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Midwest Energy Emissions (MEEC) – 2016 Recap

01/05/2017
By Steven Ralston, CFA

OTC:MEEC

Midwest Energy Emissions (OTC:MEEC) completed an impressive year, during which operations gained traction as all 20 EGUs under contract were operational and under compliance by September. We anticipate that when the company report results (sometime near the end of March), revenues will have increased over 150% over 2015’s $12.63 million to near our estimate  of $32.66 million. In November, management increased full year 2016 revenue guidance from at least $30 million to a range between $31 million to $33 million.

The company is targeting approximately 120 EGUs that are experiencing significant challenges in attempting to become MATS compliant, including suffering extra cost difficulties, cycling boiler output and/or de-rating boilers in order to stay in compliance. Pricing appears to be firm with management anticipating that new contracts will generate an average of $3.0 million in revenues annually. The initial range of revenue guidance for 2017 is between $60 million and $70 million.

Financial Transactions

During November 2016, Midwest Energy Emissions announced two financial transactions, a debt exchange and a private placement, the combination of which enables the company to acquire the assignment of patents, reduce debt and enhance the working capital position. Management anticipates that after the transactions, the company s debt level will be reduced to roughly $16 million and working capital will improve to approximately $4.5 million as the debt exchange also removes the current portion of debt outstanding.

On November 3, 2016, Midwest Energy Emissions entered into an Amended and Restated Financing Agreement (aka debt exchange) with AC Midwest Energy LLC. The debt exchange simplifies the company s capital structure and reduces potential dilution by decreasing the number of warrants outstanding (and as a result the total outstanding fully diluted shares) by an equivalent of approximately 34.2 million shares.

Prior to the debt exchange, $9,646,686 of 12% senior secured convertible notes due July 31, 2018 were owed to AC Midwest Energy. The outstanding debt was exchanged for a $9,646,686 non-convertible senior secured note. Furthermore, the convertible feature, along with 24.9 million warrants held by AC Midwest Energy, is being exchanged for 10.0 million shares of MEEC and a $13.0 million subordinated unsecured note.

Between November 18 and 22, 2016, Midwest Energy Emissions completed a private placement of 11,214,968 shares at a price of $1.20 per share. Net proceeds were approximately $12.38 million. Oppenheimer & Co. Inc. acted as the lead placement agent and Feltl and Company acted as co-placement agent.

After implementing the Amended and Restated Financing Agreement and completing the private placement, Midwest Energy Emissions had 73,479,937 common shares outstanding.

Business Development and Investor Relations

In 2016, management intensified the company’s investor relations effort, not only by attending investor conferences, but also by holding quarterly conference calls. In addition, the company attended industry conferences.

- Electric Generation Conference from January 26 to 28 in Bismarck
- Reinhold NOx-Combustion-CCR/PCUG Conference from February 1 to 2 in Orlando
- Energy, Utility & Environmental Conference (EUEC) from February 3 to 5 in San Diego
- Electric Power Conference from April 18 to 21 in New Orleans
- Drexel Hamilton MicroCap Investor Forum on May 12
- 2016 Marcum MicroCap Conference on June 2
- Sixth Annual LD Micro Invitational on June 8 in Los Angeles
- A&WMA MEGA Symposium from August 16 to 18 in Baltimore
- Rodman & Renshaw 18th Annual Global Investment Conference on September 12 in NYC
- Benchmark Micro Cap Discovery One on One Conference on December 1 in Chicago
- 9th annual LD Micro Main Event on December 6 in Los Angeles
- Power Gen International Conference from December 13 to 15, 2016 in Orlando

We continue to be optimistic about Midwest Energy Emissions. The company should experience significant increases in revenue over the next few years as the coal-fired plants adjust their mercury emissions control efforts in order to optimally comply with MATS. Our target remains $2.00 per share.

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