UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒ Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934:

For the fiscal year ended: December 31, ~~2019~~2020

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934:

For the transition period from:

		XG SCIENCES, INC.
		(Exact name of registrant as specified in its charter)

Michigan		333-209131		20-4998896
(State or other jurisdiction of incorporation or organization)		(Commission File No.)		(I.R.S. Employer Identification No.)

3101 Grand Oak Drive

Lansing, MI 48911

(Address of principal executive offices) (zip code)

(517) 703-1110

(Issuer Telephone number)

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

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered

None	None	None

Securities registered under Section 12(g) of the Act: None.

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

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

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the ~~past~~preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ~~☒ No~~ ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a ~~shell~~large, accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large, accelerated filer,” “accelerated filer,” ~~(as~~“smaller ~~defined~~reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act~~): Yes ☐ No ☒~~.

~~Indicate~~Large, ~~by check mark whether the registrant is a large~~ accelerated filer, an☐ ~~accelerated~~Accelerated filer, a☐ ~~non~~Non-accelerated filer, or☐ aSmaller ~~smaller~~ reporting company, ~~and~~☒ ~~whether~~Emerging ~~the registrant is an emerging~~ growth company. ~~See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.~~ ☒

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☒

Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

AsIndicate ofby ~~December~~check mark ~~31,~~whether ~~2019,~~ the ~~aggregate market~~registrant ~~value~~has offiled ~~the~~a ~~registrant’s~~report ~~common~~on ~~stock~~and ~~held~~attestation byto ~~non-affiliates~~its management’s assessment of the ~~registrant~~effectiveness ~~was~~of ~~approximately~~its ~~$25,359,328, based~~internal oncontrol ~~the~~over ~~price~~financial atreporting ~~which~~under ~~the~~Section ~~common~~404(b) ~~equity~~of ~~was~~the ~~last~~Sarbanes-Oxley ~~sold~~Act (i15 U.eS.~~, $8~~C.00 ~~per share~~7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

~~The~~Indicate by ~~number~~check ofmark ~~shares~~whether ~~outstanding of~~ the registrant’s ~~common~~is ~~stock,~~a noshell ~~par~~company ~~value~~(as ~~per~~defined ~~share,~~in asRule 12b-2 of ~~April~~ ~~29,~~the ~~2020~~Exchange ~~was~~Act): ~~4,024,443.~~ Yes ☐ No ☒

As of December 31, 2020, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $23,576,168 based on the price at which the common equity was last sold (i.e., $8.00 per share).

The number of shares outstanding of the registrant’s common stock, no par value per share, as of August 30, 2021 was 2,490,488.

The Company was unable to timely file the report for the year ending December 31, 2020, due to the time required by a valuation study needed to properly analyze and account for the April 23, 2020, Convertible Notes Unit Offering.

TABLE OF CONTENTS

		~~Page~~	Page
Part I			1
Item 1	Business	1	1
Item 1A	Risk Factors	11	11
Item 1B	Unresolved Staff Comments	22	16
Item 2	Properties	22	16
Item 3	Legal Proceedings	22	16
Item 4	Mine Safety Disclosures	22	16
Part II			17
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	23	17
Item 6	Selected Financial Data	26	19
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26	19
Item 7A	Quantitative and Qualitative Disclosures about Market Risk	35	29
Item 8	Financial Statements	36	30
	~~Report of Independent Registered Public Accounting Firm~~	37Report of Independent Registered Public Accounting Firm	31
	~~Consolidated Balance Sheets~~	38Consolidated Balance Sheets	32
	~~Consolidated Statements of Operations~~	39Consolidated Statements of Operations	33
	~~Consolidated Statement of Changes in Stockholders’ Equity (Deficit)~~	40Consolidated Statement of Changes in Stockholders’ Equity (Deficit)	34
	~~Consolidated Statements of Cash Flows~~	41Consolidated Statements of Cash Flows	35
	~~Notes to Consolidated Financial Statements~~	42Notes to Consolidated Financial Statements	36
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	62	58
Item 9A	Controls and Procedures	62	58
Item 9B	Other Information	63	59
Part III			60
Item 10	Directors, Executive Officers and Corporate Governance	63	60
Item 11	Executive Compensation	72	67
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	75	71
Item 13	Certain Relationships and Related Transactions, and Director Independence	78	73
Item 14	Principal Accounting Fees and Services	79	75
Part IV			76
Item 15	Exhibits and Financial Statement Schedules	80	76
Signatures		83	79

PART I

Note Regarding Forward-Looking Statements:

The information in this Annual Report on Form 10-K contains “forward-looking statements” and information within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) relating to XG Sciences, Inc., a Michigan corporation and its subsidiary, XG Sciences IP, LLC, a Michigan corporation (collectively referred to as “we”, “us”, “our”, “XG Sciences”, “XGS”, or the “Company”), which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements.

These forward-looking statements involve known and unknown risks and uncertainties that could cause our actual results, performance , or achievements to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the risks set forth ~~beginning on page 13~~ under the section entitled “Risk Factors” herein.

ITEM 1. BUSINESS

XG Sciences was formed in May 2006 for the purpose of commercializing certain technology to produce graphene nanoplatelets and integrated, value-added products containing graphene nanoplatelets. First isolated and characterized in 2004, graphene is a single layer of carbon atoms configured in an atomic-scale honeycomb lattice. Among many noted properties, monolayer graphene is harder than diamonds, lighter than steel but significantly stronger, and conducts electricity better than copper. Graphene nanoplatelets are particles consisting of multiple layers of graphene. Graphene nanoplatelets have unique capabilities for energy storage, thermal conductivity, electrical conductivity, barrier properties, lubricity, and the ability to impart physical property improvements when incorporated into plastics, metals or other matrices.

We believe the unique properties of graphene and graphene nanoplatelets will enable numerous new product applications and we expect the market for such products ~~will~~to quickly grow to be a significant market opportunity. Our business model is to design, manufacture and sell advanced materials we call xGnP® graphene nanoplatelets and value-added products incorporating xGnP® graphene nanoplatelets. WeSince ~~currently have~~our ~~hundreds of~~ inception, customers ~~trialing~~have trialed our products for numerous applications, including, but not limited to ~~lithium~~solid ~~ion~~state batteries, ~~lead~~ ~~acid batteries,~~ thermally conductive adhesives, composites, thermal management and heat transfer, inks and coatings, printed electronics, construction materials, cement, 3-D printing and in a range of other industrial uses. We believe our proprietary processes have enabled us to be a ~~low-cost producer~~ manufacturer of high-quality, graphene nanoplatelets and value-added integrated products containing graphene nanoplatelets and that we are well positioned to address a wide range of end-use applications.

Our Customers

We sell products to customers around the world and have sold or sampled materials to over 1,300 customers in 47over 45 countries since 2008. ~~Some~~In ofthe ~~these~~twelve ~~customers~~months ~~are~~ended ~~research~~December ~~organizations and~~31, ~~some~~2020 ~~are commercial organizations. Our customers have included well-known automotive~~ and ~~OEM~~December ~~suppliers around the world (Ford~~31, ~~Johnson~~ ~~Controls~~2019, ~~Magna,~~we ~~Honda~~had ~~Engineering),~~one ~~world-scale~~customer ~~lithium~~whose purchases ~~ion~~accounted ~~battery~~for ~~manufacturers~~52% inand ~~the~~41% ~~US,~~of ~~South~~total ~~Korea~~product ~~and China (Samsung SDI~~revenues, LGrespectively. ~~Chemical,~~On ~~Lishen,~~December ~~A123)~~ 31, ~~diverse~~2020 ~~specialty~~and ~~material~~December ~~companies (3M~~31, ~~BASF~~2019, ~~Henkel, Dow Chemical, DuPont) and leading research~~there ~~centers~~were ~~such~~two ~~as Lawrence Livermore National Laboratory and Oakridge National Laboratory. The majority of our~~ customers ~~are~~who ~~still ordering~~had inan ~~small~~accounts ~~quantities~~receivable ~~consistent~~balance ~~with~~greater ~~their~~than ~~development~~20% and ~~qualification work, although others have started to order in~~ 10’s% ~~to 100’s~~ of ~~kilograms~~our ~~and~~outstanding ~~some~~receivable atbalance, ~~the metric ton level~~respectively.

~~We have also licensed some of our base manufacturing technology to other companies.~~ Our ~~licensees~~ include POSCO, the fifth largest steel manufacturer in the world by 2018 tonnage output, and Cabot Corporation (“Cabot”), a leading global specialty chemicals and performance materials company. These licensees further extend our technology through their customer networks. Ultimately, we believe we may benefit in terms of royalties on sales of xGnP® graphene nanoplatelets produced and sold by our licensees. Products

~~Our~~XG Sciences is a manufacturer of graphene nanoplatelets ~~Products~~and value-added products that contain graphene nanoplatelets. The term “graphene” is used widely in the literature and the popular press to cover a variety of specific forms of the material. We generally think about two broad classes of graphene materials:

~~XG Sciences~~1. isOne-atom athick ~~manufacturer~~films of carbon commonly referred to as monolayer graphene, ~~nanoplatelets~~manufactured ~~and~~typically ~~value-added~~from ~~products~~gases ~~that~~by ~~contain~~assembling ~~graphene~~molecules ~~nanoplatelets~~to form relatively large, transparent sheets of material. ~~The~~These ~~term~~materials ~~“graphene” is~~have ~~used~~been ~~widely~~characterized inby ~~the~~their ~~literature~~performance attributes that differentiate them from other advanced materials and ~~the~~that ~~popular~~may ~~press~~include: 200 times stronger than steel, flexible and able to ~~cover~~stretch aup ~~variety~~to 25% of ~~specific~~its ~~forms~~original oflength, ~~the~~optically transparent, more electrically conductive than copper, more thermally conductive than any other known material and atomic-level barrier properties. WeXG ~~generally~~Sciences ~~think about~~does ~~two~~not ~~broad~~manufacture ~~classes~~these offilms and does not participate in the markets for these films and believes that, in general, the markets for these films do not compete with those for graphene ~~materials:~~nanoplatelets.

12. ~~One~~Ultra-~~atom~~thin ~~thick~~particles ~~films~~ of carbon ~~commonly~~that ~~referred~~consist toof aslayers ~~monolayer~~of graphene, ~~manufactured~~sheets ~~typically~~ranging ~~from~~in ~~gases~~thickness byfrom ~~assembling~~a ~~molecules~~few layers to ~~form~~many ~~relatively~~layers ~~large,~~– ~~transparent~~that ~~sheets~~are ofcommonly ~~material.~~referred ~~These~~to ~~materials~~as ~~have~~graphene ~~been~~nanoplatelets ~~characterized~~(“GNP” byor ~~their~~“GNPs”). ~~performance~~Because ~~attributes~~GNPs ~~that~~are ~~differentiate~~thin ~~them from other advanced materials~~ and ~~that~~can ~~may~~be ~~include:~~manufactured ~~200~~in ~~times~~a ~~stronger~~range ~~than~~of ~~steel~~diameters, ~~flexible~~they ~~and~~are ~~able~~useful tofor ~~stretch~~a upwide tovariety ~~25%~~ of ~~its~~applications. ~~original~~XG ~~length,~~Sciences ~~optically~~manufactures ~~transparent,~~GNPs ~~more~~that ~~electrically~~range ~~conductive~~in ~~than~~thickness ~~copper,~~from ~~more~~a ~~thermally~~few ~~conductive~~nanometers ~~than~~and ~~any~~up ~~other~~to ~~known~~10-20 ~~material~~nanometers and ~~atomic-level~~with ~~barrier~~diameters ~~properties.~~ranging XGfrom ~~Sciences~~less ~~does~~than ~~not~~1 ~~manufacture~~micron ~~these films~~ and ~~does~~up ~~not~~to ~~participate~~100 inmicrons. ~~the~~The ~~markets~~manufacture ~~for~~of these ~~films~~graphene ~~and~~particles ~~believes~~is ~~that,~~our inmain ~~general~~area of expertise, ~~the~~and ~~markets~~their ~~for~~use ~~these~~in ~~films~~practical doapplications ~~not~~is ~~compete~~the ~~with~~focus ~~those~~of ~~for~~our ~~graphene~~sales, ~~nanoplatelets~~marketing, and development activities.

2. Ultra-thin particles of carbon that consist of layers of graphene sheets ranging in thickness from a few layers to many layers – that are commonly referred to as graphene nanoplatelets (“GNP” or “GNPs”). Because GNPs are thin and can be manufactured in a range of diameters, they are useful for a wide variety of applications. XG Sciences manufactures GNPs that range in thickness from a few nanometers and up to 10-20 nanometers and with diameters ranging from less than 1 micron and up to 100 microns. The manufacture of these graphene particles is our main area of expertise, and their use in practical applications is the focus of our sales, marketing and development activities.

2The well-publicized isolation and characterization of graphene in 2004 at the University of Manchester has spawned a new class of 2D materials based on layers of carbon atoms arranged in a hexagonal array and each carbon having lone pair electrons. The unique characterization and related performance of this new class of materials is derived from their two-dimensional nature and their composition of sp2 carbon atoms arranged in a hexagonal array. The ability of any new material to be exploited in industrial applications will depend on its fit-for-performance. In the case of graphene nanoplatelets, the fit-for-performance is very much related to their aspect ratio (among other factors) in that the diameter is typically significantly greater than the thickness. This is what differentiates the material from bulk graphite of high crystallinity and purity. We classify nanoplatelets consisting of largely basal planes of carbon atoms packed in a hexagonal array (i.e., graphene) as graphene nanoplatelets as long as their aspect ratio may be classified as two-dimension and are thus in the form of platelets. Such a definition implies that the thickness is nanoscale – GNPs having a thickness in the range from generally 0.6 nanometers and up to many 10’s of nanometers. We have chosen to utilize the definitions as set out by the Carbon Journal editorial team (Carbon, volume 65, pp.1-6) and Fullerex (Bulk Graphene Pricing Report, 2019) which provides classification for the various material types providing meaningful descriptions of commercially available graphene.

~~The well-publicized~~Graphene ~~isolation~~Product ~~and~~Definitions ~~characterization~~Based ~~of graphene in 2004 at the University of Manchester, has spawned a new class of 2D materials based~~ on ~~layers of carbon atoms arranged in a hexagonal array and each carbon having lone pair electrons. The unique~~Layer characterization and related performance of this new class of materials is derived from their two-dimensional nature and their composition of sp2 carbon atoms arranged in a hexagonal array. The ability of any new material to be exploited in industrial applications will depend on its fit-for-performance. In the case of graphene nanoplatelets, the fit-for-performance is very much related to their aspect ratio (among other factors) in that the diameter is typically significantly greater than the thickness. This is what differentiates the material from bulk graphite of high crystallinity and purity. We classify nanoplatelets consisting of largely basal planes of carbon atoms packed in a hexagonal array (i.e., graphene) as graphene nanoplatelets so long as their aspect ratio may be classified as two-dimension and are thus in the form of platelets. Such a definition implies that the thickness is nanoscale – GNPs having a thickness in the range from generally 0.6 nanometers and up to many 10’s of nanometers. We have chosen to utilize the definitions as set out by the Carbon Journal editorial team (Carbon, volume 65, pp.1-6) and Fullerex (Bulk Graphene Pricing Report, 2019) which provides classification for the various material types which provide meaningful descriptions of commercially available graphene.Thickness

Graphene Product Definitions Based on Layer Thickness

Number of Layers		Product Description
1		Graphene (monolayer)
1-3		Very Few Layers Graphene (vFLG)
2-5		Few Layers Graphene (FLG)
2-10		Multilayer Graphene (MLG)
>10		Graphene Nanoplatelets (GNPs)

Number of Layers		Product Description
1		Graphene (monolayer)
1-3		Very Few Layer Graphene (vFLG)
2-5		Few Layer Graphene (FLG)
2-10		Multilayer Graphene (MLG)
>10		Graphene Nanoplatelets (GNPs)

Bulk Materials

~~Bulk~~We sell bulk materials under the trademarked ~~Materials~~brand name of xGnP® graphene nanoplatelets. These materials are produced in various grades, which are analogous to average platelet thickness, and average platelet diameters. There are three commercial grades (Grades H, M & R), each of which is offered in three standard platelet diameters and a fourth, C Grade, which is offered in three standard surface areas. These bulk materials, which normally ship in the form of a dry powder, are especially applicable for use as additives in polymeric or metallic composites, or in coatings or other formulations where particular electrical, thermal or barrier performance are desired by our customers. We also offer our material in the form of dispersions of nanoplatelets in liquids such as water, alcohol, or organic solvents, or mixed into resins or polymers such as thermoplastics or thermosets. We use two different commercial processes to produce these bulk materials:

~~We sell~~Grade ~~bulk~~H/M/R materials ~~under~~are ~~the~~produced ~~trademarked~~through ~~brand~~chemical ~~name~~intercalation of ~~xGnP®~~natural ~~graphene~~graphite ~~nanoplatelets.~~followed ~~These~~by ~~materials~~thermal ~~are~~exfoliation ~~produced in~~using ~~various~~a ~~grades,~~proprietary ~~which~~process ~~are~~developed ~~analogous~~by toXGS. ~~average~~The ~~platelet~~“grade” designates the thickness, and ~~average~~surface ~~platelet~~characteristics ~~diameters.~~of ~~There~~the ~~are three commercial grades (Grades H~~material, Mand ~~& R),~~ each ofgrade ~~which~~ is ~~offered~~available in ~~three~~various ~~standard~~average particle/platelet diameters. ~~and~~Surface ~~a fourth~~area, Ccalculated ~~Grade,~~by ~~which~~the isBrunauer, ~~offered in~~Emmet, ~~three~~and ~~standard~~Teller ~~surface~~(BET) ~~areas.~~Method, Weis ~~also~~used ~~have~~as ~~access~~a toconvenient ~~other~~proxy ~~development grades (Grade T,~~ for ~~example)~~thickness, ~~but~~so ~~which~~each ~~are~~grade ~~not~~of ~~yet made~~products ~~available~~produced ~~commercially~~through ~~and~~chemical ~~have~~intercalation ~~been~~is ~~used~~designated ~~internally~~by ~~for~~its ~~those~~average ~~products~~surface ~~containing graphene nanoplatelets. These bulk materials~~area, which ~~normally~~ranges ~~ship~~from in50 ~~the~~to ~~form~~150 m2/gram of amaterial. ~~dry~~As ~~powder,~~the ~~are~~market ~~especially~~need ~~applicable~~emerges for ~~use~~this asclass ~~additives~~of ~~in polymeric or metallic composites~~materials, or inwe ~~coatings~~anticipate orscaling ~~other~~them. ~~formulations~~For ~~where~~example, ~~particular~~in ~~electrical~~2017, ~~thermal~~we orintroduced ~~barrier~~a ~~performance~~new ~~are~~Grade ~~desired~~of byxGnP® ~~our~~powders, ~~customers. We~~R-Grade, ~~also~~with ~~offer~~improved ~~our~~electrical ~~material~~conductivity targeting use in ~~the~~applications ~~form~~for ofelectrically ~~dispersions~~and ofthermally ~~nanoplatelets~~conductive inink ~~liquids~~and ~~such~~composites asand ~~water,~~have ~~alcohol,~~since orscaled ~~organic~~R-Grade ~~solvents, or~~to ~~mixed~~metric-ton ~~into~~quantities ~~resins~~. orWe ~~polymers~~have ~~such~~started asa ~~thermoplastics~~review orto ~~thermosets.~~rationalize Weour ~~use~~product ~~two~~offerings ~~different~~to ~~commercial~~optimize ~~processes~~manufacturing toefficiency ~~produce~~and ~~these bulk~~focused ~~materials:~~customer needs.

Grade ~~H/M/R/T~~C materials are produced through ~~chemical~~a ~~intercalation~~high-shear ofmechanical ~~natural graphite followed by thermal~~ exfoliation using a proprietary process ~~developed by us. The “grade” designates the thickness~~ and ~~surface~~equipment ~~characteristics~~that ofwe ~~the~~invented, ~~material~~designed, constructed, and ~~each~~patented. ~~grade~~The isGrade ~~available~~C inmaterials ~~various~~are ~~average~~smaller ~~particle/~~platelet diameters. ~~Surface~~than ~~area,~~those ~~calculated~~grades byproduced ~~the~~through ~~Brunauer,~~chemical ~~Emmet~~exfoliation, and ~~Teller~~Grade ~~(BET)~~C ~~Method,~~materials isare ~~used as a convenient proxy for thickness, so each grade of products produced through chemical intercalation is~~ designated by ~~its~~their ~~average~~BET surface area, which ranges from 50300 to ~~150~~800 m2/gram ~~of material~~. We are able to ~~extend~~produce ~~the surface area higher (250 m2/gram for T~~ C-Grade) ~~but are not yet producing these~~ materials inhaving ~~metric-ton~~other ~~quantities.~~surface Asareas the market need emerges for this class of materials, we anticipate scaling them. For example, we introduced a new Grade of xGnP® powders, R-Grade, with improved electrical conductivity targeting use in applications for electrically and ~~thermally~~may ~~conductive~~make ~~ink~~those ~~and~~available ~~composites~~commercially ~~and~~as ~~have~~needed ~~scaled~~by ~~R-Grade~~our ~~to metric-ton quantities~~customers.

~~Grade~~The Cfollowing ~~materials~~graphic ~~are~~depicts ~~produced~~xGnP® ~~through~~graphene nanoplatelets as a ~~high-shear~~function ~~mechanical~~of ~~exfoliation~~both ~~using~~layer thickness and aspect ratio (thickness by diameter), two key parameters which will influence their performance in a ~~proprietary~~range ~~process~~of industrial applications. The performance of graphene nanoplatelets in a specific application is primarily a function of the platelet’s diameter, thickness, planarity (or more broadly – morphology), and, ~~equipment~~to some extent, the nature and concentration of any chemical groups on the platelets. There are other factors that wemay ~~invented~~impact performance, ~~designed~~such as optimized dispersion, product ~~constructed~~form delivered to the customer (powder vs. slurry), and ~~patented~~so on. ~~The~~However, ~~Grade~~for Cthe ~~materials~~most ~~are~~part, ~~smaller~~performance ~~platelet~~in ~~diameters~~an ~~than~~application ~~those~~is ~~grades~~related to ~~produced~~the ~~through~~physical ~~chemical~~characteristics ~~exfoliation,~~of the nanoplatelets. XG Sciences is skilled in the design and ~~Grade~~manufacture Cof ~~materials~~graphene ~~are~~nanoplatelets, and ~~designated~~our bytwo ~~their~~proprietary ~~BET~~manufacturing ~~surface~~processes ~~area~~allow for the production of a broad product portfolio varying across a broad range of both thickness and diameter, ~~which~~the ~~ranges~~two ~~from~~variables ~~300~~most likely related to ~~800~~performance ~~m2/gram~~in a range of end-use applications. We ~~are~~have recently started the review of all of our manufacturing processes and the optimization of the molecules that we produce. Our objective is targeted upon being able to ~~produce~~scale ~~C-Grade~~production, ~~materials~~per ~~having~~manufacturing ~~other~~cell, ~~surface~~at ~~areas~~1,000 ~~and~~metric ~~may~~tons ~~make~~per ~~those~~annum, ~~available~~with ~~commercially~~costs asthat ~~needed~~will byallow ~~our~~market ~~customers~~acceptance and good margin production.

The following graphic depicts xGnP® graphene nanoplatelets as a function of both layer thickness and aspect ratio (thickness by diameter), two key parameters which will influence their performance in a range of industrial applications. The performance of graphene nanoplatelets in a specific application is primarily a function of the platelet’s diameter, thickness, planarity (or more broadly – morphology), and, to some extent, the nature and concentration of any chemical groups on the platelets. There are other factors that may impact performance, such as optimized dispersion, product form delivered to the customer (powder vs. slurry), and so on. However, for the most part, performance in an application is related to the physical characteristics of the nanoplatelets. XG Sciences is skilled in the design and manufacture of graphene nanoplatelets and our two proprietary manufacturing processes allow for the production of a broad product portfolio varying across a broad range of both thickness and diameter, the two variables most likely related to performance in a range of end-use applications. 3

3XG Sciences’ Graphene Nanoplatelet Product Portfolio and Versus Graphite

XGWe believe we are a platform play in advanced ~~Sciences’~~materials, ~~Graphene~~because ~~Nanoplatelet~~our ~~Product~~proprietary ~~Portfolio~~processes allow us to produce varying grades of graphene nanoplatelets that may be mapped to a variety of applications and ~~Versus~~in ~~Graphite~~many end-use market segments. While we supply bulk materials consisting of various forms of xGnP® graphene nanoplatelets and in the form of dispersions of nanoplatelets in liquids such as water, alcohol or organic solvents, we also produce products that contain graphene nanoplatelets which we refer to as integrated products. We have done this to further differentiate our products from those potential suppliers offering only graphene nanoplatelets in powder form. We are studying and rationalizing our offerings based upon servicing a limited number of markets that we believe we are positioned to capitalize upon.

WeComposites. ~~believe~~Our composites, weintegrated-products ~~are~~portfolio includes resins derived from a ~~“platform~~range ~~play” in~~of ~~advanced~~thermoplastics ~~materials,~~and ~~because~~thermosets into which our ~~proprietary~~xGnP® graphene ~~processes~~nanoplatelets ~~allow~~are uscompounded. toThese ~~produce~~products ~~varying~~are ~~grades~~supplied as master batches of resins with graphene nanoplatelets pre-dispersed such that ~~may be~~their ~~mapped~~performance tohas abeen ~~variety~~optimized offor use in various end-use applications that may include industrial, automotive and packaging applications and which have demonstrated efficacy in ~~many~~standard ~~end~~injection molding, compression molding, blow molding and 3-~~use~~D ~~market~~processes, to ~~segments.~~name ~~While~~but wea ~~supply~~few. ~~bulk~~Our ~~materials~~current ~~consisting~~product portfolio of polymer resins containing various forms of our xGnP® graphene nanoplatelets and in varying concentration includes polyurethane (XGPU), polypropylene (XGPP), polyethylene terephthalate (XGPET), vinyl ester (XGVE), polyetherimide (XGPEI) and high-density polyethylene (XGHDPE). Other polymers may be added over time depending on the ~~form~~end-market ofand ~~dispersions~~customer ofneeds. ~~nanoplatelets~~In addition, we offer various bulk materials with demonstrated efficacy in ~~liquids~~plastic composites to impart improved physical performance to such matrices, which may be supplied as ~~water, alcohol~~dry powders or ~~organic~~as ~~solvents~~aqueous-based or solvent-based dispersions or cakes, weas described previously. We have also ~~produce~~targeted ~~products~~use ~~that~~of ~~contain~~our graphene nanoplatelets as an additive in cement mixtures which we ~~refer~~believe toresults asin ~~integrated~~improved ~~products~~barrier resistance, durability, toughness and corrosion protection. We ~~have~~believe ~~done~~our ~~this~~GNP toConcrete Additive ~~further~~product ~~differentiate~~promotes ~~our~~the ~~products~~formation ~~from~~of ~~those~~more ~~potential~~uniform ~~suppliers~~and ~~offering~~smaller-grain ~~only~~cement structure, improving both flexural and compressive strength. In addition, we believe the embedded graphene nanoplatelets ~~in powder~~will stop cracks from forming and retard crack propagation, should any cracks form – the combination of which will further improve cement lifetime and durability.

~~Composites. Our composites,~~Inks ~~integrated-products portfolio includes resins derived from a range of thermoplastics~~ and ~~thermosets into which our xGnP® graphene nanoplatelets are compounded~~Coatings. These ~~products~~consist ~~are supplied as master batches~~ of ~~resins with graphene~~ ~~nanoplatelets~~specially ~~pre-dispersed~~formulated ~~such~~dispersions that their performance has been optimized for use in various end-use applications that may include industrial, automotive and sporting goods and which have demonstrated efficacy in standard injection molding, compression molding, blow molding and 3-D processes, to name but a few. Our current product portfolio of ~~polymer resins containing various forms of our~~ xGnP® ~~graphene~~together ~~nanoplatelets~~with ~~and in varying concentration includes polyurethane (XGPU)~~solvents, ~~polypropylene (XGPP)~~binders, ~~polyethylene terephthalate (XGPET), vinyl ester (XGVE), polyetherimide (XGPEI)~~ and ~~high-density polyethylene~~other ~~(XGHDPE).~~additives ~~Other polymers may be added over time depending on the end-market and customer needs. In addition, we offer various bulk materials with demonstrated efficacy in plastic composites~~ to ~~impart~~make ~~improved physical performance to such~~electrically ~~matrices,~~or ~~which~~thermally ~~may~~conductive beproducts ~~supplied~~designed asfor ~~dry~~printing ~~powders~~ or ~~as aqueous-based or solvent-based dispersions or cakes~~coating, asand ~~described previously. We have also targeted use of our graphene nanoplatelets as an additive in cement mixtures~~ which weare ~~believe~~showing ~~results~~promise in ~~improved barrier~~diverse ~~resistance,~~customer ~~durability,~~applications ~~toughness and corrosion protection. Our GNP Concrete Additive product promotes the formation of~~such ~~more~~as ~~uniform~~advanced ~~and smaller-grain cement structure~~packaging, ~~improving~~electrostatic ~~both~~dissipation ~~flexural~~ and ~~compressive~~thermal ~~strength~~management. In addition, the embedded graphene nanoplatelets will stop cracks from forming and retard crack propagation, should any cracks form – the combination of which will further improve cement lifetime and durability.

~~Inks and~~Energy ~~Coatings~~Storage Materials. These consist of ~~specially~~specialty ~~formulated~~advanced ~~dispersions~~materials ofthat ~~xGnP®~~have ~~together~~been ~~with solvents,~~formulated ~~binders,~~for ~~and~~specific ~~other~~applications ~~additives~~in tothe ~~make~~energy ~~electrically~~storage orsegment. ~~thermally~~We ~~conductive~~offer ~~products~~various ~~designed~~bulk materials for ~~printing~~use oras ~~coating and~~conductive ~~which~~additives ~~are showing promise~~ in ~~diverse~~lithium-ion ~~customer~~batteries, ~~applications such~~ as ~~advanced packaging, electrostatic dissipation and thermal management. We also offer~~ a ~~set~~component ofin ~~standardized~~coatings ~~ink formulations suitable~~ for ~~printing.~~current ~~These~~collectors ~~inks~~used ~~offer~~in ~~the capability to print~~lithium-ion ~~electrical~~batteries ~~circuits or antennas~~ and ~~may~~we beare ~~suitable~~investigating ~~for~~the ~~other~~use ~~electrical~~of orour ~~thermal~~materials ~~applications~~as ~~and~~part ~~can~~of beother ~~further~~energy-storage ~~customized for specific customer requirements~~components.

~~Energy Storage~~Thermal Management Materials. These consist mainly of ~~specialty~~various ~~advanced~~thermal interface materials ~~that~~(“TIM’s”) ~~have~~in ~~been~~the ~~formulated~~form ~~for~~of ~~specific applications~~custom ingreases ~~the~~or ~~energy storage segment~~pastes. WeOur ~~offer~~custom ~~various~~thermal ~~bulk~~interface materials ~~for~~are ~~use~~also asdesigned ~~conductive~~to ~~additives~~be ~~for~~used ~~cathodes~~in ~~and~~various ~~anodes~~high intemperature ~~lithium-ion~~environments. ~~batteries~~Additionally, aswe ~~additives~~offer tovarious ~~anode~~bulk ~~slurries~~materials for ~~lead-carbon~~use ~~batteries,~~ as aactive ~~component~~components in ~~coatings~~adhesives, ~~for~~liquids, ~~current~~coatings ~~collectors~~and ~~used~~plastic incomposites ~~lithium-ion~~to ~~batteries~~impart ~~and~~improved wethermal ~~are~~management ~~investigating~~performance ~~the~~to ~~use~~such ~~of our materials as part of other energy-storage components~~matrices.

~~Thermal Management Materials. These consist mainly of various thermal interface materials (“TIM’s”) in the form of custom greases or pastes.~~ Our ~~custom~~Focus thermal interface materials are also designed to be used in various high temperature environments. Additionally, we offer various bulk materials for use as active components in adhesives, liquids, coatings and plastic composites to impart improved thermal management performance to such matrices.Areas

~~Our~~We prioritize our efforts ~~Focus~~in ~~Areas~~specific areas and with specific customers that we believe represent opportunities for either relatively near-term revenue or especially large and attractive markets. At this time, we are focused on three key vertical markets: Automotive, Packaging and Industrial. The following graphic provides examples of target applications within each of the three key verticals where XG Sciences has either commercial sales or is in development with one or more customers. We expect to focus our sales, research, and production resources on these verticals as the market for graphene further develops.

~~We prioritize~~XGS ~~our~~Market/Application ~~efforts~~Focus in specific areas and with specific customers that we believe represent opportunities for either relatively near-term revenue or especially large and attractive markets. At this time, we are focused on four key vertical markets: Automotive, Sporting Goods, Packaging and Industrial. The following graphic provides examples of target applications within each of the four key verticals where XG Sciences has either commercial sales or is in development with one or more customers.Areas

~~XGS Market/Application~~Addressable ~~Focus Areas~~Markets

~~Addressable~~The markets for our materials are large and ~~Markets~~growing. As one example, the 2019 North American packaging market for plastic bottles and containers was estimated to be more than $34 billion (Mordor Intelligence). Further, Mordor estimated the 2019 global market for PET water bottles at 543.8 billion units. XG Sciences is engaged with customers in North America targeting the use of xGnP® graphene nanoplatelets in a range of packaging applications, including water bottles. Another example is for use in tires where graphene-based products may bring significant advancements. A typical tire is a composite of several parts: sidewalls, inner liner and the tire tread - which itself is a rubber component comprising a steel chord reinforcement of a particulate-reinforced rubber network. If one considers that the tire tread is the only part of the vehicle’s contact with the road, it becomes apparent that all sources of energy dissipation are via the tread material and will have a major influence on total performance such as handling, fuel efficiency and braking performance. Data are starting to show that incorporation of graphene nanoplatelets into the production of a tire tread can significantly impact the rolling resistance and abrasion resistance, both of which will result in improved fuel efficiency and tire lifetime. These performance attributes also seem to come with improvements in such properties as tear strength and tensile performance, allowing formulators to target a wide range of passenger vehicle, truck and off-road applications. Based on data from the European Rubber Journal (January 9, 2019, and according to the International Rubber Study Group), the 2019 global rubber market used in tires is estimated at 30 million metric tons. If graphene is used in only 20% of tires and adopted at 1 weight percent based on the rubber content, then the demand could easily exceed 60,000 metric tons for graphene-related materials.

The markets for our materials are large and growing. As one example, the 2019 North American packaging market for plastic bottles and containers was estimated to be more than $34 billion (Mordor Intelligence). Further, Mordor estimated the 2019 global market for PET water bottles at 543.8 billion units. XG Sciences is engaged with customers in North America targeting the use of xGnP® graphene nanoplatelets in a range of packaging applications, including water bottles, and we are expanding our market activities into other geographies. If each water bottle produced in 2019 were to incorporate just 1 milligram of xGnP® graphene nanoplates, the total revenue available to XG Sciences may range from $200 to $300 million, depending on product form. A second example is for use in tires where graphene-based products may bring significant advancements. A typical tire is a composite of several parts: sidewalls, inner liner and the tire tread - which itself is a rubber component comprising a steel chord reinforcement of a particulate-reinforced rubber network. If one considers that the tire tread is the only part of the vehicle’s contact with the road, it becomes apparent that all sources of energy dissipation are via the tread material and will have a major influence on total performance such as handling, fuel efficiency and braking performance. Data are starting to show that incorporation of graphene nanoplatelets into the production of a tire tread can significantly impact the rolling resistance and abrasion resistance, both of which will result in improved fuel efficiency and tire lifetime. These performance attributes also seem to come with improvements in such properties as tear strength and tensile performance, allowing formulators to target a wide range of passenger vehicle, truck and off-road applications. Based on data from the European Rubber Journal (January 9, 2019 and according the International Rubber Study Group), the 2019 global rubber market used in tires is estimated at 30 million metric tons. If graphene is used in only 20% of tires and adopted at 1 weight percent based on the rubber content, then the demand could easily exceed 60,000 metric tons for graphene-related materials. In a third example, there is an industry-wide need to continue to drive light weighting in vehicles. The primary objective is to save on fuel consumption for cars still using internal combustion engines, but also to extend drive time for emerging electrical vehicles. Data from the Department of Energy (“Materials Technologies: Goals, Strategies, and Top Accomplishments”, Department of Energy, Vehicle Technologies Program, August 2010) indicate that in 1977, conventional steel comprised 75% of the materials used in the manufacture of an auto. By 2010, that number was reduced to about 65% with a significant increase in high-strength steel, aluminum and polymer composites. In order to meet the industry light-weighting targets, it is estimated that by 2035, polymer composite usage will increase to 20% of all materials. Improvements to today’s composite materials are needed for this to occur and graphene nanoplatelets are a good candidate to enable the broad adoption of polymer composites for use in automotive manufacture. In 2018, 71 million cars were produced globally (Estimated Worldwide automobile production, Statista.com). If we assume an average car weights 1500 kilograms (DOE ~~Lightweighting~~Light weighting Efforts for Sustainable Transportation”, 2nd ~~Lightweighting~~Light weighting summit, March 5, 2015) and based on DOE estimates (“Materials Technologies: Goals, Strategies, and Top Accomplishments”, Department of Energy, Vehicle Technologies Program, August 2010), approximately 100 kilograms is comprised of polymers/composites (and certainly the potential for more in the future), and if graphene-related products were to be adopted at just 1 weight percent, then there is the potential demand of over 71,000 metric tons for graphene-related materials.

Commercialization Process

Because graphene is a new material, most of our customers are still developing applications that use our products. Commercialization is a process, the exact timing of which is often difficult to predict. It starts with our own internal R&D to validate performance for an identified market or customer-specific need. Our customers then validate the performance of our materials and determine whether our products can be incorporated into their manufacturing processes. This is initially done at pilot production scale levels. Our customers then introduce products incorporating our materials to their own customers to further validate performance. After their customers have validated performance, our customers will then move to commercial scale production. Every customer goes through the same process, but will do so at varying speeds, depending on the customer, the product application and the end-use market. Thus, we are not always able to predict when our customers will begin ordering commercial volumes of our materials or predict their expected volumes over time. However, as customers move through the process, we generally receive feedback and gain greater insights regarding their commercialization plans. According to our respective customers, the following are just some examples of where our products are providing value to our customers at levels that are either in commercial production or we believe will warrant their use on a commercial basis:

●The Inprocess ~~2018,~~of ~~Callaway~~“designing-in” ~~Golf~~new materials ~~Company~~is ~~introduced~~relatively complex and involves the use of relatively small amounts of the new ~~dual-core~~material ~~Chrome~~in ~~Soft~~laboratory and ~~Chrome~~engineering development ~~Soft~~for Xan ~~golf~~extended ~~balls~~period. ~~incorporating~~Following ~~our~~successful ~~xGnP®~~development, ~~graphene~~customers ~~nanoplatelets~~that incorporate our materials into ~~the~~their ~~outer~~products will ~~core~~then order much larger quantities of material to support commercial production. Although, ~~resulting~~our incustomers aare ~~new~~under ~~class~~no obligation to report to us on the usage of ~~golf~~our ~~ball~~materials, some have indicated that ~~enables~~they ~~higher~~have ~~driving~~introduced ~~speeds,~~or ~~greater~~will ~~distance~~soon ~~and~~introduce ~~increased~~commercial products ~~control,~~that ~~which~~use isour ~~allowing~~materials. ~~Callaway~~Thus, towhile ~~command~~many aof ~~premium~~our ~~price~~customers ~~for~~are ~~their~~currently ~~golf~~purchasing ~~balls~~our materials in ~~the~~kilogram ~~marketplace~~quantities, some have begun to purchase at multiple ton quantities, and inwe ~~2019~~believe ~~expanded~~many ~~the~~will ~~technology~~require totens of tons or even hundreds of tons of material as they commercialize products that incorporate our ~~xGnP®~~materials. We also believe that those customers already in production will increase their order volume as demand increases and others will begin to move into ~~the~~commercial ~~E·R·C~~volume ~~Soft~~production ~~line~~as ofthey ~~golf~~gain more ~~balls;~~experience in working with our materials and engage new customers.

● Ford Motor Company for polyurethane based foams for use in Ford and Lincoln light truck and passenger car, demonstrating a 17 percent enhancement in Noise, Vibration and Harshness (NVH) sound absorption, a 20 percent improvement in mechanical properties and a 30 percent improvement in heat endurance properties, compared with that of the foam used without graphene; and6

●Our ~~Light~~Intellectual emitting diode module and product company demonstrated approximately 50% improvement in thermal management capability when compared to existing commercial thermal management products, translating into a 15% improvement in thermal management at the device level; andProperty

●We ~~Lead~~have ~~acid~~acquired ~~battery~~a ~~manufacturers~~non-exclusive ~~incorporating~~license ~~our~~for certain ~~materials~~inventions from Michigan State University. These rights are embodied in a Technology Licensing Agreement between XGS and Michigan State University dated July 27, 2007, amended on May 24, 2010, and May 27, 2011, and amended and restated on June 23, 2020 which provides us the ~~commercial~~non-exclusive ~~supply~~worldwide ofrights ~~batteries~~to ~~demonstrating~~the ~~improvements~~patents as defined in ~~measured~~the ~~cycle~~Agreement ~~life~~for application in the Composite, Energy ~~capacity~~Storage, Specialty Liquids, and ~~charge~~other ~~acceptance;~~fields which may be applicable. In exchange for the rights to the technology covered by this Agreement, we paid MSU an initial fee and agreed to pay ongoing royalties on material sold by us in future years. Under a previous version of the Licensing Agreement, we also awarded a small amount of common stock to MSU. As of December 30, 2020, the following technologies were included in the MSU License Agreements with XGS: U.S. Patent 7,550,529, U.S. Patent 8,501,858, U.S. Patent 8,834,959, U.S. Patent 9,080,122, and U.S. Patent 9,776,874.

●On UAugust 8, 2016, we signed an agreement acquiring an exclusive license with Metna Co.S. ~~bottling~~(Metna) ~~company~~to ~~adopting~~Metna’s ~~commercial~~background IP for use of ~~our~~ graphene nanoplatelets inas ~~PET~~additives ~~water~~to ~~bottles~~concrete mixtures. toFor ~~improve~~purposes ~~modulus~~of ~~(10%~~the ~~with~~agreement, ~~minimal~~Metna’s ~~affect~~background IP relates to ~~color~~the ~~and~~U.S. upPatent to8,951,343. ~~200%~~Also, ~~with~~on ~~color~~August ~~change)~~8, ~~shelf~~2016, we ~~life~~entered ~~and~~into ~~energy~~a ~~savings~~second ~~during~~agreement ~~processing;~~for an exclusive license related to all Metna’s background technology and foreground technology, including any jointly owned foreground technology where the end use is known to be any graphite additive dispersed in concrete mixtures.

●Over ~~Plastics~~time, ~~composite~~our ~~part~~scientists ~~manufacturer~~and ~~demonstrating~~engineers 7have made many further discoveries and inventions that, as of December 31, 2020, are embodied in the form of nineteen (19) additional U.S. patents, twenty-~~30%~~five ~~improvement~~(25) foreign patents, twelve (12) additional U.S. patent applications and numerous trade secrets. For many of the applications filed in ~~strength~~the U.S., additional filings are made in other countries such as the European Union, Japan, South Korea, China, Taiwan, or other applicable countries. As of December 31, 2020, we maintained twenty-three (23) international patent applications. These filings and ~~40%~~analyses ~~improvement~~are made on a case-by-case basis. Typically, patents that are defensive in ~~modulus~~nature are ~~when~~not ~~used~~filed abroad, while those that are protective of active XGS products or applications are filed in ~~sheet~~relevant ~~molding~~countries ~~compound;~~abroad. Our general IP strategy is to keep as trade secrets those manufacturing processes that are difficult to enforce should they be disclosed and to seek patent coverage for other manufacturing processes, materials derived from those processes, unique combinations of materials and end uses of materials containing graphene nanoplatelets. We believe that the combination of our rights under various licenses, our patents and patent applications, and our trade secrets create a robust intellectual property position.

● Plastic composite parts manufacturer demonstrating 25% increase in tensile strength and 15% improvement in flex modulus for a high-density polyethylene composite, and Plastics manufacturer demonstrating up to 25% increase in tensile modulus, 15% increase in tensile strength and 8x increase in puncture impact for nylon-based thermoplastics.7

~~The process~~Our ofLead “designing-in” new materials is relatively complex and involves the use of relatively small amounts of the new material in laboratory and engineering development for an extended period of time. Following successful development, customers that incorporate our materials into their products will then order much larger quantities of material to support commercial production. Although, our customers are under no obligation to report to us on the usage of our materials, some have indicated that they have introduced or will soon introduce commercial products that use our materials. Thus, while many of our customers are currently purchasing our materials in kilogram (one or two pound) quantities, some have begun to purchase at multiple ton quantities and we believe many will require tens of tons or even hundreds of tons of material as they commercialize products that incorporate our materials. We also believe that those customers already in production will increase their order volume as demand increases and others will begin to move into commercial volume production as they gain more experience in working with our materials and engage new customers.Investors

~~Commercialization~~Since inception ~~Trends~~and through January 29, 2021, we have raised approximately $50 million of capital through the issuance of equity and equity-linked securities, $4 million through licensing fees and $16.5 million through the issuance of certain senior debt obligations. Each of the entities below, after considerable due diligence, decided to take an equity position, license some of our technology or provided funding in the form of a secured loan. Notable investors and licensees in the Company are included in the funding history of the Company summarized below.

We are tracking the commercial and development status of more than 75 different customer applications using our materials with some customers pursuing multiple applications. As of December 31, 2019, we had twenty-two (22) specific customer applications where our materials are incorporated into our customers’ products and such customers are actively selling these products to their own customers. In addition, we have another seventeen (17) customer applications where our customers have indicated that they expect to begin shipping product incorporating our materials in the next 3 – 6 months and have another twenty-six (26) customer applications where our customers have indicated an intent to commercialize in the next 6 – 9 months. We are also working with numerous additional customers that have not yet indicated an exact date for commercialization, but we believe have the potential to contribute to meaningful revenue in 2020 and 2021. The following graphic demonstrates the commercialization trends over the past 8 fiscal quarters as an increasing number of customers indicate their intent to commercialize applications and move into actively selling or promoting products for future sales.

Timing	Investor Class	Amount
2006-2009	Angel Groups, HNW Individuals	$2 million
2010	Hanwha Chemical	$3 million
2010	ASC-XGS, LLC	$1.6 million
2011	POSCO	$4 million
2011	Cabot Corp	$4 million license agreement
2014	Samsung Ventures	$3 million
2014	POSCO pre-emptive rights	$1.2 million
2014/15	Aspen/XGS II	$10 million + $1 million lease
2015	Series B	$4.3 million
2016	Dow Chemical	$10 million senior credit facility
2016-2019	Public Offering	$21 million (including $3 million from Soulbrain)
2020	Convertible Debt	$3.9 million
January 2021	Convertible Debt	$2.5 million

~~(a)~~Our ~~Customer~~Competitive ~~applications where our materials are used in customer products and they are actively selling them to their customers or actively promoting them for future sales.~~Strengths

~~(b)~~We ~~Customer~~believe ~~applications~~that ~~where~~we ~~our~~are ~~customers~~a ~~are~~leader ~~indicating~~in ~~that~~the ~~they~~emerging global ~~expect~~market tofor ~~begin~~graphene ~~shipping~~nanoplatelets. ~~products~~The ~~incorporating~~following ~~our~~competitive ~~materials~~strengths indistinguish ~~the~~us ~~next~~in ~~3-6~~our ~~months.~~industry:

~~(c)~~Our ~~Customer~~know-how and ability to tailor our products for use in multiple applications. Many ~~where~~of our ~~customers~~products and product-development activities target use of our xGnP® graphene nanoplatelets in various matrices to form composite products that are ~~indicating~~then anused ~~intent~~by our customers. We believe we have extensive knowledge of how to ~~commercialize~~tailor our products to deliver performance as composite products in ~~the~~various ~~next~~applications. 6We also believe that we have knowledge of how to tailor our products for a range of other end-9use ~~months~~markets and applications that may include: 3-D printing, anti-corrosive coatings, automotive coatings, thermally conductive adhesives, thermal interface materials/compounds, tires and thermal coatings.

~~Our~~The breadth ~~Intellectual~~of ~~Property~~our intellectual property. Because of our focus on manufacturing process development, we believe we have one of the most extensive internal knowledge bases in graphene nanoplatelet manufacturing, with most of our proprietary knowledge maintained as trade secrets to avoid the disclosures required by patenting. The forty-one (41) U.S. patents and patent applications that we are currently managing (including those under license from MSU and Metna) and twenty-eight (28) international patents and patent applications add value by protecting specific equipment, or high-value end-user product applications.

~~Some~~The low-cost nature of our ~~proprietary~~ manufacturing processes ~~were developed at Michigan State University (MSU) and licensed to us in 2006~~. We ~~license~~believe ~~three~~our ~~U.S.~~manufacturing ~~patents and~~processes ~~patent~~will ~~applications~~be ~~from~~among MSU. On August 8, 2016, we signed an agreement acquiring an exclusive license with Metna Co. (Metna) to Metna’s background IP for use of graphene nanoplatelets as additives to concrete mixtures. For purposes of the ~~agreement, Metna’s~~lowest-cost ~~background~~approaches ~~IP relates~~ to the ~~U.S. Patent 8,951,343. Also, on August 8, 2016, we entered into a second agreement~~manufacturing for an exclusive license related to all Metna’s background technology and foreground technology, including any jointly owned foreground technology where the end use is known to be any graphite additive dispersed in concrete mixtures. On April 25, 2019 we signed an Intellectual Property License, Joint Development and Commercialization Agreement with Niagara Bottling acquiring exclusive license to certain of ~~Niagara’s patents and applications relating to the use of~~ graphene nanoplatelets inonce ~~packaging applications. For~~we ~~purposes~~achieve economies of ~~the~~scale ~~agreement,~~based ~~Niagara’s~~on ~~IP relates to five (5) U.S. patents and patent applications and two (2) international applications. Over time,~~ our ~~scientists~~internal ~~and~~modelling ~~engineers have made many further discoveries and inventions that, as~~ of ~~December~~competitive ~~31,~~processes 2019, are embodied in the form of : seventeen (17) additional U.S. patents, twenty-three (23) foreign patents, twelve (12) additional U.S. patent applications and numerous trade secrets. For many of the applications filed in the U.S., additional filings are made in other countries such as ~~the~~well European Union, Japan, South Korea, China, Taiwan or other applicable countries. As of December 31, 2019, we maintained twenty-three (23) international patent applications. These filings and analyses are made on a case-by-case basis. Typically, patents that are defensive in nature are not filed abroad, while those that are protective of active XGS products or applications are filed in relevant countries abroad. Our general IP strategy is to keep as ~~trade~~our ~~secrets~~analysis those manufacturing processes that are difficult to enforce should they be disclosed and to seek patent coverage for other manufacturing processes, materials derived from those processes, unique combinations of ~~materials~~alternative ~~and end uses of materials containing graphene nanoplatelets~~technologies. ~~We believe that the combination of our rights under various licenses, our patents and patent applications, and our trade secrets create a robust intellectual property position.~~

7Our corporate partners. The Dow Chemical Company, or Dow, has extended $10 million in senior debt financing, of which we have drawn down $10 million as of December 31, 2020.

~~Our~~The number of development partners working with our materials. As ~~Manufacturing~~of ~~Capacity~~December 31, 2020, we had supplied materials to hundreds of universities or government laboratories in over 45 different countries around the world. We have also supplied our products to several other organizations for the purposes of commercial design and manufacture. These other organizations include, but are not limited to, Callaway Golf and DuPont Specialty Electronic Materials.

We completed the first phase of expansion in our 64,000 square-foot facility located in Mason, MI in the first half of 2018. The expansion has added 90 metric tons of graphene nanoplatelet production capacity, bringing the total capacity of the facility up to approximately 180 metric tons of dry powder. Phase two of the expansion was partially complete by year-end 2018 and resulted in up to ~270 metric tons of total graphene nanoplatelet output capacity at the facility. We completed the last portion of the Phase two expansion in the first half of 2019, resulting in up to ~400 metric tons of total graphene nanoplatelet output capacity. Manufacturing capacity is a function of product mix within a given facility. We make a range of products in our facilities that vary in their manufacturing time. It is therefore practical to consider capacity as an output range in order to reflect product mix. Our annual graphene nanoplatelet output capacity across both of our manufacturing facilities, as of December 31, 2019, ranged from approximately 225 metric tons up to approximately 450 metric tons. XG’s increasing graphene nanoplatelet capacity will support the growing demand for our products over the next several fiscal quarters and will serve as input materials to integrated products containing our graphene nanoplatelets. However, additional manufacturing capabilities for certain value-added products and certain bulk materials remain to be developed and may require the acquisition of additional facilities. In particular, the production processes for certain integrated products will require additional capital and may require additional facilities to meet expected future customer demand. 9

Some of the Company’s products are new products that have not yet been fully developed and for which manufacturing operations have not yet been fully scaled. Although we believe we will continue to scale our production capability and revenue in 2020, for some target products we have not yet demonstrated the capability to produce sufficient materials to generate the ongoing revenues necessary to sustain our operations in the long-term. For other target products, we have demonstrated sufficient scale to reach revenue and profits resulting in cash positive status, however, the impact of COVID-19 on our customer’s production plans and the ability for those customer with whom we are in development to introduce new products, may impact our ability to meet our commercial targets for the foreseeable future. For additional information please see “Risk Factors” herein.Employees

~~Our~~As of December 31, 2020, we had 24 full-time employees ~~Lead~~and ~~Investors~~ 2 contract employees. Employees include the following three senior managers who report to the CEO: the Chief Financial Officer, the Chief Commercial Officer and the Chief Technologist. The Company employs a total of 7 full-time scientists and technicians in its R&D group, including the Chief Technologist.

~~Since inception~~Corporate and through December 31, 2019, we have raised approximately $50 million of capital through the issuance of equity and equity-linked securities, $4 million through licensing fees and $10 million through the issuance of certain lease and senior debt obligations. Each of the entities below, after considerable due diligence, decided to take an equity position, license some of our technology or provided funding in the form of a secured loan. Notable investors and licensees in the Company are included in the funding history of the Company summarized below.Information

Timing	Investor Class	Amount
2006-2009	Angel Groups, HNW Individuals	$2 million
2010	Hanwha Chemical	$3 million
2010	ASC-XGS, LLC	$1.6 million
2011	POSCO	$4 million
2011	Cabot Corp	$4 million license agreement
2014	Samsung Ventures	$3 million
2014	POSCO pre-emptive rights	$1.2 million
2014/15	Aspen/XGS II	$10 million + $1 million lease
2015	Series B	$4.3 million
2016	Dow Chemical	$10 million senior credit facility
2016-2019	Public Offering	$21 million (including $3 million from Soulbrain)

XG Sciences, Inc. was incorporated on May 23, 2006, in the State of Michigan and is organized as a “C” corporation under the applicable laws of the United States and State of Michigan. We do not currently have any affiliated companies or joint venture partners, and we have one wholly owned subsidiary called XG Sciences IP, LLC. This subsidiary was created in 2014 for the purpose of holding our intellectual property. Our headquarters and principal executive offices are located at 3101 Grand Oak Drive, Lansing, Michigan, 48911 and our telephone number is (517) 703-1110. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act are available free of charge through our website as soon as reasonably practicable after we electronically file with or furnish them to the SEC and are available in print to any stockholder who requests a copy.

8Our website address is http://www.xgsciences.com, although the information contained in, or that can be accessed through, our website is not part of this filing. Additionally, the SEC maintains a website that contains reports, proxy statements, information statements and other information regarding issuers, including us, that file electronically with the SEC at www.sec.gov.

~~Our Competitive Strengths~~10

~~We believe~~ITEM ~~that we are a leader in the emerging global market for graphene nanoplatelets~~1A. ~~The~~RISK ~~following competitive strengths distinguish us in our industry:~~FACTORS

~~Our know-how~~Risks ~~and~~Relating ~~ability~~ to ~~tailor~~Our ~~our~~Business ~~products for use in multiple applications. Many of our products~~ and product-development activities target use of our xGnP® graphene nanoplatelets in various matrices to form composite products that are then used by our customers. We have extensive knowledge of how to tailor our products to deliver performance as composite products in various applications and we also have knowledge of how to tailor other components of a composite to adjust the performance of the composite for use in various applications. We also have knowledge of how to tailor our products for a range of other end-use markets and applications that may include: 3-D printing, anti-corrosive coatings, automotive coatings, thermally conductive adhesives, thermal interface materials/compounds, tires, thermal coatings and sporting goods equipment.Industry

~~The strength~~If ~~of our intellectual property. Because of our focus on manufacturing process development,~~ we ~~believe~~are weunable ~~have one~~to ofcontinue ~~the world’s strongest internal knowledge bases in graphene nanoplatelet manufacturing, with most of our proprietary knowledge maintained~~ as ~~trade~~a ~~secrets to avoid the disclosures required by patenting. The thirty-three (33) U.S. patents and patent~~going ~~applications~~concern, ~~that~~ we ~~are~~may ~~currently~~be ~~managing~~forced ~~(including~~to ~~those~~curtail ~~under license from MSU and Metna) and thirty-seven (37) international patents and patent applications add value by protecting specific equipment,~~ or ~~high-value~~cease ~~end-user product applications~~operations. ~~The fact that two global companies have evaluated and licensed certain aspects of our production technology provides independent evidence of our technology’s effectiveness.~~

The ~~breadth~~ report of our ~~product~~independent ~~offering. To~~registered public accounting firm that accompanies our ~~knowledge,~~consolidated wefinancial ~~have~~statements for the ~~broadest~~year ~~product~~ended ~~offering~~December 31, 2020, contains a going concern qualification in which such firm expressed substantial doubt about our ~~industry~~ability to continue as a going concern. InWe ~~addition~~believe that we will need to ~~offering~~raise ~~four~~at ~~standard~~least ~~grades~~$4,000,000 - $6,000,000 of ~~bulk~~additional ~~graphene~~capital ~~nanoplatelet~~to ~~materials~~continue our operations for the next twelve months in a ~~range~~minimal ofto ~~diameters~~no ~~and~~revenue ~~surface~~growth ~~areas,~~environment. weOur ~~offer~~continuation ~~three~~as a going concern is dependent upon continued financial support ~~standard~~from ~~ink~~our ~~formulations~~shareholders, ~~resistive~~our ~~heating~~ability ~~formulations~~to obtain necessary equity and/or ~~optional~~debt ~~custom~~financing ~~dispersions~~to ~~and~~continue ~~formulations~~operations, ofand ~~our~~growth ~~bulk~~in ~~materials.~~revenue Wefrom ~~also~~operations. ~~offer~~These anfactors XGraise ~~TIM®~~substantial ~~thermal~~doubt ~~interface~~regarding ~~material~~our ~~and~~ability ato ~~GNP®~~continue ~~Cement~~as ~~Additive~~a ~~product~~going concern. We ~~also offer~~cannot ~~polymer~~make ~~resins~~any assurances ~~containing~~that ~~various~~additional ~~forms~~financings ofwill ~~our~~be ~~xGnP®~~available ~~graphene~~to ~~nanoplatelets~~us and, inif ~~varying~~available, ~~concentration and~~completed ~~including~~on ~~polyurethane~~a ~~(XGPU)~~timely basis, ~~polypropylene~~on ~~(XGPP),~~acceptable ~~polyethylene~~terms or ~~terephthalate~~at ~~(XGPET),~~all. ~~vinyl~~If ~~ester (XGVE)~~we are unable to complete an equity or debt offering, ~~polyetherimide~~or ~~(XGPEI)~~otherwise obtain sufficient financing when and ~~high-density~~if ~~polyethylene~~needed, it ~~(XGHDPE).~~would ~~Other~~negatively ~~polymers~~impact ~~may~~our bebusiness ~~added~~and ~~over~~operations. ~~time depending~~It oncould also lead to the ~~end-market~~reduction or suspension of our operations and ultimately ~~customer~~force ~~needs~~us to cease our operations.

~~The~~We ~~low-cost~~will ~~nature~~need ofto ~~our~~raise ~~manufacturing~~substantial additional ~~processes. We~~capital ~~believe~~in ~~our~~the ~~manufacturing~~near ~~processes~~future ~~are~~to ~~among~~fund ~~the~~our ~~lowest-cost~~operations ~~approaches~~and towe ~~the~~may ~~manufacturing~~be ~~graphene nanoplatelets~~unable ~~(subject~~ to ~~economies~~raise ofsuch ~~scale)~~funds ~~based~~when needed and on ~~our~~acceptable ~~internal~~terms. Failure ~~modelling~~to ofraise ~~competitive~~such ~~processes~~additional asfunding ~~well~~would ashave ~~our~~a ~~analysis of~~materially ~~alternative~~adverse ~~technologies~~effect on our business.

~~Our~~Developing, manufacturing and selling nanomaterials ~~corporate~~in ~~partners~~commercially viable quantities requires substantial funding. ~~Four~~ We ~~global~~intend ~~corporations~~that ~~(Samsung,~~the ~~POSCO,~~primary ~~Soulbrain~~means for raising funds will be through equity and ~~Hanwha~~debt ~~Chemical)~~offerings ~~have~~that ~~invested~~may ~~over~~include ~~$14~~private placement with one or more strategic investors, offering of shares ~~million~~of common stock to the public through a self-underwritten offering or through an underwritten offering with a bank in ~~XGS,~~parallel with ~~giving~~a uslisting on a ~~significant~~Qualified ~~global~~National ~~reach~~Exchange. asThere ~~well~~can asbe ~~the~~no ~~ability~~assurance that we will be able to ~~leverage~~raise additional equity capital in subsequent equity offerings or that the ~~assets~~terms and conditions of any future financings will be workable or acceptable to us and our ~~partners~~stockholders. InOur ~~addition, The~~continuation ~~Dow~~as ~~Chemical~~a ~~Company,~~going orconcern ~~Dow~~is dependent upon continued financial support from our shareholders, our ~~has~~ability ~~extended~~to ~~$10~~obtain ~~million~~necessary inequity ~~senior~~and/or debt financing to continue operations, and the attainment of ~~which~~profitable operations. In the event that we ~~have~~are ~~drawn~~not ~~down~~able $9to ~~million~~raise assubstantial additional funds in the near future with terms that are acceptable, or ofadjust ~~December~~our 31business model accordingly, ~~2019~~we may be forced to curtail or cease operations.

~~Our licensees~~A ~~should accelerate our entry into large markets. Cabot Corporation~~pandemic, ~~the~~epidemic ~~largest~~or ~~U.S.-based~~outbreak ~~manufacturer~~ of ~~carbon~~an infectious ~~particles~~disease, ~~and~~including ~~POSCO,~~COVID-19 ~~one~~in of the ~~world’s~~markets ~~largest~~in ~~steel~~which ~~producers,~~we ~~have~~operate ~~licensed~~or ~~parts~~that ofotherwise ~~our~~impacts ~~production technology. We believe these licensees will help us distribute~~ our ~~products~~facilities ~~and~~or ~~value-added products made with our xGnP® nanoplatelets~~suppliers ~~more rapidly than we~~ could doadversely onimpact our ~~own~~business.

~~The~~We expect that a pandemic, epidemic, or outbreak ~~number~~of an infectious disease could affect our markets, facilities, customers and employees, and our business could be adversely affected in the future. Consequences of ~~development~~the ~~partners~~current ~~that~~COVID-19 pandemic are ~~working~~resulting ~~with~~in disruptions in or restrictions on our ~~materials. As~~employees’ ability to travel and the ability of ~~December~~manufacturers, 31including many of our customers, to maintain normal operations. If an infectious ~~2019~~disease or COVID-19 broke out at our facilities, or if, due to governmental or other restrictions, our facilities are unable to operate for an extended period, our operations may be affected significantly, our productivity may be affected, our ability to complete projects in accordance with our contractual obligations may be affected, and our ability to manufacture and sell our graphene nanoplatelets may be hindered. If the suppliers that we ~~had~~rely ~~supplied~~on for raw materials and other supplies to ~~303~~conduct ~~universities~~operations are affected by an infectious disease or ~~government~~COVID-19, ~~laboratories~~we inmay 41not ~~different~~be ~~countries~~able ~~around~~to fill orders that are received or our cost of sales may increase, and our financial position may suffer. If our customers are affected by an infectious disease or COVID-19, orders for our products may be delayed or cancelled, and our financial position may suffer. Further, COVID-19 may continue to cause disruption to the ~~world~~U.S. economy, Weor the economies of the markets in which we operate such as China and South Korea, and cause shortages of materials, labor ~~also~~and ~~supply~~transportation which could affect our ~~products~~customers’ ability to produce finished products utilizing our graphene nanoplatelets, affect production capacity and business confidence, or cause economic changes that we cannot anticipate. Overall, the potential impact of a ~~number~~pandemic, epidemic or outbreak of ~~other~~an ~~organizations~~infectious disease with respect to our markets or our facilities is difficult to predict and could continue to adversely impact our business for ~~the~~an ~~purposes~~indefinite period of ~~commercial~~time. ~~design~~In response to the COVID-19 situation, federal, state and ~~manufacture.~~local ~~These~~governments (or other governments or bodies in markets in which we operate) have placed restrictions on ~~organizations~~travel ~~include~~and ~~3M,~~conducting ~~Amazon~~or operating business activities. At this time, ~~BASF~~those restrictions are very fluid and evolving, ~~Callaway~~and ~~Golf~~when such restrictions will be lifted is unknown. We have been and will continue to be impacted by those restrictions. Given that the type, ~~Dow~~degree ~~Chemical~~and length of such restrictions are not known at this time, ~~Ford~~we ~~Motor~~cannot ~~Company~~predict the overall impact of such restrictions on us, LGour ~~Chem~~customers, ~~Michelin~~our employees, ~~Niagara~~our ~~Bottling~~supply and distribution chains, others that we work with or the overall economic environment. ~~PPG~~As such, ~~Raytheon~~the impact these restrictions may have on our financial position, ~~Samsung~~operating results and liquidity cannot be reasonably estimated at this time, ~~Sherwin~~but we expect the impact to be material. In addition, due to the speed with which the COVID-~~Williams~~19 situation developed and ~~The~~continues ~~Boeing~~to ~~Company~~evolve, there is uncertainty around its ultimate impact on public health, business operations and the overall economy; therefore, the negative impact on our financial position, operating results and liquidity cannot be reasonably estimated at this time, but we expect the impact to be material.

~~The number~~We ofcould ~~commercial~~be ~~customers~~adversely ~~purchasing~~affected ~~and~~by ~~working with~~ our ~~materials. As of December~~ ~~31,~~exposure ~~2019, we have supplied materials~~ to ~~1,237~~customer ~~commercial~~concentration ~~companies around the world (in addition to universities and research laboratories) who are assessing their performance and potentially designing them into products~~risk. ~~We have more than 75 active development relationships where we are working with end-use customers to design products for commercial use. We believe that these relationships will continue to expand.~~

AsWe are subject to customer concentration risk as a result of ~~these~~our ~~factors,~~reliance weon ~~believe~~relatively XGfew ~~Sciences~~customers isfor a ~~leader~~significant portion of our revenues. We had one customer whose purchases accounted for 52% and 41% of revenue in the ~~emerging~~twelve ~~global~~months ~~market~~ended ~~for~~December ~~graphene~~31, ~~nanoplatelets~~2020, and 2019, respectively. ~~Other~~In 2020, we had two ~~independent~~customers ~~observers~~whose ~~have~~purchases ~~agreed~~accounted ~~with~~for ~~this~~75% ~~assessment~~of revenue. ~~For~~Due ~~example,~~to ~~Lux~~the ~~Research,~~nature inof aour ~~January~~business ~~2019~~and ~~summary~~the ~~stated~~relatively ~~“XG Sciences,~~large ~~while~~size ~~still~~of inmany of the ~~red~~applications our customers are developing, ~~now~~we ~~has~~anticipate that we will be dependent on a ~~clear~~relatively ~~path~~small tonumber ~~profitability;~~of itcustomers for isthe amajority ~~leader~~of inour ~~high~~revenues ~~quality~~for ~~graphene~~the next few years, and ~~clients~~if one or more of these customers does not place orders, there would ~~looking~~be toa ~~develop~~risk ~~novel~~of ~~graphene-containing~~significant ~~products~~loss ~~should~~of ~~consider~~future itrevenues, aswhich could in turn have a ~~partner~~material adverse effect on our business and on your investment.”

~~Self-Underwritten Offering~~11

WeDownturns ~~filed~~in a Registration Statement on Form S-1 (File No. 333-209131) with the SEC on April 11, 2016 which was declared effective by the SEC on April 13, 2016 (as amended, the “Registration Statement”). The Registration Statement registered up to 3,000,000 shares of common stock at a fixed price of $8.00 per share to the general ~~public~~economic inconditions acould ~~self-underwritten~~adversely ~~offering (the “Offering” or our “IPO”).~~affect Post-Effective Amendment No. 1 to the Registration Statement was declared effective August 26, 2016, Post-Effective Amendment No. 2 was declared effective August 31, 2016, Post-Effective Amendment No. 3 was declared effective January 17, 2017, and Post-Effective Amendments No. 4 and No. 5 were dated April 12, 2017 and were declared effective April 14, 2017. Post-Effective Amendment No. 6 was declared effective June 26, 2018. The Offering terminated upon expiration of the Registration Statement on April 12, 2019. Although we have sold shares of our ~~common~~results ~~stock~~from ~~in our IPO pursuant to an effective Registration Statement, we have not yet listed any of our capital stock for trading or quotation on any exchanges or the over-the-counter bulletin board~~operations.

9Downturns in general economic conditions can cause fluctuations in demand for our products, product prices, volumes, and gross margins. Future economic conditions may not be favorable to our industry. A decline in the demand for our products or a shift to lower-margin products due to deteriorating economic conditions could adversely affect sales of our products and our results of operations and could also result in impairments of certain of our assets.

AsFurthermore, any uncertainty in economic conditions ofmay ~~December~~result ~~31,~~in ~~2019,~~a slowdown to the ~~Company~~global ~~sold~~economy ~~2,615,425~~that ~~shares~~could ~~under~~affect our business by reducing the ~~Registration~~prices ~~Statement~~that atour acustomers ~~price~~may ofbe able ~~$8.00~~or ~~per~~willing ~~share~~to pay for ~~proceeds~~our products or by reducing the demand for our products. Due to our customer concentration risk, the loss of ~~$20~~one or more of our large customers could significantly affect our business,~~923,400~~ operating results and financial condition.

~~Pursuant~~We tohave ~~the~~a ~~Certificate~~limited ofoperating ~~Designation for our Series A Preferred Stock~~history, ~~as amended (“Series A Stock”), and our Series B Preferred Stock, as amended (“Series~~ Ban ~~Stock”),~~accumulated ~~all~~deficit ~~then-outstanding shares of Series A Stock~~ and ~~Series~~a ~~B Stock will automatically convert into shares of common stock upon (i) the listing of the Company~~stockholders’s ~~common stock on a Qualified National Exchange (a securities exchange registered with the SEC under Section 6(a) of the Securities Exchange Act of 1934~~deficit, as amended “Exchange Act”), such as the NASDAQ Capital Market or the New York Stock Exchange, or (ii) the quotation of our common stock on the OTCQB or OTCQX marketplaces operated by OTC Markets Group, Inc. (“OTC Markets”), and the act of achieving such listing or quotation is referred to hereafter as a “Public Listing” in this report. As a result, there will only be one class of equity securities outstanding — common stock — after we ~~achieve a Public Listing, because there will be no other series of preferred stock issued and outstanding at such time. Prior to any such listing, the Series A Stock and Series B Stock~~ may benever ~~voluntarily~~become ~~converted~~profitable ~~into~~which ~~shares~~could ofcause ~~common stock~~us at the then-current conversion rate for each series of Preferred Stock (current rate is 1.875 shares of common stock for 1 share of Series A Stock and 1 share of common stock for 1 share of Series B Stock). While there are no definitive plans to ~~do a~~cease ~~Public Listing as of the date of this report, the Company targets achieving a Public Listing in the next 24 months, market conditions permitting~~operations.

~~Public~~XG Sciences, Inc. was incorporated on May 23, ~~Listing~~2006, and is an advanced materials company. We sell bulk nanomaterials or products made with these materials to other companies for incorporation into their products. To date, there has been limited incorporation of our materials or products into customer products that are released for commercial sale. Because there is a limited demonstrated history of commercial success for products containing graphene, our products may never be successful in the market. It is possible that larger and or extended commercial success may never happen and that we will never achieve the level of revenues necessary to sustain our business or continue to attract additional financing. Many of our products represent new products that have not yet been fully developed and for which manufacturing operations have not yet been fully scaled.

InAs ~~order~~of toDecember ~~achieve~~31, a2020, ~~Public~~and ~~Listing~~December 31, 2019, we ~~will~~ have toan ~~meet~~accumulated ~~certain~~deficit ~~initial~~from ~~listing~~operations ~~qualifications~~ of ~~the~~$72,682,876 ~~Qualified~~and ~~National~~$65,581,128, ~~Exchange~~respectively. orAs ~~the~~of ~~OTC~~December ~~Markets~~31, on2020, ~~which~~and weDecember ~~are~~31, ~~seeking~~2019, ~~the~~our ~~Public~~total ~~Listing.~~stockholder’s Inequity ~~addition~~was $(7,682,537) weand ~~will~~$(2,146,797), ~~need~~respectively. toThe ~~have~~deficit ~~market~~reflects ~~makers~~net ~~agree~~losses in toeach ~~make~~period asince ~~market in~~ our ~~common~~inception ~~stock~~incurred ~~and file~~through adevelopment ~~FINRA~~of ~~Form~~nanomaterials ~~15c211~~without ~~with~~ the ~~SEC~~presence onof ~~our~~large-scale ~~behalf~~adoption ~~before~~to generate wesubstantial ~~can~~revenues ~~achieve~~to acover ~~Public~~development ~~Listing,~~costs and wegenerate ~~will~~a ~~also~~profit. ~~need~~We tohave ~~remain~~never ~~current in~~paid ~~our~~a ~~quarterly~~dividend. ~~and~~Also, ~~annual~~since ~~filings~~inception, we ~~with~~have ~~the~~not ~~SEC.~~generated ~~Although~~sufficient werevenues ~~intend~~ to ~~seek~~cover aour ~~Public~~fixed ~~Listing,~~expenses weor ~~cannot~~sustain ~~make~~our business in any ~~assurances~~financial ~~that~~reporting period. ~~our~~Nor ~~common~~have ~~stock~~we ~~will~~demonstrated ~~ever~~the becapability ~~quoted~~to orproduce ~~traded~~sufficient onmaterials ato ~~Qualified~~generate ~~National~~the ~~Exchange~~ongoing orrevenues ~~the~~necessary ~~OTC~~to ~~Markets~~sustain orour operations ~~that~~in ~~any~~the ~~market~~long-term. ~~for~~There ~~our common~~can ~~stock~~be no assurance that we will ~~develop~~ever produce a profit.

~~Employees~~Because we are subject to these uncertainties, there may be risks that management has failed to anticipate. Our ability to become profitable depends primarily on our ability to successfully commercialize our products in the future. Even if we successfully develop and market our products, we may not generate sufficient or sustainable revenue to achieve or sustain profitability, which could cause us to further curtail or cease operations.

~~As of~~We ~~December~~have ~~31,~~limited ~~2019,~~experience wein ~~had~~the 39higher volume ~~full-time~~manufacturing ~~employees~~that ~~and~~will ~~2 part-time employees. 3 of these employees were contract employees who may generally~~ be ~~hired~~required asto ~~permanent~~support ~~employees~~profitable ~~after~~operations, 3and ~~– 6 months. Employees include~~ the ~~following~~risks ~~four~~associated ~~senior~~with ~~managers~~scaling ~~that report~~ to ~~the~~larger ~~CEO:~~production quantities ~~Chief~~may ~~Financial~~be ~~Officer,~~substantial ~~Chief~~and ~~Commercial~~our ~~Officer,~~business ~~Vice President of Operations~~ and ~~Chief~~results ~~Technologist. The Company employs a total~~ of 7operations ~~full-time~~could ~~scientists~~be ~~and~~negatively ~~technicians in its R&D group, including the Chief Technologist~~impacted.

~~Corporate~~We have limited ~~Information~~experience manufacturing our products. We have established initial commercial or pilot-scale production facilities for our bulk powders and certain integrated products. To develop the capacity to produce much higher volumes, it will be necessary to produce multiples of existing processes or engineer new production processes in some cases. If we are unable to expand our manufacturing processes, our business, and results of operations could be negatively impacted.

XG Sciences, Inc. was incorporated on May 23, 2006 in the State of Michigan and is organized as a “C” corporation under the applicable laws of the United States and State of Michigan. We do not currently have any affiliated companies or joint venture partners, and we have one wholly owned subsidiary called XG Sciences IP, LLC. This subsidiary was created in 2014 for the purpose of holding our intellectual property. Our headquarters and principal executive offices are located at 3101 Grand Oak Drive, Lansing, Michigan, 48911 and our telephone number is (517) 703-1110. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act are available free of charge through our website as soon as reasonably practicable after we electronically file with or furnish them to the SEC, and are available in print to any stockholder who requests a copy.12

~~Our website~~We ~~address~~have issignificantly ~~http://www.xgsciences.com,~~reduced ~~although~~our ~~the information contained in~~headcount, which orcould ~~that~~have ~~can~~a benegative ~~accessed~~impact ~~through,~~on our ~~website~~ isability ~~not~~to ~~part~~scale ofup ~~this filing. You may also contact Dr. Philip Rose,~~ our ~~Chief~~production ~~Executive~~process ~~Officer via email at p.rose@xgsciences.com. Additionally, the SEC maintains a website that contains reports, proxy statements, information statements~~ and ~~other~~we ~~information regarding~~may ~~issuers,~~have ~~including~~to ~~us,~~further ~~that~~curtail ~~file~~or ~~electronically with the SEC at www~~cease operations.~~sec.gov.~~

10Due to events in 2020 surrounding our business and the COVID-19 pandemic, in March of 2020, we restructured our organization by reducing headcount by 45%, by furloughing substantially all manufacturing employees, and by implementing temporary salary reductions ranging from 15-20% which resulted in a 38% reduction in annual payroll and related costs. In April 2020, we furloughed additional employees in our R&D and Engineering departments. We also reduced our annual cash run rate for all other expenses by 17%. Salary reductions remained in place until February 1, 2021. We expect that these actions could have a material impact on our ability to scale up our production processes, and there is no guarantee that we will be able to economically scale-up our production processes to the levels required. If we are unable to scale-up our production processes and facilities to support sustainable sales levels, the Company may be forced to further curtail or cease operations.

~~ITEM~~Projection of fixed monthly expenses and operating losses ~~1A. RISK~~for ~~FACTORS~~the near future may lead us to further curtail or cease operations.

~~Risks~~Because of the nature of our business, we project considerable fixed ~~Relating~~expenses that will lead to ~~Our~~projected ~~Business~~monthly deficits for the near future. Fixed manufacturing expenses to maintain production facilities, compensation expenses for scientists and ~~Industry~~other critical personnel, and ongoing rent and utilities amount to several hundred thousand dollars per month, and we believe that such expenses are required as a precursor to significant customer sales. However, there can be no assurance that monthly sales will ever reach a sufficient level to cover the cost of ongoing monthly expenses and if such revenue increases are achieved, they will be maintained for a sustainable period. If sufficient regular monthly sales are not generated to cover these fixed expenses, we will continue to experience monthly cash flow deficits which, if not eliminated, will require continuing new investment in the Company. If monthly cash flow deficits continue, we may not be able to raise additional funds and may be forced to further curtail or cease operations

We ~~will~~ ~~need~~have toa ~~raise~~long ~~substantial additional capital in the future to fund our operations~~ and wecomplex ~~may~~sales ~~be unable to raise such funds~~cycle ~~when needed~~ and onhave ~~acceptable~~not ~~terms,~~demonstrated ~~which~~the ~~could~~ability ~~have~~to aoperate ~~materially~~successfully ~~adverse~~in ~~effect~~this ~~on our business~~environment.

~~Developing,~~It ~~manufacturing~~has ~~and~~been ~~selling~~our ~~nanomaterials in~~experience ~~commercially-viable~~since ~~quantities~~our ~~requires~~inception that ~~substantial~~the ~~funding.~~average Assales ofcycle ~~December~~for ~~31,~~our ~~2019,~~products wecan ~~had~~range ~~cash,~~from ~~cash~~one ~~equivalents~~to ~~and~~seven ~~restricted cash~~years onfrom ~~hand~~the oftime ~~$1,129,702.~~a Wecustomer ~~believe~~begins ~~our~~testing ~~cash is sufficient to fund~~ our ~~operations~~products until ~~for~~ the ~~next~~time ~~twelve~~that ~~months~~they ~~(through~~could ~~April 2021)~~be ~~when~~successfully ~~taking~~used ~~into~~in ~~account~~a ~~various sources of funding and cash received from continued~~ commercial ~~sales transactions~~product. WeThe ~~intend that~~product ~~the~~introduction ~~primary~~timing ~~means for raising funds~~ will bevary ~~through~~based ~~equity~~on the ~~offerings~~target ~~that~~market, ~~may include: private placement~~ with ~~one~~automotive oruses ~~more strategic~~typically ~~investors,~~being ~~offering~~toward ~~of shares of common stock to~~ the ~~public~~long ~~through~~end aand ~~self-underwritten~~consumer ~~offering~~products ortoward ~~through~~the anshorter ~~underwritten offering~~end. ~~with~~We have a ~~bank~~limited intrack ~~parallel~~record ~~with~~of asuccess ~~listing~~in oncompleting acustomer ~~Qualified~~development ~~National Exchange~~projects. ~~There~~The ~~can~~sales beand nodevelopment ~~assurance~~cycle ~~that~~for weour ~~will~~products is besubject ~~able~~ to ~~raise~~customer ~~additional~~budgetary ~~equity~~constraints, ~~capital~~internal inacceptance ~~subsequent~~procedures, ~~equity~~competitive ~~offerings~~product orassessments, ~~that~~scientific ~~the terms~~ and ~~conditions of any future financings will~~development beresource ~~workable~~allocations, orand ~~acceptable~~other tofactors usbeyond ~~and~~ our ~~stockholders~~control. ~~Our~~If ~~continuation~~we asare anot ~~going~~able ~~concern~~to issuccessfully ~~dependent~~accommodate ~~upon~~these ~~continued~~factors ~~financial~~to enable ~~support~~customer ~~from~~development ~~our shareholders~~success, ~~our~~we ~~ability~~will tobe ~~obtain~~unable ~~necessary~~to ~~equity~~achieve ~~and/or~~sufficient ~~debt~~sales ~~financing~~ to ~~continue~~reach ~~operations, and the attainment of profitable operations~~profitability. In ~~the~~this ~~event~~case, ~~that~~ we ~~are~~may not be able to raise ~~substantial~~ additional funds inand ~~the future with terms that are acceptable, or adjust our business model accordingly, we~~ may be forced to further curtail or cease operations ~~and investors could lose all or a significant part of their investment, or we could be prevented from making our periodic filings under the Exchange Act~~.

AOur ~~pandemic,~~revenues ~~epidemic~~often orfluctuate ~~outbreak~~significantly based ofon ~~an infectious~~one-off ~~disease~~orders infrom customers or from the ~~markets~~recognition inof non-product revenues which wevary ~~operate~~from orperiod-to-period, ~~that~~which may ~~otherwise~~materially ~~impacts~~impact our ~~facilities~~financial orresults ~~suppliers~~from ~~could~~period ~~adversely~~to ~~impact our business~~period.

WeBecause ~~expect that a pandemic, epidemic, or outbreak~~ of ~~an infectious disease including~~ the ~~recent~~potential ~~outbreak~~for oflarge ~~respiratory illness caused by the novel COVID-19 virus first identified~~revenue inswings ~~Wuhan,~~from ~~Hubei Province, China (“COVID~~one-~~19) will continue to affect our markets~~time, ~~facilities,~~large ~~customers~~orders ~~and employees, and our business could continue to be adversely affected in the future. Consequences of the coronavirus outbreak are resulting in disruptions in~~ or ~~restrictions~~grants ~~on our ability to travel and the ability of manufacturers, including many of our customers, to maintain normal operations. If such an infectious disease broke out at our facilities,~~ (or ~~if, due to governmental or~~ other ~~restrictions, our~~such ~~facilities~~non-product ~~are unable to operate for an extended period of time~~revenue), ~~our~~it ~~operations~~ may be ~~affected~~difficult ~~significantly, our productivity may be affected, our ability~~ to ~~complete~~accurately ~~projects~~forecast ~~in accordance with our contractual obligations may be affected, and our ability~~the toneeds ~~manufacture and sell our graphene nanoplatelets may be hindered. If the suppliers that we rely on~~ for ~~raw materials and other supplies to conduct operations are affected by COVID-19~~inventory, weworking ~~may not be able to fill orders that are received or our cost of sales may increase~~capital, and ~~our~~other financial ~~position~~resources ~~may~~from ~~suffer~~period-to-period. IfSuch ~~our customers are affected by COVID-19,~~ orders ~~for~~would ~~our~~require ~~products~~a ~~may be~~significant ~~delayed~~short-term orincrease ~~cancelled, and our financial position may suffer. Further, infectious outbreak may continue to cause disruption to the U.S. economy, or the economies of the markets~~ in ~~which we operate such as China and South Korea, and cause shortages of materials, labor and transportation which could affect~~ our ~~customers’ ability to produce finished products utilizing our graphene nanoplatelets, affect~~ production capacity and ~~business~~would ~~confidence,~~require ~~or cause economic changes that we cannot anticipate. Overall,~~ the ~~potential impact~~financial ofresources ~~a pandemic, epidemic or outbreak of an infectious disease with respect~~ to ~~our~~add ~~markets~~staff ~~or our facilities is difficult to predict~~ and ~~could~~support ~~continue to adversely impact our business for an indefinite period of time. In response to~~ the ~~COVID-19 situation,~~associated ~~federal,~~working ~~state and local governments (or other governments or bodies in markets in which we operate) have placed restrictions on travel and conducting or operating business activities~~capital. AtIf ~~this time, those restrictions are very fluid and evolving, and when~~ such ~~restrictions will be lifted is unknown. We have been and will continue to be impacted by those restrictions. Given that the type~~large, ~~degree~~one-time ~~and~~orders ~~length~~were ~~of such restrictions are~~ not ~~known~~handled ~~at this time~~smoothly, wecustomer ~~cannot~~confidence ~~predict~~in ~~the~~us ~~overall~~as ~~impact~~a ofviable ~~such~~supplier ~~restrictions~~could onbe ~~us,~~reduced ~~our customers, our employees, our supply~~ and ~~distribution chains, others that~~ we ~~work~~might ~~with~~not orsucceed ~~the~~in ~~overall~~capturing ~~economic environment. As such,~~ the ~~impact~~additional ~~these~~larger ~~restrictions~~orders that may ~~have on our financial position, operating results and liquidity cannot~~ be ~~reasonably estimated~~reflected atin ~~this~~our time, but we expect the impact to be material. In addition, due to the speed with which the COVID-19 situation is developing and evolving, there is uncertainty around its ultimate impact on public health, business operations and the overall economy; therefore, the negative impact on our financial position, operating results and liquidity cannot be reasonably estimated at this time, but we expect the impact to be materialplan.

We ~~could~~operate bein ~~adversely~~an ~~affected~~advanced bytechnology arena where hypothesized properties and benefits of our products may not be achieved in practice, or in which technological change ~~exposure~~may toalter ~~customer~~the ~~concentration~~attractiveness ~~risk~~of our products.

WeBecause ~~are~~there ~~subject~~is toonly ~~customer~~limited ~~concentration~~sustained ~~risk~~history ~~as a result~~ of ~~our~~successful ~~reliance~~use ~~on relatively few customers for a significant portion~~ of our ~~revenues.~~products ~~We had 1 customer whose purchases accounted for 41% and 72% of revenue~~ in ~~the~~commercial ~~twelve months ended December 31~~applications, ~~2019~~there ~~and~~is ~~2018,~~no ~~respectively.~~assurance Inthat ~~2019,~~broad wesuccessful ~~had~~commercial ~~4 customers~~applications ~~whose~~may ~~purchases~~be ~~accounted~~broadly ~~for~~technically ~~79% of revenue~~feasible. ~~Due~~Many toof the ~~nature~~scientific ~~of our business~~ and ~~the~~engineering ~~relatively~~data ~~large~~related ~~size~~to ~~of many of the applications~~ our ~~customers~~products ~~are~~has ~~developing,~~been wegenerated ~~anticipate that we will be dependent on a relatively small number of customers for the majority~~in of our ~~revenues~~own ~~for~~laboratories ~~the~~or ~~next~~in ~~few~~laboratory ~~years,~~environments ~~and~~at ifour ~~one~~customers or ~~more~~third ~~of these customers does not place orders~~parties, ~~there~~like ~~would~~universities beand anational ~~risk of~~laboratories. ~~significant~~It ~~loss~~is ofwell ~~future~~known ~~revenues,~~that ~~which~~laboratory ~~could~~data inis ~~turn~~not ~~have~~always arepresentative ~~material~~of ~~adverse~~commercial ~~effect on our business and on your investment~~applications.

11Likewise, we operate in a market that is subject to rapid technological change. Part of our business strategy is to monitor such change and take steps to remain technologically current, but there is no assurance that such strategy will be successful. If we are not able to adapt to new advances in materials sciences, or if unforeseen technologies or materials emerge that are not compatible with our products and services or that could replace our products and services, our revenues and business prospects would likely be adversely affected.

~~Downturns in general economic conditions could adversely affect our profitability.~~13

~~Downturns in~~Competitors ~~general economic conditions such as the economic conditions~~ that ~~have~~are ~~coincided~~larger ~~with COVID 19 can cause fluctuations in demand for our products, product prices, volumes~~ and ~~gross~~better ~~margins.~~funded ~~Future economic conditions~~ may ~~not~~cause ~~be favorable to our industry.~~us ~~A decline in the demand for our products or a shift~~ to ~~lower-margin~~be ~~products~~unsuccessful ~~due to deteriorating economic conditions could adversely affect sales of our products and our profitability and could also result~~ in ~~impairments~~selling ~~of certain of~~ our ~~assets~~products.

~~Furthermore, any~~We ~~uncertainty~~operate in ~~economic~~a ~~conditions~~market ~~may result~~ in awhich ~~slowdown~~there toare ~~the~~competitors. Global ~~global~~research ~~economy~~is ~~that~~being ~~could~~conducted ~~affect~~by ~~our~~substantially ~~business~~larger bycompanies ~~reducing the~~who ~~prices~~have ~~that~~greater ~~our~~financial, ~~customers~~personnel, ~~may~~technical, beand ~~able~~marketing resources. orThere ~~willing~~can tobe ~~pay~~no ~~for~~assurance that our ~~products~~strategy orof byoffering ~~reducing~~better ~~the~~materials ~~demand~~based ~~for~~on our ~~products.~~proprietary ~~Due~~graphene tonanoplatelets ~~our~~will ~~customer~~be ~~concentration~~able ~~risk,~~to ~~the~~compete ~~loss~~with other companies, many of ~~one~~whom orwill ~~more~~have ofsignificantly ~~our~~greater ~~large~~resources, ~~customers~~on ~~could~~a ~~significantly~~continuing ~~affect~~basis. ~~our~~In the ~~business~~event that we cannot compete successfully, ~~operating results~~we ~~and~~may ~~financial~~be ~~condition~~forced to cease or curtail operations.

IfWe we are ~~unable~~dependent toon ~~continue as~~key ~~a going concern, our securities will have little or no value~~employees.

~~The~~Our ~~report~~operations ofand ~~our~~product ~~independent~~development ~~registered~~are ~~public~~dependent ~~accounting~~upon ~~firm that accompanies our consolidated financial statements for~~ the ~~year~~experience ~~ended~~and ~~December~~knowledge ~~31,~~of ~~2019 contains a going concern qualification in which such firm expressed substantial doubt about~~ our ~~ability~~key ~~to continue as a going concern~~employees. We ~~currently~~ ~~anticipate~~depend ~~that~~on ~~our~~Robert ~~cash~~Blinstrub, ~~and cash equivalents will be sufficient to fund~~ our ~~operations~~Chief ~~through~~Executive ~~April 2021~~Officer, ~~without~~Jacqueline ~~raising~~Lemke, ~~additional~~our ~~capital.~~Chief WeFinancial ~~believe that we will need to raise approximately $500~~Officer,~~000~~ toAJ $1Boechler,~~000,000~~ ~~of additional capital in order to continue~~ our ~~operations~~Chief ~~for~~Commercial ~~the~~Officer ~~next~~and ~~twelve months in a minimal to no revenue growth environment~~Dr. ~~Our~~Leroy ~~continuation as a going concern is dependent upon continued financial support from our shareholders~~Magwood, our ~~ability~~Chief ~~to obtain necessary equity and/or debt financing to continue operations, and growth in revenue from operations~~Technologist. ~~These factors raise substantial doubt regarding~~If ~~our~~the ~~ability~~services toof ~~continue as a going concern. We cannot make~~ any ~~assurances~~of ~~that~~these ~~additional~~individuals ~~financings~~should ~~will~~become ~~be available to us and~~unavailable, if ~~available,~~our ~~completed~~business onoperations amight ~~timely~~be ~~basis,~~adversely onaffected ~~acceptable~~in ~~terms or at all. If we are unable to complete an equity or debt offering,~~the orshort ~~otherwise obtain sufficient financing when and if needed~~term, ~~it would negatively impact our business~~ and ~~operations.~~this Itdeparture could ~~also~~ ~~lead~~materially todisrupt the ~~reduction~~business orand ~~suspension of~~ our ~~operations~~results ~~and~~of ~~ultimately force us to cease our~~ operations.

WeOur success depends in part on our ability ~~have~~to aprotect ~~limited~~our ~~operating~~intellectual ~~history~~property rights, anand ~~accumulated~~our ~~deficit~~inability ~~and~~to aenforce ~~stockholders’~~these ~~deficit,~~rights ~~making~~could ithave ~~difficult~~a ~~for~~material ~~you~~adverse toeffect ~~evaluate~~on our ~~business~~competitive ~~and your investment~~position.

~~XG Sciences,~~We ~~Inc.~~rely ~~was incorporated~~ on ~~May~~the 23patent, ~~2006~~trademark, copyright and istrade-secret anlaws ~~advanced~~of ~~materials~~the ~~company.~~United WeStates ~~sell~~and ~~bulk~~the ~~nanomaterials~~countries orwhere ~~products made~~we ~~with~~do ~~these~~business ~~materials~~ to ~~other~~protect ~~companies~~our ~~for~~intellectual ~~incorporation~~property ~~into~~rights. We ~~their~~may ~~products.~~be Tounable ~~date,~~to ~~there~~prevent ~~has~~third ~~been~~parties ~~limited~~from ~~incorporation of~~using our ~~materials~~intellectual orproperty ~~products~~without ~~into~~our ~~customer products that are released for commercial sale~~authorization. ~~Because~~The ~~there~~unauthorized ~~is a limited demonstrated~~use ~~history~~ of ~~commercial success for~~ our ~~products,~~intellectual itproperty iscould ~~difficult~~reduce toany ~~evaluate~~competitive ~~whether~~advantage ~~our~~we ~~products~~have ~~will~~developed, ~~ultimately~~reduce beour ~~successful in the~~ market. Itshare ~~is possible that larger and~~ or ~~extended~~otherwise ~~commercial~~harm our ~~success~~business. ~~may~~In ~~never~~the ~~happen~~event ~~and~~of ~~that~~unauthorized weuse ~~will~~of ~~never~~our ~~achieve~~intellectual ~~the level~~property, oflitigation ~~revenues~~to ~~necessary~~protect toor ~~sustain~~enforce our ~~business~~rights orcould be ~~continue~~costly, toand ~~attract~~we ~~additional~~may ~~financing~~not prevail.

Many of our ~~products~~technologies ~~represent~~are ~~new~~not ~~products~~covered ~~that~~by any ~~have~~patent ~~not~~or ~~yet~~patent ~~been~~application, ~~fully~~and ~~developed~~our issued and ~~for~~pending ~~which~~U.S. ~~manufacturing~~and ~~operations~~non-U.S. ~~have~~patents may not provide us with any competitive ~~yet~~advantage ~~been~~and ~~fully~~could ~~scaled.~~be ~~This~~challenged ~~means~~by ~~that~~third ~~investors~~parties. ~~are~~Our ~~subject~~inability to ~~all~~secure issuance of ~~the~~our ~~risks~~pending ~~incident~~patent applications may limit our ability to protect the ~~creation~~intellectual ~~and~~property ~~development~~rights ofthese ~~multiple~~pending patent applications were intended to cover. Our competitors ~~new~~may ~~products~~attempt to design around our patents to avoid liability for infringement and, ~~their~~if ~~associated~~successful, ~~manufacturing~~our ~~processes~~competitors could adversely affect our market share. Furthermore, the expiration of our patents may lead to increased competition.

AsOur ofpending ~~December~~trademark ~~31,~~applications ~~2019,~~may ~~and December~~not ~~31,~~be ~~2018,~~approved weby ~~have~~the anresponsible ~~accumulated~~governmental ~~deficit~~authorities ~~from operations of $(65,581,128)~~ and ~~$(55~~,~~687,160),~~ ~~respectively.~~even Asif ofthese ~~December~~trademark ~~31, 2019,~~applications ~~and~~are ~~December 31~~granted, ~~2018,~~third ~~our~~parties ~~total stockholder’s equity was $(2,146,797) and $4,990,719, respectively. The deficit reflects~~may ~~net~~seek ~~losses in each period since our inception incurred through development of nanomaterials without the presence of large-scale adoption~~ to ~~generate~~oppose ~~substantial~~or ~~revenues~~otherwise tochallenge ~~cover~~these ~~development~~trademark ~~costs and generate a profit~~applications. WeA ~~have~~failure ~~never paid a dividend. Also, since inception, we have not generated sufficient revenues~~ to ~~cover~~obtain ~~our~~trademark ~~fixed~~registrations ~~expenses~~in orthe ~~sustain~~United ~~our~~States and ~~business~~ in ~~any~~other ~~financial reporting~~countries ~~period.~~could ~~Nor~~limit ~~have~~our weability ~~demonstrated the capability~~ to ~~produce~~protect ~~sufficient~~our ~~materials~~products toand ~~generate~~their ~~the~~associated ~~ongoing~~trademarks ~~revenues~~and ~~necessary to~~impede ~~sustain~~ our ~~operations~~marketing efforts in ~~the~~those ~~long-term~~jurisdictions. ~~There can be no assurance that we will ever produce a profit.~~

~~Because we~~In ~~are~~addition, ~~subject~~effective topatent, ~~these uncertainties~~trademark, ~~there~~copyright and trade secret protection may be ~~risks~~unavailable ~~that~~or ~~management~~limited ~~has~~in ~~failed~~some toforeign ~~anticipate~~countries. ~~and~~In ~~you~~some ~~may~~countries, ~~have~~we ado ~~difficult~~not apply for patent, ~~time~~trademark ~~evaluating~~or ~~our~~copyright ~~business~~protection. We also rely on unpatented proprietary manufacturing expertise, continuing technological innovation and ~~your~~other ~~investment~~trade insecrets to develop and maintain our ~~Company~~competitive position. ~~Our~~Although ~~ability~~we toenter ~~become~~into ~~profitable~~confidentiality ~~depends~~agreements ~~primarily~~with our onemployees ~~our~~and ~~ability to~~generally ~~successfully~~with ~~commercialize~~third parties to protect our ~~products~~intellectual inproperty, ~~the~~these ~~future.~~confidentiality ~~Even~~agreements ifare welimited in ~~successfully~~duration ~~develop~~and could be breached and ~~market~~may not provide meaningful protection of our ~~products,~~trade wesecrets or proprietary manufacturing expertise. Adequate remedies may not ~~generate~~ ~~sufficient~~be oravailable ~~sustainable~~if ~~revenue~~there tois ~~achieve~~an unauthorized use or ~~sustain~~disclosure ~~profitability~~of our trade secrets and manufacturing expertise. In addition, ~~which~~others ~~could~~may ~~cause~~obtain usknowledge toabout ~~cease~~our trade secrets through independent development or ~~curtail~~by ~~operations~~legal means. The failure Into ~~such~~protect ~~case~~our processes, ~~you~~apparatuses, ~~would~~technology, ~~likely~~trade ~~lose~~secrets ~~all~~and orproprietary manufacturing expertise, methods and compounds could have a ~~significant~~material ~~part~~adverse ofeffect ~~your~~on ~~investments~~our business by jeopardizing critical intellectual property.

WeWhere a product formulation or process is kept ~~have~~as ~~limited~~a ~~experience~~trade insecret, ~~the~~third ~~higher~~parties ~~volume~~may ~~manufacturing~~independently ~~that~~develop ~~will~~or beinvent ~~required~~and patent products or processes identical to ~~support~~our ~~profitable~~trade-secret products ~~operations,~~or processes. This could have an adverse impact on our ability to make and ~~the~~sell ~~risks~~products or use such processes and could ~~associated~~potentially ~~with~~result ~~scaling~~in tocostly ~~larger~~litigation ~~production~~in ~~quantities~~which ~~may~~we bemight ~~substantial~~not prevail.

We ~~have~~ ~~limited~~could ~~experience~~face ~~manufacturing~~intellectual ~~our~~property ~~products.~~infringement claims Wethat ~~have~~could ~~established~~result ~~initial~~in ~~commercial~~significant orlegal ~~pilot-scale~~costs ~~production~~and ~~facilities for~~damages ~~our bulk powders~~ and ~~certain~~impede ~~integrated~~our ~~products.~~ability ~~In order~~ to ~~develop the capacity to~~ produce ~~much~~key ~~higher volumes~~products, itwhich ~~will~~could have bea ~~necessary~~material toadverse ~~produce~~effect ~~multiples~~on ofour ~~existing~~business, ~~processes~~financial orcondition, ~~engineer~~and ~~new~~results ~~production~~of ~~processes in some cases~~operations.

We have completed the initial phases of building out our 64,000 square foot manufacturing facility in Mason, MI, but there can be no assurance that this new facility will continue to be expanded in the future on time or as planned. In addition, due to recent events surrounding our business and the COVID-19 pandemic, in March of 2020, we restructured our organization by reducing headcount by 45%, by furloughing substantially all manufacturing employees and by implementing temporary salary reductions ranging from 15-20% which has resulted in a 58% reduction in annual payroll and related costs. In April 2020, we furloughed additional employees in our R&D and Engineering departments. We expect that these actions could have a material impact on our ability to scale up our production processes, and there is no guarantee that we will be able to economically scale-up our production processes to the levels required. If we are unable to scale-up our production processes and facilities to support sustainable sales levels, the Company may be forced to curtail or cease operations and investors could lose all or a significant part of their investment. 14

12Future adverse regulations could affect the viability of the business.

~~Projection~~Our bulk products have been approved for sale in the United States by the U.S. Environmental Protection Agency after a detailed review of ~~fixed~~our ~~monthly~~products ~~expenses~~and production processes. In most cases, as far as we are aware, there are no current regulations elsewhere in the world that prevent or prohibit the sale of our products. Nevertheless, the sale of nanomaterials is a subject of regulatory discussion and ~~operating~~review ~~losses~~in ~~for~~many countries around the ~~near~~world. In some cases, there is a discussion of potential testing requirements for toxicity or other health effects of nanomaterials before they can be sold in certain jurisdictions. If such regulations are enacted in the future, ~~means~~our ~~that~~business ~~investors~~could ~~may~~be ~~not~~adversely affected ~~earn~~because of the requirement for expensive and time-consuming tests or other regulatory compliance. If our nanomaterials are found to be toxic, such finding could have a ~~return~~material impact on ~~their~~our ~~investment~~business and on the production and sale of our products. There can be no assurance that future regulations might not severely limit or ~~may~~even ~~lose~~prevent ~~their~~the ~~investment~~sale of our products in major markets, in which case our financial prospects might be severely limited.

~~Because~~Given ~~of the nature of~~ our ~~business, we~~limited ~~project considerable fixed expenses that will lead to projected monthly deficits for the near future. Fixed manufacturing expenses to maintain production facilities~~resources, ~~compensation expenses for scientists and other critical personnel, and ongoing rent and utilities amount to several hundred thousand dollars per month, and~~ we believe that such expenses are required as a precursor to significant customer sales. However, there can be no assurance that monthly sales will ever reach a sufficient level to cover the cost of ongoing monthly expenses and if they do, are maintained for a sustainable period of time. If sufficient regular monthly sales are not generated to cover these fixed expenses, we will continue to experience monthly cash flow deficits which, if not eliminated, will require continuing new investment in the Company. If monthly cash flow deficits continue beyond levels that investors find tolerable, we may not ~~be able to raise additional funds and may be forced to curtail or cease operations and investors could lose~~ ~~all~~effectively ormanage aour ~~significant part of their investment~~growth.

We There is no guarantee that we have athe ~~long~~resources, financial or operational, required to manage our growth. This is particularly true as we expand facilities and ~~complex~~manufacture ~~sales~~our products ~~cycle~~on a greater commercial scale. Furthermore, rapid growth in our operations may place a significant strain on our management, administrative, operational and financial infrastructure. The inability to adequately manage our growth could have ~~not~~a ~~demonstrated~~material ~~the~~and adverse ~~ability~~effect toon ~~operate~~our ~~successfully~~business, infinancial ~~this~~condition ~~environment~~or results of operations.

ItAn ~~has~~increase been our experience since our inception that the average sales cycle for our products can range from one to seven years from the time a customer begins testing our products until the time that they could be successfully used in ~~a commercial product. The product introduction timing will vary based on~~ the ~~target~~cost ~~market, with automotive uses typically being toward the long end and consumer products toward the shorter end. We have a limited track record~~ of ~~success~~raw ~~in completing customer development projects, which makes it difficult for investors to fully~~materials ~~evaluate~~or ~~the~~electricity ~~likelihood~~might ofaffect our ~~future success~~profits. The sales and development cycle for our products is subject to customer budgetary constraints, internal acceptance procedures, competitive product assessments, scientific and development resource allocations, and other factors beyond our control. If we are not able to successfully accommodate these factors to enable customer development success, we will be unable to achieve sufficient sales to reach profitability. In this case, we may not be able to raise additional funds and may be forced to curtail or cease operations and investors could lose all or a significant part of their investment.

~~Our revenues~~Any ~~often~~increase ~~fluctuate~~in ~~significantly~~the ~~based~~prices onof ~~one-off~~our ~~orders~~raw ~~from~~materials or ~~customers~~energy ormight ~~from~~affect the ~~recognition~~overall cost of ~~non-product~~our ~~revenues which~~products. ~~vary~~If ~~from~~we ~~period-~~are not able to~~-period,~~ ~~which~~raise ~~may~~our ~~materially~~prices ~~impact~~to pass on increased costs to our customers, ~~financial~~we ~~results~~would ~~from~~be ~~period~~unable to ~~period~~achieve sustainable profit margins. Our major cost components include items such as graphite, acids and bases, and electricity, which items are normally readily available industrial commodities.

~~Because of~~Our ~~the~~results ~~potential~~of ~~for~~operations ~~large~~could ~~revenue swings from one-time, large orders or grants (or other such non-product revenue), it may be~~deteriorate ~~difficult~~if ~~to accurately forecast the needs for inventory, working capital, and other financial resources from period-to-period. Such orders would require a significant short-term increase in~~ our ~~production~~manufacturing ~~capacity~~operations ~~and would require the financial resources to add staff and support the associated working capital. If such large, one-time orders~~ were ~~not~~substantially ~~handled~~disrupted ~~smoothly,~~for ~~customer~~an ~~confidence in~~extended ~~us as a viable supplier could be reduced and we might not succeed in capturing the additional larger orders that may be reflected in our business plan~~period.

WeIn addition to the disruptions to our manufacturing ~~operate~~operations incaused anby ~~advanced~~COVID-19, ~~technology~~our ~~arena~~manufacturing ~~where~~operations ~~hypothesized~~are ~~properties~~subject to disruption due to extreme weather conditions, floods and ~~benefits~~similar ofevents, ~~our~~major ~~products~~industrial ~~may~~accidents, ~~not~~strikes beand ~~achieved~~lockouts, inadoption ~~practice~~of new laws or regulations, changes in interpretations of existing laws or regulations or changes in ~~which~~governmental ~~technological~~enforcement ~~change~~policies, ~~may~~civil ~~alter~~disruption, ~~the~~riots, ~~attractiveness~~terrorist ofattacks, ~~our~~war, and ~~products~~other events. We cannot assure you that no such events will occur. If such an event occurs, it could have a material adverse effect on us.

~~Because there~~Some ishealth ~~only~~effects ~~limited sustained history~~ of ~~successful use of our products in commercial applications, there is no assurance that~~nanotechnology ~~broad~~are ~~successful commercial applications may be broadly technically feasible~~unknown. Many of the scientific and engineering data related to our products has been generated in our own laboratories or in laboratory environments at our customers or third-parties, like universities and national laboratories. It is well known that laboratory data is not always representative of commercial applications.

~~Likewise,~~There is scientific debate on the health effects weof ~~operate~~nanomaterials insuch aas ~~market~~graphene nanoplatelets, but some scientists believe that iscertain ~~subject~~nanomaterials may be hazardous to ~~rapid~~human health, ~~technological~~including ~~change.~~the ~~Part~~respiratory ofsystem ~~our~~if ~~business~~inhaled. ~~strategy~~Although there is tono ~~monitor~~conclusive ~~such~~evidence ~~change and~~of ~~take~~any ~~steps~~danger toassociated ~~remain~~with ~~technologically~~the handling ~~current,~~of ~~but~~the Company’s products, there is noa ~~assurance~~theoretical ~~that~~risk ~~such~~of ~~strategy~~danger ~~will~~to behealth ~~successful.~~if Ifan weindividual ~~are~~is ~~not able~~exposed to ~~adapt~~and/or inhales/ingests tosome ~~new~~of ~~advances~~the inCompany’s ~~materials~~products. ~~sciences,~~The orspecific ifhealth ~~unforeseen~~effects ~~technologies~~of nanoplatelets are unknown and can depend on how they are incorporated and/or bonded to other materials. ~~emerge~~We ~~that~~carefully ~~are~~evaluate ~~not~~potential ~~compatible with~~health effects of our products and ~~services~~the oreffects ~~that~~of ~~could~~handling ~~replace~~materials on our ~~products~~employees and ~~services~~those who manufacture for us, ~~our~~but ~~revenues~~as ~~and~~any ~~business~~specific ~~prospects~~health ~~would~~risks ~~likely~~are unknown, we cannot be ~~adversely~~certain ~~affected~~our products are free of danger to our employees and customers. ~~Such~~If angraphene ~~occurrence~~nanoplatelets ~~may~~are ~~have~~found to ~~severe~~be ~~consequences~~hazardous to human health, ~~including~~this ~~the~~may ~~potential~~adversely ~~for~~affect market acceptance of our ~~investors~~products, subject us to ~~lose~~additional ~~all~~regulation orand ahave ~~significant~~an ~~part~~adverse ofeffect ~~their~~on ~~investment~~our business.

13Defects in our products or poor performance of our customers’ products could result in lost sales and subject us to substantial liability.

~~Competitors~~We have limited experience with large scale ~~that~~commercialization ~~are~~by ~~larger~~our customers of products incorporating our nanoplatelets, and ~~better~~the ~~funded~~chance of variability in the performance of our products as shipped may ~~cause~~impact usthe performance of our customers’ products. If our customers’ products incorporating nanoplatelets perform poorly, whether due to design, engineering, production or other reasons, our customers may scale back or cancel orders. In certain cases, if our nanoplatelets are found to be ~~unsuccessful~~the incomponent ~~selling~~that leads to failure or a failure to meet the performance specifications of a customer, we could be required to pay monetary damages. Real or perceived defects in our products could result in claims by our customers for losses they sustain. If our customers make such claims, we may be required, or may choose, for customer relations or other reasons, to expend additional resources to help correct any real or perceived defects.

~~We operate~~Liability provisions in aour ~~market~~terms inand ~~which~~conditions of ~~there~~sale ~~are~~may ~~competitors.~~not ~~Global~~be ~~research~~enforceable isunder ~~being~~some ~~conducted~~circumstances byor ~~substantially~~may ~~larger~~not ~~companies~~fully ~~who~~or ~~have greater~~effectively ~~financial,~~protect ~~personnel,~~us ~~technical,~~from claims and ~~marketing~~related ~~resources~~liabilities and costs. ~~There~~In ~~can~~addition, beregardless noof ~~assurance~~the ~~that~~party ~~our~~at ~~strategy~~fault, errors of ~~offering~~these ~~better materials~~kinds ~~based~~divert onthe ~~our~~attention ~~proprietary~~of ~~graphene~~our ~~nanoplatelets~~engineering ~~will~~and bemanagement personnel ~~able~~from toour ~~compete~~product ~~with~~development ~~other~~and ~~companies~~sales efforts, ~~many~~damage our reputation and the reputation of ~~whom~~our ~~will~~products, ~~have~~cause significant ~~significantly~~customer ~~greater~~relations ~~resources,~~problems onand acan ~~continuing~~result ~~basis~~in product liability claims. In ~~the~~addition, ~~event~~even claims that weultimately ~~cannot~~are ~~compete~~unsuccessful could ~~successfully,~~result wein expenditures of funds in connection with litigation and divert management’s time and other resources. We also may beincur ~~forced~~costs and expenses relating to ~~cease~~ a recall of one or ~~curtail~~more ~~operations~~of our products, and ~~investors~~the ~~may~~occurrence ~~lose~~of ~~all~~such claims could result in the delay or aloss ~~significant~~of ~~part~~market acceptance of ~~their~~our ~~investment~~products and could adversely affect our business, operating results and financial condition.

~~We are dependent on key employees.~~15

~~Our~~If ~~operations and~~ product ~~development are~~liability ~~dependent~~lawsuits ~~upon the experience and knowledge of Philip Rose, our Chief Executive Officer. If he was to resign or be terminated,~~are ~~our~~brought ~~business~~against ~~would be adversely affected in the short term~~us, ~~and~~we ~~his~~may ~~departure~~incur ~~could~~substantial ~~disrupt the business enough to endanger your investment~~liabilities. We also depend on Jacqueline Lemke, Chief Financial Officer, Dr. Leroy Magwood, Chief Technologist, and Scott Murray, Vice President of Operations. If the services of any of these individuals should become unavailable, our business operations might be adversely affected. We hold “Key Person” insurance of $5 million on our CEO, Philip Rose, but do not hold any other “Key Person” insurance, and, if several of these individuals became unavailable at the same time, our ability to continue normal business operations might be adversely affected, to the extent that revenue or profits could be diminished and you could lose all or a significant part of your investment.

~~Our~~ We have limited experience ~~success~~with ~~depends~~the large-scale manufacturing and distribution of our products. The commercialization of our products and the sale of our products in ~~part~~significant onquantities involves exposure to product liability claims. We have limited product liability insurance. If existing coverage is insufficient to cover claims or we cannot obtain sufficient insurance coverage at an acceptable cost or otherwise protect against potential product liability claims, the commercialization of products that we develop may be prevented or inhibited. We cannot predict all of the adverse health events that our ~~ability~~products or use of our products in our customer’s products may cause. As a result, our future coverages may not be adequate to protect us from all of the liabilities that we may incur. If losses from product liability claims exceed any insurance coverage, we may incur substantial liabilities that exceed our ~~intellectual~~financial ~~property~~resources. ~~rights~~In addition, we may not be able to maintain future product liability insurance at an acceptable cost, if at all, and ~~our~~this ~~inability~~insurance may not provide adequate coverage against potential claims or losses. If we are required to ~~enforce~~pay ~~these~~a product ~~rights~~liability claim, we may not have sufficient financial resources and our business and results of operations may be harmed. Whether or not we are ultimately successful in product liability litigation, such litigation could also consume substantial amounts of our financial and managerial resources, and might result in adverse publicity, all of which could have a material adverse effect on our ~~competitive position~~business.

~~We rely~~Cybersecurity onincidents ~~the~~could ~~patent, trademark, copyright and trade-secret laws of the United States and the countries where we do~~ disrupt business to protect our intellectual property rights. We may be unable to prevent third parties from using our intellectual property without our authorization. The unauthorized use of our intellectual property could reduce any competitive advantage we have developedoperations, ~~reduce~~ ~~our~~result ~~market~~in ~~share or otherwise harm our business. In~~ the ~~event~~loss of ~~unauthorized~~critical ~~use~~and ofconfidential ~~our intellectual property~~information, ~~litigation to~~and ~~protect~~adversely orimpact ~~enforce~~ our ~~rights~~reputation ~~could be costly,~~ and weresults of ~~may not prevail~~operations.

~~Many~~Global cybersecurity threats and incidents ofcan ~~our~~range ~~technologies~~from ~~are~~uncoordinated ~~not~~individual ~~covered~~attempts byto ~~any~~gain ~~patent~~unauthorized oraccess ~~patent~~to ~~application,~~information ~~and~~technology ~~our~~systems ~~issued~~to sophisticated and ~~pending~~targeted ~~U.S.~~measures ~~and~~known ~~non-U.S.~~as ~~patents may~~advanced ~~not~~persistent ~~provide~~threats, usdirected ~~with~~at ~~any~~the ~~competitive~~Company, ~~advantage~~its plants and ~~could~~operations, beits ~~challenged~~products, byits customers and/or its third-party ~~parties~~service providers. ~~Our~~We ~~inability~~rely toon ~~secure~~third ~~issuance~~party ~~of our~~service ~~pending~~providers ~~patent~~to ~~applications~~protect ~~may~~information ~~limit~~technology systems, ~~our~~a ~~ability~~breach toof ~~protect~~which ~~the~~could expose our confidential intellectual property, ~~rights~~including ~~these~~trade ~~pending~~secrets. ~~patent~~The ~~applications~~failure to protect ~~were~~such ~~intended~~intellectual toproperty ~~cover.~~could ~~Our~~create ~~competitors~~a ~~may~~diminution ~~attempt~~in tothe ~~design~~value ~~around~~of our ~~patents~~investment toin ~~avoid~~research, ~~liability~~development ~~for~~and ~~infringement~~engineering, and, increased ifcybersecurity ~~successful~~protection and remediation costs, ~~our~~ ~~competitors~~which in turn could adversely affect our ~~market~~competitiveness ~~share~~and results of operations. ~~Furthermore~~We cannot be sure that our information technology infrastructure is safe from cybersecurity threats or other forms of intellectual property appropriation. Cybersecurity incidents, depending on their nature and scope, could potentially result in the ~~expiration~~misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our ~~patents~~own ~~may~~or ~~lead~~that toof ~~increased~~third ~~competition~~parties) and the disruption of business operations. The potential consequences of a material cybersecurity incident or other such intellectual property appropriation include reputational damage, claims from and litigation with third parties, fines levied by governmental authorities, and competitive disadvantages in our business.

~~Our pending~~ITEM trademark applications may not be approved by the responsible governmental authorities and, even if these trademark applications are granted, third parties may seek to oppose or otherwise challenge these trademark applications1B. AUNRESOLVED ~~failure~~STAFF to obtain trademark registrations in the United States and in other countries could limit our ability to protect our products and their associated trademarks and impede our marketing efforts in those jurisdictions.COMMENTS

~~In addition, effective patent, trademark, copyright and trade secret protection may be unavailable or limited in some foreign countries~~None. In some countries, we do not apply for patent, trademark or copyright protection. We also rely on unpatented proprietary manufacturing expertise, continuing technological innovation and other trade secrets to develop and maintain our competitive position. Although we enter into confidentiality agreements with our employees and generally with third parties to protect our intellectual property, these confidentiality agreements are limited in duration and could be breached and may not provide meaningful protection of our trade secrets or proprietary manufacturing expertise. Adequate remedies may not be available if there is an unauthorized use or disclosure of our trade secrets and manufacturing expertise. In addition, others may obtain knowledge about our trade secrets through independent development or by legal means. The failure to protect our processes, apparatuses, technology, trade secrets and proprietary manufacturing expertise, methods and compounds could have a material adverse effect on our business by jeopardizing critical intellectual property.

~~Where a~~ITEM ~~product formulation or process is kept as a trade secret, third parties may independently develop or invent and patent products or processes identical to our trade-secret products or processes~~2. ~~This could have an adverse impact on our ability to make and sell products or use such processes and could potentially result in costly litigation in which we might not prevail.~~PROPERTIES

We ~~could~~ ~~face~~lease ~~intellectual~~three ~~property~~separate ~~infringement~~facilities. ~~claims~~Administrative offices ~~that~~and ~~could~~a ~~result~~manufacturing operation are in ~~significant~~a ~~legal~~25,000 ~~costs~~square ~~and~~foot ~~damages~~building ~~and~~with ~~impede~~an ~~our~~operating ~~ability~~lease that expires in December 2022. toResearch ~~produce~~and ~~key~~development ~~products~~laboratories are in a 14,300 ~~which~~square ~~could~~foot space with an operating lease that expires in December 2022. We also have amechanical ~~material~~exfoliation ~~adverse~~manufacturing ~~effect~~operations onin ~~our~~a ~~business~~64,000 ~~financial~~square ~~condition~~foot facility with an operating lease that expires in October 2022. All of the physical assets of the Company are contained within these facilities. XG Sciences has achieved and maintains ~~results~~an ISO9001:2015 quality certification for all of ~~operations~~its locations.

14ITEM 3. LEGAL PROCEEDINGS

~~If we are unable to implement and maintain effective internal control over financial reporting, our stock could be less attractive to potential investors~~None.

WeITEM ~~are required to establish and maintain appropriate internal controls over financial reporting, subject to exemptions that we avail ourselves of under the JOBS Act discussed below~~4. ~~Failure~~MINE toSAFETY establish such controls, or any failure of such controls once established, could adversely impact our public disclosures regarding our business, financial condition or results of operations. Any failure of our controls could also prevent us from maintaining accurate accounting records and discovering accounting errors and financial frauds. Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require annual assessment of our internal control over financial reporting, and the standards that must be met for management to assess the internal control over financial reporting as effective are new and complex, and require significant documentation, testing and possible remediation to meet the detailed standards. In November 2018, the Company hired a CFO to oversee the finance and reporting function, modify processes to mitigate segregation of duties issues and increase supervisory and review controls. DISCLOSURES

InNot addition, management’s assessment of internal controls over financial reporting may identify material weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors in the futureapplicable. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting, disclosure of management’s assessment of our internal controls over financial reporting, or at such time as we are no longer subject to exemptions under the JOBS Act, disclosure of our independent registered public accounting firm’s report on management’s assessment of our internal controls over financial reporting, may have an adverse impact on our ability to sell our common stock.

~~Future adverse regulations could affect the viability of the business.~~16

~~Our bulk~~PART products have been approved for sale in the United States by the U.S. Environmental Protection Agency after a detailed review of our products and production processes. In most cases, as far as we are aware, there are no current regulations elsewhere in the world that prevent or prohibit the sale of our products. Nevertheless, the sale of nano-materials is a subject of regulatory discussion and review in many countries around the world. In some cases, there is a discussion of potential testing requirements for toxicity or other health effects of nano-materials before they can be sold in certain jurisdictions. If such regulations are enacted in the future, our business could be adversely affected because of the requirement for expensive and time-consuming tests or other regulatory compliance. If our nano-materials are found to be toxic, such finding could have a material impact on our business and on the production and sale of our products. There can be no assurance that future regulations might not severely limit or even prevent the sale of our products in major markets, in which case our financial prospects might be severely limited, causing investors to lose all or a significant part of their investment.II

~~Compliance with~~ITEM ~~changing~~5. ~~regulation~~MARKET ofFOR ~~corporate~~REGISTRANT’S ~~governance~~COMMON ~~and~~EQUITY, ~~public~~RELATED ~~disclosure~~STOCKHOLDER ~~will~~MATTERS ~~result~~AND inISSUER ~~additional~~PURCHASES ~~expenses~~OF ~~and~~EQUITY ~~will divert time and attention away from revenue generating activities.~~SECURITIES

~~Changing laws,~~Market regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and related SEC regulations, have significantly increased the costs and risks associated with accessing the public markets and public reporting. Our management team will need to invest significant management time and financial resources to comply with both existing and evolving standards for ~~public~~Common companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities, which could have an adverse effect on our business.Equity

~~Given~~ No public market currently exists for our ~~limited~~shares and ~~resources,~~a wepublic market may ~~not~~never ~~effectively~~develop, ~~manage~~or, ~~our~~if ~~growth~~any market does develop, it may not be sustained.

~~There is~~Following noour ~~guarantee~~Offering ~~that~~which terminated on April 12, 2019, we ~~have~~intend to seek either (i) a listing of our common stock on a securities exchange registered with the ~~resources~~SEC under Section 6(a) of the Exchange Act, ~~financial~~such as the NASDAQ Capital Market or ~~operational~~the NYSE, ~~required~~or to(ii) ~~manage~~the quotation of our ~~growth~~common stock on the OTCQB or OTCQX marketplaces operated by OTC Markets Group, Inc., ~~This~~market isconditions ~~particularly~~permitting. ~~true~~To achieve such a Public asListing, we ~~expand~~will ~~facilities~~have ~~and~~to ~~manufacture~~meet ~~our~~certain ~~products~~initial listing qualifications of the Qualified National Exchange or the OTC Markets on awhich we ~~greater~~are ~~commercial~~seeking ~~scale~~the Public Listing. ~~Furthermore~~In addition, ~~rapid~~we ~~growth~~will need to have market makers agree to make a market in our ~~operations may~~common ~~place~~stock and file a ~~significant~~FINRA ~~strain~~Form 15c211 with the SEC on our ~~management,~~behalf ~~administrative,~~before ~~operational~~we can achieve a Public Listing, and ~~financial~~we ~~infrastructure.~~will ~~The~~also ~~inability~~need to ~~adequately~~remain current ~~manage~~in our ~~growth~~quarterly ~~could~~and ~~have~~annual afilings ~~material~~with ~~and~~the ~~adverse~~SEC. ~~effect~~As onof ~~our~~the ~~business~~date of this report, ~~financial~~there ~~condition~~are no assurances or ~~results~~understandings ofbetween the ~~operations~~Company and anyone acting on our behalf, ~~thus resulting~~with any market maker regarding participation in a ~~lower~~future trading market for our securities. There can be no assurance that our common stock will ever be quoted ~~price~~or oftraded on a Qualified National Exchange or the OTC Markets or that any market for our common stock will develop.

15Holders of Equity

AnAs of August 30, 2021, we had 261 record holders ~~increase~~of inour ~~the~~common ~~cost~~stock, and a total of ~~raw~~2,490,488 ~~materials~~shares orof ~~electricity~~common ~~might~~stock ~~affect~~issued and outstanding. We had 13 record holders of Series A Preferred Stock and a total of 1,890,354 shares of Series A Preferred Stock issued and outstanding. We had 145 holders of Series B Preferred Stock and a total of 1,542,080 shares of Series B Preferred Stock issued and outstanding. In total, we had 407 shareholders of record of all classes of our ~~profits~~capital stock as of August 30, 2021.

~~Any~~Each share of Series A Preferred Stock is voluntarily ~~increase~~convertible, inat the ~~prices~~option of ~~our~~the ~~raw~~holder ~~materials~~thereof, orat ~~energy~~any ~~might~~time ~~affect~~after the ~~overall~~date ~~cost~~ of ~~our~~issuance ~~products.~~and Ifprior weto ~~are~~any ~~not~~Public ~~able~~Listing toof ~~raise~~common ~~our~~stock ~~prices~~on toa ~~pass~~Qualified onNational ~~increased~~Exchange, ~~costs~~into tothat ~~our~~number ~~customers~~of fully paid, wenon-assessable ~~would~~shares beof ~~unable~~common tostock ~~maintain~~determined ~~our~~by ~~existing~~dividing the ~~profit~~Original ~~margins.~~Issue ~~Our~~Price ~~major cost~~by ~~components~~the ~~include~~Conversion ~~items~~Price ~~such~~then asin ~~graphite~~effect, ~~acids~~as ~~and~~such ~~bases,~~terms ~~and~~are ~~electricity,~~defined ~~which~~in ~~items~~the ~~are~~Series ~~normally~~A ~~readily~~Designations. ~~available~~The ~~industrial~~current ~~commodities.~~Series ~~During~~A ~~our~~Conversion ~~history~~Rate asis a1.875 ~~business,~~shares weof ~~have~~common ~~not~~for ~~seen~~1 ~~any~~share ~~material~~of ~~impact~~Series ~~(as~~A. ~~defined~~The byConversion ~~GAAP)~~Price onof ~~our~~the ~~cost~~Series ~~structure~~A Preferred Stock ~~from~~is ~~fluctuations~~subject into ~~raw~~adjustments ~~material~~pursuant orto ~~energy~~the ~~costs,~~occurrence ~~but~~of ~~this~~stock ~~could~~splits ~~change~~and incertain ~~the~~other ~~future~~specified events, ~~especially~~and ~~given~~therefore the ~~impact of COVID-19~~respective ~~and~~conversion ~~its~~rates ~~impact~~are onsubject ~~the~~to ~~global economy~~change.

~~Our~~Furthermore, under the terms of the Series ~~results~~A Designations (as amended), all outstanding shares of ~~operations~~Series ~~could~~A ~~deteriorate~~Preferred Stock will automatically convert into shares of common stock upon a Public Listing on a Qualified National Exchange at the then-current Series A Conversion Rate. At the current Series A Conversion Rate, if ~~our~~all ~~manufacturing~~outstanding ~~operations~~shares of Series A Preferred Stock were ~~substantially~~voluntarily ~~disrupted~~converted ~~for~~or anautomatically ~~extended~~converted, we ~~period~~would issue 3,544,414 shares of common stock to satisfy such conversions.

~~In addition~~Each toshare ~~the~~of ~~disruptions~~Series B Preferred is subject to ~~our~~mandatory ~~manufacturing~~conversion ~~operations~~into ~~caused~~common bystock ~~COVID~~at the then-~~19,~~effective ~~our~~Series ~~manufacturing~~B ~~operations~~conversion ~~are~~rate ~~subject~~upon tothe ~~disruption~~public listing by the Company ~~due~~of toits ~~extreme~~common ~~weather~~stock ~~conditions,~~on ~~floods~~a ~~and~~Qualified ~~similar~~National ~~events~~Exchange. However, ~~major~~the ~~industrial~~Series ~~accidents,~~B ~~strikes~~Preferred ~~and~~is ~~lockouts,~~not ~~adoption~~subject ofto ~~new~~the mandatory conversion ~~laws~~until orall ~~regulations,~~outstanding ~~changes~~Convertible inSecurities ~~interpretations~~are ofalso ~~existing~~converted ~~laws~~into orcommon ~~regulations~~stock. orThe ~~changes~~Series inB ~~governmental~~Preferred ~~enforcement~~ranks ~~policies,~~senior to all other ~~civil~~equity ~~disruption,~~or ~~riots,~~equity ~~terrorist~~equivalent ~~attacks,~~securities ~~war,~~of ~~and~~the Company other ~~events.~~than Wethose ~~cannot~~securities ~~assure~~which ~~you~~are ~~that~~explicitly nosenior ~~such~~or ~~events~~pari ~~will~~passu ~~occur.~~in rights Ifand ~~such an~~liquidation ~~event~~preference ~~occurs,~~to itthe ~~could~~Series ~~have~~B aPreferred ~~material~~and ~~adverse~~pari ~~effect~~passu onwith usthe Company’s Series A Preferred.

~~Some~~As of December 31, 2020, the Company had also ~~health~~granted ~~effects~~options to purchase up to 504,110 shares of ~~nanotechnology~~common stock, had issued warrants to purchase up to (i) 491,392 shares of common stock, (including the warrants for 250,000 shares issued under the Dow Facility) and (ii) 972,720 shares of Series A Preferred Stock which, if exercised, would be convertible into 1,823,850 shares of common stock at the then-current Series A Conversion Rate (currently 1.875 shares of common for 1 share of Series A) and, sold 481,458 Units with the Convertible Notes Offering which can be converted into 481,458 shares of Series B stock with a conversion factor of 1 into common shares. Therefore, we have committed to issue up to an additional 7,492,264 shares of common stock, which includes the issuance of (a) 3,544,414 shares upon conversion of all 1,890,354 shares Series A Preferred Stock currently outstanding at the Series A Conversion Rate, (b) 1,823,850 shares upon the conversion of 972,720 shares of Series A Preferred Stock (at the current Series A Conversion Rate) which are ~~unknown~~issuable upon exercise of 972,720 Series A warrants, (c) 647,040 shares of Series B Preferred Stock, (d) 504,110 shares upon the exercise of options, (e) the issuance of 491,392 shares upon the exercise of warrants and (f) the issuance of 481,458 common shares upon the conversion of the units purchased with the Convertible Debt . If we issued all 7,492,264 shares, we would have, including the 3,387,403 shares currently outstanding, 10,879,667 shares issued and outstanding, with 14,120,333 authorized shares available for future issuance. The future issuance of common stock or other securities convertible into our common stock may result in substantial dilution in the percentage of our common stock held by our existing shareholders. Other than in our past IPO, we may value any common stock issued in the future on an arbitrary basis. The issuance of common stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors, might have an adverse effect on any trading market for our common stock and could impair our ability to raise capital in the future through the sale of equity securities.

There is scientific debate on the health effects of nano-materials such as graphene nanoplatelets, but some scientists believe that certain nano-materials may be hazardous to human health, including the respiratory system if inhaled. Although there is no conclusive evidence of any danger associated with the handling of the Company’s products, there is a theoretical risk of danger to health if an individual is exposed to and/or inhales/ingests some of the Company’s products. The specific health effects of nanoplatelets are unknown and can depend on how they are incorporated and/or bonded to other materials. We carefully evaluate potential health effects of our products and the effects of handling materials on our employees and those who manufacture for us, but as any specific health risks are unknown, we cannot be certain our products are free of danger to our employees and customers. If graphene nanoplatelets are found to be hazardous to human health, this may adversely affect market acceptance of our products, subject us to additional regulation and have an adverse effect on our business.17

~~Defects in~~Securities ~~our~~Authorized ~~products~~for orIssuance ~~poor~~under ~~performance~~Equity ~~of our customers’ products could result in lost sales and subject us to substantial~~Compensation ~~liability.~~Plans

~~We have~~As ~~limited experience with large scale commercialization by our customers~~ of ~~products~~December ~~incorporating~~31, ~~our nanoplatelets~~2020, and ~~the chance of variability in the performance of our products as shipped may impact the performance of our customers’ products. If our customers’ products incorporating nanoplatelets perform poorly~~2019, ~~whether due to design, engineering, production or other reasons, our customers may scale back or cancel orders. In certain cases, if our nanoplatelets are found to be~~ the ~~component~~Company ~~that~~had ~~leads~~outstanding tostock ~~failure~~options ~~or a failure~~ to ~~meet~~purchase ~~the~~up ~~performance specifications of a customer, we could be required~~ to ~~pay monetary damages. Real or perceived defects in our products could result in claims by our customers for losses they sustain. If our customers make such claims~~504,110 ~~we may be required, or may choose, for customer relations or other reasons, to expend additional resources to help correct any real or perceived defects. Liability provisions in our terms~~ and ~~conditions of sale may not be enforceable under some circumstances or may not fully or effectively protect us from claims and related liabilities and costs. In addition~~839,625 ~~regardless of~~shares ~~the party at fault, errors~~ of ~~these~~common ~~kinds divert the attention of our engineering personnel from our product development efforts~~stock, ~~damage~~ ~~our reputation and the reputation of our products, cause significant customer relations problems and can result in product liability claims~~respectively. In addition, even claims that ultimately are unsuccessful could result in expenditures of funds in connection with litigation and divert management’s time and other resources. We also may incur costs and expenses relating to a recall of one or more of our products, and the occurrence of such claims could result in the delay or loss of market acceptance of our products and could adversely affect our business, operating results and financial condition.

16On September 30, 2020, and September 30, 2019, the Company granted each Board member 2,500 stock options and 2,500 shares of restricted stock for their Board services. The options were granted at a price of $8.00 per share and vest ratably over a four-year period beginning on the one-year anniversary. The options had an aggregate grant date fair value of $24,300 and $38,295 on September 30, 2020, and, September 30, 2019, respectively.

IfThe restricted stock issued to the Board members ~~product~~from ~~liability~~September ~~lawsuits~~30, ~~are~~2017, ~~brought~~through ~~against~~September us30, we2020 ~~may~~has ~~incur~~an ~~substantial~~aggregate ~~liabilities~~fair value of $320,000 and vests ratably in arrears over four quarters on the last day of each fiscal quarter following the grant date. As of December 31, 2020, and 2019, 35,000 and 23,125 of the 42,500 shares of restricted stock issued had vested, resulting in compensation expense of $84,600 and $90,000 for the years ended December 31, 2020 and December 31, 2019, respectively.

~~We have~~On ~~limited~~April ~~experience~~1, ~~with~~2020, we ~~the~~granted ~~large-scale~~138,734 ~~manufacturing~~stock ~~and~~options ~~distribution~~to ofemployees ~~our~~who ~~products.~~had ~~The~~received ~~commercialization~~a ofreduction ~~our products and the sale of our products~~ in ~~significant~~pay ~~quantities~~due ~~involves exposure~~ to ~~product~~cost ~~liability claims~~controls. WeThese options have ~~limited~~an ~~product~~exercise ~~liability~~price ~~insurance~~of $8.00, Ifvesting ~~existing~~1/3 ~~coverage~~upon isthe ~~insufficient~~grant todate ~~cover~~and ~~claims~~1/3 oron wethe ~~cannot~~anniversary ~~obtain~~of ~~sufficient~~the ~~insurance~~grant ~~coverage~~for ~~at an~~the ~~acceptable~~next ~~cost~~two oryears. ~~otherwise~~During ~~protect~~the ~~against~~year ended ~~potential~~December ~~product~~31, ~~liability claims~~2020, ~~the~~and ~~commercialization~~December of31, ~~products~~2019, ~~that~~ we ~~develop~~ ~~may~~granted be138,734 ~~prevented~~and or70,000 ~~inhibited. We~~stock ~~cannot~~options, ~~predict~~respectively, ~~all~~to ofemployees ~~the~~with ~~adverse~~an exercise ~~health~~price ~~events that our products or use~~ of ~~our products in our customer’s products may cause~~$8.00 Asand a ~~result,~~seven-year ~~our~~term. ~~future~~The ~~coverages~~aggregate ~~may~~fair ~~not~~value ~~be adequate to protect us from all~~ of the ~~liabilities~~awards ~~that~~on wethe ~~may~~date ~~incur.~~of Ifgrant ~~losses~~was ~~from product liability claims exceed any insurance coverage~~$329,850 weand ~~may incur~~$177,111, ~~substantial liabilities that exceed our financial resources. In addition~~respectively, weas ~~may~~of ~~not~~December ~~be able to maintain future product liability insurance at an acceptable cost~~31, ~~if at all~~2020, and ~~this~~December ~~insurance~~31, ~~may not provide adequate coverage against potential claims or losses~~2019. If weExcept ~~are~~for ~~required~~the tostock ~~pay~~options agranted ~~product~~on ~~liability~~April ~~claim~~1, we2020, ~~may~~all ~~not have sufficient financial resources and our business and results~~other ofstock ~~operations~~options ~~may~~vest beequally ~~harmed.~~over ~~Whether~~four oryears ~~not~~beginning weon ~~are~~the ~~ultimately~~first ~~successful~~anniversary ~~in product liability litigation, such litigation could also consume substantial amounts~~ of ~~our~~the ~~financial~~date ~~and managerial resources, and might result in adverse publicity, all~~ of ~~which could have a material adverse effect on our business~~grant.

~~Cybersecurity incidents~~As ~~could~~of ~~disrupt~~December ~~business~~31, ~~operations~~2020, ~~result~~stock inoptions ~~the~~to ~~loss~~purchase a total of ~~critical~~504,110 ~~and~~shares ~~confidential~~at ~~information,~~a price of $8.00 per share had been granted to Company employees and ~~adversely~~Directors ~~impact~~and remained outstanding, ~~our~~with ~~reputation~~expiration ~~and~~dates ~~results~~ranging offrom ~~operations~~July 2024 to September 2027.

~~Global cybersecurity~~Equity ~~threats~~Compensation ~~and~~Plan ~~incidents can range from uncoordinated individual attempts to gain unauthorized access to information technology systems to sophisticated and targeted measures known~~ as advanced persistent threats, directed at the Company, its plants and operations, its products, its customers and/or its third-party service providers. We rely on third party service providers to protect information technology systems, a breach of ~~which~~December ~~could expose our confidential intellectual property~~31, including trade secrets. The failure to protect such intellectual property could create a diminution in the value of our investment in research, development and engineering, and increased cybersecurity protection and remediation costs, which in turn could adversely affect our competitiveness and results of operations. We cannot be sure that our information technology infrastructure is safe from cybersecurity threats or other forms of intellectual property appropriation. Cybersecurity incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own or that of third parties) and the disruption of business operations. The potential consequences of a material cybersecurity incident or other such intellectual property appropriation include reputational damage, claims from and litigation with third parties, fines levied by governmental authorities, and competitive disadvantages in our business.2020

Risks Relating to Our Common Stock

Equity Compensation Plan Information
Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted- average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) (c)
Equity compensation plans approved by security holders ⁽¹⁾		504,110	$	8.00		695,890
Equity compensation plans not approved by security holders		—		—		—
Total		504,110	$	8.00		695,890

~~There is~~(1) aReflects ~~risk~~our 2017 Plan, for the benefit of ~~dilution~~our directors, officers, employees and consultants as of ~~your~~December ~~percentage~~31, ~~ownership~~2020. As of December 31, 2020, we had reserved 1,200,000 shares of common stock infor ~~the~~such ~~Company~~persons pursuant to that plan and had granted stock options to purchase 504,110 shares at a price of $8.00 with 695,890 shares remaining available for future issuance.

We have the right to raise additional capital or incur borrowings from third parties to finance the business. We may also implement public or private mergers, business combinations, business acquisitions and similar transactions pursuant to which we would issue substantial additional capital stock to outside parties, causing substantial dilution in the ownership of the Company by our existing stockholders. Subject to certain exceptions, our Board of Directors has the authority, without the consent of any of the stockholders, to cause the Company to issue more shares of common stock and/or preferred stock at such price and on such terms and conditions as are determined by the Board in its sole discretion.18

~~The~~DIVIDEND sale of the shares offered by us in our past Registration Statement, as well as the shares of common stock issuable upon the exercise of options, convertible notes and warrants, the shares issuable upon conversion of Series A Preferred Stock (including the shares of Series A Preferred Stock issuable upon the exercise of warrants), the shares issuable upon Conversion of any Series B Preferred Stock that we issue and the issuance of additional shares of capital stock by us will dilute an investor’s ownership percentage in the Company and could impair our ability to raise capital in the future through the sale of equity securities.POLICY

~~Certain~~Since inception, we have not paid any dividends ~~stockholders~~on ~~who~~our ~~are~~common ~~also~~stock. ~~officers~~We ~~and~~currently ~~directors~~do ofnot anticipate paying any cash dividends in the ~~Company~~foreseeable ~~may~~future ~~have~~on ~~significant~~our ~~control~~common ~~over~~stock, because we intend to retain our ~~management~~earnings, ~~which~~if ~~may~~any, ~~not~~to finance the growth of our business. Our Board of Directors will have the discretion beto declare and pay dividends in ~~your~~the ~~best~~future. ~~interests~~Payment of dividends in the future will depend upon our earnings, capital requirements, and other factors, which our Board of Directors may deem relevant.

~~As of~~UNREGISTERED ~~December~~SALES ~~31,~~OF ~~2019,~~EQUITY the directors, or the entities they represent, and executive officers of the Company owned approximately 44.9% of the voting stock of the Company. Certain of these executives and directors, or the companies they represent, converted secured convertible notes into an additional 1,383,900 shares of Series A Preferred Stock on December 31, 2015 and have made commitments to purchase additional convertible notes in the near future.SECURITIES

17For the years ended December 31, 2020 and 2019, we issued promissory notes and warrants to purchase shares of common stock of the Company to Dow pursuant to the Dow Facility. The notes are non-convertible and mature on December 1, 2023. The warrants have a seven-year maturity date with a strike price of $8.00 per share. Details of the Promissory Notes and Warrants Issued for the years ended December 31, 2020 and 2019 are listed below.

Additionally, certain existing shareholders are party to a certain Shareholder Agreement, as amended on March 18, 2013 and amended on February 24, 2016, effective as of April 13, 2016, and amended on May 30, 2018 (the “Shareholder Agreement”). Although shareholders having purchased shares under our Registration Statement will not be subject to the Shareholder Agreement, certain provisions of such Shareholder Agreement may impact the governance of the Company. Pursuant to the Shareholder Agreement, (a) so long as Aspen Advance Opportunity Fund, LP, or “AAOF” or its affiliates own 10% of more of the aggregate outstanding Shareholder Stock (as defined in the Shareholder Agreement), (i) the size of the Board of Directors shall be set at seven individuals (provided, however, that the number of directors on the Board of Directors may be increased or decreased with the prior written consent of AAOF and shareholders (including AAOF) who in the aggregate then own Shareholder Stock representing a majority of the then issued and outstanding voting stock of the Company), (ii) one person nominated by AAOF shall be elected to the Board of Directors, (iii) two members of the Board of Directors, other than those nominated by AAOF, POSCO or Hanwha Chemical, shall qualify as independent Directors.

Date Issued	Amount of Promissory Note		Warrants Issued		Note Maturity Date	Warrant Strike Price		Warrant Maturity Date
7/8/2019	$	2,000,000		50,000	12/1/2023	$	8.00	7/8/2026
11/11/2019	$	2,000,000		50,000	12/1/2023	$	8.00	11/11/2026
2/12/2020	$	1,000,000		25,000	12/1/2023	$	8.00	2/12/2027
Total	$	5,000,000		125,000

~~The~~ITEM Shareholder Agreement will continue in effect, unless the Shareholder Agreement is earlier terminated in accordance with its terms, until the date on which the Company’s common stock is listed on the NASDAQ Stock Market of the New York Stock Exchange6. AsSELECTED aFINANCIAL result, the Shareholder Agreement will continue to remain in effect and certain of our larger shareholders will be entitled to continue to exercise their rights under such Shareholder Agreement, but purchasers of shares of common stock under the Registration Statement filed in connection with our last Offering are not required to adopt the Shareholder Agreement.DATA

As a ~~result, such entities have~~ a ~~significant~~smaller ~~influence~~reporting ~~on the affairs and management of the Company~~company, as ~~well as on all matters requiring~~defined ~~stockholder~~in ~~approval,~~Rule ~~including~~10(f)(1) ~~electing and removing members~~ of ~~our~~Regulation ~~Board~~S-K ofunder ~~Directors, causing us to engage in transactions with affiliated entities, causing or restricting~~ the ~~sale~~Securities orExchange ~~merger~~Act of ~~the Company~~1934, ~~and~~as ~~certain~~amended ~~other matters. Such concentration of ownership and control could have~~ (the ~~effect~~“Exchange ~~of delaying~~Act”), ~~deferring or preventing a change in control of~~ the Company ~~even~~is ~~when such~~not arequired ~~change~~to ofprovide ~~control would be in~~ the ~~best~~information ~~interests~~required ofby ~~our~~this ~~shareholders~~item.

~~We may,~~ITEM in7. ~~the~~MANAGEMENT’S ~~future,~~DISCUSSION ~~issue~~AND ~~additional~~ANALYSIS ~~shares~~OF ofFINANCIAL ~~common~~CONDITION ~~stock,~~AND ~~which~~RESULTS ~~would~~OF ~~reduce investors’ percent of ownership and may dilute our share value.~~OPERATIONS

~~Our Articles~~This ofsection ~~Incorporation,~~includes asa ~~amended,~~number ~~authorize~~of ~~the~~forward-looking statements ~~issuance~~that ofreflect upour tocurrent ~~25,000,000~~views ~~shares~~with ofrespect ~~common~~to ~~stock~~future events and upfinancial toperformance. ~~8,000,000~~Forward-looking ~~shares~~statements are ofoften ~~preferred~~identified ~~stock.~~by Aswords oflike ~~December~~“believe”, 31“expect”, ~~2019~~“estimate”, ~~the~~“anticipate”, ~~Company~~“intend”, “project” ~~had~~and 4similar expressions,~~024,443~~ ~~shares~~or ofwords ~~common~~which, ~~stock~~by ~~and~~their 1nature,~~890,354~~ ~~shares~~refer ofto ~~Series~~future Aevents. You should not place undue ~~Preferred~~certainty ~~Stock~~on ~~issued~~these forward-looking statements. These forward-looking statements are subject to certain risks and ~~outstanding~~uncertainties that could cause actual results to differ materially from our predictions.

~~Upon a~~Overview ~~Public Listing on a Qualified National Exchange, all Series A Preferred Stock then currently outstanding will automatically convert into shares~~ of ~~common~~our stock at the then-current Series A Conversion Rate (current ratio is 1.875 shares of common for 1 share of Series A), which would result in the issuance of 3,544,408 shares of common stock assuming the conversion of all 1,890,354 shares of Series A Preferred Stock. Series A Preferred Stockholders may also voluntarily convert at the then-current rate at any time prior to any such Public Listing on a Qualified National Exchange.Business

~~As of~~XG ~~December~~Sciences ~~31,~~was ~~2019,~~formed ~~the~~in ~~Company~~May ~~had~~2006 ~~also granted options to purchase up to 839,625 shares of common stock and had issued warrants to purchase up to (i) 487,017 shares of common stock, (including the warrants~~ for ~~225,000 shares issued under~~ the ~~Dow Facility)~~ ~~and~~purpose ~~(ii) 972,720 shares~~ of ~~Series~~commercializing Acertain ~~Preferred~~technology ~~Stock~~to ~~which,~~produce ifgraphene ~~exercised,~~nanoplatelets ~~would~~and beproducts ~~convertible~~containing ~~into~~graphene ~~1,823,845 shares of common~~nanoplatelets. ~~stock~~First atisolated ~~the~~and ~~then-current~~characterized ~~Series~~in A2004, ~~Conversion~~graphene ~~Rate~~is ~~(currently~~a ~~1.875~~single ~~shares~~layer of ~~common~~carbon ~~for~~atoms 1configured ~~share~~in ofan ~~Series~~atomic-scale ~~A).~~honeycomb ~~Therefore, we have~~lattice. ~~committed~~Among tomany ~~issue~~noted ~~up to an additional 6~~properties,~~694,895~~ ~~shares~~monolayer ofgraphene ~~common~~is ~~stock,~~harder ~~which~~than ~~includes the issuance of (a) 3~~diamonds,~~544,408~~ ~~shares~~lighter ~~upon conversion~~than ofsteel ~~all~~but ~~1,890,354~~significantly ~~shares Series A Preferred Stock currently outstanding at the Series A Conversion Rate~~stronger, ~~(b)~~and ~~1,823,845~~conducts ~~shares~~electricity ~~upon~~better ~~the~~than ~~conversion~~copper. ofGraphene ~~972,720~~nanoplatelets ~~shares of Series A Preferred Stock (at the current Series A Conversion Rate) which~~ are ~~issuable upon~~particles ~~exercise~~consisting of ~~972,720~~multiple ~~Series~~layers ~~A warrants, (c) 839,625 shares upon the exercise~~ of ~~options~~graphene. ~~and~~Graphene ~~(d) the issuance of 487,017 shares~~nanoplatelets ~~upon~~have ~~the~~unique ~~exercise~~capabilities offor ~~warrants.~~energy ~~If we issued all 6~~storage,~~694,895~~ ~~shares,~~thermal ~~we would have~~conductivity, ~~including~~electrical ~~the 4~~conductivity,~~024,443~~ ~~shares~~barrier ~~currently outstanding~~properties, ~~10,719,338~~ ~~shares~~lubricity ~~issued~~ and ~~outstanding, with 14,280,662 authorized shares available for future issuance. The future issuance~~ ofthe ~~common~~ability ~~stock~~to orimpart ~~other~~strength ~~securities~~when ~~convertible~~incorporated into ~~our~~plastics common stock may result in substantial dilution in the percentage of our common stock held by our existing shareholders. Other than in our past IPO, we may value any common stock issued in the future on an arbitrary basis. The issuance of common stock for future services or ~~acquisitions or~~ other corporate actions may have the effect of diluting the value of the shares held by our investors, might have an adverse effect on any trading market for our common stock and could impair our ability to raise capital in the future through the sale of equity securitiesmatrices.

1819

~~The~~We ~~Dow~~believe ~~Facility~~the ~~obligates~~unique usproperties toof ~~issue~~graphene aand ~~warrant~~graphene tonanoplatelets ~~purchase~~will aenable ~~share~~numerous ofnew ~~our~~product ~~common~~applications ~~stock~~and we expect the market for ~~each~~such ~~$40~~products into ~~debt~~grow ~~drawn~~to be a significant market opportunity. ~~Subsequent~~Our business model is to ~~the~~design, ~~2019~~manufacture ~~year~~and sell advanced materials we call xGnP® graphene nanoplatelets and value-~~end,~~added products based on ~~February~~these 12nanoplatelets. Since our inceptions, customers have trialed ~~2020~~our products for numerous applications, weincluding, ~~drew~~but ~~the~~not ~~remaining~~limited $1to ~~million~~lithium-ion ~~from~~batteries, ~~the~~lead ~~Dow~~acid ~~Facility~~batteries, thermally conductive adhesives, composites, thermal management and ~~issued~~heat ~~warrants~~transfer, toinks ~~purchase~~and upcoatings, toprinted 25electronics,~~000~~ ~~more~~construction materials, cement, and in a range of ~~our~~other ~~shares~~industrial uses. ~~With~~ ~~the~~We ~~issue~~believe our proprietary processes have enabled us to be a manufacturer of ~~these~~high ~~warrants~~quality, graphene ~~further~~nanoplatelets ~~dilution~~and ~~has~~value-added ~~occurred~~products containing graphene nanoplatelets and that we are well positioned to address a wide range of end-use applications.

We ~~are~~sell ~~considered~~products ato customers around ~~smaller~~the ~~reporting company~~world and ~~are~~have ~~exempt~~sold ~~from~~or ~~certain~~sampled ~~disclosure~~materials to ~~requirements~~over 1,300 customers ~~which~~in ~~could~~over ~~make~~45 ~~our~~countries ~~stock~~since 2008. ~~less~~Some ~~attractive~~of tothese ~~potential~~customers ~~investors~~are research organizations and some are commercial organizations.

~~Rule 12b-2~~We oftarget ~~the~~our ~~Exchange~~xGnP® ~~Act,~~nanoplatelets asfor ~~amended~~use ~~and~~in ~~effective~~a ~~September~~range ~~10,~~of ~~2018,~~large ~~defines~~and agrowing ~~“smaller~~end-use ~~reporting company” as an~~markets. ~~issuer~~Our ~~that~~proprietary ismanufacturing ~~not~~processes anallow ~~investment~~us ~~company,~~to anproduce ~~asset-backed~~nanoplatelets ~~issuer,~~with orvarying aperformance ~~majority-owned~~characteristics ~~subsidiary~~that ofcan abe tuned ~~parent~~to ~~that~~specific isend-use ~~not~~applications abased ~~smaller reporting~~on ~~company~~customer ~~and that:~~requirements.

● Had a public float of less than $250 million as of the last business day of its most recently completed second fiscal quarter, computed by multiplying the aggregate worldwide number of shares of its voting and non-voting common equity held by non-affiliates by the price at which the common equity was last sold, or the average of the bid and asked prices of common equity, in the principal market for the common equity; or20

●Because graphene Inis ~~the~~a ~~case~~new material, many of anour ~~initial~~customers ~~registration~~are ~~statement~~still ~~under~~developing ~~the~~applications ~~Securities~~that ~~Act~~use orour ~~Exchange~~products, ~~Act~~and ~~for~~thus ~~shares~~historically those ofcustomers ~~its~~have ~~common~~purchased ~~equity~~products in quantities consistent with development purposes, ~~had~~although asome ~~public~~are ~~float~~now ofpurchasing ~~less~~in quantities ~~than~~consistent ~~$250~~with ~~million~~larger asvolume commercial production. The process of a“designing-in” ~~date~~new ~~within~~materials 30is ~~days~~a ofrelatively complex one and involves the ~~date~~use of ~~the~~relatively ~~filing~~small amounts of the ~~registration~~new ~~statement~~material in laboratory and engineering development for an extended period. Following successful development, ~~computed~~we bybelieve ~~multiplying~~customers ~~the~~that ~~aggregate~~incorporate ~~worldwide~~our ~~number~~materials into their products will then order much larger quantities of ~~such~~material ~~shares~~to ~~held~~support bycommercial ~~non-affiliates~~production. ~~before~~Thus, ~~the~~while ~~registration~~many ~~plus~~of our customers are currently purchasing our materials in kilogram (one or two pound) quantities, and some have begun to purchase in ~~the~~metric ~~case~~tons, we believe many will require tens of atons ~~Securities~~or ~~Act~~even ~~registration~~hundreds ~~statement~~of tons of material when they commercialize products that incorporate our materials. Although, ~~the~~our ~~number~~customers ofare ~~such~~under ~~shares~~no ~~included~~obligation into ~~the~~report ~~registration~~to ~~statement~~us byon the ~~estimated~~usage ~~public~~of ~~offering~~our ~~price~~materials, ofsome ~~the~~have ~~shares;~~indicated that they have introduced or will soon introduce commercial products that use our materials.

●Operating In the case of an issuer who had a public float as calculated under paragraph (1) or (2) of this definition of less than $700 million or had no float and had annual revenues of less than $100 million during the most recently completed fiscal year for which audited financial statements are available.Segment

~~As a~~We ~~“smaller~~have ~~reporting~~one ~~company”~~operating ~~(in~~segment ~~addition~~that tomanufactures xGnP® ~~and~~graphene ~~without~~nanoplatelets ~~regard~~and tovalue-added ~~our~~products ~~status~~produced astherefrom, ~~an “emerging growth company”) (i)~~ we ~~are~~conduct ~~not~~research ~~required~~on graphene nanoplatelets and ~~may~~related ~~not~~products, ~~include a “Discussion~~ and ~~Analysis”~~we ~~section~~license in our ~~proxy~~technology, ~~statements;~~as ~~(ii)~~appropriate. weAs ~~provide only 3 years~~ of ~~business~~December ~~development~~31, ~~information;~~2020, ~~(iii)~~ we ~~provide~~shipped ~~fewer years of selected financial data in certain tables; and~~products ~~(iv)~~on wea ~~have~~worldwide ~~other~~basis, ~~“scaled”~~but ~~disclosure~~all ~~requirements~~of ~~that are less comprehensive than issuers that are not “smaller reporting companies” which may make~~ our ~~stock~~assets ~~less~~were ~~attractive~~located towithin ~~potential~~the ~~investors,~~United ~~which could make it even more difficult for you to sell your shares~~States.

~~We are~~Our ~~subject~~Critical toAccounting the periodic reporting requirements of the Exchange Act, which will require us to incur audit fees, legal fees and valuation fees in connection with the preparation of such reports. These additional costs will negatively affect our ability to earn a profit.Policies

WeU.S. ~~are~~generally ~~required~~accepted toaccounting ~~file periodic reports~~principles ~~with~~(“GAAP”) ~~the~~requires ~~SEC~~management ~~pursuant~~ to ~~the~~make ~~Exchange~~estimates, ~~Act~~judgments and ~~the~~assumptions ~~rules~~that ~~and~~affect ~~regulations~~the ~~thereunder~~reported byamounts ~~virtue~~ of ~~our~~assets, liabilities, ~~effective~~revenues ~~Registration Statement~~ and ~~our~~expenses, ~~status~~together ~~as a smaller reporting company. In order to comply~~ with ~~such~~amounts ~~requirements,~~disclosed ~~our~~in ~~independent~~the ~~registered~~related ~~auditors have~~notes to ~~review~~the ~~our~~consolidated financial statements. Actual onresults ~~a quarterly basis~~ and ~~audit~~outcomes ~~our~~may ~~financial~~differ ~~statements~~from onmanagement’s ~~an annual basis. Moreover~~estimates, ~~our~~ ~~legal~~judgments ~~counsel will have to review~~ and ~~assist in the preparation of such reports~~assumptions. ~~Factors~~Significant ~~such~~estimates, ~~as the number~~ judgments and ~~type~~assumptions ofused ~~transactions that we engage~~ in ~~and the complexity of~~ our ~~reports~~consolidated ~~cannot~~financial ~~accurately~~statements beinclude, ~~determined~~but atare ~~this~~not ~~time~~limited ~~and~~to, ~~may~~those ~~have~~related ato ~~major~~revenues, ~~negative effect on~~ the ~~cost~~fair value ~~and amount~~ of ~~time~~stock-based tocompensation, beaccounting ~~spent~~for bycomplex ~~our~~debt ~~auditors~~ and ~~attorneys.~~equity ~~However~~instruments, ~~the~~and ~~incurrence~~liquidity. ofThese ~~such~~estimates, ~~costs will be~~judgments, anand ~~expense~~assumptions toare ~~our~~reviewed ~~operations~~periodically and ~~thus~~the ~~have~~effects aof ~~negative~~material ~~effect~~revisions onin ~~our~~estimates ~~ability~~are toreflected ~~meet our overhead requirements and earn a profit,~~ in the ~~event~~consolidated financial ~~that~~statements weprospectively ~~are~~from ~~unable~~the todate ~~raise~~of ~~additional~~the ~~capital~~change ~~and~~in ~~do not have sufficient funds to pay these costs~~estimate.

~~However, for~~Revenue ~~as long as we remain an “emerging growth company” we intend to take advantage of certain exemptions from various reporting requirements until we are no longer an “emerging growth company.”~~Recognition

~~For so~~On ~~long~~January as1, ~~we remain a smaller reporting company~~2018, ~~we benefit from many of~~ the ~~same~~Company ~~exemptions~~adopted ~~and exclusions as an emerging growth~~ASU ~~company~~No. ~~In the event that we cease to be an emerging growth company as a result of a lapse of the five~~2014-~~year period~~09, ~~but~~Revenue ~~continue to~~from beContracts awith ~~smaller~~Customers ~~reporting~~(Topic ~~company~~606), wewhich ~~would~~supersedes ~~continue~~nearly toall beprevious ~~subject~~revenue ~~to the exemptions available to emerging growth companies until~~recognition ~~such time as we were no longer a smaller reporting company~~guidance.

~~After~~Revenues are recognized at a point in time, ~~and~~typically ifwhen ~~ever,~~control weof ~~are~~the nopromised ~~longer~~goods anis ~~“emerging~~transferred ~~growth~~to ~~company~~customers,” wein ~~expect~~an toamount ~~incur~~that ~~significant~~reflects ~~additional~~the ~~expenses~~consideration ~~and~~the Company ~~devote~~expects ~~substantial~~to ~~management~~be ~~effort~~entitled ~~toward~~to ~~ensuring~~in ~~compliance~~exchange ~~with~~for those ~~requirements~~goods. ~~applicable~~The toCompany ~~companies~~does ~~that~~not ~~are~~recognize ~~not~~revenue ~~“emerging growth~~in ~~companies,”~~cases ~~including~~where ~~Section~~collectability ~~404~~is not ofprobable and defers the ~~Sarbanes-Oxley~~recognition ~~Act~~until collection is probable or payment is received.

19Customer deposits, deferred revenue and other receipts are deferred and recognized when the revenue is realized and earned.

~~For~~Revenue related to licensing agreements is sorecorded ~~long~~upon assubstantial weperformance ~~are~~of anthe ~~emerging~~terms ~~growth~~of ~~company~~the licensing contract. In the case of licensing arrangements that involve up-front payments, werevenue ~~may~~is ~~rely~~recorded onwhen ~~certain~~management ~~exemptions~~determines ~~provided~~that inthe appropriate terms of the ~~JOBS~~contract ~~Act~~have been fulfilled. For example, ~~which~~this ~~could~~may ~~make~~occur ~~our common~~when ~~stock~~technology ~~less~~has ~~attractive~~been totransferred ~~investors~~via ~~due~~written todocuments or, if training is involved, whenever all contracted training has occurred. In the ~~nature~~case of licenses where product delivery is also embedded in the ~~reduced~~deliverable, ~~disclosure~~a portion of revenue would be recognized when products are delivered.

~~We are~~In ~~an “emerging growth company,” as defined in~~ the ~~JOBS~~case ~~Act, and may remain an emerging growth company up to the last day~~ of ~~the~~licensing ~~fiscal~~arrangements ~~year following the fifth anniversary of the date of the completion of our Offering. For so long as we remain~~that aninvolve ~~emerging~~ongoing ~~growth~~royalties ~~company,~~based ~~we are permitted and plan to rely~~ on ~~exemptions~~sales ~~from~~of ~~certain~~products ~~disclosure~~produced ~~requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include not being required to comply~~ with ~~the auditor~~our ~~attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002~~technology, orroyalty ~~SOX~~income ~~Section~~is ~~404,~~recorded ~~not~~when ~~being~~received ~~required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation~~ or ~~a supplement to the auditor’s report providing additional information about the audit and the financial statements~~, ~~reduced~~ ~~disclosure~~in ~~obligations regarding executive compensation and exemptions from~~ the ~~requirements~~case of ~~holding~~minimum aroyalties ~~nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. In this Annual Report on Form 10-K~~due, wein ~~have provided only two years of audited financial statements and have not included all of~~ the executive compensation related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period ~~for~~when ~~complying with new or revised accounting standards~~due. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

~~If our~~Grant ~~common~~contract ~~stock~~revenue ~~becomes~~is arecognized ~~“penny~~over ~~stock,”~~the life ~~you~~of ~~may~~the ~~have~~contracts ~~greater~~as ~~difficulty~~the ~~selling~~services ~~your~~are ~~shares~~performed.

~~Penny stocks~~Amounts ~~are~~received generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in ~~such securities~~excess ~~is provided by the exchange or quotation system. After a Public Listing, our common stock may become a “penny stock” within the meaning~~ of ~~the~~revenues ~~rules, the rules apply to us and to our securities if we~~ earned are ~~not~~recorded ~~listed on a national securities exchange. These rules may further affect the ability of owners of shares to sell our securities in any market that might develop for them. As long~~ as ~~the~~deferred ~~trading price of our common stock is less than $5~~revenue.00 per share, even if our common stock is quoted on either the OTCQX or OTCQB market place operated by the OTC Markets, our common stock will be subject to Rule 15g-9 under the Exchange Act (the “Penny Stock Rules”). The Penny Stock Rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that:

●Fair ~~contains~~Value ~~a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;~~Measurements

●FASB ~~contains~~ASC a820: ~~description~~“Fair ofValue Measurements and Disclosures” defines fair value as the ~~broker’s~~exchange orprice ~~dealer’s~~that ~~duties~~would be received for an asset or paid to transfer a liability (an exit price) in the ~~customer~~principal ~~and~~or ofmost advantageous market for the ~~rights~~asset ~~and~~or ~~remedies~~liability ~~available~~in toan orderly transaction between market participants on the ~~customer~~measurement ~~with~~date. ~~respect~~ASC to820 also establishes a ~~violation~~fair value hierarchy which requires an entity to ~~such~~maximize ~~duties~~the use orof ~~other~~observable ~~requirements~~inputs and minimize the use of ~~securities~~unobservable ~~laws;~~inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

●Level ~~contains~~1: aQuoted ~~brief,~~prices ~~clear,~~in ~~narrative~~active ~~description of a dealer market, including bid and ask prices~~ markets for ~~penny~~identical ~~stocks~~assets ~~and~~or ~~the significance of the spread between the bid and ask price;~~liabilities.

●Level ~~contains~~2: aInputs ~~toll-free~~other ~~telephone~~than ~~number~~quoted ~~for~~prices included ~~inquiries~~within onLevel ~~disciplinary~~1 ~~actions;~~which are either directly or indirectly observable.

●Level ~~defines~~3: ~~significant~~Inputs ~~terms~~to in the ~~disclosure~~valuation ~~document~~methodology are orunobservable inand ~~the~~significant ~~conduct~~to ofthe ~~trading~~fair invalue ~~penny stocks; and~~measurement.

●A ~~contains~~financial ~~such~~instrument’s ~~other~~level ~~information~~within the ~~and~~fair isvalue inhierarchy ~~such~~is ~~form,~~based ~~including~~on ~~language,~~the ~~type,~~lowest ~~size~~level ~~and~~of ~~format,~~any asinput ~~the~~that ~~SEC~~is ~~shall~~significant ~~require~~to bythe ~~rule~~fair orvalue ~~regulation~~measurement.

20Stock-Based Compensation

~~The~~We ~~broker-dealer~~recognize ~~also~~compensation ~~must~~expense ~~provide, prior to effecting any transaction~~ in aour ~~penny~~statement ~~stock,~~of ~~the~~operations for ~~customer~~all ~~with:~~share-based ~~(a)~~option ~~bid~~ and ~~offer quotations for the penny~~ stock; ~~(b)~~awards, ~~the~~based ~~compensation of~~on ~~the~~estimated ~~broker~~grant-~~dealer~~date ~~and~~fair ~~its~~values. ~~salesperson~~We inestimate the ~~transaction;~~grant-date ~~(c)~~fair ~~the~~value ~~number~~ of ~~shares to which such bid and ask prices apply,~~ orstock-based ~~other~~compensation ~~comparable~~awards ~~information~~using ~~relating to~~ the ~~depth~~Black-Scholes ~~and~~option ~~liquidity~~valuation ofmodel. ~~the~~This ~~market~~model ~~for~~is ~~such~~affected ~~stock;~~by ~~and (d) a monthly account statements showing~~ the ~~market~~estimated value of our ~~each~~common ~~penny~~ stock ~~held~~on in the ~~customer’s~~date ~~account.~~of ~~In addition,~~ the ~~penny~~grant ~~stock~~as ~~rules~~well ~~require that,~~as ~~prior~~assumptions toregarding a ~~transaction~~number inof acomplex ~~penny~~and ~~stock~~subjective ~~not~~variables. ~~otherwise exempt from those rules, the broker-dealer must make a special written~~These ~~determination~~variables ~~that~~include the ~~penny~~expected ~~stock~~term isof ~~a suitable investment for~~ the ~~purchaser~~option, ~~and receive~~ the ~~purchaser’s~~exercise ~~written~~price, ~~acknowledgment of~~expected ~~the~~risk-free ~~receipt~~rates of ~~a risk disclosure statement~~return, athe ~~written~~expected ~~agreement~~volatility of toour ~~transactions~~common ~~involving penny stocks~~stock, and aexpected ~~signed~~dividend ~~and~~yield, ~~dated copy~~each of awhich ~~written~~is ~~suitability~~more ~~statement.~~fully ~~These~~described ~~disclosure~~below. ~~requirements~~The ~~may~~assumptions ~~have~~for the ~~effect~~estimated value of ~~reducing~~our ~~the~~common ~~trading~~stock, ~~activity~~expected ~~in the~~term ~~secondary~~and ~~market~~expected ~~for~~volatility ~~our~~are ~~stock~~the ifassumptions itthat ~~becomes~~most ~~designated~~significantly asaffect athe ~~Penny~~grant ~~Stock~~date fair value.

~~Because we do not intend to pay any cash dividends on our common stock, our stockholders will not be able to receive a return on their shares unless they sell them.~~21

WeExpected Term: Because ~~intend~~we tohave ~~retain~~limited ~~any~~experience ~~future~~related ~~earnings~~ to ~~finance~~ the ~~development~~exercise ~~and expansion~~ of ~~our~~employee ~~business.~~stock Weoptions, dowe ~~not~~use ~~anticipate~~the ~~paying~~simplified ~~any cash~~method ~~dividends~~permitted onby ~~our~~SEC ~~common~~Staff Accounting ~~stock~~Bulletin inTopic ~~the~~14 ~~foreseeable~~to ~~future.~~estimate ~~Unless~~the weexpected ~~pay~~term ~~dividends,~~of ~~our~~the ~~stockholders~~options. ~~will~~The ~~not~~expected beterm ~~able~~of toan ~~receive a~~option ~~return~~is onestimated ~~their~~to ~~shares~~be ~~unless~~equal to ~~they~~the ~~sell~~mid-point ~~them.~~between ~~There~~the isvesting noand ~~assurance~~expiration ~~that~~dates ~~stockholders~~of ~~will~~the ~~be able to sell shares when desired~~option.

~~Risks~~Risk-free Interest Rate: We ~~Related~~base the risk-free interest rate used on the implied yield at the grant date of U.S. Treasury zero-coupon issues with a term approximately equal to ~~Equity~~the ~~Offerings~~expected term of the stock-based award being valued.

Expected Stock Price Volatility: Because ~~the~~we ~~offering~~are ~~price~~a ~~for~~company ~~the~~with ~~primary~~very ~~shares~~limited ~~has~~stock ~~been~~sales ~~arbitrarily~~history ~~set~~(we byhad ~~us,~~an ~~you~~Offering ~~may~~whereby ~~not~~we ~~realize~~are aselling ~~return~~stock ondirectly ~~your~~to investors without the assistance of an investment ~~upon~~bank nor are we registered on any market or public exchange), we use a blended average weekly volatility of certain publicly traded peer companies. We believe that the ~~resale~~use of ~~your~~this ~~shares~~blended average peer volatility is reflective of market conditions and a reasonable indicator of our expected future volatility.

~~The offering~~Dividend ~~price of each share and other terms and conditions relative to the shares being sold in our past IPO and potential future~~Yield: Because ~~offerings~~we ~~not a part of an underwritten offering~~ have ~~been~~never ~~arbitrarily~~paid ~~determined~~a bydividend us and do not ~~bear~~expect ~~any relationship~~ to ~~assets, earnings,~~begin ~~book~~doing ~~value~~so orin ~~any other objective financial criteria. Additionally, as~~ the ~~Company~~foreseeable ~~was formed on May 23, 2006, and has only a limited operating history with no earnings, the price of the offered shares in~~ future ~~offerings is not based on its past earnings~~, and no investment banker, appraiser, or other independent third party, has been consulted concerning the offering price for the shares or the fairness of the offering price used for the shares, as such our stockholders may not be able to receive a return on their investment when they sell shares of common stock purchased historically. Additionally, our last offering terminated on April 12, 2019, and we ~~no longer~~ have ~~the~~assumed ~~ability to utilize this method for the sale of our equity to investors, unless we were to seek registration under~~ a ~~new~~0% ~~S-1~~dividend ~~filing, which could hamper our overall ability to raise capital~~yield ~~which~~in ~~could~~valuing ~~have a material adverse effect on~~ our ~~operations~~stock-based awards.

~~Our officers~~The ~~and~~grant-date ~~directors~~fair ~~have~~value ~~limited~~of ~~prior experience offering and selling securities to~~ the ~~public,~~award ~~and~~is recognized as aexpense ~~result,~~over wethe ~~may~~requisite ~~not be~~service ~~able~~period tousing ~~raise~~the ~~sufficient~~straight-line ~~funds to sustain our business~~method.

~~Certain of~~Derivative ~~our~~Financial officers and directors participated in selling shares in our IPO, where allowed to do so under applicable state blue sky laws, on our behalf. We conducted a “best efforts” offering under our Registration Statement which does not require a minimum amount to be raised, and there is no guarantee sufficient funds will be raised to sustain our business. Also, the Offering terminated on April 12, 2019.Instruments

~~Our~~We ~~officers~~do ~~and~~not ~~directors~~use ~~have~~derivative ~~limited~~instruments to hedge ~~experience~~exposures ~~conducting~~to acash ~~publicly~~flow, ~~registered~~market ~~securities~~or ~~Offerings.~~foreign Ifcurrency werisk. ~~are~~The ~~not~~terms ~~able~~of toconvertible ~~raise~~preferred ~~sufficient~~stock ~~funds~~and inconvertible ~~the~~notes ~~future,~~ that we have ~~may~~issued ~~not~~were bereviewed ~~able~~ to ~~fund~~determine ~~our~~whether ~~operations~~or asnot ~~planned,~~they ~~and~~contain weembedded ~~may~~derivative beinstruments ~~forced~~that toare ~~curtail~~required orby ~~cease~~ASC ~~operations~~815: “Derivatives and ~~investors~~Hedging” ~~could lose~~to ~~all~~be oraccounted afor ~~significant~~separately ~~part~~from ofthe ~~their~~host ~~investment.~~contract ~~Our~~and ~~inability~~recorded toat ~~successfully~~fair ~~conduct~~value. anIn ~~offering could be the basis for investors~~addition, ~~losing~~freestanding ~~all~~warrants orwere aalso ~~significant~~reviewed ~~part~~to ofdetermine ~~their~~if ~~investment~~they inachieve usequity classification.

21Recent Accounting Pronouncements

~~Due~~In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes by removing certain exceptions to the ~~lack~~general principles in Topic 740. The amendments also improve consistent application of ~~any~~and ~~quotation~~simplify orGAAP ~~trading~~for ~~market~~other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for ~~our~~us ~~securities~~for annual periods beginning January 1, ~~you~~2021. We ~~may~~have reviewed the provisions of this new pronouncement and have ~~difficulty~~determined ~~selling~~that ~~any~~the ~~shares~~adoption ~~you~~of ~~purchase~~this inguidance has no material impact on our ~~IPO~~financial position and results of operations.

~~We are~~In ~~not~~January ~~registered~~2020, onthe ~~any~~FASB ~~market~~issued orASU ~~public~~2020-01, “Investments—Equity ~~stock~~Securities ~~exchange.~~(Topic ~~There~~321)”, is“Investments—Equity ~~presently~~Method ~~no demand for our common stock~~ and noJoint ~~public~~Ventures ~~market~~(Topic ~~exists for our shares. In the future~~323)”, weand ~~intend~~“Derivatives toand ~~seek~~Hedging a(Topic ~~listing~~815): orClarifying athe ~~quotation~~Interactions onbetween aTopic ~~Qualified~~321, ~~National~~Topic ~~Exchange~~323, orand ~~the OTC Markets.~~Topic ~~However~~815”, wewhich ~~cannot~~clarifies ~~make~~that ~~any~~an ~~assurance~~entity ~~that~~should ~~our~~consider ~~common~~observable ~~stock~~transactions ~~will~~when ~~ever~~either beapplying ~~quoted~~ or ~~traded~~discontinuing ~~on a Qualified National Exchange or~~ the ~~OTC Markets or that any public market for our stock will develop. In order to achieve a Public Listing, we will have to meet~~equity ~~certain~~method ~~initial listing qualifications~~ of ~~the~~accounting ~~Qualified~~for ~~National Exchange or~~ the ~~OTC~~purposes ~~Markets~~of onapplying ~~which we are seeking~~ the ~~Public Listing.~~measurement Inalternative ~~addition, we will need to have market makers agree to make a market~~ in ~~our~~accordance ~~common stock and file a FINRA Form 15c211~~ with ~~the~~Topic ~~SEC on our behalf before we can achieve a Public Listing~~321. AsASU ~~of the date of this Annual Report on Form 10~~2020-K,01 ~~there are~~clarifies nothat ~~assurances~~for orcertain ~~understandings~~forward ~~between~~contracts ~~the~~or ~~Company~~purchased ~~and~~options ~~anyone~~to ~~acting~~acquire ~~on our behalf~~investments, ~~with~~an ~~any~~entity ~~market~~should ~~maker~~not ~~regarding~~consider ~~participation in a future trading market for our securities. If we are successful in achieving a Public Listing for our common stock~~whether, weupon ~~will~~settlement ~~also~~of ~~need to remain current in our quarterly and annual filings with~~ the ~~SEC~~forward tocontract ~~achieve~~or ~~and~~exercise ~~maintain such Public Listing. Market makers are not permitted to begin quotation~~ of athe ~~security~~purchased ~~whose issuer does not meet these filing requirements. Furthermore~~option, ~~if we are not able to pay~~ the ~~expenses~~underlying ~~associated~~securities ~~with~~would ~~our ongoing reporting obligations, we will not~~ be ~~able~~accounted tofor ~~achieve~~under orthe ~~maintain~~equity amethod ~~Public~~or ~~Listing.~~the Iffair novalue ~~public~~option. ~~market~~ASU 2020-01 is ~~ever~~effective ~~developed~~ for ~~our~~us ~~common~~for ~~stock,~~annual itperiods ~~will~~beginning beJanuary ~~difficult~~1, ~~for~~2021. ~~investors~~Early toadoption ~~sell any of~~is ~~our shares~~permitted. InWe ~~such a case, investors may find that they~~ are ~~unable~~currently toreviewing ~~achieve~~the ~~any~~provisions ~~benefit~~of ~~from~~this ~~their~~new ~~investment~~pronouncement orand ~~liquidate their~~the ~~shares without considerable delay~~impact, if ~~at all. In addition~~any, ifthe weadoption ~~fail~~of tothis ~~have~~guidance has ~~our common stock quoted~~ on aour ~~public~~financial ~~trading market,~~position ~~any common stock purchased by investors will not have a quantifiable value~~ and itresults ~~may~~of ~~be difficult, if not impossible, to ever resell their shares, resulting in an inability to realize any value from their investment~~operations.

~~ITEM~~ 1BIn March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides optional guidance and expedients for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. ~~UNRESOLVED~~ ~~STAFF~~The ~~COMMENTS~~amendments are intended to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this update are elective and are effective upon issuance. We have reviewed the provisions of this new pronouncement and have determined that the adoption of this guidance has no material impact on our financial position and results of operations.

~~None~~In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which addresses the complexity of its guidance for certain financial instruments with characteristics of liabilities and equity. ASU 2020-06 removes the accounting models that require beneficial conversion features or cash conversion features associated with convertible instruments to be recognized as a separate component of equity, adds certain disclosure requirements for convertible instruments, amends the guidance for the derivatives scope exception for contracts in an entity’s own equity and simplifies the diluted earnings per share calculation for certain situations. This guidance is effective for SEC filers, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, and for interim periods within those fiscal years. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements.

~~ITEM 2. PROPERTIES~~22

WeJOBS lease three separate facilities. Administrative offices and a manufacturing operation are in a 25,000 square foot building with an operating lease that expires in December 2022. Research and development laboratories are in a 14,300 square foot space with an operating lease that extends to December 2022. In October 2017, we signed a lease for a 64,000 square foot manufacturing facility, the site on which we expanded our mechanical exfoliation capacity. This facility replaced the 6,600 square foot facility in the early part of 2018. The term of the operating lease for the new facility is 5 years expiring December 2022. All of the physical assets of the Company are contained within these facilities. XG Sciences has achieved and maintains an ISO9001:2015 quality certification for all of its locations. Act

~~ITEM~~In April 2012, the Jumpstart Our Business Startups 3Act of 2012, or the JOBS Act, was enacted. ~~LEGAL~~ ~~PROCEEDINGS~~Section 107 of the JOBS Act provides that an “emerging growth company,” or EGC, can take advantage of the extended transition period for complying with new or revised accounting standards. Thus, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

~~None~~We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an EGC, we intend to rely on certain exemptions, including exemptions from the requirement to provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an EGC until the earlier of: the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; the last day of the fiscal year following the fifth anniversary of the date of the completion of our Offering; the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

~~ITEM 4. MINE SAFETY DISCLOSURES~~23

~~Not~~Results of Operations for the Year Ended December 31, 2020, compared ~~applicable.~~with the Year Ended December 31, 2019

22The following table summarizes the results of our operations for the years ended December 31, 2020, and 2019.

PART II

	Year Ended December 31,						Change 2020 to 2019
	2020			2019			$			%
Total Revenues	$	782,692		$	1,369,556		$	(586,864	)		(42.9	)
Cost of Goods Sold		2,663,924			3,763,473			(1,099,549	)		(29.2	)
Gross Loss	$	(1,881,232	)	$	(2,393,917	)	$	512,685			21.4
Research & Development Expense		896,840			1,506,716			(609,876	)		(40.5	)
Sales, General & Administrative Expense		4,218,361			5,467,698			(1,249,337	)		(22.8	)
Total Operating Expenses	$	5,115,201		$	6,974,414		$	(1,859,213	)		(26.7	)
Operating Loss	$	(6,996,433	)	$	(9,368,331	)	$	2,371,898			25.3
Other Expense		(105,315	)		(409,318	)		304,003			74.3
Net Loss	$	(7,101,748	)	$	(9,777,649	)	$	2,675,901			27.4

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

~~Market~~Revenues for the years ended December 31, 2020 and 2019, were $782,692 and $1,369,556, respectively. Product sales consist of two broad categories: (1) material sold to customers for ~~Common~~research ~~Equity~~or development purposes; and (2) production orders for customers. Typically, the order sizes for the first category are relatively small, however we expect orders in the second category to be much larger in the future. For the year ended December 31, 2020, sales decreased by $586,864 or 43% from the prior year. The decrease in revenue for the year ended December 31, 2020, is due to our largest customer suspending orders due to their shutdown and then supply delays which in turn impacted orders from them. This customer restarted ordering in late 2020 and continued to order in 2021, but there can be no assurance they will continue to place orders with us in coming years. We believe that several customers will begin to move into commercial volume production as they gain more experience in working with our materials and engage their own customers.

~~No public~~We ~~market~~ship ~~currently~~our ~~exists~~products ~~for~~from our ~~shares~~Lansing, ~~and~~Michigan manufacturing afacilities ~~public~~to ~~market~~customers ~~may~~around ~~never~~the ~~develop~~world. During the year ended December 31, or2020, ifwe ~~any~~shipped ~~market~~materials to ~~does~~customers in ~~develop~~28 countries, itas ~~may~~compared ~~not~~to 27 countries during the same period in 2019. For the year ended December 31, 2020, sales to three beforeign ~~sustained~~countries, South Korea, Switzerland, and the United Kingdom accounted for 40% of revenue. For the year ended December 31, 2019, sales shipped to two foreign countries, South Korea, and Switzerland, accounted for more than 10% of product sales.

~~Following~~Order our Offering which terminated on April 12, 2019, we now intend to seek either (i) a listing of our common stock on a securities exchange registered with the SEC under Section 6(a) of the Exchange Act, such as the NASDAQ Capital Market or the NYSE, or (ii) the quotation of our common stock on the OTCQB or OTCQX marketplaces operated by OTC Markets Group, Inc., market conditions permitting. In order to achieve such a Public Listing, we will have to meet certain initial listing qualifications of the Qualified National Exchange or the OTC Markets on which we are seeking the Public Listing. In addition, we will need to have market makers agree to make a market in our common stock and file a FINRA Form 15c211 with the SEC on our behalf before we can achieve a Public Listing, and we will also need to remain current in our quarterly and annual filings with the SEC. As of the date of this report, there are no assurances or understandings between the Company and anyone acting on our behalf, with any market maker regarding participation in a future trading market for our securities. There can be no assurance that our common stock will ever be quoted or traded on a Qualified National Exchange or the OTC Markets or that any market for our common stock will develop.Summary

~~Holders~~The table below shows a comparison of ~~Equity~~domestic and international orders fulfilled (note that this does not include orders for free samples). The table also includes the average order size for product sales. These numbers indicate that our customer base remains active with research and development projects that use our materials. The average order size for product revenue during the year ended December 31, 2020 decreased by 44.8% as compared to the same period in 2019 primarily due to a 2020 decrease in orders from one customer while it is working down its inventory.

As of April 29, 2020, we had 385 record holders of our common stock, and a total of 4,024,443 shares of common stock issued and outstanding. We had 13 record holders of Series A Preferred Stock and a total of 1,890,354 shares of Series A Preferred Stock issued and outstanding. In total, we had 390 shareholders of record of all classes of our capital stock as of April 29, 2020.

	Year Ended December 31				Change 2020 to 2019
	2020		2019		# Of Orders			%
Number of orders – domestic		131		119		12			10.0
Number of orders – international		110		99		11			11.1
Number of orders – Total		241		218		23			10.5
Average order size - $s	$	3,465	$	6,282	$	(2,817	)		(44.8	)

Each share of Series A Preferred Stock is voluntarily convertible, at the option of the holder thereof, at any time after the date of issuance and prior to any Public Listing of common stock on a Qualified National Exchange, into that number of fully paid, non-assessable shares of common stock determined by dividing the Original Issue Price by the Conversion Price then in effect, as such terms are defined in the Series A Designations. The current Series A Conversion Rate is 1.875 shares of common for 1 share of Series A. The Conversion Price of the Series A Preferred Stock is subject to adjustments pursuant to the occurrence of stock splits and certain other specified events, and therefore the respective conversion rates are subject to change.24

~~Furthermore, under~~Grant the terms of the Series A Designations (as amended), all outstanding shares of Series A Preferred Stock will automatically convert into shares of common stock upon a Public Listing on a Qualified National Exchange at the then-current Series A Conversion Rate. At the current Series A Conversion Rate, if all outstanding shares of Series A Preferred Stock were voluntarily converted or automatically converted, we would issue 3,544,408 shares of common stock to satisfy such conversions.Revenue

~~As of~~In ~~December 31~~2018, ~~2019,~~an ~~the~~agreement ~~Company~~was ~~had~~initiated ~~granted~~with ~~options to purchase up to 839,625 shares of common stock and had issued warrants~~the toMichigan ~~purchase~~Strategic upFund to (iMSF) ~~487,017~~with ~~shares~~regard ofto ~~common stock (including~~ the ~~warrants~~Michigan ~~for~~Business ~~225,000~~Development ~~shares~~Program ~~issued~~Grant ~~under~~Agreement ~~the~~dated ~~Dow~~November ~~Facility) and~~6, ~~(ii) 972~~2017,~~720~~ relating ~~shares~~to ofour ~~Series~~new Amanufacturing ~~Preferred~~facility ~~Stock~~in ~~which~~Mason, ifMichigan. ~~exercised,~~Grant ~~would~~contract berevenue ~~convertible~~is ~~into~~recognized ~~1,823,845~~using ~~shares~~the ofmilestone ~~common~~method ~~stock~~as atmilestones ~~the~~are ~~then-current~~achieved. ~~Series~~Milestone ~~A Conversion Rate (currently of~~ 1~~.875~~ ~~shares~~ of ~~common~~the ~~for~~agreement 1was ~~share~~met ofin ~~Series~~late ~~A).~~2018 ~~Therefore,~~and ~~we have~~recorded ~~committed~~as togrant ~~issue~~revenue upin tothe anamount ~~additional 6,694,895 shares~~ of ~~common stock~~$173,000 in ~~which includes~~ the ~~issuance~~year ofended ~~(a)~~December 331,~~544,408~~ ~~shares upon~~2018. ~~conversion~~This ofmilestone ~~all~~was ~~1,890,354~~reached ~~shares~~at ~~Series~~the Apoint ~~Preferred~~in ~~Stock~~time ~~currently~~when ~~outstanding at~~ the ~~Series~~first Aincrement ~~Conversion~~of ~~Rate,~~qualified ~~(b) 1,823,845~~new ~~shares~~jobs ~~upon~~over the ~~conversion~~base ofemployment ~~972~~level,~~720~~ ~~shares~~as ofdefined ~~Series~~by ~~A Preferred Stock (at~~ the ~~current~~grant, ~~Series~~was Amet. ~~Conversion~~Per ~~Rate)~~the ~~which are issuable upon exercise of 972~~agreement,~~720~~ ~~Series~~it Ais ~~warrants,~~defined ~~(c)~~as ~~839,625~~a ~~shares~~default ~~upon~~if the ~~exercise~~Company does ofnot ~~options~~maintain ~~and (d)~~ the ~~issuance~~base level of ~~487,017~~jobs ~~shares upon~~through the ~~exercise~~term of ~~warrants. If we issued all 6,694,895 shares, we would have, including~~ the ~~4,024,443~~Grant. ~~shares~~Due ~~currently~~to ~~outstanding, 10,719,338~~low ~~shares~~demand ~~issued~~ and ~~outstanding,~~staffing ~~with~~reductions ~~14,280,662~~as ~~authorized~~a ~~shares available for future issuance. The future issuance of common stock may~~ result ~~in substantial dilution in the percentage~~ of ~~our common stock held by our then existing stockholders.~~ ~~Except~~the ~~with~~Covid-19 ~~respect~~pandemic, to the ~~IPO~~Company ~~(which~~ was ~~priced~~in atdefault ~~$8.00~~and ~~per~~signed ~~share)~~a Repayment, weRelease ~~may~~and ~~value~~Termination ~~any~~Agreement ~~common~~with ~~stock issued in~~ the ~~future~~MSF ~~on an~~dated ~~arbitrary~~October ~~basis~~2, 2020. The ~~issuance~~repayment ofamount ~~common~~was ~~stock~~determined ~~for~~to ~~future~~be ~~services~~$62,400 orwith ~~acquisitions~~equal orpayments ~~other~~of ~~corporate~~$7,800 ~~actions~~per ~~may~~quarter ~~have~~starting ~~the effect~~September of30, ~~diluting~~2021 ~~the~~and ~~value~~ending ofSeptember ~~the shares held by our investors~~30, ~~might~~2023. ~~have~~We anrecognized ~~adverse~~the ~~effect~~entire on$62,400 ~~any~~as ~~future~~a ~~trading~~reduction ~~market for our common stock and could impair our ability~~ to ~~raise~~Revenue ~~capital~~for in the ~~future~~year ~~through~~ended ~~the~~December 31, ~~sale of equity securities~~2020.

23Cost of Goods Sold

~~Securities~~We use a standard cost system to estimate the ~~Authorized~~direct costs of products sold. Variances between the standard costs and the actual costs are then capitalized to the inventories and expensed to cost of goods sold. Direct costs include estimates of raw material costs, packaging, freight charges net of those billed to customers, and an allocation for ~~Issuance~~direct ~~under~~labor ~~Equity~~and ~~Compensation~~manufacturing ~~Plans~~overhead. Because of the nature of our production processes, there is a substantial fixed manufacturing expense requirement that represents the ongoing cost of maintaining production facilities that are not directly related to products sold, so we use a “full capacity” allocation of overhead based on an estimate of what product costs would be if the manufacturing facilities were operating on a full-time basis and producing products at the designed capacity.

~~As of~~Gross ~~December~~Profit ~~31, 2019, and 2018, the Company had outstanding stock options to purchase up to 839,625 and 797,875 shares of common stock, respectively.~~Summary

OnThe ~~September 30,~~following ~~2019~~table ~~and~~shows ~~September 30, 2018,~~ the ~~Company granted each Board member 2,500 stock options and 2,500 shares of restricted stock~~relationship ~~for their Board services. The options were granted at a price~~ of ~~$8.00~~direct ~~per~~costs share and vest ratably over a four-year period beginning on the one-year anniversary. The options had an aggregate grant date fair value of $38,295 and $29,580 on September 30, 2019 and, September 30, 2018, respectively. The restricted stock issued to ~~the~~product ~~Board~~sales members in 2019 and 2018 has an aggregate fair value of $180,000 and vests ratably in arrears over four quarters on the last day of each fiscal quarter following the grant date. As of December 31, 2019 and December 31, 2018, 26,250 and 15,000 of the shares of restricted stock issued had vested, resulting in compensation expense of $90,000 and $80,000 for the years ended December 31, ~~2019~~2020 and ~~December 31, 2018, respectively.~~ 2019:

During the year ended December 31, 2019 and December 31, 2018, we granted 70,000 and 138,250 stock options, respectively, to employees with an exercise price of $8.00 and a seven-year term. The aggregate fair value of the awards on the date of grant was $177,111 and $408,237, respectively, as of December 31, 2019 and December 31, 2018. The stock options vest equally over four years beginning on the first anniversary of the date of grant.

	Year Ended December 31,						Change 2020 to 2019
	2020			2019			$			%
Revenue	$	782,692		$	1,369,556		$	(586,864	)		(42.9	)
Direct Costs		495,229			1,006,594			(511,365	)		(50.8	)
Direct Cost Margin	$	287,463		$	362,962		$	(75,499	)		(20.8	)
% of Sales		36.7	%		26.5	%

Unallocated Manufacturing Expense		2,168,695			2,756,879			(588,184	)		(21.3	)
Gross Loss	$	(1,881,232	)	$	(2,393,917	)	$	512,685			21.4

As of December 31, 2019, stock options to purchase a total of 839,625 shares at a price of $8.00 per share had been granted to Company employees and Directors, with expiration dates ranging from July 2024 to December 2026.25

24We believe that the fluctuations in gross loss on product sales and direct cost from period to period are not indicative of future margins because of the relatively small size of our sales in comparison to our future expectations. Direct costs vary depending on the size of an order, the specific products being ordered, and other factors like shipping destination (which on small orders can represent a significant percentage of the cost).

~~Equity~~The remaining “non-direct” costs ~~Compensation~~of ~~Plan~~operating our manufacturing facilities are recorded as ofunallocated ~~December~~manufacturing 31expenses. These expenses include personnel costs, ~~2019~~rent, utilities, indirect supplies, depreciation, and related indirect expenses. Unallocated manufacturing expenses are expensed as incurred. We allocate these costs to direct product costs based on the proportion of these expenses that would be representative direct product costs if we were operating our factory at full capacity.

Equity Compensation Plan Information
Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted- average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) (c)
Equity compensation plans approved by security holders (1)		839,625	$	8.00		360,375
Equity compensation plans not approved by security holders		—		—		—
Total		839,625	$	8.00		360,375

For the year ended December 31, 2020, unallocated manufacturing expenses decreased by 21% to $2,168,695 as compared to $2,756,879 in 2019. The decrease of $588,184 is largely due to expense reductions made in reaction to the falloff in business and regulatory shutdown of our sites by the state of Michigan due to the COVID-19 pandemic.

~~(1)~~Research ~~Reflects our 2017 Plan, for the benefit of our directors, officers, employees~~ and ~~consultants~~Development as of December 31, 2019. As of December 31, 2019, we had reserved 1,200,000 shares of common stock for such persons pursuant to that plan and had granted stock options to purchase 839,625 shares at a price of $8.00 with 360,375 shares remaining available for future issuance.Expenses

~~DIVIDEND~~For the year ended December 31, 2020, research ~~POLICY~~and development expenses decreased by 40% to $896,840 as compared to $1,506,716 for the year ended December 31, 2019. The decrease of $609,876 was largely due to decreased personnel costs as the Company took measures in anticipation of slower demand due to COVID-19.

~~Since inception~~Sales, weGeneral have not paid any dividends on our common stock. We currently do not anticipate paying any cash dividends in the foreseeable future on our common stock, because we intend to retain our earnings, if any, to finance the growth of our business. Our Board of Directors will have the discretion to declare and ~~pay~~Administrative ~~dividends in the future. Payment of dividends in the future will depend upon our earnings, capital requirements, and other factors, which our Board of Directors may deem relevant.~~Expenses

~~UNREGISTERED~~During 2020, we incurred selling, general and ~~SALES~~administrative OFexpenses ~~EQUITY~~(SG&A) ~~SECURITIES~~of $4,218,361. This is a decrease of $1,249,337 or 23% from 2019, This decrease in SG&A expense is primarily related to decreased personnel costs as the Company began took measures in anticipation of slower demand and delays in customer adoption caused by COVID-19.

~~During the~~Other ~~period~~Income from May 17, 2016 through December 31, 2018 we issued shares of Series A Preferred Stock to AAOF as payment for lease financing obligations under the terms of a Master Leasing Agreement as detailed below.(Expense)

Shares of Series A Preferred Stock Issued to AAOF as Lease Financing Payments
Date	Shares	Date	Shares	Date	Shares
5/17/2016	7,140	1/18/2017	7,140	3/26/2018	7,140
5/17/2016	7,140	4/3/2017	7,140	4/2/2018	7,140
8/17/2016	4,760	7/3/2017	7,140	7/2/2018	2,716
9/30/2016	2,380	10/3/2017	7,140	7/16/2018	7,947
10/1/2016	7,140			10/4/2018	2,716
				12/31/2018	4,879
Total	28,560		28,560		32,538

Interest expense, net of interest income in the year ended December 31, 2020, increased by $465,959 compared to 2019. The net increase in expense reflects interest due on the increased Dow Facility balance as well as the addition in 2020 of the interest expense accrued on the Convertible Notes. Nonoperating income in the year ended December 31,2020, increased by $796,089 with the recording of the forgiveness of the PPP loan which had been received in April of 2020 and included $790,795 of principal and $5,294 of interest accrued through December 31,2020. SBA forgiveness of this PPP loan including accrued interest was received in July of 2021. Nonoperating expense in the year ended December 31,2020, increased by $26,127 which represents the difference between the fair value of the Exchange Right and the relative fair value assigned to the Exchange Right recognized immediately as nonoperating expense. See Note 9 Derivative Liability.

~~With the final issuance of Series A Preferred Stock to AAOF on December 31, 2018, all obligations under the terms of the Master Lease have been fulfilled and the Master Lease has expired.~~26

~~On December~~Cash ~~14,~~Flow 2016, we issued a promissory note in the amount of $2,000,000 and warrants to purchase 50,000 shares of common stock of the Company to Dow pursuant to the Dow Facility. The notes are non-convertible and mature on December 1, 2021. The warrants have a seven-year maturity date with a strike price of $8.00 per share.Summary

~~On July~~The ~~18,~~following ~~2017,~~condensed ~~September~~cash ~~22,~~flow ~~2017, and December 4, 2017 we issued promissory notes in the amount of $1,000,000 and warrants to~~statement ~~purchase~~compares ~~25,000~~cash ~~shares~~flow offrom ~~common stock~~operating, ~~respectively for each date ($3~~investing,~~000,000~~ ~~in total for the notes~~ and ~~75,000~~financing activities for the ~~warrants) to~~years ~~Dow~~ended ~~pursuant to the Dow Facility. The notes are non-convertible and mature on~~ December 131, ~~2021.~~2020 ~~The~~and ~~warrants have a seven-year maturity date with a strike price of $8~~2019.~~00 per share.~~

On July 8, 2019 and November 11, 2019, we issued promissory notes in the amounts of $2,000,000 each and warrants to purchase 50,000 shares of common stock, respectively for each date ($4,000,000 in total for the notes and 100,000 for the warrants) to Dow pursuant to the Dow Facility. The notes are non-convertible and mature on December 1, 2021. The warrants have a seven-year maturity date with a strike price of $8.00 per share.

	Year Ended December 31,						Change 2020 to 2019
	2020			2019			$			%
Cash, cash equivalents and restricted cash at beginning of period		1,129,702			4,893,974			(3,764,272	)		(76.9	)
Net Cash provided (used by):
Operating activities		(4,782,423	)		(8,589,598	)		3,807,175			44.3
Investing activities		(123,940	)		(514,327	)		390,387			75.9
Financing activities		5,551,027			5,339,653			211,374			3.9
Net increase (decrease) in cash		644,664			(3,764,272	)		4,408,936			117.1
Cash, end of period		1,774,366			1,129,702			644,664			57.1

25Net cash used in operating activities for the year ended December 31, 2020 and 2019 was $4,782,423 and $8,589,598, respectively. Net cash used by operating activities decreased 44% during 2020 as compared to 2019 primarily due to a reduction in operating expenses due to headcount reductions and commercial interruptions brought on by the Covid-19 pandemic as well as a lower volume of commercial orders in 2020 than 2019.

~~ITEM~~Investing activities for the year ended December 631, 2020 included net capital expenditures for the purchase of leasehold improvements and equipment of $47,526 and $76,414 for intellectual property as compared with $383,070 for leasehold improvements and equipment and $131,257 for intellectual property during the same period in 2019. ~~SELECTED~~ ~~FINANCIAL~~The ~~DATA~~2020 levels of capital expenditures are $390,387 lower than 2019 due to tight capital spend control in response to the commercial interruptions brought on by Covid-19 beginning in quarter 1 of 2020.

~~Not~~Financing activities provided a net increase ~~applicable~~in cash of $5,551,027 and $5,339,653 for the year ended December 31, 2020 and 2019, respectively. For the year ended December 31, 2020, there were no gross proceeds from the issuance of common stock nor stock issuance expenses as compared to proceeds from the issuance of common stock for the year ended December 31, 2019 of $2,013,400 and stock issuance expenses of $20,000. Financing activities from the Dow Facility included $1,000,000 and $4,000,000, respectively, for the years ended December 31, 2020 and 2019. For the year ended December 31, 2020, we had proceeds from the Unit offering of $3,867,810 less $117,578 of Unit offering issuance fees and expenses as compared to no Unit offering activity for the year ended December 31, 2019. We received proceeds from a PPP SBA loan of $790,795 and a grant from the EIDL of $10,000 for the year ended December 31, 2020 with no such activity in the year ended December 31, 2019.

~~ITEM~~Liquidity 7.and ~~MANAGEMENT’S~~Capital ~~DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~Expenditures

~~This section~~We ~~includes~~have ahistorically ~~number~~incurred oflosses ~~forward-looking~~from ~~statements~~operations, and ~~that~~we ~~reflect~~may ~~our~~continue ~~current views with respect~~ to ~~future~~generate ~~events~~negative ~~and~~cash ~~financial performance.~~flows ~~Forward-looking~~as ~~statements~~we ~~are~~implement ~~often~~our ~~identified~~business byplan. ~~words~~Our ~~like~~consolidated ~~“believe”,~~financial ~~“expect”,~~statements ~~“estimate”,~~are ~~“anticipate”,~~prepared ~~“intend”,~~using ~~“project”~~GAAP as ~~and~~applicable ~~similar~~to ~~expressions,~~a orgoing ~~words~~concern, which, bycontemplates ~~their~~the ~~nature, refer~~realization toof ~~future~~assets ~~events.~~and ~~You~~liquidation ~~should~~of ~~not place undue certainty on these forward-looking statements. These forward-looking statements~~liabilities ~~are~~in ~~subject~~the tonormal ~~certain~~course ~~risks~~of ~~and uncertainties that could cause actual results to differ materially from our predictions~~business.

~~Overview~~As of August 30, 2021, we had cash on hand of $1,666,543. Due to lower-than-expected revenue in 2020 and the current COVID-19 global pandemic impacting both our ~~Business~~operations and that of our customers, Management took several steps to ensure we are able to fund our operations from existing cash on hand, operating cash flows, additional borrowings and restructured debt obligations.

~~XG Sciences~~In ~~was~~March ~~formed~~of in2020, ~~May~~we ~~2006~~restructured ~~for~~our ~~the~~organization by ~~purpose~~reducing ofheadcount ~~commercializing~~by ~~certain~~45%, ~~technology~~by tofurloughing ~~produce~~substantially ~~graphene~~all ~~nanoplatelets~~manufacturing employees, and ~~products containing~~by ~~graphene~~implementing ~~nanoplatelets.~~temporary ~~First~~salary ~~isolated~~reductions ranging ~~and~~from ~~characterized~~15-20% inwhich ~~2004,~~resulted ~~graphene~~in is a ~~single~~38% ~~layer~~reduction ~~of carbon atoms configured~~ in anannual ~~atomic-scale~~payroll ~~honeycomb~~and ~~lattice~~related costs. ~~Among~~In ~~many~~April ~~noted properties~~2020, ~~monolayer~~we ~~graphene~~furloughed ~~is harder than diamonds, lighter than steel~~additional ~~but~~employees ~~significantly~~in ~~stronger,~~our R&D and ~~conducts~~Engineering ~~electricity better than copper~~departments. ~~Graphene~~We ~~nanoplatelets~~also ~~are~~reduced ~~particles~~our ~~consisting~~annual ofcash ~~multiple layers~~run ofrate ~~graphene. Graphene nanoplatelets have unique capabilities~~ for ~~energy~~all ~~storage,~~other ~~thermal~~expenses ~~conductivity,~~by ~~electrical~~17%. ~~conductivity,~~Salary ~~barrier~~reductions ~~properties,~~remained ~~lubricity~~in ~~and~~place ~~the~~until ~~ability~~February to1, ~~impart strength when incorporated into plastics or other matrices~~2021.

WeIn early April of 2020, we applied for relief ~~believe~~under the ~~unique~~Coronavirus ~~properties~~Aid, ofRelief ~~graphene~~ and ~~graphene~~Economic ~~nanoplatelets~~Security ~~will~~Act ~~enable~~(CARES) ~~numerous~~by ~~new~~applying ~~product~~with ~~applications~~the ~~and~~Small ~~the~~Business ~~market~~ Administration (SBA) for an ~~such~~Economic ~~products~~Injury ~~will~~Disaster ~~grow~~Loan (“EIDL”) and by submitting an application to bean SBA lender bank, PNC, for a ~~significant~~Paycheck Protection ~~market~~Plan ~~opportunity~~(“PPP”) loan. ~~Our~~On ~~business~~April ~~model~~18, is2020, towe ~~design,~~received ~~manufacture~~an approved and ~~sell~~fully ~~advanced~~executed PPP Term Note for $825,200 ~~materials~~with wea ~~call~~term ~~xGnP®~~of ~~graphene~~two ~~nanoplatelets~~years, ~~and~~a ~~value~~six-~~added~~month ~~products~~repayment ~~based~~deferral onperiod, ~~these~~and ~~nanoplatelets.~~an Weannual ~~currently have~~rate ~~hundreds~~of interest of ~~customers~~1%, ~~trialing~~with ~~our~~a ~~products~~potential for ~~numerous~~some or ~~applications,~~all ~~including~~of the loan to be forgiven, ~~but~~dependent ~~not~~upon ~~limited~~use toof ~~lithium~~the ~~ion~~loan ~~batteries~~proceeds. On April 20, ~~lead~~ ~~acid~~2020, ~~batteries~~we received the $825,200 ~~thermally~~of ~~conductive~~proceeds under ~~adhesives~~the PPP loan which was subsequently reduced by $34,405 ~~composites~~to $790,795 ~~thermal~~due ~~management~~to ~~and~~additional ~~heat~~SBA ~~transfer,~~guidance ~~inks~~regarding ~~and~~1099 ~~coatings,~~income ~~printed~~paid. ~~electronics,~~On ~~construction~~October ~~materials~~6, ~~cement~~2020, ~~and~~the inPaycheck aProtection ~~range~~Flexibility Act of ~~other~~2020 ~~industrial~~extended ~~uses.~~the Wedeferral ~~believe~~expiration ~~our~~period ~~proprietary~~for ~~processes~~loan ~~have~~repayments ~~enabled~~to useither tothe bedate ~~among~~that the ~~low-cost~~SBA ~~producers~~remits the borrower’s loan forgiveness or to 24 weeks after the receipt of ~~high~~proceeds ~~quality~~plus 10 months or July 3, ~~graphene~~2021. ~~nanoplatelets~~We applied for PPP loan forgiveness in May of 2021 and, ~~value-added~~in ~~products~~July ~~containing~~of ~~graphene~~2021, received SBA approval for forgiveness ~~nanoplatelets~~of 100 % of the PPP loan and ~~that~~accrued weinterest. ~~are~~On ~~well~~May ~~positioned~~17, to2020, ~~address~~the SBA issued us a ~~wide~~decline ~~range~~letter offor ~~end-use~~the ~~applications~~EIDL for which reconsideration has not been granted.

We sell products to customers around the world and have sold materials to over 1,300 customers in 47 countries since 2008. Some of these customers are research organizations and some are commercial organizations. Our customers have included well-known automotive and OEM suppliers around the world (Ford, Johnson Controls, Magna, Honda Engineering), world-scale lithium ion battery manufacturers in the US, South Korea and China (Samsung SDI, LG Chemical, Lishen, A123), diverse specialty material companies (3M, BASF, Henkel, Dow, DuPont, Callaway), and leading research centers such as Lawrence Livermore National Laboratory and Oakridge National Laboratory. We have also licensed some aspects of our base manufacturing technology to other companies. Our licensees include POSCO, the fifth largest steel manufacturer in the world by tonnage of output (as reported by Worldsteel Associates in “World Steel in Figures 2018”), and Cabot Corporation (“Cabot”), a leading global specialty chemicals and performance materials company. These licensees further extend our technology through their customer networks. 27

~~We target~~In ~~our~~December ~~xGnP®~~2016, we ~~nanoplatelets~~entered ~~for~~into ~~use~~the Dow inFacility ato ~~range~~provide ofup ~~large~~to ~~and~~$10 ~~growing~~million ~~end-use~~of ~~markets.~~secured ~~Our~~debt ~~proprietary~~financing ~~manufacturing processes~~at ~~allow~~an usinterest torate ~~produce~~of ~~nanoplatelets~~5% ~~with~~per ~~varying~~year, ~~performance~~drawable ~~characteristics~~at ~~that~~our ~~can be tuned to specific end-use applications~~request ~~based~~under oncertain ~~customer requirements~~conditions. WeOn ~~manage~~February ~~our~~12, ~~business~~2020, ~~with~~we ~~five~~drew ~~major~~the ~~product~~remaining ~~lines~~$1 atmillion ~~this~~of ~~time:~~the Dow Facility.

1.On ~~Bulk~~April ~~Materials.~~23, We2020, ~~sell~~we ~~bulk~~entered ~~materials~~into ~~under~~an ~~the~~amended and ~~trademarked~~restated ~~brand~~Draw ~~name~~Loan ofNote ~~xGnP®~~and ~~graphene~~Agreement ~~nanoplatelets.~~and ~~These~~related ~~materials~~transaction ~~are~~documents ~~produced~~(collectively, inthe ~~various~~“Amended ~~grades,~~Dow ~~which~~Facility”) with ~~are~~the ~~analogous~~Dow Chemical Company to ~~average~~amend ~~platelet~~the ~~thickness,~~terms ~~and~~of ~~average~~our ~~platelet~~current ~~diameters.~~loan ~~There~~facility ~~are~~to ~~three~~allow ~~commercial~~us ~~grades~~to ~~(Grades~~structure H,a Mprivate &placement Rof units (“Units”), ~~each~~comprised of(in ~~which~~part) isof ~~offered~~subordinated, insecured ~~three~~convertible ~~standard~~notes ~~platelet~~(“Convertible ~~diameters~~Notes” and ~~a fourth~~such offering, Cthe ~~Grade~~“Unit Offering”), ~~which~~to issupport ~~offered~~ongoing incash ~~three~~needs. ~~standard~~In ~~surface~~the ~~areas.~~Amended WeDow ~~also~~Facility, ~~have~~the ~~access~~Company and Dow agreed to ~~other~~1) ~~development~~extend ~~grades~~the ~~(Grade~~term Tof such loan facility by two years to December 1, ~~for~~2023, ~~example~~2), ~~but~~significantly ~~which~~reduce ~~are~~any ~~not~~required ~~yet~~prepayment ~~made~~to Dow ~~available~~from ~~commercially~~the ~~and~~proceeds ~~have~~of ~~been~~new ~~used~~equity ~~internally~~or ~~for~~equity-linked ~~those~~financings ~~products~~from ~~containing~~the ~~graphene~~current ~~nanoplatelets.~~30-50% ~~These~~prepayment ~~bulk~~requirement ~~materials,~~on ~~which~~the ~~normally~~pre-existing Dow ~~ship~~Facility to a 10% prepayment requirement in the ~~form~~Amended ofDow aFacility, ~~dry~~which ~~powder,~~does ~~are~~not ~~especially~~begin ~~applicable~~until ~~for~~after ~~use~~we ashave ~~additives~~raised an additional $7 million in ~~polymeric~~equity or ~~metallic~~equity-linked ~~composites~~capital from the date of the amendment, or3) incapitalize ~~coatings~~all orinterest ~~other~~payable ~~formulations~~until ~~where~~such ~~particular~~time as ~~electrical,~~we ~~thermal~~have orrecorded ~~barrier~~GAAP ~~performance~~revenue ~~are~~of ~~desired~~at byleast ~~our~~$2 ~~customers.~~million Wefor ~~also~~two ~~offer~~consecutive ~~our~~calendar ~~material~~quarters in4) increase the ~~form~~rate of ~~dispersions~~interest to of6.5% ~~nanoplatelets~~per annum from 5% in ~~liquids~~the ~~such~~pre-existing asDow ~~water~~Facility, ~~alcohol,~~and or5) ~~organic~~allow ~~solvents,~~for ora ~~mixed~~subordinated ~~into~~security ~~resins~~interest orto ~~polymers~~be ~~such~~granted asto new ~~thermoplastics~~investors orin ~~thermosets~~the Unit Offering.

26Immediately after the execution of the transaction documents related to the Amended Dow Facility, we commenced the Unit Offering in a private placement to accredited investors (the “Unit Offering”). The Unit Offering was comprised of the Convertible Notes and a fully assignable or transferrable right to exchange two shares of previously issued Common Stock of the Company for two shares of Series B Preferred Stock of the Company for every $8.00 invested in the Unit Offering (the “Exchange Rights”). The Convertible Notes are secured by a junior security interest in all the assets of the Company, bear an interest rate of 7.5% per annum and mature on December 31, 2024. Each investor’s Exchange rights are exercisable for a period of thirty (30) days after acceptance by the Company of a fully executed subscription agreement.

2.At ~~Composites.~~the ~~Our~~option ~~composites, integrated-products portfolio includes resins derived from a range~~ of ~~thermoplastics~~each ~~and~~holder, ~~thermosets~~the ~~into~~Convertible Notes ~~which our xGnP® graphene nanoplatelets~~ are ~~compounded.~~convertible ~~These~~into ~~products~~either ~~are~~i) ~~supplied~~Series asB ~~master~~Convertible ~~batches~~Preferred ofStock ~~resins~~(“Series ~~with~~B ~~nanoplatelets~~Preferred ~~pre-dispersed~~Stock”) ~~such~~at that their performance has been optimized for use in various end-use applications that may include industrial, automotive and sporting goods and which have demonstrated efficacy in standard injection molding, compression molding, blow molding and 3-D processes, to name but a ~~few.~~note ~~Our~~conversion price ~~current product portfolio~~ of ~~polymer~~$8.00/share; ~~resins~~or ~~containing various forms of our xGnP® graphene nanoplatelets and in varying concentration includes polyurethane (XGPU~~ii), ~~polypropylene~~any ~~(XGPP),~~other ~~polyethylene~~form ~~terephthalate~~of ~~(XGPET),~~preferred ~~vinyl~~or ~~ester~~common ~~(XGVE),~~stock ~~polyetherimide~~ (~~XGPEI)~~“Subsequent ~~and high-density polyethylene (XGHDPE~~Stock”). ~~Other~~issued ~~polymers~~by ~~may be added over time depending on~~ the ~~end-market~~Company at ~~and~~a ~~customer~~note ~~needs.~~conversion Inprice ~~addition,~~per weshare ~~offer~~equal ~~various bulk materials with demonstrated efficacy in plastic composites~~ to ~~impart~~80% ~~improved physical performance to such matrices, which may be supplied as dry powders or as aqueous-based or solvent-based dispersions or cakes as described previously. We have also targeted use~~ of ~~our~~the ~~graphene~~purchase ~~nanoplatelets~~price asper anshare ~~additive~~at ~~in cement mixtures,~~ which wesuch ~~believe~~Subsequent ~~results~~Stock inis ~~improved~~sold ~~barrier~~(or ~~resistance, durability, toughness and corrosion protection. Our GNP Concrete Additive product promotes~~ if the ~~formation~~value ofper ~~more~~share ~~uniform~~is ~~and smaller-grain cement structure~~fixed, ~~improving~~125% ~~both~~of ~~flexural and compressive strength. In addition,~~ the ~~embedded~~number ~~graphene nanoplatelets will stop cracks from forming and retard crack propagation, should any cracks form – the combination~~ of ~~which~~shares ~~will~~that ~~further~~might ~~improve~~otherwise ~~cement~~be ~~lifetime and durability~~issuable).

3.If ~~Inks~~ and ~~Coatings.~~when ~~These~~we ~~consist~~raise at least $15 million of ~~specially~~equity ~~formulated~~capital ~~dispersions~~(excluding ofcapital ~~xGnP®~~raised ~~together~~in ~~with~~the ~~solvents,~~Unit ~~binders~~Offering), ~~and~~the ~~other~~Convertible ~~additives~~Notes will be automatically converted into whichever of the following equity securities would result in the greatest number of shares of Common Stock being issued to ~~make~~the holders ~~electrically~~on oran ~~thermally~~“as-if-converted” ~~conductive~~basis ~~products~~at ~~designed~~such ~~for~~time: ~~printing~~(i) Series B Preferred Stock at a note conversion price of $8.00/share; or ~~coating~~(ii) ~~and~~Subsequent ~~which~~Stock ~~are~~at ~~showing~~a ~~promise~~note inconversion ~~diverse~~price ~~customer~~per ~~applications~~share equal to 80% of the purchase price per share at which such asSubsequent Stock ~~advanced~~is ~~packaging~~sold (or if the value per share is fixed, ~~electrostatic~~125% ~~dissipation~~of ~~and~~the ~~thermal~~number ~~management.~~of Weshares ~~also~~that ~~offer~~might aotherwise ~~set~~be issuable); provided, however, in the event the Company raises at least $15 million of ~~standardized~~equity ~~ink~~capital ~~formulations~~within ~~suitable~~one ~~for~~hundred ~~printing.~~and ~~These~~twenty ~~inks~~(120) ~~offer~~days after the ~~capability~~first issue date of Convertible Notes, such percentages will be changed to ~~print~~90% ~~electrical~~of ~~circuits~~the purchase price per share at which such Subsequent Stock is sold (or, ~~antennas~~if ~~and~~the ~~may~~value per share is fixed, 110% of the number of shares that might otherwise be ~~suitable~~issuable). ~~for~~The ~~other~~first issue ~~electrical~~date orof ~~thermal~~Convertible ~~applications~~Notes was April 23, 2020. The Company did not raise at least $15 million of equity capital within one hundred and ~~can~~twenty be(120) ~~further~~days ~~customized~~after ~~for~~the ~~specific~~first ~~customer~~issue ~~requirements~~date of Convertible Notes.

4.Each ~~Energy~~share ~~Storage~~of ~~Materials.~~Series ~~These~~B ~~consist~~Preferred ofStock ~~specialty~~will have ~~advanced~~an ~~materials~~original ~~that~~issue ~~have~~price ~~been~~of ~~formulated~~$8.00 ~~for~~per ~~specific~~share ~~applications~~(the in“Series ~~the~~B ~~energy~~Original ~~storage~~Issue ~~segment.~~Price”) Weand ~~offer~~a ~~various~~liquidation ~~bulk~~preference of ~~materials~~$8.00 ~~for~~per ~~use~~share, aswith ~~conductive~~both ~~additives~~the ~~for~~Series ~~cathodes~~B ~~and~~Original ~~anodes~~Issue inPrice ~~lithium-ion~~and ~~batteries,~~the asliquidation ~~additives~~preference toper ~~anode~~share ~~slurries~~subject to adjustment for ~~lead-carbon~~stock ~~batteries~~splits, asrecapitalizations, aand ~~component~~the inlike. ~~coatings~~The ~~for~~Series ~~current~~B ~~collectors~~Preferred ~~used~~Stock inwill ~~lithium-ion~~be ~~batteries~~senior ~~and~~to wethe ~~are~~Company’s ~~investigating~~Common Stock and pari-passu with the ~~use~~Series ofA ~~our~~Preferred ~~materials~~Stock asin ~~part~~terms of ~~other~~right ~~energy-storage~~of ~~components~~repayment in a liquidation.

5.The ~~Thermal~~Series ~~Management~~B ~~Materials.~~Preferred ~~These~~Stock ~~consist~~will ~~mainly~~have full ratchet antidilution protection that provides that each share of ~~various~~Series ~~thermal~~B ~~interface~~Preferred ~~materials~~Stock outstanding may be converted by an Investor at any time into that number of shares of Common Stock determined by dividing the then current Series B Original Issue Price by the applicable Conversion Price (~~“TIM’s”~~as defined below) inwith the ~~form~~resulting offraction ~~custom~~equal ~~greases~~to orthe ~~pastes~~“Series B Conversion Rate”. The ~~Our~~total ~~custom~~number ~~thermal~~of ~~interface~~shares ~~materials~~of ~~are~~Common ~~also~~Stock ~~designed~~issuable towill be ~~used~~equal into ~~various~~the ~~high~~number ~~temperature~~of ~~environments.~~shares ~~Additionally,~~of weSeries ~~offer~~B ~~various~~Preferred ~~bulk~~Stock ~~materials~~being ~~for~~converted multiplied ~~use~~by asthe ~~active~~Series ~~components~~B inConversion ~~adhesives~~Rate. The “Conversion Price” is, ~~liquids~~at any time, ~~coatings~~the ~~and~~price ~~plastic~~per ~~composites~~share equal to ~~impart~~the lesser ~~improved~~of ~~thermal~~a) ~~management~~the ~~performance~~Series toB ~~such~~Original ~~matrices~~Issue Price per share and b) the lowest price per share at which the Company has sold equity or equity-linked securities (other than customary exclusions) at any future date while any shares of the Series B Preferred Stock remain outstanding. The Series B Original Issue Price and Conversion Price in effect at any time are also subject to proportional adjustment for share splits, share dividends, recapitalizations, and the like

Because graphene is a new material, many of our customers are still developing applications that use our products, and thus historically those customers have purchased products in quantities consistent with development purposes, although some are now purchasing in quantities consistent with larger volume commercial production. The process of “designing-in” new materials is a relatively complex one and involves the use of relatively small amounts of the new material in laboratory and engineering development for an extended period. Following successful development, we believe customers that incorporate our materials into their products will then order much larger quantities of material to support commercial production. Thus, while many of our customers are currently purchasing our materials in kilogram (one or two pound) quantities, and some have begun to purchase in metric tons, we believe many will require tens of tons or even hundreds of tons of material when they commercialize products that incorporate our materials. Although, our customers are under no obligation to report to us on the usage of our materials, some have indicated that they have introduced or will soon introduce commercial products that use our materials.28

27For the year ended December 31, 2020, certain members of our Board of Directors and its affiliates purchased $3,213,664 of Convertible Notes. Subsequent to 2020, the Board members and their affiliates purchased $772,856 of Convertible Notes. In total, the Board members and their affiliates purchased $3,986,520 of Convertible Notes from the Company. For the year ended December 31, 2020, non-Board affiliated third parties purchased $638,000 of Convertible Notes and, subsequent to 2020, purchased $1,815,760 from the Company for a total purchase of $2,453,760. Total proceeds from the sale of Convertible Notes were $6,440,280.

~~We are~~Taking ~~tracking~~into ~~the~~consideration ~~commercial and development status of more than 75 different customer applications using~~ our ~~materials~~current ~~with some~~cash ~~customers~~on ~~pursuing multiple applications. As of December 31~~hand, ~~2019,~~ we ~~had~~estimate ~~twenty-two~~that ~~(22)~~we ~~specific~~will ~~customer~~need ~~applications where our materials are incorporated into our customers’ products and such customers are actively selling these products~~ to ~~their own~~raise ~~customers.~~approximately ~~In addition~~$4,000,000 we- ~~have~~$6,000,000 ~~another~~of ~~seventeen~~additional ~~(17)~~capital ~~customer~~in ~~applications~~order ~~where our customers have indicated that they expect~~ to ~~begin shipping product incorporating~~ continue our ~~materials~~operations infor the next 3twelve ~~– 6~~ months ~~and~~in ~~have~~a ~~another~~minimal ~~twenty-six (26) customer applications where our customers have indicated an intent~~ to ~~commercialize~~no inrevenue ~~the~~growth ~~next 6 – 9 months~~environment. We ~~are also working with numerous additional customers that~~ have ~~not~~historically ~~yet~~incurred ~~indicated~~losses ~~an exact date for commercialization~~from operations, ~~but~~and we ~~believe~~may ~~have~~continue ~~the potential~~ to ~~contribute~~generate tonegative ~~meaningful~~cash ~~revenue~~flows inas ~~2020~~we ~~and~~implement ~~2021.~~our ~~The~~business ~~following~~plan. ~~graphic~~Our ~~demonstrates~~consolidated ~~the~~financial ~~commercialization trends over the~~statements ~~past~~are 8prepared ~~fiscal~~using ~~quarters~~GAAP as anapplicable ~~increasing~~to ~~number~~a ofgoing ~~customers~~concern, ~~indicate~~which ~~their~~contemplates ~~intent~~the torealization ~~commercialize~~of ~~applications~~assets and ~~move~~liquidation ~~into~~of liabilities ~~actively~~in ~~selling~~the ornormal ~~promoting~~course ~~products~~of ~~for future sales~~business.

~~Operating~~We believe our ~~Segment~~cash on hand when combined with operating cash flows and the expected net proceeds from additional borrowings or through the sales of equity securities will be sufficient to fund our operations through September of 2022 when considering various sources of funding and cash received from continued commercial sales transactions. However, the ultimate outcome is uncertain, therefore, there is substantial doubt with regard to continuing as a going concern one year beyond the issuance date.

WeIn ~~have~~the ~~one~~event ~~operating~~we ~~segment~~are ~~that~~unable ~~manufactures xGnP®~~to ~~graphene~~fund ~~nanoplatelets~~our ~~and~~operations from ~~value-added~~existing ~~products~~cash ~~produced~~on ~~therefrom~~hand, weoperating ~~conduct~~cash ~~research on graphene nanoplatelets and related products~~flows, ~~and~~additional ~~we license our technology~~borrowings, asor ~~appropriate.~~through Asthe sales of ~~December~~equity 31securities, ~~2019,~~ we ~~shipped~~may ~~products~~be forced onto areduce ~~worldwide~~our ~~basis~~expenses, ~~but~~slow ~~all~~down of our ~~assets~~growth ~~were~~rate, ~~located~~or ~~within~~discontinue ~~the United States~~operations.

~~Our Critical~~ITEM ~~Accounting~~7A. ~~Policies~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

US As ~~generally~~a ~~accepted~~smaller ~~accounting~~reporting ~~principles (“GAAP”) requires management to make estimates~~company, ~~judgments~~as ~~and~~defined ~~assumptions that~~in ~~affect~~Rule ~~the~~10(f)(1) ~~reported amounts~~ of ~~assets,~~Regulation ~~liabilities,~~S-K ~~revenues~~under ~~and expenses, together with amounts disclosed in~~ the ~~related notes~~Securities toExchange ~~the~~Act ~~consolidated~~of ~~financial statements. Actual results and outcomes may differ from management’s estimates~~1934, ~~judgments and~~as ~~assumptions. Significant estimates, judgments and assumptions used in our consolidated financial statements include, but are~~amended ~~not limited to, those related to revenues,~~ (the ~~fair~~“Exchange ~~values of stock-based compensation~~Act”), ~~derivative financial instrument liabilities, and liquidity. These estimates, judgments, and assumptions are reviewed periodically and~~ the ~~effects~~Company ofis ~~material~~not ~~revisions~~required ~~in estimates~~to ~~are~~provide ~~reflected in~~ the ~~consolidated~~information ~~financial~~required ~~statements~~by ~~prospectively~~this ~~from the date of the change in estimate~~item.

~~Revenue Recognition~~29

~~On January~~ITEM ~~1, 2018, the Company adopted ASU No~~8. ~~2014-09,~~FINANCIAL ~~Revenue~~STATEMENTS ~~from~~AND ~~Contracts~~SUPPLEMENTARY ~~with Customers (Topic 606), which supersedes nearly all previous revenue recognition guidance.~~DATA

~~Revenues are~~XG ~~recognized at a point in time~~SCIENCES, ~~typically when control of the promised goods is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods~~INC. ~~The Company does not recognize revenue in cases where collectability is not probable, and defers the recognition until collection is probable or payment is received.~~

~~Customer~~Consolidated ~~deposits,~~Financial ~~deferred revenue and other receipts are deferred and recognized when the revenue is realized and earned.~~Statements

~~Revenue related~~INDEX toTO ~~licensing~~FINANCIAL agreements is recorded upon substantial performance of the terms of the licensing contract. In the case of licensing arrangements that involve up-front payments, revenue is recorded when management determines that the appropriate terms of the contract have been fulfilled. For example, this may occur when technology has been transferred via written documents or, if training is involved, whenever all contracted training has occurred. In the case of licenses where product delivery is also embedded in the deliverable, a portion of revenue would be recognized when products are delivered.STATEMENTS

~~In the~~TABLE ~~case~~OF of licensing arrangements that involve ongoing royalties based on sales of products produced with our technology, royalty income is recorded when received or, in the case of minimum royalties due, in the period when due.CONTENTS

Grant contract revenue is recognized over the life of the contracts as the services are performed.

Consolidated Financial Statements as of and for the years ended December 31, 2020 and 2019
Report of Independent Registered Public Accounting Firm	31
Consolidated Balance Sheets	32
Consolidated Statements of Operations	33
Consolidated Statement of Changes in Stockholders’ Equity (Deficit)	34
Consolidated Statements of Cash Flows	35
Notes to Consolidated Financial Statements	46

~~Amounts received in excess of revenues earned are recorded as deferred revenue.~~30

~~Stock-Based Compensation~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

~~We recognize~~To ~~compensation~~the ~~expense~~Shareholders inand ~~our~~Board ~~statement~~ of ~~operations~~Directors ~~for all share-based option and stock awards, based on estimated grant-date fair values.~~of

28XG Sciences, Inc.

~~We estimate~~Opinion ~~the grant-date fair value of stock-based compensation awards using the Black-Scholes option valuation model. This model is affected by the estimated value of our common stock~~ on the ~~date~~Consolidated ~~of the grant as well as assumptions regarding a number of highly~~Financial complex and subjective variables. These variables include the expected term of the option, the exercise price, expected risk-free rates of return, the expected volatility of our common stock, and expected dividend yield, each of which is more fully described below. The assumptions for the estimated value of our common stock, expected term and expected volatility are the assumptions that most significantly affect the grant date fair value.Statements

~~Expected Term: Because~~We we have ~~limited~~audited ~~experience~~the ~~related~~accompanying tobalance sheet of XG Sciences, Inc. (the ~~exercise~~Company) as of ~~employee~~December ~~stock options~~31, we2020 ~~use~~and 2019, the ~~simplified~~related statements of operations, stockholders’ ~~method~~equity ~~permitted~~(deficit) byand ~~SEC~~cash ~~Staff~~flows, ~~Accounting~~for ~~Bulletin~~the ~~Topic~~years 14then toended, ~~estimate~~and the ~~expected~~related ~~term~~notes of(collectively, the ~~options~~financial statements). ~~The~~In ~~expected~~our opinion, ~~term~~the ~~of an~~financial ~~option~~statements ispresent ~~estimated~~fairly, toin beall ~~equal~~material torespects, the ~~mid-point~~financial ~~between~~position of the ~~vesting~~Company as of December 31, 2020 and ~~expiration~~2019, ~~dates~~and the results of its operations and its cash flows for the ~~option~~years then ended in conformity with accounting principles generally accepted in the United States of America.

~~Risk-free Interest~~Emphasis ~~Rate: We base the risk-free interest rate used on the implied yield at the grant date~~ of ~~U.S.~~Matter ~~Treasury zero-coupon~~– ~~issues~~Going ~~with a term approximately equal to the expected term of the stock-based award being valued.~~Concern

~~Expected Stock~~The ~~Price~~accompanying ~~Volatility: Because~~financial westatements ~~are~~have been aprepared ~~company~~assuming ~~with~~that ~~very~~the ~~limited~~Company ~~stock~~will ~~sales~~continue ~~history~~as ~~(we~~a ~~had~~going anconcern. ~~Offering~~As ~~whereby we~~discussed ~~are~~in ~~selling~~Note ~~stock~~1 ~~directly~~ to ~~investors~~the ~~without~~financial statements, the Company ~~assistance~~has ofsuffered anrecurring ~~investment~~losses ~~bank~~from ~~nor~~operations ~~are~~and wenegative ~~registered~~cash onflows. ~~any~~The ~~market~~Company’s orexisting cash on hand, operating ~~public~~cash ~~exchange)~~flows, weadditional ~~use~~borrowings aand ~~blended~~restructured ~~average~~debt ~~weekly~~obligations ~~volatility~~may not support the operations of ~~certain~~the ~~publicly~~business ~~traded~~over ~~peer~~the ~~companies~~next twelve months. WeThis ~~believe~~raises ~~that~~substantial doubt about the ~~use~~Company's ability to continue as a going concern. Management's plans in ofregard ~~this~~to ~~blended~~these ~~average~~matters ~~peer~~also ~~volatility~~are isdescribed ~~reflective~~in ofNote ~~market~~1. ~~conditions~~The ~~and~~financial astatements ~~reasonable~~do ~~indicator~~not ofinclude ~~our~~any ~~expected~~adjustments ~~future~~that ~~volatility~~might result from the outcome of this uncertainty.

~~Dividend Yield: Because~~Basis wefor ~~have never paid a dividend and do not expect to begin doing so in the foreseeable future, we have assumed a 0% dividend yield in valuing our stock-based awards.~~Opinion

~~The grant-date~~These ~~fair~~financial ~~value~~statements are the responsibility of the ~~award~~Company’s management. Our responsibility is ~~recognized~~to asexpress ~~expense~~an ~~over~~opinion on the ~~requisite~~Company’s ~~service~~financial ~~period~~statements ~~using~~based on our audits. We are a public accounting firm registered with the Public ~~straight-line~~Company ~~method~~Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

~~Fair~~We conducted our audits in accordance with ~~Value~~the ~~Measurements~~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.

~~FASB ASC~~Our ~~820:~~audits ~~“Fair~~included ~~Value~~performing ~~Measurements~~procedures ~~and~~to assess ~~Disclosures”~~the ~~defines~~risks ~~fair~~of ~~value~~material asmisstatement of the ~~exchange~~financial ~~price~~statements, ~~that~~whether ~~would~~due beto ~~received for~~error anor ~~asset~~fraud, orand ~~paid~~performing toprocedures that ~~transfer~~respond ato ~~liability~~those ~~(an~~risks. ~~exit~~Such ~~price)~~procedures inincluded ~~the~~examining, ~~principal~~on ora ~~most~~test ~~advantageous~~basis, ~~market~~evidence ~~for~~regarding the ~~asset~~amounts orand ~~liability~~disclosures in ~~an orderly transaction between market participants on~~ the ~~measurement~~financial ~~date~~statements. ~~ASC~~Our ~~820~~audits also ~~establishes~~included aevaluating ~~fair~~the ~~value~~accounting ~~hierarchy which~~principles ~~requires~~used anand ~~entity~~significant toestimates ~~maximize~~made by ~~the~~management, ~~use~~as ofwell ~~observable~~as ~~inputs~~evaluating ~~and minimize~~ the ~~use~~overall presentation of ~~unobservable~~the ~~inputs~~financial ~~when measuring fair value~~statements. ~~The~~We ~~standard~~believe ~~describes three levels of inputs~~ that ~~may~~our beaudit ~~used~~provides toa reasonable ~~measure~~basis ~~fair~~for ~~value:~~our opinion.

~~Level 1:~~/s/ ~~Quoted~~RSM ~~prices~~US ~~in active markets for identical assets or liabilities.~~LLP

~~Level 2:~~We ~~Inputs~~have ~~other~~served ~~than~~as ~~quoted~~the ~~prices~~Company’s ~~included~~auditor ~~within~~since ~~Level 1 which are either directly or indirectly observable~~2019.

~~Level 3:~~Detroit, ~~Inputs to the valuation methodology are unobservable and significant to the fair value measurement.~~Michigan

~~A financial~~September ~~instrument’s~~30, ~~level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.~~2021

~~Derivative Financial Instruments~~31

~~We do~~XG ~~not use derivative instruments to hedge exposures to cash flow~~SCIENCES, ~~market or foreign currency risk~~INC. The terms of convertible preferred stock and convertible notes that we have issued in the past were reviewed to determine whether or not they contain embedded derivative instruments that are required by ASC 815: “Derivatives and Hedging” to be accounted for separately from the host contract and recorded at fair value. In addition, freestanding warrants are also reviewed to determine if they achieve equity classification.

~~Recent~~CONDENSED CONSOLIDATED ~~Accounting~~BALANCE ~~Pronouncements~~ SHEETS – USD ($)

In December of 2019, the FASB issued Accounting Standards Update (ASU) 2019-12, Accounting for Income Taxes. The new standard simplifies the accounting for income taxes and is effective for fiscal years beginning after December 15, 2020..

	December 31, 2020			December 31, 2019
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,774,366		$	1,129,702
Accounts receivable, less allowance for doubtful accounts of $152,000 at December 31, 2020 and $179,600 at December 31, 2019		119,234			72,227
Inventories		514,652			891,587
Other current assets		219,997			334,493
Total current assets		2,628,249			2,428,009

LEASEHOLD IMPROVEMENTS AND EQUIPMENT, NET		2,852,519			3,676,142

LEASE DEPOSIT		59,650			77,544

INTANGIBLE ASSETS, NET		755,544			753,862

RIGHT OF USE ASSET		1,057,614			1,606,443

TOTAL ASSETS		7,353,576			8,542,000

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		686,812			634,564
Other current liabilities		280,950			238,554
Deferred revenue		1,820			—
Current portion of long-term debt		7,800			—
Current portion of lease liabilities		641,663			520,197
Total current liabilities		1,619,045			1,393,315
LONG-TERM LIABILITIES
Long-term portion of lease liabilities		640,093			1,183,872
Long term debt		12,776,975			8,111,610
Total long-term liabilities		13,417,068			9,295,482
TOTAL LIABILITIES		15,036,113			10,688,797

STOCKHOLDERS’ EQUITY
Series A convertible preferred stock, 3,000,000 shares authorized, 1,890,354 shares issued and outstanding, liquidation value of $22,684,248 at December 31, 2020 and December 31, 2019		22,307,480			22,307,480
Series B convertible preferred stock, 1,500,000 shares authorized, 647,040 and zero shares issued and outstanding at December 31, 2020 and December 31, 2019		5,151,850			—
Common stock, no par value, 25,000,000 shares authorized, 3,387,403 and 4,024,443 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively		27,260,156			32,351,876
Additional paid-in capital		10,280,853			8,774,975
Accumulated deficit		(72,682,876	)		(65,581,128	)
Total stockholders’ equity		(7,682,537	)		(2,146,797	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		7,353,576			8,542,000

29See notes to consolidated financial statements

~~Adoption of Lease Accounting Policy~~ 32

~~We applied~~XG ASU 2016-02 and all related amendments (“ASC 842”) using the modified retrospective method by recognizing the cumulative effect of adoption as an adjustment to the opening balance of retained earnings at January 1SCIENCES, ~~2019~~INC. Therefore, the comparative information has not been adjusted and continues to be reported under prior leasing guidance. As a result, in the first quarter of 2019 we recorded ROU assets of $1,871,366. We also recorded lease liabilities of $1,981,795. The decrease to retained earnings was $116,319, reflecting the cumulative impact of the accounting change. The standard did not have a material effect on consolidated net income or cash flows.

~~Right-of-use assets~~CONDENSED ~~represent~~CONSOLIDATED ~~our~~STATEMENTS ~~right~~OF ~~to use an underlying asset for the lease term and lease liabilities represent our obligation to make~~OPERATIONS lease payments arising from the lease. As our leases do not provide an implicit rate, we used our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized on a straight-~~line~~ ~~basis~~USD ~~over the lease term.~~($)

~~We do~~FOR ~~not~~THE ~~record~~YEARS aENDED ~~ROU~~DECEMBER ~~asset~~31, or2020 ~~lease~~AND ~~liability for leases with an expected term of 12 months or less. The comparative information has not been adjusted and continues to be reported under prior leasing guidance.~~2019

With the exception of the standards discussed above, we believe there have been no new accounting pronouncements effective or not yet effective which have significance, or potential significance, to our Consolidated Financial Statements.

	2020			2019
REVENUE
Total Revenues	$	782,692		$	1,369,556
COST OF GOODS SOLD
Direct costs		495,229			1,006,594
Unallocated manufacturing expenses		2,168,695			2,756,879
Cost of Goods Sold		2,663,924			3,763,473
GROSS LOSS		(1,881,232	)		(2,393,917	)
OPERATING EXPENSES
Research & Development Expense		896,840			1,506,716
Sales, General & Administrative Expense		4,218,361			5,467,698
Total Operating Expenses		5,115,201			6,974,414
OPERATING LOSS		(6,996,433	)		(9,368,331	)
OTHER INCOME (EXPENSE)
Interest expense, net		(875,277	)		(409,318	)
Nonoperating income - SBA PPP Loan Forgiveness		796,089			—
Nonoperating expense - Exchange Rights Expense		(26,127	)		—
Total Other Expense		(105,315	)		(409,318	)
Net Loss	$	(7,101,748	)	$	(9,777,649	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - Basic and diluted (in shares)		3,853,681			3,951,178
NET LOSS PER SHARE - Basic and diluted (in dollars per share)	$	(1.84	)	$	(2.47	)

~~JOBS Act~~See notes to consolidated financial statements

In April 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an “emerging growth company,” or EGC, can take advantage of the extended transition period for complying with new or revised accounting standards. Thus, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.33

~~We are~~XG ~~in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions~~SCIENCES, as an EGC, we intend to rely on certain exemptions, including exemptions from the requirement to provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysisINC. We will remain an EGC until the earlier of: the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; the last day of the fiscal year following the fifth anniversary of the date of the completion of our Offering; the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

30CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

~~Results of~~FOR ~~Operations~~THE ~~for~~YEARS ~~the~~ENDED ~~Year Ended December~~ DECEMBER 31, ~~2019~~2020 ~~Compared~~AND ~~with the Year Ended December 31, 2018~~2019

The following table summarizes the results of our operations for the years ended December 31, 2019 and 2018.

	Preferred stock A				Preferred stock B					Common stock						Additional paid-in capital		Accumulated deficit			Total
	Shares		Amount		Shares		Amount			Shares			Amount			Amount		Amount
Balances, December 31, 2018		1,890,364	$	22,307,480							3,760,268		$	30,268,476		$	8,101,923	$	(55,687,160	)	$	4,990,719
Stock issued for cash											251,675			2,013,400							$	2,013,400
Stock issuance fees and expenses														(20,000	)						$	(20,000	)
Transition adjustment for adoption of new lease standard																		$	(116,319	)	$	(116,319	)
Stock-based compensation expense														90,000			369,885				$	459,885
Restricted Stock Units issued to BOD											12,500											—
Warrants issued with Dow financing																	303,168				$	303,168
Net loss																		$	(9,777,649	)	$	(9,777,649	)
Balances, December 31, 2019		1,890,364	$	22,307,480							4,024,443		$	32,351,876		$	8,774,976	$	(65,581,128	)	$	(2,146,796	)
Common stock exchange for Series B stock						647,040		5,176,320			(647,040	)		(5,176,320	)							—
Stock issuance fees and expenses								(24,470	)												$	(24,470	)
Value of exchange rights																	989,811				$	989,811
Stock-based compensation expense														84,600			444,790				$	529,390
Restricted Stock Units issued to BOD											10,000											—
Warrants issued with Dow financing																	71,276				$	71,276
Net loss																		$	(7,101,748	)	$	(7,101,748	)
Balances, December 31, 2020		1,890,364	$	22,307,480		647,040	$	5,151,850			3,387,403		$	27,260,156		$	10,280,853	$	(72,682,876	)	$	(7,682,537	)

	Year Ended December 31,						Change 2019 to 2018
	2019			2018			$			%
Total Revenues		1,369,556			4,301,820			(2,932,264	)		-68.2	%
Cost of Goods Sold		3,763,473			5,506,321			1,742,848			31.7	%
Gross Loss		(2,393,917	)		(1,204,501	)		(1,189,416	)		-98.7	%
Research & Development Expense		1,506,716			1,414,259			(92,457	)		-6.5	%
Sales, General & Administrative Expense		5,467,698			4,972,595			(495,103	)		-10.0	%
Total Operating Expenses		6,974,414			6,386,854			(587,560	)		-9.2	%
Operating Loss		(9,368,331	)		(7,591,355	)		(1,776,976	)		-23.4	%
Other Expense		409,318			328,261			(81,057	)		-24.7	%
Net Loss		(9,777,649	)		(7,919,616	)		(1,858,033	)		-23.5	%

See notes to consolidated financial statements

~~Revenues~~34

~~Revenues for~~XG ~~the years ended December 31~~SCIENCES, ~~2019 and 2018, by category, are shown below~~INC.

	Year Ended December 31,				Change 2019 to 2018
	2019		2018					%
Product Sales	$	1,369,556	$	4,125,567	$	(2,756,011	)		(66.8	)
Grants		-		176,253		(176,253	)		(100.0	)
Total Revenues	$	1,369,556	$	4,301,820	$	(2,932,264	)		(68.2	)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Product sales consist of two broad categories: (1) material sold to customers for research or development purposes; and (2) production orders for customers. Typically, the order sizes for the first category are relatively small, however we expect orders in the second category to be much larger in the future. For the year ended December 31, 2019, product sales decreased by $2,756,011 or 67% from the prior year. The decrease in revenue for the year ended December 31, 2019 is due to our largest customer suspending orders during the period. The customer has not stopped using our products, but rather, is working down material ordered and delivered in the second half of 2018 and currently held in inventory and being used to produce their products. This customer continues to ship their products incorporating our material and we expect that will continue working down existing inventory and will resume purchasing our products at historical levels in the coming year. In addition, other customers have been moving through development programs towards commercialization, requiring larger quantities of our materials for advanced testing, pilot production and commercial-scale production activities. We believe that those customers already in production will increase their order volume as demand increases and others will begin to move into commercial volume production as they gain more experience in working with our materials and engage their own customers.

	For the Twelve Months Ended December 31,
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES
Adjustments to reconcile net loss to net cash used in operating activities:
Net loss	$	(7,101,748	)	$	(9,777,649	)
Depreciation		865,026			927,974
Amortization of intangible assets		74,733			68,040
Loss on disposal of equipment and intangibles		6,122			2,605
Provision for bad debts		—			181,679
Stock-based compensation expense		529,390			459,885
Non-cash interest expense		902,445			130,410
Non-cash SBA PPP loan forgiveness		(796,089	)		—
Changes in current assets and liabilities:
Accounts receivable		(47,006	)		605,148
Inventory		376,935			(231,370	)
Other current and non-current assets		258,905			(296,123	)
Accounts payable and other liabilities		148,864			(660,197	)
NET CASH USED IN OPERATING ACTIVITIES		(4,782,423	)		(8,589,598	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of leasehold improvements and equipment		(47,526	)		(383,070	)
Patents		(76,414	)		(131,257	)
NET CASH USED IN INVESTING ACTIVITIES		(123,940	)		(514,327	)

CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of capital lease obligations		—			(15,527	)
Repayments of long-term loan debt		—			(638,220	)
Proceeds from issuance of common stock		—			2,013,400
Common stock issuance fees and expenses		—			(20,000	)
Proceeds from long-term loan		1,000,000			4,000,000
Proceeds of Unit Offering		3,867,810			—
Unit Offering issuance fees and expenses		(117,578	)		—
Proceeds from SBA Loans / EIDL		800,795			—
NET CASH PROVIDED BY FINANCING ACTIVITIES		5,551,027			5,339,653

NET CHANGE IN CASH AND CASH EQUIVALENTS		644,664			(3,764,272	)
CASH, AND CASH EQUIVALENTS, BEGINNING OF PERIOD		1,129,702			4,893,974
CASH, AND CASH EQUIVALENTS, END OF PERIOD		1,774,366			1,129,702

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest		—			208,286

Warrants issued with Dow financing		71,276			303,168

~~We ship~~See ~~our~~notes ~~products from our Lansing, MI manufacturing facilities~~ to ~~customers~~consolidated ~~around~~financial the world. During the year ended December 31, 2019, we shipped materials to customers in 29 countries, as compared to 23 countries during the same period in 2018. For the year ended December 31, 2019, sales to two foreign countries, South Korea and Switzerland, accounted for more than 10% of revenue. For the year ended December 31, 2018, no product sales to any one country accounted for more than 10% of product sales.statements

~~Order Summary~~35

~~The~~NOTE ~~table~~1 ~~below~~— ~~shows~~NATURE aOF ~~comparison~~BUSINESS ofAND ~~domestic and~~BASIS ~~international~~OF orders fulfilled (note that this does not include orders for free samples). The table also includes the average order size for product sales. These numbers indicate that our customer base remains active with research and development projects that use our materials. The average order size for the product revenue during the year ended December 31, 2019 decreased by 56% as compared to the same period in 2018 primarily due to a 2019 decrease in orders from one customer while working down their inventory.PRESENTATION

	Year Ended December 31				Change 2019 to 2018
	2019		2018		# of Orders			%
Number of orders - domestic		119		122		(3	)		-2	%
Number of orders - international		99		168		(69	)		-41	%
Number of orders - Total		218		290		(72	)		-25	%
Average order size - $s	$	6,282	$	14,303	$	(8,021	)		-56	%

XG Sciences, Inc., a Michigan company located in Lansing, Michigan and its subsidiary, XG Sciences IP, LLC (collectively referred to as “we”, “us”, “our”, or the “Company”) manufactures graphene nanoplatelets made from graphite, using two proprietary manufacturing processes to split natural flakes of crystalline graphite into very small and thin particles, which we sell as xGnP^® graphene nanoplatelets. We sell our nanoparticles in the form of bulk powders or dispersions to other companies for use as additives to make composite and other materials with specially engineered characteristics. We also manufacture and sell integrated, value-added products containing these graphene nanoplatelets such as greases, composites, thin sheets, inks and coating formulations that we sell to other companies. Additionally, we license our technology to other companies in exchange for royalties and other fees.

31Basis of Presentation

~~Grant~~The accompanying consolidated financial statements ~~Revenue~~have been prepared in accordance with GAAP.

~~Grant~~The ~~revenues~~consolidated offinancial ~~$176,253~~statements ~~in 2018 consisted~~include ~~of proceeds from sources as shown in~~ the ~~table~~accounts ~~below. The largest~~ of ~~these~~XG ~~sources~~Sciences, ~~in 2018 came from the State of Michigan~~Inc. ~~In 2018,~~and ~~an agreement was initiated with the Michigan Strategic Fund relating to~~ our ~~new~~wholly ~~manufacturing~~owned ~~facility~~subsidiary, inXGS ~~Mason~~IP, ~~Michigan~~LLC. ~~Grant~~ ~~contract~~We ~~revenue~~operate ~~was~~as ~~recognized~~one atoperating asegment. ~~point~~All ~~in time when the first increment of qualified new jobs over the base employment~~intercompany ~~level~~accounts, astransactions ~~defined by the grant was met in 2018~~ and ~~recorded~~profits ashave ~~grant~~been ~~revenue~~eliminated in ~~the amount of $173,000~~consolidation.

	Year Ended December 31
	2019		2018
State of Michigan	$	—	$	173,000
US Department of Energy		—		—
Daimler / University of Michigan		—		—
Michigan Economic Development Corporation		—		3,253
Total	$	—	$	176,253

Going Concern and Liquidity

~~Licensing~~We have historically incurred losses from operations, ~~Revenue~~and we may continue to generate negative cash flows as we implement our business plan. Our consolidated financial statements are prepared using GAAP as applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.

~~There~~As of August 30, 2021, we had cash on hand ~~were~~of no$1,666,543. ~~licensing~~Due ~~agreements~~to lower-than-expected revenue in ~~place~~2020 ~~nor~~and ~~amounts~~the ~~due~~current COVID-19 global pandemic impacting both our operations and ~~recorded~~that onof our ~~balance~~customers, ~~sheet~~Management ~~for~~has ~~Licensing~~taken ~~Revenue~~several atsteps ~~December~~to ~~31,~~ensure we are able to fund our operations from existing cash on ~~2019~~hand, oroperating ~~December~~cash 31flows,~~2018~~ additional borrowings and restructured debt obligations.

~~Cost of Goods Sold~~36

~~We use~~In aMarch ~~standard cost system to estimate the direct costs~~ of ~~products~~2020, ~~sold.~~we ~~Variances~~restructured ~~between~~our ~~the standard costs and the actual~~organization ~~costs~~by ~~are~~reducing ~~then~~headcount ~~properly~~by ~~capitalized to the inventories and expensed to cost of goods sold. Direct costs include estimates of raw material costs~~53%, ~~packaging,~~by ~~freight~~furloughing ~~charges~~substantially ~~net~~all ofmanufacturing ~~those billed to customers~~employees, and anby ~~allocation~~implementing ~~for~~temporary ~~direct~~salary ~~labor~~reductions ranging ~~and~~from ~~manufacturing overhead~~15-20%. ~~Because~~Although ofwe ~~the~~have ~~nature~~re-employed ofkey ~~our~~employees ~~production~~since ~~processes,~~the ~~there~~reductions isand afurloughs, ~~substantial~~annual ~~fixed~~payroll ~~manufacturing~~and ~~expense requirement that~~related ~~represents~~costs ~~the~~have ~~ongoing~~been ~~cost~~reduced ofby ~~maintaining~~38%. ~~production~~In ~~facilities~~April ~~that are not directly related to products sold~~2020, so we ~~use~~furloughed aadditional ~~“full capacity”~~employees ~~allocation~~in ofour ~~overhead~~R&D ~~based~~and onEngineering andepartments. ~~estimate~~We also ofreduced ~~what~~our ~~product~~annual ~~costs~~cash ~~would~~run berate iffor ~~the~~all ~~manufacturing~~other ~~facilities~~expenses ~~were operating~~by on17%. aSalary ~~full-time~~reductions ~~basis~~remained ~~and~~in ~~producing~~place ~~products~~until atFebruary ~~the~~1, ~~designed capacity~~2021.

~~Gross~~In early April of 2020, we applied for relief ~~Profit~~under ~~Summary~~the Coronavirus Aid, Relief and Economic Security Act (“CARES”) by applying with the Small Business Administration (“SBA”) for an Economic Injury Disaster Loan (“EIDL”) and by applying to an SBA lender bank, PNC, for a Paycheck Protection Plan (“PPP”) loan. Based upon the various criteria outlined by the SBA, including meeting certain employee thresholds and demonstrating liquidity needs, the Company believed that it was eligible to receive the PPP loan. On April 18, 2020, we received an approved and fully executed PPP Term Note for $825,200 with a term of two years, a six-month repayment deferral period, and an annual rate of interest of 1%, with a potential for some or all of the loan to be forgiven, dependent upon use of the loan proceeds. On April 20, 2020, we received the $825,200 of proceeds under the PPP loan which was subsequently reduced by $34,405 to $790,795 due to additional SBA guidance regarding 1099 income paid. On October 6, 2020, the Paycheck Protection Flexibility Act of 2020 extended the deferral expiration period for loan repayments to either the date that the SBA remits the borrower’s loan forgiveness or to 24 weeks after the receipt of proceeds plus 10 months or July 3, 2021.

~~The following~~In ~~table~~May ~~shows~~of 2021, we applied for loan forgiveness for the ~~relationship~~PPP loan received in April of ~~direct~~2020 ~~costs~~and, in July of 2021, we received SBA approval for forgiveness of 100 % of the PPP loan and accrued interest. As a result, the Company believes that it has met the PPP eligibility criteria for forgiveness and has concluded that the loan represents, in substance, a government grant that is expected to ~~product~~be ~~sales~~forgiven. As such, in accordance with IAS 20 “Accounting for Government Grants and Disclosure of Government Assistance”, the ~~years~~Company ~~ended~~has recognized the entire loan amount as Other Income as of December 31, ~~2019~~2020. If, despite the Company’s good-faith belief that given its circumstances the Company satisfied all eligible requirements for the PPP Loan, the Company is later determined to have not been in compliance with these requirements or it is otherwise determined that it was ineligible to receive the PPP Loan, the Company may be required to repay the PPP Loan in its entirety and/or ~~2018:~~be subject to additional penalties. Should the Company be audited or reviewed by federal or state regulatory authorities as a result of filing an application for forgiveness of the PPP Loan or otherwise, such audit or review could result in a change in the Company’s amount of forgiveness recorded in the condensed consolidated financial statements.

	Year Ended December 31,						Change 2019 to 2018
	2019			2018			$			%
Product Sales	$	1,369,556		$	4,125,567		$	(2,756,011	)		(66.8	)
Direct Costs		1,006,594			2,344,937			(1,338,343	)		(57.1	)
Direct Cost Margin	$	362,962		$	1,780,630		$	(1,417,668	)		(79.6	)
% of Sales		26.5	%		43.2	%
Unallocated Manufacturing Expense		2,756,879			3,161,384			(404,505	)		(12.8	)
Gross Loss on Product Sales	$	(2,393,917	)	$	(1,380,754	)	$	(1,013,163	)		73.4

In December 2016, we entered into the Dow Facility to provide up to $10 million of secured debt financing at an interest rate of 5% per year, drawable at our request under certain conditions. On February 12, 2020, we drew the remaining $1 million of the Dow Facility.

32On April 23, 2020, we entered into an amended and restated Draw Loan Note and Agreement and related transaction documents (collectively, the “Amended Dow Facility”) with the Dow Chemical Company to amend the terms of our current loan facility to allow us to structure a private placement of units (“Units”) comprised (in part) of subordinated, secured convertible notes (“Convertible Notes” and such offering, the “Unit Offering”), to support ongoing cash needs. In the Amended Dow Facility, the Company and Dow agreed to 1) extend the term of such loan facility by two years to December 1, 2023, 2) significantly reduce any required prepayment to Dow from the proceeds of new equity or equity-linked financings from the current 30-50% prepayment requirement on the pre-existing Dow Facility to a 10% prepayment requirement in the Amended Dow Facility, which does not begin until after we have raised an additional $7 million in equity or equity-linked capital from the date of the amendment, 3) capitalize all interest payable until such time as we have recorded GAAP revenue of at least $2 million for two consecutive calendar quarters 4) increase the rate of interest to 6.5% per annum from 5% in the pre-existing Dow Facility, and 5) allow for a subordinated security interest to be granted to new investors in the Unit Offering.

WeImmediately after the execution of the transaction ~~believe~~documents ~~that~~related to the ~~fluctuations~~Amended Dow Facility, we began the Unit Offering in ~~gross~~a ~~loss~~private onplacement ~~product~~to ~~sales~~accredited investors. The Unit Offering is comprised of the Convertible Notes and ~~direct~~a ~~cost~~fully ~~from~~assignable ~~period~~or totransferrable ~~period~~right ~~are~~to ~~not~~exchange ~~indicative~~two shares of ~~future~~previously ~~margins~~issued ~~because~~Common Stock of the ~~relatively~~Company ~~small~~for ~~size~~two shares of ~~our~~Series ~~sales~~B inPreferred ~~comparison~~Stock toof ~~our~~the ~~future~~Company ~~expectations~~for every $8.00 ~~Direct~~invested ~~costs~~in ~~vary~~the ~~depending~~Unit onOffering (the ~~size~~“Exchange Rights”). The Convertible Notes are secured by a junior security interest in all the assets of anthe ~~order~~Company, ~~the~~bear ~~specific~~an ~~products~~interest ~~being~~rate ~~ordered,~~of 7.5% per annum and ~~other~~mature ~~factors~~on ~~like~~December ~~shipping~~31, ~~destination~~2024. ~~(which~~Each oninvestor’s ~~small~~Exchange ~~orders~~rights ~~can~~are ~~represent~~exercisable for a ~~significant~~period ~~percentage~~ of ~~the~~thirty ~~cost~~(30) days after acceptance by the Company of a fully executed subscription agreement.

~~The remaining~~At ~~“non-direct”~~the ~~costs~~option of ~~operating~~each ~~our~~holder, ~~manufacturing~~the ~~facilities~~Convertible Notes are ~~recorded~~convertible asinto ~~unallocated~~either ~~manufacturing~~i) ~~expenses. These~~Series ~~expenses~~B ~~include~~Convertible ~~personnel~~Preferred ~~costs,~~Stock ~~rent,~~(“Series ~~utilities,~~B ~~indirect~~Preferred ~~supplies,~~Stock”) ~~depreciation,~~at ~~and~~a ~~related~~note ~~indirect~~conversion price ~~expenses~~of $8.00/share; ~~Unallocated manufacturing~~or ~~expenses~~ii) ~~are~~any ~~expensed~~other asform ~~incurred.~~of Wepreferred ~~allocate~~or ~~these~~common ~~costs~~stock to(“Subsequent ~~direct~~Stock”) ~~product~~issued ~~costs~~by ~~based~~the onCompany at ~~the~~a ~~proportion~~note conversion price per share equal to 80% of ~~these expenses~~the ~~that~~purchase ~~would~~price beper ~~representative~~share ~~direct~~at ~~product~~which ~~costs~~such Subsequent Stock is sold (or if the wevalue ~~were~~per ~~operating~~share ~~our~~is ~~factory~~fixed, at125% ~~full~~of ~~capacity~~the number of shares that might otherwise be issuable).

~~For~~If and when we raise at least $15 million of ~~the~~equity ~~year~~capital ~~ended~~(excluding ~~December~~capital ~~31,~~raised ~~2019~~in this Unit Offering), ~~unallocated~~the ~~manufacturing~~Convertible ~~expenses~~Notes ~~decreased~~will bybe ~~13%~~automatically converted into whichever of the following equity securities would result in the greatest number of shares of Common Stock being issued to ~~$2,756,879~~the holders on an “as-if-converted” ~~compared~~basis toat such time: (i) Series B Preferred Stock at a note conversion price of $38.00/share; or (ii) Subsequent Stock at a note conversion price per share equal to 80% of the purchase price per share at which such Subsequent Stock is sold (or if the value per share is fixed,~~161~~ 125% of the number of shares that might otherwise be issuable); provided,~~384~~ however, in ~~2018.~~the ~~The~~event ~~decrease~~the ofCompany raises at least $~~404~~15 million of equity capital within one hundred and twenty (120) days after the first issue date of Convertible Notes,~~505~~ issuch ~~largely~~percentages ~~due~~will be changed to ~~lower~~90% ~~levels~~of the purchase price per share at which such Subsequent Stock is sold (or, if the value per share is fixed, 110% of ~~manufacturing~~the ~~expenses~~number asof weshares ~~adjusted~~that tomight aotherwise ~~lower~~be ~~volume~~issuable). The first issue date of Convertible Notes was April 23, 2020. The Company did not raise at least $15 million of equity capital within one hundred ~~commercial~~and ~~orders~~twenty ~~versus~~(120) days after the ~~prior~~first ~~year~~issue date of Convertible Notes.

~~Research and Development Expenses~~37

~~Research~~Each share of Series B Preferred Stock will ~~and~~have ~~development~~an ~~expenses~~original ~~for~~issue price of $8.00 per share (the ~~year~~“Series ~~ended~~B ~~December~~Original ~~31,~~Issue ~~2019~~Price”) ~~increased~~and bya 7%liquidation topreference of $18.00 per share,~~506,717~~ aswith ~~compared~~both tothe ~~$1,414,259~~Series ~~for~~B Original Issue Price and the liquidation preference per share subject to adjustment ~~year~~for ~~ended~~stock ~~December~~splits, 31recapitalizations, ~~2018~~and the like. The ~~increase~~Series ofB ~~$92,458~~Preferred isStock ~~largely~~will ~~due~~be senior to the ~~hiring~~Company’s ofCommon ~~additional~~Stock and ~~personnel~~pari-passu towith ~~increase~~the ~~our~~Series ~~core ability~~A toPreferred ~~deliver~~Stock ~~improved~~in ~~applications~~terms toof ~~customers~~right of repayment in a liquidation.

~~Sales~~The Series B Preferred Stock will have full ratchet antidilution protection that provides that each share of Series B Preferred Stock outstanding may be converted by an Investor at any time into that number of shares of Common Stock determined by dividing the then current Series B Original Issue Price by the applicable Conversion Price (as defined below) with the resulting fraction equal to the “Series B Conversion Rate”. The total number of shares of Common Stock issuable will be equal to the number of shares of Series B Preferred Stock being converted multiplied by the Series B Conversion Rate. The “Conversion Price” is, at any time, the price per share equal to the ~~General~~lesser of a) the Series B Original Issue Price per share and ~~Administrative~~b) ~~Expenses~~the lowest price per share at which the Company has sold equity or equity-linked securities (other than customary exclusions) at any future date while any shares of the Series B Preferred Stock remain outstanding. The Series B Original Issue Price and Conversion Price in effect at any time are also subject to proportional adjustment for share splits, share dividends, recapitalizations, and the like.

~~During 2019,~~For wethe ~~incurred~~year ~~selling~~ended December 31, ~~general~~2020, ~~and~~certain members ~~administrative~~of ~~expenses~~our ~~(SG&A)~~Board of Directors and its affiliates purchased $53,~~467~~213,~~698~~664 of Convertible Notes. ~~This~~Subsequent isto an2020, ~~increase~~the ofBoard members and their affiliates purchased $~~703~~772,~~903~~856 orof ~~14%~~Convertible Notes. In total, the Board members and their affiliates purchased $3,986,520 of Convertible Notes from ~~2018~~the Company. For the year ended December 31, ~~which~~2020, ~~represents~~non-Board anaffiliated ~~increase~~third inparties ~~sales~~purchased ~~personnel~~$638,000 of toConvertible ~~support~~Notes ~~increased~~and, ~~customer~~subsequent ~~programs~~to as2020, ~~well~~purchased as$1,815,760 from the ~~addition~~Company for a total purchase of ~~our~~$2,453,760. Total proceeds ~~Chief~~from ~~Technologist~~the sale of Convertible Notes were $6,440,280.

~~Other~~Taking into consideration our current cash ~~Income~~on ~~(Expense)~~hand, we estimate that we will need to raise approximately $4,00,000 - $6,000,000 of additional capital in order to continue our operations for the next twelve months in a minimal to no revenue growth environment. We have historically incurred losses from operations, and we may continue to generate negative cash flows as we implement our business plan. Our consolidated financial statements are prepared using GAAP as applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.

~~Interest~~We believe our ~~expense,~~cash ~~net~~on ofhand ~~interest~~when ~~income~~combined inwith operating cash flows and the ~~year~~expected ~~ended~~net ~~December~~proceeds ~~31,~~from ~~2019,~~additional ~~increased~~borrowings byor ~~$81,057~~through ~~compared~~the tosales of ~~2018.~~equity ~~The~~securities ~~net~~will ~~increase~~be ~~in expense~~sufficient ~~reflects~~to ~~interest~~fund ~~due~~our onoperations ~~the~~through ~~increased~~September ~~Dow~~of ~~Facility~~2022. However, ~~balance~~the ~~which~~ultimate ~~was~~outcome ~~partially~~is ~~offset~~uncertain, bytherefore, ~~principal~~there ~~repayments~~is ~~and~~substantial ~~the elimination~~doubt ofwith ~~interest~~regard ~~expense~~to oncontinuing ~~the~~as ~~capital~~a ~~lease~~going ~~which~~concern one ~~ended~~year ~~December~~beyond ~~31,~~the ~~2018~~issuance date.

33In the event we are unable to fund our operations from existing cash on hand, operating cash flows, or additional borrowings, we may be forced to reduce our expenses, slow down our growth rate, or discontinue operations

~~Cash Flow Summary~~38

~~The following~~NOTE ~~condensed~~2 ~~cash~~— ~~flow~~SUMMARY ~~statement~~OF ~~compares~~SIGNIFICANT ~~cash~~ACCOUNTING ~~flow from operating, investing, and financing activities for the year ended 2019 and 2018.~~POLICIES

	Year Ended December 31,						Change 2019 to 2018
	2019			2018			$			%
Cash, cash equivalents and restricted cash at beginning of period		4,893,974			3,041,590			1,852,384			60.9	%
Net Cash provided (used by):
Operating activities		(8,589,598	)		(5,643,238	)		(2,946,360	)		-52.2	%
Investment activities		(514,327	)		(3,385,114	)		2,870,787			-84.8	%
Finance activities		5,339,653			10,880,736			(5,541,083	)		-50.9	%
Net increase (decrease) in cash		(3,764,272	)		1,852,384			(5,616,656	)		-303.2	%
Cash, end of period		1,129,702			4,893,974			(3,764,272	)		76.9	%

Use of Estimates

~~(1)~~GAAP ~~Restricted~~requires ~~cash,~~management ~~which~~to ismake ~~included~~estimates, judgments inand ~~cash~~assumptions atthat affect the ~~end~~reported amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the ~~year~~related ~~for~~notes ato ~~letter~~the ofconsolidated ~~credit~~financial statements. Actual results and outcomes may differ from management’s estimates, ~~were~~judgments, $0and assumptions. Significant estimates, judgments and ~~$190~~assumptions used in these consolidated financial statements include,~~140~~ ~~for~~but are not limited to, those related to revenues, accounts receivable and related allowances, contingencies, useful lives and recovery of long-term assets, income taxes, and the ~~twelve~~fair ~~months~~values ~~ended~~of ~~December~~stock-based 31compensation, ~~2019~~warrants, and ~~2018~~derivative financial instrument liabilities. These estimates, ~~respectively~~judgments, and assumptions are reviewed periodically and the effects of material revisions in estimates are reflected in the financial statements prospectively from the date of the change in estimate.

~~Net cash~~Revenue used in operating activities for the year ended December 31, 2019 and 2018 was $8,589,598 and $5,643,238, respectively. Net cash used by operating activities decreased 52% during 2019 as compared to 2018 primarily due to a lower volume of commercial orders in 2019 than 2018.Recognition

~~Investing activities~~On ~~for~~January ~~the~~1, ~~year ended December 31~~2018, ~~2019 included net capital expenditures for~~ the ~~purchase~~Company ofadopted ~~property and equipment of~~ASU ~~$383,070~~No. ~~and $131~~2014-09,~~257~~ ~~for~~Revenue ~~intellectual~~from ~~property~~Contracts ~~as compared~~ with ~~$3,209,632~~Customers ~~for~~(Topic ~~property and equipment and $175~~606),~~482~~ ~~for~~which ~~intellectual property~~supersedes ~~during~~nearly ~~the~~all ~~same~~previous ~~period~~revenue ~~in 2018. The 2019 levels of capital expenditures are lower than 2018 since we had completed our~~recognition ~~expanded production capacity in 2018 to meet anticipated customer orders for those customers who are moving into commercialization of products containing our materials~~guidance.

~~Financing activities~~Revenues ~~provided~~are arecognized ~~net~~at ~~increase~~a point in ~~cash of $5~~time,~~339,653~~ typically ~~and~~when ~~$10,880,736~~control ~~for~~of the ~~year~~promised ~~ended~~goods ~~December~~is ~~31,~~transferred ~~2019~~to ~~and 2018~~customers, ~~respectively. For~~in ~~the~~an ~~year~~amount ~~ended~~that ~~December~~reflects ~~31,~~the ~~2019~~consideration ~~gross proceeds from~~ the ~~issuance of common stock was $2,013,400 and stock issuance expenses~~Company ~~were~~expects ~~$20,000~~to asbe ~~compared~~entitled to ~~proceeds~~in ~~from~~exchange ~~the issuance of common stock~~ for ~~the~~those ~~year ended December 31, 2018 of $11,175,344 and stock issuance expenses of $102,880~~goods. ~~Financing~~The ~~activities~~Company ~~for~~does ~~the~~not ~~year~~recognize ~~ended~~revenue ~~December~~in ~~31,~~cases ~~2019~~where ~~included~~collectability ~~$4,000,000 of loan proceeds~~is ~~from~~not ~~the~~probable ~~Dow~~and ~~Facility.~~defers ~~No new loan proceeds were received from~~ the ~~Dow~~recognition ~~Facility~~until incollection ~~2018~~is ~~(see~~probable ~~Note~~or 7payment ofis ~~our financial statements in this report)~~received.

~~Liquidity~~Customer deposits, deferred revenue and other receipts are deferred and ~~Capital~~recognized ~~Expenditures~~when the revenue is realized and earned. Grant contract revenue is recognized over the life of the contracts as the services are performed.

~~We have~~Amounts ~~historically~~received ~~incurred~~in ~~losses~~excess ~~from~~of ~~operations~~revenues ~~and we may continue to generate negative cash flows as we implement our business~~earned ~~plan. Our consolidated financial statements~~ are ~~prepared~~recorded ~~using US GAAP~~ as ~~applicable~~deferred ~~to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business~~revenue.

InCost ~~December 2016, we entered into the Dow Facility to provide up to $10 million~~ of ~~secured~~Products debt financing at an interest rate of 5% per year, drawable at our request under certain conditions. We drew $2 million at closing, $1 million on each of July 18, 2017, September 22, 2017 and December 4, 2017. After December 1, 2017, an additional $5 million became available under the Dow Facility as a result of the Company having raised $10 million of equity capital after October 31, 2016. We drew $2 million on July 8, 2019, an additional $2 million on November 19, 2019 and, on February 12,2020, we drew the remaining $1 million.Sold

AsWe use a standard cost system to estimate the direct costs of ~~April~~products ~~24,~~sold. ~~2020,~~Variances webetween ~~had~~the ~~cash~~standard oncosts ~~hand~~and the actual costs are then capitalized to the inventories and expensed to the cost of $1goods sold. Direct costs include estimates of raw material costs,~~589~~ packaging,~~468.74 Due~~ freight charges net of those billed to ~~lower~~customers, ~~than~~and ~~expected~~an ~~revenue~~allocation infor ~~2019~~direct labor and ~~the~~manufacturing ~~current~~overhead. ~~COVID-19~~Because ~~global~~of ~~pandemic~~the ~~impacting~~nature ~~both~~ of our ~~operations~~production processes, ~~and~~there is a substantial fixed manufacturing expense requirement that represents the ongoing cost of ~~our~~maintaining ~~customers,~~production facilities ~~Management~~that ~~has~~are ~~taken~~not ~~several~~directly ~~steps~~related to ~~ensure~~products sold, so we ~~are~~use ~~able~~a to“full ~~fund~~capacity” ~~our~~allocation ~~operations~~of ~~from~~overhead based ~~existing~~on ~~cash~~an onestimate ~~hand,~~of what product costs would be if the manufacturing facilities were operating ~~cash~~on ~~flows,~~a ~~additional~~full-time ~~borrowings~~basis and ~~restructured~~producing products ~~debt~~at ~~obligations~~the designed capacity.

InThe ~~March~~remaining costs of ~~2020,~~operating wethe ~~restructured our~~Company’s ~~organization~~manufacturing byfacilities ~~reducing~~are ~~headcount~~recorded byas ~~45%,~~Unallocated byManufacturing ~~furloughing~~Expenses. ~~substantially~~Manufacturing ~~all~~expense ~~manufacturing~~includes ~~employees,~~the ~~and~~costs byof ~~implementing temporary~~operating ~~salary~~our ~~reductions~~manufacturing ~~ranging~~facilities ~~from~~including ~~15-20%~~personnel ~~which has resulted in a 58% reduction in annual payroll and related~~ costs., Inrent, ~~April 2020~~utilities, we ~~furloughed~~indirect ~~additional~~supplies, ~~employees~~depreciation, ~~in our R&D~~ and ~~Engineering~~related ~~departments. We also reduced our annual cash run rate for all~~indirect ~~other~~ expenses ~~by 17%~~. ~~Salary~~Manufacturing ~~reductions~~expenses ~~will~~are beexpensed inas ~~place until the Company has recorded quarterly revenue of at least $1 million for two consecutive quarters, at which time salaries will return to their previous levels~~incurred.

3439

InResearch ~~late March / early April of 2020, we applied for relief under the Coronavirus Aid, Relief~~ and Economic Security Act (CARES) by submitting an application with the Small Business Administration (SBA) for an Economic Injury Disaster Loan (“EIDL”) and by submitting an application to an SBA lender bank, PNC, for a Paycheck Protection Plan (“PPP”) loan. The potential loan amounts under these programs are up to $2,000,000 and $825,200, respectively. An EIDL, if the Company qualifies, is for up to a 30-year term at a 3.75% annual interest rate. On April 18, 2020, we received an approved and fully executed PPP Term Note for $825,200 with a term of two years, a six-month repayment deferral period, and an annual rate of interest of 1%, with a potential for some or all of the loan to be forgiven, dependent upon use of the loan proceeds. On April 20, 2020, we received the $825,200 under the PPP loan.Development

OnResearch ~~April 23, 2020, we entered into an amended~~ and ~~restated~~development ~~Draw~~expenses ~~Loan~~include ~~Note and Agreement and related transaction documents (collectively,~~ the ~~“Amended Dow Facility”)~~ ~~with~~compensation ~~the~~costs ~~Dow Chemical Company to amend the terms~~ of ~~our~~research ~~current loan facility to allow us to structure an offering of subordinated~~personnel, ~~secured~~ ~~convertible~~laboratory ~~notes~~rent ~~(“Convertible Notes”~~ and ~~such offering~~utilities, ~~the~~depreciation ~~“Unit~~of ~~Offering”),~~laboratory ~~to support ongoing cash needs. In the Amended Dow Facility~~equipment, ~~the~~travel ~~Company~~ and ~~Dow agreed to 1) extend the term of such loan facility by two years~~laboratory tosupplies ~~December~~and 1,are ~~2023,~~expensed 2) significantly reduce any required prepayment to Dow from the proceeds of new equity or equity-linked financings from the current 30-50% prepayment requirement on the pre-existing Dow Facility to a 10% prepayment requirement in the Amended Dow Facility, which does not begin until after we have raised an additional $7 million in equity or equity-linked capital from the date of the amendment, 3) capitalize all interest payable until such time as ~~we have recorded GAAP revenue of at least $2 million for two consecutive calendar quarters 4) increase the rate of interest to 6~~incurred.~~5% per annum and 5) allow for a subordinated security interest to be granted to new investors in the Unit Offering.~~

~~Immediately after the execution of the transaction documents related to the Amended Dow Facility~~Sales, weGeneral ~~began the Unit Offering in a private placement to accredited investors. The Unit Offering is comprised of the Convertible Notes~~ and aAdministrative fully assignable or transferrable right to exchange two shares of previously issued Common Stock of the Company for two shares of Series B Preferred Stock of the Company for every $8.00 invested in the Unit Offering (the “Exchange Rights”). The Convertible Notes are secured by a junior security interest in all the assets of the Company, bear an interest rate of 7.5% per annum and mature on December 31, 2024. Each investor’s Exchange rights are exercisable for a period of thirty (30) days after the Company has received a completed subscription agreement.Expense

AtSales, General and Administrative expenses include the ~~option~~compensation costs of ~~each~~personnel, ~~holder~~rent, ~~the~~utilities, ~~Convertible Notes~~supplies, ~~are~~travel, ~~convertible~~depreciation ~~into~~of ~~either~~office i)equipment, ~~Series~~and Brelated ~~Convertible~~expenses not ~~Preferred~~included ~~Stock~~in ~~(“Series~~other Bexpense ~~Preferred~~categories. ~~Stock”)~~Sales atand amarketing ~~note~~costs ~~conversion price~~include ofcompensation, ~~$8.00/share;~~travel, orand ~~ii)~~business ~~any~~development ~~other~~expenses including ~~form~~free ofsamples ~~preferred~~provided orto ~~common~~customers. ~~stock~~These ~~(“Subsequent~~costs ~~Stock”)~~are ~~issued~~expensed byas ~~the~~incurred. ~~Company at~~Product amarketing ~~note~~allowances ~~conversion~~are ~~price~~recorded ~~per~~at the ~~share~~estimated ~~equal~~out toof ~~80%~~pocket ofcost ~~the~~necessary ~~purchase~~to ~~price~~produce ~~per~~the ~~share~~product atin ~~which~~the ~~such~~period ~~Subsequent~~the ~~Stock~~allowance is ~~sold~~granted. ~~(or~~General ifand administrative ~~the~~expenses ~~value~~also ~~per~~include ~~share~~non-cash iscompensation ~~fixed,~~expenses ~~120%~~related ofto the ~~number~~Company’s ofdeferred ~~shares~~compensation, ~~that~~management ~~might~~incentive bonus, ~~otherwise~~and beemployee ~~issuable)~~stock option programs.

IfIncome and when we raise at least $15 million of equity capital (excluding capital raised in this Unit Offering), the Convertible Notes will be automatically converted into whichever of the following equity securities would result in the greatest number of shares of Common Stock being issued to the holders on an “as-if-converted” basis at such time: (i) Series B Preferred Stock at a note conversion price of $8.00/share; or (ii) Subsequent Stock at a note conversion price per share equal to 80% of the purchase price per share at which such Subsequent Stock is sold (or if the value per share is fixed, 120% of the number of shares that might otherwise be issuable); provided, however, in the event the Company raises at least $15 million of equity capital within one hundred and twenty (120) days after the first issue date of Convertible Notes, such percentages will be changed to 90% of the purchase price per share at which such Subsequent Stock is sold (or, if the value per share is fixed, 110% of the number of shares that might otherwise be issuable).Taxes

~~Each~~It ~~share~~is ofour ~~Series~~policy Bto ~~Preferred~~provide ~~Stock~~for ~~will~~uncertain tax ~~have~~positions anand ~~original~~the ~~issue~~related ~~price~~interest ofand ~~$8.00~~penalties ~~per~~based ~~share~~upon ~~(the~~management’s ~~“Series~~assessment Bof ~~Original~~whether ~~Issue~~a ~~Price”)~~tax ~~and~~benefit ais ~~liquidation~~more ~~preference~~likely ofthan $8not to be sustained upon examination by tax authorities.00 ~~per~~To ~~share,~~the ~~with~~extent ~~both~~that the ~~Series~~probable Btax ~~Original~~outcome ~~Issue~~of ~~Price~~these ~~and~~uncertain tax position changes, such changes in estimate will impact the ~~liquidation~~income ~~preference~~tax ~~per~~provision ~~share~~in ~~subject~~the toperiod ~~adjustment~~in which such determination is made. ~~for~~As ~~stock~~of ~~splits~~December 31, ~~recapitalizations~~2020, ~~and~~we ~~the~~believe ~~like~~we have appropriately accounted for any unrecognized tax benefits. ~~The~~We ~~Series~~are Bnot ~~Preferred~~aware ~~Stock~~of ~~will~~any uncertain betax ~~senior~~positions. toTo the ~~Company’s~~extent ~~Common~~we ~~Stock~~prevail in matters for which a liability for an unrecognized tax benefit is established ~~and~~or ~~pari-passu~~we ~~with~~are ~~the~~required ~~Series~~to Apay ~~Preferred~~amounts ~~Stock~~more inthan ~~terms~~the ofliability, ~~right~~our ofeffective ~~repayment~~tax rate in a ~~liquidation~~given financial statement period may be affected.

~~The~~We ~~Series~~account Bfor ~~Preferred~~income ~~Stock~~taxes ~~will~~using ~~have~~an ~~full~~asset ~~ratchet~~and ~~antidilution~~liability ~~protection~~approach. ~~that~~The ~~provides~~difference ~~that~~between ~~each~~the ~~share~~financial ofstatement ~~Series~~and Btax ~~Preferred~~basis ~~Stock~~of ~~outstanding~~assets ~~may~~and beliabilities ~~converted~~is bydetermined ~~an Investor~~annually. atDeferred ~~any~~income ~~time~~tax ~~into~~assets ~~that~~and ~~number~~liabilities ofare ~~shares~~computed offor ~~Common~~those ~~Stock~~differences ~~determined~~that byhave ~~dividing~~future ~~the~~tax ~~then~~consequences ~~current~~using ~~Series~~the ~~B Original Issue Price by~~currently ~~the~~enacted ~~applicable~~tax ~~Conversion~~laws ~~Price~~and ~~(as~~rates ~~defined~~that ~~below)~~apply ~~with the resulting fraction equal~~ to the ~~“Series~~periods Bin ~~Conversion~~which ~~Rate”. The~~they ~~total~~are ~~number~~expected ofto ~~shares~~affect oftaxable ~~Common~~income. ~~Stock~~Income ~~issuable~~tax ~~will~~expense ~~be equal to~~ is the ~~number~~current oftax ~~shares~~payable ofor ~~Series~~refundable Bfor ~~Preferred~~the ~~Stock~~period ~~being~~plus ~~converted multiplied~~or byminus the ~~Series~~net Bchange ~~Conversion~~in ~~Rate. The “Conversion Price” is, at any time,~~ the ~~price~~deferred ~~per~~tax ~~share~~assets ~~equal~~and toliabilities. ~~the~~The ~~lesser~~deferred oftax a)effects ~~the~~of ~~Series~~local Bincome ~~Original~~taxes ~~Issue~~are ~~Price~~considered ~~per~~immaterial ~~share~~ and b)have ~~the~~not ~~lowest~~been ~~price~~recorded. ~~per~~Valuation ~~share~~allowances atare ~~which~~established, if ~~the~~necessary, ~~Company~~to ~~has~~reduce ~~sold~~deferred ~~equity or~~tax ~~equity-linked~~assets ~~securities~~to ~~(other~~the ~~than~~amount ~~customary~~that ~~exclusions)~~is atestimated ~~any~~to ~~future~~be ~~date~~realized. ~~while~~Because ~~any shares~~ of the ~~Series~~uncertainty ~~B Preferred Stock~~related ~~remain~~to ~~outstanding.~~future ~~The~~realization ~~Series~~of Bdeferred ~~Original~~tax ~~Issue~~assets ~~Price~~(see ~~and~~Note ~~Conversion~~14), ~~Price~~we inhave ~~effect~~established ata ~~any~~valuation ~~time~~allowance ~~are~~equal ~~also~~to ~~subject~~one tohundred ~~proportional~~percent ~~adjustment~~of ~~for~~the ~~share~~deferred ~~splits,~~tax ~~share dividends, recapitalizations and the like~~assets.

OnThe ~~April~~Company ~~23,~~will ~~2020,~~continue ~~certain~~to ~~members~~assess ofits ~~our Board~~provision offor ~~Directors~~income ~~and~~taxes ~~their~~as ~~affiliates~~future ~~purchased~~guidance ~~$550,000~~is ofissued ~~Units.~~but Indoes ~~additions,~~not ~~these~~currently ~~Board~~anticipate ~~members~~significant ~~and~~revisions ~~their~~will ~~affiliates~~be ~~have~~necessary. ~~made~~Any such ~~additional~~revisions ~~commitments~~will tobe ~~the~~treated ~~Company~~in toaccordance ~~match~~with ~~any~~the ~~purchases~~measurement ofperiod ~~Units~~guidance byoutlined ~~disinterested~~in ~~third~~Staff ~~parties~~Accounting onBulletin ~~a dollar for dollar basis up to an additional $1~~No.5 ~~million of Units purchased by such disinterested parties~~118.

~~Taking~~Net ~~into~~Income ~~consideration~~(Loss) ~~our~~Per ~~current~~Common cash on hand, we estimate that we will need to raise approximately $500,000- $1,000,000 of additional capital in order to continue our operations for the next twelve months in a minimal to no revenue growth environment. If we are able to raise $1.5 million of capital from disinterested third parties, the commitments from our Board members to match this amount would result in $3.0 million of total capital to the Company, which we estimate would allow the Company to continue operating for 24 months in a minimal to no revenue growth environment.Share

~~ITEM~~We 7Acompute net income or (loss) per share in accordance with Financial Accounting Standards Board (“FASB”) Accountings Standards Codification (“ASC”) Topic 260: Earnings Per Share. ~~QUANTITATIVE~~Under ~~AND~~the ~~QUALITATIVE~~provisions ~~DISCLOSURES~~of ~~ABOUT~~ASC ~~MARKET~~260, ~~RISKS~~basic net income (loss) per share is computed by dividing the net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted average number of shares outstanding during the applicable period, plus the effect of potentially dilutive securities. Potentially dilutive securities consist of shares potentially issuable pursuant to stock options and warrants as well as shares that would result from full conversion of all outstanding convertible securities. These potentially dilutive securities were 3,466,392 and 3,150,487 as of December 31, 2020 and 2019 and are excluded from diluted net loss per share calculations because they are anti-dilutive. As a result, for the years ended December 31, 2020 and 2019, basic and diluted net loss per share was the same.

~~Not applicable.~~ 40

35Accounts Receivable and Allowance for Doubtful Accounts

~~ITEM~~Accounts 8receivables are stated at the amount management expects to collect from outstanding balances. ~~FINANCIAL~~Management ~~STATEMENTS~~provides ~~AND~~for ~~SUPPLEMENTARY~~probable ~~DATA~~uncollectible amounts through a provision for bad debt expense and an adjustment to a valuation allowance based on their assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance account and a credit to accounts receivable.

~~XG SCIENCES,~~Statements ~~INC.~~of Cash Flows

~~Consolidated~~For the purposes of the statements of cash ~~Financial~~flows, ~~Statements~~we consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

~~INDEX TO~~Fair ~~FINANCIAL~~Value ~~STATEMENTS~~of Financial Instruments and Concentrations of Credit Risk

~~TABLE~~Financial instruments, which potentially subject OFthe ~~CONTENTS~~Company to concentrations of credit risk, consist principally of cash and accounts receivable. The Company places its cash with FDIC insured financial institutions. Although such balances may exceed the federally insured limits at certain times, in the opinion of management they are subject to minimal risk.

Consolidated Financial Statements as of and for the years ended December 31, 2019 and 2018
Report of Independent Registered Public Accounting Firm	37
Consolidated Balance Sheets	38
Consolidated Statements of Operations	39
Consolidated Statement of Changes in Stockholders’ Equity (Deficit)	40
Consolidated Statements of Cash Flows	41
Notes to Consolidated Financial Statements	42

The Company has established policies for extending credit to customers based upon factors including the customers’ credit worthiness, historical trends and other information. Nonetheless the collectability of accounts receivable is affected by regional economic conditions and other factors.

36Inventory

~~REPORT~~Inventory consists of raw materials, consumables OFinventory ~~INDEPENDENT~~and ~~REGISTERED~~finished ~~PUBLIC~~goods, ~~ACCOUNTING~~all ~~FIRM~~of which are stated at the lower of cost or net realizable value. Cost is determined on a first in, first out basis. We inventory media used in the production process of our facilities as a Consumables inventory.

~~To the~~Leasehold ~~Shareholders~~Improvements and ~~Board of Directors of~~Equipment

XGLeasehold improvements and equipment are recorded ~~Sciences~~at cost, ~~Inc~~net of accumulated depreciation and amortization. Equipment generally include purchases of items with a cost greater than $3,000 and a useful life greater than one year. Depreciation and amortization are computed on the straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the related lease terms or their estimated useful lives.

~~Opinion~~We onperiodically review the ~~Consolidated~~estimated ~~Financial~~useful lives ~~Statements~~ of property, plant, and equipment. Changes to the estimated useful lives are recorded prospectively from the date of the change. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the statement of operations. Repairs and maintenance costs are expensed as incurred.

WeIntangible have audited the accompanying balance sheet of XG Sciences, Inc. (the Company) as of December 31, 2019 and 2018, the related statements of operations, stockholders’ equity (deficit) and cash flows, for the years then ended, and the related notes (collectively, 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 2018, 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.Assets

~~Emphasis~~We have entered into a license agreement with Michigan State University under which we have licensed certain intellectual property in the form of ~~Matter~~patents –and ~~Going~~patent ~~Concern~~applications and invention disclosures. We are responsible for managing the patent process and ongoing filings for this licensed intellectual property and for bearing the cost thereof. We capitalize all costs related to the acquisition and ongoing administration of this license agreement and we amortize these costs over 15 years or the remaining life of the license agreement, whichever is shorter.

~~The~~In ~~accompanying~~addition ~~financial~~to ~~statements~~the ~~have~~costs ~~been~~of ~~prepared~~managing ~~assuming~~in-licensed ~~that~~intellectual ~~the~~property, ~~Company~~we ~~will~~also ~~continue~~file asfor apatent ~~going~~protection ~~concern.~~for Asinventions ~~discussed~~and inother ~~Note~~intellectual 1property togenerated ~~the~~by ~~financial~~our ~~statements,~~employees. All ~~the~~patents ~~Company~~are ~~has~~evaluated ~~suffered recurring~~for ~~losses~~filing ~~from~~in ~~operations~~international ~~and~~markets ~~negative~~on ~~cash~~a ~~flows.~~case-by-case ~~The~~basis ~~Company’s~~and ~~existing~~are ~~cash~~filed onin ~~hand,~~the ~~operating~~United ~~cash~~States ~~flows,~~and ~~additional~~in ~~borrowings~~selected ~~and~~international ~~restructured~~markets ~~debt~~as ~~obligations~~considered ~~may~~appropriate. ~~not~~All ~~support~~external ~~the~~legal ~~operations~~and offiling ~~the~~costs ~~business~~related ~~over~~to ~~the~~patent ~~next~~applications, ~~twelve months. This raises~~patent ~~substantial~~filings, ~~doubt~~ongoing ~~about~~registrations, ~~the~~overseas ~~Company's~~filings, ~~ability~~and tolegal ~~continue~~opinions asrelated athereto ~~going~~are ~~concern.~~capitalized ~~Management's~~as ~~plans~~intangible inassets ~~regard~~at ~~to these matters also~~cost ~~are~~and ~~described~~amortized inover ~~Note~~a 1.period ~~The~~of ~~financial~~15 ~~statements~~years dofrom ~~not~~the ~~include~~date ~~any~~incurred, ~~adjustments~~or ~~that~~the ~~might~~remaining ~~result~~useful ~~from~~life of the ~~outcome~~associated ofpatent, ~~this~~whichever is ~~uncertainty~~shorter.

~~Basis~~The cost of royalties or minimum payments specified under the license agreement for ~~Opinion~~in-licensed technology is expensed as incurred.

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 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 U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.41

WeRecoverability ~~conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan~~ and ~~perform~~Impairment ~~the audit to obtain reasonable assurance about whether the financial statements are free~~ of ~~material~~Long-Lived 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.Assets

~~Our~~Land, ~~audits~~buildings and ~~included~~equipment ~~performing~~and ~~procedures~~certain toother assets, including definite-lived intangible assets, are reviewed for impairment whenever events ~~assess~~or changes in circumstances indicate that the ~~risks~~carrying amount of ~~material~~an ~~misstatement~~asset ofmay ~~the~~not ~~financial~~be ~~statements,~~recoverable. ~~whether~~The ~~due~~judgments we make related to ~~error~~the orexpected ~~fraud~~useful lives of long-lived assets, definitions of lease terms and ~~performing~~our ~~procedures~~ability to realize undiscounted cash flows ~~that~~in ~~respond~~excess toof ~~those~~the ~~risks.~~carrying ~~Such~~amounts ~~procedures~~of ~~included~~these ~~examining,~~assets onare aaffected ~~test~~by ~~basis,~~factors ~~evidence~~such ~~regarding~~as the ~~amounts~~ongoing maintenance and ~~disclosures~~improvements of the assets, changes in ~~the~~economic ~~financial~~conditions, ~~statements.~~changes ~~Our~~in ~~audits~~usage ~~also~~or ~~included~~operating ~~evaluating~~performance, ~~the~~and ~~accounting~~other ~~principles~~factors, ~~used~~such ~~and~~as ~~significant~~our ~~estimates~~ability ~~made~~to sell byour ~~management,~~assets asheld ~~well~~for assale. ~~evaluating~~As we assess the ~~overall~~ongoing ~~presentation~~expected cash flows and carrying amounts of ~~the~~our ~~financial~~long-lived ~~statements.~~assets, Wesignificant adverse ~~believe~~changes ~~that~~in ~~our~~these ~~audit~~factors ~~provides~~could cause us to realize an impairment loss. Based on a review of operating results, we ~~reasonable~~believe ~~basis~~the ~~for~~carrying values of our ~~opinion~~long-lived assets are recoverable at December 31, 2020 and 2019.

~~/s/~~ Fair ~~RSM~~Value ~~US LLP~~Measurements

WeFASB ~~have~~ASC ~~served~~820: “Fair Value Measurements and Disclosures” defines fair value as the ~~Company’s~~exchange ~~auditor~~price ~~since~~that ~~2019~~would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Detroit, Michigan

Level 1:	Quoted prices in active markets for identical assets or liabilities.

Level 2:	Inputs other than quoted prices included within Level 1 which are either directly or indirectly observable.

Level 3:	Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

~~April~~A ~~29,~~financial ~~2020~~instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

37Stock-Based Compensation

XGWe recognize compensation expense in our statement ~~SCIENCES~~of operations for all share-based option and stock awards, ~~INC. CONDENSED~~based ~~CONSOLIDATED~~on ~~BALANCE~~estimated ~~SHEETS~~grant-date fair values.

	December 31, 2019			December 31, 2018
ASSETS
CURRENT ASSETS
Cash	$	1,129,702		$	4,703,834
Accounts receivable, less allowance for doubtful accounts of $179,600 at December 31, 2019 and $85,000 at December 31, 2018		72,227			859,054
Inventories		891,587			660,217
Other current assets		334,493			114,453
Total current assets		2,428,009			6,337,558
LEASEHOLD IMPROVEMENTS AND EQUIPMENT, NET		3,676,142			4,223,650
RESTRICTED CASH FOR LETTER OF CREDIT		-			190,140
LEASE DEPOSIT		77,544			20,156
INTANGIBLE ASSETS, NET		753,862			690,646
RIGHT OF USE ASSET		1,606,443			-
TOTAL ASSETS		8,542,000			11,462,150
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		634,564			1,102,910
Other current liabilities		238,554			429,573
Deferred revenue		-			832
Current portion of long-term debt		-			196,723
Current portion of lease liabilities		520,197			3,613
Total current liabilities		1,393,315			1,733,651
LONG-TERM LIABILITIES
Long-term portion of lease liabilities		1,183,872			11,914
Long term debt		8,111,610			4,725,866
Total long-term liabilities		9,295,482			4,737,780
TOTAL LIABILITIES		10,688,797			6,471,431
STOCKHOLDERS’ EQUITY
Series A convertible preferred stock, 3,000,000 shares authorized, 1,890,354 shares issued and outstanding, liquidation value of $22,684,248 at December 31, 2019 and December 31, 2018		22,307,480			22,307,480
Common stock, no par value, 25,000,000 shares authorized, 4,024,443 and 3,760,268 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively		32,351,876			30,268,476
Additional paid-in capital		8,774,975			8,101,923
Accumulated deficit		(65,581,128	)		(55,687,160	)
Total stockholders’ equity		(2,146,797	)		4,990,719
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		8,542,000			11,462,150

We estimate the grant-date fair value of stock option awards using the Black-Scholes option valuation model. This model is affected by the estimated value of our common stock on the date of the grant as well as assumptions regarding a number of highly complex and subjective variables. These variables include the expected term of the option, the exercise price, expected risk-free rates of return, the expected volatility of our common stock, and expected dividend yield, each of which is more fully described below. The assumptions for the estimated value of our common stock, expected term and expected volatility are the assumptions that most significantly affect the grant date fair value.

~~See~~Expected Term: Because we have ~~notes~~limited experience related to ~~consolidated~~the ~~financial~~exercise ~~statements~~of employee stock options, we use the simplified method permitted by SEC Staff Accounting Bulletin Topic 14 to estimate the expected term of the options. The expected term of an option is estimated to be equal to the mid-point between the vesting and expiration dates of the option.

38Risk-free Interest Rate: We base the risk-free interest rate used on the implied yield at the grant date of U.S. Treasury zero-coupon issues with a term approximately equal to the expected term of the stock-based award being valued.

XGExpected Stock Price Volatility: ~~SCIENCES~~Because we are a company with very limited stock sales history (we have an Offering whereby we are selling stock directly to investors without the assistance of an investment bank nor are we registered on any market or public exchange), ~~INC.~~we use ~~CONSOLIDATED~~a ~~STATEMENTS~~blended OFaverage ~~OPERATIONS~~weekly volatility of certain publicly traded peer companies. We believe that the use of this blended ~~FOR~~average ~~THE~~peer ~~YEARS~~volatility ~~ENDED~~is ~~DECEMBER~~reflective ~~31,~~of ~~2019~~market ~~AND~~conditions ~~2018~~and a reasonable indicator of our expected future volatility.

	2019			2018
REVENUE
Product Sales	$	1,369,556		$	4,125,567
Grants		-			176,253
Total Revenues		1,369,556			4,301,820
COST OF GOODS SOLD
Direct costs		1,006,594			2,344,937
Unallocated manufacturing expenses		2,756,879			3,161,384
Cost of Goods Sold		3,763,473			5,506,321
GROSS LOSS		(2,393,917	)		(1,204,501	)
OPERATING EXPENSES
Research & Development Expense		1,506,716			1,414,259
Sales, General & Administrative Expense		5,467,698			4,972,595
Total Operating Expenses		6,974,414			6,386,854
OPERATING LOSS		(9,368,331	)		(7,591,355	)
OTHER INCOME (EXPENSE)
Interest expense, net		409,318			328,261
Total Other Expense		409,318			328,261
Net Loss	$	(9,777,649	)	$	(7,919,616	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - Basic and diluted (in shares)		3,951,178			2,964,805
NET LOSS PER SHARE - Basic and diluted (in dollars per share)	$	(2.47	)	$	(2.67	)

Dividend Yield: Because we have never paid a dividend and do not expect to begin doing so in the foreseeable future, we have assumed a 0% dividend yield in valuing our stock-based awards.

~~See~~The grant-date fair value of the award is recognized ~~notes~~as toexpense ~~consolidated~~over ~~financial~~the ~~statements~~requisite service period using the straight-line method.

3942

~~XG SCIENCES,~~Derivative ~~INC.~~Financial Instruments

~~CONSOLIDATED~~We do not use derivative instruments to hedge ~~STATEMENT~~exposures OFto ~~CHANGES~~cash INflow, ~~STOCKHOLDERS~~market or foreign currency risk. The terms of convertible preferred stock and convertible notes that we issue are reviewed to determine whether or not they contain embedded derivative instruments that are required by ASC 815: “Derivatives and Hedging” to be accounted for separately from the host contract and recorded at fair value. The Company’s ~~EQUITY~~freestanding warrants ~~(DEFICIT)~~are classified as equity.

~~FOR THE~~Recent ~~YEARS~~Accounting ~~ENDED DECEMBER 31, 2019 AND 2018~~Pronouncements

	Preferred stock A				Common stock					Additional paid-in capital		Accumulated deficit
	Shares		Amount		Shares		Amount			Amount		Amount			Total
Balances, December 31, 2017		1,857,816	$	21,917,046		2,353,350	$	19,116,012		$	7,831,958	$	(47,767,544	)	$	1,097,472
Stock issued for cash						1,396,918		11,175,344							$	11,175,344
Stock issuance fees and expenses								(102,880	)						$	(102,880	)
Preferred stock issued to pay capital lease obligations		32,548		390,434											$	390,434
Stock-based compensation expense						10,000		80,000			269,965				$	349,965
Net loss												$	(7,919,616	)	$	(7,919,616	)
Balances, December 31, 2018		1,890,354	$	22,307,480		3,760,268	$	30,268,476		$	8,101,923	$	(55,687,160	)	$	4,990,719
Stock issued for cash						251,675		2,013,400							$	2,013,400
Stock issuance fees and expenses								(20,000	)						$	(20,000	)
Transition adjustment for adoption of ASC 842													(116,319	)	$	(116,319	)
Stock-based compensation expense						12,500		90,000			369,885				$	459,885
Warrants issued with Dow financing											303,168				$	303,168
Net loss												$	(9,777,649	)	$	(9,777,649	)
Balances, December 31, 2019		1,890,354	$	22,307,480		4,024,443	$	32,351,876		$	8,774,976	$	(65,581,128	)	$	(2,146,796	)

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for us for annual periods beginning January 1, 2021. We are currently reviewing the provisions of this new pronouncement, and the impact, if any, the adoption of this guidance has on our financial position and results of operations.

~~See~~In January 2020, the FASB issued ASU 2020-01, ~~notes~~“Investments—Equity Securities (Topic 321)”, “Investments—Equity Method and Joint Ventures (Topic 323)”, and “Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815”, which clarifies that an entity should consider observable transactions when either applying or discontinuing the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321. ASU 2020-01 clarifies that for certain forward contracts or purchased options to ~~consolidated~~acquire investments, an entity should not consider whether, upon settlement of the forward contract or exercise of the purchased option, the underlying securities would be accounted for under the equity method or the fair value option. ASU 2020-01 is effective for us for annual periods beginning January 1, 2021. Early adoption is permitted. We are currently reviewing the provisions of this new pronouncement and the impact, if any, the adoption of this guidance has on our financial ~~statements~~position and results of operations.

40 In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides optional guidance and expedients for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments are intended to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this update are elective and are effective upon issuance. We are currently assessing whether and how we will elect to apply ASU 2020-04.

XGIn August 2020, the FASB issued ASU 2020-06, ~~SCIENCES~~Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, ~~INC~~which addresses the complexity of its guidance for certain financial instruments with characteristics of liabilities and equity. ASU 2020-06 removes the accounting models that require beneficial conversion features or cash conversion features associated with convertible instruments to be recognized as a separate component of equity, adds certain disclosure requirements for convertible instruments, amends the guidance for the derivatives scope exception for contracts in an entity’s own equity and simplifies the diluted earnings per share calculation for certain situations. This guidance is effective for SEC filers, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, and for interim periods within those fiscal years. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements.

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~43

~~FOR THE~~NOTE ~~YEARS~~3 ~~ENDED~~— ~~DECEMBER 31, 2019 AND 2018~~INVENTORY

	For the Twelve Months Ended
	December 31,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(9,777,649	)	$	(7,919,616	)
Depreciation		927,974			1,696,334
Amortization of intangible assets		68,040			56,776
Loss on disposal of equipment and intangibles		2,605			45,130
Provision for bad debts		181,679			45,000
Stock-based compensation expense		459,885			349,965
Non-cash interest expense		130,410			331,526
Non-cash equipment rent expense		0			106,163
Changes in current assets and liabilities:
Accounts receivable		605,148			(435,431	)
Inventory		(231,370	)		(488,353	)
Other current and non-current assets		(296,123	)		(98,672	)
Accounts payable and other liabilities		(660,197	)		667,940
NET CASH USED IN OPERATING ACTIVITIES		(8,589,598	)		(5,643,238	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(383,070	)		(3,209,632	)
Purchases of intangible assets		(131,257	)		(175,482	)
NET CASH USED IN INVESTING ACTIVITIES		(514,327	)		(3,385,114	)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of capital lease obligations		(15,527	)		(13,238	)
Repayments of long-term loan debt		(638,220	)		(178,490	)
Proceeds from issuance of common stock		2,013,400			11,175,344
Common stock issuance fees and expenses		(20,000	)		(102,880	)
Proceeds from long-term loan		4,000,000
NET CASH PROVIDED BY FINANCING ACTIVITIES		5,339,653			10,880,736
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		(3,764,272	)		1,852,384
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD		4,893,974			3,041,590
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD		1,129,702			4,893,974
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest		208,286			1,241
Value of preferred stock issued for AAOF capital lease obligations		0			390,434
Warrants issued with Dow financing		303,168			0

The following amounts were included in inventory at the end of the period:

See notes to consolidated financial statements

	Year Ended December 31,
	2020		2019
Raw Materials		56,135		68,784
Consumables		70,103		70,103
Finished Goods		388,414		752,700
Total		514,652		891,587

41NOTE 4 — LEASEHOLD IMPROVEMENTS AND EQUIPMENT

~~NOTE 1~~Leasehold —improvements ~~NATURE~~and OFequipment ~~BUSINESS~~as ~~AND~~of December ~~BASIS~~31 OFconsist ~~PRESENTATION~~of the following:

XG Sciences, Inc., a Michigan company located in Lansing, Michigan and its subsidiary, XG Sciences IP, LLC (collectively referred to as “we”, “us”, “our”, or the “Company”) manufactures graphene nanoplatelets, using two proprietary manufacturing processes to split natural flakes of crystalline graphite into very small and thin particles, which we sell as xGnP® graphene nanoplatelets. We sell our nanoparticles in the form of bulk powders or dispersions to other companies for use as additives to make composite and other materials with specially engineered characteristics. We also manufacture and sell integrated, value-added products containing these graphene nanoplatelets such as greases, composites, thin sheets, inks and coating formulations that we sell to other companies. Additionally, we license our technology to other companies in exchange for royalties and other fees.

	Depreciable
	Life (Years)		2020			2019
Leasehold improvements and equipment		5-10		804,460			804,460
Lab equipment		3-7		1,075,500			1,134,129
Production and other equipment		3-7		8,885,354			8,857,169
Software		3		14,177			14,177
Total Cost				10,779,491			10,809,935
Less accumulated depreciation and amortization				(7,926,972	)		(7,133,793	)
Net leasehold improvements and equipment				2,852,519			3,676,142

~~Basis of Presentation~~44

~~The~~Depreciation ~~accompanying~~expense ~~consolidated~~on ~~financial~~leasehold ~~statements~~improvements ~~have~~and ~~been~~equipment, ~~prepared~~including leased assets, for the years ended December 31, 2020 and 2019, was $865,026 and $927,974, respectively. These amounts are included as part of our statement of operations in ~~accordance~~Cost ~~with~~of ~~accounting~~Goods ~~principles~~Sold, ~~generally~~Research ~~accepted~~and Development, and Sales, General and Administrative Expenses. For the year ended December 31, 2020, $743,350 was recorded in Cost of Goods Sold, $97,218 in Research and Development, and $24,458 in Sales, General and Administrative Expenses. For the ~~United~~year ~~States~~ended December 31, 2019, $805,114 was recorded in Cost of ~~America~~Goods ~~(“US~~Sold, ~~GAAP”)~~$96,065 in Research and Development, and $26,795 in Sales, General and Administrative Expenses.

~~The~~NOTE ~~consolidated~~5 ~~financial~~— ~~statements~~INTANGIBLE include the accounts of XG Sciences, Inc. and our wholly owned subsidiary, XGS IP, LLC. We operate as one operating segment. All intercompany accounts, transactions and profits have been eliminated in consolidation.ASSETS

~~Going~~Intangible assets and related accumulated amortization ~~Concern~~as of December 31, 2020 and ~~Liquidity~~2019 are as follows:

We have historically incurred losses from operations and we may continue to generate negative cash flows as we implement our business plan. Our consolidated financial statements are prepared using US GAAP as applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.

	Year Ended December 31
	2020			2019
Licenses		159,868			159,868
Patents		964,480			888,066
Trademarks, other intangibles		24,728			24,728
Total Carrying Amount		1,149,076			1,072,662

Less: Accumulated Amortization – Licenses		(121,419	)		(110,312	)
Less: Accumulated Amortization – Patents		(264,299	)		(202,328	)
Less: Accumulated Amortization – Trademarks, other intangibles		(7,814	)		(6,159	)
Total Accumulated Amortization		(393,532	)		(318,799	)

Net Carrying Amount – Licenses		38,450			49,556
Net Carrying Amount – Patents		700,181			685,737
Net Carrying Amount – Trademarks, other intangibles		16,913			18,569
Total Net Carrying Amount		755,544			753,862

InAmortization ~~December~~expense ~~2016, we entered into the Dow Facility to provide up to $10 million~~ of ~~secured debt financing at an interest rate of 5% per year~~$74,733 ~~drawable at our request under certain conditions pursuant to a draw loan note~~ and ~~agreement (the “Dow Facility”). We drew~~ $~~2 million at closing~~68,040 $1was ~~million~~recorded onfor ~~each~~the ofyears ~~July~~ended ~~18,~~December ~~2017~~31, ~~September~~2020 ~~22, 2017,~~ and ~~December 4~~2019, ~~2017~~respectively. ~~After~~Amortization ~~December~~expense 1,for ~~2017, an additional $5 million became available under~~ the ~~Dow~~next ~~Facility~~five asyears ais ~~result of the Company having raised $10 million of equity capital after October 31,~~estimated ~~2016. With access~~ to ~~these~~be ~~additional~~approximately ~~funds, we drew~~ $~~2 million on July 8~~74, ~~2019, an additional $2 million on November 19, 2019 and, on February 12, 2020, we drew the remaining $1,~~000~~,000~~ annually.

As of April 24, 2020, we had cash on hand of $1,589,468.74. Due to lower than expected revenue in 2019 and the current COVID-19 global pandemic impacting both our operations and that of our customers, Management has taken several steps to ensure we are able to fund our operations from existing cash on hand, operating cash flows, additional borrowings and restructured debt obligations.45

InNOTE ~~March~~6 of— ~~2020,~~OTHER weCURRENT restructured our organization by reducing headcount by 45%, by furloughing substantially all manufacturing employees, and by implementing temporary salary reductions ranging from 15-20% which has resulted in a 58% reduction in annual payroll and related costs. We also reduced our annual cash run rate for all other expenses by 17%. Salary reductions will be in place until the Company has recorded quarterly revenue of at least $1 million for two consecutive quarters, at which time salaries will return to their previous levels.LIABILITIES

InAs ~~late March / early April~~ of ~~2020,~~December ~~we applied for relief under the Coronavirus Aid~~31, Relief and Economic Security Act (CARES) by submitting an application with the Small Business Administration (SBA) for an Economic Injury Disaster Loan (“EIDL”) and by submitting an application to an SBA lender bank, PNC, for a Paycheck Protection Plan (“PPP”) loan. The potential loan amounts under these programs are up to $2,000,000 and $825,200, respectively. An EIDL, if the Company qualifies, is for up to a 30-year term at a 3.75% annual interest rate. On April 18, 2020, ~~we received an approved~~ and ~~fully executed PPP Term Note for $825~~2019,~~200~~ ~~with~~our ~~a term of two years, a six-month~~other ~~repayment~~current ~~deferral~~liabilities ~~period,~~on ~~and~~our anbalance ~~annual~~sheet ~~rate~~consisted of ~~interest of 1%, with a potential for some or all of~~ the ~~loan to be forgiven, dependent upon use of the loan proceeds. On April 20, 2020, we received the $825,200 under the PPP loan.~~following:

On April 23, 2020, we entered into an amended and restated Draw Loan Note and Agreement and related transaction documents (collectively, the “Amended Dow Facility”) with the Dow Chemical Company to amend the terms of our current loan facility to allow us to structure an offering of subordinated, secured convertible notes (“Convertible Notes”) and such offering, the “Unit Offering”, to support ongoing cash needs. In the Amended Dow Facility, the Company and Dow has agreed to 1) extend the term of such loan facility by two years to December 1, 2023, 2) significantly reduce any required prepayments to Dow from the proceeds of new equity or equity-linked financings from the current 30-50% prepayment requirement on the pre-existing Dow Facility to a 10% prepayment requirement in the Amended Dow Facility, which does not begin until after we have raised an additional $7 million in equity or equity-linked capital from the date of the amendment, 3) capitalize all interest payable until such time as we have recorded GAAP revenue of at least $2 million for two consecutive calendar quarters 4) increase the rate of interest to 6.5% per annum and 5) allow for a subordinated security interest to be granted to new investors in the Unit Offering.

	2020		2019
Accrued Compensation		57,770		47,453
Accrued Expenses		220,280		188,360
401 (k) Employer Contribution Expense		2,900		2,741
Total Other Current Liabilities		280,950		238,554

~~Immediately~~NOTE after the execution of the transaction documents related to the Amended Dow Facility, we began the Unit Offering in a private placement to accredited investors. The Unit Offering is comprised of the Convertible Notes and a fully assignable or transferrable right to exchange two shares of previously issued Common Stock of the Company for two shares of Series B Preferred Stock of the Company for every $8.00 invested in the Unit Offering (the “Exchange Rights”). The Convertible Notes are secured by a junior security interest in all the assets of the Company, bear an interest rate of 7~~.5%~~ ~~per~~—WARRANTS ~~annum~~AND ~~and~~FINANCING ~~mature on December 31, 2024. Each investor’s Exchange rights are exercisable for a period of thirty (30) days after the Company has received a completed subscription agreement.~~AGREEMENTS

42Dow Facility

AtIn December 2016, we entered into the Dow ~~option~~Facility which provided us with up to $10 million of ~~each~~secured ~~holder~~debt financing at an interest rate of 5% per year, ~~the~~drawable ~~Convertible~~at ~~Notes~~our ~~are~~request ~~convertible~~under ~~into~~certain ~~either~~conditions. i)Under ~~Series~~the Boriginal ~~Convertible~~terms, ~~Preferred~~the ~~Stock~~loan ~~(“Series~~matured Bon ~~Preferred~~December ~~Stock”)~~1, at2021. aIn ~~note~~addition, ~~conversion~~after we raised ~~price~~a cumulative amount of equity capital exceeding $815 million, we were required to prepay an amount equal to 30% of the amount raised over $15 million, but less than $25 million.~~00/share;~~ orWe ~~ii)~~began ~~any~~these ~~other~~prepayments ~~form~~on equity raised as of ~~preferred~~September or10, ~~common~~2018. ~~stock~~Interest ~~(“Subsequent~~was payable ~~Stock”)~~beginning ~~issued~~January by1, 2017 although we elected, per the ~~Company~~loan documents, to capitalize the interest as part of the outstanding atdebt athrough ~~note~~January ~~conversion~~1, ~~price~~2019. ~~per~~Beginning April 1, 2019, current interest was payable in cash on the first day of following the quarter. Dow received warrant coverage of one share ~~equal~~of common stock for each $40 in loans received by us, equating to 8020% ofwarrant ~~the~~coverage, with ~~purchase~~an exercise price of $8.00 per share for the warrants issued at ~~which~~closing ~~such~~of ~~Subsequent~~the ~~Stock~~initial is$2 ~~sold~~million ~~(or~~draw. ifAfter the initial closing, the ~~value~~strike ~~per~~price ~~share~~of future warrants issued is ~~fixed,~~subject ~~120%~~to adjustment if we sell shares of ~~the~~common ~~number~~stock at a lower price. As of ~~shares~~December ~~that~~31, ~~might~~2020, ~~otherwise~~we behave ~~issuable)~~issued 250,000 warrants to Dow, which are exercisable on or before the expiration date of December 1, 2023.

IfOn ~~and~~April ~~when~~23, 2020, we ~~raise~~entered atinto ~~least~~an ~~$15~~amended and ~~million~~restated ~~of equity~~Draw ~~capital~~Loan ~~(excluding~~Note ~~capital~~and ~~raised~~Agreement inand ~~this~~related ~~Unit~~transaction ~~Offering)~~documents (collectively, the ~~Convertible~~“Amended ~~Notes~~Dow ~~will be automatically converted into whichever~~Facility”) ofwhereby the ~~following~~Company ~~equity~~and ~~securities~~Dow ~~would~~agreed ~~result~~to in1) extend the ~~greatest~~term ~~number~~ of ~~shares~~such ofloan ~~Common~~facility ~~Stock~~by ~~being~~two ~~issued~~years to ~~the~~December ~~holders~~1, on2023, 2) reduce required anprepayment ~~“as-if-converted”~~to ~~basis~~Dow atfrom ~~such~~the ~~time:~~proceeds ~~(i)~~of ~~Series~~new Bequity ~~Preferred~~or ~~Stock~~equity-linked atfinancings afrom ~~note~~the ~~conversion~~current ~~price~~30-50% ofprepayment ~~$8.00/share;~~requirement oron ~~(ii)~~the ~~Subsequent~~pre-existing ~~Stock~~Dow atFacility to a ~~note~~10% ~~conversion~~prepayment ~~price~~requirement ~~per~~in ~~share~~the ~~equal~~Amended toDow ~~80%~~Facility, ofwhich ~~the~~does ~~purchase~~not ~~price~~begin ~~per~~until ~~share~~after atwe have ~~which~~raised ~~such~~an ~~Subsequent Stock~~additional is$7 ~~sold~~million ~~(or~~in ifequity ~~the~~or ~~value~~equity-linked ~~per~~capital ~~share~~from isthe ~~fixed,~~date ~~120%~~ of the ~~number~~amendment, of3) ~~shares~~capitalize ~~that~~all ~~might~~interest payable ~~otherwise~~until besuch ~~issuable);~~time ~~provided,~~as ~~however, in~~we ~~the~~have ~~event~~recorded ~~the~~GAAP ~~Company~~revenue ~~raises~~of at least $152 million offor ~~equity~~two ~~capital~~consecutive ~~within~~calendar ~~one~~quarters, ~~hundred and twenty (120~~4) ~~days after~~ increase the ~~first issue~~rate ~~date~~ of ~~Convertible~~interest ~~Notes, such percentages will be changed~~ to 906.5% ~~of the purchase price~~ per ~~share~~annum atfrom ~~which~~5% ~~such~~in ~~Subsequent Stock~~the ispre-existing ~~sold~~Dow ~~(or~~Facility, ifand ~~the~~5) ~~value~~allow ~~per~~for ~~share~~a issubordinated ~~fixed,~~security ~~110%~~interest to ofbe ~~the~~granted ~~number~~to ofnew ~~shares~~investors ~~that~~in ~~might~~the ~~otherwise~~Unit ~~be issuable)~~Offering.

~~Each~~The ~~share~~warrants ofmeet ~~Series~~the Bcriteria ~~Preferred~~for ~~Stock will~~classification ~~have~~within anstockholders’ ~~original~~equity. ~~issue~~Proceeds ~~price~~were ofallocated ~~$8.00~~between ~~per~~the ~~share~~debt (and the ~~“Series~~warrants Bat ~~Original~~their ~~Issue~~relative ~~Price”)~~fair ~~and~~value aon ~~liquidation preference~~the date of $8issue.00 ~~per~~The ~~share~~total debt discount on the Dow Facility was approximately $747,000. ~~with~~This ~~both~~debt discount is being amortized to interest expense using the ~~Series~~effective Binterest ~~Original~~method ~~Issue~~over ~~Price~~the ~~and~~term of the ~~liquidation~~loans ~~preference~~using ~~per~~an ~~share~~average ~~subject~~effective tointerest ~~adjustment~~rate of 7.9%. ~~for~~During ~~stock~~the ~~splits~~year ended December 31, ~~recapitalizations~~2020, ~~and~~we ~~the~~recognized ~~like.~~$740,369 ~~The~~of ~~Series~~amortization Bexpense ~~Preferred~~consisting ~~Stock~~of ~~will~~$595,176 beof ~~senior~~interest toexpense accrued ~~the~~and ~~Company’s~~$145,193 ~~Common~~of ~~Stock and~~amortization ~~pari-passu~~from ~~with~~debt ~~the~~discount ~~Series~~accretion Arelated ~~Preferred~~to ~~Stock~~the inDow ~~terms~~Facility ofwarrants. ~~right~~As of ~~repayment~~December in31, 2020, the Dow Facility has a ~~liquidation~~carrying value of $9,780,703.

The ~~Series~~Dow BFacility ~~Preferred~~entitles ~~Stock~~Dow ~~will~~to ~~have~~appoint ~~full ratchet antidilution protection that provides that each share of Series B Preferred Stock outstanding may be converted by~~ an ~~Investor~~ atobserver any time into that number of shares of Common Stock determined by dividing the then current Series B Original Issue Price by the applicable Conversion Price (as defined below) with the resulting fraction equal to ~~the~~our ~~“Series B Conversion Rate”~~Board. ~~The~~ ~~total~~Dow ~~number of shares of Common Stock issuable~~ will bemaintain ~~equal~~this toobservation ~~the~~right ~~number~~until ~~of shares of Series B Preferred Stock being converted multiplied by~~ the ~~Series~~amount ~~B Conversion Rate. The “Conversion Price” is, at any time, the price per share equal to the lesser~~ of a)principal ~~the Series B Original Issue Price per share~~ and b)interest ~~the~~outstanding ~~lowest~~under ~~price per share at which~~ the ~~Company has sold equity~~ orDow ~~equity-linked~~Facility ~~securities~~is ~~(other~~less than ~~customary~~$5 ~~exclusions) at any future date while any shares of the Series B Preferred Stock remain outstanding~~million. ~~The Series B Original Issue Price and Conversion Price in effect at any time are also subject to proportional adjustment for share splits, share dividends, recapitalizations and the like.~~

OnNOTE ~~April~~8 ~~23,~~— ~~2020,~~PRIVATE ~~certain~~PLACEMENT members of our Board of Directors and their affiliates purchased $550,000 of Units. In additions, these Board members and their affiliates have made additional commitments to the Company to match any purchases of Units by disinterested third parties on a dollar for dollar basis up to an additional $1.5 million of Units purchased by such disinterested parties.

~~Taking~~In ~~into~~connection ~~consideration~~with ~~our~~the ~~current~~private ~~cash on~~placement ~~hand,~~of weSeries ~~estimate~~B ~~that~~Preferred weStock ~~will~~issued ~~need~~in ~~to raise approximately $500~~2015,~~000-~~ ~~$1,000,000~~warrants ~~of additional capital in order~~ to ~~continue~~purchase ~~our~~222,262 ~~operations~~shares ~~for~~of ~~the~~common ~~next~~stock ~~twelve~~and ~~months~~preemptive inrights awarrants ~~minimal~~ to nopurchase ~~revenue~~2,635 ~~growth~~shares ~~environment.~~of Ifcommon westock, ~~are~~remain ~~able~~outstanding toat ~~raise $1.5 million of capital~~December ~~from disinterested third parties~~31, ~~the~~2020. ~~commitments~~Such ~~from~~warrants ~~our~~have ~~Board~~an ~~members~~exercise toprice ~~match~~of ~~this amount would result in~~ $316.000 ~~million~~per ofshare ~~total capital~~and toexpire ~~the~~between ~~Company,~~April ~~which~~21 weand ~~estimate~~June ~~would~~30, ~~allow the Company to continue operating for 24 months in a minimal to no revenue growth environment~~2022.

We believe our cash is sufficient to fund our operations through April 2021 when taking into account various sources of funding and cash received from continued commercial sales transactions. However, the ultimate outcome is uncertain, therefore, there is substantial doubt with regard to continuing as a going concern one year beyond the issuance date.46

InNOTE ~~the~~9 ~~event~~- weDERIVATIVE are unable to fund our operations from existing cash on hand, operating cash flows, or additional borrowings, we may be forced to reduce our expenses, slow down our growth rate, or discontinue operations. Our consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.LIABILITY

43On April 23, 2020, the Company entered into an Amended and Restated Draw Notice and Agreement with the Dow Chemical Company (“Amended Dow Facility”) to allow us to structure an offering of secured, subordinated convertible notes to support ongoing cash needs (the “Unit Offering”). In the Amended Dow Facility, the Company and Dow agreed to 1) extend the term of the loan facility by two years to December 1, 2023, 2) significantly reduce any required prepayment to Dow from the proceeds of new equity or equity-linked financings from the current 30-50% prepayment requirement on the pre-existing Dow Facility to a 10% prepayment requirement in the Amended Dow Facility, which does not begin until after we have raised an additional $7 million in equity or equity-linked capital from the date of the amendment, 3) capitalize all interest payable until such time as we have recorded GAAP revenue of at least $2 million for two consecutive calendar quarters 4) increase the rate of interest to 6.5% per annum and 5) allow for a subordinated security interest to be granted to new investors in the Unit Offering.

~~NOTE~~We evaluated the accounting for the amendment and concluded it met the conditions to be a troubled debt restructure. The future cash flows on the restructured debt were approximately $2.7 —million ~~SUMMARY~~greater OFthan ~~SIGNIFICANT~~the ~~ACCOUNTING~~carrying ~~POLICIES~~value of the debt which was accounted for prospectively through the effective interest rate.

~~Use~~Immediately after executing the Amended Dow Facility, we commenced a Unit Offering in a private placement to accredited investors. The Unit Offering consists of ~~Estimates~~(i) an offering of up to $10 million in Convertible Notes (“Notes”) in $8 units, and (ii) an assignable or transferrable right to exchange two shares of previously issued common stock for two shares of Series B Convertible Preferred Stock for every $8.00 invested in the Unit Offering (“Exchange Rights”). As of December 31, 2020, we have raised $3,851,664 in the Unit Offering through the sale of 481,458 Units and 647,040 shares of Common Stock have been exchanged for 647,040 shares of Preferred Series B stock.

~~US GAAP~~The ~~requires~~Convertible ~~management~~Notes topay ~~make~~interest ~~estimates~~at 7.5% per year, ~~judgments~~compounded ~~and~~quarterly, ~~assumptions~~which ~~that~~is ~~affect~~payable on the ~~reported~~maturity ~~amounts~~date unless the Company has recorded GAAP revenue of ~~assets,~~at ~~liabilities,~~least ~~revenues~~$4.0 ~~and~~million ~~expenses,~~for ~~together~~two ~~with~~consecutive ~~amounts~~quarters ~~disclosed~~at inwhich time the ~~related~~holder ~~notes~~may elect to receive all accrued interest in cash on a quarterly basis. The maturity date of the ~~consolidated~~Notes ~~financial~~is ~~statements~~December 31, 2024. ~~Actual~~The ~~results and~~Notes ~~outcomes~~are ~~may~~convertible ~~differ~~at ~~from~~the ~~management~~holder’s ~~estimates,~~option ~~judgments~~into ~~and~~either i.) ~~assumptions~~Series B Preferred Stock at a conversion price of $8.00/share; ~~Significant~~or ~~estimates,~~ii) ~~judgments~~any ~~and~~other ~~assumptions~~form of preferred or common stock (“Subsequent ~~used~~Stock”) inissued ~~these~~by ~~consolidated~~the ~~financial~~Company ~~statements~~at ~~include,~~a ~~but~~conversion ~~are~~price ~~not~~per ~~limited~~share equal to, ~~those~~80% ~~related~~of tothe ~~revenues,~~purchase ~~accounts~~price ~~receivable~~per share at which such ~~and~~Subsequent ~~related~~Equity ~~allowances~~is sold, ~~contingencies~~or if the value per share is fixed, ~~useful~~125% ~~lives~~of ~~and~~the ~~recovery~~number of ~~long-term~~shares ~~assets~~that might otherwise be issuable, ~~income~~provided that ~~taxes~~if a Qualified Capital Event occurs within 120 days after the initial funding, ~~and~~then the ~~fair~~conversion ~~values~~price will be 90% of ~~stock-based~~the ~~compensation,~~purchase ~~warrants,~~price ~~and~~per ~~derivative~~share ~~financial~~at ~~instrument~~which ~~liabilities.~~the ~~These~~Subsequent ~~estimates,~~Equity ~~judgments~~is sold, ~~and~~or ~~assumptions~~if ~~are~~the ~~reviewed periodically~~value ~~and~~per share is fixed, 110% of the ~~effects~~number of ~~material~~shares that ~~revisions~~would inotherwise ~~estimates~~be ~~are~~issuable. ~~reflected~~No inQualified ~~the~~Capital ~~financial~~Event ~~statements~~has ~~prospectively~~occurred ~~from~~within ~~the date~~120 ofdays after the ~~change~~initial infunding ~~estimate~~on April 23, 2020.

~~Revenue~~If we raise at least $15 million of equity ~~Recognition~~capital, excluding equity raised in this offering, we may choose to convert the outstanding amount due and payable under the Note into whichever form of conversion shares would result in the greatest number of shares of Common Stock being issued to the holder in an “as-if-converted” into Common Stock basis at the conversion price then in effect.

OnIn ~~January~~the 1,event ~~2018~~the Notes are outstanding on the date our shares of Common Stock are listed on a Qualified National Exchange, then the ~~Company~~Notes ~~adopted~~will automatically be converted first ~~ASU~~into NoSeries B Preferred Stock at a price of $8.00 ~~2014-09,~~per ~~Revenue~~share ~~from~~and ~~Contracts~~then ~~with~~into ~~Customers~~shares ~~(Topic~~of ~~606),~~Common ~~which~~Stock ~~supersedes~~at ~~nearly~~the Series B Conversion Rate in effect at the time. If there is a change in control, all ~~previous~~principal ~~revenue~~and ~~recognition~~accrued interest will be paid in cash or can be converted ~~guidance~~according to the terms of the Note, at the holder’s option.

~~Revenues~~The Notes are ~~recognized~~secured atby a ~~point~~junior security interest in ~~time, typically~~all ~~when~~the ~~control~~assets of the ~~promised~~Company. ~~goods~~The isNotes ~~transferred~~may tonot ~~customers,~~be inprepaid anprior ~~amount~~to ~~that~~the ~~reflects~~maturity ~~the~~date, ~~consideration~~but ~~the~~they ~~Company~~may be transferred ~~expects~~at any time to bei) ~~entitled~~any toentity incontrolled ~~exchange~~by ~~for~~the ~~those~~holder, ~~goods.~~ii) ~~The~~any ~~Company~~investors ~~does~~in ~~not~~the ~~recognize~~holder ~~revenue~~or iniii) ~~cases~~any ~~where~~other ~~collectability~~accredited isinvestor only ~~not~~in ~~probable,~~compliance ~~and~~with ~~defers~~ the ~~recognition~~Securities ~~until~~Act ~~collection~~of is1933 ~~probable~~and orother ~~payment~~state ~~is received~~laws.

~~Customer~~After ~~deposits~~the original issue date but prior to the date we raise $15 million of cumulative equity capital, ~~deferred~~excluding ~~revenue~~capital ~~and~~raised in this Offering, if we consummate a financing transaction with a third-party using any other ~~receipts~~form ~~are~~of ~~deferred~~convertible ~~and~~debt ~~recognized~~security, ~~when~~then the ~~revenue~~holder has the right to exchange their outstanding obligations for a new security with the same terms as the new convertible debt security offered to the third party. This provision is ~~realized~~viewed ~~and~~as ~~earned~~a redemption option.

~~Revenue~~Embedded features in the Notes were analyzed ~~related~~under ASC 815 to ~~licensing~~determine ~~agreements~~if isthey ~~recorded~~required ~~upon~~bifurcation ~~substantial~~as ~~performance~~derivative instruments. To be a derivative, one of the ~~terms~~criteria ofis that the ~~licensing~~embedded ~~contract.~~component Inmust ~~the~~be net ~~case~~settleable. ~~of licensing~~The ~~arrangements~~Company’s ~~that~~common ~~involve~~stock ~~up-front~~is ~~payments~~not publicly traded, ~~revenue~~there is ~~recorded~~no ~~when~~mechanism outside ~~management~~the ~~determines~~notes that would permit the ~~appropriate~~holder ~~terms of~~to achieve net settlement and the ~~contract~~underlying ~~have~~shares ~~been~~are ~~fulfilled~~not readily convertible to cash. ~~For~~Accordingly, ~~example~~the embedded derivatives, ~~this~~including ~~may~~the ~~occur~~embedded ~~when~~conversion ~~technology~~feature, ~~has~~do ~~been~~not ~~transferred~~meet ~~via~~the ~~written~~definition ~~documents~~of ora derivative, ifand ~~training~~therefore, isdo ~~involved,~~not ~~whenever~~require ~~all~~bifurcation ~~contracted~~from ~~training~~the ~~has~~host ~~occurred~~instrument. InCertain default put provisions, the ~~case~~change ofin ~~licenses~~control ~~where~~repayment provision ~~product~~and ~~delivery~~the isredemption ~~also embedded~~option inwere not considered to be clearly and closely related to the ~~deliverable,~~host ainstrument ~~portion~~but we concluded that the value of ~~revenue~~these ~~would~~provisions bewas de ~~recognized~~minim ~~when~~us ~~products~~at ~~are~~inception. ~~delivered~~We reconsider the value of these provisions each reporting period to determine if the value becomes material to the financial statements.

We have also licensed certain of our intellectual property to licensees under terms and conditions of license agreements that specify the intellectual property licensed, the territory, and the type of license. In exchange for these licenses, we have recorded revenues associated with the initial granting of the license and expect to receive royalties based on sales of products produced under these licenses. License revenues are recorded to reflect our performance of requirements under these license agreements. In addition, we record royalty revenues from licensees at the time they are earned.47

InFor every $8.00 invested in the ~~case~~Unit Offering, we provided investors in the Unit Offering, the one-time right to exchange two shares of ~~licensing~~previously ~~arrangements~~issued ~~that~~Common Stock for two ~~involve~~shares ~~ongoing~~of ~~royalties~~Series ~~based~~B onPreferred ~~sales~~Stock of ~~products~~the ~~produced~~Company ~~with~~within ~~our~~30 ~~technology,~~days ~~royalty~~of ~~income~~the closing (the “Exchange Right”). The Exchange Right is ~~recorded~~fully ~~when~~transferable ~~received~~and orassignable to any other party during the 30-day period if they are an accredited investor and executed a joinder to become bound by the terms of the Agreement. The Exchange Right is a freestanding financial instrument, and its fair value is estimated based on the incremental fair value between the exchanged Common Stock and the issued Preferred Stock. In this instance, the Exchange Right was included as part of the Unit Financing in conjunction with the ~~case~~issuance of ~~minimum~~the ~~royalties~~Notes, ~~due~~therefore, the inproceeds from the ~~period~~financing ~~when~~were ~~due~~allocated between the Notes and the Exchange Right based on their relative fair values. The difference between the fair value of the Exchange Right and the relative fair value assigned to the Exchange Right is recognized immediately as nonoperating expense. As of December 31,2020, Nonoperating expense of $26,127 had been recorded related to the Exchange Rights.

~~Grant~~A convertible financial instrument includes ~~contract~~a ~~revenue~~beneficial conversion feature (“BCF”) if the effective conversion price is ~~recognized~~less ~~over~~than the ~~life~~company’s market price of their stock on the ~~contracts~~commitment asdate. The BCF for the ~~services~~year ~~are~~ended ~~performed~~December 31, 2020 was $263,537.

~~Amounts~~For the year ended December 31, 2020, we sold Convertible ~~received~~Notes inwith ~~excess~~total proceeds of ~~revenues~~$3,851,664. ~~earned~~Subsequent ~~are~~to ~~recorded~~2020, aswe ~~deferred~~sold ~~revenue~~additional Convertible Notes with total proceeds of $2,588,616. The sale of Convertible Notes through the quarter ended March 31, 2021, raised total proceeds of $6,440,280.

~~Cost~~The proceeds received in the April 23, 2020 Unit Offering offor ~~Products~~the ~~Sold~~year ended December 31, 2020 were allocated as follows:

We use a standard cost system to estimate the direct costs of products sold. Variances between the standard costs and the actual costs are then capitalized to the inventories and expensed to the cost of goods sold. Direct costs include estimates of raw material costs, packaging, freight charges net of those billed to customers, and an allocation for direct labor and manufacturing overhead. Because of the nature of our production processes, there is a substantial fixed manufacturing expense requirement that represents the ongoing cost of maintaining production facilities that are not directly related to products sold, so we use a “full capacity” allocation of overhead based on an estimate of what product costs would be if the manufacturing facilities were operating on a full-time basis and producing products at the designed capacity.

	From inception through December 31, 2020
Convertible Notes		3,151,516
Additional Paid In Capital – Exchange Rights		700,148
Proceeds		3,851,664

Convertible Notes		3,151,516
Additional Paid In Capital – BCF		(263,537	)
Convertible Notes - Accrued Interest		130,655
Convertible Notes - Cost of Debt Offering		(76,962	)
Convertible Notes Balance		2,941,672

The ~~remaining~~ ~~costs~~value of ~~operating~~exchange rights, the ~~Company’s~~BCF ~~manufacturing~~and ~~facilities~~the debt issuance costs are ~~recorded~~being asamortized ~~Unallocated~~using ~~Manufacturing~~the ~~Expenses. Manufacturing~~effective ~~expense~~interest ~~includes~~method over the ~~costs~~term of ~~operating~~the ~~our~~Note. ~~manufacturing~~The ~~facilities~~Company ~~including~~recognized ~~personnel~~interest expense ~~costs,~~of ~~rent~~$130,655 ~~utilities, indirect~~associated ~~supplies,~~with ~~depreciation,~~the ~~and~~Note ~~related~~for ~~indirect~~the ~~expenses~~year ended December 31, 2020. ~~Manufacturing~~As ~~expenses~~of ~~are~~December ~~expensed~~31, as2020, ~~incurred~~the carrying value of the Convertible Notes was $2,941,672.

44NOTE 10 – STOCK WARRANTS ACCOUNTED FOR AS EQUITY INSTRUMENTS

~~Research~~The following table summarizes the warrants ~~and~~(including ~~Development~~the warrants previously accounted for as derivatives) outstanding at December 31, 2020, which are accounted for as equity instruments, all of which are exercisable:

Research and development expenses include the compensation costs of research personnel, laboratory rent and utilities, depreciation of laboratory equipment, travel and laboratory supplies and are expensed as incurred.48

Sales, General and Administrative Expense

Date Issued	Expiration Date	Indexed Stock	Exercise Price		Number of Warrants
10/8/2012	10/8/2027	Common	$	12.00		5,000
01/15/2014-12/31/2014	1/15/2024	Series A Convertible Preferred	$	6.40		972,720
04/30/2015-05/26/2015	4/30/2022	Common	$	16.00		218,334
6/30/2015	6/30/2022	Common	$	16.00		6,563
3/31/2016	3/31/2021	Common	$	10.00		10,600
4/30/2016	4/30/2021	Common	$	10.00		895
12/14/2016	12/1/2023	Common	$	8.00		50,000
7/18/2017	12/1/2023	Common	$	8.00		25,000
9/22/2017	12/1/2023	Common	$	8.00		25,000
12/4/2017	12/1/2023	Common	$	8.00		25,000
7/8/2019	12/1/2023	Common	$	8.00		50,000
11/11/2019	12/1/2023	Common	$	8.00		50,000
2/12/2020	12/1/2023	Common	$	8.00		25,000
Total						1,464,112

~~Sales, General~~The ~~and~~warrants ~~Administrative~~indexed ~~expenses~~to ~~include~~Series ~~the~~A ~~compensation costs of personnel, rent, utilities, supplies, travel, depreciation~~Convertible ofPreferred ~~office~~Stock ~~equipment,~~are ~~and~~currently ~~related~~exercisable ~~expenses not included in other expense categories. Sales~~ and ~~marketing costs include compensation, travel, and business development expenses including free samples provided to customers. These costs~~ are ~~expensed~~exchangeable asinto ~~incurred~~1. ~~Product~~875 ~~marketing~~shares ~~allowances are recorded at the estimated out~~ of ~~pocket~~common ~~cost~~stock ~~necessary to produce the product in the period the allowance is granted. Advertising costs are expensed at the time they are incurred and were not material~~ for ~~the~~each ~~years~~share ~~ended~~of ~~December 31,~~Series ~~2019~~A ~~and 2018~~Preferred. ~~General and administrative expenses also include non-cash compensation expenses related to the Company’s deferred compensation, management incentive bonus, and employee stock option programs.~~

~~Income~~NOTE 11 — STOCKHOLDERS’ EQUITY ~~Taxes~~(DEFICIT)

~~It is~~Series ~~our~~A ~~policy~~Convertible toPreferred provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. To the extent that the probable tax outcome of these uncertain tax position changes, such changes in estimate will impact the income tax provision in the period in which such determination is made. At December 31, 2019, we believe we have appropriately accounted for any unrecognized tax benefits. We are not aware of any uncertain tax positions. To the extent we prevail in matters for which a liability for an unrecognized tax benefit is established or we are required to pay amounts in excess of the liability, our effective tax rate in a given financial statement period may be affected.Stock

WeAs of December 31, 2020, the Company is authorized ~~account~~to ~~for~~issue ~~income~~up ~~taxes~~to ~~using~~3,000,000 anshares ~~asset~~of ~~and~~Series ~~liability~~A ~~approach~~Convertible Preferred Stock, or Series A Preferred. ~~The~~Each ~~difference~~share ~~between~~of the ~~financial~~Series ~~statement~~A ~~and~~Preferred, which ~~tax~~has ~~basis~~a liquidation preference of ~~assets~~ ~~and~~$12.00 ~~liabilities~~per share, is ~~determined~~convertible ~~annually.~~at ~~Deferred~~any ~~income~~time, ~~tax~~at ~~assets~~the ~~and~~option ~~liabilities~~of ~~are~~the ~~computed~~holder, ~~for~~into ~~those~~one ~~differences that~~share ~~have~~of ~~future~~Common ~~tax~~Stock ~~consequences~~at ~~using~~ the ~~currently~~lower ~~enacted~~of: ~~tax~~(a) ~~laws~~$12.00 ~~and~~per ~~rates~~share, ~~that~~or ~~apply~~(b) to80% of the ~~periods~~price inat which ~~they~~the ~~are~~Company ~~expected~~sells any equity or equity-linked tosecurities ~~affect~~in ~~taxable~~the ~~income~~future. ~~Income~~The ~~tax~~Series ~~expense~~A isPreferred ~~the~~also ~~current~~contains ~~tax~~typical ~~payable~~anti-dilution orprovisions ~~refundable~~that provide for adjustment of the ~~period~~conversion ~~plus~~price to reflect stock splits, stock dividends, or ~~minus~~similar ~~the~~events. ~~net~~The ~~change~~Series A Preferred is subject to mandatory inconversion into Common Stock upon the ~~deferred~~listing ~~tax~~of ~~assets~~the ~~and~~Company’s ~~liabilities~~Common Stock on a Qualified National Exchange. ~~The~~However, ~~deferred~~the Series ~~tax~~A ~~effects~~Preferred ofis ~~state~~not ~~and~~subject ~~local~~to ~~income~~the ~~taxes~~mandatory conversion until all outstanding Convertible Securities are ~~considered~~also ~~immaterial~~converted into ~~and~~common ~~have~~stock. ~~not~~Each ~~been~~holder ~~recorded.~~of ~~Valuation~~outstanding ~~allowances~~shares ~~are~~of ~~established,~~Series ifA ~~necessary,~~Preferred Stock shall be entitled to ~~reduce~~cast ~~deferred~~the ~~tax~~number ~~assets~~of votes equal to the ~~amount~~number ~~that~~of whole shares of Common Stock info which the shares of Series A Preferred Stock held by such holder are convertible isas ~~estimated~~of the record date for determining stockholders entitled to bevote ~~realized~~on such matter. ~~Because~~The ofSeries ~~the~~A ~~uncertainty~~Preferred ~~related~~ranks senior to ~~future~~all other ~~realization~~equity or equity equivalent securities of ~~deferred~~the ~~tax~~Company ~~assets~~other ~~(see~~than ~~Note~~those ~~13),~~securities ~~we have~~which ~~established~~are aexplicitly ~~valuation~~senior ~~allowance~~or ~~equal~~pari topassu in ~~one~~rights ~~hundred~~and ~~percent~~liquidation ofpreference to the ~~deferred~~Series ~~tax~~A ~~assets~~Preferred.

The Tax Cuts and Jobs Act (the Tax Act) was signed into law on December 22, 2017. The law includes significant changes to the U.S. corporate income tax system, including a federal corporate rate reduction from 35% to 21%, limitations on the deductibility of interest expense and executive compensation, and the transition of U.S. international taxation from a worldwide tax system to a territorial tax system. The rate reduction resulted in a $5,635,000 decrease in both the deferred tax asset and valuation allowance with no net impact on the 2018 or 2019 financial statements.49

~~The Company~~There ~~will~~were ~~continue~~1,890,354 toshares ~~assess~~of ~~its~~Series A ~~provision~~Convertible ~~for~~Preferred ~~income~~Stock ~~taxes~~outstanding as ~~future~~of ~~guidance~~both isDecember ~~issued~~31, ~~but~~2020 ~~does~~and ~~not currently anticipate significant revisions will be necessary~~2019. ~~Any such revisions will be treated in accordance with the measurement period guidance outlined in Staff Accounting Bulletin No. 118.~~

~~Net Income~~Series ~~(Loss)~~B ~~Per~~Convertible ~~Common~~Preferred ~~Share~~Stock

~~We compute~~As ~~net~~of ~~income~~December or31, ~~(loss)~~2020, ~~per~~and ~~share~~December in31, ~~accordance~~2019, the ~~with~~Company ~~Financial~~was ~~Accounting~~authorized ~~Standards~~to ~~Board~~issue ~~(“FASB”)~~up ~~Accountings Standards~~to ~~Codification~~1,500,000 ~~(“ASC”)~~shares ~~Topic~~of ~~260:~~Series ~~Earnings~~B ~~Per~~Preferred ~~Share.~~Stock, ~~Under the provisions~~ of ~~ASC~~which ~~260~~647,040 ~~basic~~and ~~net~~zero ~~income~~were ~~(loss)~~issued and ~~per~~outstanding ~~share~~as isof ~~computed~~December by31, ~~dividing~~2020 ~~the~~and ~~net~~December ~~income~~31, ~~(loss)~~2019Exchange ~~available~~rights toreceived ~~common~~with ~~stockholders by~~ the ~~weighted~~purchase ~~average number~~ of ~~common shares~~each ~~outstanding~~unit ~~during~~of the ~~period.~~Convertible Notes ~~Diluted~~Unit ~~net~~offering ~~loss~~dated ~~per~~April ~~share~~23, is2020, ~~computed~~allow ~~using~~for ~~the~~an ~~weighted~~exchange ~~average number~~ of two shares ~~outstanding during~~of ~~the~~Common ~~applicable~~Stock ~~period,~~for ~~plus~~two ~~the~~shares ~~effect~~ of ~~potentially~~Series ~~dilutive~~B ~~securities~~Preferred Stock. ~~Potentially~~Exchange ~~dilutive~~rights ~~securities~~exercised ~~consist~~resulted ofin ~~shares potentially~~the ~~issuable~~issuance ~~pursuant~~of to647,040 ~~stock~~Series ~~options~~B ~~and~~Preferred ~~warrants~~stock asfor ~~well~~the asyear ~~shares~~ended ~~that~~December ~~would~~31, ~~result~~2020 and ~~from~~854,354 ~~full~~of ~~conversion~~Series ofB ~~all~~Preferred ~~outstanding convertible~~stock ~~securities.~~issued ~~These~~for ~~potentially~~the ~~dilutive~~quarter ~~securities~~ended ~~were~~March 331,~~150,487~~ ~~and~~2021. ~~3,006,487~~A astotal of ~~December 31~~1,501,394 ~~2019~~shares ~~and~~of ~~2018~~Common ~~and~~Stock ~~are~~has ~~excluded~~been ~~from~~exchanged ~~diluted~~for ~~net~~Series ~~loss~~B ~~per~~Preferred ~~share~~stock ~~calculations~~as ~~because they are anti-dilutive. As~~ a result, ~~for~~of the ~~years~~exercised ~~ended~~of ~~December 31,~~exchange ~~2019~~rights ~~and~~received ~~2018,~~with ~~basic~~the ~~and~~purchase ~~diluted~~of ~~net~~each unit ~~loss~~of ~~per~~the ~~share~~Convertible ~~was~~Notes ~~the~~Unit ~~same~~offering.

45Each share of the Series B Preferred, is convertible at any time, at the option of the holder, into one share of common stock.

~~Accounts~~The Series B Preferred also contains typical ~~Receivable~~anti-dilution ~~and~~provisions ~~Allowance~~that provide for ~~Doubtful~~adjustment ~~Accounts~~of the conversion price to reflect stock splits, stock dividends, or similar events. Each share of Series B Preferred is subject to mandatory conversion into common stock at the then-effective Series B conversion rate upon the public listing by the Company of its common stock on a Qualified National Exchange. However, the Series B Preferred is not subject to the mandatory conversion until all outstanding Convertible Securities are also converted into common stock. The Series B Preferred ranks senior to all other equity or equity equivalent securities of the Company other than those securities which are explicitly senior or pari passu in rights and liquidation preference to the Series B Preferred and pari passu with the Company’s Series A Preferred.

~~Accounts receivable~~On ~~are~~April ~~stated~~27, at2020, the ~~amount~~Company ~~management~~filed ~~expects~~the toSecond Amended ~~collect~~and ~~from~~Restated ~~outstanding~~Certificate ~~balances.~~of ~~Management~~Designations ~~provides~~of ~~for~~the ~~probable uncollectible~~Series ~~amounts~~B ~~through~~Preferred aStock ~~provision~~in ~~for~~connection ~~bad~~with ~~debt~~the ~~expense~~Unit Offering and anthe ~~adjustment~~Amended Dow toFacility, alowering ~~valuation~~the ~~allowance~~liquidation ~~based~~preference onfrom ~~their~~$16.00 ~~assessment of~~per share to $8.00 per share, and lowering the ~~current~~conversion ~~status~~price offrom $16.00 ~~individual~~per ~~accounts~~share to $8.00 ~~Balances~~per ~~that~~share, ~~are~~among ~~still~~other ~~outstanding~~things. ~~after~~The ~~management~~Company ~~has~~also ~~used~~adjusted ~~reasonable~~certain ~~collection efforts~~provisions ~~are~~to ~~written~~harmonize ~~off~~the ~~through~~rights aof the ~~charge~~Series toB Preferred Stock with the ~~allowance~~rights ~~account~~in ~~and~~the aSeries ~~credit~~A toCertificate ~~accounts~~of ~~receivable~~Designations.

~~Statements~~On December 28, 2020, the Board of Directors and a majority of ~~Cash~~the ~~Flows~~holders of Series A and Series B Preferred Stock consented to Amendments to the Second Amended and Restated Certificate of Designation of the Series A Convertible Preferred Stock and the Series B Convertible Preferred Stock by adapting the Third Amended and Restated Certificate of Designations of Series A and of Series B Convertible Preferred Stock. The Third Amended and Restated Certificate of Designations continue to allow for liquidation preference prior and in preference to any distribution of any of the assets of the Corporation to the holders of junior securities and, as amended, after the payment of all preferential amounts required to be paid to the holders of the Series A Preferred Stock, Series B Preferred Stock and other senior securities, the remaining assets of the corporation available for distribution to its stockholders shall be distributed among the holders of junior securities, including the Common Stock.

~~For~~ On March 31, 2021, after consent by the ~~purposes~~Board of Directors and a majority of the ~~statements~~holders of ~~cash~~Series ~~flows,~~B wePreferred ~~consider~~Stock, ~~all~~the ~~highly~~Company ~~liquid~~filed ~~investments~~the ~~purchased~~Fourth ~~with~~Amended anand ~~original~~Restated ~~maturity~~Certificate of Designation of ~~three~~ ~~months~~the orSeries ~~less~~B toConvertible bePreferred ~~cash~~Stock ~~equivalents~~increasing the number of authorized shares from 1,500,000 to 3,750,000.

~~Fair~~The Series A Preferred and Series B Preferred ~~Value~~are ofnot ~~Financial~~redeemable ~~Instruments~~for cash and ~~Concentrations~~the ofCompany ~~Credit~~concluded ~~Risk~~that they are more akin to equity-type instruments than debt-type instruments. Accordingly, the embedded conversion option in each agreement is clearly and closely related to an equity-type host and the conversion option does not require classification and measurement as a derivative financial instrument. Therefore, the securities meet the conditions for stockholders’ equity classification.

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and accounts receivable. The Company places its cash with FDIC insured financial institutions. Although such balances may exceed the federally insured limits at certain times, in the opinion of management they are subject to minimal risk.50

~~The Company~~Common has established policies for extending credit to customers based upon factors including the customers’ credit worthiness, historical trends and other information. Nonetheless the collectability of accounts receivable is affected by regional economic conditions and other factors.Stock

~~Inventory~~The Company is authorized to issue 25,000,000 shares of common stock, no par value per share. During the years ended December 31, 2020 and 2019, the Company issued 10,000 and 264,175 shares of common stock and exchanged 647,040 and zero shares of common stock for Series B Preferred stock, respectively. There were 3,387,403 and 4,024,443 shares of common stock issued and outstanding at December 31, 2020 and 2019, respectively.

~~Inventory~~Each ~~consists~~outstanding share of ~~raw~~common ~~materials,~~stock ~~consumables~~is entitled ~~inventory~~to ~~and~~one ~~finished~~vote ~~goods,~~on ~~all~~each ofmatter ~~which~~submitted ~~are~~to ~~stated~~a atvote, ~~the~~unless ~~lower~~provided ofin ~~cost~~our orArticles ~~net~~of ~~realizable~~Incorporation, ~~value~~as amended. ~~Cost~~Each common stockholder is ~~determined~~entitled onto areceive ~~first in~~dividends, ~~first~~if ~~out basis~~declared. WeHolders ~~inventory~~of ~~media~~the ~~used~~common instock ~~the~~have ~~production~~no ~~process~~other preemptive or preferential rights to purchase additional shares of ~~our~~any ~~facilities~~class asof athe ~~Consumables~~Company’s ~~inventory~~capital stock in subsequent stock offerings.

~~Property~~NOTE ~~and~~12 ~~Equipment~~— EQUITY INCENTIVE PLAN

~~Property~~We ~~and~~previously ~~equipment~~established the ~~are~~2007 ~~recorded~~Stock atOption ~~cost~~Plan (the “2007 Plan”), ~~net~~ ofwhich ~~accumulated~~was ~~depreciation~~scheduled to expire on October 30, 2017 and ~~amortization.~~under ~~Property~~which we granted key employees and ~~equipment~~directors ~~generally~~options ~~include~~to ~~purchases~~purchase shares of ~~items~~our ~~with~~common astock ~~cost~~at ~~greater than~~not ~~$3,000~~less ~~and~~than afair ~~useful~~market ~~life~~value ~~greater~~as ~~than~~of ~~one~~the grant ~~year~~date. On ~~Depreciation~~May ~~and~~4, ~~amortization~~2017, ~~are~~the ~~computed~~Board onapproved the ~~straight-line~~2017 ~~basis~~Equity ~~over~~Incentive Plan (the “2017 Plan”) to replace the 2007 Plan, which became effective upon the ~~estimated~~approval ~~useful~~of ~~lives~~the stockholders holding a majority of the ~~assets.~~voting ~~Leasehold~~power ~~improvements~~in ~~are~~the ~~amortized~~Company ~~over~~on July 18, 2017. The 2017 Plan replaced the ~~shorter~~2007 Plan and authorizes us to issue awards (stock options and restricted stock) with respect of a maximum of 1,200,000 shares of our common stock, which equals the ~~related~~number ~~lease~~of ~~terms~~shares orauthorized ~~their estimated~~under ~~useful~~the ~~lives~~2007 Plan.

WeAs ~~periodically review the estimated useful lives~~ of ~~property~~December ~~and~~31, ~~equipment. Changes to the estimated useful lives are recorded prospectively from the date of the change. Upon retirement or sale~~2020, ~~the cost of the assets disposed of~~ and ~~the~~2019, ~~related accumulated depreciation are removed from~~ the ~~accounts~~Company ~~and~~had ~~any~~outstanding ~~resulting~~stock ~~gain~~options orto ~~loss~~purchase isup ~~included~~to in504,110 ~~the statement of operations. Repairs~~ and ~~maintenance~~839,625 ~~costs~~shares ~~are~~of ~~expensed~~common asstock, ~~incurred~~respectively.

~~Intangible~~On ~~Assets~~September 30, 2020, and September 30, 2019, the Company granted each Board member 2,500 stock options and 2,500 shares of restricted stock for their Board services. The options were granted at a price of $8.00 per share and vest ratably over a four-year period beginning on the one-year anniversary. The options had an aggregate grant date fair value of $24,300 and $38,295 on September 30, 2020, and, September 30, 2019, respectively. The restricted stock issued to the Board members from September 30, 2017, through September 30, 2020 has an aggregate fair value of $320,000 and vests ratably in arrears over four quarters on the last day of each fiscal quarter following the grant date. As of December 31, 2020, and 2019, 35,000 and 23,125 of the 42,500 shares of restricted stock issued had vested, resulting in compensation expense of $84,600 and $90,000 for the years ended December 31, 2020 and December 31, 2019, respectively.

WeDuring ~~have~~the ~~entered~~year ~~into~~ended December 31,2020, we granted 138,734 stock options to employees who had received a ~~license~~reduction ~~agreement~~in ~~with Michigan~~pay ~~State~~due ~~University~~to ~~under~~cost ~~which~~controls. weThese options have ~~licensed~~an ~~certain~~exercise ~~intellectual~~price ~~property~~of in$8.00, vesting 1/3 upon the ~~form~~grant date and 1/3 on the anniversary of ~~patents~~the ~~and~~grant ~~patent~~for ~~applications~~the next two years and ~~invention~~a ~~disclosures~~term of seven years. WeDuring ~~are~~the ~~responsible~~year ~~for~~ended ~~managing~~December ~~the~~31, ~~patent~~2019, ~~process~~we ~~and~~granted ~~ongoing~~70,000 ~~filings~~stock ~~for~~options ~~this~~to ~~licensed~~employees, ~~intellectual~~vesting ~~property~~equally ~~and~~over ~~for~~four ~~bearing~~years beginning on the ~~cost~~first ~~thereof~~anniversary of the date of grant with an exercise price of $8.00 Weand ~~capitalize~~a ~~all~~seven-year term. ~~costs~~The ~~related~~aggregate tofair value of the ~~acquisition~~awards on the date of grant was $329,850 and ~~ongoing~~$177,111, ~~administration~~respectively, as of ~~this license~~December ~~agreement~~31, 2020, and weDecember ~~amortize~~31, ~~these~~2019. ~~costs~~Except for the stock options granted on April 1, 2020, all other stock options vest equally over 15four years beginning oron the ~~remaining~~first ~~life~~anniversary of the ~~license~~date ~~agreement,~~of ~~whichever is shorter~~grant.

InThe ~~addition~~following totable shows the ~~costs~~stock ofoption ~~managing~~activity ~~in-licensed intellectual~~during property, we also file for patent protection for inventions and other intellectual property generated by our employees. All patents are evaluated for filing in international markets on a case-by-case basis and are filed i

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