Since this time, many of those have shut down, including certain of our customers, which we believe has been due to this regulation and due to competitive disadvantage to newer or gas-fired EGUs. We believe there remains approximately 450 coal-fired EGU’s in the power market. Any additional shut downs involving our current customers could materially adversely impact our operations. Nevertheless, we believe we should be able to generate additional business in the U.S. from other coal-fired EGUs operating in the U.S due to the success our current customers have achieved in mercury-emissions control compared to our competitors’ offerings.

 

We are dependent on a small number of key employees. The loss of more than one of these employees could seriously impair our ability to survive as a going concern.

 

Our management team is crucial to the success of the Company and the loss of more than one member of this team, could have a material adverse impact on the ability of the Company to properly execute its business plan. We have expanded our team and developed redundancy within our operations to mitigate this risk as much as possible.

 

Our lack of diversification increases the risk of an investment in the Company.

 

Our business lacks significant diversification and is dependent on the success of our mercury emission control technologies. As a result, we are impacted more acutely by factors affecting our industry or the regions in which we operate that we would if our business were more diversified, enhancing our risk profile.

 

We may not be able to properly manage our potential growth.

 

Our anticipated growth is expected to increase the complexity of our business and place significant strains on our management, personnel, operations, technical performance, financial resources and reporting systems and procedures. Failure to manage our growth effectively could damage our reputation, limit our growth and negatively affect our operating results.

 

Maintaining and improving our financial controls may strain our resources and divert management’s attention.

 

We are subject to the requirements of the Securities Exchange Act of 1934, including the requirements of the Sarbanes-Oxley Act of 2002. The requirements of these rules and regulations have increased in recent years, causing an increase in legal and financial compliance costs, and make some activities more difficult, time-consuming or costly and may also place undue strain on our personnel, systems and resources. Such rules and regulations require, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. This can be difficult to do. In this regard, our management concluded our internal control over financial reporting was not effective as of December 31, 2017. While certain remedial actions have been completed, we continue to actively plan for and implement additional control procedures to improve our overall control environment and expect these efforts to continue throughout 2018 and beyond. As a result of this and similar activities, management’s attention may be diverted from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations.

 

 
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Liquidity risk could impair our ability to fund operations and jeopardize our financial condition.

 

Liquidity, i.e., ready access to funds, is essential to our businesses. Our principal source of liquidity is cash generated from operating activities which at the present time may not be sufficient to meet our current obligations. Our access to external sources of financing could be impaired by factors that are specific to us or others that may be outside of our control. An inability to raise funds in the near term could have a substantial negative effect on our liquidity. As a result, such liquidity risk could impair our ability to funds operations and jeopardize our financial condition.

 

Possible inability of the Company to continue as a going concern.

 

The accompanying consolidated financial statements as of December 31, 2017 have been prepared assuming the Company will continue as a going concern. We have experienced a net loss, and have an accumulated deficit of $46,667,000. We have convertible notes maturing during 2018 of $1,550,000, and current principal payments due in 2018 on outstanding promissory notes of $2,500,000. These principal payments raise doubt about our ability to continue as a going concern. Although we anticipate continued significant revenues for products to be used in MATS compliance activities, no assurances can be given that we can obtain sufficient working capital through these activities and additional financing activities to meet our debt obligations. Therefore, success in our debt refinancing efforts or negotiations with our note holders is critical. We are currently negotiating with outside sources of additional debt financing in order to fund our obligations however 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 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.

 

Risks Related to our Common Stock

 

Current stockholders may suffer dilution.

 

In recent prior years, we have raised funds through the sale of convertible notes and restricted stock to qualified investors, and have under certain circumstances issued warrants to investors and options to employees and others. As of December 31, 2017, we have 76,246,113 shares of common stock outstanding of a total of 150,000,000 shares authorized by the Company. Approximately 95,000,000 shares of common stock are outstanding on a fully diluted basis as of December 31, 2017, taking into account shares issuable upon conversion of outstanding notes, and exercise of outstanding warrants and options. Any such conversion and/or exercise of such securities will have a dilutive effect on existing stockholders. In addition, if we were to raise additional funds through further issuances of equity or convertible debt securities in the future, our stockholders would suffer additional dilution.

 

We do not currently intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

 

We have never declared or paid any cash dividends on our common stock and do not currently intend to do so for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. In addition, until such time that the AC Midwest Energy, LLC secured note is paid in full, we are not permitted to issue any dividends. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future and the success of an investment in shares of our common stock will depend upon any future appreciation in its value. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares

 

 
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If our internal control over financial reporting is found not to be effective or if we make disclosure of existing or potential significant deficiencies or material weaknesses in those controls, investors could lose confidence in our financial reports, and our stock price may be adversely affected.

 

Section 404 of the Sarbanes-Oxley Act of 2002 requires us to include an internal control report with our Annual Report on Form 10-K. That report must include management’s assessment of the effectiveness of our internal control over financial reporting as of the end of the fiscal year. We evaluate our existing internal control over financial reporting based on the framework issued in 2013 by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. During the course of our ongoing evaluation of the internal controls, we may identify areas requiring improvement, and may have to design enhanced processes and controls to address issues identified through this review. Remedying any deficiencies, significant deficiencies or material weaknesses that we identify may require us to incur significant costs and expend significant time and management resources. Based on such evaluation, our management concluded our internal control over financial reporting was not effective as of December 31, 2017. The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses which are indicative of 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. While certain remedial actions have been completed, we continue to actively plan for and implement additional control procedures to improve our overall control environment and expect these efforts to continue throughout 2018 and beyond.

 

Nevertheless, we cannot assure you that any of the measures we implement to remedy any such deficiencies will effectively mitigate or remedy such deficiencies. 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. Investors could lose confidence in our financial reports, and our stock price may be adversely affected, if our internal controls over financial reporting continue to be found not to be effective by management or if we make disclosure of existing or potential significant deficiencies or material weaknesses in those controls in the future, investors could lose confidence in our financial reports and our stock price may be adversely affected.

 

The trading price of our common stock may be volatile.

 

The trading price of our shares has, from time to time, fluctuated widely and in the future may be subject to similar fluctuations. The trading price may be affected by a number of factors including the risk factors set forth in this report as well as our operating results, financial condition, announcements of innovations or new products by us or our competitors, general conditions in the market place, and other events or factors. Although we believe a number of registered broker dealers currently make a market in our common stock, we cannot assure you that any of these firms will continue to serve as market makers or have the financial capability to stabilize or support our common stock. A reduction in the number of market makers or the financial capability of any of these market makers could also result in a decrease in the trading volume of and price of our shares. In recent years, broad stock market indices in general have experienced substantial price fluctuations. Such broad market fluctuations may adversely affect the future trading price of our common stock.

 

The trading market for securities quoted on the OTCQB is less liquid.

 

Our common stock currently trades on the OTCQB. The trading market for securities of companies quoted on the OTCQB or other quotation systems is substantially less liquid than the average trading market for companies listed on a national securities exchange. The quotation of our shares on the OTCQB or other quotation system may result in a less liquid market available for existing and potential shareholders to trade shares of our common stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future.

 

 
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Potential future sales pursuant to Rule 144.

 

Many of the shares of our common stock presently held by management and others are “restricted securities” as that term is defined in Rule 144, promulgated under the Securities Act of 1933, as amended. Under Rule 144, a person (or persons whose shares are aggregated) who has satisfied a certain holding period, may, under certain circumstances sell such shares or a portion of such shares. Such holding periods have already been satisfied in many instances. Therefore, actual sales or the prospect of sales of such shares under Rule 144 in the future may depress the prices of the Company’s securities.

 

Our common stock may be characterized as a “penny stock” under applicable SEC regulations.

 

Our common stock may be characterized as “penny stock” under SEC regulations. As such, broker-dealers dealing in our common stock may be subject to the disclosure rules for transactions involving penny stocks, which generally require that, prior to a purchase, the broker-dealer has approved the proposed purchaser’s account for transactions in penny stocks and has received from the purchaser an agreement to the transaction setting forth the identity and quantity of the common stock to be purchased. In order to approve a person’s account for transactions in penny stocks, the broker-dealer must obtain from the person information concerning the person’s financial situation, investment experience and investment objectives, and reasonably determine that transactions in penny stocks are suitable for the person. These additional burdens imposed upon broker-dealers may discourage them from effecting transactions in our common stock, which could make it difficult for an investor to sell his, her or its shares at any given time.

 

Except as required by the Federal Securities Law, the Company does not undertake any obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this report or for any other reason.

 

ITEM 1B – UNRESOLVED STAFF COMMENTS

 

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 – PROPERTIES

 

We lease our corporate headquarters facility in Lewis Center, Ohio. The lease for this facility expires in February 2019, subject to our option to extend for up to three additional one year periods. In addition, we pay for the lease of a 20,000 square feet warehouse in Corsicana, Texas. The lease for this facility expires in June 2020. We also lease office space in Grand Forks, North Dakota. The lease for this facility expires in August 2018. We have the option to extend for and additional one or two year period.

 

ITEM 3 – LEGAL PROCEEDINGS

 

In December 2017, one of our customers commenced an arbitration against us before the American Arbitration Association alleging that we breached certain price guarantees provided in a supply agreement and maximum contract year billings. Prior to the filing of this report, the parties executed an agreement settling this matter, which agreement includes certain revised billing terms for product which is sold to and purchased by such customer between April 16, 2018 and April 15, 2019. We do not expect the settlement to have a material adverse effect on our business, financial condition or results of operations.

 

Other than the foregoing, there are no material pending legal proceedings to which we are a party or to which any of our property is subject, nor are there any such proceedings known to be contemplated by governmental authorities. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.

 

ITEM 4 – MINE SAFETY DISCLOSURES

 

Not applicable.

 

 
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PART II

 

ITEM 5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market

 

The Company common stock is quoted on the Over-The-Counter Venture Marketplace (OTCQB) under the symbol “MEEC”.

 

The table below delineates, on a quarterly basis, the high and low sales prices per share of the common stock as reported by the OTCQB. The prices set forth in the table below may not be an accurate indicator of the value of the Company shares. These prices represent inter-dealer quotations and do not reflect retail markup, markdown or commissions and may not necessarily represent actual transactions.

 

 

 

 

 

Common Stock Price

 

2017

 

 

 

High

 

 

Low

 

First Quarter Ended

 

March 31

 

$1.37

 

 

$0.92

 

Second Quarter Ended

 

June 30

 

$1.26

 

 

$0.38

 

Third Quarter Ended

 

September 30

 

$0.48

 

 

$0.32

 

Fourth Quarter Ended

 

December 31

 

$0.45

 

 

$0.23

 

  

 

 

 

 

 

 

 

 

 

 

2016

 

 

 

High

 

 

Low

 

First Quarter Ended

 

March 31

 

$0.65

 

 

$0.34

 

Second Quarter Ended

 

June 30

 

$0.98

 

 

$0.31

 

Third Quarter Ended

 

September 30

 

$1.93

 

 

$0.83

 

Fourth Quarter Ended

 

December 31

 

$1.73

 

 

$1.18

 

 

Recent Sales of Unregistered Securities

 

None.

 

Share Repurchase Program

 

We purchased no equity securities during year ended December 31, 2017 and have no program in place at the present time to buy any equity securities in the future.

 

Holders

 

As of December 31, 2017, there were 433 stockholders of record of our common stock. This does not reflect persons or entities that hold their stock in nominee or “street name”. The approximate number of beneficial stockholders is estimated at 2,525.

 

 
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Dividends

 

We have not declared any cash dividends to date and have no current plan to do so in the foreseeable future. In addition, until such time that the AC Midwest Energy, LLC secured note is paid in full, we are not permitted to issue any dividends.

 

Transfer Agent

 

The Transfer Agent and Registrar for the Company’s common stock is Transfer Online, Inc., 512 SE Salmon Street, Portland, Oregon 97214.

 

Equity Compensation Plan Information

 

The following table shows information, as of December 31, 2017, with respect to each equity compensation plan under which the Company’s common stock is authorized for issuance:

 

 

 

 

 

 

 

 

 

Number of securities

 

 

 

 

 

 

 

 

 

remaining

available for

 

 

 

Number of securities to

 

 

Weighted

average

 

 

future issuance under equity

 

 

 

be issued upon exercise

 

 

exercise

price of

 

 

compensation

plans

 

 

 

of outstanding options,

 

 

outstanding

options,

 

 

(excluding

securities

 

 

 

warrants

and rights

 

 

warrants

and rights

 

 

reflected in

column (a))

 

Plan Category

 

(a)

 

 

(b)

 

 

(c)

 

Equity compensation plans approved by security holders, terminated

 

 

6,623,184

 

 

$1.37

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity compensation plans approved by security holders

 

 

1,240,000

 

 

 

1.01

 

 

 

6,760,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity compensation plans not approved by security holders (1)

 

 

600,000

 

 

 

0.58

 

 

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

8,463,184

 

 

 

1.25

 

 

 

6,760,000

 

  

 

 

 

 

 

 

 

 

 

 

 

 

(1) Represents individual grants of non-plan options which are fully vested and expire between December 12, 2018 and January 1, 2019.

 

ITEM 6 – SELECTED FINANCIAL DATA

 

Not applicable as a smaller reporting company.

 

 
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ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Background

 

Midwest Energy Emissions Corp. (the “Company”, “we”, “us” and “our”) develops and deploys patented, proprietary technologies to remove mercury emissions from coal-fired power plants. The U.S. EPA MATS (Mercury and Air Toxics Standards) rule requires that all coal and oil-fired power plants in the U.S., larger than 25MWs, must limit mercury in its emissions to below certain specified levels, according to the type of coal burned. Power plants were required to begin complying with MATS on April 16, 2015, unless they were granted a one-year extension to begin to comply. MATS, along with many state and provincial regulations, form the basis for mercury emission capture at coal fired plants across North America. Under the MATS regulation, Electric Generating Units (“EGUs”) are required to remove about 90% of the mercury from their emissions. We believe that we continue to meet the requirements of the industry as a whole and our technologies have been shown to achieve mercury removal levels compliant with all state, provincial and federal regulations at a lower cost and with less plant impact than our competition.

 

As is typical in this market, we are paid by the EGU based on how much of our material is injected to achieve the needed level of mercury removal. Our current clients pay us as material is delivered to their facility. Clients will use our material whenever their EGUs operate, although EGUs are not always in operation. EGUs typically may not be in operation due to maintenance reasons or when the price of power in the market is less than their cost to produce power. Thus, our revenues from EGU clients will not typically be a consistent stream but will fluctuate, especially seasonally as the market demand for power fluctuates.

 

The MATS regulation has been subject to legal challenge, and in June 2015, the U.S. Supreme Court held that the EPA unreasonably failed to consider costs in determining whether it is “appropriate and necessary” to regulate hazardous air pollutants, including mercury, from power plants. The Court remanded the case back to the U.S. Court of Appeals for the District of Columbia Circuit for further proceedings, but left the rule in place. In December 2015, the D.C. Circuit remanded the rule back to the EPA for further consideration while allowing MATS to remain in effect pending the EPA’s finding; the Supreme Court later denied a petition challenging the lower court’s decision to remand without vacating. On April 14, 2016, EPA issued a final supplemental finding reaffirming the MATS rule on the ground that it is supported by the cost analysis the Supreme Court required. That supplemental finding is under review by the D.C. Circuit, and the Company is unable to predict with certainty the outcome of these proceedings. On April 18, 2017, EPA asked the court to place that litigation in abeyance, stating that the Agency is reviewing the supplemental finding to determine whether it should be reconsidered in whole or in part. The court granted EPA’s abeyance request on April 27, 2017, and ordered EPA to file 90-day status reports starting July 26, 2017. While the litigation continues to be stayed, the EPA has not issued any further official proceedings regarding the MATS rule. The Company is unable to predict how EPA will proceed, but any changes to the MATS rule could have a negative impact on our business.

 

We remain focused on positioning the Company for short and long-term growth. For the year ended December 31, 2017, we focused on execution at our customer sites and on continual operation improvement. We continue to make refinements to all of our key products, as we continue to focus on the customer and its operations. On April 24, 2017, the Company closed on the acquisition from EERCF of all patent rights, including all patents and patents pending, domestic and foreign, relating to the foregoing technology. This acquisition positions the Company to continue its growth across North America, including the licensing of our technologies in the United States and around the world.

 

Results of Operations

 

The year ended 2017 was a year of continued business plan execution. The compliance efforts of our customer base resulted in 2017 sales of in excess $27 million.

 

Revenues

 

Sales - We generated revenues of approximately $27,499,000 and $32,346,000 for the years ended December 31, 2017 and 2016. Total sorbent product sales for the year ended December 31, 2017 and 2016 were $26,050,000 and $28,920,000, respectively. The decrease from the prior year is primarily due to optimization efforts undertaken by us over the past year with our customers as well as lower capacity factors seen at some customer sites resulting in decreased product needed to keep our customers in MATS compliance.

 

 
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Equipment sales for the years ended December 31, 2017 and 2016 were $794,000 and $2,699,000, respectively. The higher equipment sales during 2016 are primarily related to the commissioning of one customer project that included both a front end and back end product injection system. Equipment sales for 2017 were primarily related to the commissioning of one customer project for a front end product injection system.

 

Other revenues for the years ended December 31, 2017 and 2016 were $655,000 and $726,000, respectively. This decrease is primarily associated with decreased consulting revenues earned at current customers once they have come online.

 

Costs and Expenses

 

Costs and expenses were $27,488,000 and $30,288,000 during the years ended December 31, 2017 and 2016, respectively. The decrease in costs and expenses from the prior year is primarily attributable to a decrease in costs of sales compared to the prior year. These decreases are primarily associated with the decrease in revenues for the year ended December 31, 2017.

 

Costs of sales were $19,017,000 and $23,030,000 for the year ended December 31, 2017 and 2016, respectively. The decrease in cost is primarily attributable to the decrease in product sales in 2017. Equipment cost of sales during the year ended December 31, 2017 and 2016 was $575,000 and $2,626,000, respectively. The decrease in the equipment costs of sales in the year ended December 31, 2017 is due to the decrease in equipment sales from the same period in the prior year. The Company also had a decrease in the current year in royalty fees paid of $1,022,000 due to the acquisition of all patent rights on April 24, 2017. The margin on sales for the year ended December 31, 2017 improved from the same period in the prior year primarily due to decreased royalty costs and raw material costs.

 

Selling, general and administrative expenses were $8,471,000 and $7,257,000 for the years ended December 31, 2017 and 2016. The increase in selling, general and administrative expenses is primarily attributed to increases in salaries and wages, fringe benefits, stock based compensation, investor relations and professional fees offset by a decrease in sales commissions.

 

Other Expenses

 

Interest expense related to the financing of capital was $2,155,000 and $3,817,000 for the years ended December 31, 2017 and 2016, respectively. The decrease in interest expense is primarily due to the decrease in amortization of debt issuance costs and discount on notes payable due to a loan amendment signed in November 2016.

 

Net Loss

 

Net loss for the years ended December 31, 2017 and 2016 was $2,903,000 and $15,618,000 respectively. The decrease in net loss is primarily attributed to loss on debt restructuring of $14,105,000 in 2016.

 

Taxes

 

Our deferred tax assets are primarily related to net operating losses and a valuation allowance has been established due to the uncertainty of the utilization of all of these assets in future periods. As of December 31, 2017, the deferred tax asset of $500,000 which was recorded as of December 31, 2016, was reversed due to there no longer being sufficient evidence available to support the realization of certain tax assets in future years. Net operating loss carryforwards of approximately $3,840,000, if not utilized, will begin to expire in 2031.

 

 
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Liquidity and Capital Resources

 

Our principal source of liquidity is cash generated from operating activities. As of December 31, 2017, our cash and cash equivalents totaled $2,418,000.

 

Total assets were $12,056,000 at December 31, 2017 versus $15,878,000 at December 31, 2016. The change in total assets is primarily attributable to the decreases in cash, slightly offset by an increase in intangible assets.

 

Total liabilities were $16,481,000 at December 31, 2017 versus $19,536,000 at December 31, 2016. The decrease in total liabilities is primarily due to the decrease in accounts payable, accrued expenses and the decrease in notes payable.

 

Operating activities used $472,000 of cash for the year ended December 31, 2017 compared to providing $3,226,000 for the year ended December 31, 2016. The change in cash used in operating activities is primarily attributable to a decrease in accounts payable and accrued liabilities.

 

Investing activities used $3,306,000 and $1,686,000 during the year ended December 31, 2017 and 2016, respectively. The change in cash used in investing activities is primarily attributable to the purchase of patent rights for $2,500,000 in cash.

 

Financing activities used $1,555,000 during the year ended December 31, 2017 compared to providing $5,129,000 during the year ended December 31, 2016. For the year ended December 31, 2016, the cash provided was due to a private placement for common stock and was offset by the repayment principal of convertible promissory notes. In 2017, $1,500,000 was used to make principle payments on the secured promissory note.

 

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

 

Our discussion and analysis of our financial conditions and results of operation are based upon the accompanying consolidated financial statements which have been prepared in accordance with the generally accepted accounting principles in the U.S. The preparation of the consolidated financial statements requires that we make estimates and assumptions that affect the amounts reported in assets, liabilities, revenues and expenses. Management evaluates on an on-going basis our estimates with respect to the valuation allowances for accounts receivable, income taxes, accrued expenses and equity instrument valuation, for example. We base these estimates on various assumptions and experience that we believe to be reasonable. The following critical accounting policies are those that are important to the presentation of our financial condition and results of operations. These policies require management’s most difficult, complex, or subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain.

 

The following critical accounting policies affect our more significant estimates used in the preparation of our consolidated financial statements. In particular, our most critical accounting policies relate to the recognition of revenue, and the valuation of our stock-based compensation.

 

Accounts Receivable

 

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

 

 
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Revenue Recognition

 

The Company records revenue from sales in accordance with ASC 605, Revenue Recognition (“ASC 605”). The criteria for recognition are as follows:

 

1.Persuasive evidence of an arrangement exists;

 

 

2.Delivery has occurred or services have been rendered;

 

 

3.The seller’s price to the buyer is fixed or determinable; and

 

 

4.Collectability is reasonably assured.

 

Determination of criteria (3) and (4) will be based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments will be provided for in the same period the related sales are recorded.

 

Income Taxes

 

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carryforwards, 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 includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

 

The recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s consolidated financial statements are based on a more-likely-than-not recognition threshold. The Company did not have any unrecognized tax benefits at December 31, 2017 or 2016. When necessary, the Company would accrue penalties and interest related to unrecognized tax benefits as a component of income tax expense.

 

The Company and its subsidiaries file a consolidated income tax return in the U.S. federal jurisdiction and three state jurisdictions. The Company is no longer subject to U.S. federal examinations for years prior to 2014 or state tax examinations for years prior to 2013.

 

Stock-Based Compensation

 

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

 

 
20
 
Table of Contents

 

Warrant Liability

 

We have early adopted FASB ASU 2017-11 and changed its method of accounting for certain warrants that were initially recorded as liabilities during the year ended December 31, 2014 on a full retrospective basis. ASU 2017-11 allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted for as derivative liabilities. A company will recognize the value of a down round feature only when it is triggered and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, an entity will treat the value of the effect of the down round as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings.

 

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.

 

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 Income to Adjusted EBITDA for the years ended December 31, 2017 and 2016, respectively: 

 

 

 

Year Ended

 

 

 

12/31/2017

 

 

12/31/2016

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

Net loss

 

$(2,903)

 

$(15,618)

 

 

 

 

 

 

 

 

 

Non-GAAP adjustments:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,354

 

 

 

913

 

Interest and letter of credit fees

 

 

2,374

 

 

 

4,043

 

Income taxes

 

 

540

 

 

 

(473)

Stock based compensation

 

 

1,532

 

 

 

1,159

 

Loss on debt restructuring

 

 

-

 

 

 

14,105

 

Adjusted EBITDA

 

$2,897

 

 

$4,129

 

 

ITEM 7A - 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.

 

21
Table of Contents

 

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

MIDWEST ENERGY EMISSIONS CORP. AND SUBSIDIARIES

Index to Financial Information

Year Ended December 31, 2017

 

 

 

Page

 

 

 

 

 

Consolidated Financial Statements

 

 

 

 

 

 

Consolidated Balance Sheets

 

F-2

 

 

 

 

 

Consolidated Statements of Operations

 

F-3

 

 

 

 

 

Consolidated Statements of Stockholders’ Deficit

 

F-4

 

 

 

 

 

Consolidated Statements of Cash Flows

 

F-5

 

 

 

 

 

Notes to Consolidated Financial Statements

 

F-6

 

 

 
22
 
Table of Contents

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

Midwest Energy Emissions Corp.

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheets of Midwest Energy Emissions Corporation (the Company) as of December 31, 2017 and 2016, and the related consolidated statements of operations, stockholders’ deficit and cash flows for each of the years in the two-year period ended December 31, 2017 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Midwest Energy Emissions Corporation as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

 

Substantial Doubt Regarding Going Concern

 

As disclosed in Note 3 to the financial statements, the Company has experienced a net loss, and has an accumulated deficit of $46,667,000. The Company has convertible notes maturing during 2018 of $1,550,000 and current principal payments due in 2018 on outstanding promissory notes of $2,550,000. These matters raise substantial doubt regarding the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3 to the financial statements. The financial statements do not include any adjustments related to the outcome of this uncertainty.

 

Change in Accounting Principle – Early Adoption of Provisions in ASU 2017-11

 

As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for the classification of certain liability-classified financial instruments with down round features in 2017 and 2016 due to the adoption of Accounting Standards Update (“ASU”) 2017-11, “Earning Per Share (Topic 260) ; Distinguishing Liabilities from Equity (Topic 480) ; Derivatives and Hedging (Topic 815).

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risk of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

We have served as the Company’s auditor since 2011.

 

/s/ Schneider Downs & Co., Inc.

 

Columbus, Ohio

April 17, 2018

 

 
F-1
 
Table of Contents

  

MIDWEST ENERGY EMISSIONS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2017 AND 2016

 

 

 

 

 

 

 

 

 

December 31,

2017

 

 

December 31,

2016

 

 

 

 

 

 

(Restated)

 

ASSETS

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$2,418,427

 

 

$7,751,557

 

Accounts receivable

 

 

2,931,353

 

 

 

3,553,096

 

Inventory

 

 

659,579

 

 

 

609,072

 

Prepaid expenses and other assets

 

 

210,535

 

 

 

199,495

 

Total current assets

 

 

6,219,894

 

 

 

12,113,220

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

2,728,993

 

 

 

2,569,354

 

Deferred tax asset

 

 

-

 

 

 

500,000

 

Intellectual property, net

 

 

2,934,862

 

 

 

52,945

 

Customer acquisition costs, net

 

 

172,333

 

 

 

642,203

 

Total assets

 

$12,056,082

 

 

$15,877,722

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$1,795,703

 

 

$4,363,553

 

Current portion of notes payable

 

 

2,500,000

 

 

 

1,500,000

 

Current portion of convertible notes payable, net

 

 

1,461,417

 

 

 

-

 

Current portion of equipment notes payable

 

 

61,177

 

 

 

39,499

 

Customer credits

 

 

167,000

 

 

 

590,206

 

Accrued interest

 

 

77,500

 

 

 

78,750

 

Deferred revenue

 

 

517,060

 

 

 

-

 

Total current liabilities

 

 

6,579,857

 

 

 

6,572,008

 

 

 

 

 

 

 

 

 

 

Notes payable, net of discount and issuance costs

 

 

9,733,361

 

 

 

11,678,669

 

Convertible notes payable, net of discount and issuance costs

 

 

-

 

 

 

1,142,154

 

Equipment notes payable

 

 

167,650

 

 

 

143,135

 

Total liabilities

 

 

16,480,868

 

 

 

19,535,966

 

 

 

 

 

 

 

 

 

 

Stockholders' deficit

 

 

 

 

 

 

 

 

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

 

 

-

 

 

 

-

 

Common stock; $.001 par value; 150,000,000 shares authorized; 76,246,113 shares issued and outstanding as of December 31, 2017 73,509,663 shares issued and outstanding as of December 31, 2016

 

 

76,246

 

 

 

73,510

 

Additional paid-in capital

 

 

42,165,620

 

 

 

40,031,625

 

Accumulated deficit

 

 

(46,666,652)

 

 

(43,763,379)

 

 

 

 

 

 

 

 

 

Total stockholders' deficit

 

 

(4,424,786)

 

 

(3,658,244)

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' deficit

 

$12,056,082

 

 

$15,877,722

 

 

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

 

 
F-2
 
Table of Contents

 

MIDWEST ENERGY EMISSIONS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

 

 

 

 

 

 

 

 

 

2017

 

 

2016

 

 

 

 

 

 

(Restated)

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

Product sales

 

$26,050,032

 

 

$28,920,051

 

Equipment sales

 

 

794,206

 

 

 

2,699,051

 

Demonstrations and consulting services

 

 

654,842

 

 

 

726,438

 

 

 

 

 

 

 

 

 

 

Total revenues

 

 

27,499,080

 

 

 

32,345,540

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

Cost of sales

 

 

19,016,932

 

 

 

23,030,404

 

Selling, general and administrative expenses

 

 

8,471,096

 

 

 

7,257,445

 

 

 

 

 

 

 

 

 

 

Total costs and expenses

 

 

27,488,028

 

 

 

30,287,849

 

 

 

 

 

 

 

 

 

 

Operating profit

 

 

11,052

 

 

 

2,057,691

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

Interest expense

 

 

(2,154,570)

 

 

(3,816,855)

Letter of credit fees

 

 

(219,333)

 

 

(226,000)

Loss on debt restructuring

 

 

-

 

 

 

(14,105,076)

 

 

 

 

 

 

 

 

 

Total other expense

 

 

(2,373,903)

 

 

(18,147,931)

 

 

 

 

 

 

 

 

 

Net loss before taxes

 

 

(2,362,851)

 

 

(16,090,240)

 

 

 

 

 

 

 

 

 

Income tax (expense) benefit

 

 

(540,422)

 

 

472,669

 

 

 

 

 

 

 

 

 

 

Net loss

 

$(2,903,273)

 

$(15,617,571)

 

 

 

 

 

 

 

 

 

Continuing operations

 

$(0.03)

 

$(0.32)

Net loss per common share - basic and diluted:

 

$(0.03)

 

$(0.32)

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

75,061,800

 

 

 

50,646,328

 

 

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

 

 
F-3
 
Table of Contents

  

MIDWEST ENERGY EMISSIONS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

(RESTATED)

 

 

 

 

 

 

 

 

 

Additional 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in  

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

(Deficit)

 

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - December 31, 2015

 

 

47,194,118

 

 

$47,194

 

 

$25,008,016

 

 

$(28,145,808)

 

$(3,090,598)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for interest on notes payable

 

 

329,000

 

 

 

329

 

 

 

262,871

 

 

 

-

 

 

 

263,200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued upon debt conversion

 

 

2,737,858

 

 

 

2,738

 

 

 

1,366,189

 

 

 

-

 

 

 

1,368,927

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued upon warrant exercise

 

 

121,510

 

 

 

122

 

 

 

65,106

 

 

 

-

 

 

 

65,228

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued upon cashless warrant exercise

 

 

11,734,440

 

 

 

11,734

 

 

 

(11,734)

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sale of stock, net of issuance costs

 

 

11,314,968

 

 

 

11,315

 

 

 

12,182,638

 

 

 

-

 

 

 

12,193,953

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued upon cashless option exercise

 

 

77,769

 

 

 

78

 

 

 

(78)

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of warrants

 

 

-

 

 

 

-

 

 

 

78,020

 

 

 

-

 

 

 

78,020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of stock options

 

 

-

 

 

 

-

 

 

 

1,080,597

 

 

 

-

 

 

 

1,080,597

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(15,617,571)

 

 

(15,617,571)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - December 31, 2016

 

 

73,509,663

 

 

$73,510

 

 

$40,031,625

 

 

$(43,763,379)

 

$(3,658,244)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued upon debt conversion

 

 

51,236

 

 

 

51

 

 

 

25,567

 

 

 

-

 

 

 

25,618

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued upon cashless warrant exercise

 

 

630,214

 

 

 

630

 

 

 

(630)

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for the acquisition of patents rights

 

 

925,000

 

 

 

925

 

 

 

517,075

 

 

 

-

 

 

 

518,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued to non-employees

 

 

1,000,000

 

 

 

1,000

 

 

 

230,250

 

 

 

-

 

 

 

231,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued per settlement agreement

 

 

130,000

 

 

 

130

 

 

 

60,970

 

 

 

-

 

 

 

61,100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Re-issuance of warrants

 

 

-

 

 

 

-

 

 

 

17,922

 

 

 

-

 

 

 

17,922

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of stock options

 

 

-

 

 

 

-

 

 

 

1,282,841

 

 

 

-

 

 

 

1,282,841

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,903,273)

 

 

(2,903,273)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

76,246,113

 

 

$76,246

 

 

$42,165,620

 

 

$(46,666,652)

 

$(4,424,786)

 

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

 

 
F-4
 
Table of Contents

 

MIDWEST ENERGY EMISSIONS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Year

Ended

December 31,

2017

 

 

For the Year

Ended

December 31,

2016

 

 

 

 

 

 

(Restated)

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$(2,903,273)

 

$(15,617,571)

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

 

 

 

 

 

 

 

 

Stock based compensation

 

 

1,532,013

 

 

 

1,158,617

 

Amortization of license fees

 

 

1,950

 

 

 

5,880

 

Amortization of patent rights

 

 

134,133

 

 

 

-

 

Amortization of discount of notes payable

 

 

745,652

 

 

 

1,625,808

 

Amortization of debt issuance costs

 

 

153,303

 

 

 

619,524

 

Amortization of customer acquisition costs

 

 

469,870

 

 

 

443,450

 

Depreciation expense

 

 

748,020

 

 

 

463,868

 

Deferred tax benefit

 

 

500,000

 

 

 

(500,000)

Noncash financing expenses

 

 

-

 

 

 

29,000

 

Loss on debt restructuring

 

 

-

 

 

 

14,105,076

 

Noncash settlement charge expenses

 

 

61,100

 

 

 

-

 

PIK interest

 

 

-

 

 

 

584,667

 

Change in assets and liabilities

 

 

 

 

 

 

 

 

Decrease in accounts receivable

 

 

621,743

 

 

 

(2,590,719)

(Increase) decrease in inventory

 

 

(50,507)

 

 

2,106,841

 

(Increase) in prepaid expenses and other assets

 

 

(11,040)

 

 

(33,624)

Increase (decrease) in accounts payable and accrued liabilities

 

 

(2,568,482)

 

 

3,106,992

 

Increase in Deferred Revenue

 

 

517,060

 

 

 

-

 

(Decrease) in customer credits

 

 

(423,206)

 

 

(2,281,760)

Net cash (used in) provided by operating activities

 

 

(471,664)

 

 

3,226,049

 

 

 

 

 

 

 

 

 

 

Cash flows used in investing activities

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(806,460)

 

 

(1,686,344)

Purchase of intellectual property

 

 

(2,500,000)

 

 

-

 

Net cash (used in) investing activities

 

 

(3,306,460)

 

 

(1,686,344)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Payment of debt issuance costs

 

 

-

 

 

 

(98,671)

Payment of equity issuance costs

 

 

-

 

 

 

(1,264,009)

Payments of equipment notes payable

 

 

(55,006)

 

 

(31,938)

Payments on convertible promissory note

 

 

-

 

 

 

(5,000,000)

Payments on secured promissory note

 

 

(1,500,000)

 

 

(2,000,000)

Proceeds from the issuance of common stock

 

 

-

 

 

 

13,457,962

 

Proceeds from the issuance of common stock upon warrant exercise

 

 

-

 

 

 

65,228

 

Net cash (used in) provided by financing activities

 

 

(1,555,006)

 

 

5,128,572

 

 

 

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

 

(5,333,130)

 

 

6,668,277

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents - beginning of year

 

 

7,751,557

 

 

 

1,083,280

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents - end of year

 

$2,418,427

 

 

$7,751,557

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

 

Interest

 

$1,254,997

 

 

$578,934

 

Taxes

 

$40,422

 

 

$27,331

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS

 

 

 

 

 

 

 

 

Equipment purchases included in note payable

 

$101,199

 

 

$103,428

 

Stock issued for interest on notes payable

 

$-

 

 

$263,200

 

Conversion of accounts receivable to customer acquisition costs

 

$-

 

 

$188,225

 

Conversion of debt and accrued interest to equity

 

$25,618

 

 

$1,368,927

 

Conversion of accrued interest to debt

 

$-

 

 

$696,999

 

 

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

 

 
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Midwest Energy Emissions Corp. and Subsidiaries

 

Notes to Consolidated Financial Statements for the years ended December 31, 2017 and 2016

 

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 $.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 consolidated financial statements have been prepared in accordance with the Generally Accepted Accounting Principles in the United States of America (“GAAP”).

 

Use of Estimates

 

The preparation of 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 and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid debt instruments and other short-term investments with maturity of three months or less, when purchased, to be cash equivalents. The Company maintains its cash in one account with one financial institution, which at times may exceed federally insured limits.

 

 
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Accounts Receivable

 

Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. Past due balances over 90 days and other higher risk amounts are reviewed individually for collectability. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. At December 31, 2017 and 2016, the allowance for doubtful accounts was zero.

 

Inventory

 

Inventories are stated at the lower of cost (first-in, first-out basis) or market (net realizable value).

 

Property and Equipment

 

Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. For consolidated financial statement purposes, property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives of 2 to 5 years.

 

Expenditures for repairs and maintenance which do not materially extend the useful lives of property and equipment are charged to operations. Management reviews the carrying value of its property and equipment for impairment on an annual basis.

 

Recoverability of Long-Lived and Intangible Assets

 

The Company has adopted ASC 360-10, Property, Plant and Equipment (“ASC 360-10”). ASC 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

 

Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of the long-lived and or intangible assets would be adjusted, based on estimates of future discounted cash flows. The Company evaluated the recoverability of the carrying value of the Company’s equipment. No impairment charges were recognized for the years ended December 31, 2017 and 2016, respectively.

 

Stock-Based Compensation

 

The Company accounts for stock-based compensation awards in accordance with the provisions of ASC 718, Compensation—Stock Compensation (“ASC 718”), which requires equity-based compensation, be reflected in the consolidated financial statements over the period of service which is typically the vesting period based on the estimated fair value of the awards.

 

 
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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 and cash equivalents were the only asset measured at fair value on a recurring basis by the Company at December 31, 2017 and December 31, 2016 and is considered to be Level 1.

 

Financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, deferred revenue, customer credits and short-term debt. The carrying amounts of these financial instruments approximated fair value at December 31, 2017 and 2016 due to their short-term maturities. The fair value of the convertible promissory notes payable at December 31, 2017 and 2016 approximated the carrying amount as the notes were issued during the years ended December 31, 2017 and 2016 at interest rates prevailing in the market and interest rates have not significantly changed as of December 31, 2017. The fair value of the convertible promissory notes payable was determined on a Level 2 measurement.

 

Foreign Currency Transactions

 

The Company’s functional currency is the United States Dollar (the “U.S. Dollar”). Transactions denominated in currencies other than the U.S. Dollar are re-measured to the U.S. Dollar at the period-end exchange rates. Any associated transactional currency re-measurement gains and losses are recognized in current operations.

 

Revenue Recognition

 

The Company records revenue from sales in accordance with ASC 605, Revenue Recognition (“ASC 605”). The criteria for recognition are as follows:

 

1. Persuasive evidence of an arrangement exists;

 

2. Delivery has occurred or services have been rendered;

 

3. The seller’s price to the buyer is fixed or determinable; and

 

4. Collectability is reasonably assured.

 

Determination of criteria (3) and (4) will be based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments will be provided for in the same period the related sales are recorded.

 

 
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The Company recorded customer acquisition costs totaling $1,287,500 during the year ended December 31, 2014. The Company entered into agreements with three new customers during this period. The capitalized balance of customer acquisition costs was $172,333 and $642,203 on December 31, 2017 and December 31, 2016, respectively. Amortization expense for the years ended December 31, 2017 and 2016 was $469,870 and $443,450, respectively.

 

The Company generated revenues of $27,499,080 and $32,345,540 for the years ended December 31, 2017 and 2016, respectively. The Company generated revenue for the years ended December 31, 2017 and 2016 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.

 

In accordance with the terms of an agreement with one customer, the Company has agreed to credit $517,060 of payments received in 2017 towards future deliveries. This amount is included as deferred revenue at December 31, 2017 and is expected to be recognized as revenue during the quarter ended March 31, 2018 when product is delivered to the customer.

 

Income Taxes

 

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carryforwards, 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 includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

 

The recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s consolidated financial statements are based on a more-likely-than-not recognition threshold. The Company did not have any unrecognized tax benefits at December 31, 2017 or 2016. When necessary, the Company would accrue penalties and interest related to unrecognized tax benefits as a component of income tax expense.

 

The Company and its subsidiaries file a consolidated income tax return in the U.S. federal jurisdiction and three state jurisdictions. The Company is no longer subject to U.S. federal examinations for years prior to 2014 or state tax examinations for years prior to 2013.

 

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 December 31, 2017 or 2016, because the Company incurred net losses and basic and diluted losses per common share are the same.

 

 
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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 December 31, 2017 is on deposit in a non-interest-bearing transaction account that is subject to FDIC deposit insurance limits. For each of the years ended December 31, 2017 and 2016, 100% of the Company’s revenue related to eight customers, respectively. At both December 31, 2017 and 2016, 100% of the Company’s accounts receivable related to six and five customers, respectively.

 

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.

 

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

 

In April, 2015, the FASB issued Accounting Standards Update (ASU) No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. For public business entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. Early adoption of the amendments is permitted for financial statements that have not been previously issued. The amendments should be applied on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, an entity is required to comply with the applicable disclosures for a change in an accounting principle. These disclosures include the nature of and reason for the change in accounting principle, the transition method, a description of the prior-period information that has been retrospectively adjusted, and the effect of the change on the financial statement line items (i.e., debt issuance cost asset and the debt liability). We have adopted this standard in the current presentation of the Company’s consolidated financial statements and required disclosures. By adopting this standard, the Company’s balance sheet presentation has changed as certain assets have been reclassified to a liability. The adoption does not alter the accounting for the amortization of debt issuance costs.

 

In November 2015, the FASB issued Accounting Standards Update (ASU) No. 2015-17, Income Taxes (Topic 740) – Balance Sheet Classification of Deferred Taxes. ASU 2015-17 is intended to simplify the presentation of deferred income taxes. Deferred tax liabilities and assets will be classified as noncurrent in a classified statement of financial position, and the current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount remains the same. This ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2016. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period. During 2016, we have implemented this new standard.

 

 
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In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. ASU 2017-11 allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted for as derivative liabilities. A company will recognize the value of a down round feature only when it is triggered and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, an entity will treat the value of the effect of the down round as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. The guidance in ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, and the guidance is to be applied using a full or modified retrospective approach.

 

The Company early adopted ASU 2017-11 and changed its method of accounting for certain warrants that were initially recorded as liabilities during the year ended December 31, 2014 on a full retrospective basis. Since the warrants were issued in conjunction with the issuance of certain convertible notes payable. The following table provide a reconciliation of warrant liability, additional paid-in capital and accumulated deficit on the consolidated balance sheets as of December 31, 2016:

 

 

 

Consolidated Balance Sheet

 

 

 

Warrant

Liability

 

 

Additional

paid in

capital

 

 

Accumulated

deficit

 

Balance, December 31, 2016 (Prior to adoption of ASU 2017-11)

 

$1,313,000

 

 

$49,838,468

 

 

$(54,883,223)

 

 

 

 

 

 

 

 

 

 

 

 

 

Reverese beginning balance as of Janaury 1, 2016

 

 

(9,854,000)

 

 

-

 

 

 

9,854,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of warrants

 

 

(1,096,000)

 

 

-

 

 

 

1,096,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of warrant liability

 

 

(14,021,626)

 

 

(659,685)

 

 

14,681,311

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued upon cashless warrant exercise

 

 

9,147,159

 

 

 

(9,147,159)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on debt restructuting

 

 

14,511,467

 

 

 

-

 

 

 

(14,511,467)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2016 (After adoption of ASU 2017-11)

 

 

-

 

 

$40,031,625

 

 

$(43,763,379)

 

 
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The following table provide a reconciliation of interest expense, change in fair value of warrant liability, gain (loss) on debt restructuring and net loss on the consolidated statement of operations for the year ended December 31, 2016:

 

 

 

Consolidated Statement Of Operations

 

 

 

Interest

Expense

 

 

Change in

value of

warrant

liability

 

 

Gain on debt restructuring

 

 

Net loss

 

Balance, December 31, 2016 (Prior to adoption of ASU 2017-11)

 

$(4,912,855)

 

$(14,681,311)

 

$406,791

 

 

$(16,883,015)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of warrants

 

 

1,096,000

 

 

 

-

 

 

 

-

 

 

 

1,096,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of warrant liability

 

 

-

 

 

 

14,681,311

 

 

 

-

 

 

 

14,681,311

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on debt restructuting

 

 

-

 

 

 

-

 

 

 

(14,511,867)

 

 

(14,511,867)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$(3,816,855)

 

 

-

 

 

$(14,105,076)

 

$(15,617,571)

 

The Company’s consolidated statement of cash flows for the year ended December 31, 2016 was also impacted by the adoption of ASU 2017-11, including increases in the (i) net loss by $1,265,000 and (ii) loss on debt restructuring by $14,512,000; and the reduction of (i) noncash financing expenses by $1,096,000 and (ii) loss on the change in value of warrant liability by $14,681,000.

 

Recently Issued Accounting Standards

 

In May, 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) Summary - The FASB has made available Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers: Topic 606. ASU 2014-09 affects any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (e.g., assets within the scope of Topic 360, Property, Plant, and Equipment, and intangible assets within the scope of Topic 350, Intangibles-Goodwill and Other) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this ASU. 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.

 

For a public entity, the amendments in this ASU are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is not permitted. We will adopt this standard on January 1, 2018, and have determined that the standard will not have a material impact on the company’s financial statements.

 

 
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In June, 2015, the FASB issued Accounting Standards Update (ASU) No. 2015-11, Inventory (Subtopic 330): Simplifying the measurement of Inventory. The amendments in this ASU require inventory be measured at the lower of cost and net realizable value. For public business entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We are currently assessing the impact this standard will have on the Company’s consolidated financial statements and required disclosures.

 

In February, 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-11, Leases (Topic 842). Under the new guidance, lessees will be required to recognize a lease liability and right-of-use asset at the commencement date for all leases, with the exception of short term leases. For public business entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We are currently assessing the impact this standard will have on the Company’s consolidated financial statements and required disclosures.

 

In March, 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-09, Stock Compensation (Topic 718). This amendment is intended to improve and simplify the accounting for employee share-based payments including areas such as (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows.. For public business entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. We are currently assessing the impact this standard will have on the Company’s consolidated financial statements and required disclosures.

 

Note 3 - Going Concern

 

The accompanying consolidated financial statements as of December 31, 2017 have been prepared assuming the Company will continue as a going concern. The Company has experienced a net loss, and has an accumulated deficit of $46,667,000. The Company has convertible notes maturing during 2018 of $1,550,000, and current principal payments due in 2018 on outstanding promissory notes of $2,500,000. These principal payments raise doubt about the Company’s ability to continue as a going concern. Although we anticipate continued significant revenues for products to be used in MATS compliance activities, no assurances can be given that the Company can obtain sufficient working capital through these activities and additional financing activities to meet its debt obligations. Therefore, success in our debt refinancing efforts or negotiations with our note holders is critical. We are currently negotiating with outside sources of additional debt financing in order to fund our obligations however no assurances can be given that the Company can maintain sufficient working capital through these efforts or that the continued implementation of its business plan will generate sufficient revenues in the future to sustain ongoing operations.

 

The accompanying 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

 

The Company held product supply inventory valued at $533,432 and $414,384 and other inventory valued at $126,147 and $194,688 as of December 31, 2017 and December 31, 2016, respectively.

 

 
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Note 5 - Property and Equipment, Net

 

Property and equipment at December 31, 2017 and 2016 are as follows:

 

 

 

December 31

 

 

December 31

 

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

Equipment & Installation

 

$1,965,659

 

 

$1,823,594

 

Trucking equipment

 

 

1,010,961

 

 

 

926,614

 

Office equipment

 

 

27,155

 

 

 

27,155

 

Computer equipment and software

 

 

117,212

 

 

 

111,518

 

Total equipment 

 

 

3,120,987

 

 

 

2,888,881

 

 

 

 

 

 

 

 

 

 

Less: accumulated depreciation

 

 

(2,067,786)

 

 

(1,420,755)

Construction in process

 

 

1,675,792

 

 

 

1,101,228

 

Property and equipment, net

 

$2,728,993

 

 

$2,569,354

 

 

The Company uses the straight-line method of depreciation over 2 to 5 years. During the years ended December 31, 2017 and 2016, depreciation expense charged to operations was $748,020 and $463,868, respectively.

 

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”). Under the terms of the Agreement, the Company has been granted an exclusive license by EERCF for the technology to develop, make, have made, use, sell, offer to sell, lease, and import the technology in any coal-fired combustion systems (power plant) worldwide and to develop and perform the technology in any coal-fired power plant in the world. Amendments No. 4 and No. 5 to this agreement were made effective as of December 16, 2013 and August 14, 2014, respectively, expanding the number of patents covered, eliminated certain contract provisions and compliance issues and restructured the fee payments and buyout provisions while granting EERCF equity in the Company. This agreement now applies to 25 domestic and foreign patents and patent applications.

 

The Company paid EERCF $100,000 in 2009 for the license to use the patents and at the option of the Company can pay $2,500,000 and issue 875,000 shares of common stock for the assignment of the patents or pay the greater of the license maintenance fees or royalties on product sales for continued use of the patents. The license maintenance fees are $25,000 due monthly beginning in January 1, 2014 and continuing each month thereafter. The running royalties are $100 per one megawatt of electronic nameplate capacity and $100 per three megawatt per hour for the application to thermal systems to which licensed products or licensed processes are sold by the Company, associate and sublicensees. Running royalties are payable by the Company within 30 days after the end of each calendar year to the licensor and may be credited against license maintenance fees paid. Running royalties were $0 and $722,380 due to EERCF as of December 31, 2017 and December 31, 2016, respectively.

 

 
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On April 24, 2017, the Company closed on the acquisition from EERCF of all patent rights, including all patents and patents pending, domestic and foreign, relating to the foregoing technology. A total of 42 domestic and foreign patents and patent applications were included in the acquisition. In accordance with the terms of the License Agreement, the patent rights were acquired for the purchase price of (i) $2,500,000 in cash, and (ii) 925,000 shares of common stock of which 628,998 shares were issued to EERCF and 296,002 were issued to the inventors who had been designated by EERCF. Therefore, the Company has not accrued royalty expense as of December 31, 2017. As a result of the acquisition of the patent rights, no additional monthly license maintenance fees and annual running royalties shall be due and owing to the EERCF following closing which fees and royalties have now been eliminated.

 

The Company was required to pay EERCF 35% of all sublicense income received by the Company, excluding royalties on sales by sublicensees. Sublicense income is payable by the Company within 30 day after the end of each calendar year to the licensor. On April 24, 2017, this requirement ended upon the Company’s payment for the assignment and acquisition of the patent rights. There was no sublicense income in 2017 or 2016.

 

License and patent costs capitalized as of December 31, 2017 and December 31, 2016 are as follows:

 

 

 

December 31

 

 

December 31

 

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

Patents

 

$3,068,995

 

 

$-

 

License

 

 

-

 

 

 

100,000

 

Less:  Accumulated Amortization

 

 

(134,133)

 

 

(47,055)
License, Net

 

$2,934,862

 

 

$52,945

 

 

The Company is currently amortizing its patents over their estimated useful life of 15 years. Amortization expense for the twelve months ended December 31, 2017 and 2016 was $136,083 and $5,880, respectively. Estimated annual amortization for each of the next five years is approximately $201,200.

 

 
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Note 7 – Notes Payable

 

The Company has the following notes payable outstanding as of December 31:

  

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured convertible promissory notes which mature on July 31, 2018, bear interest at 10% 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.

 

$1,550,000

 

 

$1,575,000

 

 

 

 

 

 

 

 

 

 

Secured promissory note which matures on June 15, 2018 and bears interest at 12% per annum.

 

 

1,146,686

 

 

 

2,646,686

 

 

 

 

 

 

 

 

 

 

Unsecured promissory note which matures on December 15, 2020, and bears interest at LIBOR + 500 per annum.

 

 

13,000,000

 

 

 

13,000,000

 

 

 

 

 

 

 

 

 

 

Total convertible notes payable before discount

 

 

15,696,686

 

 

 

17,221,686

 

 

 

 

 

 

 

 

 

 

Less discounts

 

 

(1,841,867)

 

 

(2,587,519)

Less debt issuance costs

 

 

(160,041)

 

 

(313,344)

 

 

 

 

 

 

 

 

 

Total notes payable

 

 

13,694,778

 

 

 

14,320,823

 

 

 

 

 

 

 

 

 

 

Less current portion

 

 

4,050,000

 

 

 

1,500,000

 

 

 

 

 

 

 

 

 

 

Notes payable, net of current portion

 

$9,644,778

 

 

$12,820,823

 

 

As of December 31, 2017, scheduled principal payments due on convertible notes payable are as follows:

 

Twelve months ended December 31, 

 

 

 

2018

 

$4,050,000

 

2019

 

 

3,000,000

 

2020

 

 

8,646,686

 

 

 

$15,696,686

 

 

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 have been extended until July 31, 2018. For each dollar invested, the investor received two warrants to purchase one shares of common stock of the Issuer at an exercise price of $0.75 per share. The notes may be converted at any time and from time to time in whole or in part prior to the maturity date thereof. These securities were sold in reliance upon the exemption provided by Section 4(2) of the Securities Act and the safe harbor of Rule 506 under Regulation D promulgated under the Securities Act. Interest expense for the years ended December 31, 2017 and 2016, was $155,618 and $238,315, respectively. A discount on the notes payable of $841,342 was recorded based on the value of the warrants issued using a Black-Scholes options pricing model. Amortized interest expense for the years ended December 31, 2017 and 2016 on this discount was $152,558 and $152,959, respectively. As of December 31, 2017 and 2016, total principal of $1,550,000 and $1,575,000, respectively, was outstanding on these notes.

 

On November 1, 2016, the Companies entered into an Amended and Restated Financing Agreement (the “Restated Financing Agreement”) with AC Midwest, pursuant to which AC Midwest, which held various warrants to acquire shares of the Company’s common stock (the “AC Midwest Warrants”), will exercise on a cashless basis a portion of the AC Midwest Warrants for 10,000,000 shares of the Company’s common stock and exchanged the AC Midwest Notes, together with all accrued and unpaid interest thereon, and the remaining unexercised portion of the AC Midwest Warrants, for (i) a new senior secured note in the principal amount of $9,646,686 (the “New AC Midwest Secured Note”), and (ii) a subordinated unsecured note in the principal amount of $13,000,000 (the “AC Midwest Subordinated Note”). The completion of the transactions contemplated by the Restated Financing Agreement were subject to various conditions including but not limited to the closing by the Company of an equity offering raising at least $10.0 million of gross proceeds prior to December 31, 2016.

 

 
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On November 29, 2016, the Companies closed on the transactions contemplated by the Restated Financing Agreement. The Company recorded a loss of $14,105,076 on these transactions which was primarily related to the elimination of the warrant liability associated with the unexercised AC Midwest Warrants and was offset by the accelerated amortization of the discount and debt issuance costs associated with the AC Midwest Notes.

 

New AC Midwest Secured Note

 

The New AC Midwest Secured Note, which will mature on December 15, 2018 and is guaranteed by MES, is non-convertible and bears interest at a rate of 12.0% per annum, payable quarterly in arrears on or before the last day of each fiscal quarter beginning December 31, 2016. Commencing on June 15, 2017 and continuing on each September 15, December 15, March 15 and June 15 thereafter, the Company pays principal on the New AC Midwest Secured Note in equal installments of (i) $500,000 per quarter for the 2017 the calendar year, (ii) $625,000 per quarter for the 2018 calendar year, and (iii) thereafter $750,000 per quarter, with a final payment of all outstanding principal together with such other amounts as shall then be due and owing from the Company to AC Midwest under the New AC Midwest Secured Note on the maturity date. The New AC Midwest Secured Note is secured by all of the assets of the Companies. Interest expense for the years ended December 31, 2017 and 2016 was $267,847 and $35,411, respectively. As of December 31, 2017 and 2016, total principal of $1,146,686 and $2,646,686, respectively, was outstanding on this note. As of April 17, 2018, the Company was not in compliance with certain financial covenants of the Restated Financing Agreement with AC Midwest Energy. Per the terms of the Restated Financing Agreement, AC Midwest has the right to accelerate any outstanding balance of the New Midwest Secured Note.

 

AC Midwest Subordinated Note

 

The AC Midwest Subordinated Note, which will mature on December 15, 2020 and is guaranteed by MES, is non-convertible and bears interest equal to the three-month LIBOR rate plus 5.0% per annum, payable quarterly on or before the last day of each fiscal quarter beginning December 31, 2016. The interest rate shall be subject to adjustment each quarter based on the then current LIBOR rate. Commencing on June 15, 2017 and continuing on each September 15, December 15, March 15 and June 15 thereafter, the Company pays principal on the AC Midwest Subordinated Note in equal installments of (i) $500,000 per quarter for the 2017 calendar year, (ii) $625,000 per quarter for the 2018 calendar year, and (iii) thereafter $750,000 per quarter, with a final payment of all outstanding principal together with such other amounts as shall then be due and owing from the Company to AC Midwest on the maturity date. Notwithstanding the foregoing, until the New AC Midwest Secured Note and LC Note are paid in full, AC Midwest will not be entitled to receive any payment on account of the AC Midwest Subordinated Note (other than regularly scheduled interest payments). Interest expense for the years ended December 31, 2017 and 2016 was $818,357 and $71,058, respectively. As of December 31, 2017 and 2016, total principal of $13,000,000 and $13,000,000 respectively, was outstanding on this note. 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 $2,400,000 should be recorded. This discount is based on an applicable market rate for unsecured debt for the Company of 15% and will be amortized as interested expense over the life of the loan. Amortized discount recorded as interest expense for the years ended December 31, 2017 and 2016 was $593,094 and $53,622 respectively.

 

On January 28, 2016, the Companies entered into Amendment No. 3 to Financing Agreement and Reaffirmation of Guaranty (the “Third Amended Financing Agreement”) with AC Midwest Energy LLC (the “Lender”), pursuant to which Lender agreed to cause its bank to arrange for the issuance to a certain customer of the Company a standby letter of credit in the amount of $2,000,000 (the “Letter of Credit”) to permit the Company to enter into a contract for mercury capture program with such customer. The Letter of Credit is to guarantee the Company’s performance under its contract with such customer. Under the Third Amended Financing Agreement, and in consideration for the issuance of the Letter of Credit for the benefit of the Company, the Company shall pay AC Midwest a fee equal to 12.0% per annum of the amount available to be drawn under the Letter of Credit payable on the last day of each calendar month. No amounts were received on this letter of credit as of December 31, 2017. Fee expense for the years ended December 31, 2017 and 2016 was $219,333 and $226,000, respectively.

 

 
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Note 8 – Equipment Notes Payable  

 

 

 

2017

 

 

2016

 

On September 30, 2015, the Company entered into a retail installment purchase contract in the amount of $57,007, secured by a 2016 Dodge Ram 5500 purchased on that date.  This installment loan bears interest at a fixed rate of 4.22% and the Company shall make 60 monthly payments of $1,056 beginning October 30, 2015.

 

$32,833

 

 

$43,860

 

 

 

 

 

 

 

 

 

 

On December 15, 2015, the Company entered into a retail installment purchase contract in the amount of $56,711, secured by a 2016 Dodge Ram 5500 purchased on that date.  This installment loan bears interest at a fixed rate of 4.22% and the Company shall make 60 monthly payments of $1,050 beginning January 15, 2016.

 

 

35,449

 

 

 

46,304

 

 

 

 

 

 

 

 

 

 

On March 8, 2016, the Company entered into a retail installment purchase contract in the amount of $46,492, secured by a 2016 Dodge Ram 2500 purchased on that date.  This installment loan bears interest at a fixed rate of 5.62% and the Company shall make 72 monthly payments of $764 beginning April 8, 2016.

 

 

34,468

 

 

 

41,483

 

 

 

 

 

 

 

 

 

 

On May 26, 2016, the Company entered into a retail installment purchase contract in the amount of $56,936, secured by a 2016 Dodge Ram 5500 purchased on that date.  This installment loan bears interest at a fixed rate of 4.89% and the Company shall make 60 monthly payments of $1,072 beginning June 26, 2016.

 

 

40,385

 

 

 

50,987

 

 

 

 

 

 

 

 

 

 

On January 23, 2017, the Company entered into a retail installment purchase contract in the amount of $58,924, secured by a 2017 Dodge Ram 5500 purchased on that date.  This installment loan bears interest at a fixed rate of 4.74% and the Company shall make 60 monthly payments of $1,105 beginning February 23, 2017.

 

 

49,138

 

 

 

-

 

 

 

 

 

 

 

 

 

 

On February 29, 2017, the Company entered into a retail installment purchase contract in the amount of $42,275, secured by a 2017 Dodge Ram 2500 purchased on that date.  This installment loan bears interest at a fixed rate of 4.74% and the Company shall make 60 monthly payments of $793 beginning March 29, 2017.

 

 

36,553

 

 

 

-

 

 

 

 

 

 

 

 

 

Total equipment notes payable

 

 

228,826

 

 

 

182,634

 

 

 

 

 

 

 

 

 

 

Less Current Portion

 

 

61,177

 

 

 

39,499

 

 

 

 

 

 

 

 

 

 

Equipment notes payable, net of current portion

 

$167,649

 

 

$143,135

 

 

As of December 31, 2017, scheduled principal payments due on convertible notes payable are as follows:

 

 

 

 

 

For the year ended December 31,

 

 

 

2018

 

$61,177

 

2019

 

 

63,423

 

2020

 

 

63,280

 

2021

 

 

36,147

 

2022

 

 

4,799

 

 

 

$228,826

 

 

 
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Note 9 – Commitments and Contingencies

 

Property Leases

 

On June 1, 2011, the Company entered into a 36 month lease for warehouse space in Centralia, Washington, commencing August 1, 2011. The lease ended June 30, 2017.

 

On January 27, 2015, the Company entered into a 13-month lease for office space in Lewis Center, Ohio, commencing February 1, 2015. The lease provides for the option to extend the lease for up to five additional years. Rent was abated for the first month of the lease. To date, the lease has been extended twice through February 2019. Monthly rent is $1,463 through February 2019.

 

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 and is waived from July 1, 2016 through September 30, 2016. 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.

 

On September 1, 2015, the Company entered into a three year lease for office space in Grand Forks, North Dakota. Rent is $3,500 monthly for the first year and decreases to $2,500 throughout the remainder of the term of the lease.

 

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

 

For the Year Ended December 31

 

 

 

2018

 

$82,397

 

2019

 

 

47,925

 

2020

 

 

22,500

 

 

 

$152,822

 

 

Rent expense was approximately $130,000 and $130,000 for the years ended December 31, 2017 and 2016, respectively.

 

Fixed Price Contract

 

The Company’s multi-year contracts with its commercial customers contain fixed prices for product. These contracts expire through 2019 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

 

The Company is involved in various claims and legal proceedings arising from the normal course of business. While the ultimate liability, if any, from these proceedings is presently indeterminable, in the opinion of management, these matters should not have a material adverse effect on the Company’s consolidated financial statements.

 

Note 10 – Equity

 

The Company was established with two classes of stock, common stock – 150,000,000 shares authorized at a par value of $0.001 and preferred stock – 2,000,000 shares authorized at a par value of $0.001.

 

 
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Common Stock

 

On January 1, 2016, the Company issued 164,500 shares of common stock to the holders of notes with a term of three years, bear interest at 10% 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, as payment for accrued interest due as of December 31, 2015.

 

On July 1, 2016, the Company issued 164,500 shares of common stock to the holders of notes with a term of three years, bear interest at 10% 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, as payment for accrued interest due as of June 30, 2015.

 

On August 3, 2016, the Company issued 15,181 shares of common stock upon the cashless exercise of warrants to purchase 22,458 shares of common stock for $0.35 per share based on a market value of $1.08 per share as determined under the terms of the warrant.

 

On August 10, 2016, the Company issued 30,361 shares of common stock upon the cashless exercise of warrants to purchase 44,917 shares of common stock for $0.35 per share based on a market value of $1.08 per share as determined under the terms of the warrant.

 

From August 22, 2016 through August 30, 2016 the Company issued 307,572 shares of common stock and 76,893 warrants to purchase shares of common stock upon the conversion of a note principal and accrued interest totaling $153,786, that bear interest at 12% per annum, and was convertible into units, where each unit consists of: (i) one share of common stock, par value $0.001 per share, and (ii) a warrant to purchase 0.25 shares of common stock at an exercise price of $0.75 per share with a conversion ratio equal to $0.50 per unit.

 

On August 23, 2016, the Company issued 40,577 shares of common stock upon the conversion of a note with principal and accrued interest totaling $20,289, that bears interest at 10% per annum, and was convertible into one share of common stock, par value $0.001 per share, with a conversion ratio equal to $0.50 per share.

 

On September 15, 2016, the Company issued 636,064 shares of common stock upon the cashless exercise of warrants to purchase 791,744 shares of common stock for $0.35 per share based on a market value of $1.78 per share as determined under the terms of the warrant.

 

On September 15, 2016, the Company issued 416,836 shares of common stock upon the cashless exercise of warrants to purchase 570,750 shares of common stock for $0.48 per share based on a market value of $1.78 per share as determined under the terms of the warrant.

 

On September 15, 2016, the Company issued 160,674 shares of common stock upon the cashless exercise of warrants to purchase 200,000 shares of common stock for $0.35 per share based on a market value of $1.78 per share as determined under the terms of the warrant.

 

On September 22, 2016, the Company issued 130,207 shares of common stock upon the cashless exercise of warrants to purchase 165,810 shares of common stock for $0.35 per share based on a market value of $1.78 per share as determined under the terms of the warrant.

 

On September 27, 2016, the Company issued 10,305 shares of common stock upon the exercise of warrants to purchase shares of common stock for $1.00.

 

 
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On September 29, 2016, the Company issued 21,402 shares of common stock upon the exercise of warrants to purchase shares of common stock for $0.75.

 

On October 21, 2016, the Company issued 11,445 shares of common stock upon the exercise of warrants to purchase shares of common stock for $1.00.

 

On October 24, 2016 the Company issued 2,286,209 shares of common stock and 571,557 warrants to purchase shares of common stock upon the conversion of a note principal and accrued interest totaling $1,143,101, that bear interest at 12% per annum, and was convertible into units, where each unit consists of: (i) one share of common stock, par value $0.001 per share, and (ii) a warrant to purchase 0.25 shares of common stock at an exercise price of $0.75 per share with a conversion ratio equal to $0.50 per unit.

 

On November 2, 2016, the Company issued 38,651 shares of common stock upon the cashless exercise of options to purchase 50,000 shares of common stock for $0.37 per share based on a market value of $1.63 per share as determined under the terms of the option.

 

On November 3, 2016, the Company issued 54,783 shares of common stock upon the cashless exercise of warrants to purchase 70,000 shares of common stock for $0.35 per share based on a market value of $1.61 per share as determined under the terms of the warrant.

 

On November 7, 2016, the Company issued 103,500 shares of common stock upon the conversion of a note with principal and accrued interest totaling $51,750, that bears interest at 10% per annum, and was convertible into one share of common stock, par value $0.001 per share, with a conversion ratio equal to $0.50 per share.

 

On November 14, 2016, the Company issued 39,118 shares of common stock upon the cashless exercise of options to purchase 50,000 shares of common stock for $0.37 per share based on a market value of $1.70 per share as determined under the terms of the option.

 

On November 14, 2016, the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) with certain institutional and accredited investors (the “Investors”) pursuant to which the Company has agreed to sell an aggregate of 11,214,968 shares of its common stock at a price of $1.20 per share (the “Private Placement”) to the Investors for gross proceeds to the Company of $13,457,961.60. The closing of the Private Placement was subject to certain customary closing conditions and closed on November 17, 2016. On December 23, 2016, the Company filed a “resale” registration statement with the Securities and Exchange Commission (the “SEC”) covering all shares of common stock sold in the Private Placement, which was declared effective by the SEC on January 10, 2017. Oppenheimer & Co. Inc. (“Oppenheimer”) acted as the lead placement agent in the Private Placement and Feltl and Company has acted as co-placement agent in the Private Placement in consideration for which they received an aggregate cash fee of 8.0% of the gross proceeds. On November 29, 2016, Oppenheimer also received 100,000 shares of the Company’s common stock as part of its fee. The shares are being issued pursuant to the exemption from the registration requirements of the Securities Act 1933, as amended (the “1933 Act”), provided under Section 4(a)(2) thereof and pursuant to Rule 506 of Regulation D only to “accredited investors” (as defined under Rule 501(a) of the 1933 Act) based in part on the representations and warranties of the Investors.

 

On December 2, 2016, the Company issued 19,531 shares of common stock upon the cashless exercise of warrants to purchase 25,000 shares of common stock for $0.35 per share based on a market value of $1.60 per share as determined under the terms of the warrant.

 

 
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On December 5, 2016, the Company issued 27,600 shares of common stock upon the cashless exercise of warrants to purchase 36,000 shares of common stock for $0.35 per share based on a market value of $1.50 per share as determined under the terms of the warrant.

 

On December 6, 2016, the Company issued 4,714 shares of common stock upon the cashless exercise of warrants to purchase 7,000 shares of common stock for $0.48 per share based on a market value of $1.47 per share as determined under the terms of the warrant.

 

On December 6, 2016, the Company issued 77,707 shares of common stock upon the cashless exercise of warrants to purchase 100,000 shares of common stock for $0.35 per share based on a market value of $1.57 per share as determined under the terms of the warrant.

 

On December 6, 2016, the Company issued 107,762 shares of common stock upon the cashless exercise of warrants to purchase 140,000 shares of common stock for $0.35 per share based on a market value of $1.52 per share as determined under the terms of the warrant.

 

On December 6, 2016, the Company issued 29,726 shares of common stock upon the exercise of warrants to purchase shares of common stock for $0.35.

 

On December 12, 2016, the Company issued 48,632 shares of common stock upon the exercise of warrants to purchase shares of common stock for $0.35.

 

On December 19, 2016, the Company issued 53,020 shares of common stock upon the cashless exercise of warrants to purchase 68,084 shares of common stock for $0.35 per share based on a market value of $1.582 per share as determined under the terms of the warrant.

 

On January 13, 2017, the Company issued 36,842 shares of common stock upon the cashless exercise of warrants to purchase 50,000 shares of common stock for $0.35 per share based on a market value of $1.33 per share as determined under the terms of the warrant.

 

On January 18, 2017, the Company issued 36,112 shares of common stock upon the cashless exercise of warrants to purchase 50,000 shares of common stock for $0.35 per share based on a market value of $1.26 per share as determined under the terms of the warrant.

 

On February 6, 2017, the Company issued 21,191 shares of common stock upon the cashless exercise of warrants to purchase 29,179 shares of common stock for $0.35 per share based on a market value of $1.2785 per share as determined under the terms of the warrant.

 

On February 7, 2017, the Company issued 35,169 shares of common stock upon the cashless exercise of warrants to purchase 50,000 shares of common stock for $0.35 per share based on a market value of $1.18 per share as determined under the terms of the warrant.

 

On March 30, 2017, the Company issued 16,915 shares of common stock upon the cashless exercise of warrants to purchase 23,799 shares of common stock for $0.35 per share based on a market value of $1.21 per share as determined under the terms of the warrant.

 

On March 30, 2017, the Company issued 51,236 shares of common stock upon the conversion of a note with principal and accrued interest totaling $25,618, that bears interest at 10% per annum, and was convertible into one share of common stock, par value $0.001 per share, with a conversion ratio equal to $0.50 per share.

 

 
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On April 5, 2017, the Company issued 45,488 shares of common stock upon the cashless exercise of warrants to purchase 64,444 shares of common stock for $0.35 per share based on a market value of $1.19 per share as determined under the terms of the warrant.

 

On April 12, 2017, the Company issued 43,200 shares of common stock upon the cashless exercise of warrants to purchase 60,000 shares of common stock for $0.35 per share based on a market value of $1.25 per share as determined under the terms of the warrant.

 

On April 24, 2017, the Company issued 925,000 shares of common stock in connection with the closing on the acquisition of certain patent rights from Energy & Environmental Research Center Foundation (“EERCF”) for the purchase price of $2,500,000 paid to EERCF in cash, 628,998 shares of common stock to EERCF and 296,002 shares to inventors designated by EERCF. The shares issued were valued at $0.56 per share, representing the value as of the closing date.

 

On May 2, 2017, the Company issued 345,071 shares of common stock upon the cashless exercise of warrants to purchase 500,910 shares of common stock for $0.35 per share based on a market value of $1.125 per share as determined under the terms of the warrant.

 

On May 3, 2017, the Company issued 50,226 shares of common stock upon the cashless exercise of warrants to purchase 72,948 shares of common stock for $0.35 per share based on a market value of $1.1237 per share as determined under the terms of the warrant.

 

On May 16, 2017, the Company issued 130,000 shares of common stock pursuant to a Settlement Agreement with two unrelated third parties which shares were valued at $0.47 per share based on the market value as of May 16, 2017.

 

Pursuant to the terms of a consulting agreement entered into on July 31, 2017, effective as of July 1, 2017, the Company issued 1,000,000 shares of common stock to Dathna Partners, LLC which shall be earned in the following manner: 250,000 shares will be earned by the consultant and deemed immediately vested on the effective date, and the remaining 750,000 shares will be earned by the consultant and deemed vested, in 12 equal monthly installments of 62,500 shares beginning on July 31, 2017 and monthly thereafter until June 30, 2018. The shares issued were valued at $0.37 per share, representing the value as of the issuance date.

 

Note 11 - Stock Based Compensation

 

Effective July 20, 2005, the Board of Directors of the Company approved the 2005 Stock Option and Restricted Stock Plan (the “2005 Plan”). The 2005 Plan reserves approximately 136,364 post Reverse Stock Split shares of common stock for grants of incentive stock options, nonqualified stock options, warrants and restricted stock awards to employees, non-employee directors and consultants performing services for the Company. Options and warrants granted under the 2005 Plan have an exercise price equal to or greater than the fair market value of the underlying common stock at the date of grant and become exercisable based on a vesting schedule determined at the date of grant. The options expire 10 years from the date of grant whereas warrants generally expire 5 years from the date of grant. Restricted stock awards granted under the 2005 Plan are subject to a vesting period determined at the date of grant.

 

 
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On May 6, 2009, the Board of Directors adopted, subject to stockholder approval, which was obtained at the annual stockholders meeting held on June 19, 2009, an amendment to the 2005 Plan that increased the number of shares subject to the Stock Plan. The total number of shares subject to the Stock Plan was revised to 454,545 shares by the Reverse Stock Split. On October 9, 2014, the Board of Directors terminated this plan upon the approving an amendment to the 2014 Equity Incentive Plan.

 

On January 10, 2014, the Board of Directors of the Company approved and adopted, subject to stockholder approval, which was obtained at the annual stockholders meeting held on November 16, 2014, the Midwest Energy Emissions Corp. 2014 Equity Incentive Plan (the “2014 Equity Plan”). The number of shares of the Company’s Common Stock that may be issued under the 2014 Equity Plan is 2,500,000 shares, subject to the adjustment for stock dividends, stock splits, recapitalizations and similar corporate events. Eligible participants under the 2014 Equity Plan shall include officers, employees of or consultants to the Company or any of its subsidiaries, or any person to whom an offer of employment is extended, or any person who is a non-employee director of the Company. On October 9, 2014, the Board of Directors approved and adopted the First Amendment to the plan, subject to stockholder approval, which was obtained at the annual stockholders meeting held on November 18, 2014, which increased the number of shares issuable under the plan to 7,500,000.

 

On February 9, 2017, the Board of Directors of the Company adopted the Midwest Energy Emissions Corp. 2017 Equity Incentive Plan (the “2017 Equity Plan”), which was approved by stockholders at the annual stockholders meeting held on June 6, 2017. The 2017 Equity Plan provides for the grant of incentive stock options (subject to applicable stockholder approval), nonqualified stock options, restricted stock awards, stock appreciation rights, restricted share units, performance awards and other type of awards described therein. Eligible recipients under the 2017 Equity Plan include the Company’s officers, directors, employees and consultants of the Company or one of its subsidiaries. The maximum number of shares of common stock that may be issued under the 2017 Equity Plan is 8,000,000. The 2017 Equity Plan will be administered by the Board or one or more committees appointed by the Board. The 2017 Equity Plan replaces the 2014 Equity Plan which was terminated by the Board of Directors on April 28, 2017.

 

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 consolidated financial statements over the vesting period based on the estimated fair value of the awards.

 

 
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A summary of stock option activity for the years ended December 31, 2017 and 2016 is presented below:

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining Contractual

Life (years)

 

 

Aggregate

Intrinsic

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

6,720,458

 

 

 

1.35

 

 

 

3.7

 

 

 

-

 

Grants

 

 

1,600,000

 

 

 

0.99

 

 

 

4.6

 

 

 

-

 

Exercises

 

 

(100,000)

 

 

0.37

 

 

 

-

 

 

 

-

 

Expirations

 

 

(5,001)

 

 

22.00

 

 

 

-

 

 

 

-

 

Cancellations

 

 

(665,000)

 

 

-

 

 

 

-

 

 

 

-

 

December 31, 2016

 

 

7,550,457

 

 

 

1.29

 

 

 

3.2

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grants

 

 

1,615,000

 

 

 

0.98

 

 

 

4.8

 

 

 

-

 

Expirations

 

 

(577,273)

 

 

1.02

 

 

 

-

 

 

 

-

 

Cancellations

 

 

(125,000)

 

 

-

 

 

 

-

 

 

 

-

 

December 31, 2017

 

 

8,463,184

 

 

 

1.26

 

 

 

3.0

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options exercisable at:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

6,700,457

 

 

 

1.31

 

 

 

3.0

 

 

 

 

 

December 31, 2017

 

 

7,688,184

 

 

 

1.27

 

 

 

3.0

 

 

 

 

 

 

The Company utilized the Black-Scholes options pricing model. The significant assumptions utilized for the Black Scholes calculations consist of an expected life of equal to the expiration term of the option, historical volatility of 74.9%, and a risk free interest rate of 3%.

 

On May 1, 2016, the Company issued nonqualified stock options to acquire 25,000 shares each of the Company’s common stock to Christopher Greenberg, Brian Johnson and Christopher Lee, current directors of the Company, under the Company’s 2014 Equity Plan. The options granted are exercisable at $0.42 per share, representing the fair market value of the common stock as of the date of the grant as determined under the 2014 Equity Plan. These options are to vest one year after the original grant date, subject to continuing service to the Company, are exercisable as of the date of vesting and will expire five years thereafter. Based on a Black-Scholes valuation model, these options were valued at $19,376 in accordance with FASB ASC Topic 718. Compensation expense for the year ended December 31, 2016 on the issued options was $12,920.

 

On June 1, 2016, the Company granted nonqualified stock options to acquire 250,000 shares of the Company’s common stock to Patrick Mongovan. The options granted are exercisable at $0.42 per share, representing the fair market value of the common stock as of the date of grant. These options are fully vested and are exercisable as of the date of the grant and will expire five years thereafter. Based on a Black-Scholes valuation model, these options were valued at $28,836 in accordance with FASB ASC Topic 718. Compensation expense for the year ended December 31, 2016 on the issued options was $28,836.

 

On June 30, 2016, the Company issued nonqualified stock options to acquire 125,000 shares of the Company’s common stock to Christopher Greenberg, nonqualified stock options to acquire 75,000 shares of the Company’s common stock to Christopher Lee, and nonqualified stock options to acquire 50,000 shares of the Company’s common stock to each of Brian Johnson and Allan Grantham, current directors of the Company, under the Company’s 2014 Equity Plan. The options granted are exercisable at $0.81 per share, representing the fair market value of the common stock as of the date of the grant as determined under the 2014 Equity Plan. These options are fully vested and are exercisable as of the date of the grant and will expire five years thereafter. Based on a Black-Scholes valuation model, these options were valued at $174,902 in accordance with FASB ASC Topic 718. Compensation expense for the year ended December 31, 2016 on the issued options was $174,902.

 

 
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On June 30, 2016, the Company issued nonqualified stock options to acquire 250,000 shares of the Company’s common stock to Richard MacPherson, CEO and a current director of the Company, under the Company’s 2014 Equity Plan. The options granted are exercisable at $0.81 per share, representing the fair market value of the common stock as of the date of the grant as determined under the 2014 Equity Plan. These options vested after such time that the closing price of the Company’s common stock is equal to or in excess of $0.80 per share for any consecutive 30 day trading period following the grant date and will expire five years after the date of the grant. Based on a Black-Scholes valuation model, these options were valued at $145,752 in accordance with FASB ASC Topic 718. Compensation expense for the year ended December 31, 2016 on the issued options was $145,752.

 

On August 31, 2016, the Company issued nonqualified stock options to acquire 750,000 shares of the Company’s common stock to Richard MacPherson, CEO and a current director of the Company, under the Company’s 2014 Equity Plan. The options granted are exercisable at $1.20 per share, representing the fair market value of the common stock as of the date of the grant as determined under the 2014 Equity Plan. These options are to vest on a cumulative basis in accordance with the following schedule: (i) 250,000 shares at such time that the closing price of the Company’s common stock is equal to or in excess of $2.00 per share for any consecutive 30 day trading period following the grant date, (ii) 250,000 shares at such time that the closing price of the Company’s common stock is equal to or in excess of $3.00 per share for any consecutive 30 day trading period following the grant date, and (iii) 250,000 shares at such time that the Company’s common stock is listed for trading on either the NASDAQ Stock Market or the New York Stock Exchange (including NYSE-MKT). Based on a Black-Scholes valuation model, these options were valued at $595,651 in accordance with FASB ASC Topic 718. These options have not yet vested and no compensation expense has been recorded for the year ended December 31, 2017.

 

On October 4, 2016 the Company granted nonqualified stock options to acquire 100,000 shares of the Company’s common stock to Rob Rians. The options granted are exercisable at $1.36 per share, representing the fair market value of the common stock as of the date of grant. These options are fully vested and are exercisable as of the date of the grant and will expire five years thereafter. Based on a Black-Scholes valuation model, these options were valued at $88,629 in accordance with FASB ASC Topic 718. Compensation expense for the year ended December 31, 2016 on the issued options was $88,629.

 

On October 4, 2016 the Company granted nonqualified stock options to acquire 25,000 shares of the Company’s common stock to Todd Ferrell. The options granted are exercisable at $1.36 per share, representing the fair market value of the common stock as of the date of grant. These options will vest and become exercisable on February 1, 2018 and will expire five years from the grant date. Based on a Black-Scholes valuation model, these options were valued at $22,157 in accordance with FASB ASC Topic 718. Compensation expense for the year ended December 31, 2016 on the issued options was $3,915.

 

On February 1, 2017, the Company issued nonqualified stock options to acquire 50,000 shares each of the Company’s common stock to Brian Johnson, Christopher Lee and Allan Grantham and nonqualified stock options to acquire 100,000 shares of the Company’s common stock to Christopher Greenberg, each then a director of the Company, under the Company’s 2014 Equity Plan. The options granted are exercisable at $1.20 per share, representing the fair market value of the common stock as of the date of the grant as determined under the 2014 Equity Plan. The options are fully vested and exercisable as of the date of grant and will expire five years thereafter. As a result of the resignations of Brian Johnson and Christopher Lee on April 27, 2017, the options granted to them remain exercisable for 90 days following their resignation after which such options shall terminate. Based on a Black-Scholes valuation model, these options were valued at $233,817 in accordance with FASB ASC Topic 718.

 

On February 10, 2017, the Company issued nonqualified stock options to acquire 25,000 shares each of the Company’s common stock to Nicholas Lentz and Johnny Battle, nonqualified stock options to acquire 50,000 shares of the Company’s common stock to John Pavlish, nonqualified stock options to acquire 150,000 shares of the Company’s common stock to Richard Gross and nonqualified stock options to acquire 500,000 shares of the Company’s common stock to James Trettel under the Company’s 2017 Equity Plan. The options granted are exercisable at $1.15 per share, representing the fair market value of the common stock as of the date of the grant as determined under the 2017 Equity Plan. The options are fully vested and exercisable as of the date of grant and will expire five year thereafter. Based on a Black-Scholes valuation model, these options were valued at $712,050 in accordance with FASB ASC Topic 718.

 

 
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On April 27, 2017, the Company issued nonqualified stock options to acquire 125,000 shares each of the Company’s common stocks to Brian Johnson and Christopher Lee under the Company’s 2017 Equity Plan. The options granted are exercisable at $0.96 per share, representing the fair market value of the common stock as of the date of the grant as determined under the 2017 Equity Plan. Notwithstanding their resignations as directors, 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 $194,732 in accordance with FASB ASC Topic 718.

 

On June 1, 2017, the Company issued nonqualified stock options to acquire 100,000 shares of the Company’s common stock to Patrick Mongoven under the Company’s 2017 Equity Plan. The options granted are exercisable at $1.01 per share, which is greater than the fair market value of the common stock on the date of grant and represents the fair market value of the common stock on March 1, 2017. 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 $81,903 in accordance with FASB ASC Topic 718.

 

On September 18, 2017, the Company issued nonqualified stock options to acquire 250,000 shares of the Company’s common stock to Gary Graves under the Company’s 2017 Equity Plan. The options granted are exercisable at $0.35 per share, representing the fair market value of the common stock on the date of grant as determined under the 2017 Equity Plan. Fifty percent (50.0%) of the options are fully vested and exercisable as of the date of grant and the remaining fifty percent (50.0%) were canceled on December 20, 2017. Based on a Black-Scholes valuation model, these options were valued at $70,170 in accordance with FASB ASC Topic 718.

 

On December 28, 2017, the Company issued nonqualified stock options to acquire 15,000 shares of the Company’s common stock to Stacey Hyatt under the Company’s 2017 Equity Plan. The options granted are exercisable at $0.24 per share, representing the fair market value of the common stock on the date of grant as determined under the 2017 Equity Plan. The options are fully vested and exercisable as of the date of grant and will expire five years thereafter. Based on a Black-Scholes valuation model, these options were valued at $3,159 in accordance with FASB ASC Topic 718.

 

Note 12 - Warrants

 

Unless 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 72.4%, a risk free interest rate and the life of the warrant for the exercise period.

 

 
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On February 16, 2016, the Company entered into a 2013 Noteholder Modification Agreement (the “Noteholder Modification Agreement”) with each of the investors (through their designated Note Agent) of certain secured promissory notes issued by the Company in 2013 (the “2013 Secured Notes”). Such 2013 Secured Notes contain a most favored nations clause (“MFN”) which provides that following the Company’s completion of an equity or equity-linked new financing (each a “New Financing”), the Company shall provide each of the holders of the 2013 Secured Notes (the “Holders”) written notice thereof and a 60 day period in which to exchange the 2013 Secured Notes at a value equal to the outstanding principal balance plus accrued outstanding interest into the same securities as issued in the New Financing. Pursuant to the Noteholder Modification Agreement, which was entered into in order to resolve the differences between the parties as to the applicability of the MFN provision to the Second Amended Financing Agreement, the Company (i) agreed that the exercise price for each share of common stock purchasable with respect to the 2013 Warrants held by currently outstanding Holders be reduced to $0.35 per share of common stock (resulting in the exercise price being reduced for 2013 Warrants exercisable for 3,290,000 shares), and (ii) agreed to issue to such currently outstanding Holders of 2013 Secured Notes in the aggregate warrants to purchase up to 1,600,000 shares of common stock at $0.35 per share, exercisable at any time on or before November 15, 2020. In addition, the Noteholder Modification Agreement provided additional carveouts to the applicability of the MFN provision to certain other transactions in the future as described therein. The warrants are fully vested and exercisable as of the date of grant and will expire five year thereafter. Based on a Black-Scholes valuation model, these options were valued at $495,394 in accordance with FASB ASC Topic 718 and this cost was recorded as settlement charge expense during the year ended December 31, 2015.

 

On February 19, 2016, the Company issued to Drexel pursuant to an amendment to its engagement agreement a 5-year warrant to purchase up to 300,000 shares of common stock at $0.35 per share. The warrant is subject to adjustments similar to the Warrant issued to the Lender on November 16, 2014. Approximately 200,000 of these warrants were owed to Drexel as of December 31, 2015 for services rendered. Also pursuant to this agreement, the exercise price on all warrants issued to Drexel on November 16, 2014 was reset to $0.35 per share.

 

On April 26, 2016, pursuant to a consulting agreement executed on that date, the Company granted MZHCI, LLC, a vested warrant with a term of three years to purchase 75,000 shares of common stock with an exercise price of $0.65 per share. Per the terms of the agreement, the Company issued MZHCI, LLC an additional warrant to purchase 75,000 shares of common stock with an exercise price of $0.90 per share 91 days after the effective date of the agreement. These warrants will each include a cashless exercise provision. Based on a Black-Scholes valuation model, the warrants issued on April 26, 2016 were valued at $19,240 in accordance with FASB ASC Topic 718. Based on a Black-Scholes valuation model, the warrants issued on July 26, 2016 were valued at $58,780 in accordance with FASB ASC Topic 718. On November 30, 2017, pursuant to an amendment to the consulting agreement, these two warrants were canceled and a new warrant with a term of three years to purchase 150,000 shares of common stock with an exercise price of $0.45 was issued. Based on a Black-Scholes valuation model, an additional value of $17,922 was recorded for the warrant issued on November 30, 2017 in accordance with FASB ASC Topic 718.

 

 
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The following table summarizes information about common stock warrants outstanding at December 31, 2017:

 

Outstanding

 

 

Exercisable

 

Exercise Price

 

 

Number

Outstanding

 

 

Weighted Average

Remaining

Contractual Life

(years)

 

 

Weighted

Average

Exercise

Price

 

 

Number

Exercisable

 

 

Weighted

Average

Exercise

Price

 

$

1.25

 

 

 

13,950

 

 

 

0.75

 

 

 

1.25

 

 

 

13,950

 

 

 

1.25

 

 

0.87

 

 

 

1,303,300

 

 

 

1.36

 

 

 

0.87

 

 

 

1,303,300

 

 

 

0.87

 

 

0.75

 

 

 

683,415

 

 

 

0.80

 

 

 

0.65

 

 

 

683,415

 

 

 

0.65

 

 

0.65

 

 

 

515,000

 

 

 

0.82

 

 

 

0.65

 

 

 

515,000

 

 

 

0.50

 

 

0.45

 

 

 

150,000

 

 

 

2.92

 

 

 

0.45

 

 

 

150,000

 

 

 

0.45

 

 

0.35

 

 

 

4,572,098*

 

 

1.44

 

 

 

0.35

 

 

 

4,572,098

 

 

 

0.35

 

$

0.50 - $3.30

 

 

 

7,237,763

 

 

 

1.35

 

 

 

 

 

 

 

7,237,763

 

 

 

 

 

 

Note * 916,720 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.

 

Note 13 – Tax

 

Below is breakdown of the tax provisions for the years ended December 31:

 

 

 

2017

 

 

2016

 

Current:

 

 

 

 

 

 

Federal

 

 

-

 

 

 

-

 

State and local

 

$40,422

 

 

$27,331

 

Total Current

 

 

40,422

 

 

 

27,331

 

Deferred federal income tax benefit

 

 

500,000

 

 

 

(500,000)

 

 

 

 

 

 

.

 

Net Provision (Benefit)

 

$540,422

 

 

$(472,669)

 

A reconciliation of the provision (benefit) for income taxes with amounts determined by applying the statutory U.S. federal income tax rate to income before income taxes is as follows for the years ended December 31:

 

 

 

2017

 

 

2016

 

Computed tax at the federal statutory rate

 

$(803,000)

 

$(5,901,000)

Return to provision adjustment

 

 

-

 

 

 

2,019,000

 

Debt discounts

 

 

254,000

 

 

 

6,279,000

 

Other

 

 

36,000

 

 

 

16,000

 

Valuation allowance

 

 

513,000

 

 

 

(2,913,000)

Federal income tax benefit

 

$-

 

 

$(500,000)

 

 
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Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows at December 31:

 

 

 

2017

 

 

2016

 

Deferred tax assets:

 

 

 

 

 

 

Net operating loss carryforwards

 

$3,840,000

 

 

$5,927,000

 

Stock based compensation

 

 

903,000

 

 

 

1,211,000

 

Total deferred tax assets

 

 

4,743,000

 

 

 

7,138,000

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Property and equipment

 

 

(137,000)

 

 

(228,000)

Other

 

 

(11,000)

 

 

(33,000)

Total deferred tax liabilites

 

 

(148,000)

 

 

(261,000)

 

 

 

 

 

 

 

 

 

Valuation Allowance

 

 

(4,595,000)

 

 

(6,377,000)

 

 

 

 

 

 

 

 

 

Net deferred tax asset

 

$-

 

 

$500,000

 

 

The Tax Act reduces the federal statutory corporate tax rate from 34.0% to 21.0% for the Company’s tax years beginning in 2018, which resulted in the re-measurement of the federal portion of its deferred tax assets and liabilities, and its related valuation allowance against net deferred tax assets, at December 31, 2017, from 34.0% to the new 21.0% tax rate. Refer to Note 13 for further discussion related to the impact of the Tax Act on the Company’s accounting for income taxes at December 31, 2017. On a gross basis, the Tax Act resulted in a reduction to the Company’s deferred tax assets, deferred tax liabilities and valuation allowance of approximately $2,936,000, $92,000 and $2,844,000, respectively.

 

For the year ended December 31, 2016, the Company had net operating income, however, the use of net operating loss carryforwards eliminate the provision for income tax. The Company recorded a valuation allowance against all of our deferred tax assets as of December 31, 2015. As of December 31, 2016, we determined there is sufficient evidence to support the reversal of some portion of these allowances and recorded a deferred tax asset of $500,000.

 

However, for the year ended December 31, 2017, the Company incurred net operating loss and, accordingly, no provision for income taxes has been recorded. In addition, it was determined that sufficient evidence did not exist to support the reversal of some portions of the valuation allowance against our deferred tax assets, we no longer recorded any deferred tax asset, and no benefit for income taxes was recorded due to the uncertainty of the realization of any tax assets.

 

At December 31, 2017, the Company had approximately $18,284,000 of net operating losses. The net operating loss carryforwards, if not utilized, will begin to expire in 2031.

 

The Company’s effective income tax rates for the years ended December 31, 2017 and 2016, respectively are different than what would be expected if the statutory rate were applied to net income before income tax expense primarily because of expense charges in connection with various non-cash financing transactions, the use of net operating loss carryforwards, and the change in the valuation allowance.

 

 
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Note 14 – Subsequent Events

 

On February 5, 2018, the Company issued nonqualified stock options to acquire 250,000 shares of the Company’s common stock to Rick MacPherson, nonqualified stock options to acquire 150,000 shares of the Company’s common stock to Christopher Greenberg and nonqualified stock options to acquire 108,000 shares of the Company’s common stock to Allan Grantham, each a director of the Company, under the Company’s 2014 Equity Plan. The options granted are exercisable at $0.28 per share, representing the fair market value of the common stock on the date of grant as determined under the 2017 Equity Plan. The options are fully vested and exercisable as of the date of grant and will expire five years thereafter. Based on a Black-Scholes valuation model, these options were valued at $100,887 in accordance with FASB ASC Topic 718.

 

On February 5, 2018, the Company released the restriction on stock options to acquire 750,000 shares of the Company’s common stock issued to Rick MacPherson on August 31, 2016 making them now fully vested and exercisable. Based on a Black-Scholes valuation model, these options were valued at $76,543 in accordance with FASB ASC Topic 718.

 

On February 23, 2018, Company issued nonqualified stock options to acquire 50,000 shares each of the Company’s common stock to John Pavlish, Richard Gross and James Trettel, nonqualified stock options to acquire 25,000 shares each of the Company’s common stock to Nicholas Lentz and Johnny Battle and nonqualified stock options to acquire 15,000 shares each of the Company’s common stock to Gabriel Brooks, Ethan Gaius and Terry Johnson under the Company’s 2017 Equity Plan. The options granted are exercisable at $0.28 per share, representing the fair market value of the common stock on the date of grant as determined under the 2017 Equity Plan. The options are fully vested and exercisable as of the date of grant and will expire five years thereafter. Based on a Black-Scholes valuation model, these options were valued at $51,129 in accordance with FASB ASC Topic 718.

 

 
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ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None

 

ITEM 9A – CONTROLS AND PROCEDURES

 

Report of Disclosure Controls and Procedures

 

Regulations under the Exchange Act require public companies to maintain “disclosure controls and procedures,” which are defined as controls and other procedures that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits 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. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Under the supervision and with the participation of our management, including the principal executive officer and principal financial officer, we have evaluated the effectiveness, the design and operations of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the principal executive officer and principal financial officer determined that as of December 31, 2017, the Company’s disclosure controls and procedures were ineffective.

 

Management’s Annual Report on Internal Control over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, the Company conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013 (COSO). The Company has not adopted the new framework due to its size and limited resources available for developing an internal control program compliant with the new framework.

 

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

 

Despite these controls, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Furthermore, smaller reporting companies, like us, face additional limitations. Smaller reporting companies employ fewer individuals and can find it difficult to employ resources for complicated transactions and effective risk management. Additionally, smaller reporting companies tend to utilize general accounting software packages that lack a rigorous set of software controls.

 

 
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Our management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2017 based on the criteria established in “Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, our management concluded our internal control over financial reporting was not effective as of December 31, 2017. The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses which are indicative of 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.

 

This annual report does not include an attestation report of our registered public accounting firm regarding our internal controls over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to Section 404(c) of the Sarbanes-Oxley Act that permit us to provide only management’s report in this annual report.

 

Despite the existence of the material weaknesses above, we believe that our consolidated financial statements contained in this Form 10-K 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 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Material Weakness

 

In connection with our annual audit for the year ended December 31, 2017 and December 31, 2016, management determined that controls as described above constitute material weaknesses in disclosure controls and internal control over financial reporting. As a result, it was determined that a control deficiency that constitutes a material weakness in the design and operation of our internal control over financial reporting was present. Management believes that these material weaknesses did not have an effect on our financial results. However, management believes that the lack of these items results in ineffective internal controls, which could result in a material misstatement in our financial statements in future periods.

 

Due to our size and nature, segregation of duties within our internal control system may not always be possible or economically feasible. Likewise, we may not be able to engage sufficient resources to enable us to have adequate staff and supervision within our accounting function.

 

Remediation

 

During 2016 and 2017, certain actions were taken to address certain aspects of the material weaknesses disclosed above. We hired a full-time Controller, completed the installation of ERP software used to manage our business activities, hired two additional administrative personnel to create a more effective internal control environment with the necessary segregation of duties, continued to document necessary internal control policies and continued with the appropriate training of our personnel on our internal controls and procedures.

 

Although we believe that these efforts effectively strengthen our disclosure control processes and procedures, our management team intends to continue to actively plan for and implement additional control procedures to improve our overall control environment and expect these efforts to continue throughout 2018 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.

 

ITEM 9B – OTHER INFORMATION

 

None.

 

 
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PART III

 

ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The information required by this Item 10 is hereby incorporated by reference to our definitive proxy statement to be filed by us within 120 days after the end of the fiscal year covered by this Form 10-K.

 

ITEM 11 - EXECUTIVE COMPENSATION

 

The information required by this Item 11 is hereby incorporated by reference to our definitive proxy statement to be filed by us within 120 days after the end of the fiscal year covered by this Form 10-K.

 

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The information required by this Item 12 is hereby incorporated by reference to our definitive proxy statement to be filed by us within 120 days after the end of the fiscal year covered by this Form 10-K.

 

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

The information required by this Item 13 is hereby incorporated by reference to our definitive proxy statement to be filed by us within 120 days after the end of the fiscal year covered by this Form 10-K.

 

ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES

 

The information required by this Item 14 is hereby incorporated by reference to our definitive proxy statement to be filed by us within 120 days after the end of the fiscal year covered by this Form 10-K.

 

 
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PART IV

 

ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

(a) The financial statements identified below and required by Part II, Item 8 of this Form 10-K are set forth above

 

 

(1) Financial Statements

 

 

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheet as of December 31, 2017 and 2016

Consolidated Statements of Operations for Years Ended December 31, 2017 and 2016

Consolidated Statements of Stockholders’ Deficit for Years Ended December 31, 2017 and 2016

Consolidated Statements of Cash Flows for Years Ended December 31, 2017 and 2016

Notes to Consolidated Financial Statements

 

 

(2) Financial Statement Schedules

 

 

All other schedules have been omitted because of the absence of the conditions under which they are required or because the required information, where material, is shown in the financial statements or the notes thereto.

 

  

(3) Exhibits

 

 

Filed

 

Incorporated by Reference

Exhibit

 

Description

 

Herewith

 

Form

 

Filing Date

 

3.1

 

Certificate of Incorporation and amendments thereto through November 25, 2014

 

10-K

03/20/2015

 

3.2

Amended and Restated By-laws

8-K

10/16/2014

 

10.1

 

Exclusive Patent and Know-How Agreement including Transfer of Ownership, dated January 15, 2009 between RLP Energy, Inc. and Energy and Environmental Research Foundation

 

10-K

04/12/2012

 

10.2

 

Amendment No. 1 to the Exclusive Patent and Know-How License including Transfer of Ownership between RLP Energy, Inc. and Energy and Environmental Research Center Foundation dated May 12, 2009

 

10-Q

11/12/2013

 

10.3

 

Amendment No. 2 to the Exclusive Patent and Know-How License including Transfer of Ownership between RLP Energy, Inc. and Energy and Environmental Research Center Foundation dated November 29, 2009

 

10-Q

11/12/2013

 

10.4

 

Amendment No. 3 to the Exclusive Patent and Know-How License including Transfer of Ownership between RLP Energy, Inc. and Energy and Environmental Research Center Foundation dated December 22, 2009

 

10-Q

11/12/2013

 

10.5

 

Amendment No. 4 to the Exclusive Patent and Know-How License including Transfer of Ownership between RLP Energy, Inc. and Energy and Environmental Research Center Foundation dated December 16, 2013

 

8-K

12/20/2013

 

 
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10.6

 

Amendment No. 5 to the Exclusive Patent and Know-How License including Transfer of Ownership between RLP Energy, Inc. and Energy and Environmental Research Center Foundation dated August 14, 2014

 

8-K

08/15/2014

 

10.7

 

Closing Agreement by and among Midwest Energy Emissions Corp., MES, Inc. and Energy & Environmental Research Center Foundation effective as of April 21, 2017

 

10-Q

08/21/2017

 

10.8

 

Assignment of Patents by and between Energy & Environmental Research Center Foundation and Midwest Energy Emissions Corp. dated April 24, 2017

 

10-Q

08/21/2017

 

10.9

 

Employment Letter Agreement between Richard H. Gross and Midwest Energy Emissions Corp. dated August 10, 2015

 

10-K

03/30/2016

 

10.10

 

Employment Letter Agreement between Richard MacPherson and Midwest Energy Emissions Corp. dated July 13, 2016

 

8-K

07/15/2016

 

10.11

 

Employment Letter Agreement between Marcus A. Sylvester and Midwest Energy Emissions Corp. dated June 26, 2017

 

8-K

06/30/2017

 

10.12

 

Employment Agreement between Jim Trettel and Midwest Energy Emissions Corp. dated January 1, 2014

 

10-K

03/20/2015

 

10.13

 

Employment Agreement between John Pavlish and Midwest Energy Emissions Corp. dated November 16, 2014

 

8-K

11/20/2014

 

10.14

 

Consulting Agreement between Midwest Energy Emissions Corp. and Dathna Partners, LLC and Louis Rabman dated as of July 31, 2017

 

8-K

08/04/2017

 

10.15

 

Midwest Energy Emissions Corp. 2014 Equity Incentive Plan as amended

 

10-K

03/30/2016

 

10.16

 

Form of Option Award Agreement (2014 Equity Incentive Plan)

 

8-K

02/05/2014

 

10.17

 

Financing Agreement by and between Midwest Energy Emissions Corp., MES, Inc. and the AC Midwest Energy, LLC dated as of August 14, 2014

 

8-K

08/15/2014

 

10.18

 

Security Agreement by and between Midwest Energy Emissions Corp., MES, Inc. and AC Midwest Energy, LLC dated as of August 14, 2014

 

8-K

08/15/2014

 

10.19

 

Intercreditor Agreement by and between Midwest Energy Emissions Corp., the Holders of 2013 Secured Notes and AC Midwest Energy, LLC dated as of August 14, 2014

 

8-K

08/15/2014

 

10.20

 

Investor/Registration Rights Agreement by and between Midwest Energy Emissions Corp. and AC Midwest Energy, LLC dated August 14, 2014 dated as of August 14, 2014

 

8-K

08/15/2014

 
 
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10.21

 

Form of Allonge to each of the 2013 Secured Notes dated as of August 14, 2014

 

8-K

08/15/2014

 

10.22

 

Waiver and Amendment to Financing Agreement, and Reaffirmation of Guaranty between Midwest Energy Emissions Corp., MES, Inc. and AC Midwest Energy, LLC dated as of March 16, 2015

 

10-K

03/20/2015

 

10.24

 

Waiver and Amendment No. 2 to Financing Agreement, and Reaffirmation of Guaranty among Midwest Energy Emissions Corp., MES, Inc. and AC Midwest Energy, LLC dated as of November 16, 2015

 

8-K

11/20/2015

 

10.25

 

Amendment No. 1 to Investor/Registration Rights Agreement by and between Midwest Energy Emissions Corp. and AC Midwest Energy LLC dated as of November 16, 2015

 

8-K

11/20/2015

 

10.26

 

Amendment No. 3 to Financing Agreement, and Reaffirmation of Guaranty among Midwest Energy Emissions Corp., MES, Inc. and AC Midwest Energy, LLC dated as of January 28, 2016

 

8-K

02/03/2016

 

10.27

 

2013 Noteholder Modification Agreement between Midwest Energy Emissions Corp. and each of the investors listed therein dated as of February 16, 2016

 

8-K

02/22/2016

 

10.28

 

Amended and Restated Financing Agreement among Midwest Energy Emissions Corp., MES, Inc. and AC Midwest Energy LLC dated as of November 1, 2016

 

8-K

11/03/2016

 

10.29

 

Form of Stock Purchase Agreement

 

8-K

11/15/2016

 

10.30

 

Form of Registration Rights Agreement

 

8-K

11/15/2016

 

10.31

 

Senior Secured Note

 

8-K

12/02/2016

 

10.32

 

Unsecured Subordinated Note

 

8-K

12/02/2016

 

10.33

 

Midwest Energy Emissions Corp. 2017 Equity Incentive Plan

 

8-K

02/14/2017

 

10.34

 

Form of Option Award Agreement (2017 Equity Incentive Plan)

 

x

 

 

 

 

14.1

 

Code of Ethics

 

 

10-K

03/20/2015

 
 
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21.1

Subsidiaries of the registrant

x

 

 

 

 

 

 

 

 

 

23.1

 

Consent of Schneider Downs & Co., Inc.

 

x

 

 

 

 

 

 

31.1

 

Certification by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act

 

x

 

 

31.2

 

Certification by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act

 

x

 

 

32.1

 

Certification by Chief 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

 

x

 

 

32.2

 

Certification by Chief 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

 

x

 

101.INS

 

XBRL Instance Document

 

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

  

ITEM 16 – FORM 10-K SUMMARY

 

None.


 
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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.
     
Date: April 17, 2018By:/s/ Richard MacPherson

 

 

Richard MacPherson 
  President and Chief Executive Officer 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacity and on the dates indicated.

 

Signature

Title

Date

 

 

 

 

 

/s/ Richard MacPherson

 

 

 

 

Richard MacPherson

President, Chief Executive Officer and Director (Principal Executive Officer)

April 17, 2018

 

/s/ Richard H. Gross

 

 

 

 

Richard H. Gross

Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

April 17, 2018

 

 

/s/ Chris Greenberg

 

 

 

 

Chris Greenberg

Chairman of the Board and Director

April 17, 2018

 

 

  

 

 

/s/ Allan T. Grantham

 

 

 

 

Allan T. Grantham

Director

April 17, 2018

 

  

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