What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-04-05 compared with 2021-04-05 · 234 added, 507 removed, 526 unchanged (58% of the section changed)

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Statements and Supplementary Data

MIDWEST ENERGY EMISSIONS CORP.

3 unchanged sentences

Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID 361 )

Consolidated Balance Sheets

7 unchanged sentences

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Midwest Energy Emissions Corp.

and Subsidiary (the “Company”) as of December 31, 2020, and the related consolidated statements of operations, stockholders’ deficit and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of Midwest Energy Emissions Corp.

and Subsidiary (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, stockholders’ deficit and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

5 unchanged sentences

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.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

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.

5 unchanged sentences

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit 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 audit provides a reasonable basis for our opinion.

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.

Critical Audit Matter

27 unchanged sentences

April 5, 2022

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of

MIDWEST ENERGY EMISSIONS CORP.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Midwest Energy Emissions Corp.

(the “Company”) as of December 31, 2019, the related consolidated statements of operations, stockholders’ deficit and cash flows for the year ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph – Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As more fully described in Note 3, the Company has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

Management’s plans in regard to these matters are also described in Note 3.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Adoption of New Accounting Standards

As discussed in Note 2 to the financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of ASU No.

2016-02, Leases (Topic 842), as amended, effective January 1, 2019, using the modified retrospective approach.

Restatement of Previously Issued Unaudited Financial Statements

As discussed in Note 15 to the financial statements, the Company concluded that a gain on debt restructuring recognized during the first quarter of 2019 should have been accounted for as a capital transaction.

The effect of restatement, which resulted in a reduction in net gain and no effect on ending equity, on the specific items presented in the Company’s historical unaudited interim condensed consolidated financial statements previously included in the Company’s Quarterly Reports on Form 10-Q have been restated within these financial statements for the periods ended March 31, 2019, June 30, 2019 and September 30, 2019;

as further described in Note 15.

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 audit 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 audit 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.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit 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 audit provides a reasonable basis for our opinion.

/s/ Marcum LLP

We served as the Company’s auditor from 2018 to 2020 .

Houston, Texas

MIDWEST ENERGY EMISSIONS CORP.

AND SUBSIDIARY

3 unchanged sentences

Accounts receivable

Prepaid expenses and other assets

Prepaid expenses and other current assets (related party of $ 70,000 and $ 0 )

Total current assets

Security deposits

Property and equipment, net

7 unchanged sentences

Current portion of note payable

Current portion of convertible notes payable, net of discount and issuance costs

Accrued interest

1 unchanged sentence

Accrued salaries

Secured note payable – related party

Unsecured note payable, net of discount and issuance costs – related party

Total current liabilities

6 unchanged sentences

Total liabilities

COMMITMENTS AND CONTINGENCIES (Note 11)

COMMITMENTS AND CONTINGENCIES

Stockholders’ deficit

11 unchanged sentences

( 10,239,476 )

( 13,203,532 )

Total liabilities and stockholders’ deficit

8 unchanged sentences

Interest expense & letter of credit fees (related party of $2,018,289 and $2,023,818)

(Gain) Loss on change in fair value of profit share liability

Gain on extinguishment of debt

Loss (Gain) on change in fair value of profit share liability

Gain on sale of equipment

1 unchanged sentence

Net loss before provision for income taxes

( 3,609,683 )

( 5,815,622 )

Provision for income taxes

11 unchanged sentences

$ ( 8,873,651 )

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

Issuance of warrants, recorded as discount on convertible notes payable

Issuance of stock options

Extension of certain stock option expiration

Stock issued per resignation agreements

Stock issued upon cashless warrant exercise

Stock warrants issued for prepaid services

Stock options issued for prepaid services

Capital contribution related to debt restructuring Note 8

Balance - December 31, 2019

$ (57,658,484 )

$ (8,873,651 )

Stock issued for prepaid services

3 unchanged sentences

Stock issued for consulting services

( 5,825,622 )

Balance – December 31, 2020

1 unchanged sentence

( 13,203,532 )

Stock issued for interest payable on convertible notes

Stock issued for conversion of convertible notes

Exercise of warrants

Stock issued for consulting services

Exercise of stock options

Share based compensation expense

Cashless exercise of stock options

( 3,632,683 )

Balance – December 31, 2021

$ ( 67,116,913 )

$ (10,239,473 )

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

6 unchanged sentences

$ ( 5,825,622 )

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

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

Stock-based compensation

Stock issued for prepaid consulting services

Stock issued for interest expense

Amortization of discount on notes payable

1 unchanged sentence

Amortization of right to use assets

Amortization of customer acquisition costs

Amortization of patent rights

Depreciation expense

(Gain) Loss on change in fair value of profit share

Gain on forgiveness of debt

Loss (Gain) on change in fair value of profit share

Gain on sale of equipment

2 unchanged sentences

Increase in inventory

(Increase) Decrease in prepaid expenses and other assets

Decrease in accounts payable and accrued liabilities

Increase (Decrease) in accrued salaries

Increase in accrued interest

Decrease in security deposits

Increase in prepaid expenses and other assets

Increase (Decrease) in accounts payable and accrued liabilities

(Decrease) Increase in accrued salaries

(Decrease) Increase in accrued interest

Decrease in operating lease liability

Net cash used in operating activities

Net cash provided by (used in) operating activities

( 1,239,085 )

Cash flows from investing activities

Purchase of equipment

Cash received from sale of equipment

Net cash provided by investing activities

Net cash (used in) provided by investing activities

Cash flows from financing activities

1 unchanged sentence

Proceeds from the issuance of notes payable

Payments on secured promissory note

Proceeds from exercise of options

Payments from exercise of warrants

Payment of convertible note payable

Payments of equipment notes payable

Proceeds from the issuance of convertible promissory notes and related warrants

Proceeds from the issuance of notes payable

Net cash provided by financing activities

5 unchanged sentences

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS

Cumulative effect on accumulated deficit of lease accounting change

Discount on convertible promissory notes payable

Net adjustment for extension of lease

Stock Issued for consulting services

Stock issued for prepaid services

Stock warrants issued for prepaid services

Stock options issued for prepaid services

Capital contribution

$ (3,412,204 )

Common stock issued for conversion of convertible notes

Common stock issued for interest payable

Common stock issued for consulting services

Common stock issued for prepaid consulting services

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

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

Note 1 - Organization

7 unchanged sentences

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”).

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Principles of Consolidation

2 unchanged sentences

Intercompany balances and transactions have been eliminated in consolidation.

Restatement of previously issued financial statements

On April 13, 2020, the Company concluded that a gain on debt restructuring recognized during the first quarter of 2019 (relating to the New AC Midwest Unsecured Note) should have been accounted for as a capital transaction.

Since the New AC Midwest Unsecured Note was held by a related party, the gain should have been recorded as a capital transaction under ASC 470-50-40.

The profit-sharing portion also should have been bifurcated from the loan and shown separately on the unaudited condensed consolidated balance sheets of the financial statements for the quarters ended March 31 2019, June 30, 2019 and September 30, 2019.

For more information please see Note 15.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, valuation of equity issuances and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.

The Company uses estimates in accounting for, among other items, revenue recognition, profit share liability, allowance for doubtful accounts, stock-based compensation, income tax provision, excess and obsolete inventory reserve and impairment of intellectual property.

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, valuation of equity issuances 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.

The Company uses estimates in accounting for, among other items, profit share liability, revenue recognition, allowance for doubtful accounts, stock-based compensation, income tax provisions, excess and obsolete inventory reserve and impairment of intellectual property.

Actual results could differ from those estimates.

Cash and cash equivalents include all highly liquid monetary instruments with original maturities of three months or less when purchased.

These investments are carried at cost, which approximates fair value.

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash deposits.

The Company maintains its cash in institutions insured by the Federal Deposit Insurance Corporation (“FDIC”).

At times, the Company’s cash and cash equivalent balances may be uninsured or in amounts that exceed the FDIC insurance limits.

The Company has not experienced any loses on such accounts.

At December 31, 2020 and 2019, the Company had no cash equivalents.

As of December 31, 2020, approximately $91,000 of cash exceeded the FDIC insurance limits.

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, 2020 and 2019, the allowance for doubtful accounts was zero.

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

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

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

As of December 31, 2020 and 2019, the Company has no valuation allowance.

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, equipment is recorded at cost and depreciated using the straight-line method over their estimated useful lives of 2 to 5 years.

Leasehold improvements are recorded at cost and depreciated using the straight-line method over the lesser of their estimated useful lives or the remaining term of the lease.

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.

Intellectual Property

Intellectual property is recorded at cost and amortized over its estimated useful life of 15 years.

Management reviews intellectual property for impairment when events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable.

In the event that impairment indicators exist, a further analysis is performed and if the sum of the expected undiscounted future cash flows resulting from the use of the asset or asset group is less than the carrying amount of the asset or asset group, an impairment loss equal to the excess of the asset or asset group’s carrying value over its fair value is recorded.

Management considers historical experience and all available information at the time the estimates of future cash flows are made, however, the actual cash values that could be realized may differ from those that are estimated.

Recoverability of Long-Lived and Intangible Assets

3 unchanged sentences

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, 2020 and 2019, respectively.

In February 2016, the FASB issued new guidance which requires lessees to recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term.

The accounting standard, effective January 1, 2019, requires virtually all leases to be recognized on the Balance Sheet.

Effective January 1, 2019, we adopted the standard using the modified retrospective method, under which we elected the package of practical expedients and transition provisions allowing us to bring our existing operating leases onto the Consolidated Balance Sheet without adjusting comparative periods, but recognizing a cumulative-effect adjustment to the opening balance of accumulated deficit on January 1, 2019.

Under the guidance, we have also elected not to separate lease and non-lease components in recognition of the lease-related assets and liabilities, as well as the related lease expense.

We have operating leases for office space in two multi-tenant facilities, which are not recorded as assets and liabilities as those leases do not have terms greater than 12 months.

We have an operating leases for a multi-purpose facility and bulk trailers used in operations which is recorded as an asset and liability as the lease has a terms greater than 12 months.

Lease-related assets, or right-of-use assets, are recognized at the lease commencement date at amounts equal to the respective lease liabilities, adjusted for prepaid lease payments, initial direct costs, and lease incentives received.

Lease-related liabilities are recognized at the present value of the remaining contractual fixed lease payments, discounted using our incremental borrowing rate.

Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred.

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

Stock-Based Compensation

The Company accounts for stock-based compensation awards in accordance with the provisions of Accounting Standards Codification (“ASC”) 718, Compensation-Stock Compensation , 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.

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

No impairment charges were recognized for the years ended December 31, 2021 and 2020.

Fair Value of Financial Instruments

7 unchanged sentences

The Company’s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.

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

Cash was the only asset measured at fair value on a recurring basis by the Company at December 31, 2021 and December 31, 2020 and is considered to be Level 1.

Financial instruments include cash, accounts receivable, accounts payable, customer credits and short-term debt.

The carrying amounts of these financial instruments approximated fair value at December 31, 2020 and 2019 due to their short-term maturities.

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

The carrying amounts of these financial instruments approximated fair value at December 31, 2021 and December 31, 2020 due to their short-term maturities.

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

The fair value of the promissory notes payable was determined on a Level 2 measurement.

Discounts on issued debt, as well as debt issuance costs, are amortized over the term of the individual promissory notes.

The fair value of the profit share liability at December 31, 2020 was calculated using a discounted cash flow model based on estimated future cash payments.

The fair value of the profit share liability at December 31, 2021 and December 31, 2020 was calculated using a discounted cash flow model based on estimated future cash payments.

The fair value of the profit share liability was determined on a Level 3 measurement.

4 unchanged sentences

Promissory notes

Profit share liability

Profit share liability – related party

Total Liabilities

29 unchanged sentences

Invoiced shipping and handling costs are included in revenue.

The adoption of this standard did not have a material impact on the Company’s financial statements.

Disaggregation of Revenue

The Company generated revenue for the years ended December 31, 2020 and 2019 by (i) delivering product to its commercial customers, (ii) completing and commissioning equipment projects at commercial customer sites, (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 and (iv) licensing its technology to customers.

The Company generated revenue for the years ended December 31, 2021 and 2020 by (i) delivering product to its commercial customers, (ii) completing and commissioning equipment projects at commercial customer sites and (iii) performing demonstrations of its technology at customers with the intent of entering into long term supply agreements based on the performance of the Company’s products during the demonstrations and (iv) licensing its technology to customers.

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

Revenue for licensing is recognized at the point of time in which the customer obtains the license.

Lump sum payments made pursuant to agreements in which the primary consideration is a license to the company’s technology is accounted for as license revenue.

Certain arrangements provide for repayment of license fees in the event the company enters into a supply agreement that results in a specified amount of sales.

Nothing is recognized for this contingency.

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

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

The following table presents sales by operating segment disaggregated based on the type of product and geographic region for the years ended December 31, 2020, and 2019.

Year ended December 31, 2020

Year ended December 31, 2019

United States

The following table presents sales by operating segment disaggregated based on the type of product and geographic region for the year ended December 31, 2021 and 2020.

December 31, 2021

December 31, 2020

International

United States

International

3 unchanged sentences

Equipment revenue

The Company follows the asset and liability method of accounting for income taxes under FASB ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

The Company follows the asset and liability method of accounting for income taxes under FASB ASC 740, Income Taxes .

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

3 unchanged sentences

For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities.

There were no unrecognized tax benefits as of December 31, 2020.

There were no unrecognized tax benefits as of December 31, 2021 and December 31, 2020.

The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.

The Company is subject to income tax examinations by major taxing authorities since inception.

The Company may be subject to potential examination by federal, state, and city taxing authorities in the areas of income taxes.

These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions, and compliance with federal, state, and city tax laws.

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

The Company is no longer subject to tax examinations by tax authorities for years prior to 2017.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“ CARES Act ”) was signed into law in March 2020.

The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (“ 2017 Tax Act ”).

Corporate taxpayers may carryback net operating losses (“NOLs”) originating between 2018 and 2020 for up to five years, which was not previously allowed under the 2017 Tax Act.

The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020.

Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for 2019 and 2020.

The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act.

In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation.

The enactment of the CARES Act did not result in any material adjustments to our income tax provision.

Basic and Diluted Loss Per Common Share

1 unchanged sentence

Diluted loss per share reflects the potential dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants.

For the years ended December 31, 2020 and 2019 basic and diluted earnings per share approximated each other.

There were no dilutive potential common shares as of December 31, 2021 and 2020, because the Company incurred net losses and basic and diluted losses per common share are the same.

6 unchanged sentences

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, 2020 is maintained at high-quality financial institutions and has not incurred any losses to date.

The Company’s cash as of December 31, 2021 and 2020 is maintained at high-quality financial institutions and has not incurred any losses to date.

Customer and Supplier Concentration

For each of the years ended December 31, 2020 and 2019, 100% of the Company’s revenue related to thirteen and eleven customers, respectively.

At December 31, 2020 and 2019, 100% of the Company’s accounts receivable related to nine and eight customers, respectively.

For each of the years ended December 31, 2021 and 2020, 100 % of the Company’s revenue related to eighteen and thirteen customers, respectively.

At December 31, 2021 and 2020, 100 % of the Company’s accounts receivable related to ten and nine customers, respectively.

For each of the years ended December 31, 2021 and 2020, 82 % and 88 % of the Company’s purchases related to two suppliers, respectively.

9 unchanged sentences

Recently Adopted Accounting Standards

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) .

Under ASU 2016-02, lessees will, among other things, require lessees to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis;

and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors;

however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606, “Revenue from Contracts with Customers.” ASU 2016-02 became effective for us on January 1, 2019 and initially required transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.

In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842) - Targeted Improvements,” which, among other things, provides an additional transition method that would allow entities to not apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

In December 2018, the FASB also issued ASU 2018-20, “Leases (Topic 842) - Narrow-Scope Improvements for Lessors,” which provides for certain policy elections and changes lessor accounting for sales and similar taxes and certain lessor costs.

As of January 1, 2019, the Company adopted ASU 2016-02 and has recorded a right-of-use asset and lease liability on the balance sheet for its operating leases.

We elected to apply certain practical expedients provided under ASU 2016-02 whereby we will not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases.

The Company did not apply the recognition requirements of ASU 2016-02 to any short-term leases (as defined by related accounting guidance).

The Company accounted for lease and non-lease components separately because such amounts are readily determinable under our lease contracts and because we expect this election will result in a lower impact on our balance sheet.

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.

The adoption of ASU 2017-11 did not have a material impact on the Company’s consolidated financial statements.

Effective January 1, 2020, the Company adopted ASU No.

5 unchanged sentences

This ASU supersedes Subtopic 505-50, Equity — Equity-Based Payments to Nonemployees.

The adoption of ASU 2018-07 did not have a material impact on the Company’s consolidated financial statements.

The adoption of ASU 2018-07 did not have a material impact on its consolidated financial statements.

Effective January 1, 2020, the Company adopted ASU No.

4 unchanged sentences

All other amendments should be applied retrospectively to all periods presented upon their effective date.

The adoption of ASU 2018-13 did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Standards

The adoption of ASU 2018-13 did not have a material impact on its consolidated financial statements.

In December 2019, the FASB issued authoritative guidance intended to simplify the accounting for income taxes (ASU 2019-12, “Income Taxes (Topic 740):

1 unchanged sentence

This guidance eliminates certain exceptions to the general approach to the income tax accounting model and adds new guidance to reduce the complexity in accounting for income taxes.

This guidance is effective for annual periods after December 15, 2020, including interim periods within those annual periods.

The Company is currently evaluating the potential impact of this guidance on its consolidated financial statements.

This guidance is effective for annual periods after December 15, 2020, including interim periods within those annual periods (beginning with the quarter ended March 31, 2021 for the Company).

The adoption of ASU 2019-12 did not have a material impact on its consolidated financial statements.

Recently Issued Accounting Standards

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

4 unchanged sentences

The accompanying consolidated financial statements as of December 31, 2021 have been prepared assuming the Company will continue as a going concern.

As reflected in the consolidated financial statements, the Company had an accumulated deficit of $63 million and a negative working capital of $984,112 at December 31, 2020.

Additionally, the Company had a net loss in the amount of $5.8 million and cash used by operating activities of $1.2 million for the year ended December 31, 2020.

These factors raise substantial doubt about the Company’s ability to continue as a going concern for the next twelve months from the issuance of these consolidated financial statements within the Company’s Annual Report on Form 10-K.

Although we anticipate continued significant revenues for products used in MATS compliance activities and from licensing of our technologies, no assurances can be given that the Company can obtain sufficient working capital through these activities and additional financing may be needed to meet its obligations.

In February 2021, the Company received second draw loan proceeds in the amount of $299,380 pursuant to the Paycheck Protection Program under the Cares Act which was enacted on March 27, 2020 as a result of the COVID-19 pandemic.

In January and February 2021, certain warrant holders exercised warrants for cash and the Company received proceeds of approximately $246,808.

Also, in January and February 2021, the Company substantially reduced the aggregate principal amount outstanding on various debt obligations.

In this regard, $940,000 of the outstanding principal amount of convertible promissory notes issued in 2013 was converted to common stock, leaving $50,000 remaining outstanding on such notes issued in 2013.

In March 2021, the Company eliminated $860,000 of outstanding convertible notes issued in 2018 by force converting all of such notes based on the terms thereof.

Nevertheless, the Company may need to raise additional equity or debt financing.

While the Company believes in its ability to raise additional funds, no assurances can be given that the Company can maintain sufficient working capital through these efforts, or that the continued implementation of its business plan will generate sufficient revenues in the future to sustain ongoing operations.

The accompanying 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.

As reflected in the consolidated financial statements, the Company had $ 1.4 million in cash at December 31, 2021, along with cash provided by operating activities of $ 206,000 for the year ended December 31, 2021.

However, the Company had a working capital deficit of $ 11,692,000 and an accumulated deficit of $ 67.1 million at December 31, 2021, and had a net loss in the amount of $ 3.6 million for the year ended December 31, 2021.

In addition, all existing secured and unsecured debt held by its principal lender in the principal amount of $ 13.4 million matures on August 25, 2022, other than the profit share liability, which is within one year from the issuance of these consolidated financial statements within the Company’s Annual Report on Form 10-K.

These factors raise substantial doubt about the Company’s ability to continue as a going concern for the next twelve months from the issuance of these consolidated financial statements.

The Company has taken steps to alleviate the doubt raised by the application of ASC 205-40.

During 2021, the Company eliminated $ 4,440,000 of convertible notes through conversions to shares of common stock and repaid $ 10,000 of convertible notes, leaving no convertible notes outstanding as of December 31, 2021.

In addition, in June 2021, the Company announced that it had entered into a Debt Repayment and Exchange Agreement with its principal lender which, subject to various closing conditions, including but not limited to the completion of an offering of equity securities resulting in net proceeds of at least $ 12.0 million by June 30, 2022, will repay all existing secured and unsecured debt obligations held by such lender.

Although the Company anticipates continued significant revenues in its business operations and that it will be able to raise the funds necessary to complete the transaction contemplated by the Debt Repayment and Exchange Agreement, no assurances can be given that the Company can obtain sufficient working capital through its business operations or that it will be able to raise the funds necessary to close under the Debt Repayment Agreement by June 30, 2022, or at all, in order to sustain ongoing operations.

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

Note 4 - Inventory

Inventory was comprised of the following at December 31, 2020 and 2019:

Inventory was comprised of the following at December 31, 2021 and December 31, 2020:

Raw Materials

Work in Process

Finished goods

Note 5 - Property and Equipment, Net

Property and equipment at December 31, 2020 and 2019 are as follows:

Property and equipment at December 31, 2021 and December 31, 2020 are as follows:

Equipment & installation

Trucking equipment

Computer equipment and software

Office equipment

Office equipment, computer equipment and software

Total equipment

accumulated depreciation

( 2,809,467 )

( 2,814,993 )

Construction in process

Property and equipment, net

The Company uses the straight-line method of depreciation over 2 to 5 years.

The Company uses the straight-line method of depreciation over estimated useful lives of 2 to 5 years .

During the years ended December 31, 2021 and 2020 depreciation expense was $ 68,460 , and $ 188,675 , 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.

On April 24, 2017, the Company closed on the acquisition of all patent rights from EERCF including all patents and patents pending, domestic and foreign, relating to the foregoing technology.

Under the terms of the Agreement, the Company has been granted an exclusive license by the Energy and Environmental Research Center Foundation for the technology to develop, make, have made, use, sell, offer to sell, lease, and import the technology in any coal-fired combustion systems (power plant) worldwide and to develop and perform the technology in any coal-fired power plant in the world.

On April 24, 2017, the Company closed on the acquisition of all patent rights from the Energy and Environmental Research Center Foundation including all patents and patents pending, domestic and foreign, relating to the foregoing technology.

A total of 42 domestic and foreign patents and patent applications were included in the acquisition.

In accordance with the terms of the License Agreement, the patent rights were acquired for the purchase price of (i) $2,500,000 in cash, and (ii) 925,000 shares of common stock of which 628,998 shares were issued to EERCF and 296,002 were issued to the inventors who had been designated by EERCF.

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 the Energy and Environmental Research Center Foundation and 296,002 were issued to the inventors who had been designated by the Energy and Environmental Research Center Foundation.

The shares issued were valued at $ 518,000 ($ 0.56 per share), representing the value as of the closing date.

License and patent costs capitalized as of December 31, 2020 and 2019 are as follows:

License and patent costs capitalized as of December 31, 2021 and December 31, 2020 are as follows:

Licenses and patents

Accumulated amortization

Intellectual property, net

Amortization expense for the years ended December 31, 2021 and 2020 was $ 204,599 and $ 213,666 , respectively.

5 unchanged sentences

The note is secured by substantially all of the assets of MES, Inc.

During the year ended December 31, 2020 the Company repaid $165,339 of principal and $9,428 of interest.

In February 2021, the loan was repaid in full.

On April 14, 2020, the Company received loan proceeds in the amount of $ 299,300 from First International Bank & Trust pursuant to the Paycheck Protection Program (the “PPP Loan”) under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020.

The PPP Loan, which is in the form of a Note dated April 14, 2020, matures on April 14, 2022 and bears interest at a rate of 1.0% per annum, with one interest payment on April 14, 2021 and one principal and interest payment on maturity.

The loan, which is in the form of a Note dated April 14, 2020, matures on April 14, 2022 and bears interest at a rate of 1.0 % per annum, with one interest payment on April 14, 2021 and one principal and interest payment on maturity.

The principal and accrued interest under the PPP Loan is forgivable after eight or twenty-four weeks if the Company uses the PPP Loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and otherwise complies with the PPP requirements.

In order to obtain forgiveness of the PPP Loan, the Company must submit a request and provide satisfactory documentation regarding its compliance with applicable requirements.

In January 2021, the PPP Loan was forgiven.

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

In February 2021, the Company received second draw loan proceeds in the amount of $ 299,380 from First International Bank & Trust pursuant to the Paycheck Protection Program (the “Second PPP Loan”) under the CARES Act.

The Second PPP Loan is in the form of a Note dated February 2, 2021, matures on April 14, 2026 and bears interest at a rate of 1.0 % per annum, with one interest payment on February 2, 2022, 47 monthly consecutive principal and interest payments of $6,366.89 each, beginning March 2, 2022, and one final principal and interest payment of $6,366.92 on February 2, 2026.

The principal and accrued interest under the Second PPP Loan is forgivable after eight or twenty-four weeks if the Company uses the Second PPP Loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and otherwise complies with the PPP requirements.

In October 2021, the Second PPP Loan was forgiven and the Company recorded a gain on extinguishment of debt of $ 301,377 .

Note 8 - Convertible Notes Payable

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

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

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

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

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

1 unchanged sentence

Total convertible notes payable before discount

Less unamortized discounts and debt issuance costs

Less discounts and debt issuance costs

Total convertible notes payable

1 unchanged sentence

Convertible notes payable, net of current portion

As of December 31, 2020, remaining scheduled principal payments due on convertible notes payable are as follows:

Twelve months ended December 31,

As of December 31, 2020, the remaining future amortization of discounts are as follows:

Twelve months ended December 31,

From July 30, 2013 through December 24, 2013, the Company sold convertible notes and warrants to unaffiliated accredited investors totaling $ 1,902,500 .

1 unchanged sentence

The notes had an initial term of three years, but the maturity of the notes was extended during 2014 to match the retirement of the New AC Midwest Secured Debt.

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, 2020 and 2019, was $99,000 and $99,000, 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 and was amortized over the initial five year life of the notes.

Amortized interest expense for the years ended December 31, 2020 and 2019 on this discount was $0.

As of December 31, 2020 and 2019, total principal of $990,000, was outstanding on these notes.

See Note 16 for information on the conversion of $940,000 of the principal of these notes which have been converted into shares of common stock.

On June 15, 2018, the Company issued 2018 Unsecured Convertible Notes (the “2018 Unsecured Notes”) totaling $560,000 and warrants to certain holders of the 2013 Notes in exchange for their secured 2013 Notes (see description above of the private placement offering commenced during the second quarter of 2018).

From February 8, 2021 to February 15, 2021, the Company issued 1,880,000 shares of common stock to certain holders of such convertible promissory notes issued in 2013 for the conversion of the outstanding principal of such notes in the aggregate amount of $ 940,000 , based upon a conversion rate of $0.50 per share.

On April 9, 2021, the Company issued 60,000 shares of common stock to another certain holder of such notes issued in 2013 for the conversion of outstanding principal in the amount of $ 30,000 , based upon a conversion rate of $ 0.50 per share.

On August 18, 2021, the Company issued 20,000 shares of common stock to another certain holder of such notes issued in 2013 for the conversion of outstanding principal in the amount of $ 10,000 , based upon a conversion rate of $ 0.50 per share.

On August 24, 2021, the Company prepaid the outstanding principal balance of another of such notes issued in 2013 in the principal amount of $ 10,000 .

As of December 31, 2021 and December 31, 2020, total principal of $ 0 and $ 990,000 , respectively, was outstanding on these notes.

The 2018 Unsecured Notes have a term of five years, bear interest at 12 % per annum, and are convertible into one share of common stock, par value $ 0.001 per share, with the initial conversion ratio equal to $0.50 per share .

1 unchanged sentence

The 2018 Unsecured Notes may be converted at any time and from time to time in whole or in part prior to the maturity date thereof.

Loss on this debt exchange was $44,036.

A discount on the notes payable of $89,500 was recorded based on the value of the fair value of the note and warrants exchanged.

The included warrants were valued using a Black-Scholes options pricing model.

From August 31, 2018 through October 30, 2018, the Company issued additional 2018 Notes totaling $300,000 and warrants to unaffiliated accredited investors.

A discount on the notes payable of $40,350 was recorded based on the fair value of the warrants issued with this note using a Black-Scholes options pricing model.

Amortized interest expense for the years ended December 31, 2020 and 2019 on these discounts was $16,176 and $24,323, respectively.

Interest expense for the years ended December 31, 2020 and 2019, was $103,200 and $202,200, respectively.

As of December 31, 2020 and 2019, total principal of $860,000 was outstanding on the 2018 Unsecured Notes.

The significant assumptions utilized for these Black-Scholes calculations consist of an expected life of equal to the expiration term of the option, historical volatility of 100% respectively, and a risk free interest rate of 3%.

See Note 16 for information on the forced conversion of all of the outstanding principal of the 2018 Unsecured Notes.

From August 31, 2018 through October 30, 2018, the Company issued additional 2018 Unsecured Notes totaling $ 300,000 and warrants to unaffiliated investors.

Pursuant to the terms of the 2018 Unsecured Notes, if at any time after six months from the issuance of the 2018 Notes, the closing price of the Company’s common stock exceeds $ 1 .00 per share for 10 consecutive trading days, the Company shall have the right to force convert all of the outstanding principal of such Notes.

Pursuant to notice dated February 17, 2021, the Company notified all such holders that as a result closing price of the Company’s common stock having exceeded $1.00 per share for 10 consecutive trading days, the Company was electing to force convert all such outstanding principal.

Between February 26, 2021 and March 8, 2021, the Company issued 690,000 shares of common stock to certain holders of the 2018 Unsecured Notes for conversion of the outstanding principal of such Notes in the aggregate amount of $ 345,000 , and on March 17, 2021, the Company issued 1,030,000 shares of common stock to the remaining holders of the 2018 Unsecured Notes for the conversion of the remaining outstanding principal in the aggregate amount of $ 515,000 , all based upon a conversion rate of $0.50 per share.

As of December 31, 2021 and December 31, 2020, total principal of $ 0 and $ 860,000 , respectively, was outstanding on the 2018 Unsecured Notes.

From June 18, 2019 through October 23, 2019, the Company sold 2019 Unsecured Convertible Notes (the “2019 Unsecured Notes”) totaling $ 2,600,000 and warrants to unaffiliated accredited investors.

1 unchanged sentence

The 2019 Unsecured Notes have a term of five years.

Interest expense for the years ended December 31, 2020 and 2019 was $312,000 and $124,600, respectively.

A discount on the notes payable of $488,245 was recorded based on the relative fair value of the warrants issued using a Black-Scholes options pricing model and was amortized over the initial five year life of the notes.

Amortized interest expense for the years ended December 31, 2020 and 2019 on this discount was $97,809 and $37,737, respectively.

As of December 31, 2020 and 2019, total principal of $2,600,000 was outstanding on the 2019 Unsecured Notes.

On February 26, 2021, the Company issued 100,000 shares of common stock to a certain holder of the 2019 Unsecured Notes for the conversion of outstanding principal in the amount of $ 50,000 , based upon a conversion rate of $ 0.50 per share.

Pursuant to a letter dated June 14, 2021, the Company offered each of the holders of the 2019 Unsecured Notes the opportunity to voluntarily convert the outstanding principal into shares of common stock at conversion ratio of $ 0.50 per share and, if converted prior to June 30, 2021, still be paid interest through September 30, 2021.

With such offer, all accrued and unpaid interest, and additional interest through September 30, 2021, would be paid in shares of common stock at a rate of $ 1.00 per share, in lieu of payment in cash.

As a result thereof, and between June 17, 2021 and June 23, 2021, (i) the outstanding principal totaling $ 2,550,000 was voluntarily converted by the holders thereof into an aggregate of 5,100,000 shares of common stock of the Company at a conversion price of $0.50 per share, and (ii) all accrued and unpaid interest thereon, together with additional interest through September 30, 2021, which together totaled $ 229,500 , was converted into an aggregate of 229,500 shares of common stock of the Company.

The Company recognized a conversion inducement cost of $ 98,515 related to the conversion.

As of December 31, 2021 and December 31, 2020, total principal of $ 0 and $ 2,600,000 , respectively, was outstanding on the 2019 Unsecured Notes.

There is no further liability related to the profit share due to the voluntary conversion of all of the 2019 Unsecured Notes.

Note 9 - Related Party

Secured Note Payable

On November 29, 2016, pursuant to a new restated financing agreement entered with AC Midwest Energy, LLC (“AC Midwest”) on November 1, 2016, the Company closed on a new secured note with AC Midwest (the “New AC Midwest Secured Note”) in the original principal amount of $9,646,686, which was to mature on December 15, 2018.

The New AC Midwest Secured Note is guaranteed by MES, is non-convertible and bears interest at a rate of 15.0% per annum, payable quarterly in arrears on or before the last day of each fiscal quarter.

The New AC Midwest Secured Note is secured by all of the assets of the Company.

On November 29, 2016, pursuant to a new restated financing agreement entered with AC Midwest Energy, LLC (“AC Midwest”) on November 1, 2016, the Company closed on a new secured note with AC Midwest (the “AC Midwest Secured Note”) in the original principal amount of $ 9,646,686 , which was to mature on December 15, 2018.

AC Midwest is wholly-owned by a stockholder of the Company.

The AC Midwest Secured Note is guaranteed by MES, is non-convertible and bears interest at a rate of 15.0 % per annum, payable quarterly in arrears on or before the last day of each fiscal quarter.

Interest expense for the years ended December 31, 2021 and 2020 was $ 41,319 and $ 41,432 respectively.

On February 25, 2019, per Amendment No.

3 to the Amended and Restate Financing Agreement, AC Midwest agreed to waive compliance with a certain financial covenant of the Restated Financing Agreement and strike this covenant in its entirety as of the effective date of the amendment.

3 to the Amended and Restated Financing Agreement, AC Midwest agreed to waive compliance with a certain financial covenant of the Restated Financing Agreement and strike this covenant in its entirety as of the effective date of the amendment.

Also, pursuant to Amendment No.

1 unchanged sentence

The amendment was accounted for as an extinguishment in accordance with ASC 470-50 with no gain or loss recorded.

As of December 31, 2020 and 2019, total principal of $271,686 was outstanding on this note.

As of both December 31, 2021 and December 31, 2020, total principal of $ 271,686 was outstanding on this note.

Unsecured Note Payable

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

December 31, 2020

December 31, 2019

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

Unsecured note payable

Less unamortized discounts and debt issuance costs

Total unsecured notes payable

Less discounts and debt issuance costs

( 1,283,677 )

( 3,260,647 )

Total unsecured note payable

Less current portion

Unsecured notes payable, net of current portion

( 11,871,254 )

Unsecured note payable, net of current portion

On November 29, 2016, pursuant to a new restated financing agreement entered with AC Midwest on November 1, 2016, the Company closed on an unsecured note with AC Midwest (the “AC Midwest Subordinated Note”) in the principal amount of $ 13,000,000 , which was to mature on December 15, 2020.

5 unchanged sentences

This discount is based on an applicable market rate for unsecured debt for the Company of 21 % and will be amortized as interested expense over the life of the loan.

Amortized discount recorded as interest expense for the years ended December 31, 2020 and 2019 was $1,860,096 and $1,763,024, respectively.

As of December 31, 2020 and 2019, the unamortized balance of the discount was $3,260,647 and $5,243,033, respectively.

Amortized discount recorded as interest expense for the years ended December 31, 2021 and 2020 was approximately $ 1,855,000 and $ 1,974,000 , respectively.

As of December 31, 2021, the unamortized balance of the discount was $ 1,204,488 and unamortized balance of the debt issuance costs was $ 79,189 at December 31, 2021.

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

8 unchanged sentences

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

The Company is utilizing the methodology in ASC 815 and ASC 480 to determine how to account for the profit-sharing portion of the note payable.

Although the transaction is not indexed to MEEC’s stock the profit sharing seems like a freestanding financial instrument because the profit sharing is not callable by the lender, it will be paid out past the maturity of the note payable and, the fair value will fluctuate over time based on payment predictions.

The Company is utilizing the methodology behind the ASC 815, Derivatives and Hedging and ASC 480, Distinguishing Liabilities from Equity to determine how to account for the profit-sharing portion of the note payable.

Although the transaction is not indexed to MEEC’s common stock the profit sharing has the characteristics of a freestanding financial instrument because the profit sharing is not callable by the lender, it will be paid out past the maturity of the Unsecured Note Payable and, the fair value will fluctuate over time based on payment predictions.

The Profit Share was determined to have a fair value of $ 1,954,383 upon grant.

The discounted cash flow model assumptions used at December 31, 2021 to calculate the Profit Share liability included:

estimated term of sixteen years with between $100,000 to $350,000 paid quarterly after the first three years, and an annual market interest rate of 21%.

estimated term of sixteen years with between $100,000 to $350,000 paid quarterly starting in February 2024, and an annual market interest rate of 21% .

The profit share liability will be marked to market every quarter utilizing management’s estimates.

1 unchanged sentence

Profit Share as of January 1, 2021

Gain on change in fair value of profit share

Loss on change in fair value of profit share

Profit Share as of December 31, 2021

Profit Share as of January 1, 2020

Loss on change in fair value of profit share

Gain on change in fair value of profit share

Profit Share as of December 31, 2020

Debt Repayment and Exchange Agreement

On June 1, 2021, the Company, along with MES, entered into a Debt Repayment and Exchange Agreement with AC Midwest, which will repay all existing secured and unsecured debt obligations presently held by AC Midwest (the “Debt Repayment Agreement”).

Pursuant to the Debt Repayment Agreement, the Company shall at closing repay the principal balance outstanding on the AC Midwest Secured Note in cash, together with any other amounts due and owing under such note, and repay the outstanding debt under the New AC Midwest Unsecured Note by paying and issuing a combination of cash and shares of common stock which AC Midwest has agreed to accept in full and complete repayment of the obligations thereunder.

At closing, and with regard to the New AC Midwest Unsecured Note, the Company shall pay AC Midwest $ 6,577,465 .30 in cash representing 50.0 % of the aggregate outstanding principal balance of such note, and issue shares of common stock to AC Midwest in exchange for the remaining 50.0 % of the aggregate outstanding principal balance at an exchange price equal to 100% of the offering price of common stock in the Qualifying Offering (as defined below).

With regard to the Profit Share, at closing the Company shall pay AC Midwest $ 2,305,308 .00 in cash representing the Profit Share Valuation, and issue shares of common stock for $4,026,567.76 representing the Adjusted Profit Share Valuation (as such terms are defined in the Debt Repayment Agreement) at the same exchange price indicated above.

The Company has agreed to provide certain registration rights with respect to the shares issued thereunder.

The closing is subject to various conditions including but not limited to the completion of an offering of equity securities resulting in net proceeds of at least $12.0 million by December 31, 2021, which has been extended to June 30, 2022 (the “Qualifying Offering”).

In the event that the closing does not occur by June 30, 2022, either party may terminate the Debt Repayment Agreement and the existing notes with AC Midwest will continue in their current forms.

Related Party Transactions

2 unchanged sentences

At December 31, 2021 and 2020, $ 206,554 and $ 168,750 , respectively, was owed to the firm for services rendered.

As of December 31, 2021 the Company has a $ 45,000 note receivable from and a $ 25,000 investment in ME2C Sponsor, LLC, which is included in prepaid expenses and other assets.

ME2C Sponsor, LLC is wholly owned by the Company.

Note 10 - Operating Leases

14 unchanged sentences

Monthly rent is $ 590 a month through August 2020.

This lease was not renewed and the Company vacated the space.

The lease was not renewed and the Company vacated the space.

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

4 unchanged sentences

Operating lease obligation, net of current portion

The weighted average remaining lease term for operating leases is 2 years and the weighted average discount rate used in calculating the operating lease asset and liability is 5%.

For the year ended December 31, 2020, payments on lease obligations were $438,840 and amortization on the right of use assets was $310,706.

The weighted average remaining lease term for operating leases is 1 .00 year and the weighted average discount rate used in calculating the operating lease asset and liability is 5.0 %.

For the year ended year December 31, 2021, payments on lease obligations were $ 438,840 and amortization on the right of use assets was $ 405,771 .

For the year ended December 31, 2021, the Company’s lease cost consists of the following components, each of which is included in costs and expenses within the Company’s consolidated statements of operations:

Operating lease cost

Short-term lease cost (1)

Total lease cost

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

Note 11 - Commitments and Contingencies

1 unchanged sentence

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

These contracts expire through 2020 and 2025 and expose the Company to the potential risks associated with rising material costs during that same period.

These contracts expire between 2022 and 2025 and expose the Company to the potential risks associated with rising material costs during that same period.

Revenue reported during interim periods were recorded based on the facts and circumstances at the time and any differences noted when the final revenue is determined is considered to be a change in estimate for the period.

7 unchanged sentences

In the lawsuit, the Company alleges that each of the defendants has willfully infringed the Company’s ‘114 Patent and ‘147 Patent and seeks a permanent injunction from further acts of infringement and monetary damages.

During 2020, each of the four major utility defendants in the above action filed petitions for Inter Partes Review (IPR) with the United States Patent and Trademark Office (USPTO), seeking to invalidate certain claims to the patents which are subject to the litigation.

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

During 2020, each of the four major utility defendants in the above action filed petitions for Inter Partes Review with the United States Patent and Trademark Office, seeking to invalidate certain claims to the patents which are subject to the litigation.

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

The above described proceedings will continue with respect to the other parties involved.

The above described proceedings are continuing with respect to the other parties involved.

On May 20, 2021, a U.S.

District Court Magistrate Judge issued a report and recommendation that the above action should be permitted to proceed against 16 refined coal defendants named in the action directly involved in the refined coal program and operations, and be dismissed against 12 other defendants, primarily affiliated entities of the refined coal operators.

Such report was issued in connection with certain motions to dismiss filed by the refined coal defendants.

In September 2021, such report and recommendation was approved by the District Judge for the United States District Court for the District of Delaware.

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

2 unchanged sentences

Note 12 - Stock Based Compensation

Stock Based Compensation

Stock based compensation consists of the amortization of common stock, stock options and warrants issued to employees, directors and consultants.

For the years ended December 31, 2021 and 2020, stock based compensation expense amounted to $ 1,011,488 and $ 1,974,080 , respectively.

Such expense is classified in selling, general and administrative expenses.

In addition, as of December 31, 2021, $ 156,979 of stock based compensation has been capitalized and is included in prepaid and other current assets in the consolidated balance sheets.

As of January 1, 2020, and pursuant to an advisory agreement dated as of November 20, 2019 and effective as of January 1, 2020 for a term of one year with a nonaffiliated third party, the Company issued 1,000,000 shares of common stock of the Company to such third party as and for the entire compensation to be paid for all services to be rendered during the term.

These shares of common stock were valued at $ 200,000 in accordance with FASB ASC Topic 718.

The fair value of the shares was amortized to selling, general and administrative expenses within the Company’s condensed consolidated statements of operations during 2020.

The fair value of the shares is being amortized to selling, general and administrative expenses within the Company’s consolidated statements of operations over one year.

On October 5, 2020, the Company issued 300,000 shares of common stock of the Company to a nonaffiliated third-party pursuant to a consulting agreement entered into on October 1, 2020.

The value of the stock award was $ 102,000 and was charged to selling, general and administrative expenses in the statement of operations.

On March 23, 2021, and pursuant to a consulting agreement dated November 1, 2020, as amended on March 19, 2021, with a nonaffiliated third party, the Company issued 500,000 shares of common stock to such party as part of its compensation thereunder.

These shares of common stock were valued at $ 615,000 in accordance with FASB ASC Topic 718.

The fair value of the shares is being amortized to selling, general and administrative expenses within the Company’s consolidated statements of operations over ten months.

Pursuant to an amendment dated March 15, 2022 and effective as of December 31, 2021, the nonaffiliated party agreed to forfeit all of such shares which shares were cancelled effective as of December 31, 2021.

As such, the previously recorded expense of $615,000 was reversed in December 2021.

On March 30, 2021, and pursuant to a business development agreement dated March 30, 2021 with a nonaffiliated third party, the Company issued 25,000 shares of common stock to such party for its compensation thereunder.

These shares of common stock were valued at $ 29,250 in accordance with FASB ASC Topic 718.

The fair value of the shares is being amortized to selling, general and administrative expenses within the Company’s consolidated statements of operations over three months.

On December 1, 2021, and pursuant to a consulting agreement dated December 1, 2021 with a nonaffiliated third party, the Company issued 250,000 shares of common stock to such party as part of its compensation thereunder.

These shares of common stock were valued at $ 171,250 in accordance with FASB ASC Topic 718.

The fair value of the shares is being amortized to selling, general and administrative expenses within the Company’s consolidated statements of operations over 12 months.

Stock Options

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

A summary of stock option activity for the years ended December 31, 2021 and 2020 is presented below:

Weighted Average Exercise Price

Weighted Average Remaining Contractual Life (years)

Remaining Contractual

December 31, 2019

4 unchanged sentences

December 31, 2021

The aggregate intrinsic value in the table above represents the total intrinsic value, based on the Company’s closing stock price of $ 0.59 as of December 31, 2021, which would have been received by the option holders had all option holders exercised their options as of that date.

The Company utilized the Black-Scholes options pricing model to value its options granted.

The assumptions used for options granted during the years ended December 31, 2021 and 2020 are as follows:

December 31, 2020

December 31, 2019

Exercise price

3 unchanged sentences

Risk free interest rate

0.30 – 0.37 %

Expected life

On May 14, 2019, Frederick Van Zijl resigned as a director of the Company.

In connection with such resignation, the Company has agreed to issue, and Mr.

Van Zijl has agreed to accept, an aggregate of 235,184 shares of common stock of the Company in full and complete payment for service on the Board since his appointment in October 2018.

Compensation of $63,500 based on the market price of the shares on the date of issuance was included in selling, general and administrative expenses within the Company’s consolidated statements of operations.

On June 4, 2019, Allan T.

Grantham resigned as a director of the Company.

In connection with such resignation, the Company has agreed to issue, and Mr.

Grantham has agreed to accept, an aggregate of 229,333 shares of common stock of the Company in full and complete payment for service on the Board for 2018 and 2019.

Compensation of $55,040 based on the market price of the shares on the date of issuance was included in selling, general and administrative expenses within the Company’s consolidated statements of operations.

On June 28, 2019, the Company granted nonqualified stock options to acquire an aggregate of 4,600,000 shares of the Company’s common stock under the Company’s 2017 Equity Plan to certain executive officers, employees and others.

The options granted are exercisable at $0.27 per share, representing the fair market value of the common stock on the date of grant as determined under the 2017 Equity Plan.

The options are fully vested and exercisable as of the date of grant and will expire five years thereafter.

Based on a Black-Scholes valuation model, these options were valued at $898,207 in accordance with FASB ASC Topic 718 which was included in selling, general and administrative expenses within the Company’s consolidated statements of operations.

Also on June 28, 2019, the Company extended the expiration dates of previously granted nonqualified stock options to acquire an aggregate of 4,675,000 shares of the Company’s common stock under the Company’s 2014 Equity Plan to certain executive officers, employees and others.

The extended options are exercisable from $0.42 to $1.36 per share, representing the original fair market value of the common stock on the date of grant as determined under the 2014 Equity Plan.

The options are fully vested and exercisable and will now expire five years from the date of the extension.

Based on a Black-Scholes valuation model, the stock option modification was valued at $745,989 in accordance with FASB ASC Topic 718 which was included in selling, general and administrative expenses within the Company’s consolidated statements of operations.

On December 20, 2019, the Company granted nonqualified stock options to acquire an aggregate of 100,000 shares of the Company’s common stock under the Company’s 2017 Equity Plan.

The options were granted as compensation for a one year consulting agreement.

The options granted are exercisable at $0.25 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 $18,723 in accordance with FASB ASC Topic 718.

The fair value of the option will be amortized to selling, general and administrative expenses within the Company’s consolidated statements of operations over one year.

4.12 - 5 years

On June 15, 2020, the Company granted nonqualified stock options to acquire an aggregate of 250,000 shares of the Company’s common stock under the Company’s 2017 Equity Incentive Plan (the “2017 Plan”) to an employee.

23 unchanged sentences

In December 2020, the Company issued 1,082 shares of common stock to a certain option holder upon the cashless exercise of an option to purchase 1,500 shares of common stock at an exercise price of $ 0.17 per share based upon a market value of $ 0.61 per share as determined under the terms of the option.

On April 16, 2021, the Board of Directors of the Company approved another amendment to the 2017 Plan to increase the aggregate number of shares authorized for issuance by an additional 4,000,000 shares to 16,000,000 shares, which was approved by the stockholders on June 3, 2021.

On May 1, 2021, the Company issued 15,869 shares of common stock to a certain option holder upon the cashless exercise of an option to purchase 25,000 shares of common stock at an exercise price off $ 0.42 based upon a market price of $ 1.15 per share as determined under the terms of the option.

On June 30, 2021, the Company issued 125,000 shares of common stock to a certain option holder upon a cash exercise of an option to purchase 125,000 shares of common stock at an exercise price of $ 0.81 or $ 101,250 in the aggregate.

On November 22, 2021, the Company granted nonqualified stock options to the following executive officers to acquire shares of the Company’s common stock:

Richard MacPherson (President and Chief Executive Officer) – 750,000 shares, John Pavlish (Senior Vice President and Chief Technology Officer) – 500,000 shares, James Trettel (Vice President of Operations) – 500,000 shares and Jami Satterthwaite (Chief Financial Officer) – 125,000 shares;

and, also granted nonqualified stock options to the following board members to acquire shares of the Company’s common stock:

Christopher Greenberg (Chairman of the Board) – 250,000 and David M.

Kaye (director) – 125,000;

and, also granted nonqualified stock options to the following persons to acquire 50,000 shares of the Company’s common stock:

Nicholas Lentz and Stacey Hyatt.

All of such options were granted under the 2017 Plan and are exercisable at $ 0.78 per share, representing the fair market value of the common stock on the date of grant as determined under the 2017 Plan.

The options are fully vested and exercisable as of the date of grant and will expire five years thereafter.

Based on a Black-Scholes valuation model, these options were valued at $ 962,021 in accordance with FASB ASC Topic 718 which was expensed on the grant date in selling, general and administrative expenses within the Company’s consolidated statements of operations.

On December 6, 2021, the Company issued 100,000 shares of common stock to a certain option holder upon a cash exercise of an option to purchase 100,000 shares of common stock at an exercise price of $ 0.25 or $ 25,000 in the aggregate.

Note 13 - Warrants

2 unchanged sentences

When calculating the value of warrants issued, the Company uses a volatility factor, a risk-free interest rate and the life of the warrant for the exercise period.

From January 23, 2021 to February 16, 2021, the Company issued 705,166 shares of common stock to certain warrant holders upon the cash exercise of warrants to purchase an aggregate of 705,166 shares of common stock at an exercise price of $ 0.35 per share or $ 246,808 in the aggregate.

On February 17, 2021, the Company issued 97,675 shares of common stock to a certain warrant holder upon the cashless exercise of a warrant to purchase 150,000 shares of common stock at an exercise price of $ 0.45 per share based upon a market value of $ 1.29 per share as determined under the terms of the warrant.

On March 8, 2021, the Company issued an aggregate of 97,015 shares of common stock to certain warrant holders upon the cashless exercise of warrants to purchase an aggregate of 175,000 shares of common stock at an exercise price of $ 0.70 per share based upon market values from $ 1.44 to $ 1.63 per share as determined under the terms of the warrants.

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

Weighted Average

Weighted Average Remaining Contractual Life (years)

Remaining Contractual

December 31, 2019

December 31, 2020

( 1,030,166 )

December 31, 2021

2 unchanged sentences

December 31, 2021

The aggregate intrinsic value in the table above represents the total intrinsic value, based on the Company’s closing stock price of $ 0.59 as of December 31, 2021, which would have been received by the warrant holders had all warrant holders exercised their warrants as of that date.

The following table summarizes information about common stock warrants outstanding at December 31, 2021:

Outstanding and Exercisable

Exercise Price

* 110,000 warrants exercisable at $0.35 contain dilution protections that increase the number of shares purchasable at exercise upon the issuance of securities at a price below the current exercise price.

The Company utilized the Black-Scholes options pricing model.

The assumptions used for warrants granted during the year ended December 31, 2019 are as follows.

There were no warrants granted during the year ended December 31, 2020.

December 31, 2019

Number Outstanding

Weighted Average

Exercise Price

Expected dividends

Expected volatility

Risk free interest rate

Expected life

On August 12, 2019, the Company issued 37,210 shares of common stock upon the cashless exercise of warrants to purchase 167,039 shares of common stock for $0.35 per share based on a market value of $0.45 per share as determined under the terms of the warrant.

From June through October 2019, the Company issued unsecured convertible notes and five-year warrants to unaffiliated accredited investors totaling $2,600,000.

The notes are convertible into shares of common stock, with the initial conversion ratio equal to $0.50 per share.

The investors received warrants to purchase a total of 2,600,000 shares of common stock with an exercise price of $0.70 per share.

These securities were sold in reliance upon the exemption provided by Section 4(a)(2) of the Securities Act and the safe harbor of Rule 506 under Regulation D promulgated under the Securities Act.

Using a Black-Scholes Valuation model these warrants had a value of $525,142 which was recorded as a discount on the notes payable and will be amortized over the life of the associated notes payable.

On October 23, 2019, and pursuant to an advisory agreement executed on that date for a term of one year with an unaffiliated third party, the Company granted such unaffiliated third party a vested three-year warrant to purchase 1,000,000 shares of common stock with an exercise price of $0.70 per share, exercisable on a cash basis only.

Such warrants were issued as and for the entire compensation to paid to the advisor for all services to be rendered during the term.

Based on a Black-Scholes valuation model, these options were valued at $243,294 in accordance with FASB ASC Topic 718.

The fair value of the option will be amortized to selling, general and administrative expenses within the Company’s consolidated statements of operations over one year.

On October 1, 2020, the Company extended the expiration date of a previously issued warrant to acquire 150,000 shares of common stock of the Company at an exercise price of $0.45 per share.

Such warrant was issued to a nonaffiliated third-party providing investor relations consulting services to the Company.

The warrant will now expire November 30, 2023.

Based on a Black-Scholes valuation model, the warrant modification was valued at $30,573 in accordance with FASB ASC Topic 718 which was included in selling, general and administrative expenses within the Company’s consolidated statements of operations.

On December 14, 2020, the Company issued 47,494 shares of common stock to a certain warrant holder upon the cashless exercise of a warrant to purchase 95,000 shares of common stock at an exercise price of $0.35 per share based upon a market value of $0.6999 per share as determined under the terms of the warrant.

Note 14 - Income Taxes

Note 14 - Taxes

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

( 1,906,000 )

( 1,833,000 )

State and local

7 unchanged sentences

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:

components of the Company’s deferred tax assets and liabilities are as follows at December 31:

Deferred tax assets:

6 unchanged sentences

Valuation Allowance

( 11,100,000 )

( 8,804,000 )

Net deferred tax asset

1 unchanged sentence

federal net operating loss carryovers (“NOLs”) of approximately $ 33,380,000 and $ 33,366,000 at December 31, 2021 and 2020, respectively, available to offset taxable net income in a given year.

The Company has state net operating loss carryovers (“NOLs”) of $4,188,000 and $3,531,815 at December 31, 2020 and 2019, respectively.

The Company has state NOLs of $ 3,364,000 and $ 4,188,000 at December 31, 2021 and 2020, respectively.

If not used, these NOLs may be subject to limitation under Internal Revenue Code Section 382 should there be a greater than 50% ownership change as determined under the regulations.

21 unchanged sentences

The Company does not expect any significant changes in its unrecognized tax benefits in the next year.

Note 15 - Restatement of previously issued financial statements (unaudited)

Since the New AC Midwest Unsecured Note was held by a related party, the gain should have been recorded as a capital transaction under ASC 470-50-40.

The profit-sharing portion also should have been bifurcated from the loan and shown separately on the Condensed Consolidated Balance Sheets of the financial statements.

The following tables summarize the effects of the restatements on the specific items presented in the Company’s historical unaudited interim condensed consolidated financial statements previously included in the Company’s Quarterly Reports on Form 10-Q as of and for the three month period ended March 31, 2019:

CONDENSED CONSOLIDATED BALANCE SHEETS

MARCH 31, 2019

As previously reported

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Profit Share liability

Unsecured note payable, net of discount and issuance costs

Total liabilities

Stockholders’ deficit

Additional paid-in capital

Accumulated deficit

(49,197,401 )

(52,619,977 )

Total stockholders’ deficit

Total liabilities and stockholders’ deficit

MIDWEST ENERGY EMISSIONS CORP.

AND SUBSIDIARIES

FOR THE THREE MONTHS ENDED MARCH 31, 2019

As previously reported

Interest expense & letter of credit fees

Loss on change in fair value of profit share

Gain on debt restructuring

Total costs and expenses

Net income (loss)

$ (3,422,576 )

$ (1,058,779 )

Net loss per common share - basic and diluted:

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2019

As previously reported

Cash flows from operating activities

Net income (loss)

$ (3,422,576 )

$ (1,058,779 )

Adjustments to reconcile net loss to net cash

Amortization of discount of notes payable

Loss on change in fair value of profit share

Gain on debt restructuring

Net cash provided by (used in) operating activities

CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 30, 2019

As previously reported

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Profit Share liability

Secured note payable

Unsecured note payable, net of discount and issuance costs

Total liabilities

Stockholders’ deficit

Additional paid-in capital

Accumulated deficit

(52,036,522 )

(55,366,550 )

Total stockholders’ deficit

Total liabilities and stockholders’ deficit

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS

ENDED JUNE 30, 2019

FOR THE SIX MONTHS

ENDED JUNE 30, 2019

As previously reported

Interest expense & letter of credit fees

Loss on change in fair value of profit share

(Gain)/Loss on debt restructuring

Total costs and expenses

$ (2,839,121 )

$ (2,746,573 )

$ (3,330,028 )

$ (3,805,352 )

Net loss per common share - basic and diluted:

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2019

As previously reported

Cash flows from operating activities

$ (3,330,028 )

$ (3,805,352 )

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

Amortization of discount of notes payable

Loss on change in fair value of profit share

Gain on debt restructuring

Net cash used in operating activities

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2019

As previously reported

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities

Profit Share liability

Unsecured note payable, net of discount and issuance costs

Total liabilities

Stockholders’ deficit

Additional paid-in capital

Accumulated deficit

(52,887,063 )

(56,170,208 )

Total stockholders’ deficit

Total liabilities and stockholders’ deficit

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS

ENDED SEPTEMBER 30, 2019

FOR THE NINE MONTHS

ENDED SEPTEMBER 30, 2019

As previously reported

Interest expense & letter of credit fees

Loss on change in fair value of profit share

(Gain)/Loss on debt restructuring

Total costs and expenses

$ (1,325,865 )

$ (3,283,145 )

$ (4,609,010 )

Net loss per common share-basic and diluted:

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS

ENDED SEPTEMBER 30, 2019

As previously reported

Cash flows from operating activities

$ (1,325,865 )

$ (3,283,145 )

$ (4,609,010 )

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

Amortization of discount of notes payable

Loss on change in fair value of profit share

Gain on debt restructuring

Net cash used in operating activities

$ (1,304,626 )

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

FOR THE MONTHS ENDED MARCH 31, 2019, THE SIX MONTHS ENDED JUNE 30, 2019 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2019

Paid-in Capital

Balance - January 1, 2019

$ (51,483,332 )

$ (8,621,096 )

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

Capital contribution

Balance - March 31, 2019

$ (52,619,977 )

$ (6,345,537 )

Stock issued per resignation agreements

Issuance of stock options

Extension of certain stock option expiration

Issuance of warrants, recorded as discount on convertible notes payable

Balance - June 30, 2019

$ (55,366,550 )

$ (7,131,710 )

Stock issued upon cashless warrant exercise

Issuance of warrants, recorded as discount on convertible notes payable

Balance - September 30, 2019

$ (56,170,208 )

$ (7,799,048 )

Note 15 - Subsequent Events

See Note 11 for information on the agreements entered into between July 2020 and January 2021with each of the four major utility defendants in the patent litigation commenced in 2019, two of which agreements were entered into in January 2021 and which provide such defendants and their affiliated entities a non-exclusive license to certain Company patents (related to the Company’s two-part Sorbent Enhancement Additive (SEA ® ) process) for use in connection with such parties’ coal-fired power plants.

See Note 7 for information on loan proceeds in the amount of $299,300 which the Company received on April 14, 2020 from First International Bank & Trust pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020.

Such loan was forgiven in January 2021 pursuant to the applicable PPP requirements.

From January 27, 2021 to January 31, 2021, the Company issued 494,400 shares of common stock to certain holders of convertible promissory notes issued in 2013, 2018 and 2019 as payment for accrued interest due on January 1, 2021 in the aggregate amount of $247,200, based upon a rate of $0.50 per share.

From February 8, 2021 to February 15, 2021, the Company issued 1,880,000 shares of common stock to certain holders of convertible promissory notes issued in 2013 for the conversion of the outstanding principal of such notes in the aggregate amount of $940,000, based upon a conversion rate of $0.50 per share.

On February 17, 2021, the Company issued 97,675 shares of common stock to a certain warrant holder upon the cashless exercise of a warrant to purchase 150,000 shares of common stock at an exercise price of $0.45 per share based upon a market value of $1.29 per share as determined under the terms of the warrant.

On March 8, 2021, the Company issued an aggregate of 97,015 shares of common stock to certain warrant holders upon the cashless exercise of warrants to purchase an aggregate of 175,000 shares of common stock at an exercise price of $0.70 per share based upon market values from $1.44 to $1.63 per share as determined under the terms of the warrants.

From February 26, 2021 to March 8, 2021, the Company issued 790,000 shares of common stock to certain holders of convertible promissory notes issued in 2018 and 2019 for the conversion of the outstanding principal of such notes in the aggregate amount of $395,000, based upon a conversion rate of $0.50 per share.

On March 17, 2021, as a result of the election by the Company to force convert all of the outstanding principal of certain convertible promissory notes issued in 2018 if the closing price of the Company’s common stock exceeds $1.00 per share for 10 consecutive trading days, the Company issued 1,030,000 shares of common stock to such holders for the conversion of the remaining outstanding principal of such notes in the aggregate amount of $515,000, based upon a conversion rate of $0.50 per share.

See Note 7 for information on a one-year secured loan in the principal amount of $200,000 which the Company received on February 25, 2020.

Such loan was repaid in full in February 2021.

In February 2021, the Company received second draw loan proceeds in the amount of $299,380 from First International Bank & Trust pursuant to the Paycheck Protection Program (the “Second PPP Loan”) under the CARES Act.

The Second PPP Loan is in the form of a Note dated February 2, 2021, matures on April 14, 2026 and bears interest at a rate of 1.0% per annum, with one interest payment on February 2, 2022, 47 monthly consecutive principal and interest payments of $6,366.89 each, beginning March 2, 2022, and one final principal and interest payment of $6,366.92 on February 2, 2026.

On January 24, 2022, and effective as of December 31, 2021, the Company, along with MES, entered into Amendment to the Debt Repayment Agreement with AC Midwest pursuant to which the closing date deadline for completing the transactions contemplated by the Debt Repayment Agreement has been extended from December 31, 2021 to June 30, 2022.

On January 24, 2022, the Company extended the expiration dates of certain previously granted nonqualified stock options which were granted to five individuals to acquire an aggregate of 700,000 shares of the Company’s common stock under the Company’s 2014 Equity Plan or the 2017 Equity Plan.

Such extended options are exercisable from $ 1.15 to $ 1.20 per share, representing the original fair market value of the common stock on the dates of grant as determined under the applicable Equity Plan.

On February 2, 2022, the Company issued 5,181 shares of common stock to a certain option holder upon the cashless exercise of options to purchase an aggregate of 9,750 shares of common stock at exercise prices ranging from $ 0.20 to $ 0.33 per share based upon a market price of $ 0.54 per share as determined under the terms of the options.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data