Birchtech Corp. 10-K

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 (who is the same person), 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, 2020, the Company’s disclosure controls and procedures were ineffective as a result of material weaknesses in our internal control over financial reporting. 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). 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. Our management, including our Chief Executive Officer and Principal Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2020 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, 2020. 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. 30 Table of Contents 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 the fourth quarter of 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Material Weaknesses In connection with our annual audit for the year ended December 31, 2020, management determined that controls as described above constitute material weaknesses in disclosure controls and procedures and internal control over financial reporting. As a result, it was determined that control deficiencies that constitutes material weaknesses 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, including technical accounting. Remediation Certain actions have been taken to address certain aspects of the material weaknesses disclosed above. As of January 1, 2020, we replaced our previous accounting software with a more efficient software package to manage our business activities and accounting needs. Although we no longer have a full-time CFO, during the fourth quarter of 2019 we hired a new full-time Controller at our Corsicana, Texas location, closed our Lewis Center, Ohio office and moved our corporate headquarters to our Corsicana, Texas address which has allowed us to consolidate our manufacturing and distribution activities, bookkeeping and accounting at one location. As of October 21, 2020, our Controller was appointed and promoted to Chief Accounting Officer and Principal Accounting Officer of the Company. Also, in the fourth quarter of 2019, we hired a financial consulting firm to assist us in bookkeeping and preparing financial statements for our SEC filings, assist us in evaluating our internal controls over financial reporting and assist us in other related matters. Although we believe that these efforts effectively strengthen our disclosure controls and procedures as well as our internal control over financial reporting, 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 2021 and beyond. Due to the nature of the remediation process, the need to have sufficient resources (cash or otherwise) to devote to such efforts, and the need to allow adequate time after implementation to evaluate and test the effectiveness of the controls, no assurance can be given as to the timing of achievement of remediation. Item 9B. Other Information. None. 31 Table of Contents 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 for the 2021 Annual Meeting of Stockholders which we intend to file with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this report. Item 11. Executive Compensation. The information required by this Item 11 is hereby incorporated by reference to our definitive proxy statement for the 2021 Annual Meeting of Stockholders which we intend to file with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this report. 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 for the 2021 Annual Meeting of Stockholders which we intend to file with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this report. 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 for the 2021 Annual Meeting of Stockholders which we intend to file with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this report. Item 14. Principal Accounting Fees and Services. The information required by this Item 14 is hereby incorporated by reference to our definitive proxy statement for the 2021 Annual Meeting of Stockholders which we intend to file with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this report. 32 Table of Contents 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, 2020 and 2019 Consolidated Statements of Operations for Years Ended December 31, 2020 and 2019 Consolidated Statements of Stockholders’ Deficit for Years Ended December 31, 2020 and 2019 Consolidated Statements of Cash Flows for Years Ended December 31, 2020 and 2019 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. 33 Table of Contents (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 4.1 Description of Securities 10-K 05/14/2020 10.1 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 10.2 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 10.3 Amended and Restated Employment Letter Agreement between Richard MacPherson and Midwest Energy Emissions Corp. dated January 29, 2019 10-K 04/11/2019 10.4 Employment Agreement between John Pavlish and Midwest Energy Emissions Corp. dated November 16, 2014 8-K 11/20/2014 10.5 Midwest Energy Emissions Corp. 2014 Equity Incentive Plan as amended 10-K 03/30/2016 10.6 Form of Option Award Agreement (2014 Equity Incentive Plan) 8-K 02/05/2014 10.7 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 10.8 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 10.9 Form of Allonge to each of the 2013 Secured Notes dated as of August 14, 2014 8-K 08/15/2014 10.10 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 10.11 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 10.12 Amendment No. 1 to Amended and Restated Financing Agreement among Midwest Energy Emissions Corp., MES, Inc. and AC Midwest Energy LLC dated as of June 14, 2018 8-K 06/20/2018 10.13 Amendment No. 2 to Amended and Restated Financing Agreement among Midwest Energy Emissions Corp., MES, Inc. and AC Midwest Energy LLC dated as of September 12, 2018 10-Q 11/13/2018 10.14 Amendment No. 3 to Amended and Restated Financing Agreement among Midwest Energy Emissions Corp., MES, Inc. and AC Midwest Energy LLC dated as of February 25, 2019 8-K 03/01/2019 10.15 Senior Secured Note dated November 29, 2016 8-K 12/02/2016 10.16 Unsecured Note Financing Agreement among Midwest Energy Emissions Corp., MES, Inc. and AC Midwest Energy LLC dated as of February 25, 2019 8-K 03/01/2019 10.17 Unsecured Note dated February 25, 2019 8-K 03/01/2019 10.18 Form of 2019-Unsecured Convertible Promissory Notes 10-Q 08/14/2019 10.19 Midwest Energy Emissions Corp. 2017 Equity Incentive Plan 8-K 02/14/2017 10.20 Form of Option Award Agreement (2017 Equity Incentive Plan) 10-K 04/17/2018 14.1 Code of Ethics 10-K 03/20/2015 21.1 Subsidiaries of the registrant 10-K 04/11/2019 31.1 Certification by Principal Executive Officer and Principal Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act ☒ 32.1 Certification by Principal Executive Officer and Principal Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code ☒ 101.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. 34 Table of Contents 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 5, 2021 By: /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 President, Chief Executive Officer April 5, 2021 Richard MacPherson and Director (Principal Executive Officer and Principal Financial Officer) /s/ Jami L. Satterthwaite Chief Accounting Officer April 5, 2021 Jami L. Satterthwaite (Principal Accounting Officer) /s/ Christopher Greenberg Chairman of the Board and Director April 5, 2021 Christopher Greenberg /s/ David M. Kaye Secretary and Director April 5, 2021 David M. Kaye 35