As filed with the Securities and Exchange Commission on September 17, 2014

 

 

Registration No. 333- 197574

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

AMENDMENT NO. 2 TO FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

SOLAR WIND ENERGY TOWER, INC.

(Exact name of registrant as specified in its charter)

 

Nevada	4911	82-6008752
(State or other jurisdiction of	(Primary Standard Industrial	(I.R.S. Employer
incorporation or organization)	Classification Code Number)	Identification Number)

 

1997 Annapolis Exchange Parkway, Suite 300,

Annapolis, Maryland 21401

(410) 972-4713

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Ronald W. Pickett, President, Chief Executive Officer and Director

1997 Annapolis Exchange Parkway, Suite 300,

Annapolis, Maryland 21401

(410) 972-4713

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Please send a copy of all communications to:

Gregg E. Jaclin, Esq.

Szaferman, Lakind, Blumstein & Blader, PC

101 Grovers Mill Road, Second Floor

Lawrenceville, New Jersey 08648

Phone: (609) 275-0400

Fax: (609) 275-4511

 

Approximate date of commencement proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: þ

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.¨

 

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.o

 

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:

 

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer (Do not check if smaller reporting company)	¨	Smaller reporting company	þ

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class Of Securities to be Registered		Amount to be Registered (1)				Proposed Maximum Aggregate Offering Price per share		Proposed Maximum Aggregate Offering Price			Amount of Registration Fee
Common Stock issuable upon conversion of the Note			109,250,000		$	0.03	(2)	$	3,277,500		$	422.15
Common Stock issuable upon exercise of the Warrants			7,000,000			0.05			350,000			45.08
Common stock issuable upon exercise of the Warrants			8,750,000			0.04			350,000			45.08
Total			125,000,000					$	3,977,500		$	512.31

 

(1) Represents (i) 109,250,000 shares of our common stock upon conversion of the 10% Convertible Promissory Note that Solar Wind Energy Tower, Inc. issued to JDF Capital Inc., (ii) 7,000,000 shares of the Company’s common stock upon exercise of a warrant, for an exercise price of $0.05 per share for a period of 150 days from the effective date of the registration statement, and (iii) 8,750,000 shares of the Company’s common stock upon exercise of a warrant, for an exercise price of $0.04 per share for a period of 90 days from the effective date of the registration statement. In accordance with Rule 416(a), the Registrant is also registering hereunder an indeterminate number of additional common stock that may be issued and resold resulting from stock splits, stock dividends or similar transactions.

 

(2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457, based on the closing price of our common stock quoted on the OTC Bulletin Board as of July 18, 2014.

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the of 1933 or until the registration statement shall become effective on such date as the commission, acting pursuant to said Section 8(a), may determine.

 

 

 

 

 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective.  This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS

 

Subject to completion, dated September 17, 2014

 

 

125,000,000 Shares of Common Stock

 

SOLAR WIND ENERGY TOWER, INC.

 

This prospectus relates to the resale of up to (i) 109,250,000 shares of our common stock upon conversion of the 10% Convertible Promissory Note that Solar Wind Energy Tower, Inc. (“we” or “us” or “our” or the “Company”) issued to JDF Capital Inc., (ii) 7,000,000 shares of the Company’s common stock upon exercise of a warrant, for an exercise price of $0.05 per share for a period of 150 days from the effective date of the registration statement, and (iii) 8,750,000 shares of the Company’s common stock upon exercise of a warrant, for an exercise price of $0.04 per share for a period of 90 days from the effective date of the registration statement.

 

Our common stock is quoted on the OTC Bulletin Board under the symbol “SWET.” On September 12, 2014, the last reported sale price of our common stock on the OTC Bulletin Board was $0.0245 per share.

 

The selling stockholder may offer all or part of the shares for resale from time to time through public or private transactions, at either prevailing market prices or at privately negotiated prices. The Company is paying all of the registration expenses incurred in connection with the registration of the shares including accounting fees and expenses. We will not pay any of the selling commissions, brokerage fees and related expenses.

 

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 6 to read about factors you should consider before investing in shares of our common stock.

 

The Date of This Prospectus Is: _____________, 2014

 

You should rely only on the information contained in this prospectus. We have not authorized any dealer, salesperson or other person to provide you with information concerning us, except for the information contained in this prospectus. The information contained in this prospectus is complete and accurate only as of the date on the front cover page of this prospectus, regardless when the time of delivery of this prospectus or the sale of any common stock. This prospectus is not an offer to sell, nor is it a solicitation of an offer to buy, our common stock in any jurisdiction in which the offer or sale is not permitted.

 

 

TABLE OF CONTENTS

 

	Page
Cautionary Note Regarding Forward Looking Statements	ii
Prospectus Summary	1
The Offering	6
Risk Factors	6
Use of Proceeds	15
Determination of Offering Price	15
Selling Securityholders	16
Plan of Distribution	16
Description of Business	18
Market for Common Equity and Related Stockholder Matters	26
Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Directors, Executive Officers, Promoters, and Control Persons	36
Certain Relationships and Related Transactions	39
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	40
Description of Securities	41
Change of Independent Registered Accounting Firm	43
Experts	43
Legal Matters	43
Where You Can Find More Information	43
Index to Financial Statements	F-1

 

 

 

 

 

 

 

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

 

This prospectus contains forward looking statements that involve risks and uncertainties, principally in the sections entitled “Description of Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All statements other than statements of historical fact contained in this prospectus, including statements regarding future events, our future financial performance, business strategy, and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms or other comparable terminology. Although we do not make forward looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under “Risk Factors” or elsewhere in this prospectus, which may cause our or our industry’s actual results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Moreover, we operate in a highly regulated, very competitive, and rapidly changing environment. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements.

 

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short term and long term business operations, and financial needs. These forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this prospectus, and in particular, the risks discussed below and under the heading “Risk Factors” and those discussed in other documents we file with the Securities and Exchange Commission. The following discussion should be read in conjunction with the consolidated financial statements and notes included herewith. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statement.

 

You should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this prospectus. You should be aware that the occurrence of the events described in the section entitled “Risk Factors” and elsewhere in this prospectus could negatively affect our business, operating results, financial condition and stock price. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date of this prospectus to conform our statements to actual results or changed expectations.

 

 

 

 

PROSPECTUS SUMMARY

 

This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all the information that you should consider before investing in the common stock. You should carefully read the entire prospectus, including “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes thereto contained elsewhere in this prospectus, before making an investment decision.

 

Unless the context requires otherwise, references to “the Company,” “we,” “us,” “our,” and “Solar Wind” refer to Solar Wind Energy Tower, Inc.

 

Business Overview

 

Solar Wind Energy Tower, Inc. (f/k/a Clean Wind Energy Tower, Inc.) (the “Company,” “we,” “our,” “us”), formerly known as Superior Silver Mines, Inc., was incorporated in the State of Idaho on January 22, 1962 as Superior Mines Company and then changed its name to Superior Silver Mines, Inc. The Company reincorporated as a Nevada corporation on December 27, 2010. The Company had been dormant for a number of years, and had no known mineral reserves.

 

On December 29, 2010, the Company completed a reverse merger (the “Merger”) with Solar Wind Energy, Inc. (f/k/a Clean Wind Energy, Inc.), a corporation formed under the laws of the State of Delaware on July 26, 2010 (“Solar Wind - Subsidiary”). In connection with the Merger, the Company issued to the stockholders of Solar Wind - Subsidiary in exchange for their Solar Wind - Subsidiary Common Stock, the right to receive an aggregate of 300,000,000 shares of the Company’s Common Stock. As a result of the reverse merger, Solar Wind - Subsidiary is now a wholly-owned subsidiary of the Company.

 

For accounting purposes, Solar Wind - Subsidiary was the surviving entity. The transaction was accounted for as a recapitalization of Solar Wind - Subsidiary pursuant to which Solar Wind - Subsidiary was treated as the surviving and continuing entity although the Company is the legal acquirer rather than a reverse acquisition. Accordingly, the Company’s historical financial statements are those of Solar Wind - Subsidiary immediately following the consummation of the reverse merger. Also, going forward the business operations of Solar Wind - Subsidiary will become the Company’s principal business operations.

 

The Company plans to design, develop, and construct large downdraft towers that use benevolent, non-toxic natural elements to generate electricity and clean water economically (“Downdraft Towers”) by integrating and synthesizing numerous proven as well as emerging technologies. In addition to constructing Downdraft Towers in the United States and abroad, the Company intends to be prepared to establish partnerships at home and abroad to propagate these systems and meet increasing global demand for clean water and electricity.

 

On January 21, 2011, the Company changed its name to Clean Wind Energy Tower, Inc. and on March 11, 2013, changed its name to Solar Wind Energy Tower Inc. along with its wholly-owned subsidiary, a corporation formed under the laws of the State of Delaware, which changed its name from Clean Wind Energy, Inc. to Solar Wind Energy, Inc. In addition, effective January 24, 2011, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from SSVM.OB to CWET.OB and on March 11, 2013, in conjunction with our name change, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from CWET.OB to SWET.OB. On April 2, 2014, the Company’s majority stockholders approved to amend the Articles of Incorporation to increase the number of authorized shares of common stock from 500,000,000 to 900,000,000 shares.

 

Our executive offices are located at 1997 Annapolis Exchange Parkway, Suite 300, Annapolis, Maryland 21401.

 

Transaction with JDF Capital Inc.

 

June 2014 Convertible Note Transaction

 

On June 9, 2014, the Company closed a financing transaction by entering into a Purchase Agreement dated June 3, 2014 (the “Purchase Agreement”) with JDF Capital Inc. (“JDF”) for an aggregate principal amount of $885,000 (the “Purchase Price”). Pursuant to the Purchase Agreement, the Company issued the following to JDF: (i) a 10% Convertible Promissory Note (the “Note”), (ii) a warrant to purchase an aggregate of 7,000,000 shares of the Company’s common stock, par value $0.0001 per share, for an exercise price of $0.05 per share for a period of 150 days from the effective date of the registration statement (the “First Warrant”), and (iii) a warrant to purchase an aggregate of 8,750,000 shares of the Company’s common stock, par value $0.0001 per share, for an exercise price of $0.04 per share for a period of 90 days from the effective date of the registration statement (the “Second Warrant” and collectively, the “Warrants”).

 

 

 

Pursuant to the Purchase Agreement, the Company is obligated to file a registration statement with the Securities and Exchange Commission (the “SEC”), not later than 60 days after the closing date, to cover the shares to be issued upon conversion of the Note and upon exercise of the Warrants. In the event the Company did not (i) file the registration statement within the required timeframe, (ii) cause the registration statement to be declared effective by the SEC within 120 days following the closing date, (iii) cause the registration statement to be declared effective by the SEC within 5 trading days following the date on which the Company is notified by the SEC that the registration statement will not be reviewed or is no longer subject to further review and comments, or (iv) the registration statement ceases to be effective for over 20 trading days, then the Company shall pay to JDF liquidated damages equal to 2% of the purchase price per month, not to exceed a total of 6% of the purchase price paid by JDF.

 

The first tranche of the Note has been funded to the Company by JDF upon execution of the Purchase Agreement, in the principal amount of $555,000, consisting of the aggregate principal sum of $500,000 advanced by the Holder, $5,000 in expenses incurred by JDF and 10% prepaid interest per annum of $50,000 over 12 months. JDF also agreed to fund the Company the second tranche of the Note in the principal amount of $330,000, consisting of a cash payment of $300,000 and 10% pre-paid interest of $30,000, within 15 business days of effectiveness of the registration statement.

 

There were a total of 372,821,474 shares outstanding prior to the convertible note transaction with JDF that are held by persons other than the selling shareholder, affiliates of the Company, and affiliates of the selling shareholder. We are registering a total of 125,000,000 shares on behalf of the selling shareholder in this prospectus.

 

We intend to repay the Note by the due date through additional equity and/or debt financing. There is no assurance we will be able to obtain additional financings or obtain financings on the terms acceptable to us. If we cannot obtain additional financings, we are looking to repay to Note by converting into common stock of the Company, at the option of JDF.

 

JDF confirmed to us that it does not have an existing short position in the Company’s stock.

 

The terms of the Note and the Warrant are as follows:

 

Convertible Promissory Notes

 

The Notes earn an annual interest rate equal to 10% and a maturity date of 12 months from the date of the principal amount advanced. The Notes are convertible any time after the issuance date of the Note, and JDF has the right to convert the Note into shares of the Company’s common stock at a conversion price equal to 42% discount to the lowest closing price of the common stock for the 15 trading days immediately prior the conversion date, subject to a maximum conversion price of $0.03 per share. The Note Conversion Price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances of securities below the conversion price of the Note.

 

In addition, in no time may JDF convert all or a portion of the Note if the total number of shares of common stock beneficially held by JDF at that time would exceed 9.99% of the number of shares of the Company’s common stock as determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as amended.

 

In the event of default, JDF has the right to require the Company to repay in cash all or a portion of the Note at a price equal to 120% of the aggregate principal amount of the Note plus all accrued but unpaid interest. In addition, in the event of a Major Transaction (as defined in the Note), JDF has the right to require the Company to prepaid all or a portion of the Note at a price equal to 110% of the aggregate principal amount plus all accrued but unpaid interest. In the event of a Triggering Event (as defined in the Note), JDF has the right to require the Company to prepaid all or a portion of the Note at a price equal to the sum of (i) the greater of (a) 120% of the aggregate principal amount plus all accrued but unpaid interest and (ii) all other costs, expenses and liquidated damages due in respect of the Note and other transaction documents under the Purchase Agreement.

 

We are registering in this prospectus a total of 109,250,000 shares of common stock to be issued upon conversion of the Note. Based on the market price per share on June 9, 2014, which is the date of the sale of the Note, of $0.01820 per share, the total dollar value of the securities underlying the Note that we have registered for resale is $1,988,350.

 

 

 

Following is tabular disclosure of the dollar amount of each payment in connection with the Purchase Agreement that we have made or may be required to make to any selling shareholder, any affiliate of a selling stockholder, or any person with whom any selling stockholder has a contractual relationship regarding the transaction.

 

			Dollar Amount of Required Payment (s)
Interest payment (1)		$	80,000
Liquidated damages (2)		$	33,300
Total		$	113,300

 

(1) Interest of 10% per annum due 12 months from the date of principal mount advanced. Including $50,000 interest from the first tranche of the Note in the principal of $500,000, and $30,000 interest from the second tranche of the Note in the principal of $300,000.

(2) Possible liquidated damages equal to 2% per month, not to exceed a total of 6% of purchase price of $555,000 which has been paid by JDF.

 

We received net proceeds of $500,000 from the sale of the first tranche of the Note of $555,000 which also includes $50,000 prepaid interest and $5,000 expenses incurred by JDF. If the second tranche of $330,000 is funded, we should be receiving net proceeds of $300,000. The rest is $30,000 prepaid interest. At maturity, which is 12 months from the date of the principal amount advanced, the total possible payments to JDF shall be $500,000 for the first tranche, and $300,000 for the second tranche. Such amounts are principal only as the 10% interest has been prepaid when funding the Note.

 

Below is tabular disclosure of total possible shares to be issued and total possible profits JDF could make upon conversion of the Note, based on the market price per share on June 9, 2014, which is the date of the sale of the Note, of $0.01820 per share:

 

		Market price	Conversion	Shares	Market	Total
		of our	Price at	Issuable	Price	Discount
Principal	Date	Common	Conversion	Upon	of Issuable	to Market
Amount	of Sale	Stock (1)	Date (2)	Conversion	Shares	Price
$    885,000	6/9/2014	$      0.01820	$           0.01020	86,764,706	$             1,579,118	$         694,118

(1) Market price of our common stock at the date of sale of the Note.

(2) At a 42% discount to the lowest closing of the common stock for 15 trading dates immediately prior to conversion.

 

Warrants

 

The First Warrant is exercisable in whole or in part, at an initial exercise price per share of $0.05, subject to adjustment. The Second Warrant is exercisable in whole or in part, at an initial exercise price per share of $0.04, subject to adjustment. The exercise price and number of shares of the Company’s common stock issuable under the Warrants are subject to adjustments for stock dividends, splits, combinations, subsequent rights offerings, pro rata distributions and any issuance of securities below the exercise price of the Warrants. Any adjustment to the exercise price shall similarly cause the number of warrant shares to be adjusted proportionately so that the total value of the Warrants shall remain the same.

 

 

Below is tabular disclosure of total possible shares to be issued and total possible purchase price JDF may make upon exercise of the Warrants:

 

Warrants			Warrant (1)				Price (1)				Shares (1)				Price				Grant date				to Market
First Warrant			7,000,000			$	0.05				7,000,000			$	350,000			$	0.01820				–
Second Warrant			8,750,000				0.04				8,750,000				350,000				0.01820				–

 

(1) The exercise price and number of shares of the Company’s common stock issuable under the Warrants are subject to adjustments for stock dividends, splits, combinations, subsequent rights offerings, pro rata distributions and any issuance of securities below the exercise price of the Warrants. The Warrants contain anti-dilutive (reset) provisions such that if we issue or obligate to issue shares of common stock or common stock equivalent with an effective price per share less than the exercise price, we are required to reduce the exercise price of these warrants and increase the number of issuable shares such that the product of the reduced exercise price and the number of shares issuable equals the initial aggregate exercise amount.

 

We include herein tabular disclosure of: (i) the gross proceeds paid or payable to the Company in the convertible note transaction; (ii) all payments that have been made or that may be required to be made by the Company; (iii) the resulting net proceeds to the Company; and (iv) the combined total possible profit to be realized as a result of any conversion discounts regarding the securities underlying the Notes and Warrants of the issuer that are held by JDF or any of its affiliates.

 

			(i)				(ii)				(iii)				(iv)
			Gross Proceeds Paid or Payable to the Company				All Payments Made or to be Made by the Company(1)				Net Proceeds to the Company				Total Possible Profit to JDF or its affiliates(2)				Percentage(3)
Note		$	885,000			$	113,300			$	800,000			$	807,418				100.93	%
First Warrant			350,000				–				350,000				–				–
Second Warrant			350,000				–				350,000				–
Total		$	1,585,000			$	113,300			$	1,500,000			$	807,418				53.83	%

 

(1) Including 10% interest payment to the Note of $80,000 and maximum 6% liquidated damages of $33,300.

(2) Including $80,000 interest payment, $33,300 maximum liquidated damages and $694,118 total market discount of the Note based on the market price per share on June 9, 2014, which is the date of the sale of the Note, of $0.01820 per share.

(3) Calculated by using column (iv) the total amount of all possible payments made to be made by the Company and the total possible discount to the market price of the shares underlying the Notes divided by column (iii) the net proceeds to the Company from the sale of the Notes and Warrants.

 

October 2013 Convertible Note Transaction

 

The Company has one other financing transaction with JDF or its affiliate, prior to the above convertible note transaction. On November 1, 2013, the Company issued an unsecured convertible promissory note dated October 30, 2013 to JDF in the principal amount of $57,500, which includes the aggregate principal sum of $50,000, $2,500 in expenses incurred by JDF and 10% prepaid interest per annum over 12 months. The total net proceeds the Company received from this note was $50,000 with an original issue discount of $5,000 and due November 1, 2014. The Note was convertible into common stock, at JDF’s option, at a 42% discount to the average of the lowest closing price of the common stock during the 10 trading day period prior to conversion or the closing price at conversion. The note was converted into 19,071,311 shares of common stock of the Company on May 1, 2014 at a conversion price of $0.003015 per share.

 

 

 

The following is the tabular disclosure of the above securities transaction with JDF, with the table including the following information for such transaction:

 

·

the date of the transaction;

·

the number of shares of the class of securities subject to the transaction that were outstanding prior to the transaction;

·

the number of shares of the class of securities subject to the transaction that were outstanding prior to the transaction and held by persons other than the selling shareholders, affiliates of the company, or affiliates of the selling shareholders;

·

the number of shares of the class of securities subject to the transaction that were issued or issuable in connection with the transaction;

·

the percentage of total issued and outstanding securities that were issued or issuable in the transaction (assuming full issuance), with the percentage calculated by taking the number of shares issued and outstanding prior to the applicable transaction and held by persons other than the selling shareholders, affiliates of the company, or affiliates of the selling shareholders, and dividing that number by the number of shares issued or issuable in connection with the applicable transaction;

·

the market price per share of the class of securities subject to the transaction immediately prior to the transaction (reverse split adjusted, if necessary); and

·

the current market price per share of the class of securities subject to the transaction (reverse split adjusted, if necessary).

 

Date	Convertible Promissory Note	Common Shares Outstanding Prior to Transaction	Common Shares held By Non-Affiliates Prior to Transaction	Common Shares Issued For Transaction	Percentage of shares Issued	Market Price of Common Stock Prior to Transaction	Current Market Price of Common Stock (1)
11/1/2013	$      57,500	333,474,469	188,252,855	19,071,311	10.13%	$    0.0271	$    0.0241

 

(1) Market price of the Company’s common stock on August 8, 2014  

 

Where You Can Find Us

 

Our principal executive office is located at 1997 Annapolis Exchange Parkway, Suite 300, Annapolis, Maryland 21401. Our telephone number at our executive office is (410) 972-4713.

 

 

THE OFFERING

 

The number of shares of our common stock included in the registration statement of which this prospectus is a part was determined in part to be consistent with Rule 415 of the Securities Act of 1933. Based upon published and interpretative positions expressed by the staff of the Securities and Exchange Commission this rule limits the number of shares we can include in a resale registration statement such as the one of which this prospectus is a part to no more than approximately 33% of our outstanding "public float" or the shares of our common stock held by non-affiliates. Based upon this limitation and the wishes of the selling security holder we have registered approximately 30% of our total outstanding shares held by non-affiliates to be issued upon the conversion of the Note and Warrants.

 

Common stock offered by Selling Stockholder	125,000,000 shares of common stock.
Common stock outstanding before the offering	524,147,555 shares of common stock as of September 12, 2014.
Common stock outstanding after the offering	649,147,555 shares of common stock.
Use of proceeds	We will not receive any proceeds from the sale of shares by the selling stockholder.  However, we will receive proceeds from the exercise of Warrants.
OTCBB and OTCQB Trading Symbol	SWET
Risk Factors	The common stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment.  See “Risk Factors”.

 

RISK FACTORS

 

An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this prospectus, before making an investment decision with regard to our securities. The statements contained in or incorporated into this prospectus that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

 

Our results of operations, financial condition and cash flows can be adversely affected by various risks. These risks include, but are not limited to, the principal factors listed below and the other matters set forth in this prospectus. You should carefully consider all of these risks before making an investment decision.

 

Risks Related to Our Business and the Industry in Which We Compete

 

Our independent auditors have expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.

 

The report of our independent auditors dated March 28, 2014 on our consolidated financial statements for the year ended December 31, 2013 included an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern. Our auditors’ doubts are based on our inability to generate sufficient cash flow to sustain our operations without securing additional financing, deficit accumulated during development stage, negative cash flows from operations and our limited cash balances and working capital deficit position. Our ability to continue as a going concern will be determined by our ability to obtain additional funding in the short term to enable us to realize the commercialization of our planned business operations. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertain.

 

 

We are an early development stage company. We have not yet commenced with the construction of our Downdraft Towers or the production of electricity.

 

The Company has a limited operating history and has primarily engaged in operations relating to the development of its business plan. As an early-stage entity, the Company is subject to many of the risks common to such enterprises, including the ability of the Company to implement its business plan, market acceptance of its proposed business, under-capitalization, cash shortages, limitations with respect to personnel, financing and other resources, and uncertainty of the Company’s ability to generate revenues. There can be no assurance that the Company’s activities will be successful or result in any revenues or profit for the Company, and the likelihood of the Company’s success must be considered in light of the stage in its development. To date, the Company has generated no revenue and has generated losses.

 

The Company believes it has engaged professionals and consultants experienced in the type of business contemplated by the Company; however, there can be no assurance that the predictions, opinions, analyses, or conclusions of such professionals will prove to be accurate. In addition, no assurance can be given that the Company will be able to consummate its business strategy and plans or that financial or other limitations may force the Company to modify, alter, significantly delay, or significantly impede the implementation of such plans or the Company’s ability to continue operations. If the Company is unable to successfully implement its business strategy and plans, investors may lose their entire investment in the Company.

 

Potential investors should also be aware of the difficulties normally encountered by new renewable energy companies. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the inception of the enterprise that we plan to undertake. These potential problems include, but are not limited to, unanticipated problems relating to construction, operation and distribution, and additional costs and expenses that may exceed current estimates.

 

Future financings will involve a dilution of the interests of the stockholders of the Company upon the issuance of additional shares of Common Stock or other securities.

 

We will need to engage in additional financings in the future. There can be no assurances that such financings will ever be completed, but any such financings will involve a dilution of the interests of our stockholders upon the issuance of additional shares of Common Stock or other securities. Attaining such additional financing may not be possible, or if additional capital may be otherwise available, the terms on which such capital may be available may not be commercially feasible or advantageous to existing shareholders. We expect to issue shares of our Common Stock and/or other securities in exchange for additional financing.

 

We anticipate significant future capital needs and the availability of future capital is uncertain.

 

The Company has experienced negative cash flows from operations since its inception. The Company will be required to spend substantial funds to continue research and development. The Company will need to raise additional capital. The Company’s capital requirements will depend on many factors, primarily relating to the problems, delays, expenses and complications frequently encountered by development stage companies; the progress of the Company’s research and development programs; the costs and timing of seeking regulatory approvals of the Company’s products under development; the Company’s ability to obtain such regulatory approvals; costs in filing, prosecuting, defending, and enforcing any patent claims and other intellectual property rights; the extent and terms of any collaborative research, manufacturing, marketing, or other arrangements; and changes in economic, regulatory, or competitive conditions or the Company’s planned business. To satisfy its capital requirements, the Company may seek to raise funds in the public or private capital markets. The Company may seek additional funding through corporate collaborations and other financing vehicles. There can be no assurance that any such funding will be available to the Company, or if available, that it will be available on acceptable terms. If adequate funds are not available, the Company may be required to curtail significantly one or more of its research or development programs or it may be required to obtain funds through arrangements with future collaborative partners or others that may require the Company to relinquish rights to some or all of its technologies or products under development. If the Company is successful in obtaining additional financing, the terms of the financing may have the effect of diluting or adversely affecting the holdings or the rights of the holders of Common Stock.

 

 

We have a history of losses.

 

We expect to incur non-capitalized development costs and general and administrative expenses prior to the completion of construction and commencement of operation of our proposed projects. We cannot predict if we will ever achieve profitability and, if we do, we may not be able to sustain or increase our profitability. If we cannot achieve or maintain profitability, we may not be able to continue to absorb the resulting financial losses. If we continue to suffer financial losses, our business may be jeopardized and our shareholders may lose all of their investment in our shares.

 

The Company’s strategies for development of the business might not be successful.

 

The Company is currently evaluating potential development strategies for its business. It may take several years, if ever, for the Company to achieve cumulative positive cash flow. The Company could experience significant difficulties in executing its business plan, including: inability to successfully implement the Company’s business plan; changes in market conditions; inability to obtain necessary financing; delays in completion of the Company’s projects or their underlying technologies; inaccurate cost estimates; changes in government or political reform; or the Company may not benefit from the proposed projects as the Company expected. The Company’s inability to develop and market the Company’s business successfully and to generate positive cash flows from these operations in a timely manner would have a material adverse effect on the Company’s ability to meet the Company’s working capital requirements.

 

We expect to rely upon strategic relationships in order to execute our business plan and the Company may not be able to consummate the strategic relationships necessary to execute its business plan.

 

The Company plans to enter into and rely on strategic relationships with other parties, in particular to acquire rights necessary to develop and build proposed projects and to develop and build such projects. These strategic relationships could include licensing agreements, partnerships, joint ventures, or even business combinations. The Company believes that these relationships will be particularly important to the Company’s future growth and success due to the size and resources of the Company and the resources necessary to complete the Company’s proposed projects. The Company may, however, not be able to successfully identify potential strategic relationships. Even if the Company does identify one or more potentially beneficial strategic relationships, it may not be able to consummate these relationships on favorable terms or at all, obtain the benefits it anticipates from such relationships or maintain such relationships. In addition, the dynamics of the Company’s relationships with possible strategic partners may require the Company to incur expenses or undertake activities it would not otherwise be inclined to undertake in order to fulfill the Company’s obligations to these partners or maintain the Company’s relationships.

 

To the extent the Company consummates strategic relationships; it may become reliant on the performance of independent third parties under such relationships. Moreover, certain potentially critical strategic relationships are only in the early stages of discussion and have not been officially agreed to and formalized. If strategic relationships are not identified, established or maintained, or are established or maintained on terms that become unfavorable, the Company’s business prospects may be limited, which could have a negative impact on the Company’s ability to execute the Company’s business plan, diminish the Company’s ability to conduct the Company’s operations and/or materially and adversely affect the Company’s business and financial results.

 

Project development or construction activities may not be successful and proposed projects may not receive required permits or construction may not proceed as planned.

 

The development and construction of our proposed projects will involve numerous risks. We may be required to spend significant sums for preliminary engineering, permitting, legal, and other expenses before we can determine whether a project is feasible, economically attractive or capable of being built. Success in developing a particular project is contingent upon, among other things: (i) negotiation of satisfactory engineering, procurement and construction agreements; (ii) receipt of required governmental permits and approvals, including the right to interconnect to the electric grid on economically acceptable terms; (iii) payment of interconnection and other deposits (some of which may be non-refundable); (iv) obtaining construction financing; and (v) timely implementation and satisfactory completion of construction.

 

Successful completion of a particular project may be adversely affected by numerous factors, including: (i) delays in obtaining required governmental permits and approvals with acceptable conditions; (ii) uncertainties relating to land costs for projects on land subject to Bureau of Land Management procedures; (iii) unforeseen engineering problems; (iv) construction delays and contractor performance shortfalls; (v) work stoppages; (vi) cost over-runs; (vii) equipment and materials supply; (viii) adverse weather conditions; and (ix) environmental and geological conditions.

 

 

The estimates and projections contained in this Annual Report may not be realized.

 

Any estimates or projections in this Annual Report have been prepared on the basis of assumptions and hypotheses, which the Company believes to be reasonable. However, no assurance can be given that the potential benefits described in this Annual Report will prove to be available. Such assumptions are highly speculative and, while based on management’s best estimates of projected sales levels, operational costs, consumer preferences, and the Company’s general economic and competitive conditions in the industry, there can be no assurance that the Company will operate profitably or remain solvent. To date, the Company has not operated profitably and has a history of losses. If the Company’s plans prove unsuccessful, investors could lose all or part of their investment. There can be no assurance that the Company will be able to generate any revenue or profits.

 

Our business is subject to significant government regulation and, as a result, changes to such regulations may adversely affect our business.

 

Although independent and small power producers may generate electricity and engage in wholesale sales of energy without being subject to the full panoply of state and/or provincial and federal regulation to the same extent as a public utility company, our planned operations will nonetheless be subject to changes in government regulatory requirements, such as regulations related to the environment, zoning and permitting, financial incentives, taxation, competition, pricing, and FERC and state PUC regulations on competition. The operation of our proposed projects will be subject to regulation by various U.S. government agencies at the federal, state and municipal level. There is always the risk of change in government policies and laws, including but not limited to laws and regulations relating to income, capital, sales, corporate or local taxes, and the removal of tax incentives. Changes in these regulations could have a negative impact on our potential profitability. Laws and tax policies may change and such changes may be favorable or unfavorable to the Company, which may result in the cancellation of proposed projects or reduce anticipated revenues and cash flow.

 

We may be unable to acquire or lease land and/or obtain the approvals, licenses and permits necessary to build and operate our proposed projects in a timely and cost effective manner, and regulatory agencies, local communities or labor unions may delay, prevent or increase the cost of construction and operation of our proposed projects.

 

In order to construct and operate our proposed projects, we need to acquire or lease land and obtain all necessary local, county, state and federal approvals, licenses and permits. We may be unable to acquire the land or lease interests needed, may not receive or retain the requisite approvals, permits and licenses or may encounter other problems which could delay or prevent us from successfully constructing and operating proposed projects.

 

Proposed projects may be located on or require access through public lands administered by federal and state agencies pursuant to competitive public leasing and right-of-way procedures and processes. The authorization for the use, construction and operation of our proposed projects and associated transmission facilities on federal, state and private lands will also require the assessment and evaluation of mineral rights, private rights-of-way and other easements; environmental, agricultural, cultural, recreational and aesthetic impacts; and the likely mitigation of adverse impacts to these and other resources and uses. The inability to obtain the required permits and, potentially, excessive delay in obtaining such permits due, for example, to litigation, could prevent us from successfully constructing and operating our proposed projects. Moreover, project approvals subject to project modifications and conditions, including mitigation requirements and costs, could affect the financial success of our proposed projects.

 

Our ability to manage our growth successfully is crucial to our future.

 

We are subject to a variety of risks associated with a growing business. Our ability to operate successfully in the future depends upon our ability to finance, develop, and construct future renewable energy projects, implement and improve the administration of financial and operating systems and controls, expand our technical capabilities and manage our relationships with landowners and contractors. Our failure to manage growth effectively could have a material adverse effect on our business or results of operations.

 

Notwithstanding the Recovery Act and other regulatory incentives, we may not be able to finance the development or the construction costs of building our planned projects.

 

We do not have sufficient funds from the cash flow of our operations to fully finance the development or the construction costs of building our proposed projects. Additional funds will be required to complete the development and construction of our proposed projects, to find and carry out the development of properties, and to pay the general and administrative costs of operating our business. Additional financing may not be available on acceptable terms, if at all. If we are unable to raise additional funds when needed, we may be required to delay development and construction of our proposed projects, reduce the scope of our proposed projects, and/or eliminate or sell some or all of our development projects, if any.

 

 

We may not be able to obtain access to the transmission lines necessary to deliver the power we plan to produce and sell.

 

We will depend on access to transmission facilities so that we may deliver power to purchasers. If existing transmission facilities do not have available transmission capacity, we would be required to pay for the upgrade of existing transmission facilities or to construct new ones. There can be no assurance that we will be able to secure access to transmission facilities at a reasonable cost, or at all. As a result, expected profitability on a proposed project may be lower than anticipated or, if we have no access to electricity transmission facilities, we may not be able to fulfill our obligations to deliver power or to construct the project or we may be required to pay liquidated damages.

 

Changes in interest rates and debt covenants and increases in turbine and generator prices and construction costs may result in our proposed projects not being economically feasible.

 

Increases in interest rates and changes in debt covenants may reduce the amounts that we can borrow, reduce the cash flow, if any, generated by our proposed projects, and increase the equity required to complete the construction of our proposed projects. The cost of wind turbines, generators and construction costs have increased significantly over the last four years. Further increases may increase the cost of our proposed projects to the point that such projects are not feasible given the prices utilities are willing to pay. There can be no assurance that we will be able to negotiate power purchase agreements with sufficiently profitable electricity prices in the future.

 

We may not be able to secure power purchase agreements.

 

We may not be able to secure power purchase agreements for our proposed projects. In the event that we do secure power purchase agreements, if we fail to construct our proposed projects in a timely manner, we may be in breach of our power purchase agreements and such agreements may be terminated.

 

The operation of our proposed projects may be subject to equipment failure.

 

After the construction of our proposed projects, the electricity produced may be lower than anticipated because of equipment malfunction. Unscheduled maintenance can result in lower electricity production for several months or possibly longer depending on the nature of the outage, and correspondingly, in lower revenues.

 

Changes in weather patterns may affect our ability to operate our proposed projects.

 

Meteorological data we collect during the development phase of a proposed project may differ from actual results achieved after the project is erected. While long-term precipitation patterns have not varied significantly, short-term patterns, either on a seasonal or on a year-to-year basis may vary substantially. These variations may result in lower revenues and higher operating losses.

 

Environmental damage on our properties may cause us to incur significant financial expenses.

 

Environmental damage may result from the development and operation of our proposed projects. The construction of our proposed initial Downdraft Tower involves, among other things, land excavation and the installation of concrete foundations. Equipment can be a source of environmental concern, including noise pollution, damage to the soil as a result of oil spillage, and peril to certain migratory birds and animals that live, feed on, fly over, or cross the property. In addition, environmental regulators may impose restrictions on our operations, which would limit our ability to obtain the appropriate zoning or conditional use permits for our project. We may also be assessed significant financial penalties for any environmental damage caused on properties that are leased, and we may be unable to sell properties that are owned. Financial losses and liabilities that may result from environmental damage could affect our ability to continue to do business.

 

Larger developers have greater resources and expertise in developing and constructing renewable energy projects.

 

We face significant competition from large power project developers, including electric utilities and large independent power producers that have greater project development, construction, financial, human resources, marketing and management capabilities than the Company. They have a track record of completing projects and may be able to acquire funding more easily to develop and construct projects. They have also established relationships with energy utilities, transmission companies, turbine suppliers, and plant contractors that may make our access to such parties more difficult.

 

 

Renewable energy must compete with traditional fossil fuel sources.

 

In addition to competition from other industry participants, we face competition from fossil fuel sources such as natural gas and coal, and other renewable energy sources such as solar, traditional wind, hydro and geothermal. The competition depends on the resources available within the specific markets. Although the cost to produce clean, reliable, renewable energy is becoming more competitive with traditional fossil fuel sources, it generally remains more expensive to produce, and the reliability of its supply is less consistent than traditional fossil fuel. However, deregulation, legislative mandates for renewable energy, and consumer preference for environmentally more benign energy sources are becoming important factors in increasing the development of alternative energy projects.

 

The wind energy industry in California is highly competitive since wind plays an integral role in the electricity portfolio in California.

 

The Company is investigating the feasibility of locating a Downdraft Tower in California. Since wind plays an integral role in the electricity portfolio in California and wind energy requires a significant amount of land resource, the wind energy industry in California is highly competitive. Wind developers compete for leased and owned land with favorable wind characteristics, limited supply of turbines and contractors, and for purchasers and available transmission capacity. There is no guarantee that we will be able to acquire the significant land resources needed to develop projects in California.

 

Our ability to hire and retain qualified personnel and contractors will be an important factor in the success of our business. Our failure to hire and retain qualified personnel may result in our inability to manage and implement our plans for expansion and growth.

 

Competition for qualified personnel in the renewable energy industry is significant. To manage growth effectively, we must continue to implement and improve our management systems and to recruit and train new personnel. We may not be able to continue to attract and retain the qualified personnel necessary to carry on our business. If we are unable to retain or hire additional qualified personnel as required, we may not be able to adequately manage and implement our plans for expansion and growth.

 

The market in which we operate is rapidly evolving and we may not be able to maintain our profitability.

 

As a result of the emerging nature of the markets in which we plan to compete and the rapidly evolving nature of our industry, it is particularly difficult for us to forecast our revenues or earnings accurately. Our current and future expense levels are based largely on our investment plans and estimates of future revenues and are, to a large extent, fixed. We may not be able to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in revenues relative to our planned expenditures would have an immediate adverse effect on our business, results of operations and financial condition.

 

We depend on key personnel, the loss of which could have a material adverse effect on us.

 

Our performance depends substantially on the continued services and on the performance of our senior management and other key personnel. Our ability to retain and motivate these and other officers and employees is fundamental to our performance. The unexpected loss of services of one or more of these individuals could have a material adverse effect on us. We are not protected by a material amount of key-person or similar life insurance covering our executive officers and other directors. We have entered into employment agreements with our executive officers, but the non-compete period with respect to certain executive officers could, in some circumstances in the event of their termination of employment with the Company, end prior to the employment term set forth in their employment agreements.

 

Certain legal proceedings and regulatory matters could adversely impact our results of operations.

 

We may be subject from time to time to various claims involving alleged breach of contract claims, intellectual property and other related claims, and other litigations. Certain of these lawsuits and claims, if decided adversely to us or settled by us, could result in material liability to the Company or have a negative impact on the Company’s reputation or relations with its employees, customers, licensees or other third parties. In addition, regardless of the outcome of any litigation or regulatory proceedings, such proceedings could result in substantial costs and may require that the Company devotes substantial time and resources to defend itself. Further, changes in governmental regulations in the U.S. could have an adverse impact on our results of operations.

 

 

Our results may be adversely affected by the impact that disruptions in the credit and financial markets have on our customers and the energy industry.

 

Beginning in late 2008 and continuing throughout 2009, energy and utility companies faced difficult conditions as a result of significant disruptions in the global economy, the repricing of credit risk and the deterioration of the financial markets. Continued volatility and further deterioration in the credit markets may reduce our access to financing. These events could negatively impact our operations and financial condition and our ability to raise the additional capital necessary to finance our operations.

 

The effects of the recent global economic crisis may impact the Company’s business, operating results, or financial condition.

 

The recent global economic crisis has caused disruptions and extreme volatility in global financial markets and increased rates of default and bankruptcy, and has impacted levels of spending. These macroeconomic developments could negatively affect the Company’s business, operating results, or financial condition in a number of ways. For example, potential clients may delay or decrease spending with the Company or may not pay the Company.

 

The Company’s insurance coverage may not be adequate.

 

If the Company was held liable for amounts exceeding the limits of its insurance coverage in place at any given time or for claims outside the scope of that coverage, its business, results of operations and financial conditions could be materially and adversely affected.

 

Our business is subject to extensive governmental regulation that could reduce our profitability, limit our growth, or increase competition.

 

Our planned businesses are subject to extensive federal, state and foreign governmental regulation and supervision, which could reduce our potential profitability or limit our potential growth by increasing the costs of regulatory compliance, limiting or restricting the products or services we plan to sell or the methods by which we plan to sell our products and services, or subjecting our businesses to the possibility of regulatory actions or proceedings.

 

In all jurisdictions the applicable laws and regulations are subject to amendment or interpretation by regulatory authorities. Generally, such authorities are vested with relatively broad discretion to grant, renew and revoke licenses and approvals and to implement regulations. Accordingly, we may be precluded or temporarily suspended from carrying on some or all of our planned activities or otherwise fined or penalized in a given jurisdiction. No assurances can be given that our business will be allowed to be, or continue to be, conducted in any given jurisdiction as we plan.

 

Competition resulting from these developments could cause the supply of, and demand for, our planned products and services to change, which could adversely affect our results of operations and financial condition.

 

Our planned operations will expose us to various international risks that could adversely affect our business.

 

We are seeking to reach agreements for the provision of key aspects of our business with foreign operators, specifically in Mexico. Accordingly, we may become subject to legal, economic and market risks associated with operating in foreign countries, including:

 

	·	the general economic and political conditions existing in those countries;
	·	devaluations and fluctuations in currency exchange rates;
	·	imposition of limitations on conversion of foreign currencies or remittance of dividends and other payments by foreign subsidiaries;
	·	imposition or increase of withholding and other taxes on remittances and other payments by subsidiaries;
	·	hyperinflation in certain foreign countries;
	·	imposition or increase of investment and other restrictions by foreign governments;
	·	longer payment cycles;
	·	greater difficulties in accounts receivable collection; and
	·	the requirement of complying with a wide variety of foreign laws.

 

 

 

Our ability to conduct business in foreign countries may be affected by legal, regulatory, political and economic risks.

 

Our ability to conduct business in foreign countries is subject to risks associated with international operations. These include:

 

	·	the burdens of complying with a variety of foreign laws and regulations;
	·	unexpected changes in regulatory requirements; and
	·	new tariffs or other barriers in some international markets.

 

We are also subject to general political and economic risks in connection with our international operations, including:

 

	·	political instability and terrorist attacks;
	·	changes in diplomatic and trade relationships; and
	·	general economic fluctuations in specific countries or markets.

 

We cannot predict whether quotas, duties, taxes, or other similar restrictions will be imposed by the U.S. or foreign countries upon our business in the future, or what effect any of these actions would have on our business, financial condition or results of operations. Changes in regulatory, geopolitical, social or economic policies and other factors may have a material adverse effect on our business in the future or may require us to significantly modify our current business practices.

 

The occurrence of natural or man-made disasters could adversely affect our financial condition and results of operations.

 

We are exposed to various risks arising out of natural disasters, including earthquakes, hurricanes, fires, floods and tornadoes, and pandemic health events such as H1N1 influenza, as well as man-made disasters, including acts of terrorism and military actions. The continued threat of terrorism and ongoing military actions may cause significant volatility in global financial markets, and a natural or man-made disaster could trigger an economic downturn in the areas directly or indirectly affected by the disaster. These consequences could, among other things, result in a decline in business and increased claims from those areas. Disasters also could disrupt public and private infrastructure, including communications and financial services, which could disrupt our normal business operations.

 

Our inability to successfully recover should we experience a disaster or other business continuity problem could cause material financial loss, loss of human capital, regulatory actions, reputational harm or legal liability.

 

Should we experience a local or regional disaster or other business continuity problem, such as an earthquake, hurricane, terrorist attack, pandemic, security breach, power loss, telecommunications failure or other natural or man-made disaster, our continued success will depend, in part, on the availability of our personnel, our office facilities, and the proper functioning of our computer, telecommunication and other related systems and operations.

 

Our operations are dependent upon our ability to protect our technology infrastructure against damage from business continuity events that could have a significant disruptive effect on our operations. We could potentially lose operation of our projects or experience material adverse interruptions to our operations or delivery of services to our clients in a disaster recovery scenario.

 

We plan to regularly assess and take steps to improve upon our existing business continuity plans and key management succession. However, a disaster on a significant scale or affecting certain of our key operating areas within or across regions, or our inability to successfully recover should we experience a disaster or other business continuity problem, could materially interrupt our business operations and cause material financial loss, loss of human capital, regulatory actions, reputational harm, damaged client relationships or legal liability.

 

Assertions by a third party that the Company infringes its intellectual property could result in costly and time-consuming litigation, expensive licenses or the inability to operate as planned.

 

The energy and technology industries are characterized by the existence of a large number of patents, copyrights, trademarks and trade secrets and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. There is a possibility of intellectual property rights claims against the Company. The Company’s technologies may not be able to withstand third-party claims or rights restricting their use. Companies, organizations or individuals, including the Company’s competitors, may hold or obtain patents or other proprietary rights that would prevent, limit or interfere with the Company’s ability to provide the Company’s services or develop new products or services, which could make it more difficult for the Company to operate the Company’s business. Any litigation or claims, whether or not valid, could be time-consuming, expensive to litigate or settle and could divert the Company’s managements’ attention and financial resources. If the Company is determined to have infringed upon a third party’s intellectual property rights, the Company may be required to pay substantial damages, stop using technology found to be in violation of a third party’s rights or seek to obtain a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms, or at all, and may significantly increase the Company’s operating expenses or may require the Company to restrict the Company’s business activities in one or more respects.

 

 

 

The Company may also be required to develop alternative non-infringing technology that could require significant effort and expense or may not be feasible. In the event of a successful claim of infringement against the Company and the Company’s failure or inability to obtain a license to the infringed technology, the Company’s business and results of operations could be harmed.

 

The Company’s business will be adversely affected if the Company is unable to protect its intellectual property rights from unauthorized use or infringement by third-parties.

 

The Company intends to rely on a combination of trademark, patent, trade secret and copyright law, license agreements and contractual restrictions, including confidentiality agreements, invention assignment agreements and non-disclosure agreements with employees, contractors and suppliers, to protect the Company’s proprietary rights, all of which provide only limited protection. The Company believes its intellectual property rights are valuable, and any inability to protect them could reduce the value of the Company’s products, services and brand. Various events outside of the Company’s control pose a threat to the Company’s intellectual property rights as well as to the Company’s products and services. The efforts the Company has taken to protect its proprietary rights may not be sufficient or effective, may not be enforceable or may be capable of being effectively circumvented. Any significant impairment of the Company’s intellectual property rights could harm the Company’s business or the Company’s ability to compete. Also, protecting the Company’s intellectual property rights is costly and time consuming. The Company also seeks to maintain certain intellectual property as trade secrets. The secrecy could be compromised by outside parties, or by the Company’s employees, which would cause the Company to lose the competitive advantage resulting from these trade secrets.

 

Risks Related to Our Securities

 

There is little current trading of our shares. Our stock price is likely to be highly volatile.

 

Although prices for our shares of Common Stock are quoted on the OTCBB, there is little current trading and no assurance can be given that an active public trading market will develop or, if developed, that it will be sustained. The OTCBB is generally regarded as a less efficient and less prestigious trading market than other national markets. There is no assurance if or when our Common Stock will be quoted on another more prestigious exchange or market. The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:

 

	·	changes in the communications technology industry and markets;
	·	volume and timing of subscriptions from major customers;
	·	competitive pricing pressures;
	·	our ability to obtain working capital financing;
	·	technological innovations or new competitors in our market;
	·	additions or departures of key personnel;
	·	our ability to execute our business plan;
	·	operating results that fall below expectations;
	·	loss of any strategic relationship;
	·	industry or regulatory developments;
	·	economic and other external factors; and
	·	period-to-period fluctuations in our financial results.

 

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock and for some time there will likely be a thin trading market for the stock, which causes trades of small blocks of stock to have a significant impact on the stock price.

 

Because our Common Stock is likely to be considered a “penny stock,” our trading will be subject to regulatory restrictions.

 

Our Common Stock is currently, and in the near future will likely continue to be, considered a “penny stock.” The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks.” Penny stocks generally are 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 is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock market. The broker-dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and any salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure and other requirements may adversely affect the trading activity in the secondary market for our Common Stock.

 

 

We have not paid dividends in the past and do not expect to pay dividends for the foreseeable future, and any return on investment may be limited to potential future appreciation on the value of our Common Stock.

We currently intend to retain any future earnings to support the development and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. Our payment of any future dividends will be at the discretion of our Board of Directors after taking into account various factors, including without limitation, our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. To the extent we do not pay dividends, our stock may be less valuable because a return on investment will only occur if and to the extent our stock price appreciates, which may never occur. In addition, shareholders must rely on sales of their Common Stock after price appreciation as the only way to realize their investment, and if the price of our stock does not appreciate, then there will be no return on investment. Shareholders seeking cash dividends should not purchase our Common Stock.

 

Our officers, directors and principal stockholders can exert significant influence over us and may make decisions that are not in the best interests of all stockholders.

 

Our officers, directors and principal stockholders (greater than 5% stockholders) collectively own a majority of our outstanding Common Stock. As a result of such ownership, these stockholders will be able to affect the outcome of, or exert significant influence over, all matters requiring stockholder approval, including the election and removal of directors and any change in control. In particular, this concentration of ownership of our Common Stock could have the effect of delaying or preventing a change of control of us or otherwise discouraging or preventing a potential acquirer from attempting to obtain control of us. This, in turn, could have a negative effect on the market price of our Common Stock. It could also prevent our stockholders from realizing a premium over the market prices for their shares of Common Stock.

 

Moreover, the interests of this concentration of ownership may not always coincide with our interests or the interests of other stockholders, and accordingly, they could cause us to enter into transactions or agreements that we would not otherwise consider.

 

Anti-takeover provisions may limit the ability of another party to acquire us, which could cause our stock price to decline.

 

Our Articles of Incorporation, as amended, our Bylaws and Nevada law contain provisions that could discourage, delay or prevent a third party from acquiring us, even if doing so may be beneficial to our stockholders. In addition, these provisions could limit the price investors would be willing to pay in the future for shares of our Common Stock.

 

USE OF PROCEEDS

 

We will not receive any proceeds from the sale of shares by the selling stockholder. However, we will receive proceeds from the exercise of the Warrants. The proceeds received thereof will be used for general corporate and working capital purposes and acquisitions or assets, businesses or operations or for other purposes that the Board of Directors, in its good faith deem to be in the best interest of the Company.

 

DETERMINATION OF OFFERING PRICE

 

The selling security shareholder will offer common stock at the prevailing market prices or privately negotiated price.

 

The offering price of our common stock does not necessarily bear any relationship to our book value, assets, past operating results, financial condition or any other established criteria of value. The facts considered in determining the offering price were our financial condition and prospects, our limited operating history and the general condition of the securities market.

 

In addition, there is no assurance that our common stock will trade at market prices in excess of the offering price as prices for common stock in any public market will be determined in the marketplace and may be influenced by many factors, including the depth and liquidity.

 

 

 

SELLING SECURITY HOLDERS

 

125,000,000 shares of common stock that are issuable to selling shareholders pursuant to transactions exempt from registration under the Securities Act. All of the common stock offered by this prospectus are being offered by the selling shareholders for their own accounts.

 

The following table sets forth certain information regarding the selling shareholders and the shares offered by them in this prospectus. Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, securities that are currently convertible or exercisable into shares of our common stock, or convertible or exercisable into shares of our common stock within 60 days of the date hereof are deemed outstanding. Such shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Except as indicated in the footnotes to the following table, each stockholder named in the table has sole voting and investment power with respect to the shares set forth opposite such stockholder’s name. Each selling shareholder’s percentage of ownership in the following table is based upon 524,147,555 shares of common stock outstanding as of September 12, 2014.

 

The selling shareholder has not held a position as an officer or director of the Company, nor has any material relationship of any kind with us or any of our affiliates. All information with respect to share ownership has been furnished by the selling shareholders. The common stock being offered is being registered to permit secondary trading of the shares and the selling shareholders may offer all or part of the common stock owned for resale from time to time. In addition, the selling shareholder does not have any family relationships with our officers, directors or controlling shareholders. Furthermore, the selling shareholder is not a registered broker-dealer or an affiliate of a registered broker-dealer. The term “selling shareholders” also includes any transferees, pledges, donees, or other successors in interest to the selling shareholders named in the table below.

 

Shares of

Shares of

Maximum

Common

Common Stock

Number of

Stock

Beneficially

Shares of

Beneficially

Percent

Owned prior to

Common Stock

Owned after

Ownership

Name

Offering

to be Offered

Offering

after Offering

JDF Capital Inc.  (1)

0

125,000,000

0

0

%

 

(1)	John Fierro has sole the voting and dispositive power over the shares owned by JDF Capital Inc.

 

PLAN OF DISTRIBUTION

 

The selling stockholder may, from time to time, sell any or all of its shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholder may use any one or more of the following methods when selling shares:

 

	·	ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
	·	block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction
	·	purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
	·	an exchange distribution in accordance with the rules of the applicable exchange;
	·	privately negotiated transactions;
	·	short sales after this registration statement becomes effective;
	·	broker-dealers may agree with the selling stockholder to sell a specified number of such shares at a stipulated price per share;
	·	through the writing of options on the shares;
	·	a combination of any such methods of sale; and
	·	any other method permitted pursuant to applicable law.

 

 

 

The selling stockholder may also sell the shares directly to market makers acting as principals and/or broker-dealers acting as agents for themselves or their customers. Such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the selling stockholder and/or the purchasers of shares for whom such broker-dealers may act as agents or to whom they sell as principal or both, which compensation as to a particular broker-dealer might be in excess of customary commissions. Market makers and block purchasers purchasing the shares will do so for their own account and at their own risk. It is possible that a selling stockholder will attempt to sell shares of common stock in block transactions to market makers or other purchasers at a price per share which may be below the then market price. The selling stockholder cannot assure that all or any of the shares offered in this prospectus will be issued to, or sold by, the selling stockholder. The selling stockholder and any brokers, dealers or agents, upon effecting the sale of any of the shares offered in this prospectus, are “underwriters” as that term is defined under the Securities Act, or the Exchange Act, or the rules and regulations under such acts. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.

 

Discounts, concessions, commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by the selling stockholder. The selling stockholder may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act.

 

The Company has agreed to pay all fees and expenses incident to the registration of the shares of common stock. JDF intends to sell/distribute the shares of common stock that they acquire from the Company in the open market.

 

The selling stockholder shall acquire the securities offered hereby in the ordinary course of business and has advised us that it has not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of its shares of common stock, nor is there an underwriter or coordinating broker acting in connection with a proposed sale of shares of common stock by any selling stockholder. If we are notified by any selling stockholder that any material arrangement has been entered into with a broker-dealer for the sale of shares of common stock, if required, we will file a supplement to this prospectus.

 

If the selling stockholder uses this prospectus for any sale of the shares of common stock, it will be subject to the prospectus delivery requirements of the Securities Act.

 

Regulation M

 

The anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of our common stock and activities of the selling stockholder.

 

During such time as it may be engaged in a distribution of any of the shares we are registering by this registration statement, JDF is required to comply with Regulation M. In general, Regulation M precludes any selling security holder, any affiliated purchasers and any broker-dealer or other person who participates in a distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase, any security which is the subject of the distribution until the entire distribution is complete. Regulation M defines a "distribution" as an offering of securities that is distinguished from ordinary trading activities by the magnitude of the offering and the presence of special selling efforts and selling methods. Regulation M also defines a "distribution participant" as an underwriter, prospective underwriter, broker, dealer, or other person who has agreed to participate or who is participating in a distribution.

 

Regulation M under the Exchange Act prohibits, with certain exceptions, participants in a distribution from bidding for or purchasing, for an account in which the participant has a beneficial interest, any of the securities that are the subject of the distribution. Regulation M also governs bids and purchases made in order to stabilize the price of a security in connection with a distribution of the security. We have informed JDF that the anti-manipulation provisions of Regulation M may apply to the sales of their shares offered by this prospectus, and we have also advised JDF of the requirements for delivery of this prospectus in connection with any sales of the common stock offered by this prospectus.

 

 

DESCRIPTION OF BUSINESS

 

Corporate History

 

On December 29, 2010, the Company completed a reverse merger (the “Merger”) with Solar Wind Energy, Inc. (f/k/a Clean Wind Energy, Inc.), a corporation formed under the laws of the State of Delaware on July 26, 2010 (“Solar Wind - Subsidiary”). In connection with the Merger, the Company issued to the stockholders of Solar Wind - Subsidiary in exchange for their Solar Wind - Subsidiary Common Stock, the right to receive an aggregate of 300,000,000 shares of the Company’s Common Stock. As a result of the reverse merger, Solar Wind - Subsidiary is now a wholly-owned subsidiary of the Company.

 

For accounting purposes, Solar Wind - Subsidiary was the surviving entity. The transaction was accounted for as a recapitalization of Solar Wind - Subsidiary pursuant to which Solar Wind - Subsidiary was treated as the surviving and continuing entity although the Company is the legal acquirer rather than a reverse acquisition. Accordingly, the Company’s historical financial statements are those of Solar Wind - Subsidiary immediately following the consummation of the reverse merger. Also, going forward the business operations of Solar Wind - Subsidiary will become the Company’s principal business operations.

 

The Company was incorporated under the laws of the State of Idaho on January 22, 1962, as Superior Mines Company. In 1964, the Company’s name was changed to Superior Silver Mines, Inc. On December 27, 2010, the Company reincorporated as a Nevada corporation. Prior to the Merger, the Company had been dormant for a number of years and had no known mineral reserves. On January 21, 2011, the Company changed its name from Superior Silver Mines, Inc. to Clean Wind Energy Tower, Inc. and on March 11, 2013, changed its name to Solar Wind Energy Tower Inc. along with its wholly-owned subsidiary, a corporation formed under the laws of the State of Delaware, which changed its name from Clean Wind Energy, Inc. to Solar Wind Energy, Inc. In addition, effective January 24, 2011, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from SSVM.OB to CWET.OB and on March 11, 2013, in conjunction with our name change, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from CWET.OB to SWET.OB.

 

The Company’s executive offices are located at 1997 Annapolis Exchange Parkway, Suite 300, Annapolis, Maryland 21401.

 

Overview

 

Our Company’s core objective and focus is to become a leading provider of clean efficient green energy to the world communities at a reasonable cost without the destructive residuals of fossil fuel, while continuing to generate innovative technological solutions for today and tomorrow’s electrical power needs.

 

Solar Wind has assembled a team of experienced business professionals, engineering and scientific consultants with the proven ability to bring the idea to market. Solar Wind has filed and been issued patents that the Company believes will further enhance this potentially revolutionary technology. Solar Wind is based in Annapolis, MD, and is traded on the OTCBB under the symbol ‘SWET’.

 

Solar Wind has, designed, engineered, developed and is preparing to construct large “Solar Wind Downdraft Towers” that use benevolent, non-toxic natural elements to generate electricity economically by integrating and synthesizing numerous proven as well as emerging technologies. In addition to constructing Solar Wind Downdraft Towers in the United States and abroad, the Company intends to establish partnerships at home and abroad to propagate these systems and meet increasing global demand for electricity.

 

A Bold New Energy Solution

 

The United States and other nations are aggressively pursuing energy independence with clean, sustainable energy solutions. Solar Wind offers a bold new approach to overcome the current limitations of other known alternative energy sources. The Solar Wind Downdraft Tower combines dry air heated by the solar rays of the sun with water added as a catalyst to create a powerful natural downdraft.

 

Hybrid Solar/Wind Technology

 

We view ourselves as a hybrid solar/wind technology because the simplicity of our solution is the harnessing of the natural power of a downdraft created when water is introduced to hot dry air within the confines of our tower structure.

 

 

The Solar Wind Downdraft Tower

 

	·	Avoids the adverse effects associated with fossil and nuclear fuels.
	·	Is capable of Operating 24/7 and can outperform solar collectors that produce only when the sun shines in the daytime and wind turbines that produce only when the wind blows
	·	Has the capability of being operated with virtually no carbon footprint, fuel consumption or waste production.
	·	Has the potential to generate clean, cost effective and efficient electrical power without the damaging effects caused by using fossil or nuclear fuels, and other know alternative power sources.
	·	Uses benevolent non-toxic natural elements to generate electricity.

 

Technology

 

Innovative Renewable Energy Technology

 

The Solar Wind Downdraft Tower is a hollow cylinder reaching skyward into the hot dry atmosphere heated by the solar rays of the sun. The water introduced by the injection system evaporates and is absorbed by the hot dry air which has been heated by the solar rays of the sun. The air becomes cooler, denser and heavier than the outside warmer air and falls through the cylinder at speeds up to and in excess of 50 mph and is diverted into wind tunnels surrounding the base of the Tower where turbines inside the tunnels power generators to produce electricity.

 

In geographic areas where atmospheric conditions are conducive, the exterior of the Solar Wind Downdraft Tower may be constructed with vertical “wind vanes” that capture the prevailing wind and channel it to produce supplemental electrical power. This dual renewable energy resource enhances the capability and productivity of the Solar Wind Energy system.

 

Physical Principles   Evaporating water to create or diminish energy (for cooling) is a well-understood physical principle. Evaporative coolers are used not just throughout the United States Southwest region (hot & arid), but widely in the power industry to cool gas, coal and nuclear power plants.   Similarly, cooling towers adorn the roofs of countless buildings in large cities, providing affordable energy. Airline pilots are very familiar with downdrafts and diligently avoid downdrafts associated with thunderstorms, especially when near the ground, where downdrafts can force a 200 ton airplane dangerously downward.   Solar Wind’s Energy Tower uses the same fundamental physical principle of evaporative cooling which creates a downdraft. Cool, moist, dense air always falls through hot dry air. What most people are unaware of is that the wind speed in an energy tower can exceed 50mph.   In summary, it is clear that Solar Wind’s Energy Tower creates and harnesses the downdraft, using widely applied and well-understood physical principles, to produce abundant electricity.

 

 

Abundant, Clean, Affordable Electricity Production

 

The Company has successfully managed to downsize the Tower, reducing capital costs and improving projected financial performance. The Company recently announced the completion of weather data models that confirm that the first Tower height can be lowered from 3,000 feet down to 2,250 feet. This development was made possible by utilizing our proprietary software which can calculate and predict energy production by our Solar Wind Downdraft Towers given local weather data. By feeding the weather data for southwestern Arizona / northern Mexico into the program, the Tower’s height and diameter can be adjusted along with the amount of water added as fuel to create a desired amount of energy. The outcome dictates the optimum size of the Tower’s height and width.

 

Under the most recent design specifications, the first San Luis Tower has a design capacity on an hourly basis, of up to 1250 megawatt hours, gross. Using a 60% capacity factor, the Tower’s potential hourly yield would be 600 megawatt hours from which approximately 18. 5% will be used to power its operations, yielding approximately 500 megawatt hours available for sale to the power grid. Due to lower capacities during winter days, the average daily output for sale to the grid for the entire year is approximately 435 megawatt hours. Currently in California avoided costs are running approximately $0.11 per kilowatt hour. As an independent power producer of clean renewable energy the Company will not be selling power directly to consumers, but rather to the grid.

 

Intellectual Property

 

The Company has filed numerous patent applications with the U.S. Patent and Trademark Office to protect its intellectual property. The Company has been awarded two patents, and currently has two other patent applications which have been designated with a “Notice of Allowance” and is awaiting issuance of the actual patent documents. The Company has judiciously pursued the patent applications that we feel are instrumental to the core development of our technology and project:

 

Patent #8120191 issued 2/21/2012 “Efficient Energy Conversion Devices & Methods

The patent covers a novel hydraulic system capable of maintaining high efficiency hydraulic to electric conversion under a wide variance of wind speeds, as coupled to a plurality of wind turbines in wind tunnels.

 

Patent #8,517,662 B2 issued 8/27/2013 “Atmospheric Energy Extraction Devices & Methods

The patent covers a structure for producing electricity, specifically a Tower capable of adding moisture at the top of the structure to hot-dry air so as to generate a downdraft of wind within the interior of the Tower, vanes coupled to the exterior of the Tower that at least partially define a plurality of elongated pockets to the exterior of the Tower, and flaps located to redirect the incident wind downwards into tunnels to convert wind to electricity.

 

Patent #8,643,204 B2 issued 2/4/2014 “Efficient Energy Conversion Devices and Methods”

This application enhances and broadens previously issued Patent #8120191

 

Patent Application # 13/947,625 date of Notice of Allowance 1/27/2014 (pending)

The patent claims are targeted to represent the advantages of the new Tower structural shape, the configuration of the Tower walls, their composition as well as the wall thicknesses for a given height, along with more efficient construction methodology and enhanced wind force resistance over prior Tower designs.

 

Site Requirements

 

The Company’s planned Downdraft Tower requires very specific site conditions. The location must provide appropriate climate and atmospheric conditions. The site must have access to reliable water sources, either fresh or salt water, in which case desalinization may be required. Additionally, the site should have access to rail service and other logistical ease of access. The Company is investigating the feasibility of locating a Downdraft Tower in Arizona.

 

 

Considerations

 

The Downdraft Tower works best in hot, dry climates, near sea level, and near a reliable water source. Prime production periods are daytime during spring, summer and fall, which closely aligns with electricity demand patterns.

 

The External Wind Capture keeps working 24/7 including cold winter months and at night whenever a wind is blowing - from the surface up to 4,000 feet - where much stronger winds blow far more constantly (at least twice as often as on the surface and at much higher speeds).

 

There are a number of appropriate sites around the globe that are hot, dry, and near water adequate to support numerous Energy Towers that efficiently turn the sun’s energy into electricity.

 

The Distinct Advantages

 

The Company enjoys one major advantage over all other wind energy producers: a constant, high speed downdraft that blows for more than half the year. While ordinary wind turbine farms struggle with 20% to 30% capacity factors and wind speeds that are often useless or marginal (too low or too high), the Company’s Energy Tower can continuously channel 50 mph winds (or higher) into a controlled environment where the vast majority the wind’s energy can be captured to generate electricity.

 

Power industry experts know that when computing wind power, the velocity is cubed (not squared). Thus a 50 mph wind in a Solar Wind turbine will produce more than 15 times as much power as a 20 mph wind striking a conventional turbine.

 

Global Energy Generation Calculator

 

The Company has developed a software based analytical program to determine the energy generation capabilities of its Solar Wind Downdraft Towers based on the climate in geographic locations around the world, and has taken the appropriate steps to protect its intellectual property invention.

 

This essential tool has been under development by the Company for over one year and applies “known” scientific meteorology data of a specific area to the Solar Wind Downdraft Tower’s variables in order to determine and project energy outputs on a daily basis. Advancements in the scientific community over the last decade that predict and pin-point specific weather conditions provided significant insights to the development of this innovative tool.

 

This analytical tool, combined with our proprietary operating systems technology and existing core patents, clearly provides the Company with a unique opportunity to allow global positioning of this alternative solution to the world’s energy needs. The Company can now rapidly respond to a request from virtually any country reasonably suitable to host a project and determine specifically where the Solar Wind Downdraft Tower should be located, the size of the Tower and the amount of electricity it can produce.

 

Development

 

The master development plan for a site requires a series of steps:

 

	·	explore, select, and qualify site;
	·	negotiate and execute land lease (site) and rights of way (water pipeline, transmission line, highway and railway access);
	·	survey and identify any artifacts and cultural resources that may be impacted by site exploration, project construction or operation;
	·	acquire water rights;
	·	determine and design access to and availability of electrical grid, roads, rail transportation, sewer, water, and power for construction and operation;
	·	create project site plan for offices, storage buildings for construction equipment, etc.;
	·	coordinate and provide, to the extent possible, resource carry-over (i.e., buildings and facilities) to the locale after construction;
	·	determine the type and number of jobs created during study, construction and operational phases;
	·	determine the cost of the project (currently estimated at $1.5 billion); and
	·	determine the electricity produced (currently estimated at $450 million annually).

 

 

Business Model

 

The business model of our Company is to create an Energy Compound of Towers to be developed individually with a common water supply and rail/water port for supplies and equipment delivery, and common component assembly plant and labor force. Energy Compounds could actually be developed simultaneously in North America, North Africa (to serve the European grid by piping direct current across the Mediterrean), India and the Middle East. The world market can support all the materials needed and can certainly use the electricity. The cost per kilowatt is similar to that of a typical coal or gas-fired facility. SWET has positioned itself to take advantage of this solution and bring the first project to market, thereby setting the stage for a global “game changing” opportunity.

 

Project Partnering

 

The Company’s business plan involves “partnering” with various entities such as utilities, sovereign nations and independent power producers, to provide the ability to bring this solution to the market as rapidly as possible.

 

Each Solar Wind Downdraft Tower is its own independent project. The Company’s involvement in each project is to facilitate the Tower’s development with its expertise, intellectual property and project management team. The Company will receive development fees, licensing fees, and royalties on power sales from each project and/or ownership interests.

 

Coordinated World Class Expertise

 

The Company is evaluating potential sites for a possible first Tower here in the United States and received key patents to protect its techniques to extract the energy from the Solar Wind Downdraft Tower. Some of the best consultants in the world have been and continue to support the Company’s efforts to bring this first Downdraft Tower to market.

 

The first site is near San Luis, AZ and the Mexico/US border. The weather data has been updated for the first site and final reports accurately calculate the Tower's output capacity 24/7. Those reports now support and validate SWET’s goal to develop its first Tower at the minimum size and design output possible, which preserves cash flow of 2:1 for debt service coverage.

 

First Energy Tower Site in United States

 

The Company recently made a final site selection within the City of San Luis, Arizona for the potential development of its first tower. After a substantial evaluation of multiple sites in the southwestern part of the country over a two and a half year period, including various locations in proximity to San Luis, Arizona, the Company chose the site location that best met all of its required attributes including climate, geography, zoning, as well as a welcoming environment.   It executed an option agreement to purchase a site encompassing over 600 acres of land within the City of San Luis, Arizona, which was later was recorded in Yuma County, Arizona. Wednesday, April 23, 2014, the city unanimously approved a “Development and Protected Development Rights Agreement” with Solar Wind Energy Tower Inc. providing assurance of the necessary local entitlements for development of the first tower in the City of San Luis. The agreement covers a number of items including, but not limited to, land zoning, rights-of-way, utilities and provides that the City of San Luis will guarantee the supply the water to fuel the Tower Project for a minimum of 50 years.

 

 

 

Recently, the government of Sonora, Mexico, has offered to sell the Company (or designated developer) a site complete with all of the entitlements including the necessary water allocation. The Company and the government are investigating the access, and timing required to connect to the Mexican electrical grid. We are also investigating other privately owned sites in the same area with comparable attributes.

 

Customers

 

Energy produced by the Downdraft Tower could provide low cost electricity to the power grid. The Company plans to ultimately build and operate wind energy plants and sell the electricity either through contracts with utilities, which is the traditional method for independent power plants, or directly into the open market or electricity commodities market like a merchant plant similar to many natural gas fired power plants. The Company may also sell the power plants themselves to large customers or utilities and/or operate such plants for customers or utilities.

 

The sale of electricity to power brokers is more profitable than selling directly to the electricity commodities market. If the cost of the marketing infrastructure of selling green energy at a $0.02 per kWh premium is justified as opposed to the wholesale contracting of electricity at a lower price, then the Company plans to market the electricity to green energy brokers. The green power is energy from clean energy production sources like wind energy in which consumers are willing to pay a premium in order to promote clean energy. If the Company chooses to work through power brokers, it believes the potential exists to sell the environmental correct “green” power at a premium price being higher than conventional fuel sources. Power brokers usually receive a premium of $0.015 per kWh above the wholesale price paid on the open market. However, the market is new and subject to uncertainty including price fluctuations.

 

Markets

 

Wind energy experienced a 39% annual growth for the past five years according to the American Wind Energy Association, the industry’s trade organization based in Washington, D.C. Recent national surveys show that approximately 40-70% of the population surveyed indicate a willingness to pay a premium for renewable energy. Although 10% of the respondents say they will participate in such a program, actual participation is estimated at 1%. Currently, more than a dozen utilities have green marketing programs. Public Service Company of Colorado, Central and South West Services Corporation of Texas, and Fort Collins Light and Power Company are leading the effort in wind related green electricity marketing.

 

The Company is investigating the feasibility of locating a Downdraft Tower in California. California has three major regulated investor-owned utilities and many municipal utilities, all of which are required by state law to have renewable sources of generation in their resource portfolios, whether generated or purchased. Arizona utilities have similar requirements. Due to federal regulations requiring that transmission owners provide service on the same terms to all generators requesting service, known as “open access”, independent power producers (which the Company would be under its business model), are able to develop wind energy projects in areas where such resources are most prevalent and sell power to anyone interconnected with the transmission grid in California. California’s transmission grid is operated by a regional transmission organization (“RTO”), the California Independent System Operator (“CAISO”). Other states belong to other RTOs.

 

Competition

 

The Downdraft Tower project requires a large land base and specific conditions. Given these constraints and the increasing focus on renewable energy to offset the environmental problems caused by fossil fuels, the renewable energy industry is highly competitive.

 

In the markets where the Company plans to conduct its business, it will compete with many energy producers including electric utilities and large independent power producers. There is also competition from fossil fuel sources such as natural gas and coal, and other renewable energy sources such as solar, traditional wind, hydro and geothermal. The competition depends on the resources available within the specific markets. Although the cost to produce clean, reliable, renewable energy is becoming more competitive with traditional fossil fuel sources, it generally remains more expensive to produce, and the reliability of its supply is less consistent than traditional fossil fuel. Deregulation and consumer preference are becoming important factors in increasing the development of alternative energy projects.

 

The Company believes that governments and consumers recognize the importance of renewable energy resources in the energy mix, and are facilitating the implementation of wind and other renewable technologies through renewable portfolio standards and revenue and tax incentives.

 

 

Arizona and California are primarily served by large utilities, such as Southern California Edison Company, Pacific Gas & Electric Company, San Diego Gas & Electric Company, Arizona Public Service Company (“Arizona Public Service”) and UNS. All of these companies have non-regulated subsidiaries or sister companies that develop generating facilities. In addition, utilities from other states and countries have established large wind energy generating companies, such as Florida Power & Light Company, enXco, Inc. and PPM Energy, Inc. (now part of a large Spanish renewable company, Iberdrola Renovables, S.A.).

 

According to the Electric Power Research Institute, the past ten years have seen traditional energy costs increase while wind energy costs have declined. The advances in technology, larger-scale and more efficient manufacturing processes, and increased experience in wind turbine operations has contributed substantially to this trend. This cost decline is paralleled with a several hundred fold increase in installed wind energy capacity. As a result, maintenance costs have fallen significantly. Wind energy sources comprise less than 1% of the current electricity generating industry.

 

Anew assessment released by the National Renewable Energy Laboratory in 2010 shows that U.S. wind resources are even larger than previously estimated and potential capacity of the land-based wind resource is more than 10,000 GW, far exceeding the 300 GW required to meet 20% of the nation’s electrical demand with wind in 2030.This figure does not factor the potential of Downdraft Towers. The estimated levelized cost of new generation resources by the Energy Information Administration shows the cost of wind energy is competitive to other conventional means of energy generation. The cumulative capacity-weighted average price of wind power, including the production tax credit, was about 4.4 cents per kilowatt hour in 2009 — a price that competes with fossil fuel-generated electricity.

 

 

Environmental

 

Various parties in the United States and other nations are pursuing clean energy solutions that use efficient and cost- effective renewable resources to serve society while avoiding the adverse effects associated with fossil and nuclear fuels, and also the obvious limitations of solar collectors that work only when the sun shines or wind turbines that work only when the wind blows.

 

The Solar Wind Downdraft Tower has the capability of being operated with virtually no carbon footprint, fuel consumption, or waste production. The technology has the potential to generate clean, cost effective and efficient electrical power without the damaging effects caused by using fossil or nuclear fuels, and other conventional power sources. The Company also believes that increasing emphasis on green technologies and governmental incentives in the energy industry should have a positive long-term effect on the Company's planned business and the wind energy industry in general.

 

 

Numerous federal and state environmental laws can affect the development of renewable energy, such as the California Environmental Quality Act. These laws require that certain studies be conducted to ensure that there are no significant adverse impacts on wildlife, humans and the environment generally. The significant impacts of wind energy projects are on visibility, noise, birds, wildlife habitat and soil erosion. Changes in environmental laws can pose significant expenses on renewable energy development.

 

International treaties and protocols, such as the Kyoto Protocol, have significantly impacted the development and implementation of renewable energy technologies. Certain countries and regions also have established emission trading programs. Under emission trading programs, utilities and factories are permitted to produce a certain level of emissions. If such an entity produces fewer emissions than its allotment, the entity may sell its excess allotment to parties exceeding their emissions allotments. To date, these mechanisms are at an early stage of development within the United States. Credit trading provides the potential for creating additional income for renewable energy producers, rationalizing of electricity prices for utilities and reducing the overall retail price for green power.

 

The Company believes that increasing emphasis on green technologies and governmental incentives in the energy industry should have a positive long-term effect on the Company’s planned business and the wind energy industry in general.

 

Industry Analysis

 

According to the American Wind Energy Association (“AWEA”), wind energy was the world’s fastest growing energy source during most of the 1990s, expanding at annual rates ranging from 25% to 35%. The AWEA estimates the global industry growth rate has averaged 32% over the five years from 2004 through 2008, with a growth rate of 39% in 2009. The U.S. wind industry broke all previous records by installing over 10,000 MW of new wind capacity in 2009. Current installed capacity worldwide at the end of 2009 was 35,086 MW, compared to 25,076 MW at the end of 2008. The major contributing growth factor is the federal stimulus package passed in 2009 that extended a tax credit and provided other investment incentives for alternative energy sources. The U.S. Energy Information Administration attributes 1.9% of total electric generation in the nation to wind power.

 

Not factoring the Company’s planned Downdraft Tower product, World Energy Council expects new wind capacity worldwide to continue to grow. The continued evolution of this technology is evident with the existence of varying wind turbine designs. However, there is division in the wind industry between those who want to capitalize on the emerging respect the business community has for established, mature wind technology, and those who seek new technologies designed to bring about significant cost reductions. The Company chooses to seek new horizons beyond current perception and knowledge by developing new technologies that it believes will be capable of significantly reducing wind energy costs.

 

As wind energy technology gains wider acceptance, competition may increase as large, well-capitalized companies enter the business. Although one or more may be successful, the Company believes that its technological expertise and early entry will provide a degree of competitive protection.

 

Licensing and Regulation

 

In the United States, many state governments have amended their utility regulations and significantly changed certain competition and marketing rules with respect to generation, transmission and distribution of electric energy. Among other things, deregulation allows consumers to purchase electricity from a source of their choice, and requires utilities to purchase electricity from independent power producers and to offer transmission to independent power producers at reasonable prices.

 

In California, deregulation legislation, such as the Assembly Bill 1890 and the Renewable Energy Program, were implemented in the mid-1990s to encourage the development of renewable power generation projects through various incentives. In addition, Assembly Bill 995 and Senate Bill 1038 were passed to further facilitate the development of renewable resources. In November 2008, the governor of the State of California signed Executive Order S-14-08 requiring that California utilities reach a 33% renewable energy goal by 2020, exceeding the previous legislative mandate that electric utilities supply 20% of their total retail power sales from renewable resources by 2010. In September 2009, the Governor signed Executive Order S-21-09, requiring the Air Resources Board under the California Environmental Protection Agency to adopt a regulation by July 1, 2010 requiring California’s load-serving entities to meet the 33% renewable energy goal through the creation and use of renewable energy sources to ensure reduction of greenhouse gas emissions.

 

In Arizona, access to the electricity market has been established through Arizona’s Retail Electric Competition Rules, which, in the Company’s opinion, provide a favorable environment for renewable energy generators. Electricity producers are subject to the Federal Public Utilities Regulatory Policies Act (“PURPA”) and state regulations. In addition, power producers must also meet standards set by the Arizona Corporations Commission (the “ACC”).

 

 

The Federal Energy Policy Act of 2005 provided further benefits to independent power producers by requiring transmission companies to provide access to third parties at a reasonable price. On October 3, 2008, the President of the United States signed the Emergency Economic Stabilization Act of 2008 into law. This legislation contains a number of tax incentives designed to encourage both individuals and businesses to make investments in renewable energy, including an eight-year extension of the business solar investment tax credit (“ITC”). The ITC is a 30% tax credit on solar property effective through December 31, 2016. The American Recovery and Reinvestment Act of 2009 further extended the U.S. $0.021/kWh Production Tax Credit (“PTC”) through December 31, 2012, and provide an option to elect a 30% ITC or an equivalent cash grant from the U.S. Department of Energy.

 

Employees

 

As of September 2014, the Company had a total of 3 full time employees. The Company anticipates that it may need to hire additional staff in the areas of engineering, marketing and administration in the future.

 

Legal Proceedings

 

Hanover Holdings I, LLC vs. Solar Wind Energy Tower Inc.

 

On December 27, 2012, we were served with a Complaint in the matter of Hanover Holdings I, LLC filed with the Supreme Court of the State of New York, stipulating that the Company has yet to pay the remaining outstanding balance, related interest and penalties, as described in a convertible promissory note issued by the Company to the benefit of Hanover Holdings I, LLC. on February 29, 2012. The complaint alleges that the Company has failed to honor a notice of conversion issued by Hanover Holdings I, LLC on or about September 7, 2012. The total claim amount is for $122,985.

 

On September 5, 2014, we entered into a Settlement Agreement and Mutual Release (the “Settlement Agreement”) with Hanover Holdings I, LLC to settle the above matters. Pursuant to the terms and conditions of the Settlement Agreement, we agree to pay to Hanover Holdings I, LLC the total sum of $90,000 in six equal instalments of $15,000 each. The initial installment of $15,000 has been paid on September 5, 2014. The five subsequent payments shall be delivered on or before the fifth day of each month, with the final payment being made on February 5, 2015.

 

If any scheduled payment is not delivered when due, Hanover Holdings I, LLC shall deliver a notice of breach to the Company’s counsel. The Company shall have five business days of receipt of the notice of breach to cure the breach by delivering the missing payment. If any such breach is not timely cured, the total outstanding settlement sum shall be accelerated and shall be delivered on or before ten business days of receipt of the notice of breach. In the event of Company’s failure to timely deliver the accelerated amount, Hanover Holdings I, LLC may file the confession of judgment without further notice, and have judgment entered against the Company in amount of the settlement sum plus costs associated with such filing and entry including reasonable attorney’s fees, less any payments made pursuant to the Settlement Agreement.

 

With the exception of the litigation discussed above, we are currently not involved in any litigation that we believe could have a materially adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our company’s or our company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Market information

 

The Company’s Common Stock is quoted on the OTC Bulletin Board under the symbol “SWET.OB”. Historical high and low bid information for the Company’s Common Stock is not available to the Company. The following table reflects the high and low sales prices for the Company’s Common Stock for each fiscal quarter during the fiscal years ended December 31, 2013 and 2012. The sales prices were obtained from the OTC Bulletin Board.

 

Quarterly period		Low				High
Fiscal year ended December 31, 2014:
First Quarter		$	0.0040			$	0.0099
Second Quarter		$	0.0045			$	0.0410
Third Quarter (until September 12, 2014)		$	0.0230			$	0.0305
Fiscal year ended December 31, 2013:
First Quarter		$	0.019			$	0.025
Second Quarter		$	0.021			$	0.036
Third Quarter		$	0.016			$	0.024
Fourth Quarter		$	0.007			$	0.015
Fiscal year ended December 31, 2012:
First Quarter		$	0.03			$	0.21
Second Quarter		$	0.02			$	0.05
Third Quarter		$	0.01			$	0.08
Fourth Quarter		$	0.01			$	0.07

 

 

 

Record Holders

 

As of September 12, 2014, there were approximately 1,411 registered holders of record of the Company’s Common Stock.

 

Dividends

 

The Company has not paid any cash dividends to date, and has no intention of paying any cash dividends on the Common Stock in the foreseeable future. The declaration and payment of dividends is subject to the discretion of the Company’s Board of Directors and to certain limitations imposed under Nevada law. The timing, amount and form of dividends, if any, will depend upon, among other things, the Company’s results of operations, financial condition, cash requirements, and other factors deemed relevant by the Board of Directors. The Company intends to retain any future earnings for use in its business. The Company has never paid dividends on its Common Stock.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The Company does not maintain any equity compensation plans.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.

 

Overview

 

The Company was incorporated in the State of Idaho on January 22, 1962 as Superior Mines Company and then changed its name to Superior Silver Mines, Inc. The Company reincorporated as a Nevada corporation on December 27, 2010. The Company had been dormant for a number of years, and had no known mineral reserves.

 

On December 29, 2010, the Company completed a reverse merger (the “Merger”) with Solar Wind Energy, Inc. (f/k/a Clean Wind Energy, Inc.), a corporation formed under the laws of the State of Delaware on July 26, 2010 (“Solar Wind - Subsidiary”). In connection with the Merger, the Company issued to the stockholders of Solar Wind - Subsidiary in exchange for their Solar Wind - Subsidiary Common Stock, the right to receive an aggregate of 300,000,000 shares of the Company’s Common Stock. As a result of the reverse merger, Solar Wind - Subsidiary is now a wholly-owned subsidiary of the Company.

 

For accounting purposes, Solar Wind - Subsidiary was the surviving entity. The transaction was accounted for as a recapitalization of Solar Wind - Subsidiary pursuant to which Solar Wind - Subsidiary was treated as the surviving and continuing entity although the Company is the legal acquirer rather than a reverse acquisition. Accordingly, the Company’s historical financial statements are those of Solar Wind - Subsidiary immediately following the consummation of the reverse merger. Also, going forward the business operations of Solar Wind - Subsidiary will become the Company’s principal business operations.

 

The Company was incorporated under the laws of the State of Idaho on January 22, 1962, as Superior Mines Company. In 1964, the Company’s name was changed to Superior Silver Mines, Inc. On December 27, 2010, the Company reincorporated as a Nevada corporation. Prior to the Merger, the Company had been dormant for a number of years and had no known mineral reserves. On January 21, 2011, the Company changed its name from Superior Silver Mines, Inc. to Clean Wind Energy Tower, Inc. and on March 11, 2013, changed its name to Solar Wind Energy Tower Inc. along with its wholly-owned subsidiary, a corporation formed under the laws of the State of Delaware, Clean Wind Energy, Inc. to Solar Wind Energy, Inc. In addition, effective January 24, 2011, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from SSVM.OB to CWET.OB and on March 11, 2013, in conjunction with our name change, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from CWET.OB to SWET.OB.

 

The Company plans to design, develop, and construct large downdraft towers that use benevolent, non-toxic natural elements to generate electricity and clean water economically (“Downdraft Towers”) by integrating and synthesizing numerous proven as well as emerging technologies. In addition to constructing Downdraft Towers in the United States and abroad, the Company intends to be prepared to establish partnerships at home and abroad to propagate these systems and meet increasing global demand for clean water and electricity.

 

 

On January 21, 2011, the Company changed its name to Clean Wind Energy Tower, Inc. and on March 11, 2013, changed its name to Solar Wind Energy Tower Inc. along with its wholly owned subsidiary, a corporation formed under the laws of the State of Delaware, which changed its name from Clean Wind Energy, Inc. to Solar Wind Energy, Inc. In addition, effective January 24, 2011, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from “SSVM” to” CWET” and in conjunction with the March 11, 2013 name change the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from “CWET” to” SWET”.

 

Plan of Operations

 

Our Company’s core objective and focus is to become a leading provider of clean efficient green energy to the world communities at a reasonable cost without the destructive residuals of fossil fuel, while continuing to generate innovative technological solutions for today and tomorrow’s electrical power needs.

 

As a development stage company, Solar Wind has yet to earn revenues from its operations. Solar Wind is developing plans to design and construct large Downdraft Towers that use benevolent, non-toxic natural elements to generate electricity and clean water economically by integrating and synthesizing numerous proven as well as emerging technologies. In addition to constructing Downdraft Towers in the United States and abroad, the Company intends to be prepared to establish partnerships at home and abroad to propagate these systems and meet increasing global demand for clean water and electricity. From our inception in July 2010, we have completed the following milestones, among others:

 

	·	The Company has filed numerous patent applications with the U.S. Patent and Trademark Office to protect its intellectual property. The Company has been awarded two patents, and currently has two other patent applications which have been designated with a Notice of Allowance and is awaiting issuance of the actual patent documents.   Patent #8120191 issued 2/21/2012 “Efficient Energy Conversion Devices & Methods” The patent covers a novel hydraulic system capable of maintaining high efficiency hydraulic to electric conversion under a wide variance of wind speeds, as coupled to a plurality of wind turbines in wind tunnels.   Patent #8,517,662 B2 issued 8/27/2013 “Atmospheric Energy Extraction Devices & Methods” The patent covers a structure for producing electricity, specifically a Tower capable of adding moisture at the top of the structure to hot-dry air so as to generate a downdraft of wind within the interior of the Tower, vanes coupled to the exterior of the Tower that at least partially define a plurality of elongated pockets to the exterior of the Tower, and flaps located to redirect the incident wind downwards into tunnels to convert wind to electricity.   Patent # 8,643,204 B2 issued 2/4/2014 “Efficient Energy Conversion Devices and Methods” This application enhances and broadens previously issued Patent #8120191   Patent Application # 13/947,625 date of Notice of Allowance 1/27/2014 (to be issued) The patent claims are targeted to represent the advantages of the new Tower structural shape, the configuration of the Tower walls, their composition as well as the wall thicknesses for a given height, along with more efficient construction methodology and enhanced wind force resistance over prior Tower designs.
	·	Executed agreements with three strategic world class companies with industry experience to assist in developing our Downdraft Tower.
	·	Identified and executed agreements with key industry consultants.
	·	The Company completed a comprehensive meteorological assessment and selected an area located in San Luis, Arizona to pursue the construction of their innovative green renewable energy Downdraft Tower Facility.

 

The Company has secured an option to purchase 640 acres in the City of San Luis, Arizona on which it intends to pursue the development of its first Solar Wind Energy Downdraft Tower. The City of San Luis, Arizona has executed a Development and Protected Development Rights Agreement with the Company which guarantees the necessary local entitlements for the development of the Tower Project. The City of San Luis has also agreed to supply the Tower Project with the needed water for a period of 50 years. In March 2014, we entered into a non-binding letter of intent with National Standard Finance, LLC, pursuant to which National Standard Finance, LLC has conditionally agreed to joint venture with the Company to be the lead investor and co-owner in the project. The Company is working diligently to satisfy the conditions of the financing.

 

The Company plans to commence construction of the Tower Project in San Luis, Arizona as discussed above by the end of 2015. We have obtained the final zoning permit for the Tower Project in September 2014. Major milestones, the estimated time frame for each milestone and the estimated costs associated with each milestone necessary to meet that schedule include:

 

Milestones		Estimated Timeline			Estimated Cost
Obtaining Use Permit		January 2015		$	5,000
Obtaining FAA Clearance		May 2015		$	12,000
Completing Final Engineering		May 2015		$	500,000
Completing Construction Contract		August 2015			N/A
Obtaining Power purchase Agreements		August 2015			N/A
Obtaining Interconnect to Grid		September 2015		$	50,000
Commencing Construction		November 2015			N/A

 

We estimated that the total cost of completing the above milestones would be approximately $600,000. Although we have a letter of intent with National Standard Finance, LLC who conditionally agreed to invest and co-own the project, there is no guarantee such financing will be completed; and even completed, there will be enough funds to complete the project. If we cannot obtain the financing in a timely fashion, it may delay or impair the project and materially affect our plans of operation.

 

 

Critical Accounting Policies and Estimates

 

Financial Reporting Release No. 60, published by the SEC, recommends that all companies include a discussion of critical accounting policies used in the preparation of their financial statements. While all these significant accounting policies impact our consolidated financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our consolidated financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates.

 

We believe that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause a material effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.

 

General

 

The Company’s Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles, which require management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, net revenue, if any, and expenses, and the disclosure of contingent assets and liabilities.

 

Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Senior management has discussed the development, selection and disclosure of these estimates with the Board of Directors. Management believes that the accounting estimates employed and the resulting balances are reasonable; however, actual results may differ from these estimates under different assumptions or conditions. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the consolidated financial statements. Management believes the following critical accounting policies reflect the significant estimates and assumptions used in the preparation of the Consolidated Financial Statements.

 

Development stage entity

 

The Company is considered to be a development stage entity, as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 915. For the period from July26, 2010 (date of inception) through December 31, 2013, the Company has not generated any revenues to date, has no significant assets and has incurred losses since inception from developing its business and planned operations. Consequently, its operations are subject to all the risks inherent in the establishment of a new business enterprise.

 

Basic and diluted net loss per share

 

We utilize ASC 260, “Earnings Per Share” for calculating the basic and diluted loss per share. In accordance with ASC 260, the basic and diluted loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted net loss per share is computed similar to basic net loss per share except that the denominator is adjusted for the potential dilution that could occur if stock options, warrants, and other convertible securities were exercised or converted into common stock. Potentially dilutive securities were not included in the calculation of the diluted net loss per share as their effect would be anti-dilutive.

 

Income taxes

 

The Company utilizes ASC 740 “Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Temporary difference between taxable income reported for financial reporting purposes primarily relate to the recognition of debt costs and stock based compensation expenses. The adoption of ASC 740 “Income Taxes” did not have a material impact on the Company’s consolidated results of operations or financial condition.

 

 

Revenue Recognition

 

The Company has generated no revenues to date. It is the Company’s policy that revenue from product sales or services will be recognized in accordance with ASC 605 “Revenue Recognition”. Four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured.

 

Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company will defer any revenue for which the product was not delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required. The Company did not have any revenue during the year ended December 31, 2013 and the period ended June 30, 2014.

 

Fair Value of Financial Instruments

 

The Company adopted the provisions under FASB for Fair Value Measurements, which define fair value for accounting purposes, establishes a framework for measuring fair value and expands disclosure requirements regarding fair value measurements. The Company’s adoption of these provisions did not have a material impact on its consolidated financial statements. Fair value is defined as an exit price, which is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date. The degree of judgment utilized in measuring the fair value of assets and liabilities generally correlates to the level of pricing observability. Financial assets and liabilities with readily available, actively quoted prices or for which fair value can be measured from actively quoted prices in active markets generally have more pricing observability and require less judgment in measuring fair value. Conversely, financial assets and liabilities that are rarely traded or not quoted have less price observability and are generally measured at fair value using valuation models that require more judgment. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency of the asset, liability or market and the nature of the asset or liability. The Company has categorized its financial assets and liabilities measured at fair value into a three-level hierarchy in accordance with these provisions.

 

In January 2010 the FASB issued Update No. 2010-05 “Compensation—Stock Compensation—Escrowed Share Arrangements and Presumption of Compensation” (“2010-05”). 2010-05 re-asserts that the Staff of the Securities Exchange Commission (the “SEC Staff”) has stated the presumption that for certain shareholders escrowed share represent a compensatory arrangement. 2010-05 further clarifies the criteria required to be met to establish a position different from the SEC Staff’s position. The Company does not believe this pronouncement to have any material impact on its financial position, results of operations or cash flows.

 

Accounting for Derivatives

 

In 2013 and 2014, we issued convertible notes payable that contained certain conversion features which we identified as embedded derivatives. Therefore, in accordance with ASC 815-40, we reclassified the fair value of the conversion feature from equity to a liability at the date of issuance. Subsequent to the initial issuance date, we are required to adjust to fair value the derivative as an adjustment to current period operations.

 

New Accounting Pronouncements

 

The Company has adopted Accounting Standards Update (ASU) No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation. The amendments in this ASU remove all incremental financial reporting requirements from U.S. GAAP for development stage entities, including the removal of Topic 915, Development Stage Entities, from the FASB Accounting Standards Codification™.

 

A development stage entity is one that devotes substantially all of its efforts to establishing a new business and for which: (a) planned principal operations have not commenced; or (b) planned principal operations have commenced, but have produced no significant revenue. For example, many start-ups or even long-lived organizations that have not yet begun their principal operations or do not have significant revenue would be identified as development stage entities.

 

 

 

For public business entities, the presentation and disclosure requirements in Topic 915 will no longer be required for the first annual period beginning after December 15, 2014. The revised consolidation standards are effective one year later, in annual periods beginning after December 15, 2015. Early adoption is permitted.

 

There are various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's consolidated financial position, results of operations or cash flows.

 

Results of Operations

 

Three months ended June 30, 2014 as compared to three months ended June 30, 2013

 

Revenue

 

The Company has not generated revenue since inception.

 

Operating Expenses

   

Research and development

 

During the three months ended June 30, 2014, research and development costs were $ 1,190 compared to $ 8,391 for the same period last year. The Company's expenditures for research and development is dependent on available resources and future expenditures are expected to increase with additional financing.

 

Selling, general and administrative

 

During the three months ended June 30, 2014, selling, general and administrative expenses were $ 507,502 as compared to $ 483,903 for the same period last year, a 5 % increase. The primary increase is due to increase professional and consulting fees incurred in the current period as compared to same period last year.

 

Depreciation

 

Depreciation expense for the three months ended June 30, 2014 was $988 as compared to $1,120 for the same period last year due to the aging of our equipment.

 

Other income (expense)

 

Interest expense

 

Interest expense for the three months ended June 30, 2014 was $ 2,300,091 compared to $ 319,189 for the same period last year. In the current period, we incurred $ 388,839 non-cash debt discount and OID amortization and $ 1,806,804 in non-cash interest expense on issued convertible debt as compared to $ 155,524 and $ 99,120, respectively for the same period last year.

 

Gain (loss) on change in fair value of derivative liabilities

 

During 201 3 and 201 4, we issued convertible promissory notes with an embedded derivative, all requiring us to fair value the derivatives each reporting period and mark to market as a non-cash adjustment to our current period operations.  This resulted in a loss of $(517,858) and a gain of $1, 191,857 on change in fair value of derivative liabilities for the three months ended June 30, 2014 and 2013, respectively.  

 

Six months ended June 30, 2014 as compared to six months ended June 30, 2013

 

Revenue

 

The Company has not generated revenue since inception.

 

 

 

Operating Expenses

   

Research and development

 

During the six months ended June 30, 2014, research and development costs were $10,223 compared to $22,284 for the same period last year. The Company's expenditures for research and development is dependent on available resources and future expenditures are expected to increase with additional financing.

 

Selling, general and administrative

 

During the six months ended June 30, 2014, selling, general and administrative expenses were $933,060 as compared to $879,032 for the same period last year, a 6% increase. The primary increase is due to increase professional and consulting fees incurred in the current period as compared to same period last year.

 

Depreciation

 

Depreciation expense for the six months ended June 30, 2014 was $1,976 as compared to $2,240 for the same period last year due to the aging of our equipment.

 

Other income (expense)

 

Interest expense

 

Interest expense for the six months ended June 30, 2014 was $2,606,025 compared to $574,989 for the same period last year. In the current period, we incurred $660,896 non-cash debt discount and OID amortization and $1,821,237 in non-cash interest expense on issued convertible debt as compared to $292,084 and $163,925, respectively for the same period last year.

 

Gain (loss) on change in fair value of derivative liabilities

 

During 2013 and 2014, we issued convertible promissory notes with an embedded derivative, all requiring us to fair value the derivatives each reporting period and mark to market as a non-cash adjustment to our current period operations. This resulted in a loss of $(476,450) and a gain of $81,717 on change in fair value of derivative liabilities for the six months ended June 30, 2014 and 2013, respectively.

 

Comparison of the year ended December 31, 2013 to the year ended December 31, 2012

 

Revenue

 

The Company has not generated revenue since inception.

 

Operating Expenses

Research and Development

 

During the year ended December 31, 2013, we incurred $31,304 of research and development expenses as compared to $180,916 for the year ended December 31, 2012; a decrease of $149,612, or 83%. The Company anticipates continued research and development as products are developed dependent on funding availability.

 

Selling and Administrative

 

During the year ended December 31, 2013, we incurred $1,792,769 of selling and administrative expenses as compared to $2,021,555 for the year ended December 31, 2012; a decrease of $228,786, or 11%. The Company’s stock based compensation decreased from $1,156,921 to $642,889 from 2012 to 2013.

 

Depreciation

 

Depreciation for the year ended December 31, 2013 was $4,480 as compared to $4,480 for the year ended December 31, 2012.

 

 

Other Income/Expense

 

Interest expense

 

For the year ended December 31, 2013, we incurred $1,355,537 as interest expense relating to our issued notes payable as compared to $545,451 for the same period last year. In connection with the issuances, we incurred noncash charge to interest of $380,741 during the year ended December 31, 2013 due to the excess of fair value of the conversion feature over the note proceeds compared to $172,116 for the prior year. In addition, we amortized a debt discount associated with the notes of $816,642 for the year ended December 31, 2013 compared to $255,543 for the year ended December 31, 2012.

 

Loss on settlement of debt

 

During the year ended December 31, 2012, we issued 22,500,000 shares of our common stock in settlement of $150,000 of outstanding debt. In connection with the issuance, we incurred $829,530 as noncash loss for the year ended December 31, 2012 as compared to nil for the same period in current year. Net with the above described loss, we realized a gain on settlement of debt of $42,015 in connection with the issued Hanover note.

 

Gain from change in fair value of derivative liabilities

 

Each reporting period, we are required to adjust to fair value the conversion features of our convertible notes. For the years ended December 31, 2013 and 2012, we reported a gain from change in fair value of $782,556 and $174,719, respectively.

 

Net Loss

 

As a result of the activities described above, we incurred a net loss of $2,401,534 for the year ended December 31, 2013 as compared to a net loss of $3,365,198 for the year ended December 31, 2012.

 

Liquidity and Capital Resources

 

We have financed our operations since inception primarily through private offerings of our equity securities and issuance of convertible notes.

 

For the Six Months Ended June 30, 2014

 

Working Capital

 

Our working capital deficit in creased by $ 1,362,577 during the six months ended June 30, 2014 from a working capital deficit (current liabilities in excess of current assets) of $2,492,533 at December 31, 2013 to a working capital deficit of $ 3,855,110 at June 30, 2014. The in crease in working capital deficit for the six months ended June 30, 2014 is due to a combination of reasons, of which the significant factors include:

 

·

Cash had a net in crease from working capital by $ 273,503 for the six months ended June 30, 2014. The most significant uses and proceeds of cash were:

	o	Approximately $ 599,000 of cash consumed in operating activities;
	o	Proceeds  of $ 923,000 from issuance of convertible notes payable, net of repayments of $155,918
	o	Proceeds  of $80,000 from issuance of note payable
	o	Proceeds of $25,000 from the sale of our common stock

 

Total current assets of $ 461,647 and $61,758 as of June 30, 2014 and December 31, 2013, respectively, cash representing 73% and 100% as of June 30, 2014 and December 31, 2013, respectively.

 

Proceeds from the issuance of convertible promissory notes

 

During the six months ended June 30, 2014, the Company received proceeds of $ 923,000 from the issuance of Convertible Promissory Notes.

 

Proceeds from the issuance of note payable

 

During the six months ended June 30, 2014, the Company received proceeds of $80,000 from the issuance of note payable.

 

 

Proceeds from the sale of our common stock

 

During the six months ended June 30, 2014, the Company received proceeds of $25,000 from the sale of the Company’s common stock.

 

Cash flow analysis

 

Cash used in operations was $ 598,579 during the six month period ended June 30, 2014. During the six month period ended June 30, 2014, our primary capital needs were for operating expenses, including funds to support our business strategy, which primarily includes working capital necessary to fund operations and reducing our account payables.

 

We did not utilize cash for investing activities.

 

Cash provided by financing activities was a total net proceeds of $ 872,082 from the issuance of sale of our common stock and Convertible and Non-Convertible Promissory Notes.

 

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has reported a net loss of $ 4,027,734 for the six month period ended June 30, 2014, accumulated deficit of $ 12,894,073 and total current liabilities in excess of current assets of $ 3,855,110 as of June 30, 2014.

 

For the Year Ended December 31, 2013

 

Working Capital

Our working capital deficit increased by ($756,181) during the year ended December 31, 2013 from a working capital deficit (current liabilities in excess of current assets) of $1,736,352 at December 31, 2012 to a working capital deficit of $2,492,533 at December 31, 2013. The increase in working capital deficit for the year ended December 31, 2012 is due to a combination of reasons, of which the significant factors include:

 

·

Cash had a net increase from working capital by $47,997 for the year ended December 31, 2013. The most significant uses and proceeds of cash were:

	·	Approximately $1,011,000 of cash consumed in operating activities;
	·	Proceeds of $65,500 from sale of our common stock
	·	Proceeds of $925,677 from issuance of Convertible Promissory Notes
	·	Proceeds of $75,000 from issuance of Notes Payable

 

Of the total current assets of $61,758 as of December 31, 2013, cash represented $61,758. Of the total current assets of $13,761 as of December 31, 2012, cash represented $13,761.

 

Proceeds from the issuance of common stock

 

During the year ended December 31, 2013, the Company received $30,500 from the issuance of Private Placement Memorandum Subscriptions for the sale of its common stock.

 

During the year ended December 31, 2013, the Company received $35,000 under an equity facility agreement entered into on June 6, 2013

 

Proceeds from the issuance of convertible promissory notes

 

During the year ended December 31, 2013, the Company received a gross amount of $959,500 from the issuance of Convertible Promissory Notes and paid $33,823 in processing fees to the attorneys.

     

 

Proceeds from the issuance of notes payable

 

During the year ended December 31, 2013, the Company received a gross amount of $75,000 from the issuance of Notes.

 

Cash flow analysis

 

Cash used in operations was $1,011,180 during the year ended December 31, 2013. During the year ended December 31, 2013, our primary capital needs were for operating expenses, including funds to support our business strategy, which primarily includes working capital necessary to fund operations and reducing our trade payables.

 

Cash provided from financing activities was $1,059,177 comprised of sale of our common stock for net proceeds of $65,500, issuance of notes payable of $75,000 and issuance of convertible notes payable of $925,677, net of repayments of notes of $7,000.

 

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has reported a net loss of $(2,401,534) for the year ended December 31, 2013, accumulated deficit of $(8,866,368) and total current liabilities in excess of current assets of $(2,492,533) as of December 31, 2013.

 

The Company is in a development stage and does not have any revenues from operations and will be dependent on funds raise to satisfy its ongoing capital requirements for at least the next 12 months. The Company will require additional financing in order to execute its operating plan and continue as a going concern. The Company cannot predict whether this additional financing will be in the form of equity or debt, or be in another form. The Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In any of these events, the Company may be unable to implement its current plans for expansion or respond to competitive pressures, any of these circumstances would have a material adverse effect on its business, prospects, financial condition and results of operations.

 

Management expects that global economic conditions will continue to present a challenging operating environment through 2014. To the extent permitted by working capital resources, management intends to continue making targeted investments in strategic operating and growth initiatives. Working capital management will continue to be a high priority for 2014.

 

While we have been able to manage our working capital needs with the current credit facilities, additional financing is required in order to meet our current and projected cash flow requirements from operations. We cannot predict whether this new financing will be in the form of equity or debt. We may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. Additional investments are being sought, but we cannot guarantee that we will be able to obtain such investments.

 

Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and the downturn in the U.S. stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.

 

Inflation

 

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could adversely affect our business, financial condition and results of operations.

 

Off-Balance sheet Arrangements

 

We do not maintain off-balance sheet arrangements nor do we participate in any non-exchange traded contracts requiring fair value accounting treatment.

 

Contractual Obligations

 

The Company does not have any significant contractual obligations which could negatively impact our results of operations and financial condition. 

 

 

MANAGEMENT

 

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

The following table sets forth the names of the Company’s directors, executive officers, and key employees, and their positions with the Company, as of the date hereof:

 

Name	Age	Position(s)	Term of Office (Directors)
Ronald W. Pickett	66	President, Chief Executive Officer, Chairman and Principal Accounting Officer	Annual meeting
Stephen Sadle	68	Chief Operating Officer and Director	Annual Meeting
Robert P. Crabb	66	Secretary, Chief Marketing Officer and Director	Annual meeting
H. James Magnuson	60	Director	Annual meeting
Arthur P. Dammarell	69	Director	Annual meeting

 

None of the events listed in Item 401(f) of Regulation S-K has occurred during the past ten years and that is material to the evaluation of the ability or integrity of any of the Company’s directors, director nominees or executive officers.

 

The following is a brief account of the business experience during the past five years (and, in some instances, for prior years) of each director and executive officer.

 

Ronald W. Pickett, President and Chief Executive Officer, Chairman and Principal Accounting Officer

 

Mr. Pickett joined the Company on December 29, 2010 in connection with the Merger. Mr. Pickett brings over 40 years of construction, development and innovative technology skills and expertise to the team. He has founded numerous companies from startup and including three from inception through the public ownership process. Mr. Pickett also has an understanding of government, legislative, and permitting practices. Since December, 2007, Mr. Pickett has been an independent real estate development consultant. Until March, 2008, Mr. Pickett was a director of, and until December, 2007, Mr. Pickett was President and CEO of, Telkonet, Inc. (“Telkonet”) (OTCBB: TKOI.OB), a company that develops, manufactures and sells energy efficiency and smart grid networking technology. Until January, 2009, Mr. Pickett was President and a director of Microwave Systems Technology Inc. (“Microwave Systems”), a company that provided Internet/phone/video/wifi services in the New York City area.

 

Until February, 2010, Mr. Pickett was Vice Chairman of Geeks on Call Holdings, Inc. (“Geeks on Call”) (PINK: GOCH.PK), a company that provided quick-response, on-site computer solutions and remote/telephone technical support. We took into account his prior experience in operating public and private enterprises in the development and construction of alternative energy projects and believe Mr. Pickett’s past experience in these fields gives him the qualifications and skill to serve as a director.

 

Stephen Sadle, Chief Operating Officer, Director

 

Mr. Sadle joined the Company on December 29, 2010 in connection with the Merger. Mr. Sadle is an entrepreneur with over 40 years of diversified experience in management, contracting and heavy infrastructure development, interfacing with both the government and private sectors. He is experienced in Web-based vertical extranet applications and has developed operating extranets in the construction and transportation industries. Mr. Sadle served as co-founder, Chief Operating Officer and Director of Telkonet. He was also founder and president of a successful local construction company and was awarded the Small Businessman of the Year Award for the Washington Metropolitan Area. Since July, 2007, Mr. Sadle has been an independent real estate consultant. From 2000 until July, 2007, Mr. Sadle was Senior Vice President and a director of Telkonet. We took into account his prior work with infrastructure construction and development and believe Mr. Sadle’s past experience in these fields gives him the qualifications and skill to serve as a Chief Operating Officer.

 

Robert P. Crabb, Secretary and Chief Marketing Officer, Director

 

Mr. Crabb joined the Company on December 29, 2010 in connection with the Merger. Mr. Crabb has over 40 years of public and private sector experience including 15years in the insurance industry including, sales and sales management with MetLife and independent property and casualty brokerage. His entrepreneurial expertise includes marketing consulting, corporate management and commercial/residential real estate development. He has served in a corporate governance capacity as secretary to a number of start-up companies. Since September, 2007, Mr. Crabb has been an independent real estate development consultant. Until September, 2007, Mr. Crabb was Secretary of Telkonet, until February, 2009, Mr. Crabb was Secretary of Microwave Systems, and until October, 2009, Mr. Crabb was Secretary of Geeks on Call. The Company believes Mr. Crabb’s past experience in corporate compliance gives him the qualifications and skill to serve as a director.

 

H. James Magnuson, Director

 

Mr. Magnuson has served as a member of the Company’s Board of Directors since 2007. Mr. Magnuson resigned as the Company’s Vice President effective December 29, 2010 pursuant to the terms of the Merger Agreement. Since 1979, Mr. Magnuson has been an attorney engaged in the private practice of law in Coeur d’Alene, Idaho, and received his BS degree from the University of Idaho and his Juris Doctorate from Boston College. The Company believes Mr. Magnuson’s background in providing legal services gives him the qualifications and skill to serve as a director.

 

Arthur P. Dammarell, Director

 

Mr. Dammarell has served as a member of the Company’s Board of Directors since 2006. From 2000 through March 2006, Mr. Dammarell was the principal financial officer, treasurer and a director of Nova Oil, Inc. (now Nova Biosource Fuels, Inc.). He received his BA degree in Urban and Regional Planning from Eastern Washington University. The Company took into account his prior work in both public and private organizations providing consulting on development project financing and believes Mr. Dammarell’s past experience in these fields gives him the qualifications and skill to serve as a director.

 

Section16(a) Beneficial Ownership Reporting

 

Based solely upon a review of the copies of the forms furnished to the Company and written representations from officers and directors of the Company that no other reports were required, during the year ended December 31, 2013, all filing requirements under Section 16(a) of the Exchange Act applicable to its officers, directors and greater than 10% beneficial owners were complied with on a timely basis.

 

Code of Ethics

 

The Company has adopted a Code of Conduct and Ethics that applies to all directors, officers and employees of the Company, including its principal executive officer, principal financial officer and principal accounting officer. The Company does not have a separately-designated standing audit committee or a committee performing similar functions. Because the Company does not have an audit committee, the company has not yet determined whether any of its directors qualifies as an audit committee financial expert. Currently, the Company Board of Directors review the Company’s 10-K and financial statements.

 

 

EXECUTIVE COMPENSATION

 

The following table and related footnotes show the compensation incurred and or paid during the fiscal years ended December 31, 2013 and 2012, to all individuals serving as the Company’s principal executive officer or acting in a similar capacity during the last completed fiscal year. No other executive officers received compensation in excess of $100,000 for such fiscal years.

 

Summary Compensation Table

 

Name and principal position

Year

Salary ($)

Bonus ($)

Stock awards ($)

Non-equity incentive plan compensation

Nonqualified deferred compensation earnings ($)

All other Compensation ($)

Total ($)

Ronald W. Pickett,

2013

200,000

(2)

$

–

$

–

$

–

$

–

$

–

200,000

President, Chief Executive Officer, Chairman and Principal Accounting officer (1)

2012

200,000

(2)

–

–

–

–

–

200,000

Stephen L. Sadle

2013

175,000

(4)

–

–

–

–

–

175,000

Chief Operating Officer (3)

2012

175,000

(4)

–

–

–

–

–

175,000

______________

	(1)	Appointed as President, Chief Executive Officer and Chairman effective December 29, 2010 pursuant to the terms of the Merger Agreement.
	(2)	Included in the amount is $218,767 and $103,382 of accrued salaries for Mr. Pickett for the years ended December 31, 2013 and 2012, respectively. In addition, the amount paid during the years ended December 31, 2013 and 2012 amounted to $84,615 and $81,467, respectively. $150,000 of the accrual has been converted into a note payable during the year ended December 31, 2012.
	(3)	Appointed as Chief Operating Officer effective December 29, 2010 pursuant to the terms of the Merger Agreement.
	(4)	Included in the amount is $167,032 and $101,971 of accrued salaries for Mr. Sadle for the years ended December 31, 2013 and 2012, respectively. In addition, the amount paid during the years ended December 31, 2013 and 2012 amounted to $109,939 and $75,292, respectively. $100,000 of the accrual has been converted into a note payable during the year ended December 31, 2012

 

Director Compensation Table

 

The following table and related footnotes show the compensation incurred and or paid during the fiscal year ended December 31, 2013 to the Company’s directors for their service as directors.

 

Name		Fees earned or paid in cash ($)				Stock awards ($)			Option awards ($)			Non-equity incentive plan compensation ($)			Nonqualified deferred compensation earnings ($)			All other compensation ($)			Total ($)
Robert P. Crabb (1)		$	60,000	(2)		$	0		$	0		$	0		$	0		$	0		$	60,000
H. James Magnuson		$	0			$	0		$	0		$	0		$	0		$	0		$	0
Arthur P. Dammarell		$	0			$	0		$	0		$	0		$	0		$	0		$	0

______________

	(1)	Appointed as director effective December 29, 2010 pursuant to the terms of the Merger Agreement.
	(2)	The Company has accrued salary for Mr. Crabb for his services as an executive officer of the Company for the year ended December 31, 2013 in the amount of $60,000 and the balance at December 31, 2013 amounted to $51,469.

 

Narrative to Summary Compensation Table and Director Compensation Table

 

During the year ended December 31, 2013, the Company provided no stock options, warrants, or stock appreciation rights. On December 29, 2010, pursuant to the Merger, Solar Wind Energy, Inc. became a wholly-owned subsidiary of the Company. The Company has employment agreements with its officers as described below. The Company has accrued salaries for all its executives from inception through December 31, 2013 and the balance amounted to $437,268 at December 31, 2013, net of issued convertible notes issued in December 2012 as part payment.

 

 

 

No officer or director has outstanding unexercised options, stock that has not vested, or equity incentive plan awards. The Company maintains no employee benefits plans.

 

Name		Position(s)		Term		Salary		Bonus		Severance
Ronald W. Pickett		President, Chief Executive Officer		3 years; renewable for 1 year on mutual consent *		$200,000		Board Discretionary		Twelve (12) months salary and benefits for termination without cause.
Stephen Sadle		Chief Operating Officer		3 years; renewable for 1 year on mutual consent *		$175,000		Board Discretionary		Twelve (12) months salary and benefits for termination without cause.
Robert P. Crabb		Secretary, Chief Marketing Officer		3 years; renewable for 1 year on mutual consent		$60,000		Board Discretionary		Twelve (12) months salary and benefits for termination without cause.

______________

*

Terms to modify the 1 year contract extension by mutual consent have been agreed to by the Officers and Directors.  Under the modification and extension, the contracts will be extended 4 additional years with current salaries being unchanged.  Provisions for automatic salary increases based on specific events related to business development successes, rights for the officers to convert any accrued salary into Company notes, and rights to receive warrants to purchase Company stock at market plus 20% premium at the time of the grant while notes are outstanding will be incorporated in the new contracts.  The parties have mutually agreed to a stock option plan, the specific terms to be negotiated as part of the final contract.

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Except as set forth below, since January 1, 2012, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which the Company was or will be a party in which the amount involved exceeds the lesser of $120,000 or one percent of the average of the Company’s total assets at year end for the last two completed fiscal years; and in which any director, executive officer, other stockholders of more than 5% of the Company’s Common Stock or any member of their immediate family had or will have a direct or indirect material interest.

 

On April 18, 2014, the Company issued an aggregate of $385,000 promissory notes to officers and key employees in settlement of accrued salaries. The promissory notes bear interest at the rate of 2% per annum. All interest and principal must be repaid on April 18, 2016. In connection with the issuance of the notes, the Company issued an aggregate of 59,413,581 warrants to purchase the Company’s common stock at $0.00648 per share for two years.

 

The warrants were valued using the Black Sholes option pricing method with the following assumptions: dividend yield $-0-, volatility of 180.09% and risk free rate of 0.43%. The determined fair value of the warrants of $250,049 is amortized as financing costs of the term of the related notes (2 years).

 

The Company has accrued interest expense of $1,540 as of June 30, 2014.

 

During 2012, the Company issued an aggregate of $280,000 convertible promissory notes to officers and key employees in settlement of accrued salaries.

 

The convertible promissory notes bear interest at the rate of 8% per annum. All interest and principal must be repaid on December 31, 2014. The convertible promissory notes are convertible into common stock, at the holders’ option at $0.015 per common share.

  

The fair value of the embedded derivatives was determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 200.41% to 200.80%, (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 2.0 years, and (5) estimated fair value of the Company’s common stock of $0.0165 to $0.0167 per share.

 

The determined fair value of the debt derivatives of $262,285 was charged as a debt discount up to the net proceeds of the note.

 

At June 30, 2014, the Company marked to market the fair value of the debt derivatives and determined a fair value of $384,813. The Company recorded a loss from change in fair value of debt derivatives of $363,214 and $331,114 for the three and six months ended June 30, 2014, respectively. The fair value of the embedded derivatives was determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 197.24%, (3) weighted average risk-free interest rate of 0.07%, (4) expected life of 0.50 years, and (5) estimated fair value of the Company’s common stock of $0.0305 per share.

 

 

The charge of the amortization of debt discounts and costs for the three and six months ended June 30, 2014 was $32,672 and $64,985, respectively, and $32,672 and $64,985 for the three and six months ended June 30, 2013, respectively; which was accounted for as interest expense. Also, the Company has accrued interest expense of $33,541 as of June 30, 2014.

 

On January 31, 2013, the Company entered into Securities Purchase Agreements with six accredited investors (the “2013 Investors”) providing for the sale by the Company to the 2013 Investors of Convertible Debentures (the "2013 Notes") in the aggregate amount of $239,000. In addition, as previously disclosed in the Form 8-K Current Report filed on January 3, 2013, Ronald W. Pickett, Stephen L. Sadle and Robert P. Crabb, officers and directors of the Company, converted accrued salary in the aggregate amount of $280,000 into the 2013 Notes resulting in a total offering of $519,000. The financing closed on January 31, 2013.

 

The 2013 Notes mature December 31, 2014 (the "Maturity Date") and interest associated with the 2013 Notes is 8% per annum, which is payable on the Maturity Date. The 2013 Notes are convertible into shares of common stock of the Company, at the 2013 Investors’ option, at a conversion price of $0.015.

 

As of the date of the 2013 Notes, the Company is obligated on the 2013 Notes issued to the holders in connection with the offering. The 2013 Notes are debt obligations arising other than in the ordinary course of business, which constitute direct financial obligations of the Company.

 

Director Independence

 

We believe that director Arthur P. Dammarell is “independent” as that term is defined in Rule 303A.02 of the NYSE Listed Company Manual. For such director there were no transactions, relationships or arrangements not disclosed in Item 13 above, that were considered by the Board of Directors under the applicable independence definitions in determining that the director is independent.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth, as of September 12, 2014, the beneficial ownership of our common stock by:

 

(1)

each person or entity who is known by us to beneficially own more than five percent (5%) of our common stock;

 

(2)

each of our directors;

 

(3)

each Named Executive Officer; and

 

(4)

all of our directors and executive officers as a group.

 

Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. All share ownership figures include shares of our common stock issuable upon securities convertible or exchangeable into shares of our common stock within sixty (60) days of the date hereof, which are deemed outstanding and beneficially owned by such person for purposes of computing his or her percentage ownership, but not for purpose of computing the percentage ownership of any other person.

 

 

 

Unless otherwise indicated, the address of each beneficial owner is c/o Solar Wind Energy Tower Inc., 1997 Annapolis Exchange Parkway, Suite 300, Annapolis, Maryland 21401 and the nature of beneficial ownership is direct.

 

Name of Beneficial Owner		Title of Beneficial Owner		Amount and Nature of Beneficial Ownership				Percent of Class (1)
Directors and Officers:
Ronald W. Pickett		President, Chief Executive Officer and Chairman			95,519,198	(3)			16.91 %
Stephen Sadle		Chief Operating Officer and Director			80,964,815	(3)			14. 62 %
Robert P. Crabb		Secretary, Chief Marketing Officer and Director			12,401,235	(3)			2. 33 %
H. James Magnuson		Director			1,811,114	(2)			*
Arthur P. Dammarell		Director			625,500				*
Directors and executive officers as a group (5 persons)					191,321,862				31.77%
Other 5% Shareholders:
Typenex Co-Investment, LLC					33,164,249	(4)			6. 33 %

______________

* Less than 1%.

 

	(1)	Based upon 524,147,555 shares of Common Stock outstanding as of September 12, 2014.
	(2)	Includes 1,368,891 shares held in trust for the benefit of Mr. Magnuson’s relatives. As trustee, Mr.  Magnuson has the power to vote such shares, but disclaims any beneficial ownership in the shares.
	(3)	Includes common shares issuable upon conversion of convertible notes payable of 10,000,000, 6,666,667 and 2,000,000 shares to Mr.  Pickett, Mr.  Sadle and Mr.  Crabb, respectively, and common shares issuable upon exercise of warrants of 30,864,198, 23,148,148 and 5,401,235 shares to Mr.  Pickett, Mr.  Sadle and Mr.  Crabb, respectively.
	(4)	Based on the Schedule 13G/A filed on November 26, 2013 which was filed by Typenex Co-Investment, LLC, Red Cliffs Investments, Inc., JFV Holdings Inc., and John M.  Fife with respect to the shares of Common Stock of the Issuer that are directly beneficially owned by Typenex Co-Investment, LLC and indirectly beneficially owned by the other reporting and filing persons.  John M.  Fife is the President of Typenex Co-Investment, LLC and has voting and deposition power as to the shares owned by Typenex Co-Investment, LLC.

 

DESCRIPTION OF SECURITIES

 

The total number of shares of capital stock we are authorized to issue is 910,000,000 shares, of which (a) 900,000,000 are Common Stock, par value $0.0001 per share, and (b) 10,000,000 are Preferred Stock, stated value $0.0001 per share. As of September 12, 2014, 524,147,555 shares of Common Stock and no shares of Preferred Stock were issued and outstanding. We are a Nevada corporation and our affairs are governed by our Articles of Incorporation and By-law. The following are summaries of material provisions of our Articles of Incorporation and By-law insofar as they relate to the material terms of our ordinary shares. Complete copies of our Articles of Incorporation and By-law are filed as exhibits to our public filings.

 

Preferred Stock

 

The authorized but unissued shares of Preferred Stock may be divided into and issued in designated series from time to time by one or more resolutions adopted by the Board of Directors. The Board of Directors, in its sole discretion, has the power to determine the relative powers, preferences, and rights of each series of Preferred Stock.

 

Common Stock

 

Our Common Stock is quoted on the Financial Industry Regulatory Authority’s Over the Counter Bulletin Board (“OTCBB”) and the OTCQB under the symbol “SWET”. On April 2, 2014, the Company’s majority stockholders approved to amend the Articles of Incorporation to increase the number of authorized shares of common stock from 500,000,000 to 900,000,000 shares.

 

 

Voting Rights

 

All of the shares of Common Stock have equal voting rights and power without restriction in preference. Each stockholder, on each matter submitted to a vote at a meeting of stockholders, has one vote for each share registered in the stockholder’s name on the books of our company. A quorum at any annual or special meeting of stockholders consists of stockholders representing, either in person or by proxy, a majority of the outstanding shares of our company, entitled to vote at such meeting. The votes of a majority in interest of those present at any properly called meeting or adjourned meeting of stockholders at which a quorum is presented, is sufficient to transact business.

 

Dividend rights

 

The Board of Directors may, from time to time, declare and we may pay dividends on its outstanding shares of Common Stock in cash, property, or its own shares, except when we are insolvent or when the payment thereof would render us insolvent or when the declaration or payment thereof would be contrary to any restrictions contained in the Company’s governing documents or applicable law. We have never paid, and have no plans to pay, any dividends on its shares of Common Stock.

 

Election of Directors

 

Directors hold office until the next annual meeting of stockholders and are eligible for reelection at such meeting. Directors are elected by a plurality of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. There is no cumulative voting for directors.

 

Liquidation

 

In the event of any liquidation, dissolution or winding up of the Company, holders of the common stock have the right to receive ratably and equally all of the assets remaining after payment of liabilities and liquidation preferences of any preferred stock then outstanding.

 

Redemption

 

The common stock is not redeemable or convertible.

 

Preemptive Rights

 

The stockholders of our company do not have a preemptive right to acquire our unissued shares.

 

Right to Amend Bylaws

 

The Bylaws of our company may be altered, amended or repealed by the affirmative vote of a majority of the voting stock issued and outstanding at any regular or special meeting of the stockholders. The Board of Directors has the power to make, alter, amend and repeal the Bylaws of our company. However, any such Bylaws, or any alteration, amendment or repeal of the Bylaws, may be changed or repealed by the holders of a majority of the stock entitled to vote at any stockholders’ meeting.

 

Anti-Takeover Provisions

 

As a Nevada corporation, we are subject to the Nevada Control Share Acquisition Statute (Nevada Revised Statutes Sections 78.378 to 78.3793). This statute could have the effect of delaying or preventing a change in control of our company under certain circumstances.

 

Other

 

As a Nevada corporation, shares of our Common Stock are subject to all applicable provisions of Nevada law.

 

 

CHANGE OF INDEPENDENT REGISTERED ACCOUNTING FIRM

 

There have been no changes in or disagreements with accountants on accounting or financial disclosure matters.

 

EXPERTS

 

RBSM LLP (“RBSM”), our independent registered public accounting firm, has audited our financial statements included in this prospectus and registration statement to the extent and for the periods set forth in their audit report. RBSM has presented their report with respect to our audited financial statements. The report of RBSM is included in reliance upon their authority as experts in accounting and auditing.

 

LEGAL MATTERS

 

Szaferman, Lakind, Blumstein & Blader, PC located at 101 Grovers Mill Road, Second Floor, Lawrenceville, NJ 08648 will pass on the validity of the common stock being offered pursuant to this registration statement.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We file annual, quarter and periodic reports, proxy statements and other information with the Securities and Exchange Commission using the Commission’s EDGAR system. You may inspect these documents and copy information from them at the Commission’s offices at public reference room at 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The Commission maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of such site is http//www.sec.gov.

 

We have filed a registration statement with the Commission relating to the offering of the shares. The registration statement contains information which is not included in this prospectus. You may inspect or copy the registration statement at the Commission’s public reference facilities or its website.

 

You should rely only on the information contained in this prospectus. We have not authorized any person to provide you with any information that is different.

 

 

Solar Wind Energy Tower Inc.

(A Development Stage Company)

Index to Consolidated Financial Statements

 

 

		Page
Condensed Consolidated Balance Sheets as of June 30, 2014 (unaudited) and December 31, 2013		F-2
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013 (unaudited)		F-3
Condensed Consolidated Statements of Stockholders’ Deficit for the six months ended June 30, 2014 (unaudited)		F-4
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 (unaudited)		F-5
Notes to Condensed Consolidated Financial Statements - June 30, 2014 (Unaudited)		F-6
Report of Independent Registered Public Accounting Firm		F-18
Consolidated Balance Sheets as of December 31, 2013 and 2012		F-19
Consolidated Statements of Operations for the years ended December 31, 2013 and 2012, and for the period from July 26, 2010 (date of inception) through December 31, 2013		F-20
Consolidated Statements of Changes in Stockholders’ Deficit for the period from July 26, 2010 (date of inception) through December 31, 2013		F-21
Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012, and for the period from July 26, 2010 (date of inception) through December 31, 2013		F-25
Notes to Consolidated Financial Statements		F-26

 

 

 

 

 

 

  

SOLAR WIND ENERGY TOWER, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		June 30,				December 31,
		2014				2013
		(unaudited)
ASSETS
Current assets:
Cash		$	335,261			$	61,758
Capitalized financing costs			126,386				–
Total current assets			461,647				61,758
Property and equipment, net			307				2,284
Other assets:
Capitalized financing costs			98,409				–
Deposits			1,559				2,300
Total assets		$	561,922			$	66,342
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable		$	121,032			$	171,245
Accrued liabilities and expenses			421,745				737,964
Advances from stockholders/officers			170,000				170,000
Notes payable			358,770				358,770
Convertible notes payable, net of unamortized debt discount of $808,335 and $353,129, respectively			356,651				278,266
Convertible notes payable, related party, net of unamortized debt discount of $66,062 and $131,047, respectively			213,938				148,953
Derivative liabilities			2,674,621				689,093
Total current liabilities			4,316,757				2,554,291
Long term debt:
Notes payable, related party			385,000				–
Notes payable			80,000				–
Convertible notes payable, net of unamortized debt discount of $103,315			–				24,456
Total liabilities			4,781,757				2,578,747
Stockholders' deficit:
Preferred stock, par value $0.0001 per share; 10,000,000 shares authorized; none issued and outstanding as of June 30, 2014 and December 31, 2013			–				–
Common stock, par value $0.0001 per share; 900,000,000 and 500,000,000 shares authorized as of June 30, 2014 and December 31, 2013, respectively; 512,457,350 and 370,728,168 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively			51,246				37,073
Common stock to be issued			420,000				420,000
Additional paid in capital			8,203,021				5,896,890
Accumulated deficit			(12,894,073	)			(8,866,368	)
Stockholders' deficit attributable to Solar Wind Energy Tower, Inc.			(4,219,806	)			(2,512,405	)
Non-controlling interest			(29	)			–
Total stockholders' deficit			(4,219,835	)			(2,512,405	)
Total liabilities and stockholders' deficit		$	561,922			$	66,342

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

 

 

SOLAR WIND ENERGY TOWER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

		Three months ended June 30,								Six months ended June 30,
		2014				2013				2014				2013
OPERATING EXPENSES:
Research and development		$	1,190			$	8,391			$	10,223			$	22,284
Selling, general and administrative			507,502				483,903				933,060				879,032
Depreciation			988				1,120				1,976				2,240
Total operating expenses			509,680				493,414				945,259				903,556
Loss from operations			(509,680	)			(493,414	)			(945,259	)			(903,556	)
Other income (expense):
Interest expense			(2,300,091	)			(319,189	)			(2,606,025	)			(574,989	)
(Loss) gain on change in fair value of derivative liabilities			(517,858	)			1,191,857				(476,450	)			81,717
Loss before provision for income taxes			(3,327,629	)			379,254				(4,027,734	)			(1,396,828	)
Provision for income taxes (benefit)			–				–				–				–
Net (loss) income			(3,327,629	)			379,254				(4,027,734	)			(1,396,828	)
Non-controlling interest			29				–				29				–
NET (LOSS) INCOME ATTRIBUTABLE TO SOLAR WIND ENERGY TOWER, INC. COMMON SHAREHOLDERS		$	(3,327,600	)		$	379,254			$	(4,027,705	)		$	(1,396,828	)
Net (loss) income per common share, basic		$	(0.01	)		$	0.00			$	(0.01	)		$	(0.00	)
Net (loss) income per common share, diluted		$	(0.01	)		$	0.00			$	(0.01	)		$	(0.00	)
Weighted average number of common shares outstanding, basic			493,584,706				296,661,260				451,372,066				291,703,592
Weighted average number of common shares outstanding, diluted			493,584,706				364,731,453				451,372,066				291,703,592

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

SOLAR WIND ENERGY TOWER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

SIX MONTHS ENDED JUNE 30, 2014

(unaudited)

 

Additional

Non

Preferred stock

Common stock

Common to be Issued

Paid In

Accumulated

controlling

Shares

Amount

Shares

Amount

Shares

Amount

Capital

Deficit

Interest

Total

Balance, January 1, 2014

–

$

–

370,728,168

$

37,073

6,000,000

$

420,000

$

5,896,890

$

(8,866,368

)

$

–

$

(2,512,405

)

Shares issued in settlement of debt

–

–

134,104,182

13,411

–

–

1,451,667

–

–

1,465,078

Shares issued for consulting services rendered

–

–

500,000

50

–

–

2,200

–

–

2,250

Sale of common stock

–

–

7,125,000

712

–

–

24,288

–

–

25,000

Reclassify fair value of warrants from equity to liability

–

–

–

–

–

–

(13,202

)

–

–

(13,202

)

Fair value of warrants issued in connection with notes payable

–

–

–

–

–

–

253,119

–

–

253,119

Fair value of warrants issued as director compensation

–

–

–

–

–

–

33,181

–

–

33,181

Reclassify fair value of warrants from liability to equity

–

–

–

–

–

–

7,677

–

–

7,677

Reclassify fair value of debt derivative to equity upon note repayment in full

–

–

–

–

–

–

168,786

–

–

168,786

Stock based compensation

–

–

–

–

–

–

378,415

–

–

378,415

Net loss

–

–

–

–

–

–

–

(4,027,705

)

(29

)

(4,027,734

)

Balance, June 30, 2014

–

$

–

512,457,350

$

51,246

6,000,000

$

420,000

$

8,203,021

$

(12,894,073

)

$

(29

)

$

(4,219,835

)

 

 

See the accompanying notes to the unaudited condensed consolidated financial statements 

 

SOLAR WIND ENERGY TOWER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

		For the six months ended June 30,
		2014				2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(4,027,734	)		$	(1,396,828	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			1,976				2,240
Amortization of debt discounts and OID			660,896				292,084
Amortization of financing costs			28,324				18,500
Non cash interest			1,821,237				163,925
Stock based compensation			413,847				261,009
Fair value of warrants issued in connection with notes payable			–				43,568
Loss (gain) from change in fair value of derivative liabilities			476,450				(81,717	)
Changes in operating assets and liabilities:
Advances from stockholders/officers			–				(15,000	)
Accounts payable and accrued expenses			26,425				126,211
Net cash used in operating activates			(598,579	)			(586,008	)
CASH FLOWS FROM INVESTING ACTIVITIES:			–				–
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock			25,000				30,500
Proceeds from issuance of note payable			80,000				75,000
Proceeds from issuance of convertible notes payable			923,000				514,000
Repayments of convertible notes payable			(155,918	)			–
Net cash provided by financing activities			872,082				619,500
Net increase in cash			273,503				33,492
Cash, beginning of period			61,758				13,761
Cash, end of period		$	335,261			$	47,253
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid		$	–			$	–
Income taxes paid		$	–			$	–
Non cash investing and financing activities:
Fair value of warrants issued in connection with notes payable		$	253,119			$	–
Notes payable issued in settlement of accrued officer salaries		$	385,000			$	–
Common stock issued in settlement of debt		$	1,465,078			$	306,574

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

 

NOTE 1 – SUMMARY OF ACCOUNTING POLICIES

 

A summary of the significant accounting policies applied in the preparation of the accompanying unaudited condensed consolidated financial statements follows.

 

Business and Basis of Presentation

 

Solar Wind Energy Tower, Inc. (the “Company,” “we,” “our,” “us”), formerly known as Superior Silver Mines, Inc., was incorporated in the State of Idaho on January 22, 1962 as Superior Mines Company and then changed its name to Superior Silver Mines, Inc. The Company reincorporated as a Nevada corporation on December 27, 2010.  The Company has been dormant for a number of years, and has no known mineral reserves.

 

On December 29, 2010, Solar Wind Energy Tower Inc., a Nevada corporation (the “Company” or "Solar Wind"), completed a reverse merger (the “Merger”) with Solar Wind Energy, Inc., a corporation formed under the laws of the State of Delaware on July 26, 2010 (“Solar Wind - Subsidiary”). In connection with the Merger, the Company issued to the stockholders of Solar Wind - Subsidiary in exchange for their Solar Wind - Subsidiary Common Stock, the right to receive an aggregate of 300,000,000 shares of the Company’s Common Stock.  As a result of the reverse merger, Solar Wind - Subsidiary is now a wholly-owned subsidiary of the Company.

 

For accounting purposes, Solar Wind - Subsidiary was the surviving entity. The transaction was accounted for as a recapitalization of Solar Wind - Subsidiary pursuant to which Solar Wind - Subsidiary was treated as the surviving and continuing entity although the Company is the legal acquirer rather than a reverse acquisition.  Accordingly, the Company’s historical financial statements are those of Solar Wind - Subsidiary immediately following the consummation of the reverse merger. Also, going forward the business operations of Solar Wind - Subsidiary will become the Company’s principal business operations.

 

The Company plans to design, develop, and construct large downdraft towers that use benevolent, non-toxic natural elements to generate electricity and clean water economically (“Downdraft Towers”) by integrating and synthesizing numerous proven as well as emerging technologies. In addition to constructing Downdraft Towers in the United States and abroad, the Company intends to be prepared to establish partnerships at home and abroad to propagate these systems and meet increasing global demand for clean water and electricity

 

On January 21, 2011, the Company changed its name to Clean Wind Energy Tower, Inc. and on March 11, 2013, changed its name to Solar Wind Energy Tower Inc.  along with its wholly-owned subsidiary, a corporation formed under the laws of the State of Delaware, which changed its name from Clean Wind Energy, Inc. to Solar Wind Energy, Inc. In addition, effective January 24, 2011, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from SSVM.OB to CWET.OB and on March 11, 2013, in conjunction with our name change, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from CWET.OB to SWET.OB.

 

In April 2014, the Company organized Arizona Green Power, LLC, an Arizona limited liability company for the purpose to acquire development property from the City of San Luis, Arizona. In connection with financing of the project, the Company reduced its ownership interest to 98.67% in connection with the issuance of a note payable by Arizona Green Power, LLC on April 7, 2014.

 

 

 

 

Interim Financial Statements

 

The following (a) condensed consolidated balance sheet as of December 31, 2013, which has been derived from audited financial statements, and (b) the unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

 

Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of results that may be expected for the year ending December 31, 2014. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2013 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 28, 2014.

 

Going Concern

 

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, the Company has reported net losses of $4,027,734 and $1,396,828 for the six month periods ended June 30, 2014 and 2013, respectively, accumulated deficit of $12,894,073 and total current liabilities in excess of current assets of $3,855,110 as of June 30, 2014.

 

The Company does not have any revenues from operations and will be dependent on funds raise to satisfy its ongoing capital requirements for at least the next 12 months. The Company will require additional financing in order to execute its operating plan and continue as a going concern. The Company cannot predict whether this additional financing will be in the form of equity or debt, or be in another form. The Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In any of these events, the Company may be unable to implement its current plans for expansion or respond to competitive pressures, any of these circumstances would have a material adverse effect on its business, prospects, financial condition and results of operations.

 

The unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. 

 

Fair Value of Financial Instruments

  

Our short-term financial instruments, including cash, other assets and accounts payable and accrued expenses consist primarily of instruments without extended maturities, the fair value of which, based on management’s estimates, reasonably approximate their book value. The fair value of our notes and advances payable is based on management estimates and reasonably approximates their book value based on their current maturity.

 

Research and development

 

In accordance with ASC 730, “Research and Development”, the Company expenses all research and development costs as incurred. The Company had incurred $1,190 and $10,223 for the three and six months ended June 30, 2014, respectively; and $8,391 and $22,284 for the three and six months ended June 30, 2013 respectively, in research and development costs. The Company expects the research and development costs to increase in the future as it continues to invest in the infrastructure that is critical to achieve our business goals and objectives.

 

Net Income (loss) per Common Share

 

The Company computes net income (loss) per share under Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”). Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock. Diluted net income (loss) per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period. There is no effect on diluted loss per share since the common stock equivalents are anti-dilutive for the three and six months ended June 30, 2014 and 2013, respectively. Dilutive common stock equivalents consist of shares issuable upon conversion of convertible notes and exercise of warrants. Fully diluted shares for the three and six months ended June 30, 2014 were 675,450,951 and 633,238,321, respectively; and 364,731,453 and 291,703,592 shares for the three and six months ended June 30, 2013, respectively. Common stock equivalents excluded from the net income (loss) per share for the three and six month periods ended June 30, 2014 were 181,866,255 shares, and for the three and six month periods ended June 30, 2013 were 2,187,101 and 70,257,294 shares, respectively.

 

Stock Based Compensation

 

The Company account for its stock based awards in accordance with Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718-10”), which requires a fair value measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors, including restricted stock awards. We estimate the fair value of stock using the stock price on date of the approval of the award. The fair value is then expensed over the requisite service periods of the awards, which is generally the performance period and the related amount recognized in our consolidated statements of operations. 

 

Stock-based compensation expense in connection with stock warrants issued to consultants in exchange for services rendered for the three and six months ended June 30, 2014 was $190,253 and $378,415, respectively; $145,185 and $261,009 for the three and six months ended June 30, 2013, respectively.

 

Derivative financial instruments

 

Accounting Standards Codification subtopic 815-40, Derivatives and Hedging, Contracts in Entity’s own Equity (“ASC 815-40”) became effective for the Company on October 1, 2009. The Company’s convertible debt has reset provisions to the exercise price if the Company issues equity or a right to receive equity, at a price less than the exercise prices. In addition, the Company has the possibility of exceeding their common shares authorized when considering the number of possible shares that may be issuable to satisfy settlement provisions of convertible notes after consideration of all existing instruments that could be settled in shares.  

 

Capitalized Financing Costs

 

Capitalized financing costs represent costs incurred in connection with obtaining the debt financing.  These costs are amortized ratably and charged to financing expenses over the term of the related debt. The amortization for the three and six months ended June 30, 2014 was $28,324.  Accumulated amortization of deferred financing costs was $28,324 and $-0- at June 30, 2014 and December 31, 2013, respectively.

 

Recently Issued Accounting Pronouncements

 

The Company has adopted Accounting Standards Update (ASU) No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation. The amendments in this ASU remove all incremental financial reporting requirements from U.S. GAAP for development stage entities, including the removal of Topic 915, Development Stage Entities, from the FASB Accounting Standards Codification™.

 

A development stage entity is one that devotes substantially all of its efforts to establishing a new business and for which: (a) planned principal operations have not commenced; or (b) planned principal operations have commenced, but have produced no significant revenue. For example, many start-ups or even long-lived organizations that have not yet begun their principal operations or do not have significant revenue would be identified as development stage entities.

 

For public business entities, the presentation and disclosure requirements in Topic 915 will no longer be required for the first annual period beginning after December 15, 2014. The revised consolidation standards are effective one year later, in annual periods beginning after December 15, 2015. Early adoption is permitted.

 

There are various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's financial position, results of operations or cash flows.

 

NOTE 2 – ACCRUED LIABILITIES AND EXPENSES

 

Accrued liabilities and expenses as of June 30, 2014 and December 31, 2013 consist of the following:

 

		June 30, 2014				December 31, 2013
Accrued payroll		$	152,138			$	505,118
Accrued stock purchase warrants			29,400				29,400
Accrued lawsuit (Note 12 below)			122,985				122,985
Accrued interest and other			117,222				80,461
Total		$	421,745			$	737,964

 

NOTE 3 – ADVANCES FROM SHAREHOLDERS/OFFICERS

 

Advances from shareholders are comprised of the fair value of common stock pledged as collateral by shareholder (see Note 12 below).

 

NOTE 4 – NOTES PAYABLE

 

		June 30, 2014				December 31, 2013
Promissory notes issued June 20, 2012		$	268,270			$	268,270
Promissory note issued June 6, 2013			90,500				90,500
Note payable issued April 7, 2014			80,000				–
Total			438,770				358,770
Less current portion			358,770				358,770
Long term portion		$	80,000			$	–

 

On June 20, 2012, the Company issued three promissory notes payable in the aggregate of $268,270 in settlement of outstanding accounts payable. The notes mature earlier of (1) one year from the date of issuance, (2) completion of any major financing event or events in which the Company receives aggregate proceeds of $2,000,000 or more, or (3) any liquidation or reorganization, merger or recapitalization of the Company, bear an interest rate of 8% per annum due at maturity and are unsecured. The notes are currently in default.

 

 

 

On June 6, 2013, the Company issued a secured promissory note payable with a face amount of $97,500 with an original interest discount (“OID”) of $22,500. The note was originally due in full on October 3, 2013, subsequently extended to November 15, 2013, and is secured by a Company issued note to the Company’s CEO for $150,000 (See note 7). The Company is obligated to file by July 5, 2013 a registration statement on Form S-1 registering an equity line of credit to the benefit of the note holder and to become effective by September 18, 2013. The Company filed Form S-1 on June 24, 2013 and on October 16, 2013 became effective. Effective November 16, 2013, the remaining unpaid balance of $90,500 was in default, the promissory note became due and payable with interest rate at 22% per annum thereafter for any unpaid balance.

 

On April 7, 2014, Arizona Green Power, LLC, a majority owned subsidiary of the Company, issued a note payable for $80,000 with interest at 10% per annum, due at maturity of April 6, 2016. In connection with the issuance of the note, the Company granted i) a 1.33% ownership interest in Arizona Green Power, LLC and ii) a warrant to purchase 1,920,000 shares of the Company’s common stock exercisable at $0.05 per share expiring on March 7, 2016. The warrants were valued using the Black Sholes option pricing method with the following assumptions: dividend yield $-0-, volatility of 158.38% and risk free rate of 0.41%. The determined fair value of the warrant of $3,070 is amortized as financing costs of the term of the related note (2 years).

 

NOTE 5 – CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable are comprised of the following:

 

		June 30, 2014				December 31, 2013
Convertible promissory notes, due December 31, 2014, net of unamortized debt discount of $60,127 and $119,274, respectively		$	178,873			$	119,726
Convertible note payable, due January 24, 2015, net of unamortized debt discount and OID of $17,712			–				10,059
Convertible note payable, due December 19, 2013			–				32,500
Convertible note payable, due July 1, 2014, net of unamortized debt discount  and OID of $12,478			–				15,492
Convertible note payable, due April 15, 2014, net of unamortized debt discount of $12,231			–				20,269
Convertible note payable, due May 15, 2014, net of unamortized debt discount of $13,500			–				14,000
Convertible note payable, due January 24, 2015, net of unamortized debt discount of $36,977			–				13,023
Convertible note payable, due August 21, 2014, net of unamortized debt discount and OID of $19,925			–				11,287
Convertible promissory notes, due June 18, 2014, net of unamortized debt discount of  $19,973			–				12,527
Convertible promissory note, due July 14, 2014, net with unamortized debt discount and OID of $20,569			–				17,931
Convertible promissory note, due August 16, 2014, net of unamortized debt discount and OID of $24,049			–				14,451
Convertible promissory note, due October 22, 2014, net of unamortized debt discount and OID of $25,226			–				5,986
Convertible promissory note, due November 1, 2014, net of unamortized debt discount and OID of $47,226			–				10,274
Convertible promissory note, due September 10, 2014, net of unamortized debt discount of $38,678			–				3,822

 

 

 

 

		June 30, 2014				December 31, 2013
Convertible promissory note, due January 24, 2015, net of unamortized debt discount of $5,802 and $48,625, respectively			14,714				1,375
Convertible promissory note, due October 10, 2014, net of unamortized debt discount of $12,055			20,445				–
Convertible promissory note, due November 14, 2014, net of unamortized debt discount of $13,700			13,800				–
Convertible promissory note, due February 20, 2015, net of unamortized debt discount and OID of $16,069			8,901				–
Convertible promissory note, due February 2, 2015, net of unamortized debt discount of $28,408			21,592				–
Convertible promissory note, due January 7, 2015, net of unamortized debt discount of $25,489			12,011				–
Convertible promissory note, due May 2, 2015, net of unamortized debt discount of $26,658			8,342				–
Convertible promissory note, due January 24, 2015, net of unamortized debt discount of $49,000			14,000				–
Convertible promissory notes, due May 2, 2015, net of unamortized debt discount of $67,068			12,932				–
Convertible promissory note, due May 9, 2015, net of unamortized debt discount of $192,945			32,055				–
Convertible promissory note, due June 9, 2015, net of unamortized debt discount of $311,014			18,986				–
Total			356,651				302,722
Less short term portion			(356,651	)			(278,266	)
Long term portion		$	–			$	24,456

 

Asher notes:

 

On January 8, 2014, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $32,500 (the "Note"). The financing closed on January 8, 2014. The total net proceeds the Company received from this Offering was $30,000.

  

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on October 10, 2014. The Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion.

 

On February 12, 2014, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $27,500 (the "Note"). The financing closed on February 12, 2014. The total net proceeds the Company received from this Offering was $25,000.

  

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on November 14, 2014. The Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion.

 

 

 

 

 

In the event the Company prepays the Notes in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 121 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.

 

JMJ Financial

 

On July 11, 2012, the Company issued a Convertible Promissory Note to JMJ Financial (“JMJ”) providing JMJ with the ability to invest up to $275,000 which contains a 10% original issue discount (the “JMJ Note”). The transaction closed on July 25, 2012. During the six months ended June 30, 2014, the Company received two tranches of net proceeds in the amount of $70,000, of which $50,000 was paid. As of June 30, 2014 and December 31, 2013, the aggregate principal amount outstanding under the July 11, 2012 issued convertible promissory note was $24,970 and $90,395, respectively.

 

The maturity dates are one year from the effective date of each payment by JMJ to the Company (the “Maturity Date”). The conversion price (the “Conversion Price”) for each portion of consideration paid by JMJ to the Company is lesser of: (1) the closing price of the Company’s stock on the day the portion of consideration is paid to the Company, or (2) 70% of the lowest trade price in the 25 trading days previous to the conversion.

 

The JMJ Notes bear interest at 0% for the first 60 days and a one-time interest charge of 10% will be applied to the Principal Sum thereafter.

 

At any time after the Effective Date, the Company will have the option, upon 20 days business notice to JMJ, to prepay the entire remaining outstanding principal amount of the Note in cash, provided that (i) the Company will pay JMJ 150% of the principal amount outstanding in repayment, (ii) such amount must be paid in cash on the next business day following the 20 day business day notice period, and (iii) JMJ may still convert the Note pursuant to the terms herein during the 20 day business period until such repayment amount has been received in full.

 

Typenex Co-Investment, LLC

 

On May 13, 2013, the Company issued a Convertible Promissory Note to Typenex Co-Investment, LLC (“Typenex”) providing Typenex with the ability to invest up to $555,000 which contains a 10% original issue discount (the “Typenex Note”). The transaction closed on May 13, 2013. All issued tranches are due 20 months from the date of issuance.

 

On February 26, 2014, the Company issued a $50,000 Convertible Promissory Note (the “Note”) to Typenex Co-Investment LLC under the May 13, 2013 described transaction. The total proceeds the Company received from this offering was $50,000. 

 

The Note is convertible into common stock, at holder’s option, at the lower of i) 35% discount to the average of the two lowest closing bid prices of the common stock during the 20 trading day period prior to conversion or 40% if average of the two lowest bid prices are less than $0.01 or ii) $0.04.

 

 

 

 

 

KBM Worldwide, Inc.

 

On April 1, 2014, the Company entered into a Securities Purchase Agreement with KBM Worldwide, Inc. ("KBM"), for the sale of an 8% convertible note in the principal amount of $37,500 (the "Note"). The financing closed on April 1, 2014. The total net proceeds the Company received from this Offering was $35,000.

  

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on January 7, 2015. The Note is convertible into common stock, at KBM’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion.

 

On April 29, 2014, the Company entered into a Securities Purchase Agreement with KBM Worldwide, Inc. ("KBM"), for the sale of an 8% convertible note in the principal amount of $63,000 (the "Note"). The financing closed on April 29, 2014. The total net proceeds the Company received from this Offering was $60,000.

  

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on February 2, 2015. The Note is convertible into common stock, at KBM’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion.

 

Union Capital LLC

 

On May 2, 2014, the Company entered into a Securities Purchase Agreement with Union Capital LLC. ("Union"), for the sale of an 8% convertible note in the principal amount of $40,000 (the "Note"). The financing closed on May 2, 2014. The total net proceeds the Company received from this Offering was $35,000.

  

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on May 2, 2015. The Note is convertible into common stock, at Unions option, at a 42% discount to the lowest closing price of the common stock during the 10 trading day period prior to conversion.

 

Adar Bays, LLC

 

On May 2, 2014, the Company entered into a Securities Purchase Agreement with Adar Bays, LLC. ("Adar"), for the sale of an 8% convertible note in the principal amount of $40,000 (the "Note"). The financing closed on May 2, 2014. The total net proceeds the Company received from this Offering was $35,000.

  

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on May 2, 2015. The Note is convertible into common stock, at Adar’s option, at a 42% discount to the lowest closing price of the common stock during the 10 trading day period prior to conversion.

 

JDF Financial Capital, Inc.

 

On June 9, 2014, the Company entered a financing transaction by entering into a Purchase agreement dated June 3, 2014 (the “Purchase Agreement”) with JDF Capital Inc. (the “Purchaser”) for an aggregate principal amount of $885,000 (the “Purchase Price”). Pursuant to the Purchase Agreement, the Company issued the following to the Purchaser: (i) a 10% Convertible Promissory Note (the “Note”), (ii) a warrant to purchase an aggregate of 7,000,000 shares of the Company’s common stock, par value $0.0001 per share, for an exercise price of $0.05 per share for a period of 150 days from the effective date of the registration statement (the “First Warrant”), and (iii) a warrant to purchase an aggregate of 8,750,000 shares of the Company’s common stock, par value $0.0001 per share, for an exercise price of $0.04 per share for a period of 90 days from the effective date of the registration statement (the “Second Warrant” and collectively, the “Warrants”).

 

 

 

 

The exercise price and number of shares of the Company’s common stock issuable under the Warrants are subject to adjustments for stock dividends, splits, combinations, subsequent rights offerings, pro rata distributions and any issuance of securities below the exercise price of the Warrants. Any adjustment to the exercise price shall similarly cause the number of warrant shares to be adjusted proportionately so that the total value of the Warrants shall remain the same.

 

The Notes earn an interest rate of 10% per annum and a maturity date of 12 months from the date of the principal amount advanced. The Notes are convertible any time after the issuance date of the Note, and the Purchaser has the right to convert the Note into shares of the Company’s common stock at a conversion price equal to 42% discount to the lowest closing price of the common stock for the 15 trading days immediately prior the conversion date, subject to a maximum conversion price of $0.03 per share.

 

In the event of default, the Purchaser has the right to require the Company to repay in cash all or a portion of the Note at a price equal to 120% of the aggregate principal amount of the Note plus all accrued but unpaid interest. In addition, in the event of a Major Transaction (as defined in the Note), the Purchaser has the right to require the Company to prepaid all or a portion of the Note at a price equal to 110% of the aggregate principal amount plus all accrued but unpaid interest. In the event of a Triggering Event (as defined in the Note), the Purchaser has the right to require the Company to prepaid all or a portion of the Note at a price equal to the sum of (i) the greater of (a) 120% of the aggregate principal amount plus all accrued but unpaid interest and (ii) all other costs, expenses and liquidated damages due in respect of the Note and other transaction documents under the Purchase Agreement.

 

The first tranche of the Note has been funded to the Company by the Purchaser upon execution of the Purchase Agreement, in the principal amount of $555,000, consisting of the aggregate principal sum of $500,000 advanced by the Holder, $5,000 in expenses incurred by the Purchaser and 10% prepaid interest per annum over 12 months. The Purchaser also agreed to fund the Company the second tranche of the Note in the principal amount of $330,000, consisting of a cash payment of $300,000 and 10% pre-paid interest, within 15 business days of effectiveness of the registration statement.

 

Pursuant to the Purchase Agreement, the Company is obligated to file a registration statement with the Securities and Exchange Commission (the “SEC”), not later than 60 days after the closing date, to cover the shares to be issued upon conversion of the Note and upon exercise of the Warrants. In the event the Company did not (i) file the registration statement within the required timeframe, (ii) cause the registration statement to be declared effective by the SEC within 120 days following the closing date, (iii) cause the registration statement to be declared effective by the SEC within 5 trading days following the date on which the Company is notified by the SEC that the registration statement will not be reviewed or is no longer subject to further review and comments, or (iv) the registration statement ceases to be effective for over 20 trading days, then the Company shall pay to the Purchaser liquidated damages equal to 2% of the purchase price per month, not to exceed a total of 6% of the purchase price paid by the Purchaser.

  

The Company has identified the embedded derivatives related to the above described Notes. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.

 

At the inception of the 2014 Notes, the Company determined the aggregate fair value of $2,697,767 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 157.33% to 197.24%, (3) weighted average risk-free interest rate of 0.11 % to 0.23%, (4) expected life of 0.75 to 1.00 years, and (5) estimated fair value of the Company’s common stock of $0.0045 to $0.0271 per share.

 

 

 

 

The determined fair value of the debt derivatives of $2,697,768 was charged as a debt discount up to the net proceeds of the note with the remainder of $1,821,237 charged to current period operations as non-cash interest expense.

 

At June 30, 2014, the Company marked to market the fair value of the debt derivatives and determined a fair value of $2,289,808. The Company recorded a loss from change in fair value of debt derivatives of $155,201 and $150,860 for the three and six months ended June 30, 2014. The fair value of the embedded derivatives was determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 197.24%, (3) weighted average risk-free interest rate of 0.04% to 0.11%, (4) expected life of 0.28 to 0.94 years, and (5) estimated fair value of the Company’s common stock of $0.0305 per share.

 

The charge of the amortization of debt discounts and costs for the three and six months ended June 30, 2014 was $341,588 and $571,296, respectively, and $135,311 and $227,099 for the three and six months ended June 30, 2013, respectively. which was accounted for as interest expense. Also, the Company has accrued interest expense of $37,103 as of June 30, 2013.

 

During the six months ended June 30, 2014, the Company issued an aggregate of 134,104,182 shares of its common stock in settlement of the convertible note payable and related interest.

 

NOTE 6 – NOTES PAYABLE, RELATED PARTY

 

On April 18, 2014, the Company issued an aggregate of $385,000 promissory notes to officers and key employees in settlement of accrued salaries. The promissory notes bear interest at the rate of 2% per annum. All interest and principal must be repaid on April 18, 2016. In connection with the issuance of the notes, the Company issued an aggregate of 59,413,581 warrants to purchase the Company’s common stock at $0.00648 per share for two years.

 

The warrants were valued using the Black Sholes option pricing method with the following assumptions: dividend yield $-0-, volatility of 180.09% and risk free rate of 0.43%. The determined fair value of the warrants of $250,049 is amortized as financing costs of the term of the related notes (2 years).

 

The Company has accrued interest expense of $1,540 as of June 30, 2014.

 

NOTE 7 – CONVERTIBLE NOTES PAYABLE, RELATED PARTY

 

During 2012, the Company issued an aggregate of $280,000 convertible promissory notes to officers and key employees in settlement of accrued salaries.

 

The convertible promissory notes bear interest at the rate of 8% per annum. All interest and principal must be repaid on December 31, 2014. The convertible promissory notes are convertible into common stock, at the holders’ option at $0.015 per common share.

 

Due to the nature of the notes described in Note 5 above, the Company has identified the embedded derivatives related to the above described Notes. These embedded derivatives included certain conversion features and the uncertainty of sufficient authorized shares to meet possible conversion demands. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the notes and to fair value as of each subsequent reporting date.

 

The fair value of the embedded derivatives was determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 200.41% to 200.80%, (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 2.0 years, and (5) estimated fair value of the Company’s common stock of $0.0165 to $0.0167 per share.

 

 

The determined fair value of the debt derivatives of $262,285 was charged as a debt discount up to the net proceeds of the note.

 

At June 30, 2014, the Company marked to market the fair value of the debt derivatives and determined a fair value of $384,813. The Company recorded a loss from change in fair value of debt derivatives of $363,214 and $331,114 for the three and six months ended June 30, 2014, respectively. The fair value of the embedded derivatives was determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 197.24%, (3) weighted average risk-free interest rate of 0.07%, (4) expected life of 0.50 years, and (5) estimated fair value of the Company’s common stock of $0.0305 per share.

 

The charge of the amortization of debt discounts and costs for the three and six months ended June 30, 2014 was $32,672 and $64,985, respectively, and $32,672 and $64,985 for the three and six months ended June 30, 2013, respectively; which was accounted for as interest expense. Also, the Company has accrued interest expense of $33,541 as of June 30, 2014.

 

NOTE 8 – DERIVATIVE LIABILITIES

 

As described in Notes 5 and 7 above, the Company issued convertible notes that contain conversion features and reset provision. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date and to fair value as of each subsequent reporting date. Refer to Notes 5 and 7 for assumptions used to determine fair values.

 

During the six months ended June 30, 2014, the Company has the possibility of exceeding their common shares authorized when considering the number of possible shares that may be issuable to satisfy settlement provisions of convertible notes after consideration of all existing instruments that could be settled in shares.  The accounting treatment of derivative financial instruments required that the Company reclassify the derivative from equity to a liability at their fair values as of the date possible issuable shares exceeded the authorized level and at fair value as of each subsequent balance sheet date.  Any change in fair value was recorded as non-operating, non-cash income or expense at each reporting date.  If the fair value of the derivatives was higher at the subsequent balance sheet date, the Company recorded a non-operating, non-cash charge.  If the fair value of the derivatives was lower at the subsequent balance sheet date, the Company recorded non-operating, non-cash income.

 

The Company determined the previously issued warrants required reclassification from equity as of January 2014. Accordingly, the Company reclassified the determined fair value of $13,202 from additional paid in capital to derivative liabilities. On April 2, 2014, the Company increased its authorized shares to 900,000,000. Accordingly, the fair value of the warrants at April 2, 2014 of $7,677 was reclassified from derivative liabilities to additional paid in capital.

 

The fair value of the derivative in January 2014 was determined using the Black Sholes Option Pricing model with the following assumptions: dividend yield: 0%; volatility: 157.27%; risk free rate: 1.75%; and expected life: 4.37 years.

 

At April 2, 2014, the Company marked to market the fair value of the warrant derivative and determined a fair value of $7,677. The Company recorded a gain from change in fair value of derivative of $557 and $5,524 for the three and six months ended June 30, 2014. The fair value of the embedded derivatives was determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 159.32%, (3) weighted average risk-free interest rate of 1.62%, (4) expected life of 4.10 years, and (5) estimated fair value of the Company’s common stock of $0.0045 per share.

 

 

 

 

NOTE 9 – STOCKHOLDERS' EQUITY

 

Preferred stock

 

The Company has authorized 10,000,000 shares of preferred stock, with a par value of $0.0001 per share. As of June 30, 2014 and December 31, 2013, the Company did not have any preferred stock issued and outstanding.

 

Common stock

 

The Company has authorized 900,000,000 and 500,000,000 shares of common stock, with a par value of $0.0001 per share as of June 30, 2014 and December 31, 2013, respectively. As of June 30, 2014 and December 31, 2013, the Company has 512,457,350 and 370,728,168, respectively, shares of common stock issued and outstanding.

 

On April 2, 2014, the Company’s majority stockholders approved to amend the Articles of Incorporation to increase the number of authorized shares of common stock from 500,000,000 to 900,000,000 shares.

 

On May 20, 2014, the Company issued 500,000 shares of its common stock for investor relations services valued at $2,250.

 

In 2013 and 2012, the Company issued an aggregate of 15,000,000 and 21,500,000 shares of common stock for future services of $328,500 and $1,305,000, respectively. The Company accretes the fair value of the shares issued as stock based compensation during the requisite service period to operations. During the three and six months ended June 30, 2014, the Company recorded $190,253 and $378,415, respectively, and $108,353 and $218,581 for the three and six months ended June 30, 2013, respectively, as stock based compensation.

 

NOTE 10 – WARRANTS

 

Warrants

 

The following table summarizes the changes in warrants outstanding and related prices for the shares of the Company’s common stock at June 30, 2014:

 

Exercise Price				Number Outstanding				Warrants Outstanding Weighted Average Remaining Contractual Life (years)				Weighted Average Exercise price				Number Exercisable				Warrants Exercisable Weighted Average Exercise Price
$	0.00648				59,413,581				1.80			$	0.00648				59,413,581			$	0.00648
	0.00860				5,787,037				1.76				0.00860				5,787,037				0.00860
	0.02000				2,495,000				1.76				0.02000				2,495,000				0.02000
	0.04000				8,750,000				Contingent				0.04000				-				-
	0.05000				1,920,000				1.69				0.05000				1,920,000				0.05000
	0.05000				7,000,000				Contingent				0.05000				-				-
	0.10000				2,187,101				3.90				0.10000				2,187,101				0.10000
					87,552,719				1.90								71,802,719			$	0.01113

 

 

 

 

Transactions involving the Company’s warrant issuance are summarized as follows:

 

		Number of Shares				Weighted Average Price Per Share
Outstanding at December 31, 2012			2,187,101			$	0.10
Granted			–				–
Exercised			–				–
Canceled or expired			–				–
Outstanding at December 31, 2013			2,187,101				0.10
Granted			85,365,628				0.01
Exercised			–				–
Canceled or expired			–				–
Outstanding at June 30, 2014			87,552,729			$	0.01

 

On April 4, 2014, in recognition of past services by the two (2) Directors, the Company approved for issuance of an aggregate of 2,495,010 and 5,787,037 warrants to purchase the Company’s common stock at $0.02 and $0.0086 per share for two years.

 

The warrants were valued using the Black Sholes option pricing method with the following assumptions: dividend yield $-0-, volatility of 158.38% and risk free rate of 0.43%. The determined fair value of the warrants of $33,181 was charged to current period operations.

 

As described in Note 4, On April 7, 2014, the Company issued a warrant to purchase 1,920,000 shares of the Company’s common stock exercisable at $0.05 per share expiring on March 7, 2016 in connection with the issuance of a note. The warrants were valued using the Black Sholes option pricing method with the following assumptions: dividend yield $-0-, volatility of 158.38% and risk free rate of 0.41%. The determined fair value of the warrant of $3,070 is amortized as financing costs of the term of the related note (2 years).

 

As described in Note 6, the Company issued an aggregate of 59,413,581 warrants to purchase the Company’s common stock at $0.00648 per share for two years in connection with the issuance of notes payable.

 

The warrants were valued using the Black Sholes option pricing method with the following assumptions: dividend yield $-0-, volatility of 180.09% and risk free rate of 0.43%. The determined fair value of the warrants of $250,049 is amortized as financing costs of the term of the related notes (2 years).

 

As described in Note 5, the Company (ii) issued a warrant to purchase an aggregate of 7,000,000 shares of the Company’s common stock, par value $0.0001 per share, for an exercise price of $0.05 per share for a period of 150 days from the effective date of the registration statement (the “First Warrant”), and (iii) issued a warrant to purchase an aggregate of 8,750,000 shares of the Company’s common stock, par value $0.0001 per share, for an exercise price of $0.04 per share for a period of 90 days from the effective date of the registration statement. Due to the contingency nature of these warrants, the Company will determine the fair value at the date of the effectiveness of the registration statement.

 

NOTE 11- NON CONTROLLING INTEREST

 

In April 2014, the Company organized Arizona Green Power, LLC, an Arizona limited liability company for the purpose to acquire development property from the City of San Luis, Arizona. At the time of formation, Arizona Green Power, LLC did not have any significant assets or liabilities. In connection with financing of the project, the Company reduced its ownership interest to 98.67% in connection with the issuance of a note payable by Arizona Green Power, LLC on April 7, 2014.

 

 

A reconciliation of the non-controlling loss attributable to the Company:

 

Net loss attributable to non-controlling interest for the six months ended June 30, 2014:

 

 

		June 30, 2014
Net loss		$	2,194
Average Non-controlling interest percentage			1.33	%
Net loss attributable to the non-controlling interest		$	29

 

The following table summarizes the changes in non-controlling Interest from December 31, 2013 to June 30, 2014:

 

Balance, December 31, 2013		$	–
Transfer (to) from the non-controlling interest as a result of change in ownership			–
Net loss attributable to the non-controlling interest			(29	)
Balance, June 30, 2014		$	(29	)

 

NOTE 12 – CONTINGENCIES

 

Litigation

 

Hanover Holdings I, LLC vs Solar Wind Energy Tower Inc.(f/k/a Clean Wind Energy Tower, Inc.)

 

On December 27, 2012, we were served with a Complaint in the matter of Hanover Holdings I, LLC filed with the Supreme Court of the State of New York, stipulating that Solar Wind Energy Tower Inc. (f/k/a Clean Wind Energy Tower, Inc.) has yet to pay the remaining outstanding balance, related interest and penalties, as described in a convertible promissory note issued by Solar Wind Energy Tower Inc. (f/k/a Clean Wind Energy Tower, Inc.) to the benefit of Hanover Holdings I, LLC on February 29, 2012 and has failed to honor a notice of conversion issued by Hanover Holdings I, LLC on or about September 7, 2012. Total claim amount is for $122,985.

 

The Company is now in settlement discussions with Hanover Holdings I, LLC, and expects to settle the matter. However, the ultimate outcome cannot be determined at this time.

   

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not party to any such legal proceedings that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

 

NOTE 13 – FAIR VALUE MEASUREMENTS

 

ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:

 

 

 

 

·	Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
·	Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or
·	Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and are unobservable.

 

Items recorded or measured at fair value on a recurring basis in the accompanying unaudited condensed consolidated financial statements consisted of the following items as of June 30, 2014:

 

		Level 1				Level 2				Level 3				Total
Long-term investments		$	–			$	–			$	–			$	–
Total		$	–			$	–			$	–			$	–
Derivative liabilities		$	–			$	–			$	2,674,621			$	2,674,621
Total		$	–			$	–			$	2,674,621			$	2,674,621

 

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities (derivative liability) for the six months ended June 30, 2014.

 

Six months ended June 30, 2014: 

 

		Derivative Liabilities
Balance, December 31, 2013		$	689,093
Transfers in (out) at mark-market value on date of payoff or conversion			(1,194,215	)
Transfers in (out) upon reclassification from (to) equity			5,525
Transfers in upon initial fair value of derivative liabilities			2,697,768
Loss from change in fair value of derivative liabilities			476,450
Balance, June 30, 2014		$	2,674,621
Total loss for the six month period included in earnings relating to the liabilities held at June 30, 2014		$	(476,450	)

 

Level 3 Liabilities were comprised of our bifurcated convertible debt features on our convertible notes.

 

NOTE 14 – SUBSEQUENT EVENTS

 

Subsequent issuances of common stock

 

In July 2014, the Company issued an aggregate of 11,690,205 shares of common stock in settlement of $124,970 outstanding notes payable.

 

Hanover Holdings I, LLC vs Solar Wind Energy Tower Inc.(f/k/a Clean Wind Energy Tower, Inc.) The Company is now in settlement negotiations with Hanover Holdings I, LLC and expects to settle the matter.

  

 

 

 

Report of Independent Registered Public Accounting Firm

 

 

To the Board of Directors and Shareholders

Solar Wind Energy Tower, Inc.

 

 

We have audited the accompanying consolidated balance sheets of Solar Wind Energy Tower, Inc. (the “Company”), a development stage company as of December 31, 2013 and 2012, and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2013 and for the period from July 26, 2010 (date of inception) through December 31, 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to the above present fairly, in all material respects, the financial position of Solar Wind Energy Tower, Inc. as of December 31, 2013 and 2012, and the consolidated results of operations, and cash flows for each of the two years in the period ended December 31, 2013 and for the period from July 26, 2010 (date of inception) through December 31, 2013 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the accompanying consolidated financial statements, the Company is a development stage company and is incapable of generating sufficient cash flow to sustain its operations without securing additional financing, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter are described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

  

/s/ RBSM LLP

 

 

New York, New York

March 28, 2014

 

 

 

 

 

 

 

SOLAR WIND ENERGY TOWER, INC.

(a development stage company)

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2013 AND 2012

 

		2013				2012
ASSETS
Current assets:
Cash		$	61,758			$	13,761
Total current assets			61,758				13,761
Property and equipment, net			2,284				6,764
Other assets:
Deposits			2,300				2,300
Total assets		$	66,342			$	22,825
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable		$	171,245			$	211,487
Accrued liabilities and expenses			737,964				486,596
Advances from stockholders/officers			170,000				185,000
Notes payable			358,770				268,270
Convertible notes payable, net of unamortized debt discount of $353,129 and $123,525, respectively			278,266				68,975
Convertible notes payable, related party, net of unamortized debt discount of $131,047			148,953				–
Derivative liabilities			689,093				529,785
Total current liabilities			2,554,291				1,750,113
Long term debt:
Convertible notes payable, net of unamortized debt discount of $103,315 and $43,326, respectively			24,456				6,674
Convertible notes payable, related party, net of unamortized debt discount of $262,094			–				17,906
Total long term debt			24,456				24,580
Stockholders' deficit:
Preferred stock, par value $0.0001 per share; 10,000,000 shares authorized; none issued and outstanding as of December 31, 2013 and 2012			–				–
Common stock, par value $0.0001 per share; 500,000,000 shares authorized; 370,728,168 and 279,865,011 shares issued and outstanding as of December 31, 2013 and 2012, respectively			37,073				27,987
Common stock to be issued			420,000				420,000
Additional paid in capital			5,896,890				4,264,979
Accumulated deficit during development stage			(8,866,368	)			(6,464,834	)
Total stockholders' deficit			(2,512,405	)			(1,751,868	)
Total liabilities and stockholders' deficit		$	66,342			$	22,825

 

See the accompanying notes to the consolidated financial statements.

 

 

SOLAR WIND ENERGY TOWER, INC.

(a development stage company)

CONSOLIDATED STATEMENTS OF OPERATIONS

 

										For the period
										From July 26, 2010
										(date of inception)
		Year ended December 31,								through
		2013				2012				December 31, 2013
OPERATING EXPENSES:
Research and development		$	31,304			$	180,916			$	648,629
Selling, general and administrative			1,792,769				2,021,555				6,292,817
Depreciation			4,480				4,480				11,157
Total operating expenses			1,828,553				2,206,951				6,952,603
Loss from operations			(1,828,553	)			(2,206,951	)			(6,952,603	)
Other income (expense):
Interest expense			(1,355,537	)			(545,451	)			(2,083,917	)
Loss on modification of debt			–				–				(88,849	)
Loss on settlement of debt			–				(787,515	)			(787,515	)
Gain from change in fair value of derivative liabilities			782,556				174,719				1,046,516
Loss before provision for income taxes			(2,401,534	)			(3,365,198	)			(8,866,368	)
Provision for income taxes (benefit)			–				–				–
NET LOSS		$	(2,401,534	)		$	(3,365,198	)		$	(8,866,368	)
Net loss per common share, basic and diluted		$	(0.01	)		$	(0.01	)
Weighted average number of common shares outstanding, basic and diluted			308,150,223				244,446,234

 

See the accompanying notes to the consolidated financial statements.

 

 

SOLAR WIND ENERGY TOWER, INC.

(a development stage company)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

For the Period From July 26, 2010 (date of inception) Through December 31, 2013

 

																														Deficit
																														Accumulated
																										Additional				During
		Preferred stock								Common stock								Common to be Issued								Paid In				Development
		Shares				Amount				Shares				Amount				Shares				Amount				Capital				Stage				Total
Balance, date of inception (July 26, 2010) adjusted for recapitalization			–			$	–				20,955,199			$	2,096				–			$	–			$	191,565			$	–			$	193,661
Recapitalization and direct costs resulting in reverse merger:
Shares to be issued to Clean Wind Energy's stockholders			–				–				–				–				300,000,000				30,000				–				–				30,000
Shares to be issued for consulting services rendered in connection with reverse merger			–				–				–				–				6,100,000				427,000				–				–				427,000
Net loss			–				–				–				–				–				–				–				(838,157	)			(838,157	)
Balance, December 31, 2010			–				–				20,955,199				2,096				306,100,000				457,000				191,565				(838,157	)			(187,496	)
Recapitalization and direct costs resulting in reverse merger:
Shares issued to Clean Wind Energy's stockholders			–				–				300,000,000				30,000				(300,000,000	)			(30,000	)			–				–				–
Shares issued for consulting services rendered in connection with reverse merger			–				–				100,000				10				(100,000	)			(7,000	)			6,990				–				–
Shares issued for consulting services rendered at $0.20 per share			–				–				100,000				10				–				–				19,990				–				20,000
Shares to be issued in connection with PPM Subscription at $0.10 per share			–				–				–				–				1,200,000				120,000				–				–				120,000
Shares issued in connection with PPM Subscription at $0.10 per share			–				–				1,200,000				120				(1,200,000	)			(120,000	)			119,880				–				–
Shares issued in connection with PPM Subscription at $0.10 per share			–				–				7,290,000				729				–				–				728,271				–				729,000
Accrued warrants to be issued referring brokers in connection with PPM Subscription at $0.10 per share			–				–				–				–				–				–				(29,400	)			–				(29,400	)
Subtotal			–			$	–				329,645,199			$	32,965				6,000,000			$	420,000			$	1,037,296			$	(838,157	)		$	652,104

 

See the accompanying notes to the consolidated financial statements.

 

  

SOLAR WIND ENERGY TOWER, INC.

(a development stage company)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

For the Period From July 26, 2010 (date of inception) Through December 31, 2013

 

																														Deficit
																														Accumulated
																										Additional				During
		Preferred stock								Common stock								Common to be Issued								Paid In				Development
		Shares				Amount				Shares				Amount				Shares				Amount				Capital				Stage				Total
Balance forward			–			$	–				329,645,199			$	32,965				6,000,000			$	420,000			$	1,037,296			$	(838,157	)		$	652,104
Shares issued for consulting services rendered at $0.27 per share			–				–				24,422				2				–				–				6,591				–				6,593
Broker's finder’s fees paid in connection with PPM Subscription			–				–				–				–				–				–				(9,800	)			–				(9,800	)
Shares issued for consulting services rendered at $0.20 per share			–				–				13,787				1				–				–				2,756				–				2,757
Shares to be issued in connection with PPM Subscription at $0.10 per share			–				–				1,050,000				105				600,000				60,000				104,895				–				165,000
Shares issued for consulting services rendered at $0.12 per share			–				–				150,000				15				–				–				17,985				–				18,000
Shares issued for consulting services rendered at $0.12 per share			–				–				50,000				5				–				–				5,995				–				6,000
Shares forfeited and cancelled by some Clean Wind Energy's stockholders acquired in connection with the merger upon resignation			–				–				(120,600,000	)			(12,060	)			–				–				12,060				–				–
Shares issued for consulting services rendered at $0.18 per share			–				–				517,111				52				–				–				93,057				–				93,109
Net loss			–				–				–				–				–				–				–				(2,261,479	)			(2,261,479	)
Balance, December 31, 2011			–			$	–				210,850,519			$	21,085				6,600,000			$	480,000			$	1,270,835			$	(3,099,636	)		$	(1,327,716	)

 

See the accompanying notes to the consolidated financial statements.

 

 

SOLAR WIND ENERGY TOWER, INC.

(a development stage company)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

For the Period From July 26, 2010 (date of inception) Through December 31, 2013

 

																														Deficit
																														Accumulated
																										Additional				During
		Preferred stock								Common stock								Common to be Issued								Paid In				Development
		Shares				Amount				Shares				Amount				Shares				Amount				Capital				Stage				Total
Balance, December 31, 2011			–			$	–				210,850,519			$	21,085				6,600,000			$	480,000			$	1,270,835			$	(3,099,636	)		$	(1,327,716	)
Shares issued in connection with PPM Subscription at $0.10 per share			–				–				600,000				60				(600,000	)			(60,000	)			59,940				–				–
Shares issued for accrued expenses at $0.13 per share			–				–				261,556				26				–				–				34,441				–				34,467
Shares issued for future services			–				–				21,500,000				2,150				–				–				(2,150	)							–
Shares issued for consulting services rendered			–				–				7,751,176				776				–				–				289,872				–				290,648
Sale of common stock at $0.10 per share			–				–				850,000				85				–				–				84,915								85,000
Shares issued in connection with the exercise of warrants at $0.10 per share			–				–				2,300,000				230				–				–				229,770				–				230,000
Shares issued in settlement of debt			–				–				35,751,760				3,575				–				–				1,221,595				–				1,225,170
Beneficial conversion feature reclassified to equity upon repayment of convertible notes			–				–				–				–				–				–				209,487				–				209,487
Stock based compensation			–				–				–				–				–				–				866,274				–				866,274
Net loss			–				–				–				–				–				–				–				(3,365,198	)			(3,365,198	)
Balance, December 31, 2012			–			$	–				279,865,011			$	27,987				6,000,000			$	420,000			$	4,264,979			$	(6,464,834	)		$	(1,751,868	)

 

See the accompanying notes to the consolidated financial statements.

 

 

SOLAR WIND ENERGY TOWER, INC.

(a development stage company)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

For the Period From July 26, 2010 (date of inception) Through December 31, 2013

 

																														Deficit
																														Accumulated
																										Additional				During
		Preferred stock								Common stock								Common to be Issued								Paid In				Development
		Shares				Amount				Shares				Amount				Shares				Amount				Capital				Stage				Total
Balance, December 31, 2012			–			$	–				279,865,011			$	27,987				6,000,000			$	420,000			$	4,264,979			$	(6,464,834	)		$	(1,751,868	)
Shares issued for consulting services rendered			–				–				19,350,251				1,935				–				–				79,985				–				81,920
Shares issued in settlement of debt			–				–				66,073,247				6,607				–				–				882,433				–				889,040
Sale of common stock			–				–				5,439,659				544				–				–				64,956				–				65,500
Stock based compensation			–				–				–				–				–				–				560,969				–				560,969
Fair value of warrants issued in connection with notes payable			–				–				–				–				–				–				43,568				–				43,568
Net loss			–				–				–				–				–				–				–				(2,401,534	)			(2,401,534	)
Balance, December 31, 2013			–			$	–				370,728,168			$	37,073				6,000,000			$	420,000			$	5,896,890			$	(8,866,368	)		$	(2,512,405	)

 

See the accompanying notes to the consolidated financial statements.

 

 

SOLAR WIND ENERGY TOWER, INC.

(a development stage company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

										For the period
										From July 26, 2010
										(date of inception)
		For the year ended December 31,								through
		2013				2012				December 31, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(2,401,534	)		$	(3,365,198	)		$	(8,866,368	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			4,480				4,480				11,157
Amortization of debt discounts			816,642				255,543				1,124,407
Amortization of financing costs			33,823				59,500				93,323
Non cash interest			380,741				172,116				680,644
Stock based compensation			642,889				1,156,921				2,373,269
Fair value of warrants issued in connection with notes payable			43,568				–				43,568
Loss on settlement of debt			–				787,515				787,515
Loss on debt modification			–				–				88,849
Gain from change in fair value of derivative liabilities			(782,556	)			(174,719	)			(1,046,516	)
Changes in operating assets and liabilities:
Advances from stockholders/officers			(15,000	)			10,000				–
Accounts payable and accrued expenses			265,767				216,271				1,558,643
Net cash used in operating activates			(1,011,180	)			(877,571	)			(3,151,509	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash acquired from reverse merger			–				–				223,586
Purchase of property and equipment			–				–				(13,441	)
Payment of long term deposit			–				–				(9,330	)
Net cash provided by investing activities			–				–				200,815
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of subsidiary's common stock			–				–				75
Proceeds from sale of common stock			65,500				85,000				1,154,700
Proceeds from exercise of warrants			–				230,000				230,000
Proceeds from issuance of note payable			75,000				301,500				376,500
Proceeds from issuance of convertible notes payable			925,677				332,500				1,368,177
Repayments of convertible notes payable			(7,000	)			(110,000	)			(117,000	)
Net cash provided by financing activities			1,059,177				839,000				3,012,452
Net increase (decrease) in cash			47,997				(38,571	)			61,758
Cash, beginning of period			13,761				52,332				–
Cash, end of period		$	61,758			$	13,761			$	61,758
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid		$	–			$	98,778			$	98,778
Income taxes paid		$	–			$	–			$	–
Non cash investing and financing activities:
Accrued warrants to be issued to referring brokers in connection with PPM subscription at $0.10 per share		$	–			$	–			$	29,400
Shares forfeited and cancelled by some of Solar Wind Energy's stockholders acquired in connection with the merger upon resignation		$	–			$	–			$	12,060
Notes payable issued in settlement of accounts payable		$	–			$	268,270			$	268,270
Convertible notes payable issued in settlement of accrued officer salaries		$	–			$	280,000			$	280,000
Common stock issued in settlement of debt		$	889,040			$	1,225,170			$	2,114,210

 

See the accompanying notes to the consolidated financial statements.

 

 

SOLAR WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

 

NOTE 1 – NATURE OF OPERATIONS

 

Solar Wind Energy Tower, Inc. (the “Company”, “we”, “us”, “our”) (formerly known as Superior Silver Mines, Inc.) was incorporated in the State of Idaho on January 22, 1962 as Superior Mines Company and then changed its name to Superior Silver Mines, Inc. The Company reincorporated as a Nevada corporation on December 27, 2010. The Company has been dormant for a number of years, and has no known mineral reserves.

 

On December 29, 2010, Solar Wind Energy Tower, Inc., a Nevada corporation (the “Company” or "Solar Wind"), completed a reverse merger (the “Merger”) with Solar Wind Energy, Inc. (f/k/a Clean Wind Energy, Inc.), a corporation formed under the laws of the State of Delaware on July 26, 2010 (“Solar Wind - Subsidiary”).  In connection with the Merger, the Company issued to the stockholders of Solar Wind - Subsidiary in exchange for their Solar Wind - Subsidiary Common Stock, the right to receive an aggregate of 300,000,000 shares of the Company’s Common Stock.  As a result of the reverse merger, Solar Wind - Subsidiary is now a wholly-owned subsidiary of the Company.

 

For accounting purposes, Solar Wind - Subsidiary was the surviving entity. The transaction was accounted for as a recapitalization of Solar Wind - Subsidiary pursuant to which Solar Wind - Subsidiary was treated as the surviving and continuing entity although the Company is the legal acquirer rather than a reverse acquisition.  Accordingly, the Company’s historical financial statements are those of Solar Wind - Subsidiary immediately following the consummation of the reverse merger. Also, going forward the business operations of Solar Wind - Subsidiary will become the Company’s principal business operations.

 

On January 21, 2011, the Company changed its name to Clean Wind Energy Tower, Inc. and on March 11, 2013, changed its name to Solar Wind Energy Tower, Inc. along with its wholly-owned subsidiary, a corporation formed under the laws of the State of Delaware, which changed its name from Clean Wind Energy, Inc. to Solar Wind Energy, Inc. In addition, effective January 24, 2011, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from SSVM.OB to CWET.OB and on March 11, 2013, in conjunction with our name change, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from CWET.OB to SWET.OB.

  

Until the consummation of the Merger, the Company’s purpose was to seek, investigate and, if such investigation warranted, acquire an interest in business opportunities presented to it by persons or firms who, or which, desire to seek the perceived advantages of a publicly registered corporation. Because the Company had no operations and only nominal assets until the Merger, it was considered a shell company under rules promulgated by the U.S. Securities and Exchange Commission.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Fair Value of Financial Instruments

  

Our short-term financial instruments, including cash, other assets and accounts payable and accrued expenses consist primarily of instruments without extended maturities, the fair value of which, based on management’s estimates, reasonably approximate their book value. The fair value of our notes and advances payable is based on management estimates and reasonably approximates their book value based on their current maturity.

 

 

SOLAR WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

 

Long-Lived Assets

 

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with Topic ASC 360, “Property, Plant and Equipment”. Recoverability is measured by comparison of the carrying amount to the future net cash flows which the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected discounted future cash flows arising from the asset using a discount rate determined by management to be commensurate with the risk inherent to our current business model.

 

Net Loss per Common Share

 

The Company computes net loss per share under Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”). Basic net income (loss) per common share is computed by dividing net loss by the weighted average number of shares of common stock. Diluted net loss per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period. There is no effect on diluted loss per share since the common stock equivalents are anti-dilutive. Dilutive common stock equivalents consist of shares issuable upon conversion of convertible notes and the exercise of the Company's stock options and warrants. Fully diluted shares as of December 31, 2013 and 2012 were 473,674,550 and 286,418,391, respectively.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

 

Revenue Recognition

 

The Company has generated no revenues to date. It is the Company’s policy that revenue from product sales or services will be recognized in accordance with ASC 605 “Revenue Recognition”. Four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company will defer any revenue for which the product was not delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.

 

Stock Based Compensation

 

The Company account for its stock based awards in accordance with Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718-10”), which requires a fair value measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors, including restricted stock awards. We estimate the fair value of stock using the stock price on date of the approval of the award. The fair value is then expensed over the requisite service periods of the awards, which is generally the performance period and the related amount recognized in our consolidated statements of operations.

 

Stock-based compensation expense in connection with stock granted to consultants in exchange for services rendered for the years ended December 31, 2013 and 2012 was $642,889 and $1,156,921, respectively.

 

 

SOLAR WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

 

Income Taxes

   

The Company utilizes ASC 740 “Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Temporary differences between taxable income reported for financial reporting purposes and income tax purposes primarily relate to the recognition of debt costs and stock based compensation expense. The adoption of ASC 740-10 did not have a material impact on the Company's results of operations or financial condition.

 

Research and development

 

In accordance with ASC 730, “Research and Development”, the Company expenses all research and development costs as incurred. The Company had incurred $31,304, $180,916 and $648,629 research and development costs for the years ended December 31, 2013, 2012 and for the period from July 26, 2010 (date of inception) through December 31, 2013, respectively. The company expects the research and development costs to increase in the future as it continues to invest in the infrastructure that is critical to achieve our business goals and objectives.

 

Property, plant and equipment

 

Property, plant and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets. Gains and losses from the retirement or disposition of property and equipment are included in operations in the period incurred. Maintenance and repairs are expensed as incurred.

 

Cash and cash equivalents

 

For purposes of the statement of cash flows, cash and cash equivalents includes demand deposits, saving accounts and money market accounts. The Company considers all highly liquid debt instruments with maturities of three months or less when purchased to be cash and cash equivalents.

 

Derivative financial instruments

 

Accounting Standards Codification subtopic 815-40, Derivatives and Hedging, Contracts in Entity’s own Equity (“ASC 815-40”) became effective for the Company on October 1, 2009. The Company’s convertible debt has reset provisions to the exercise price if the Company issues equity or a right to receive equity, at a price less than the exercise prices.

 

Development stage entity

   

The Company is considered to be a development stage entity, as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 915. For the period from July 26, 2010 (date of inception) through December 31, 2013, the Company has not generated any revenues to date, has no significant assets and has incurred losses since inception from developing its business and planned operations. Consequently, its operations are subject to all the risks inherent in the establishment of a new business enterprise.

 

 

SOLAR WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

 

Recently Issued Accounting Pronouncements

 

There are various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company's consolidated financial position, results of operations or cash flows.

 

NOTE 3 – GOING CONCERN MATTERS

 

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has reported a net loss of $(2,401,534) for the year ended December 31, 2013, accumulated deficit of $(8,866,368) and total current liabilities in excess of current assets of $(2,492,533) as of December 31, 2013.

   

The Company’s ability to continue existence is dependent upon commencing its planned operations, management’s ability to develop and achieve profitable operations and/or upon obtaining additional financing to carry out its planned business. The Company intends to fund its business development, acquisition endeavors and operations through equity and debt financing arrangements. During the year ended December 31, 2013, certain shareholders of the Company have committed to meeting operating expenses. However, there can be no assurance that these arrangements will be sufficient to fund its ongoing capital expenditures, working capital, and other cash requirements. The outcome of these matters cannot be predicted at this time. There can be no assurance that any additional financings will be available to the Company on satisfactory terms and conditions, if at all. In the event we are unable to continue as a going concern, we may elect or be required to seek protection from our creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition in bankruptcy. To date, management has not considered this alternative, nor does management view it as a likely occurrence.

 

The accompanying consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

 

NOTE 4 – ACCRUED LIABILITIES AND EXPENSES

 

Accrued liabilities and expenses as of December 31, 2013 and 2012 consist of the following:

 

		2013				2012
Accrued payroll		$	505,118			$	292,365
Accrued payroll taxes payable			–				18,330
Accrued stock purchase warrants			29,400				29,400
Accrued lawsuit (Note 6 below)			122,985				122,985
Accrued interest and other			80,461				23,516
Total		$	737,964			$	486,596

 

NOTE 5 – ADVANCES FROM SHAREHOLDERS/OFFICERS

 

Advances from shareholders are comprised of the following:

 

		2013				2012
Cash advances		$	–			$	15,000
Fair value of common stock pledged as collateral by shareholder (see below)			170,000				170,000
Total		$	170,000			$	185,000

 

 

SOLAR WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

 

As described below, the Company issued a Secured Convertible Promissory Note on February 29, 2012. In connection with the issuance, a shareholder pledged 10,000,000 shares of the Company's common stock. On March 8, 2012, upon notice of default, the escrow agent transferred the pledged common shares to the note holder. The fair value of the common shares pledged was recorded as a related party obligation as of March 31, 2012 with a corresponding reduction in the carrying value of the Note Payable.

 

NOTE 6 – NOTE PAYABLE

 

On June 20, 2012, the Company issued three promissory notes payable in the aggregate of $268,270 in settlement of outstanding accounts payable. The notes mature earlier of (1) one year from the date of issuance, (2) completion of any major financing event or events in which the Company receives aggregate proceeds of $2,000,000 or more, or (3) any liquidation or reorganization, merger or recapitalization of the Company, bear an interest rate of 8% per annum due at maturity and are unsecured.

 

On June 6, 2013, the Company issued a secured promissory note payable with a face amount of $97,500 with an original interest discount (“OID”) of $22,500. The note was originally due in full on October 3, 2013, subsequently extended to November 15, 2013, and is secured by a Company issued note to the Company’s CEO for $150,000 (See note 8). The Company is obligated to file by July 5, 2013 a registration statement on Form S-1 registering an equity line of credit to the benefit of the note holder and to become effective by September 18, 2013. The Company filed Form S-1 on June 24, 2013 and on October 16, 2013 became effective. Effective November 16, 2013, the promissory note was in default, the promissory note became due and payable with interest rate at 22% per annum thereafter for any unpaid balance.

 

NOTE 7 – CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable are comprised of the following:

 

		December 31, 2013				December 31, 2012
Convertible note payable, due March 21, 2013, net of unamortized debt discount of $5,091		$	–			$	12,409
Convertible note payable, due July 11, 2013, net of unamortized debt discount and OID of $26,301			–				23,699
Convertible note payable, due May 6, 2013, net of unamortized debt discount of $15,978			–				19,022
Convertible note payable, due October 3, 2013, net of unamortized debt discount and OID of $18,904			–				6,096
Convertible note payable, due August 13, 2013, net of unamortized debt discount of $26,399			–				6,101
Convertible promissory notes, due December 31, 2014, net of unamortized debt discount of $119,274 and $43,326, respectively			119,726				6,674
Convertible note payable, due September 19, 2013, net of unamortized debt discount of $30,852			–				1,648
Convertible note payable, due January 24, 2015, net of unamortized debt discount and OID of $17,712			10,059				–
Convertible note payable, due December 19, 2013			32,500

 

 

SOLAR WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

 

		December 31, 2013				December 31, 2012
Convertible note payable, due July 1, 2014, net of unamortized debt discount  and OID of $12,478		$	15,492			$	–
Convertible note payable, due April 15, 2014, net of unamortized debt discount of $12,231			20,269				–
Convertible note payable, due May 15, 2014, net of unamortized debt discount of $13,500			14,000				–
Convertible note payable, due January 24, 2015, net of unamortized debt discount of $36,977			13,023				–
Convertible note payable, due August 21, 2014, net of unamortized debt discount and OID of $19,925			11,287				–
Convertible promissory notes, due June 18, 2014, net of unamortized debt discount of $19,973			12,527				–
Convertible promissory note, due July 14, 2014, net with unamortized debt discount and OID of $20,569			17,931				–
Convertible promissory note, due August 16, 2014, net of unamortized debt discount and OID of $24,049			14,451				–
Convertible promissory note, due October 22, 2014, net of unamortized debt discount and OID of $25,226			5,986				–
Convertible promissory note, due November 1, 2014, net of unamortized debt discount and OID of $47,226			10,274				–
Convertible promissory note, due September 10, 2014, net of unamortized debt discount of $38,678			3,822				–
Convertible promissory note, due January 24, 2015, net of unamortized debt discount of $48,625			1,375				–
Total			302,722				75,649
Less short term portion			(278,266	)			(68,975	)
Long term portion		$	24,456			$	6,674

 

Asher notes:

 

In 2012 and 2013, the Company entered into a Securities Purchase Agreements with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the aggregate principal amounts outstanding as of December 31, 2013 and 2012 of $135,000 and $117,500, respectively.

  

These notes bear interest at the rate of 8% per annum. All interest and principal must be repaid approximately nine months from the date of issuances. The Notes are convertible into common stock, at Asher’s option, at a 42% to 49% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion.

 

In the event the Company prepays the notes in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 121 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.

 

 

SOLAR WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

 

JMJ Financial

 

On July 11, 2012, the Company issued a Convertible Promissory Note to JMJ Financial (“JMJ”) providing JMJ with the ability to invest up to $275,000 which contains a 10% original issue discount (the “JMJ Note”). The transaction closed on July 25, 2012. During the years ended December 31, 2013 and 2012, the Company received tranches of net proceeds in the amounts of $135,000 and $67,500, respectively. As of December 31, 2013 and 2012, the aggregate principal amount outstanding under the July 11, 2012 issued convertible promissory note was $90,395 and $75,000, respectively.

 

The maturity dates are one year from the effective date of each payment by JMJ to the Company (the “Maturity Date”). The conversion price (the “Conversion Price”) for each portion of consideration paid by JMJ to the Company is lesser of: (1) the closing price of the Company’s stock on the day the portion of consideration is paid to the Company, or (2) 70% of the lowest trade price in the 25 trading days previous to the conversion.

 

The JMJ Notes bear interest at 0% for the first 60 days and a one-time interest charge of 10% will be applied to the Principal Sum thereafter.

 

At any time after the Effective Date, the Company will have the option, upon 20 days business notice to JMJ, to prepay the entire remaining outstanding principal amount of the Note in cash, provided that (i) the Company will pay JMJ 150% of the principal amount outstanding in repayment, (ii) such amount must be paid in cash on the next business day following the 20 day business day notice period, and (iii) JMJ may still convert the Note pursuant to the terms herein during the 20 day business period until such repayment amount has been received in full.

 

Typenex Co-Investment, LLC

 

On May 13, 2013, the Company issued a Convertible Promissory Note to Typenex Co-Investment, LLC (“Typenex”) providing Typenex with the ability to invest up to $555,000 which contains a 10% original issue discount (the “Typenex Note”). The transaction closed on May 13, 2013. All issued tranches are due 20 months from the date of issuance. During the year ended December 31, 2013, the Company received tranches of net proceeds in the amounts of $205,000. As of December 31, 2013, the aggregate principal amount outstanding under the July 25, 2012 issued convertible promissory note was $127,771.

 

The Note is convertible into common stock, at holder’s option, at the lower of i) 35% discount to the average of the two lowest closing bid prices of the common stock during the 20 trading day period prior to conversion or 40% if average of the two lowest bid prices are less than $0.01 or ii) $0.04.

 

In connection with the issuance of the Convertible Promissory Note on May 13, 2013, the Company issued the note holder a warrant to purchase 2,187,101 shares of the Company’s common stock at $0.10 per share for five years. The fair value of the issued warrants of $43,568 was determined using the Black-Scholes option model with the following assumptions:

 

Expected life (years)			5
Expected volatility			200.60	%
Risk-free interest rate			0.40	%
Dividend yield			–	%

 

Phoenix Worldwide Holdings, Inc.

 

On June 20, 2013, the Company issued an unsecured Convertible Promissory Note to Phoenix Worldwide Holdings, Inc. ("Phoenix"), in the principal amount of $32,500 (the "Note"). The financing closed on June 20, 2013. The total net proceeds the Company received from this Offering was $25,000 with an OID of $7,500 and due December 19, 2013.

 

 

SOLAR WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

 

The Note is convertible into common stock, at Phoenix’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. As of December 31, 2013, the aggregate principal amount outstanding under the June 20, 2013 issued convertible promissory note was $32,500.

 

LG Capital Funding, LLC

 

During the year ended December 31, 2013, the Company issued two Convertible Redeemable Notes to LG Capital LLC in an aggregate principal amount of $77,000. The notes bear interest rate of 8% per annum, contain an original issue discount of 10% and are due one year from the date of issuance.

 

The notes are convertible into common stock, at holder’s option, at the lower of i) 42% discount to the average of the two lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. As of December 31, 2013, the aggregate principal amount outstanding was $77,000.

 

JDF Capital Inc.

 

On November 1, 2013, the Company issued an unsecured Convertible Promissory Note to JDF Capital, Inc. ("JDF"), in the principal amount of $57,500 (the "Note"). The total net proceeds the Company received from this Offering was $50,000 with an OID of $5,000 and due November 1, 2014.

 

The Note is convertible into common stock, at JDF’s option, at a 42% discount to the average of the lowest closing price of the common stock during the 10 trading day period prior to conversion or the closing price at conversion. As of December 31, 2013, the aggregate principal amount outstanding under the November 1, 2013 issued convertible promissory note was $57,500.

 

PPM

 

During the months of December 2012 and January 2013, the Company issued an aggregate of thirteen convertible promissory notes to investors in the aggregate principal amount of $239,000. The total net proceeds the Company received from this Offering was $239,000.

 

The convertible promissory notes bear interest at the rate of 8% per annum. All interest and principal must be repaid on December 31, 2014. The Note is convertible into common stock, at holders’ option, at a conversion rate of $0.015 per common share.

 

The Company has identified the embedded derivatives related to the above described Notes. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.

 

At the inception of the 2012 Notes, the Company determined the aggregate fair value of $536,541 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 196.08% to 219.80%, (3) weighted average risk-free interest rate of 0.13 % to 0.19%, (4) expected life of 0.75 to 1.00 years, and (5) estimated fair value of the Company’s common stock of $0.015 to $0.043 per share.

 

The determined fair value of the debt derivatives of $536,541 was charged as a debt discount up to the net proceeds of the note with the remainder $(172,116) charged to current period operations as non-cash interest expense.

 

 

SOLAR WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

 

At the inception of the 2013 Notes, the Company determined the aggregate fair value of $1,290,328 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 158.78% to 203.63%, (3) weighted average risk-free interest rate of 0.10 % to 0.28%, (4) expected life of 0.75 to 1.95 years, and (5) estimated fair value of the Company’s common stock of $0.0116 to $0.0251 per share.

 

The determined fair value of the debt derivatives of $1,290,328 was charged as a debt discount up to the net proceeds of the note with the remainder $350,468 charged to current period operations as non-cash interest expense.

 

At December 31, 2013, the Company marked to market the fair value of the debt derivatives and determined a fair value of $589,558. The Company recorded a gain from change in fair value of debt derivatives of $618,035 for the year ended December 31, 2013. The fair value of the embedded derivatives was determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 157.27%, (3) weighted average risk-free interest rate of 0.01% to 0.13%, (4) expected life of 0.01 to 1.07 years, and (5) estimated fair value of the Company’s common stock of $0.0072 per share.

 

The charge of the amortization of debt discounts and costs for the years ended December 31, 2013 and 2012 was $816,642 and $255,352, respectively, which was accounted for as interest expense. Also, the Company has accrued interest expense of $55,901 as of December 31, 2013.

 

During the year ended December 31, 2013, the Company issued an aggregate of 66,073,247 shares of its common stock in settlement of the convertible note payable and related interest.

 

NOTE 8 – CONVERTIBLE NOTES PAYABLE, RELATED PARTY

 

During 2012, the Company issued an aggregate of $280,000 convertible promissory notes to officers and key employees in settlement of accrued salaries.

 

The convertible promissory notes bear interest at the rate of 8% per annum. All interest and principal must be repaid on December 31, 2014. The convertible promissory notes are convertible into common stock, at the holders’ option at $0.15 per common share.

 

Due to the nature of the notes described in Note 7 above, the Company has identified the embedded derivatives related to the above described Notes. These embedded derivatives included certain conversion features and the uncertainty of sufficient authorized shares to meet possible conversion demands. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the notes and to fair value as of each subsequent reporting date.

 

The fair value of the embedded derivatives was determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 200.41% to 200.80%, (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 2.0 years, and (5) estimated fair value of the Company’s common stock of $0.0165 to $0.0167 per share.

 

The determined fair value of the debt derivatives of $262,285 was charged as a debt discount up to the net proceeds of the notes.

 

 

SOLAR WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

 

At December 31, 2013, the Company marked to market the fair value of the debt derivatives and determined a fair value of $53,699. The Company recorded a gain from change in fair value of debt derivatives of $140,769 for the year ended December 31, 2013. The fair value of the embedded derivatives was determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 157.27%, (3) weighted average risk-free interest rate of 0.13%, (4) expected life of 1.00 years, and (5) estimated fair value of the Company’s common stock of $0.0072 per share.

  

The charge of the amortization of debt discounts and costs for the years ended December 31, 2013 and 2012 was $131,047 and $191, respectively, which was accounted for as interest expense. Also, the Company has accrued interest expense of $22,433 as of December 31, 2013.

 

NOTE 9 – DERIVATIVE LIABILITIES

 

As described in Notes 7 and 8 above, the Company issued convertible notes that contain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date and to fair value as of each subsequent reporting date. Refer to Notes 7 and 8 for assumptions used to determine fair values.

 

NOTE 10 – EQUITY FACILITY AGREEMENT

 

On June 6, 2013, the Company entered into a Committed Equity Facility Agreement for an aggregate of $3,000,000 expiring the earliest of advances up to the facility amount ($3,000,000), default (as defined) or June 6, 2016.

 

The Company may request an advance up to the maximum amount, defined as 200% of the average daily value traded for 10 trading days immediately prior to the date of delivery of advance notice, by delivering the Company’s common stock at an advance rate of 75% of the lowest volume weighted average price five consecutive trading days before advance notice.

 

The Company is required to maintain an effective registration statement to utilize the equity facility.

 

As of December 31, 2013, the Company issued 3,406,326 shares of its common stock for an advance of $35,000 under the equity facility agreement.

 

NOTE 11 – COMMITMENTS AND CONTINGENCIES

 

Office Leases Obligations

 

The Company leases a suite of offices and shared support services at 1997 Annapolis Exchange Parkway, Suite 300, Annapolis, Maryland 21401 month to month basis.

 

Rental expenses charged to operations for the year ended December 31, 2013 and 2012 was $23,916 and $71,366, respectively.

 

Employment and Consulting Agreements

 

The Company has employment agreements with certain of its key employees which include non-disclosure and confidentiality provisions for protection of the Company’s proprietary information.

 

The Company has consulting agreements with outside contractors to provide marketing and financial advisory services. The Agreements are generally for a term of 12 months from inception and renewable automatically from year to year unless either the Company or Consultant terminates such engagement by written notice.

 

 

SOLAR WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

 

On December 29, 2010, pursuant to the Merger, Solar Wind Energy, Inc. became a wholly-owned subsidiary of the Company. Solar Wind has employment agreements with its executive officers. Each of the employment agreements was entered into on September 22, 2010 and amended on November 22, 2010.

 

 

Name		Position(s)		Term		Salary		Bonus		Severance
Ronald W. Pickett		President, Chief Executive Officer		3 years; renewable for 1 year on mutual consent		$200,000		Board Discretionary		Twelve (12) months salary and benefits for termination without cause.
Stephen Sadle		Chief Operating Officer		3 years; renewable for 1 year on mutual consent		$175,000		Board Discretionary		Twelve (12) months salary and benefits for termination without cause.
Robert P. Crabb		Secretary, Chief Marketing Officer		3 years; renewable for 1 year on mutual consent		$60,000		Board Discretionary		Twelve (12) months salary and benefits for termination without cause.

 

The foregoing descriptions of the employment agreements do not purport to be completed and are qualified in their entirety by reference to such employment agreements which are included as exhibits to this Form 10-K, were filed with the SEC on Form 8-K on December 30, 2010.

 

In connection with the private placement subscription the Company has also agreed to issue to the referring brokers, five-year warrants to purchase an aggregate of 98,000 shares of common stock at an exercise price of $0.10 per share. The Company valued the warrants using the Black-Scholes pricing model and the following assumptions: contractual terms of 5 years, an average risk free interest rate of 2.00%, a dividend yield of 0%, and volatility of 247%. The amount of $29,400 attributed to the value of the warrants to be issued and has been accrued for as of December 31, 2013, which is charged to additional paid-in capital.

 

Litigation

 

Hanover Holdings I, LLC vs Solar Wind Energy Tower Inc. (f/k/a Clean Wind Energy Tower, Inc.)

 

On December 27, 2012, we were served with a Complaint in the matter of Hanover Holdings I, LLC filed with the Supreme Court of the State of New York, stipulating that Solar Wind Energy Tower Inc. (f/k/a Clean Wind Energy Tower, Inc.) has yet to pay the remaining outstanding balance, related interest and penalties, as described in a convertible promissory note issued by Solar Wind Energy Tower Inc. (f/k/a Clean Wind Energy Tower, Inc.) to the benefit of Hanover Holdings I, LLC on February 29, 2012 and has failed to honor a notice of conversion issued by Hanover Holdings I, LLC on or about September 7, 2012. Total claim amount is for $122,985. The Company does not believe any additional payments are due to Hanover Holdings I, LLC and is vigorously defend its position. However, the ultimate outcome cannot be determined at this time.

   

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not party to any such legal proceedings that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

 

NOTE 12 – STOCKHOLDERS' EQUITY

 

Preferred stock

 

The Company has authorized 10,000,000 shares of preferred stock, with a par value of $0.0001 per share. As of December 31, 2013 and 2012, the Company did not have any preferred stock issued and outstanding.

 

 

SOLAR WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

 

Common stock

 

The Company has authorized 500,000,000 shares of common stock, with a par value of $0.0001 per share. As of December 31, 2013 and 2012, the Company has 370,728,168 and 279,865,011, respectively, shares of common stock issued and outstanding.

 

During the year ended December 31, 2013, the Company issued an aggregate of 19,350,251 shares of common stock for services rendered of $81,920.

 

During the year ended December 31, 2013, the Company issued an aggregate of 66,073,247 shares of common stock in settlement of $532,967 of convertible notes payable and related accrued interest.

 

During the year ended December 31, 2013, the Company issued 2,033,333 of common stock for net proceeds of $30,500. 

 

During the year ended December 31, 2013, the Company issued 3,406,326 of common stock for net proceeds of $35,000 under an equity facility agreement. 

 

In 2013 and 2012, the Company issued an aggregate of 15,000,000 and 21,500,000 shares of common stock for future services of $328,500 and $1,745,690, respectively. The Company accretes the fair value of the shares issued as stock based compensation during the requisite service period to operations. During the years ended December 31, 2013 and 2012, the Company recorded $560,968 and $866,274, respectively, as stock based compensation.

 

During the years ended December 31, 2012, the Company issued an aggregate of 261,556 shares of common stock for accrued expenses of $34,467.

 

During the year ended December 31, 2012, the Company issued an aggregate of 7,751,176 shares of common stock for services rendered of $290,647.

 

During the year ended December 31, 2012, the Company issued an aggregate of 22,500,000 shares of common stock in settlement of $150,000 previous incurred payables. In connection with the issuance, the Company recorded a loss on settlement of debt of $822,500.

 

During the year ended December 31, 2012, the Company issued an aggregate of 13,251,760 shares of common stock in settlement of $126,000 of convertible notes payable and related accrued interest.

 

During the year ended December 31, 2012, the Company issued an aggregate of 600,000 shares of common stock for common stock subscriptions for $60,000 proceeds, which received in 2011 and 2,300,000 shares of common stock for in connection with a warrant agreement entered into on January 12, 2012 for $230,000.

 

During the year ended December 31, 2012, the Company issued 850,000 of common stock for net proceeds of $85,000. 

 

 

SOLAR WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

 

NOTE 13 – WARRANTS

 

Warrants

 

The following table summarizes the changes in warrants outstanding and related prices for the shares of the Company’s common stock at December 31, 2013:

 

Exercise Price				Number Outstanding				Warrants Outstanding Weighted Average Remaining Contractual Life (years)				Weighted Average Exercise price				Number Exercisable				Warrants Exercisable Weighted Average Exercise Price
$	0.10				2,187,101				4.37			$	0.10				2,187,101			$	0.10

 

Transactions involving the Company’s warrant issuance are summarized as follows:

 

		Number of Shares				Weighted Average Price Per Share
Outstanding at December 31, 2011			–			$	–
Granted			–				–
Exercised			–				–
Canceled or expired			–				–
Outstanding at December 31, 2012			–				–
Granted			2,187,101				0.10
Exercised			–				–
Canceled or expired			–				–
Outstanding at December 31, 2013			2,187,101			$	0.10

 

As described in Note 7, in connection with the issuance of the Convertible Promissory Note on May 13, 2013, the Company issued the note holder a warrant to purchase 2,187,101 shares of the Company’s common stock at $0.10 per share for five years.

 

On January 12, 2012, the Company entered into a Warrant Agreement with Paradigm Concepts, Inc. (the "Warrant Holder"), pursuant to which the Company issued to Warrant Holder one certificate (the “Warrant Certificate”) providing the Warrant Holder with the right to purchase, at any time until the earliest occurrence of either (a) after the underlying common stock issuable in the exercise of the warrants being declared registered and effective by the SEC on a registration statement filed by the Company, or, (b) 5:30 P.M. Pacific Daylight Savings Time on July 12, 2012. The Warrant Certificate is exercisable up to $1,000,000 worth of restricted shares of common stock of the Company (the “Warrant Shares”) valued at exercise price calculated by taking the daily closing bid price of the Company’s common stock as reported on the OTCBB, on the date of the exercise of the warrants, and discounting that closing bid price by 20%; provided, however, the exercise price may in no event be lower than $0.10 per share nor greater than $0.40 per share. The Warrant is non-cancelable by the Company and non-callable.

 

On December 31, 2012, Warrant Agreement expired.

 

NOTE 14 – INCOME TAXES

 

The Company utilizes ASC 740 “Income Taxes”, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between consolidated financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

 

 

SOLAR WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

 

For the period from July 26, 2010 (date of inception) through December 31, 2013, the Company had available for U.S federal income tax purposes net operating loss carryovers of approximately $5,600,000, which expiring through the year of 2033. The net operating loss carryovers may be subject to limitations under Internal Revenue Code due to significant changes in the Company’s ownership. The Company has provided a full valuation allowance against the full amount of the net operating loss benefit, since, in the opinion of management, based upon the earnings history of the Company it is more likely than not that the benefits will not be realized.

 

The income tax provision (benefit) for the years ended December 31, 2013 and 2012 consists of the following:

 

		2013				2012
Federal:
Current		$	–			$	–
Deferred			1,266,000				1,209,000
			1,266,000				1,209,000
State and local:
Current			–				–
Deferred			196,000				187,000
			196,000				187,000
Change in valuation allowance			(1,462,000	)			(1,396,000	)
Income tax provision (benefit)		$	–			$	–

 

The provision for income taxes differ from the amount of income tax determined by applying the applicable U.S statutory rate to losses before income tax expense for the year ended December 31, 2013 and 2012as follows:

   

		December 31, 2013 and 2012
Statutory federal income tax rate			(35.0%)
Statutory state and local income tax rate (8.25%), net of federal benefit			(5.4%)
Change in valuation allowance			40.4%
Effective tax rate			0.00%

     

Deferred income taxes result from temporary differences in the recognition of income and expenses for financial reporting purposes and for tax purposes. The tax effect of these temporary differences representing deferred tax asset and liabilities result principally from the following:

  

		December 31,
		2013				2012
Deferred tax assets (liabilities):
Stock based compensation issued and to be issued for services rendered		$	817,000			$	1,157,000
Net operating loss carry forward			449,000				1,108,000
Less: valuation allowance			(1,266,000	)			(2,265,000	)
Net deferred tax asset		$	–			$	–

  

The Company has not yet filed its tax returns for the period from July 26, 2010 (date of inception) through December 31, 2013.

 

 

SOLAR WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

 

The provisions of ASC 740 require companies to recognize in their financial statements the impact of a tax position if that position is more likely than not to be sustained upon audit, based upon the technical merits of the position. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure.

 

Management does not believe that the Company has any material uncertain tax positions requiring recognition or measurement in accordance with the provisions of ASC 740. Accordingly, the adoption of these provisions of ASC 740 did not have a material effect on the Company’s consolidated financial statements. The Company’s policy is to record interest and penalties on uncertain tax positions, if any, as income tax expense.

 

All tax years for the Company remain subject to future examinations by the applicable taxing authorities.

 

NOTE 15 – FAIR VALUE MEASUREMENTS

 

ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:

 

·

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

·

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or

·

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and are unobservable.

 

Items recorded or measured at fair value on a recurring basis in the accompanying unaudited condensed consolidated financial statements consisted of the following items as of December 31, 2013:

 

		Level 1				Level 2				Level 3				Total
Long-term investments		$	–			$	–			$	–			$	–
Total		$	–			$	–			$	–			$	–
Derivative liabilities		$	–			$	–			$	689,093			$	689,093
Total		$	–			$	–			$	689,093			$	689,093

 

 

SOLAR WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

 

Years ended December 31, 2013 and 2012: 

 

		Derivative Liability
Balance, December 31, 2011		$	237,395
Transfers out at mark-market value on date of payoff or conversion			(331,717	)
Transfers in upon initial fair value of derivative liability			798,826
Gain from change in fair value of derivative liability			(174,719	)
Balance, December 31, 2012		$	529,785
Transfers out at mark-market value on date of payoff or conversion			(348,464	)
Transfers in upon initial fair value of derivative liability			1,290,328
Gain from change in fair value of derivative liability			(782,556	)
Balance, December 31, 2013			689,093
Total gain for the period included in earnings relating to the derivative liabilities held at December 31, 2013		$	782,556

 

Level 3 Liabilities were comprised of our bifurcated convertible debt features on our convertible notes.

 

NOTE 16 – SUBSEQUENT EVENTS

 

Subsequent issuances of common stock

 

In January 2014, the Company issued an aggregate of 33,092,007 shares of common stock in settlement of $109,407 outstanding notes payable and accrued interest.

 

In February 2014, the Company issued an aggregate of 16,432,275 shares of common stock in settlement of $56,100 outstanding notes payable and accrued interest.

 

 

 

In March 2014, the Company issued an aggregate of 31,533,446 shares of common stock in settlement of $87,961 outstanding notes payable.

 

In March 2014, the Company sold 7,125,000 shares of its common stock for net proceeds of $25,000.

 

Subsequent financing

 

Asher Enterprises, Inc. 

 

On January 8, 2014, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $32,500 (the "Note"). The total net proceeds the Company received from this Offering was $30,000.

 

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on October 10, 2014. The Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 121 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.

 

On February 12, 2014, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $27,500 (the "Note"). The total net proceeds the Company received from this Offering was $25,000.

 

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on November 14, 2014. The Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 121 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.

 

Typenex Co-Investment, LLC

 

On February 26, 2014, the Company received a $50,000 tranche under the May 13, 2013 Convertible Promissory Note to Typenex Co-Investment, LLC (“Typenex”). (See Note 7). All issued tranches are due 20 months from the date of issuance.

 

The Note is convertible into common stock, at holder’s option, at the lower of i) 35% discount to the average of the two lowest closing bid prices of the common stock during the 20 trading day period prior to conversion or 40% if average of the two lowest bid prices are less than $0.01 or ii) $0.04.

 

 

 

 

125,000,000 Shares of Common Stock

 

 

 

SOLAR WIND ENERGY TOWER, INC.

 

 

 

PROSPECTUS

 

 

 

 

______________, 2014

 

 

 

 

 

 

 

 

 

 

 

PART II - INFORMATION NOT REQUIRED IN PROSPECTUS

 

Item 13. Other Expenses of Issuance and Distribution.

 

The Company is paying all expenses of the offering. No portion of these expenses will be borne by the Selling Security Holders. The Selling Security Holders, however, will pay any other expenses incurred in selling their Common Stock, including any brokerage commissions or costs of sale. Following is an itemized statement of all expenses in connection with the issuance and distribution of the securities to be registered:

 

Type		Amount *
SEC Registration Fee		$	512	.31
Legal Fees and Expenses		$	15,000
Accounting Fees and Expenses		$	2,500
Miscellaneous Expenses		$	1,000
Total		$	19,012	.31

 

*All amounts are estimates, other than the SEC’s registration fee.

 

Item 14. Indemnification of Directors and Officers.

 

Articles of Incorporation

 

The Company’s Articles of Incorporation do not address the indemnification or insurance of controlling persons, directors or officers against liability in their capacity as such.

 

Bylaws

 

The Company’s Bylaws provide as follows with respect to the indemnification and insurance of controlling persons, directors or officers against liability in their capacity as such.

 

The Company must indemnify any person made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (“Proceeding”) by reason of the fact that he is or was a director, against judgments, penalties, fines, settlements and reasonable expenses (including attorney’s fees) (“Expenses”) actually incurred by him in connection with such Proceeding if:(a) he conducted himself in good faith, and: (i) in the case of conduct in his own official capacity with the Company, he reasonably believed his conduct to be in the Company’s best interests, or (ii) in all other cases, he reasonably believes his conduct to be at least not opposed to the Company’s best interests; and (b) in the case of any criminal Proceeding, he had no reasonable cause to believe his conduct was unlawful.

 

The Company must indemnify any person made a party to any Proceeding by or in the right of the Company, by reason of the fact that he is or was a director, against reasonable expenses actually incurred by him in connection with such proceeding if he conducted himself in good faith, and: (a) in the case of conduct in his official capacity with the Company, he reasonably believed his conduct to be in its best interests; or (b) in all other cases, he reasonably believed his conduct to be at least not opposed to its best interests; provided that no such indemnification may be made in respect of any proceeding in which such person shall have been adjudged to be liable to the Company.

 

A director will not be indemnified in respect to any Proceeding charging improper personal benefit to him, whether or not involving action in his official capacity, in which he shall have been adjudged to be liable on the basis that personal benefit was improperly received by him. No indemnity will indemnify any director from or on account of acts or omissions of such director finally adjudged to be intentional misconduct or a knowing violation of law, or from or on account of conduct of such director finally adjudged to be in violation of, from or on account of any transaction with respect to which it was finally adjudged that such director personally received a benefit in money, property, or services to which the director was not legally entitled.

 

No indemnification will be made by unless authorized in the specific case after a determination that indemnification of the director is permissible in the circumstances because he has met the applicable standard of conduct.

 

Reasonable expenses incurred by a director who is party to a proceeding may be paid or reimbursed by the Company in advance of the final disposition of such Proceeding in certain cases.

 

 

The Company has the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Company or is or was serving at the request of the Company as an officer, employee or agent of another corporation, partnership, joint venture, trust, other enterprise, or employee benefit plan against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the Company would have the power to indemnify him against such liability under the provisions of the Bylaws.

 

Nevada Law

 

Nevada law provides as follows with respect to the indemnification and insurance of controlling persons, directors or officers against liability in their capacity as such.

 

Indemnification. Pursuant to NRS 78.7502 (Discretionary and mandatory indemnification of officers, directors, employees and agents: General provisions), a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with the action, suit or proceeding if the person: (a) is not liable pursuant to Nevada Revised Statutes 79.138 (breach of good faith); or (b) acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the person is liable pursuant to Nevada Revised Statutes 79.138 or did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation, or that, with respect to any criminal action or proceeding, he or she had reasonable cause to believe that the conduct was unlawful.

 

A corporation may also indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred by the person in connection with the defense or settlement of the action or suit if the person: (a) is not liable pursuant to Nevada Revised Statutes 79.138; or (b) acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.

 

To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to above, or in defense of any claim, issue or matter therein, the corporation must indemnify him or her against expenses, including attorneys’ fees, actually and reasonably incurred by him or her in connection with the defense.

 

Insurance. Pursuant to NRS 78.752 (Insurance and other financial arrangements against liability of directors, officers, employees and agents), a corporation may purchase and maintain insurance or make other financial arrangements on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise for any liability asserted against the person and liability and expenses incurred by the person in his or her capacity as a director, officer, employee or agent, or arising out of his or her status as such, whether or not the corporation has the authority to indemnify such a person against such liability and expenses. No such financial arrangement may provide protection for a person adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable for intentional misconduct, fraud or a knowing violation of law, except with respect to the advancement of expenses or indemnification ordered by a court.

 

The SEC’s Position on Indemnification for Securities Act Liabilities

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to the Company’s directors, officers or controlling persons, the Company has been advised that in the opinion of the Commission this indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable.

 

 

 

Item 15. Recent Sales of Unregistered Securities.

 

Issuance of Shares of Common Stock

 

During the year ended December 31, 2011, the Company issued 955,320 shares of Common Stock to consultants for services performed and rendered; 855,320 shares were expense in the year ended December 31, 2011 and 100,000 shares were accrued for in fiscal year 2010. These shares were valued at $153,459, which approximated the fair value of the shares when they were issued; the expense recognized in the year ended December 31, 2011 is $146,459 and $7,000 of expenses were recognized in fiscal year 2010.

 

During the year ended December 31, 2011, the Company issued 9,540,000 shares of Common Stock to private placement investors at $0.10 per share for aggregate gross proceeds of $954,000. In connection with the private placement subscription the Company has also agreed to issue to the referring brokers, five-year warrants to purchase an aggregate of 98,000 shares of common stock at an exercise price of $0.10 per share. The Company valued the warrants using the Black-Scholes pricing model and the following assumptions: contractual terms of 5 years, an average risk free interest rate of 2. 00%, a dividend yield of 0%, and volatility of 247%. The amount of $29,400 attributed to the value of the warrants to be issued and has been accrued for as of December 31, 2011, which is charged to additional paid-in capital.

 

Also, during the year ended December 31, 2011, the Company received $60,000 from an investors in connection with the private placement subscription. The equivalent 600,000 shares of Common Stock at $0.10 were not yet issued at the end of the year ended December 31, 2011.

 

During the year ended December 31, 2011, the Company issued 300,000,000 shares of common stock to the shareholders of its subsidiary, pursuant to the Merger on December 29, 2010, in exchange for their Solar Wind – Subsidiary common stock. These issuances of shares were made in reliance upon an exemption from registration under Section 4 (2) of the Securities Act, and Regulation D promulgated thereunder.

 

During the years ended December 31, 2012, the Company issued an aggregate of 261,556 shares of common stock for accrued expenses of $34,467.

 

During the year ended December 31, 2012, the Company issued an aggregate of 21,500,000 shares of common stock for future services of $1,745,690. The Company accretes the fair value of the shares issued as stock based compensation during the requisite service period to operations. During the year ended December 31, 2012, the Company recorded $866,274 as stock based compensation.

 

During the year ended December 31, 2012, the Company issued an aggregate of 7,751,176 shares of common stock for services rendered of $290,647.

 

During the year ended December 31, 2012, the Company issued an aggregate of 22,500,000 shares of common stock in settlement of $150,000 previous incurred payables. In connection with the issuance, the Company recorded a loss on settlement of debt of $822,500.

 

During the year ended December 31, 2012, the Company issued an aggregate of 13,251,760 shares of common stock in settlement of $126,000 of convertible notes payable and related accrued interest.

 

During the year ended December 31, 2012, the Company issued an aggregate of 600,000 shares of common stock for common stock subscriptions for $60,000 proceeds, which received in 2011 and 2,300,000 shares of common stock for in connection with a warrant agreement entered into on January 12, 2012 for $230,000.

 

During the year ended December 31, 2012, the Company issued 850,000 of common stock for net proceeds of $85,000.

 

In 2013 and 2012, the Company issued an aggregate of 15,000,000 and 21,500,000 shares of common stock for future services of $328,500 and $1,745,690, respectively. The Company accretes the fair value of the shares issued as stock based compensation during the requisite service period to operations. During the years ended December 31, 2013 and 2012, the Company recorded $560,968 and $866,274, respectively, as stock based compensation.

 

During the year ended December 31, 2013, the Company issued an aggregate of 19,350,251 shares of common stock for services rendered of $81,920.

 

 

During the year ended December 31, 2013, the Company issued an aggregate of 66,073,247 shares of common stock in settlement of $889,040 of convertible notes payable and related accrued interest.

 

During the year ended December 31, 2013, the Company issued 2,033,333 of common stock for net proceeds of $30,500. 

 

During the year ended December 31, 2013, the Company issued 3,406,326 of common stock for net proceeds of $35,000 under an equity facility agreement. 

 

In March 2014, the Company sold 7,125,000 shares of its common stock for net proceeds of $25,000.

 

During the three months ended March 31, 2014, the Company issued 86,807,728 shares of common stock in settlement of $534,561 of convertible notes payable and related interest.

 

In April 2014, the Company issued an aggregate of 11,147,321 shares of common stock in settlement of $85,834 of convertible notes payable and related interest.

 

In May 2014, the Company issued an aggregate of 27,618,320 shares of common stock in settlement of $650,338 convertible notes payable and related interest.

 

On May 20, 2014, the Company issued 500,000 shares of its common stock for investor relations services valued at $2,250.

 

In May and June 2014, the Company issued 8,530,813 shares of its common stock in settlement of $194,345 of convertible notes payable and related interest.

 

In July 2014, the Company issued an aggregate of 11,690,205 shares of common stock in settlement of $124,970 outstanding notes payable. 

 

Issuances of Convertible Notes

 

Asher Enterprises, Inc.

 

On July 27, 2011, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $45,000 (the "Note"). The financing closed on August 8, 2011. The total net proceeds the Company received from this Offering on August 8, 2011 was $42,500.

 

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on April 30, 2012. The Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 135% if prepaid during the period commencing on the closing date through 90 days thereafter, (ii) 135% if prepaid 91 days following the closing through 120 days following the closing, (iii) 140% if prepaid 121 days following the closing through 151 days following the closing and (iv) 150% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.

 

On August 31, 2011, the Company entered into a Securities Purchase Agreement with Asher for the sale of an 8% convertible note in the principal amount of $32,500 (the "August 2011 Note"). The financing closed on August 31, 2011. The total net proceeds the Company received from this Offering was $30,000.

 

The August 2011 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on April 30, 2012. The Note is convertible into common stock, at Asher’s option, at a 52% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the August 2011 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 135% if prepaid during the period commencing on the closing date through 90 days thereafter, (ii) 140% if prepaid 91 days following the closing through 120 days following the closing, (iii) 145% if prepaid 121 days following the closing through 150 days following the closing and (iv) 150% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.

 

 

 

The October 2011 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on July 5, 2012. The October 2011 Note is convertible into common stock, at Asher’s option, at a 69% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the October 2011 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 135% if prepaid during the period commencing on the closing date through 90 days thereafter, (ii) 140% if prepaid 91 days following the closing through 120 days following the closing, (iii) 145% if prepaid 121 days following the closing through 150 days following the closing and (iv) 150% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the October 2011 Note, the Company has no right of prepayment.

 

Asher has agreed to restrict its ability to convert the October 2011 Notes and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock.

 

On April 10, 2012, the Company entered into a Securities Purchase Agreement with Asher, for the sale of an 8% convertible note in the principal amount of $68,500 (the "April 2012 Note"). The financing closed on April 18, 2012. The total net proceeds the Company received from this Offering was $65,000.

 

The April 2012 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on January 12, 2013. The April 2012 Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the April 2012 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 121 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the April 2012 Note, the Company has no right of prepayment.

 

On May 3, 2012, the Company entered into a Securities Purchase Agreement with Asher, for the sale of an 8% convertible note in the principal amount of $42,500 (the "May 2012 Note"). The financing closed on May 15, 2012. The total net proceeds the Company received from this Offering was $40,000.

  

The May 2012 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on February 7, 2013. The May 2012 Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the May 2012 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 121 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the May 2012 Note, the Company has no right of prepayment.

 

On June 19, 2012, the Company entered into a Securities Purchase Agreement with Asher, for the sale of an 8% convertible note in the principal amount of $ 32,500 (the " June 2012 Note"). The financing closed on June 27, 2012. The total net proceeds the Company received from this Offering was $ 25,000.

 

The June 2012 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on March 21, 2013. The Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the June 2012 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 121 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the June 2012 Note, the Company has no right of prepayment.

 

 

On August 3, 2012, the Company entered into a Securities Purchase Agreement with Asher, for the sale of an 8% convertible note in the principal amount of $32,500 (the " August 2012 Note"). The financing closed on May 15, 2012. The total net proceeds the Company received from this Offering was $ 30,000.

 

The August 2012 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on February 7, 2013. The August 2012 Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the August 2012 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 1 5 1 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the August 2012 Note, the Company has no right of prepayment.

 

On November 9, 2012, the Company entered into a Securities Purchase Agreement with Asher for the sale of an 8% convertible note in the principal amount of $32,500 (the " November 2012 Note"). The financing closed on November 21, 2012.

 

The November 2012 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on August 13, 2013. The Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the November 2012 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing and (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing and (v) 140% if prepaid 121 days following the closing through 150 days following the closing and (vi) 150% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.

 

Asher has agreed to restrict its ability to convert the November 2012 Note and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. The total net proceeds the Company received from this Offering was $32,500, less attorneys fees. As of the date of the November 2012 Note, the Company is obligated on the November 2012 Note issued to Asher in connection with the offering. The November 2012 Note is a debt obligation arising other than in the ordinary course of business, which constitutes a direct financial obligation of the Company.

 

On March 25, 2013, the Company entered into a Securities Purchase Agreement with Asher for the sale of an 8% convertible note in the principal amount of $32,500 (the " March Note").  The financing closed on April 1, 2013.

 

The March Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on December 27, 2013. The March Note is convertible into common stock, at Asher’s option, at a 49% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the March Note in full, the Company is required to pay to Asher an amount in cash equal to 175% multiplied by the sum of all principal, interest and any other amounts owing. After the expiration of 180 days following the date of the March Note, the Company has no right of prepayment.

 

Asher has agreed to restrict its ability to convert the March Note and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock.   The total net proceeds the Company received from this Offering was $32,500, less attorneys fees. As of the date of the March Note, the Company is obligated on the March Note issued to Asher in connection with the offering. The March Note is a debt obligation arising other than in the ordinary course of business, which constitutes a direct financial obligation of the Company.

 

On May 28, 2013, the Company entered into a securities purchase agreement (the “Asher Agreement”) with Asher, whereby the Company agreed to issue and Asher agreed to purchase convertible promissory note (the “Asher Note”) in the principal amount Seventy Eight Thousand Five Hundred Dollars ($78,500.00) with an interest rate of eight percent (8%). The Asher Note matures on March 3, 2014 (the “Maturity Date”). The financing closed on June 11, 2013.

 

 

The Asher Note may be prepaid in whole or in part, at any time during the period beginning on the Closing Date and ending on the date which is 180 days following the issue date, beginning at 120% of the outstanding principal and increasing by 5% every 30 days up to 140% of the outstanding principal, accrued interest and certain other amounts that may be due and owing under the Asher Note. Beginning on the 151^st day until the 180^th day following the Closing Date, the Asher Note may be prepaid in whole or in part at 150% of the outstanding principal, accrued interest and certain other amounts that may be due and owing under the Asher Note.

 

The Asher Note is convertible into common stock, at Asher’s option, at a forty-two percent discount to the market price, which is defined as the average of the lowest three (3) closing bid prices for the Common Stock during the ten (10) trading days prior to the conversion date.

 

Asher has agreed to restrict its ability to convert the Asher Note and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. As of the date of the Asher Note, the Company is obligated on the Asher Note issued to Asher. The Asher Note is a debt obligation arising other than in the ordinary course of business, which constitutes a direct financial obligation of the Company. The Asher Note also provides for penalties and rescission rights if we do not deliver shares of our common stock upon conversion with the require timeframes.

 

On August 23, 2013 (the “Closing Date”), the Company entered into and closed a securities purchase agreement (the “August Agreement”) with Asher, whereby the Company agreed to issue and Asher agreed to purchase convertible promissory note (the “August Note”) in the principal amount Twenty Seven Thousand Five Hundred Dollars ($27,500.00) with an interest rate of eight percent (8%). The August Note matures on May 23, 2014 (the “Maturity Date”).

 

The August Note may be prepaid in whole or in part, at any time during the period beginning on the Closing Date and ending on the date which is 180 days following the issue date, beginning at 120% of the outstanding principal and increasing by 5% every 30 days up to 140% of the outstanding principal, accrued interest and certain other amounts that may be due and owing under the August Note. Beginning on the 151^st day until the 180th day following the Closing Date, the August Note may be prepaid in whole or in part at 150% of the outstanding principal, accrued interest and certain other amounts that may be due and owing under the August Note.

 

The August Note is convertible into common stock, at Asher’s option, at a forty-two percent discount to the market price, which is defined as the average of the lowest three (3) closing bid prices for the Common Stock during the ten (10) trading days prior to the conversion date.

 

Asher has agreed to restrict its ability to convert the Asher Note and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. As of the date of the August Note, the Company is obligated on the August Note issued to Asher. The August Note is a debt obligation arising other than in the ordinary course of business, which constitutes a direct financial obligation of the Company. The August Note also provides for penalties and rescission rights if we do not deliver shares of our common stock upon conversion with the require timeframes. 

 

On September 16, 2013 (the “Closing Date”), the Company entered into a securities purchase agreement (the “Asher Agreement”) with Asher Enterprises, Inc. ("Asher"), a Delaware corporation, whereby the Company agreed to issue and Asher agreed to purchase convertible promissory note (the “Asher Note”) in the principal amount Thirty Two Thousand Five Hundred Dollars ($32,500.00) with an interest rate of eight percent (8%). The Asher Note was funded on September 24, 2013. The Asher Note matures on June 18, 2014 (the “Maturity Date”).

 

The Asher Note may be prepaid in whole or in part, at any time during the period beginning on the Closing Date and ending on the date which is 180 days following the issue date, beginning at 120% of the outstanding principal and increasing by 5% every 30 days up to 140% of the outstanding principal, accrued interest and certain other amounts that may be due and owing under the Asher Note. Beginning on the 151^st day until the 180^th day following the Closing Date, the Asher Note may be prepaid in whole or in part at 150% of the outstanding principal, accrued interest and certain other amounts that may be due and owing under the Asher Note.

 

The Asher Note is convertible into common stock, at Asher’s option, at a forty-two percent discount to the market price, which is defined as the average of the lowest three (3) closing bid prices for the Common Stock during the ten (10) trading days prior to the conversion date.

 

 

Asher has agreed to restrict its ability to convert the Asher Note and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. As of the date of the Asher Note, the Company is obligated on the Asher Note issued to Asher. The Asher Note is a debt obligation arising other than in the ordinary course of business, which constitutes a direct financial obligation of the Company. The Asher Note also provides for penalties and rescission rights if we do not deliver shares of our common stock upon conversion with the require timeframes.

 

On January 8, 2014, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $32,500 (the "Note"). The financing closed on January 8, 2014. The total net proceeds the Company received from this Offering was $30,000.

  

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on October 10, 2014. The Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion.

 

On February 12, 2014, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $27,500 (the "Note"). The financing closed on February 12, 2014. The total net proceeds the Company received from this Offering was $25,000.

  

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on November 14, 2014. The Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion.

 

In the event the Company prepays the Notes in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 121 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.

 

JMJ Financial

 

On July 25, 2012, the Company issued a Convertible Promissory Note to JMJ Financial (“JMJ”) providing JMJ with the ability to invest up to $275,000 which contains a 10% original issue discount (the “JMJ Note”). The transaction closed on July 25, 2012. JMJ provided $50,000 to the Company on the Effective Date.

 

The maturity date is one year from the effective date of each payment by JMJ to the Company (the “Maturity Date”). The conversion price (the “Conversion Price”) for each portion of consideration paid by JMJ to the Company is lesser of: (1) the closing price of the Company’s stock on the day the portion of consideration is paid to the Company, or (2) 70% of the lowest trade price in the 25 trading days previous to the conversion.

The JMJ Note bears interest at 0% for the first 60 days and a one-time interest charge of 10% will be applied to the Principal Sum thereafter.

At any time after the Effective Date, the Company will have the option, upon 20 days business notice to JMJ, to prepay the entire remaining outstanding principal amount of the Note in cash, provided that (i) the Company will pay JMJ 150% of the principal amount outstanding in repayment, (ii) such amount must be paid in cash on the next business day following the 20 day business day notice period, and (iii) JMJ may still convert the Note pursuant to the terms herein during the 20 day business period until such repayment amount has been received in full.

 

Certain Other Investors

 

On January 31, 2013, the Company entered into Securities Purchase Agreements with six accredited investors (the “2013 Investors”) providing for the sale by the Company to the 2013 Investors of Convertible Debentures (the "2013 Notes") in the aggregate amount of $239,000. In addition, as previously disclosed in the Form 8-K Current Report filed on January 3, 2013, Ronald W. Pickett, Stephen L. Sadle and Robert P. Crabb, officers and directors of the Company, converted accrued salary in the aggregate amount of $280,000 into the 2013 Notes resulting in a total offering of $519,000. The financing closed on January 31, 2013.

 

The 2013 Notes mature December 31, 2014 (the "Maturity Date") and interest associated with the 2013 Notes is 8% per annum, which is payable on the Maturity Date. The 2013 Notes are convertible into shares of common stock of the Company, at the 2013 Investors’ option, at a conversion price of $0.015.  

 

  

Typenex Co-Investment, LLC

 

On May 13, 2013, the Company entered into a Securities Purchase Agreement with Typenex Co-Investment, LLC ("Typenex"), for the sale of an 8% convertible note in the principal amount of $555,000 (which includes Typenex legal expenses in the amount of $5,000 and a $50,000 original issue discount) (the “Company Note”) for $500,000, consisting of $100,000 paid in cash at closing and four secured promissory notes, aggregating $400,000, bearing interest at the rate of 8% per annum, each maturing sixty (60) days following the occurrence of the Maturity Date (the “Investor Notes”). The Investor Notes may be prepaid, without penalty, all or portion of the outstanding balance along with accrued but unpaid interest at any time prior to maturity. The cash funds for the Company Note are to be delivered in five (5) equal tranches (comprised of a $50,000 original issue discount to be allocated prorate to each tranche paid by Typenex). Typenex has no obligation to lend us the remaining $400,000 of available principal amount under the Note and may never do so. We have no obligation to pay Typenex any amounts on the unfunded portion of the Note. The financing closed on May 16, 2013.

 

On February 26, 2014, the Company issued a $50,000 Convertible Promissory Note (the “Note”) to Typenex Co-Investment LLC under the May 13, 2013 described transaction. The total proceeds the Company received from this offering was $50,000. 

 

Additionally, the Company granted Typenex five warrants, corresponding to the delivery of five tranches of cash funds, to purchase shares of the Company’s common stock, par value $0.0001 per share equal to $55,000 divided by 65% of the arithmetic average of the two (2) lowest closing bid prices of the shares of Common Stock during the twenty (20) consecutive trading day period immediately preceding the date of such determination or 60% if average of the two lowest bid prices are less than $0.01; as such number may be adjusted from time to time pursuant to the terms of the Note. Each warrant is not exercisable until each corresponding tranche is funded.

 

The Company Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on June 16, 2014. The Company Note is convertible into common stock, at Typenex’s option, at a price of $0.04 per share.  In the event the Company elects to prepay all or any portion of the Note, the Company is required to pay to Typenex an amount in cash equal to 125% multiplied by the sum of all principal, interest and any other amounts owing.

 

Typenex has agreed to restrict its ability to convert the Company Note and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 9.99% of the then issued and outstanding shares of common stock. The total net proceeds the Company received from this Note was $105,000, less attorneys fees. As of the date of the Company Note, the Company is obligated on the Company Note issued to Typenex. The Company Note is a debt obligation arising other than in the ordinary course of business, which constitutes a direct financial obligation of the Company. The Company Note also provides for penalties and rescission rights if we do not deliver shares of our common stock upon conversion with the require timeframes.

  

Phoenix Worldwide Holdings, Inc.

 

On June 20, 2013, the Company issued an unsecured Convertible Promissory Note to Phoenix Worldwide Holdings, Inc. ("Phoenix"), in the principal amount of $32,500 (the "Note"). The financing closed on June 20, 2013. The total net proceeds the Company received from this Offering was $25,000 with an OID of $7,500 and due December 19, 2013.

  

The Note is convertible into common stock, at Phoenix’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion.

 

KBM Worldwide, Inc.

 

On April 1, 2014, the Company entered into a Securities Purchase Agreement with KBM Worldwide, Inc. ("KBM"), for the sale of an 8% convertible note in the principal amount of $37,500 (the "Note"). The financing closed on April 1, 2014. The total net proceeds the Company received from this Offering was $35,000.

  

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on January 7, 2015. The Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion.

 

On April 29, 2014, the Company entered into a Securities Purchase Agreement with KBM Worldwide, Inc. ("KBM"), for the sale of an 8% convertible note in the principal amount of $63,000 (the "Note"). The financing closed on April 29, 2014. The total net proceeds the Company received from this Offering was $60,000.

 

  

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on February 2, 2015. The Note is convertible into common stock, at KBM’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion.

 

Union Capital LLC

 

On May 2, 2014, the Company entered into a Securities Purchase Agreement with Union Capital LLC. ("Union"), for the sale of an 8% convertible note in the principal amount of $40,000 (the "Note"). The financing closed on May 2, 2014. The total net proceeds the Company received from this Offering was $35,000.

  

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on May 2, 2015. The Note is convertible into common stock, at Unions option, at a 42% discount to the lowest closing price of the common stock during the 10 trading day period prior to conversion.

 

Adar Bays, LLC

 

On May 2, 2014, the Company entered into a Securities Purchase Agreement with Adar Bays, LLC. ("Adar"), for the sale of an 8% convertible note in the principal amount of $40,000 (the "Note"). The financing closed on May 2, 2014. The total net proceeds the Company received from this Offering was $35,000.

  

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on May 2, 2015. The Note is convertible into common stock, at Adar’s option, at a 42% discount to the lowest closing price of the common stock during the 10 trading day period prior to conversion.

 

LG Capital Funding, LLC

 

During the year ended December 31, 2013, the Company issued two Convertible Redeemable Notes to LG Capital LLC in an aggregate principal amount of $77,000. The notes bear interest rate of 8% per annum, contain an original issue discount of 10% and are due one year from the date of issuance.

 

The notes are convertible into common stock, at holder’s option, at the lower of i) 42% discount to the average of the two lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. As of December 31, 2013, the aggregate principal amount outstanding was $77,000.

 

JDF Financial

 

On November 1, 2013, the Company issued an unsecured Convertible Promissory Note to JDF Capital, Inc. ("JDF"), in the principal amount of $57,500 (the "Note"). The total net proceeds the Company received from this Offering was $50,000 with an OID of $5,000 and due November 1, 2014.

 

The Note is convertible into common stock, at JDF’s option, at a 42% discount to the average of the lowest closing price of the common stock during the 10 trading day period prior to conversion or the closing price at conversion. As of December 31, 2013, the aggregate principal amount outstanding under the November 1, 2013 issued convertible promissory note was $57,500.

 

On June 9, 2014, the Company closed a financing transaction by entering into a Purchase Agreement dated June 3, 2014 with JDF for an aggregate principal amount of $885,000. Pursuant to the Purchase Agreement, the Company issued the following to JDF: (i) a 10% Convertible Promissory Note (the “Note”), (ii) a warrant to purchase an aggregate of 7,000,000 shares of the Company’s common stock, par value $0.0001 per share, for an exercise price of $0.05 per share for a period of 150 days from the effective date of the registration statement (the “First Warrant”), and (iii) a warrant to purchase an aggregate of 8,750,000 shares of the Company’s common stock, par value $0.0001 per share, for an exercise price of $0.04 per share for a period of 90 days from the effective date of the registration statement (the “Second Warrant” and collectively, the “Warrants”).

 

The foregoing securities under Purchase Agreement were offered and sold without registration under the Securities Act of 1933 (the “Securities Act”) in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder and in reliance on similar exemptions under applicable state laws. 

 

 

Issuance of Promissory Note

 

On June 6, 2013, the Company issued Beaufort Ventures PLC ("Beaufort"), a Nevada corporation, an original issue discount secured promissory note (the “ Beaufort Note”) in the principal amount of Ninety Seven Thousand Five Hundred Dollars ($97,500.00) for a purchase price of Seventy Five Thousand Dollars ($75,000.00). The Beaufort Note is to be funded in cash, in the amount of Seventy Five Thousand Dollars ($75,000.00) upon the Closing Date, which closed on June 5, 2013. The Beaufort Note matures four months from the issuance date (the “Maturity Date”).

 

As collateral for the Beaufort Note, Mr. Ronald W. Pickett, President of the Company, has agreed to pledge a convertible debenture in the principal amount of One Hundred and Fifty Thousand Dollars ($150,000.00) to Beaufort as security for the payment in full of principal and performance under the Beaufort Note (“Pledge and Security Agreement”).

 

On April 7, 2014, Arizona Green Power, LLC, a majority owned subsidiary of the Company, issued a note payable for $80,000 with interest at 10% per annum, due at maturity of April 6, 2016. In connection with the issuance of the note, the Company granted i) a 1.33% ownership interest in Arizona Green Power, LLC and ii) a warrant to purchase 1,920,000 shares of the Company’s common stock exercisable at $0.05 per share expiring on March 7, 2016. The warrants were valued using the Black Sholes option pricing method with the following assumptions: dividend yield $-0-, volatility of 158.38% and risk free rate of 0.41. The determined fair value of the warrant of $3,070 is amortized as financing costs of the term of the related note (2 years).

 

On April 18, 2014, the Company issued an aggregate of $385,000 promissory notes to officers and key employees in settlement of accrued salaries. The promissory notes bear interest at the rate of 2% per annum. All interest and principal must be repaid on April 18, 2016. In connection with the issuance of the notes, the Company issued an aggregate of 59,413,581 warrants to purchase the Company’s common stock at $0.00648 per share for two years.

 

All of the above securities were offered and sold to the investors in a private placement transaction made in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act of 1933, as amended (the “Securities Act”) and/or Rule 506 promulgated under the Securities Act. The investors are accredited investors as defined in Rule 501 of Regulation D promulgated under the Securities Act.

 

 

 

Item 16. Exhibits

 

EXHIBIT INDEX

Exhibit		Description
2.1		Agreement and Plan of Merger, dated as of December 29, 2010, by and among Superior Silver Mines, Inc., Superior Silver Mines Acquisition Corp., and Clean Wind Energy, Inc.  (1)
2.2		Plan of Domestication of Superior Silver Mines, Inc., dated December 21, 2010 (1)
2.3		Nevada Articles of Domestication of Superior Silver Mines, Inc., dated December 27, 2010 (1)
2.4		Idaho Statement of Domestication of Superior Silver Mines, Inc., dated December 22, 2010 (1)
2.5		Articles of Merger by and between Clean Wind Energy Tower, Inc. and Superior Silver Mines, Inc. (2)
2.6		Articles of Merger by and between Solar Wind Energy Tower Inc. and Clean Wind Energy Tower, Inc. (6)
3.1		Articles of Incorporation of Clean Wind Energy Tower, Inc.  (1)
3.2		Amended Bylaws of Clean Wind Energy Tower, Inc.  (3)
4.1		Form of Common Stock Certificate (4)
4.2		Form of Securities Purchase Agreement entered with the 2013 Investors (5)
4.3		Form of Convertible Debentures (5)
4.4		March 2013 Convertible Promissory Note issued to Asher Enterprises, Inc.  (7)
4.5		Typenex Convertible Promissory Note dated May 13, 2013.  (8)
4.6		Typenex Form of Warrant (8)
4.7		Typenex Form of Investor Note (8)
4.8		Asher 8% Convertible Promissory Note dated June 6, 2013.  (9)
4.9		Beaufort Original Issue Discount Secured Promissory Note dated June 11, 2013.  (10)
4.10		Convertible Promissory Note (11)
4.11		Warrant to Purchase Common Stock (11)
4.12		Warrant to Purchase Common Stock (11)
4.13		10% Convertible Promissory Note with JDF Capital, Inc. dated October 30, 2013
5.1		Opinion of Szaferman, Lakind, Blumstein & Blader, PC
10.1		Letter Agreement between Clean Wind Energy, Inc.  and Source Capital Group, Inc., dated November 22, 2010 (1)
10.2		Deed of Lease, dated December 1, 2010, by and between CKP One, LLC and Clean Wind Energy, Inc. (1)
10.3		Lease Agreement, dated October 20, 2010, and effective November 1, 2010, by and between Office Suites PLUS at Annapolis and Clean Wind Energy, Inc.  (1)
10.4		Director and Executive Employment Agreement, dated September 22, 2010, by and between Clean Wind Energy, Inc. and Ronald Pickett, and Amendment dated November 22, 2010 (1)
10.5		Director and Executive Employment Agreement, dated September 22, 2010, by and between Clean Wind Energy, Inc. and Stephen Sadle, and Amendment dated November 22, 2010 (1)
10.6		Director and Executive Employment Agreement, dated September 22, 2010, by and between Clean Wind Energy, Inc. and Robert Crabb, and Amendment dated November 22, 2010 (1)
10.7		Executive Employment Agreement, dated September 22, 2010, by and between Clean Wind Energy, Inc. and John W.  Hanback, and Amendment dated November 22, 2010 (1)
10.8		Executive Employment Agreement, dated September 22, 2010, by and between Clean Wind Energy, Inc. and Itzhak Tepper, PE, and Amendment dated November 22, 2010 (1)
10.9		Executive Employment Agreement, dated September 22, 2010, by and between Clean Wind Energy, Inc. and Ownkar Persaud, and Amendment dated November 22, 2010 (1)
10.10		Form of Director and Officer Indemnification Agreement (4)
10.11		Equity Facility Agreement with Beaufort Ventures PLC, dated August 6, 2013
10.12		Registration Rights Agreement with Beaufort Ventures PLC, dated August 6, 2013 (10)
10.13		Securities Purchase Agreement by and among the Company and the Asher Enterprises, Inc., dated March 25, 2013 (7)
10.14		Typenex Securities Purchase Agreement dated May 13, 2013(8)
10.15		Asher Securities Purchase Agreement dated June 6, 2013. (9)
10.16		Beaufort Pledge and Security Agreement dated June 11, 2013. (9)
10.17		Purchase Agreement, dated June 3, 2014, by and between Solar Wind Energy Tower Inc. and JDF Capital Inc.  (11)
10.18		Purchase Agreement, dated October 30, 2013, by and between the Company and JDF Capital, Inc. (12)
10.19		Option Agreement, dated April 15, 2014, with the City of San Luis, Arizona.
10.20		Development Agreement, dated April 23, 2014, with the City of San Luis, Arizona.
10.21		Settlement Agreement and Mutual Release with Hanover Holdings I, LLC, dated September 5, 2014. (13)
21.1		Subsidiaries of the Registrant (4)
23.1		Consent of RBSM LLP
23.2		Consent of Szaferman, Lakind, Blumstein & Blader, PC (included in exhibit 5.1)
101.INS		XBRL Instance Document *
101.SCH		XBRL Schema Document *
101.CAL		XBRL Calculation Linkbase Document *
101.LAB		XBRL Label Linkbase Document *
101.PRE		XBRL Presentation Linkbase Document *
101.DEF		XBRL Definition Linkbase Document *

 

* Previously filed or furnished.

 

 

	(1)	Filed with the registrant's Form 8-K filed with the Securities and Exchange Commission on December 30, 2010 and incorporated herein by reference.
	(2)	Filed with the registrant's Form 8-K filed with the Securities and Exchange Commission on January 21, 2011 and incorporated herein by reference.
	(3)	Filed with the registrant's Form 8-K filed with the Securities and Exchange Commission on December 28, 2010 and incorporated herein by reference.
	(4)	Filed with the registrant's Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission on April 12, 2011 and incorporated herein by reference.
	(5)	Filed with the registrant's Form 8-K filed with the Securities and Exchange Commission on February 13, 2013 and incorporated herein by reference.
	(6)	Filed with the registrant's Form 8-K filed with the Securities and Exchange Commission on March 11, 2013 and incorporated herein by reference.
	(7)	Filed with the registrant’s Form 8-K filed with the Securities and Exchange Commission on April 9, 2013.
	(8)	Filed with the registrant’s Form 8-K filed with the Securities and Exchange Commission on May 24, 2013.
	(9)	Filed with the registrant’s Form 8-K filed with the Securities and Exchange Commission on June 14, 2013.
	(10)	Filed with the registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 8, 2013.
	(11)	Filed with the registrant’s Form 8-K filed with the Securities and Exchange Commission on June 13, 2014.
	(12)	Filed with the registrant’s Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on August 27, 2014.
	(13)	Filed with the registrant’s Form 8-K filed with the Securities and Exchange Commission on September 15, 2014.

 

Item 17. Undertakings.

 

The undersigned Company hereby undertakes:

 

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to:

 

(i) Include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the “Securities Act”);

 

(ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of the securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) under the Securities Act if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement, and

 

(iii) Include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

 

(2) That, for determining liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof.

 

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 

(4) That, for the purpose of determining liability under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

 

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

 

 

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

 

(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

 

(5) That, for the purpose of determining liability under the Securities Act to any purchaser: Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Amendment to this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Annapolis, State of Maryland on this 17th day of September, 2014.

 

		SOLAR WIND ENERGY TOWER, INC.
Dated:  September 17, 2014	By:	/s/ Ronald W.  Pickett
		Ronald W.  Pickett, Chief Executive Officer, President (Principal Executive, Financial, and Accounting Officer)

 

 

 

 

Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated. The persons whose signature appears below constitutes and appoints Ronald W. Pickett his true and lawful attorney-in-fact, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities to sign any and all amendments (including post-effective amendments) to this registration statement and to sign a registration statement pursuant to Section 462(b) of the Securities Act of 1933, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

Dated:  September 17, 2014	By:	/s/ Ronald W. Pickett
		Name: Ronald W. Pickett
		President, Chief Executive Officer (Principal Executive Officer and Principal Financial and Accounting Officer), Director

 

Dated:  September 17, 2014	By:	/s/ Robert P.  Crabb
		Name: Robert P. Crabb
		Director

 

Dated:  September 17, 2014	By:	/s/ Stephen L. Sadle
		Name: Stephen L. Sadle
		Director

 

Dated:  September 17, 2014	By:	/s/ H. James Magnuson
		Name: H.  James Magnuson
		Director

 

Dated:  September 17, 2014	By:	/s/ Arthur P. Dammarell
		Name: Arthur P. Dammarell
		Director