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EX-31.2 - EXHIBIT 31.2 - STW RESOURCES HOLDING CORP.ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - STW RESOURCES HOLDING CORP.ex31-1.htm
EX-32.2 - EXHIBIT 32.2 - STW RESOURCES HOLDING CORP.ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - STW RESOURCES HOLDING CORP.ex32-1.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2015
 
OR
 
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from_____ to _____
 
STW RESOURCES HOLDING CORP
 
(Exact Name of Registrant as Specified in Charter)
 
Nevada
 
000-52654
 
26-1945743
(State or Other Jurisdiction of Incorporation)
 
(Commission File No.)
 
(I.R.S. Employer Identification No.)
3424 South County Road 1192
Midland, Texas 79706
     
 
(432) 686-7777
(Address of Principal Executive Offices)
     
(Registrant’s Telephone Number)
 
(Former name and address, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X]   No [ ]

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     [  ]
Smaller reporting company [X]
 
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes [  ]   No [X]
 
As of November 24, 2015, there were 35,844,548 shares of the issuer’s common stock, $0.001 par value per share, outstanding.

 
 



 

 
   
Page
 
PART I
FINANCIAL INFORMATION
   
       
1
 
       
 
1
 
 
2
 
 
3
 
 
4
 
 
6
 
       
32
 
       
39
 
       
PART II
OTHER INFORMATION
   
       
40
 
       
42
 
       
43
 
       
44
 

 
i

 

PART I
ITEM 1. FINANCIAL STATEMENTS
STW Resources Holding Corp
     
September 30,
2015
   
December 31,
2014
 
ASSETS
 
(Unaudited)
       
Current Assets
           
Cash
 
$
--
   
$
137,524
 
Accounts receivable, trade, net
   
1,612,968
     
3,493,918
 
Accounts receivable from related parties
   
--
     
7,980
 
Deferred project costs
   
1,416,423
     
480,000
 
Prepaid expenses and other current assets
   
462,082
     
329,475
 
Assets of discontinued operations
   
--
     
1,078,142
 
 
Total Current Assets
   
3,491,473
     
5,527,039
 
Long Term Assets
               
Property and equipment, net
   
949,386
     
1,203,082
 
TOTAL ASSETS
 
$
4,440,859
   
$
6,730,121
 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
Current Liabilities
               
Book overdraft
 
$
671,037
   
$
--
 
Accounts payable
   
3,055,185
     
3,467,690
 
Payable to related parties:
               
Black Pearl Energy, LLC
   
167,286
     
1,276,588
 
Crown Financial, LLC
   
1,345,855
     
2,034,810
 
Dufrane Nuclear, Inc.
   
47,767
     
--
 
Accrued compensation – officers
   
1,013,380
     
873,380
 
Current portion of notes payable, net of discounts, including $1,595,672 and $1,077,235 payable to related parties, respectively
   
7,627,546
     
5,869,484
 
Sales and payroll taxes payable
   
2,475,066
     
2,197,768
 
Insurance premium finance contract payable
   
186,044
     
208,271
 
Accrued expenses and interest
   
2,508,728
     
1,727,734
 
Deferred revenue
   
1,404,668
     
680,000
 
Accrued compensation
   
401,366
     
495,934
 
Accrued board compensation
   
254,531
     
496,067
 
Fees payable in common stock
   
1,289,891
     
2,783,711
 
Stock subscriptions payable
   
117,000
     
27,000
 
Liabilities of discontinued operations
   
1,059,168
     
2,584,164
 
Derivative liability
   
22,701
     
802,340
 
 
Total Current Liabilities
   
23,647,219
     
25,524,941
 
Notes payable, net of discount and current portion, $540,919 and $623,159 payable to related parties, respectively
   
2,616,282
     
2,093,217
 
Total Liabilities
   
26,263,501
     
27,618,158
 
Commitments and contingencies (Note 9)
               
Stockholders' Deficit
               
Preferred stock, par value $0.001 per share, 10,000,000 shares authorized, no shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively
   
-- 
     
-- 
 
Common stock; $0.001 par value; 191,666,667 shares authorized, 35,844,548 and 28,194,953 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively
   
35,847
     
28,197
 
Additional paid in capital
   
24,242,826
     
18,383,411
 
Accumulated deficit
   
(45,749,846
)
   
(39,112,171
)
Total Stockholders' Deficit of STW Resources Holding Corp.
   
(21,471,173
)
   
(20,700,563
)
Non-controlling interest in subsidiary
   
(351,469
)
   
(187,474
)
Total Stockholders’ Deficit
   
(21,822,642
)
   
(20,888,037
)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
$
4,440,859
   
$
6,730,121
 

See accompanying notes which are an integral part of these unaudited condensed consolidated financial statements.


STW Resources Holding Corp
For the three and nine month periods ended September 30, 2015 and 2014 (Unaudited)

   
For the Three Months Ended
September 30,
   
For the Nine Months Ended
September 30,
 
   
2015
   
2014
   
2015
   
2014
 
Revenues:
                               
   Water treatment services
 
$
1,063,219
   
$
162,846
   
$
1,330,989
   
$
172,897
 
   Energy and construction services
   
2,844,351
     
3,100,205
     
7,362,094
     
8,258,119
 
   Related parties services revenue
   
--
     
56,232
     
354
     
91,370
 
Net revenues
   
3,907,570
     
3,319,283
     
8,693,437
     
8,522,386
 
                                 
Cost of revenues
   
2,775,727
     
2,765,557
     
5,780,712
     
7,873,837
 
Gross Profit
   
1,131,843
     
553,726
     
2,912,725
     
648,549
 
                                 
Operating expenses
                               
   Research and development
   
--
     
--
     
7,435
     
151,955
 
   Sales and marketing
   
50,400
     
163,547
     
316,260
     
379,362
 
   General and administrative
   
2,693,622
     
3,205,399
     
6,986,042
     
7,740,510
 
   Depreciation and amortization
   
48,240
     
25,748
     
119,548
     
47,291
 
Total operating expenses
   
2,792,262
     
3,394,694
     
7,429,285
     
8,319,118
 
                                 
Loss from operations
   
(1,660,419
)
   
(2,840,968
)
   
(4,516,560
)
   
(7,670,569
)
                                 
Interest expense, including related party interest of $42,730 and $9,796 for the three months ended September 30, 2015 and 2014, respectively, and $113,128 and $29,389 for the nine months ended September 30, 2015 and 2014, respectively.
   
(833,126
)
   
(491,913
)
   
(3,428,867
)
   
(1,353,529
)
Change in derivative liability
   
260,461
     
(834,930
)
   
1,887,670
     
(1,278,466
)
Loss from continuing operations
 
$
(2,233,084
)
 
$
(4,167,811
)
 
$
(6,057,757
)
 
$
(10,302,564
)
Loss from operations of discontinued entities
   
(10,524
)
   
(1,141,849
)
   
(743,913
   
(1,505,616
Net Loss
   
(2,243,608
   
(5,309,660
)
   
(6,801,670
   
(11,808,180
)
Share of net income (loss) of subsidiary attributable to non-controlling interest
   
(2,615
)
   
(135,366
)
   
(163,995
)
   
(166,294
)
Net Loss of STW Resources Holding Corp.
 
$
(2,240,993
)
 
$
(5,174,294
)
 
$
(6,637,675
)
 
$
(11,641,886
)
                                 
Loss per common share – basic and diluted
 
$
(0.06
)
 
$
(0.19
)
 
$
(0.21
)
 
$
(0.49
)
Weighted average shares outstanding – basic and diluted
   
35,753,309
     
27,006,992
     
32,160,646
     
23,657,068
 

See accompanying notes which are an integral part of these unaudited condensed consolidated financial statements.


STW Resources Holding Corp
For the nine months ended September 30, 2015

   
Common Stock
$0.001 Par
       
   
Number
   
Amount
   
Additional
Paid In Capital
   
Accumulated
Deficit
   
Non- Controlling Interest
   
Stockholders’
Deficit
 
Balance, December 31, 2014
   
28,194,953
   
$
28,197
   
$
18,383,411
   
$
(39,112,171
)
 
$
(187,474
)
 
$
(20,888,037
)
Shares issued to employees from fees payable in common stock
   
2,548,334
     
2,549
     
1,819,477
                     
1,822,026
 
Shares issued to consultants from fees payable in common stock
   
2,152,456
     
2,153
     
1,682,193
                     
1,684,346
 
Shares issued as board of director fees
   
908,658
     
909
     
674,091
                     
675,000
 
Shares issued for subscriptions stock payable
   
15,385
     
15
     
9,985
                     
10,000
 
Shares issued upon conversion of notes payable and accrued interest
   
276,391
     
276
     
355,684
                     
355,960
 
Shares issued in connection with the 2015 Transfer Agreements as origination fees
   
525,000
     
525
     
420,475
                     
421,000
 
Shares issued for financing fees
   
700,000
     
700
     
319,769
                     
320,469
 
Shares issued per Salttech & Black Pearl Energy Agreements
   
523,371
     
523
     
305,182
                     
305,705
 
Value of warrants issued as debt issuance costs
                   
272,559
                     
272,559
 
Net loss for the period
                           
(6,637,675
)
   
(163,995
)
   
(6,801,670
)
Balance, September 30, 2015
   
35,844,548
   
$
35,847
   
$
24,242,826
   
$
(45,749,846
)
 
$
(351,469
)
 
$
(21,822,642
)

See accompanying notes which are an integral part of these unaudited condensed consolidated financial statements.
 

STW Resources Holding Corp
For the nine month periods ended September 30, 2015 and 2014
 
   
Nine Month Periods Ended
September 30:
 
   
2015
   
2014
 
Cash flows from operating activities – continuing operations
           
Net loss of STW Resources Holding Corp
 
$
(6,057,757
)
 
$
(10,302,564
)
Adjustments to reconcile net loss to net cash used in operating activities
               
   Depreciation
   
119,548
     
47,291
 
   Change in fair value of derivative liability
   
(1,887,670
)
   
1,278,466
 
   Financing costs of notes payable
   
412,590
     
42,594
 
   Change in fair value of debt instruments converted to equity
   
--
     
(272,980
)
   Amortization of discount and debt issuance costs
   
1,773,640
     
137,902
 
   Share-based compensation
   
2,714,684
     
3,486,606
 
Changes in working capital:
               
   (Increase) Decrease in accounts receivable
   
1,880,950
     
(885,391
)
   (Increase) Decrease in deferred project costs
   
(936,423
)
   
--
 
   (Increase) Decrease in prepaid expenses and other current assets
   
(132,607
)
   
(448,145
)
   Increase (Decrease) in accounts payable
   
247,664
     
1,792,032
 
   Increase (Decrease) in sales and payroll taxes payable
   
789,142
     
1,773,511
 
   Increase (Decrease) in deferred revenue
   
724,668
     
--
 
   Increase (Decrease) in accrued expenses and interest
   
804,188
     
--
 
   Increase (Decrease) in accrued compensation
   
(81,405
)
   
230,219
 
   Increase (Decrease) in accrued board compensation
   
433,464
     
--
 
    Net cash provided by/used in operating activities
   
804,676
     
(3,120,459
)
Cash flows from investing activities – continuing operations
               
   Purchase of equipment, net of equipment loans
   
(170,035
)
   
(470,689
)
    Net cash used in investing activities
   
(170,035
)
   
(470,689
)
Cash flows from financing activities – continuing operations
               
   Book overdraft
   
671,037
     
--
 
   Stock subscriptions payable
   
100,000
     
--
 
   Related party accounts receivables
   
7,980
     
(14,236
)
   Related party accounts payables, credit facilities, notes, and advances
   
(755,688
)
   
1,435,493
 
   Increase (Decrease) in insurance premium finance contract payable
   
(22,227
)
   
362,256
 
   Proceeds from notes payable
   
2,629,000
     
364,137
 
   Principal payments of notes payable
   
(1,752,438
)
   
(197,369
)
   Proceeds from issuance of common stock
   
--
     
1,221,500
 
   Debt issuance costs
   
(146,000
)
   
--
 
    Net cash provided by financing activities – continuing operations
   
731,664
     
3,171,781
 
Net increase in cash – continuing operations
   
1,366,305
     
(419,367
)
Cash flows from operating activities – discontinued operations
           
Net loss
 
$
(743,913
)
 
$
(1,505,616
)
Adjustments to reconcile net loss to net cash used in operating activities
               
   Depreciation of discontinued entities
   
18,681
     
134,989
 
   Loss on disposition of property and equipment of discontinued entities
   
114,809
     
39,861
 
Changes in working capital:
               
   (Increase) Decrease in assets of discontinued operations
   
1,184,584
     
(553,217
)
   Increase (Decrease) in liabilities of discontinued operations
   
(2,005,981
)
   
2,686,566
 
    Net cash (used)/provided by operating activities – discontinued operations
   
(1,431,820
)
   
802,583
 
Cash flows from investing activities – discontinued operations
               
Cash flows from financing activities – discontinued operations
               
   Principal payments of notes payable of discontinued entities
   
(72,009
)
   
(74,753
)
    Net cash provided by financing activities – discontinued operations
   
(72,009
)
   
(74,753
)
Net decrease in cash – discontinued operations
   
(1,503,829
)
   
727,830
 
Net increase (decrease) in cash
   
(137,524
)
   
308,463
 
Cash at beginning of period
   
137,524
     
4,699
 
Cash at end of period
 
$
--
   
$
313,162
 

 (Continued)

 
 
-4-


STW Resources Holding Corp
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the nine month periods ended September 30, 2015 and 2014

Supplemental cash flow information:
           
Cash paid for interest
 
$
105,557
   
$
19,803
 
Cash paid for income taxes
 
$
--
   
$
--
 
                 
Non-cash investing and financing activities:
               
Shares issued from common stock subscriptions payable
 
$
10,000
   
$
160,000
 
Value of shares issued to employees as compensation
 
$
1,822,026
   
$
1,011,375
 
Value of shares issued to consultants
 
$
1,684,346
   
$
775,575
 
Value of shares issued as board fees
 
$
675,000
   
$
558,157
 
Value of shares issued in connection with extension of notes payable
 
$
--
   
$
68,616
 
Value of shares issued in payment of accrued PIK interest
 
$
--
   
$
540,777
 
Value of shares issued upon conversion of notes payable and accrued interest
 
$
355,960
   
$
1,588,074
 
Shares issued for 2015 Transfer Agreement origination fees
 
$
421,000
   
$
--
 
Shares issued for Financing Fees
 
$
320,469
   
$
--
 
Value of shares issued as charitable contributions
 
$
--
   
$
110,000
 
Shares issued per Salttech & Black Pearl Energy Agreements
 
$
305,705
   
$
--
 
Value of warrants issued as debt issuance costs
 
$
272,559
   
$
--
 
Value of conversion feature of JMJ convertible note payable
 
$
--
   
$
50,000
 
Value of derivative associated with convertible note payable
 
$
--
   
$
715,981
 

See accompanying notes which are an integral part of these unaudited condensed consolidated financial statements.

 
 
-5-


STW Resources Holding Corp
Notes to Condensed Consolidated Financial Statements (Unaudited)
Nine Month Periods Ended September 30, 2015 and 2014


Basis of presentation

The accompanying condensed consolidated financial statements of STW Resources Holding Corp and its subsidiaries (“STW,” “we,” “us, “our” and “our Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the rules and regulations of the Securities and Exchange Commission. Accordingly, the unaudited condensed financial statements do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete annual financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of only normal recurring adjustments, considered necessary for a fair presentation. Interim operating results are not necessarily indicative of results that may be expected for the year ending December 31, 2015, or for any other interim period. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements as of and for the year ended December 31, 2014, which are included in the Company’s Annual Report on Form 10-K for such year as filed on April 3, 2015. During the nine months ended September 30, 2015, the Company decided to shut down the operations of its Energy and Oilfield businesses. Accordingly, some information included in our form 10-K may not be comparable to the information included in this form 10-Q. The December 31, 2014 condensed consolidated balance sheet was derived from the audited consolidated balance sheet included in the Company’s Annual Report on Form 10-K for such year as filed on April 3, 2015, see Reclassifications below.

History of the Company

STW Resources Holding Corp, is a corporation formed to utilize state of the art water reclamation technologies to reclaim fresh water from highly contaminated oil and gas hydraulic fracture flow-back salt water that is produced in conjunction with the production of oil and gas. STW has been working to establish contracts with oil and gas operators for the deployment of multiple water reclamation systems throughout Texas, Arkansas, Louisiana and the Appalachian Basin of Pennsylvania and West Virginia. STW, in conjunction with energy producers, operators, various state agencies and legislators, is working to create an efficient and economical solution to this complex problem. The Company is also evaluating the deployment of water processing technologies in the municipal wastewater and potable water industry. The Company is also involved in the desalination of brackish water and seawater for industrial and municipal use.

The Company’s operations are located in the United States of America and the principal executive offices are located at 3424 South County Road 1192, Midland, Texas 79706.

Consolidation policy

The unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2015, include the accounts of the STW Resources Holding Corp and its wholly owned subsidiaries: STW Water Process & Technologies LLC and STW Pipeline Maintenance & Construction, LLC. The condensed consolidated financial statements for the three and nine months ended September 30, 2014, include STW Resources Holding Corp and STW Pipeline Maintenance & Construction, LLC as STW Water Process & Technologies LLC was not established prior to the quarterly period ended September 30, 2014. All significant intercompany transactions and balances have been eliminated in consolidation.

STW Oilfield Construction LLC and the Company’s 75% owned subsidiary STW Energy, LLC have been reported as discontinued operations.

The Company also consolidates any variable interest entities (VIEs), of which it is the primary beneficiary, as defined. The Company does not have any VIEs that need to be consolidated at this time. When the Company does not have a controlling interest in an entity, but exerts a significant influence over the entity, the Company would apply the equity method of accounting.

 
 
-6-


Reclassifications

Certain reclassifications were made to the prior period condensed consolidated financial statements to conform to the current period presentation. There was no change to the previously reported net loss. Additionally, the financial statements for September 30, 2014, and December 31, 2014 have been revised for the discontinued operations (See Note 8).
 
Non-Controlling interest

On June 25, 2013, the Company invested in a limited liability company (“LLC”) by obtaining a 75% interest in STW Energy Services, LLC (“STW Energy”). The non-controlling interest in STW Energy is held by Crown Financial, LLC, a Texas Limited Liability Company (“Crown” or “Crown Financial”). As of December 31, 2014, $2,500 was recorded as the equity of the non-controlling interest in our consolidated balance sheet representing the third-party investment in STW Energy, with a cumulative net loss attributable to non-controlling interests of $187,474 for the year ended December 31, 2014. During the three and nine month period ended September 30, 2015, a net loss attributable to the non-controlling interest of $5,615 and $163,995, respectively, was incurred. As of September 30, 2015, the net deficit interest in the subsidiary held by the non-controlling interest is $351,471

Going Concern

The Company’s condensed consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company had an accumulated deficit of $45,749,846 as of September 30, 2015, and as of that date was delinquent in payment of $2,475,066 of sales and payroll taxes. As of September 30, 2015, $6,493,616 of notes payable were in default. Since its inception in January 2008 through September 30, 2015, management had raised equity and debt financing of approximately $23,000,000 to fund operations and provide working capital. The cash resources of the Company are insufficient to meet its planned business objectives without additional financing. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern.

Management has undertaken steps as part of a plan to improve operations with the goal of sustaining our operations for the next twelve months and beyond. These steps include (a) raising additional capital and/or obtaining financing; (b) executing contracts with oil and gas operators and municipal utility districts; and (c) controlling overhead and expenses.

There can be no assurance that the Company can successfully accomplish these steps and it is uncertain that the Company will achieve a profitable level of operations and obtain additional financing. There can be no assurance that any additional financing will be available to the Company on satisfactory terms and conditions, if any at all.

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

Use of Estimates

Condensed consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Among other things, management has estimated the collectability of its accounts receivable, the valuation of long lived assets, the assumptions used to calculate its derivative liabilities, and equity instruments issued for financing and compensation. Actual results could differ from those estimates.

Accounts Receivable

Trade accounts receivable, net of allowance for doubtful accounts consists primarily of receivables from oil & gas services fees. Management determines the allowance for doubtful accounts based on historical losses and current economic conditions. On a continuing basis, management analyzes delinquent receivables, and once these receivables are determined to be uncollectible, they are written off either against an existing allowance account or as a direct charge to the condensed consolidated statement of operations. As of September 30, 2015 and December 31, 2014, the allowances for doubtful accounts were $40,390 and $6,773, respectively.

 
 
-7-


Loan Discounts

The Company amortizes loan discounts over the term of the loan using the effective interest method.

Concentration of Credit Risk

A financial instrument that potentially subjects the Company to concentration of credit risk is cash. The Company places its cash with financial institutions deemed by management to be of high credit quality. The Federal Deposit Insurance Corporation (“FDIC”) provides basic deposit coverage with limits to $250,000 per owner per institution. At September 30, 2015, there were no account balances per institution that would have exceeded the $250,000 insurance limit.

The Company anticipates entering into long-term fixed-price contracts for its services with select oil and gas producers and municipal utilities. The Company will control credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures.

As of September 30, 2015, three vendors accounted for 15%, 8% and 5% of total accounts payable. During the three months ended September 30, 2015, three vendors accounted for 55%, 9%, and 5% of total purchases. During the nine months ended September 30, 2015, three vendors accounted for 59%, 13%, and 7% of total purchases. As of December 31, 2014, three vendors accounted for 20% of total accounts payable. During the year ended December 31, 2014, two vendors accounted for 69% of total purchases.

As of September 30, 2015, three customers accounted for 45%, 34% and 7% of accounts receivable. During the three months ended September 30, 2015, three customers accounted for 67%, 19% and 6% of net revenues. During the nine months ended September 30, 2015, three customers accounted for 71%, 12% and 7% of net revenues. As of December 31, 2014, three customers accounted for 43%, 11% and 3% of accounts receivable. During the year ended December 31, 2014, three customers accounted for 39%, 11% and 7% of total revenues.

Fair Value of Financial Instruments

“Fair value” is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The Company’s financial instruments consist of cash, accounts receivable, notes payable, accounts payable, accrued expenses and derivative liabilities. The carrying value for all such instruments except convertible notes payable and derivative liabilities approximates fair value due to the short-term nature of the instruments. Our derivative liabilities are recorded at fair value (see Note 5).

We determine the fair value of our financial instruments based on a three-level hierarchy for fair value measurements under which these assets and liabilities must be grouped, based on significant levels of observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect management’s use of assumptions to external and internal information. This hierarchy requires the use of observable market data when available. These two types of inputs have created the following fair-value hierarchy:

Level 1 — Valuations based on unadjusted quoted market prices in active markets for identical securities. Currently, we do not have any items classified as Level 1.

Level 2 — Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly. Currently, we do not have any items classified as Level 2.

Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement, and involve management judgment. We use the Black-Scholes-Merton option pricing model (“Black-Scholes”) to determine the fair value of the financial instruments.

If the inputs used to measure fair value fall in different levels of the fair value hierarchy, a financial security’s hierarchy level is based upon the lowest level of input that is significant to the fair value measurement.

 
 
-8-


Our derivative liabilities consist of embedded conversion features on debt, price protection features on warrants, and are classified as Level 3 liabilities. We use Black-Scholes to determine the fair value of these instruments (see Note 5).

Management has used the simplified Black Scholes model to estimate fair value of derivative instruments. Management believes that as a result of the relatively short term nature of the warrants and convertibility features, a lattice model would not result in a materially different valuation.

The following table presents certain financial instruments measured and recorded at fair value on the Company’s condensed consolidated balance sheets on a recurring basis and their level within the fair value hierarchy as of September 30, 2015 and December 31, 2014.

   
Level 1
   
Level 2
   
Level 3
 
Total
 
Fair value of Derivative Liability at September 30, 2015
 
$
--
   
$
--
   
$
22,701
   
$
22,701
 
Fair value of Derivative Liability at December 31, 2014
 
$
--
   
$
--
   
$
802,340
   
$
802,340
 
 
Accounting for Derivatives Liabilities

The Company evaluates stock warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for. Financial instruments classified as a derivative instrument are marked-to-market at each balance sheet date and recorded as an asset or a liability with the change in fair value adjusted through the statement of operations in other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Financial instruments that are initially classified as equity that become subject to reclassification to a liability are recorded at the fair value of the instrument on the reclassification date.

Certain of the Company’s embedded conversion features on debt, with anti-dilution provisions, and price protection features on outstanding common stock warrants are treated as derivatives for accounting purposes. The common stock purchase warrants were not issued with the intent of effectively hedging any future cash flow, fair value of any asset or liability. The warrants do not qualify for hedge accounting, and as such, all future changes in the fair value of these warrants are recognized currently in earnings until such time as the warrants are exercised, expire or the related rights have been waived. These common stock purchase warrants do not trade in an active securities market. The Company estimates the fair value of these warrants and embedded conversion features as derivative liabilities contracts using the Black-Scholes model (see Note 5).

Equity Instruments Issued to Non-Employees for Acquiring Goods or Services

Issuances of the Company’s common stock for acquiring goods or services are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date for the fair value of the equity instruments issued to consultants or vendors is determined at the earlier of (i) the date at which a commitment for performance to earn the equity instruments is reached (a “performance commitment” which would include a penalty considered to be of a magnitude that is a sufficiently large disincentive for nonperformance) or (ii) the date at which performance is complete. When it is appropriate for the Company to recognize the cost of a transaction during financial reporting periods prior to the measurement date, for purposes of recognition of costs during those periods, the equity instrument is measured at the then-current fair values at each of those interim financial reporting dates.

Long-lived Assets and Intangible Assets

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made.

The Company had no such asset impairments during the nine months ending September 30, 2015 or 2014. There can be no assurance, however, that market conditions will not change or demand for the Company’s products and services under development will continue. Either of these could result in future impairment of long-lived assets.

 
 
-9-


Revenue Recognition

Services Revenues from Master Services Agreements

During the year ended December 31, 2014, the Company entered into Master Services Agreements (“MSA”) with several major oil & gas companies. These MSAs authorize the Company to provide a range of oil & gas support services including oilfield site construction and maintenance, pipeline maintenance, oil rig cleaning, site preparation, energy support services, and other oil & gas support services. The Company bills these customers pursuant to purchase orders issued under the MSAs. The revenues billed include hourly labor fees and equipment usage fees. The Company recognized revenues from these contracts as the services are performed under the customer purchase orders and no further performance obligations exist, generally in the form of a customer approval. During the three and nine months ended September 30, 2015, the Company recognized $2,844,351 and $7,362,448, respectively of revenues from these services contracts, which included zero and $354, respectively of revenues from related parties. During the three and nine months ending September 30, 2014, the Company realized revenue of $3,156,437 and $8,349,489, respectively from services contracts, which included $56,232 and $91,370, respectively of the service revenue was from related parties.

Contract Revenue and Cost Recognition on Engineering and Design Services
 
During the nine month period ended September 30, 2015, the Company completed a contract to design, build and deliver custom design, engineering and construction of the Horizon City Municipal Utility District Reverse Osmosis (RO) Concentrator facility to Horizon City, Texas. As of December 31, 2014, the Company reported deferred revenue of none and deferred costs of $136,898 related to this contract. Total revenues of $934,558 and costs of $713,464 were recognized during the nine month period ended September 30, 2015, upon completion of the contract and acceptance of the concentrator facility.

The Company recognizes revenue on a contract once the services or products are delivered or completed and accepted by the customer. This is based on a thorough analysis of the written contract. Revenues from these contracts are recognized when the customer has passed credit tests and collection is reasonable assured and amounts are fixed and determinable.

Business Segments

The Company has three reportable segments, (1) water reclamation services, (2) oil & gas services and (3) corporate operations. Segment information is reported in Note 10.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company maintains a valuation allowance with respect to deferred tax assets. The Company established a valuation allowance based upon the potential likelihood of realizing the deferred tax asset in the future. Changes in circumstances, such as the Company generating taxable income, could cause a change in judgment about the realizability of the related deferred tax asset. Any reduction in the valuation allowance will be included in income in the year of the change in estimate.

The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties on its condensed consolidated balance sheets at September 30, 2015 and December 31, 2014, respectively.

Common Stock and Common Stock Warrants Issued to Employees

The Company uses the fair value recognition provision of ASC 718, “Stock Compensation,” which requires the Company to recognize the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of such instruments. The Company uses the Black-Scholes option pricing model to calculate the fair value of any equity instruments on the grant date.

At September 30, 2015 and December 31, 2014, the Company had no grants of employee common stock options or warrants outstanding.

 
 
-10-


Loss per Share

The basic net loss per share is calculated by dividing the Company’s net loss available to common shareholders by the weighted average number of common shares during the period. The diluted net loss per share is calculated by dividing the Company’s net income (loss) available to common shareholders by the diluted weighted average number of shares outstanding during the period. The diluted weighted average number of shares outstanding is the basic weighted average number of shares adjusted for any potentially dilutive shares arising from debt or equity instruments. Diluted net loss per share is the same as basic net loss per share due to the lack of dilutive items. As of September 30, 2015 and December 31, 2014, the Company had 17,793,525 and 14,442,977 shares issuable upon conversion or exercise, respectively, which have been excluded as their effect is anti-dilutive.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation and amortization. The cost of property and equipment is depreciated or amortized on the straight-line method over the following estimated useful lives:

Computer equipment and software
3 years
Furniture
3 years
Tools, equipment, and vehicles
3-5 years
Leasehold improvements
remaining life of lease
 
Stock Subscriptions Payable

The initial balance of stock subscriptions payable as of December 31, 2014, was $27,000 representing 41,539 shares to be issued. During the three and nine months ended September 30, 2015, zero and $10,000, respectively of these stock subscriptions payable were issued representing zero and 15,385, respectively shares of common stock. In the second quarter the Company received $100,000 in proceeds for additional common stock to be issued. The remaining balance of stock subscriptions payable as of September 30, 2015, is $117,000 representing 126,154 shares to be issued.

Fees Payable in Common Stock

During the three and nine months ended September 30, 2015, the Company agreed to issue a net of 5,738,834 and 8,315,430 shares, respectively, valued at $1,242,436 and $2,985,686 in payment of performance bonuses, employment signing bonuses, consulting fees, and interest. During the three and nine months ended September 30, 2015, the Company issued an aggregate of 605,500 and 6,200,552 shares, respectively, of its common stock, valued at $144,069 and $4,106,421, respectively, in payment of performance bonuses, employment signing bonuses, consulting fees, and interest which left a remaining balance in fees payable in common stock of $1,289,894, or 5,474,640 shares.
 
Payroll tax liabilities

As of September 30, 2015, the Company reported $2,475,066 of sales and payroll taxes payable. The payroll taxes payable includes $935,000 of estimated IRS trust fund penalties as of September 30, 2015 and December 31, 2015. These penalties have not been assessed by the IRS.

On July 22, 2015, the Company entered into an installment agreement with the IRS for the payment of $80,000 monthly on its past payroll taxes. It’s the Company’s understanding from conversations with the IRS collections division that provided the Company makes all of its installment payments timely, the IRS will not assess the 100% trust fund tax penalty. If the Company were to default on its installment payment agreement, the IRS may assess an additional $750,000 of trust fund penalties.
 
Recently Issued Accounting Standards

Recent accounting pronouncements did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.
 
 
-11-

 
 
NOTE 2 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following at September 30, 2015 and December 31, 2014:

 
September 30,
2015
   
December 31,
2014
 
Office furniture and equipment
$
29,467
   
$
29,467
 
Tools and yard equipment
 
673,942
     
621,995
 
Vehicles and construction equipment
 
477,187
     
635,220
 
Facilities and leasehold improvements
 
15,933
     
15,933
 
Total, cost
 
1,196,529
     
1,302,615
 
Accumulated Depreciation and Amortization
 
(247,143
)
   
(99,533
)
Property and equipment, net
$
949,386
   
$
1,203,082
 

Depreciation and amortization expense for the three and nine month periods ended September 30, 2015 were $48,240 and $119,548, respectively. Depreciation and amortization expense for both the three and nine month periods ended September 30, 2014 were $25,748 and $47,291, respectively.

NOTE 3 – RECEIVABLE FROM FACTOR, NET OF UNAPPLIED CUSTOMER CREDITS

Accounts Purchase Agreement – Crown Financial, LLC

On June 21, 2013, STW Energy entered into an Accounts Purchase Agreement (the “Accounts Purchase Agreement”) with Crown Financial, LLC (“Crown Financial”) under the Texas Finance Code, pursuant to which Crown Financial might, at its sole discretion, purchase certain of the STW Energy’s eligible accounts receivable. Upon any acquisition of an account receivable, Crown would advance to STW Energy up to 80% of the face amount of the account receivable; provided however, that based upon when each invoice gets paid, Crown should pay STW Energy on the related invoice less fess and prior advances. Each account receivable purchased by Crown would be subject to a discount fee of 1.5% of the gross face amount of such purchased account for each 30 day period (or part thereof) the purchased account remains unpaid. Crown would generally have full recourse against STW Energy in the event of nonpayment of any such purchased account.

The Accounts Purchase Agreement contains covenants that are customary for agreements of this type and appoints Crown as attorney in fact for various activities associated with the purchased accounts receivable, including opening STW Energy’s mail, endorsing its name on related notes and payments, and filing liens against related third parties. The failure to satisfy covenants under the Accounts Purchase Agreement or the occurrence of other specified events that constitute an event of default could result in the acceleration of the repayment obligations of the Company or Crown enforcing its rights under the Security Agreement and take possession of the collateral. The Accounts Purchase Agreement contains provisions relating to events of default that are customary for agreements of this type. As of the date of this report there were no accounts in default.

The Accounts Purchase Agreement shall remain valid until terminated by either party upon 30 days written notice. The Accounts Purchase Agreement is secured by a security interest in substantially all of STW Energy’s assets pursuant to the terms of a Security Agreement. As of September 30, 2015 and December 31, 2014, respectively, there were no accounts receivables subject to recourse due to nonpayment of the purchased accounts.

 
 
-12-

 
 
NOTE 4 – NOTES PAYABLE

The Company’s notes payable at September 30, 2015 and December 31, 2014, consisted of the following:
 
   
September 30,
   
December 31,
 
Name
 
2015
   
2014
 
             
14% convertible notes
 
$
2,296,342
   
$
2,296,342
 
12% convertible notes
   
100,000
     
100,000
 
2015 transfer agreements
   
290,000
     
--
 
GE Ionics note
   
2,100,000
     
2,100,000
 
Deferred compensation notes
   
279,095
     
279,095
 
STW Resources revenue participation notes
   
764,500
     
764,500
 
Dufrane note payable
   
545,879
     
725,000
 
Black Pearl note payable
   
777,096
     
--
 
Other short-term debt
   
55,000
     
55,000
 
2015 Q2 short term financing
   
486,000
     
--
 
2015 Q3 ST Loans
   
606,000
     
--
 
Viewpoint Securities
   
191,469
     
--
 
Capital lease obligations
   
24,184
     
30,437
 
STW Resources revenue participation notes – Upton project
   
1,607,000
     
1,573,000
 
Crown Financial note
   
570,306
     
702,698
 
Equipment finance contracts
   
46,569
     
110,000
 
Discontinued operations L/T debt
   
--
     
(752,441
)
Total notes payable
   
10,739,440
     
7,983,631
 
   Less: current portion
   
(8,123,158
)
   
(5,890,414
)
Net long term portion notes payable
 
$
2,616,282
   
$
2,093,217
 
                 
Current portion notes payable
 
$
8,123,158
   
$
5,890,414
 
Less items as follows:
               
   Unamortized loan discounts and loan fees
   
453,343
     
20,930
 
Discontinued operations
   
42,269
     
--
 
Total current portion of notes payable, net of discounts
 
$
7,627,546
   
$
5,869,484
 
 
 
 
-13-

 
14% Convertible Notes

As of September 30, 2015 and December 31, 2014, the aggregate principal balances of the 14% convertible notes were $2,296,342 and $2,296,342, respectively. During the nine month period ended September 30, 2015, the Company had no activity on these notes. As of September 30, 2015, the total of outstanding 14% convertible notes was $2,296,342 of which $2,264,800 matured on or before September 30, 2015 and were in default, however, as of November 24, 2015, none of the note holders have declared the notes in default. The 14% convertible notes are convertible into 6,445,866 shares of the Company’s common stock. During the nine month period ended September 30, 2014, the Company converted principal and accrued interest of $983,437 in exchange for 1,648,267 shares of the Company’s common stock. The Company also issued 2,628 shares for the extension of a note valued at $3,628. The value of the stock issued was $812,607 resulting in additional interest expense of $214,234 upon the conversion of convertible debt. During the three month period ended September 30, 2014, the Company converted principal and accrued interest of $9,568 in exchange for 19,933 shares of the Company’s common stock. Additionally, the Company issued 2,628 shares for the extension of a note valued at $3,628. The value of the stock issued was $31,270 resulting in additional interest expense of $21,702. As September 30, 2014, the total of outstanding 14% convertible notes is $2,326,517 of which $488,210 matured on or before September 30, 2014 and is in default, however, as of December 22, 2014, none of the note holders have declared the notes in default.
 
As of September 30, 2015 and December 31, 2014, $171,892 of the 14% convertible notes is payable to related parties.

12% Convertible Notes

Between April 2009 and November 2010, the Company issued a series of 12% convertible notes payable to accredited investors that matured on November 30, 2011 and are currently in default. At September 30, 2015, the remaining balance was $100,000. In connection with the issuance of the 12% convertible notes, the Company also issued 273,583 warrants to purchase common stock at an exercise price of $0.12 per share that expire at various dates through 2015. The 12% convertible notes are convertible into 1,485,303 shares of the Company’s common stock.

During the three and nine months ended September 30, 2015, the Company has had no activity on the 12% convertible notes. The notes are currently in default, however, as of November 24, 2015, the note holders have not declared the notes in default. During the nine months ended September 30, 2014, the Company issued 1,137,417 shares of its common stock valued at $614,205 in payment of $225,000 of principal and $116,225 accrued interest (total of $341,225). The conversion of these notes payable and accrued interest for common stock resulted in a non-cash charge of $272,980 to the derivative liability upon the conversion of convertible debt. During the three months ended September 30, 2014, there was no activity.

Other Short-Term Debt

On January 1, 2014, the Company issued a $30,000 short term note to an investor, MKM Capital. The note bears interest at 8% and matured on January 1, 2015. The balance of the note payable as of September 30, 2015 and December 31, 2014, was $30,000. It is currently in default, however, as of November 24, 2015, MKM capital has not declared the note in default.

In September 2014, the Company entered into short term loan agreements with seven accredited investors for short term notes of $145,000 to be used to sustain daily operating activities. The notes matured in October 2014 with a 5% transaction fee at maturity and the lenders were entitled to receive 18% interest if the notes were not paid at maturity. As additional consideration for the loan, the Company agreed to issue the lenders an aggregate of 171,667 shares of common stock. These shares were included in the "Fees Payable in Common Stock" and were expensed as interest in the current period. As of September 30, 2015 and December 31, 2014, all but $25,000 of the delinquent loans had been repaid, but as of November 24, 2015, the remaining lender has not declared a default on the payment of his note.

GE Ionics

On August 31, 2010, the Company entered into a Settlement Agreement with GE Ionics (“GE”) relating to a $2,100,000 note payable that was amended on October 30, 2011 (“GE Note”). On May 7, 2012, GE informed the Company that the Company had failed to make any required installment payment that was due and payable under the GE Note and that the Company’s failure to make any such installment payment(s) constituted an event of default under the GE Note. Pursuant to the terms of the GE Note, upon the occurrence of an event of default for any reason whatsoever, GE shall, among other things, have the right to (a) cure such defaults, with the result that all costs and expenses incurred or paid by GE in effecting such cure shall bear interest at the highest rate permitted by law, and shall be payable upon demand; and (b) accelerate the maturity of the GE Note and demand the immediate payment thereof, without presentment, demand, protest or other notice of any kind. Upon an event of default under the GE Note, GE shall be entitled to, among other things (i) the principal amount of the GE Note along with any interest accrued but unpaid thereon and (ii) any and all expenses (including attorney’s fees and expenses) incurred in connection with the collection and enforcement of any rights under the GE Note.

 
 
-14-


Under the terms of the GE note, interest at the rate of WSJ prime plus 2% is due on the note, upon default, interest is due at the maximum legal rate which is 10% in the state of Texas. The note matured on September 1, 2013, and is in default. Interest on the note through December 31, 2014, has been accrued pursuant to the terms of the note through May 6, 2012, interest upon default on May 7, 2012, has been accrued at the maximum default rate in the state of Texas which is 10%.

As of the date hereof, the Company has not repaid any principal or accrued but unpaid interest that has become due and payable under the GE Note.

On May 22, 2013, GE Ionics, Inc. ("GE") filed a lawsuit against STW in the Supreme Court of the State of New York, County of New York, Index No. 651832/2013 (the "GE Lawsuit"). Although the lawsuit arises out of STW's obligations to GE under its Settlement Agreement with GE entered into on August 31, 2010, upon which STW owed GE $2.1 million plus interest. GE elected to forgo suit on the settlement amount and sued STW for the original debt of $11,239,437, plus interest and attorneys' fees (the "Original Debt"). STW filed its Answer asserting that it is entitled to and shall pursue all of its available legal and equitable defenses to the Original Debt, inasmuch as GE had, among other things, failed to discount the Original Debt sued upon by the amounts that it recovered through re-use and re-sale of the equipment it fabricated for STW. Management has not accrued the original amount of the debt because Management has determined the probability of recovery is remote. The lawsuit is currently in the discovery phase of litigation and the parties are actively exploring settlement. (See Note 9)

Deferred Compensation Notes

As of September 30, 2015, and December 31, 2014, the Company had a balance of $279,095 and $279,095 payable under deferred compensation, non-interest bearing, notes to its former Chief Executive Officer and its in house counsel. The notes matured on December 31, 2012, and the notes are in default, however, as of November 24, 2015, none of the note holders have declared the notes in default.

Revenue Participation Notes

As of September 30, 2015 and December 31, 2014, the Company had an outstanding balance of $764,500 and $764,500, respectively, of Revenue Participation Notes comprised as follows:

   
September 30,
   
December 31,
 
Name
 
2015
   
2014
 
2012 Revenue Participation Notes
 
$
165,000
   
$
165,000
 
2013 Revenue Participation Notes - STW Resources Salt Water Remediation
   
302,500
     
302,500
 
2013 Revenue Participation Notes - STW Energy
   
182,000
     
182,000
 
2013 Convertible Revenue Participation Notes - STW Pipeline
   
115,000
     
115,000
 
Total revenue participation notes
 
$
764,500
   
$
764,500
 

These notes are more fully described in the notes to the consolidated financial statements for the year ended December 31, 2014, which were included in the Company’s Annual Report on Form 10-K as filed with the SEC on April 3, 2015.

2014 Revenue Participation Notes – STW Resources Upton Project

On September 30, 2014, the Company issued its first note for the new Upton Project. The financing is a senior secured master note (“Master Note”) with a 15% coupon and a maturity of 18 months. According to the terms of the Master Note, the Company should pay interest only in the first three months of the issuance, and commencing on the fourth month of the issuance, the Company should pay equal monthly payment of principal and accrued interest through the maturity date of the Master Note with revenue participation interest. Additionally, the Master Note carries 5% royalty to be distributed based on pro rata ownership by investors in the Master Note. Payments for principal and interest will come solely from the revenue participation fees from water processing contracts related to brackish water. This Agreement, including but not limited to the revenue sharing arrangement, is applicable to the brackish water processing facility being built with the proceeds of the Master Note. As of September 30, 2015, the total principal amount of this financing was $1,607,000. At September 30, 2015, $819,752 of the principal payments was in default. As of the date of this Report, the investors have not declared a default on the payment of the Master Note.

 
 
-15-


Note payable to Crown Financial, LLC, a related party

On June 26, 2013, STW Energy Services, LLC entered into a loan agreement with Crown Financial, LLC for a $1.0 million loan facility to purchase machinery and equipment for STW Energy Services. Crown Financial, LLC is a related party in that it holds a 25% non-controlling interest in our subsidiary: STW Energy Services, LLC. The note matures on June 25, 2016, and bears interest at 15%. Commencing November 1, 2013, monthly principal and interest payments are due on the note over a thirty-three month period. The note is secured by all assets of STW Energy Services. LLC. As of September 30, 2015 and December 31, 2014, the Company had drawn down $570,306 and $702,698, respectively, of this loan facility. This loan is part of the discontinued operations.

Black Pearl Energy, LLC, a related party

On March 19, 2014, we entered into a Line of Credit Agreement (the "Credit Agreement") with Black Pearl Energy, LLC ("Black Pearl"), an entity controlled by the Company’s former CEO, Stan Weiner, former COO, Lee Maddox, and one of our directors and General Counsel, Grant Seabolt. Pursuant to the Credit Agreement, Black Pearl issued us a $2,000,000 line of credit, of which $1,054,944 had been advanced as of December 31, 2014. The credit was issued in the form of a promissory note (the "Note"). On February 26, 2015, the open balance of the credit line and accrued interest were converted into a note payable, described in more details in the Black Pearl note payable herein below, and the credit line was dissolved.

On February 26, 2015, the Company negotiated an extension on the note payable to Black Pearl for the outstanding balance of $1,079,944 plus $105,363 of accrued interest under the Credit Agreement. The note is to be paid on a monthly basis of $12,000 per month for 48 months and the rest of the payment will become due in February 2019. On March 5, 2015, the note was revised to consolidate the receivables and the payable and reduced the principal and accrued interest to approximately $805,863 and $67,000, respectively. Additionally, we would issue 75,000 shares of common stock to Black Pearl to cure the default and 131,704 shares of common stock in consideration of the extension. These stock awards were accrued as fees payable in common stock when the awards were vested.

As of September 30, 2015 and December 31, 2014, the Company had $777,096 of related party notes payables and zero, respectively, to Black Pearl.

Dufrane Nuclear, Inc., a related party

As of September 30, 2015 and December 31, 2014, the Company has a related party note payable of $545,879 and $725,000, respectively, to Dufrane Nuclear, Inc. a company controlled by Mr. Joshua Brooks, the Company’s Former Chief Operating Officer. During the nine months ended September 30, 2015 and 2014, the Company made payments on the note of $179,121 and zero, respectively, in principal. Dufrane declared the note in default and brought suit on the note (See Legal Proceedings).

2015 Transfer Agreement Convertible Notes Payable

During the nine months ended September 30, 2015, the Company issued $1,375,000 of convertible transfer agreements to four (4) accredited investors. The transfer agreements bear interest at 5% and mature at various dates through October 17, 2015. During the nine months ended September 30, 2015, the Company paid principal of $1,085,000 and interest of $20,539. One of the notes is in default in the amount of $15,000, however, as of November 24, 2015, the note holder has not declared the note in default The remaining transfer agreements are convertible, including accrued interest, into 476,201 shares at a conversion price of $0.65 per share. In the event of default, the transfer agreements are convertible at a price equal to the lower of (a) $0.65 or (b) 60% multiplied by the lowest closing trade price of the common shares for the ten (10) trading days immediately prior to the applicable conversion date.

The conversion feature of the 2015 transfer agreements meet the definition of a derivative due to the reset provision to occur upon the issuance of equity based instruments at below $0.65 per share or upon default of the notes and is accounted for as a derivative liability. The Company has determined the value of the conversion feature upon default of this note using the Black-Scholes pricing model to be $1,108,030 as of the date of issuance, of which $479,877 was recorded as a financing cost in the condensed consolidated statement of operations and $628,153 was recorded as a loan discount. In connection with these transfer agreements, the Company issued 525,000 shares of its common stock to the investors valued at $470,500. The Company also incurred third party loan fees of $151,347 on these notes. The value of the conversion feature of $628,153 and $746,847 will be amortized as interest expense over the term of the note under the straight line method, which we believe approximates the effective interest method due to their short term nature. The effective interest rate of these transfer agreements was determined to be 102.5%.

 
 
-16-


2015 Short Term Financing

In the second quarter of 2015, the Company obtained short term loans from three qualified investors totaling $450,000. As part of the short term loans, one investor was given a discount on two notes totaling $73,500 and awarded 650,000 shares of common stock at various prices valued at $340,000 plus 4,000,000 shares, to be issued only in the event of a default, valued at $1,600,000. Another investor was awarded 100,000 shares of common stock at various prices valued at $80,000 plus 500,000 warrants at an exercise price of $0.59 per share. These costs in excess of the stated value were written off as current expenses due to the short term nature of the loans and others were deferred and will be expensed over the life of the short term loans as interest expense.

For the nine months ended September 30, 2015 and 2014, interest expense on all notes payable (including related parties in Note 6) described above was $3,329,083 and $1,564,896, respectively, which included $1,276,056 and $137,902, respectively, of amortization of debt discount and debt issuance costs.

Viewpoint Securities

On July 07, 2015, STW and Viewpoint signed a “Payment and Standstill Agreement, wherein the parties agreed that the total Arbitration Award with interest totaled $228,170.92, that Viewpoint would not seek post Award attorneys’ fees from STW, and that so long as STW made bi-weekly payments of $2,000.00, beginning on July 10, 2015, Viewpoint would stay any efforts to collect on the Arbitration Award, and when fully paid, would fully release STW from the Arbitration Award. The Company has made all scheduled payments to date. The balance on September 30, 2015 and December 31, 2014 was $191,469 and zero, respectively.

NOTE 5 - DERIVATIVE LIABILITY

We apply the accounting standard that provides guidance for determining whether an equity-linked financial instrument, or embedded feature, is indexed to an entity’s own stock. The standard applies to any freestanding financial instrument or embedded features that have the characteristics of a derivative, and to any freestanding financial instruments that are potentially settled in an entity’s own common stock.

From time to time, the Company has issued notes with embedded conversion features and warrants to purchase common stock. Certain of the embedded conversion features and warrants contain price protection or anti-dilution features that result in these instruments being treated as derivatives, or there were insufficient shares to satisfy the exercise of the instruments.

Management has used the simplified Black Scholes model to estimate fair value of derivative instruments. Management believes that as a result of the relatively short term nature of the warrants and convertibility features, a lattice model would not result in a materially different valuation.

During the first quarter of 2015, the Company computed a historical volatility of 315% using daily pricing observations for recent periods. We applied a historical volatility rate of 315% during the period ended September 30, 2015, and future periods, since the Company exited its development stage and commenced commercial operations. We believe this method produces an estimate that is representative of our expectations of future volatility over the expected term of these embedded conversion features.

We currently have no reason to believe that future volatility over the expected remaining life of these warrants and embedded conversion features is likely to differ materially from historical volatility. The expected life is based on the remaining term of the warrants and embedded conversion features. The risk-free interest rate is based on one-year to five-year U.S. Treasury securities consistent with the remaining term of the warrants and embedded conversion features.

 
 
-17-


The following table presents our warrants and embedded conversion options which have no observable market data and are derived using Black-Scholes measured at fair value on a recurring basis, using Level 3 inputs, as of September 30, 2015 and December 31, 2014:

   
For the nine months ended September 30,
2015
 
For the year ended
December 31,
2014
Annual dividend yield
   
0
%
   
0
%
Expected life (years)
   
0.01
     
0.47 - 0.60
 
Risk-free interest rate
   
0.11
%
   
0.11% - 0.25
%
Expected volatility
   
315
%
   
735
%

   
September 30,
2015
   
December 31,
2014
 
Embedded conversion features
 
$
22,701
   
$
751,439
 
Warrants
   
--
     
50,901
 
   
$
22,701
   
$
802,340
 
 
The following table presents the changes in fair value of our warrants and embedded conversion features measured at fair value on a recurring basis for each reporting period-end.

   
For the nine months ended
September 30, 2015
   
For the year ended
December 31, 2014
 
Balance beginning
  $ 802,340     $ 1,630,985  
Value of derivative liability associated with JMJ note payable
    --       42,592  
Value of derivative liability attributable to conversion feature of transfer agreements
    1,108,030       --  
Value of derivative liability attributable to conversion of notes payable and accrued interest
    --       (694,149 )
Change in derivative liability associated with conversion of notes payable and accrued interest
    --       (272,980 )
Change in fair value
    (1,887,669 )     95,892  
Balance ending
  $ 22,701     $ 802,340  

The increase in fair value of the derivative liability is largely attributable to the derivative liability associated with the conversion feature of the transfer agreement convertible notes payable. The change in the fair value of the derivative liability is attributable to the expiration of some of the warrants that were outstanding.

NOTE 6 – RELATED PARTY TRANSACTIONS

Officers’ Compensation
 
During the nine months ended September 30, 2015 and 2014, we incurred $132,500 and $112,500, respectively, in officers’ compensation due to our Director, former Chairman, and former CEO, Mr. Stanley Weiner. During the three month periods ended September 30, 2015 and 2014, we incurred $45,000 and $37,500, respectively, in officers’ compensation. During the nine months ended September 30, 2015 and 2014, Mr. Weiner was paid $22,500 and zero, respectively. During the three months ended September 30, 2015 and 2014 Mr. Weiner was paid $22,500 and zero, respectively. As of September 30, 2015 and December 31, 2014, the balances of $478,083 and $413,083, respectively, were payable to Mr. Weiner for his compensation.

During the nine months ended September 30, 2015 and 2014, we incurred zero and $75,000, respectively, in officers’ compensation due to one of our former Directors and former Chief Operating Officer, Mr. Lee Maddox. During the three months ended September 30, 2015 and 2014, we incurred zero and zero, respectively, in officers’ compensation due to Mr. Maddox. During the nine months ended September 30, 2015 and 2014, the Company paid Mr. Maddox $5,000 and zero, respectively. As of September 30, 2015 and December 31, 2014, the balances of $175,500 and $220,500, respectively, were payable to Mr. Maddox for his compensation. In addition $40,000 of the note payable was shifted to Accounts Payable and is still open.

 
 
-18-


During the nine months ended September 30, 2015 and 2014, we incurred $96,000 and zero, respectively, in officers’ compensation due to one of our Directors and Officer, Mr. Paul DiFrancesco. During the three months ended September 30, 2015 and 2014, we incurred $36,000 and zero, respectively, in officers’ compensation due to Mr. DiFrancesco. During the nine months ended September 30, 2015 and 2014, the Company paid Mr. DiFrancesco $57,500 and zero, respectively. As of September 30, 2015 and December 31, 2014, the balances of $38,500 and zero, respectively, were payable to Mr. DiFrancesco for his salary.

During the nine months ended September 30, 2015 and 2014, we incurred $71,500 and $67,500, respectively, in general counsel services fees expense with Seabolt Law Group Mr. Grant Seabolt. During the three months ended September 30, 2015 and 2014, we incurred $24,000 and $22,500, respectively, in general counsel services fees expense with Seabolt Law Group, a firm owned by our Director and General Counsel, Mr. Seabolt. During the nine months ended September 30, 2015 and 2014, the Company paid Mr. Seabolt $21,000 and $22,500, respectively. As of September 30, 2015 and December 31, 2014, the balances of $230,297 and $166,083, respectively, were payable to Seabolt Law Group for their services.

On December 22, 2014, the Company entered into a settlement agreement and a $725,000 note payable to Dufrane. Under the terms of the settlement agreement, the 333,333 shares of common stock payable was cancelled and $180,000 of accrued officers’ compensation payable were discharged leaving a balance of accrued officers’ compensation of $60,000 as of December 31, 2014. There has been no additional activity during the nine months ending September 30, 2015. The balance in the accrued officer’s compensations for our former COO, Mr. Brooks, was $60,000 at both September 30, 2015 and December 31, 2014.

During nine months ended September 30, 2015 and 2014, we incurred $178,093 and $369,983, respectively, in CFO, audit preparation, tax, and SEC compliance services fees expense with Miranda CFO Services, Inc. and Miranda & Associates Mr. Robert J. Miranda. During three months ended September 30, 2015 and 2014, we incurred $71,657 and $70,000, respectively, in CFO, audit preparation, tax, and SEC compliance services fees expense with Miranda CFO Services, Inc. and Miranda & Associates, a Professional Accountancy Corporation, firms owned by our Chief Financial Officer, Mr. Miranda. As of September 30, 2015 and December 31, 2014, the balances of $97,863 and $219,271, respectively, were payable to Miranda & Associates for these services.

During nine month periods ended September 30, 2015 and 2014, we incurred $150,000 and $150,000, respectively, in officers’ salary due to the President of our wholly-owned subsidiary, STW Pipeline Maintenance & Construction, LLC, Mr. Jennings. During three month periods ended September 30, 2015 and 2014, we incurred $50,000 and $50,000, respectively, in officers’ salary due to Mr. Jennings. During the nine month period ended September 30, 2014, we incurred with Mr. Jennings a signing bonus comprised of 50,000 shares of the Company’s common stock valued at $21,000. As of September 30, 2015 and December 31, 2014, the balance of zero and $121,000, was payable to Mr. Jennings for the value of signing bonuses due under his employment agreement. These stock awards were accrued as fees payable in common stock the awards are vested.

During nine month periods ended September 30, 2015 and 2014, we incurred $150,000 and $50,000, respectively, in officers’ salary due to the President of our wholly-owned subsidiary, STW Water Process and Technologies, LLC, Mr. Murphy. During three month periods ended September 30, 2015 and 2014, we incurred $50,000 and $50,000, respectively, in officers’ salary due to Mr. Murphy. In the second quarter of 2014, we incurred with Mr. Murphy a signing bonus comprised of 333,333 shares of the Company’s common stock valued at $200,000. As of September 30, 2015 and December 31, 2014, the balance of zero and $200,000, was payable to Mr. Murphy for the value of signing bonuses due under his employment agreement. These stock awards were accrued as fees payable in common stock the awards are vested.

Board and Advisory Board Compensation

Directors are expected to timely and fully participate in all regular and special board meetings, and all meetings of committees that they serve on. In December 2011, the Board voted to authorize the issuance of shares in lieu of cash compensation for past services.

Pursuant to the Director Agreements, the Company compensates each of the directors through the initial grant of 33,333 shares of common stock and the payment of a cash fee equal to $1,000 plus travel expenses for each board meeting attended, and $75,000 per year as compensation for serving on our board of directors.

For the nine months ended September 30, 2015 and 2014, the Company incurred director fees of $479,531 and $468,750, respectively. During the nine months ended September 30, 2015 and 2014, the Company issued 908,658 and 930,261 shares of its common stock in payment of director fees, valued at $675,000 and $558,167, respectively. For the three months ended September 30, 2015 and 2014, the Company incurred director fees of $254,531 and $131,250, respectively. During the three months ended September 30, 2015 and 2014, the Company issued zero and zero shares of its common stock in payment of these fees, valued at zero and zero, respectively. As of September 30, 2015 and December 31, 2014, the Company has accrued compensation due to its directors (both current and former) of $254,531 and $402,317, respectively.

 
 
-19-


Related Party Notes Payable

For a more complete discussion of the notes to Black Pearl Energy, LLC and Dufrane Nuclear see Note 4 – Notes Payable.

Related Party Sales

During the nine months ended September 30, 2015 and 2014, the Company had related party sales of $354 and $143,378, respectively. During three months ended September 30, 2015 and 2014, the Company had related party sales of zero and $66,000, respectively. Related party sales are a combination of sales to three companies, Black Pearl Energy, LLC, Dufrane Construction, and Dufrane Nuclear Shielding Inc.

Factoring Agreement with Crown Financial, LLC

On January 13, 2014, STW Resource Holding Corp entered into an accounts receivable factoring facility (the “Factoring Facility”) with Crown Financial, LLC ("Crown"), pursuant to an Account Purchase Agreement (the “Factoring Agreement”). The Factoring Agreement is secured through a Security Agreement between the Company, two of our subsidiaries: STW Pipeline Maintenance & Construction, LLC and STW Oilfield Construction, LLC (collectively, the "Subsidiaries") and Crown, by all of the instruments, accounts, contracts and rights to the payment of money, all general intangibles and all equipment of the Company and the Subsidiaries. The Factoring Facility includes a loan in the amount of $4,000,000. Although our former Chief Operating Officer, Lee Maddox, personally guaranteed our full and prompt performance of all of our obligations, representations, warranties and covenants under the Factoring Agreement, pursuant to a Guaranty Agreement for and in consideration of Crown issuing us the Factoring Facility, such guaranty was terminated when Mr. Maddox resigned as our COO in July 2014, pursuant to the terms of the related Termination Agreement.

The Factoring Facility shall continue until terminated by either party upon 30 days written notice. Under the terms of the Factoring Agreement, Crown may, at its sole discretion, purchase certain of the Company’s eligible accounts receivable. Upon any acquisition of an account receivable, Crown will advance to the Company up to 80% of the face amount of the account receivable (the "Purchase Price"); although Crown maintains the right to propose a change in that rate, which we can accept in writing, orally or by accepting funding based on such changed rate. Additionally, based upon when each invoice gets paid, Crown shall pay us a rebate percentage of between 0-18% of the related invoice. Crown will generally have full recourse against us in the event of nonpayment of any such purchased account. Crown has the discretion to also accept a substitute invoice from us for uncollected invoices; if such substitute invoice is not accepted, we will be obligated to pay Crown the Purchase Price of such uncollected invoice plus interest at the maximum lawful interest rate per annum, minus any payments made on the invoice.

The Factoring Agreement contains covenants that are customary for agreements of this type and appoints Crown as attorney in fact for various activities associated with the purchased accounts receivable, including opening our mail, endorsing our name on related notes and payments, and filing liens against related third parties. The failure to satisfy covenants under the Factoring Agreement or the occurrence of other specified events that constitute an event of default could result in the acceleration of our repayment obligations or Crown enforcing its rights under the Security Agreement and taking possession of the collateral. The Factoring Agreement contains provisions relating to events of default that are customary for agreements of this type.

As of September 30, 2015 and December 31, 2014, the Company had a related party payable of $1,345,855 and $2,034,810, respectively to Crown Financial.

NOTE 7 – STOCKHOLDERS’ DEFICIT

Preferred Stock

The Company is authorized to issue up to 10,000,000 shares of preferred stock with a par value of $0.001 per share. As of September 30, 2015, no preferred shares were issued or outstanding and the Company does not currently have any plans to issue any preferred shares

Common Stock

The Company is authorized to issue up to 191,666,667 shares of common stock with a par value of $0.001 per share. During the nine months ended September 30, 2015, the Company issued common shares as follows:

On January 15, 2015, the Company issued 62,500 shares of common stock to an investor, at a per share price of $1.56, in payment of interest on a short term loan for a value of $97,500 and an additional 170,000 shares of common stock, at a per share price of $1.40 to a consultant for services valued at $238,000.

 
 
-20-


On January 27, 2015, the Company issued 281,167 shares of common stock, at various per share prices, valued at $209,825 to 19 employees for signing bonuses and continued service to the company.

On January 28, 2015, the Company issued 158,335 shares of common stock, at various per share prices, to 7 investors valued at $225,128 in payment of interest on 7 short term loans.

In the first week of February 2015, the Company issued 378,334 shares of common stock, at various per share prices, valued at $344,100 to 4 employees pursuant to their employment contracts.

On February 3, 2015, the Company issued 15,385 shares of common stock, at a per share price of $0.65, to an accredited investor based on a unit offering at $0.65 per unit, increasing capital of the Company by $10,000.

On February 3, 2015, the Company issued 100,000 shares of common stock, at a per share price of $0.68, to an accredited investor for $68,000 in loan origination fees.

On February 6, 2015, the Company issued 150,001 shares of fully vested common stock, at various per share prices, to 3 consultants valued at $119,500 in payment of services rendered in 2014, previously accrued, and the renewal of a 2015 contract.

On February 6, 2015, the Company issued 225,000 shares of common stock, at various per share prices, to 3 accredited investors for $187,000 in loan origination fees.

On February 17, 2015, the Company issued 100,000 shares of common stock, at a per share price of $0.81, to an accredited investor for $81,000 in loan origination fees.

On February 18, 2015, the Company issued 184,975 shares of common stock to an investment group, at a per share price of $0.65, valued at $120,233 for services rendered in procuring investors for the company.

On February 19, 2015, the Company issued 100,000 shares of common stock, at a per share price of $0.85, to an accredited investor for $85,000 in loan origination fees.

On February 23, 2015, the Company issued 562,500 shares of common stock to 6 directors, at a per share price of $0.80, valued at $450,000 for services rendered in prior year(s).

On February 24, 2015, the Company issued 100,000 shares of common stock, at a per share price of $0.65, to a consultant for services valued at $65,000.

On February 27, 2015, pursuant to the January 8, 2015 Board of Director’s Minutes, a total of 900,000 shares were issued by the Company to 1 employee and 2 consultants for services performed in 2014. They were issued at a per share price of $0.80 per common share at a total value of $720,000.

On May 14, 2015, the Company issued 341,667 shares of common stock to two consultants valued at $230,501.

On May 15, 2015, the Company issued 26,000 shares of common stock to two consultants valued at $18,610.

On May 18, 2015, the Company issued 206,667 shares of common stock to two consultants valued at $155,000.
 
On June 12, 2015, the Company issued 500,000 shares of its common stock and warrants to purchase up to 500,000 shares of the Company’s common stock at $0.59 per share to an accreditor investor who provided the Company with a $385,000 original issue discount bridge note, which yielded net proceeds of $350,000 to the Company. The shares were valued at $280,000.

On June 26, 2015 the Company issued 800,000 shares of common stock to six employees for accrued signing bonuses valued at $677,000. The Company also issued 183,334 shares of common stock to two consultants valued at $137,501.

On June 30, 2015 the Company issued 333,333 shares of common stock to one employee for an accrued signing bonus valued at $200,000. The Company issued 578,927 shares of common stock valued at $339,039 to satisfy an obligation to Salttech, its contracts with Black Pearl Energy, and a financial obligation to an investor. The Company also issued 346,158 shares of common stock to members of the Board of Directors valued at $225,000. Additionally, the Company issued 239,812 shares of common stock to two consultants valued at $167,500.

On July 9, 2015, the company issued 355,500 shares of common stock to 43 employees as performance bonuses. The stock was valued at $0.20 per share and totaled $71,100.

 
 
-21-


On July 22, 2015, the Company issued 200,000 shares of common stock to an investor as part of the financing agreement. The shares were valued at an average of $0.21 per share and totaled $40,469.

On July 28, 2015, the company issued 50,000 shares of common stock in payment of fees owed to a consultant for service rendered. The shares were valued at $0.65 per share and totaled $32,500.

As of September 30, 2015, the Company had the following securities outstanding which gives the holder the right to acquire the Company’s common stock outstanding:

   
Number of
       
   
Underlying
       
   
Common
 
Exercise
   
Security
 
Shares
 
Price
 
Expire
Warrants associated with 2013 Revenue Participation Notes
   
78,788
 
1.80
 
2015
Warrants issued with 2013 Unit Share Offerings
   
333,333
 
1.20
 
2015
Warrants issued with 2014 Unit Share Offerings
   
2,328,542
 
1.20 – 1.50
 
2016
Warrants issued with 2013 and 2014 Unit Share Offerings
   
20,770
 
1.50
 
2017
Warrants issued with 2015 Q2 Financing
   
500,000
 
0.59
 
2017
Sub-total of Warrants outstanding
   
3,261,433
       
Common stock associated with the 12% Convertible Notes plus accrued interest
   
1,485,303
 
0.12
 
N/A
Common stock associated with Pipeline Convertible Revenue Participation notes
   
169,306
 
0.72
 
N/A
Common stock associated with 14% convertible notes plus accrued interest
   
6,445,866
 
0.48
 
N/A
Common stock associated with 2015 Transfer Agreements
   
476,201
 
0. 65
 
N/A
Common stock associated with 2015 Q3 Financing
   
354,622
       
Common stock associated with 2014 Unit Share Offerings
   
126,154
 
various
 
N/A
Common stock payable as fees
   
5,474,640
 
various
 
N/A
 Total
   
17,793,525
       

Warrants

A summary of the Company’s warrant activity and related information during the nine months ended September 30, 2015 follows:

 
Number of Shares
 
Weighted- Average Exercise
Price
 
Remaining Contractual Life (Years)
   
Aggregate Intrinsic Value
Outstanding at January 1, 2015
 
3,634,350
 
$
1.27
 
1.18
 
$
851,313
Issued
 
500,000
   
0.59
 
2.00
     
Exercised
 
--
               
Forfeited
 
--
               
Cancelled
 
--
               
Expired
 
(872,917
)
 
1.12
         
Outstanding at September 30, 2015
 
3,261,433
 
$
1.21
 
0.77
 
$
763,563
Exercisable
 
3,261,433
 
$
1.21
 
0.77
 
$
763,563

 
 
-22-

 
NOTE 8 – DISCONTINUED OPERATIONS

During the three months ended September 30, 2015, the Company discontinued the operations of STW Energy, LLC and STW Oilfield Construction, LLC. These business units have ceased operations and the Company is in process of disposing of assets and settling liabilities. Because of continued losses, the Company made the decision to close STW Energy, LLC and STW Oilfield Construction, LLC. In the three month period ending September 30, 2015, the company sold or transferred all remaining fixed assets to STW Pipeline Maintenance & Construction, LLC and incurred a loss on the sale of assets of $114,000. No further significant losses are expected.

A summary of assets and liabilities of the discontinued operations is as follows:

 
 
   
September 30,
2015
   
December 31,
2014
 
Carrying amounts of major classes of assets included as part of discontinued operations:  
(Unaudited)
       
Cash
  $ --     $ 3,550  
Accounts receivable, trade, net
    --       216,262  
Accounts receivable from related parties
            511,809  
Prepaid expenses and other current assets
    --       111,604  
 
Total Current Assets
    --       843,225  
Long Term Assets
               
Property and equipment, net     --       234,917  
Total major classes of assets of the discontinued operations.   $ --     $ 1,078,142  

Carrying amounts of major classes of liabilities included as part of discontinued operations:
Book overdraft
  $ 62,442     $ 17,445  
Accounts Payable
    406,256       1,055,575  
Payable to related parties:
               
   Black Pearl Energy, LLC
    --       94,717  
   Crown Financial, LLC
    --       685  
Current portion of notes payable, net of discounts
    42,269       752,441  
Sales and payroll taxes payable
    511,844       474,075  
Accrued expenses and interest
    23,194       41,383  
Accrued compensation     13,163       147,843  
Total major classes of liabilities of the discontinued operations.   $ 1,059,168     $ 2,584,164  

Loss from discontinued operations is as follows:

   
Nine Month Periods Ended September 30:
 
   
2015
   
2014
 
Major classes of line items constituting pre-tax loss from operation of discontinued operations:            
Revenues   $ 504,699     $ 5,488,122  
Cost of revenues     (703,312 )     (5,274,669 )
Operating expenses     (309,874 )     (1,467,841 )
Interest expense     (120,617 )     (211,367 )
Loss on the sale of fixed assets     (114,809 )     (39,861 )
Total loss from operation of discontinued operations   $ (743,913 )   $ (1,505,616 )
 
 
 
-23-



   
Three Month Periods Ended September 30:
 
   
2015
   
2014
 
Major classes of line items constituting pre-tax loss from operation of discontinued operations:            
Revenues   $ -     $ 1,477,097  
Cost of revenues     15,791       (1,925,650 )
Operating expenses     11,941       (525,957 )
Interest expense     (38,256 )     (127,478 )
Loss on the sale of fixed assets     -       (39,861 )
Total loss from operation of discontinued operations   $ (10,524 )   $ (1,141,849 )
 
NOTE 9 – COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company leased its office facilities under an operating lease that commenced on October 1, 2013 and expires on September 30, 2020. The lease calls for monthly payments of $9,750, plus payment by the Company of all operating expenses, insurance and taxes on the property. The Company has an option until September 30, 2016, to purchase the land and building for $825,500.

During 2014, the Company entered into a capital lease of a modular office trailer. The lease contract calls for forty eight (48) monthly payments of $593 with a purchase option at the end of the lease. The Company determined the value of the capital lease to be $23,300 with an implicit interest rate in the lease of 10%. In July of 2014, the Company entered into a lease for a commercial ice machine with Executive Leasing, Inc. The lease contract calls for Thirty six (36) monthly payments of $505 with a purchase option at the end of the lease. The Company determined the value of the capital lease to be $14,854 with an implicit interest rate in the lease of 12%. As of September 30, 2015 and December 31, 2014, the principal balances on these capital leases totaled $24,184 and $30,438, respectively.

Future minimum lease payments under the capital lease and operating lease as of September 30, 2015, are as follows:

 
Years ending December 31:
 
Capital Lease
   
Operating Lease
   
Totals
 
2015
 
$
15,094
   
$
29,250
   
$
44,344
 
2016
   
6,060
     
117,000
     
123,060
 
2017
   
3,030
     
117,000
     
120,030
 
2018
   
--
     
117,000
     
117,000
 
Thereafter
   
-- 
     
204,750
     
204,750
 
Total minimum lease payments
   
24,184
     
585,000
     
609,184
 
Less interest
   
1,082
                 
Capital lease obligation
   
23,102
                 
Less current portion
   
14,850
                 
Long-term capital lease obligation
 
$
8,252
                 

During the nine months ended September 30, 2015 and 2014, rental expense for all property, including equipment rentals cost of sales, and equipment operating leases was $1,024,094 and $1,697,060, respectively, which includes over $890,000 and $1,565,000, respectively, of equipment rental used on projects and reflected in cost of revenues. Related party rental expense during the nine months ended September 30, 2015 and 2014, was $41,111 and $298,991, respectively.

During the three months ended September 30, 2015 and 2014, rental expense for all property, including equipment rentals cost of sales, and equipment operating leases was $287,567 and $620,133, respectively, which includes over $238,000 and $549,000, respectively, of equipment rental used on projects and reflected in cost of revenues. Related party rental expense during the three months ended September 30, 2015 and 2014, was a credit of $58,944 and $127,064, respectively.

 
 
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Product Purchase and Manufacturing License Agreement

On June 20, 2014, the Company entered into an exclusive product purchase and manufacturing license agreement with Salttech B.V (“Salttech”), a company based in the Netherlands. The agreement provides exclusive rights to purchase Salttech’s DyVaR devices which are used to remove salinity from brackish/brine water streams. The agreement grants to the Company exclusive United States rights to purchase these products for use in the municipal and oil & gas industries. The agreement also grants to the Company the right of first refusal for this technology in North America.

The initial term of the agreement is for five years and is renewable automatically for five years and every five year period unless terminated by written notice of the parties at least three months before the termination date.

The initial royalty for the first year of the agreement was $324,000, payable quarterly beginning with the calendar quarter starting July 1, 2014 as follows: Q3 2014 $60,000, Q4 2014 $60,000, Q1 2015 $100,000 and Q2 2015 $104,000. The Company also agreed to pay a continuing royalty of $240,000 per year for years 2-5, plus 3% of the invoice price of any products sold by the Company under the agreement. The Company also agreed to issue 66,667 shares of its common stock in consideration of this agreement. These stock awards were accrued as fees payable in common stock as the awards are vested and was settled upon the issuance of the shares in June 2015. During the three and nine months ended September 30, 2015, the company paid zero and $204,000, respectively in royalties to Salttech.

As of September 30, 2015, the minimum royalty obligation payable under this agreement is as follows:

 
 
Years ending December 31:
 
Minimum Royalty Obligation
 
2015
 
$
140,000
 
2016
   
240,000
 
2017
   
240,000
 
2018
   
240,000
 
Thereafter
   
120,000
 
Total minimum lease payments
 
$
980,000
 

Indemnities and Guarantees

In addition to the indemnification provisions contained in the Company’s charter documents, the Company will generally enter into separate indemnification agreements with the Company’s directors and officers. These agreements require the Company, among other things, to indemnify the director or officer against specified expenses and liabilities, such as attorneys’ fees, judgments, fines and settlements, paid by the individual in connection with any action, suit or proceeding arising out of the individual’s status or service as the Company’s director or officer, other than liabilities arising from willful misconduct or conduct that is knowingly fraudulent or deliberately dishonest, and to advance expenses incurred by the individual in connection with any proceeding against the individual with respect to which the individual may be entitled to indemnification by the Company. These guarantees and indemnities do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. Historically, the Company has not been obligated nor incurred any payments for these obligations and, therefore, no liabilities have been recorded for these indemnities and guarantees in the accompanying consolidated balance sheets.

Employment Agreements

STW Pipeline Maintenance & Construction, LLC, has an employment agreement with Adam Jennings that expired on September 22, 2014, but is renewable by mutual consent of the Company and Mr. Jennings. The employment agreement for Mr. Jennings has been renewed.

Stanley T. Weiner is employed as Chairman and former CEO for a three year term effective February 1, 2015. His base salary is $15,000 monthly ($180,000 annually) during the first year of employment, $22,000 monthly ($264,000 annually) during the second year of employment, and $29,000 monthly ($348,000 annually) during the third year of employment. He may be awarded an annual discretionary bonus up to 100% of his previous nine month salary, and a signing bonus of 400,000 fully vested shares of the Company’s common stock. He will also be awarded quarterly bonuses equal to 50,000 shares of the Company’s common stock. After the initial three years he would also receive a twelve month severance award in the event of termination. If there is a change in control of the Company the severance would be twenty-four months if terminated. Mr. Weiner resigned as CEO on October 26, 2015.

 
 
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Paul DiFrancesco is employed as Head of Finance for a three year term effective February 1, 2015. His base salary is $12,000 monthly ($144,000 annually) during the first year of employment, $16,000 monthly ($192,000 annually) during the second year of employment, and $16,000 monthly ($192,000 annually) during the third year of employment. He could be rewarded an annual discretionary bonus up to 100% of his previous nine month salary, and a signing bonus of 300,000 fully vested shares of the Company’s common stock. He will also be awarded quarterly bonuses equal to 50,000 shares of the Company’s common stock. After the initial three years he would also receive a twelve month severance award in the event of termination. If there is a change in control of the Company the severance would be twenty-four months if terminated.

Grant Seabolt is employed as General Counsel and Corporate Secretary for a three year term effective February 1, 2015. His base salary is $8,000 monthly ($96,000 annually) during the first year of employment, $9,500 monthly ($114,000 annually) during the second year of employment, and $9,500 monthly ($114,000 annually) during the third year of employment. He could be awarded an annual discretionary bonus up to 100% of his previous nine month salary, and a signing bonus of 200,000 fully vested shares of the Company’s common stock. He will be awarded quarterly bonuses equal to 25,000 shares of the Company’s common stock. After the initial three years he would also receive a twelve month severance award in the event of termination. If there is a change in control of the Company the severance would be twenty-four months if terminated.

Contingencies

The Company is subject to various claims and contingencies in the normal course of business that arise from litigation, business transactions, or employee-related matters. The Company establishes reserves when it believes a loss is probable and is able to estimate its potential exposure. For reasonably possible loss contingencies, the Company discloses the nature of the loss contingency and an estimate of the possible loss, range of loss, or a statement that such an estimate cannot be made. While actual losses may differ from the amounts recorded and the ultimate outcome of our pending actions is generally not yet determinable, the Company does not believe the ultimate resolution of currently pending legal proceedings, either individually or in the aggregate, will have a material adverse effect on its business, financial position, results of operations, or cash flows. In all cases, the Company vigorously defends itself unless a reasonable settlement appears appropriate. All items, whereby the Company agrees with the amount of the claim, have been recorded in the current period and are reflected in accounts payable.

GE Ionics, Inc. Lawsuit. On May 22, 2013, GE Ionics, Inc. ("GE") filed a lawsuit against STW in the Supreme Court of the State of New York, County of New York, Index No. 651832/2013 (the "GE Lawsuit"). Although the lawsuit arises out of STW's obligations to GE under its Settlement Agreement with GE entered into on August 31, 2010, upon which STW owed GE $2.1 million plus interest. GE elected to forgo suit on the settlement amount and sued STW for the original debt of $11,239,437, plus interest and attorneys' fees (the "Original Debt"). STW filed its Answer asserting that it is entitled to and shall pursue all of its available legal and equitable defenses to the Original Debt, inasmuch as GE had, among other things, failed to discount the Original Debt sued upon by the amounts that it recovered through re-use and re-sale of the equipment it fabricated for STW. Management has not accrued the original amount of the debt because Management has determined the probability of recovery is remote. The lawsuit is currently in the discovery phase of litigation and the parties are actively exploring settlement.

Sichenzia and Ross Lawsuit. On June 13, 2014, Sichenzia Ross Friedman Ference LLP filed a lawsuit against the Company in the Supreme Court of New York, County of New York, Index No. 155843/2013, seeking $80,036.22 in legal fees and expenses from the Company. The legal fees and expenses related to Sichenzia Ross’ representation of the Company on SEC matters. On October 8, 2014, the Parties entered into a Settlement Agreement whereby the Company agreed to pay Sichenzia Ross $80,036.22 on or before November 28, 2014 or within three business days of the Company closing its current round of financing. The agreement to pay was secured by the Company providing Sichenzia Ross an “Affidavit of Judgment by Confession” in the amount of $80,036.22 to be filed only if the Company failed to pay the $80,036.22 by the due date, plus a five day cure period ending on December 03, 2014. On December 10, 2014, Sichenzia Ross filed the Judgment by Confession with the Court. The Judgment remains unsatisfied.

Bob J. Johnson & Associates Lawsuit. Since June 30, 2014, there has been one lawsuit filed on July 14, 2014 against the Company’s subsidiary, STW Water Process & Technologies, LLC (“STW Water”), Bob J. Johnson & Associates, Inc. (BJJA) v. Alan Murphy and STW Water & Process Technologies, LLC, Case No. CV50473 in the 238th District Court of Midland County, Texas (the “BJJA Lawsuit”). BJJA sought to enforce an allegedly enforceable covenant not to compete and a confidentiality agreement signed by Alan Murphy, STW Water’s recently hired President, who was a former vice president and employee of BJJA. On July 14, 2014, BJJA obtained a TRO against Alan Murphy, STW Water and those associated with the Defendants, which, by the Company’s ownership of STW Water, included the Company. The TRO temporarily prohibited the Company, STW Water and Alan Murphy from contacting two key customers of STW and STW Water, Pioneer Energy Resources and the City of St. Stockton, Texas. On July 28, 2014, the Court held a temporary injunction hearing, which resulted in the TRO being dissolved and the Court refusing to further enjoin STW, STW Water or Alan Murphy from competing with BJJA. The case is still on the docket and BJJA has sought some initial discovery from the Company; however, the Company’s counsel is confident that it will not go forward to a trial on the merits, thereby precluding any appreciable risk of a permanent injunction. The Company continues to vigorously defend this lawsuit and Management does not expect to incur any liability beyond its costs of defense.

 
 
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Arbitration Judgment

Viewpoint Securities, LLC Arbitration. On or about July 9, 2012, the Company and Stan Weiner, the Company's chief executive officer, received a demand for arbitration with the American Arbitration Association. The demand was filed by Viewpoint Securities LLC ("VP") who entered into an engagement agreement, dated March 9, 2008 (as amended on March 9, 2008, November 10, 2008, January 1, 2009, February 5, 2010, and December 1, 2010), with STW whereby the Company retained VP to act as its financial and capital markets advisor regarding equity and debt introduced by VP to the Company. The demand alleged breach of contract, breach of the covenant of good faith and fair dealings, negligence prayer for commissions and expenses incurred by VP in its efforts to provide introductions and attempt to provide financing to the Company from March 9, 2008 through February 2, 2012, the date of termination of the Agreement. VP seeks, among other things, $216,217 and a warrant to purchase 566,667 shares of the Company's common stock, payment of a $15,000 promissory note plus 3+ years of interest at 12%, attorneys' fees of $18,000 and costs of arbitration for filing fees and hearing fees. The Company believed it had valid defenses and contested these claims vigorously. On August 18, 2012, VP dismissed Stan Weiner from the claim with prejudice. A final arbitration hearing was held on February 3, 2014. On April 1, 2014, the Arbitrator issued an Award in favor of Viewpoint for $196,727.77 on Viewpoint's claim for $216,217 in fees and expenses, plus $5,541.46 in arbitration hearing fees and expenses; interest shall accrue at the rate of 10% per annum on any unpaid portion of the award commending April 1, 2014. The Arbitrator denied Viewpoint's claims related to the Company's warrants, a $15,000 promissory note plus 12% interest and for $18,000 in attorneys' fees. The Award was final on April 01, 2014, and on October 28, 2014, Viewpoint filed a lawsuit in San Diego County, California Superior Court seeking to enforce its Arbitration Award in Case No. 37-2014-00036027-CU-PA-CTL.  On December 08, 2014, the Company filed a Motion to Dismiss the enforcement action due to Viewpoint having forfeited its corporate rights in California due to non-payment of California corporate taxes, and that motion is still pending before the Court. Subsequent to June 30, 2015, on July 07, 2015, STW and Viewpoint signed a “Payment and Standstill Agreement, wherein the parties agreed that the total Arbitration Award with interest totaled $228,170.92, that Viewpoint would not seek post Award attorneys’ fees from STW, and that so long as STW made bi-weekly payments of $2,000, beginning on July 10, 2015, Viewpoint would stay any efforts to collect on the Arbitration Award, and when fully paid, would fully release STW from the Arbitration Award. The Company has made all scheduled payments to date.

United Drilling, Inc. Lawsuit. On May 06, 2015, United Drilling, Inc. filed a lawsuit against STW and Case Drilling and Pump Service, LLC pending in the District Court of the 83rd Judicial District in Pecos County, Texas, styled United Drilling, Inc. v. STW Resources Holding Corp. et al., Cause No. P-7405-83-CV (the “United Lawsuit”). United Drilling provided water well drilling services as a subcontractor to Case Drilling in the amount alleged to be $1,577,883.33 related to Case Drilling providing drilling services to STW Water Process & Technologies, LLC (a wholly owned subsidiary of STW) for Capitan Reef Test Well No. 1, located in Pecos County, Texas (the “Test Well”). Case Drilling did not pay United Drilling; therefore, United Drilling filed the United Lawsuit to attempt to foreclose on an alleged statutory lien on STW’s water lease with the City of Fort Stockton, Texas, on which the Test Well was located. United seeks any monies owed by STW to Case Drilling for the Test Well to be paid to United Drilling. STW has asserted that it had a “turn-key” contract with Case Drilling, which required Case Drilling to deliver a producing water well, which it did not. Accordingly, STW alleges that since it owed nothing to Case Drilling, correspondingly, it owes nothing to United Drilling. In addition to STW filing its Answer and Affirmative Defenses to United Drilling’s claims, it has also filed a counterclaim against United Drilling for wrongfully placing a lien on STW’s Fort Stockton water lease, in that United Drilling’s is not justified as there are no amounts owed by the Company to Case Drilling from which United Drilling could collect for some or all of its subcontractor invoices. STW has also cross-claimed Case Drilling for breach of contract and indemnity related to Case Drilling’s alleged failure to pay its subcontractor, United Drilling. STW and United Drilling have participated in substantive settlement discussions and have a definitive settlement agreement prepared awaiting execution. Based on the Company’s counsel’s legal opinions regarding the invalidity of United Drilling’s lien, the Company does not expect to incur any substantial liability from this matter.

Dufrane Nuclear Shielding, Inc. Counterclaims. On July 16, 2015, Dufrane Nuclear Shielding, Inc., Dufrane Construction, LLC and Joshua C. Brooks filed a counterclaim against STW and its subsidiaries in Case No. CV-50864, pending in the 238th District Court of Midland County, Texas, styled STW Resources Holding Corp., et al. v. Felipe Sanchez, et al. (the “Dufrane Counterclaims”). Dufrane is suing STW over a $725,000 promissory note and an equipment rental agreement, and Joshua C. Brooks is suing STW alleging he was not released from certain guaranty obligations with equipment providers. STW and its subsidiaries filed a general denial and the parties have been working together on an agreed accounting of payments made and the allocations of those payments, with a view towards settling the Dufrane Counterclaims.

 
 
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Seaboard International, Inc. Lawsuit. On July 07, 2015, Seaboard International, Inc. filed a lawsuit against STW and Case Drilling and Pump Service, LLC pending in the District Court of the 112th Judicial District in Pecos County, Texas, styled Seaboard International, Inc. v. Case Drilling & Pump, LLC, et al., Cause No. P-11813-112-CV (the “Seaboard Lawsuit”). Seaboard provided water well drilling services as a subcontractor to Case Drilling in the amount alleged to be $80,685.01related to Case Drilling providing drilling services to STW Water Process & Technologies, LLC (a wholly owned subsidiary of STW) for Capitan Reef Test Well No. 1, located in Pecos County, Texas (the “Test Well”). Case Drilling did not pay Seaboard; therefore, Seaboard filed the Seaboard Lawsuit to attempt to foreclose on an alleged statutory lien on STW’s water lease with the City of Fort Stockton, Texas, on which the Test Well was located. Seaboard seeks any monies owed by STW to Case Drilling for the Test Well to be paid to United Drilling. STW has asserted that it had a “turn-key” contract with Case Drilling, which required Case Drilling to deliver a producing water well, which it did not. Accordingly, STW alleges that since it owed nothing to Case Drilling, correspondingly, it owes noting to Seaboard. In addition to STW filing its Answer and Affirmative Defenses to United Drilling’s claims, it has also filed a counterclaim against Seaboard for wrongfully placing a lien on STW’s Fort Stockton water lease, in that Seaboard’s lien is not justified as there are no amounts owed by the Company to Case Drilling from which Seaboard could collect for some or all of its subcontractor invoices. STW has also cross-claimed Case Drilling for breach of contract and indemnity related to Case Drilling’s alleged failure to pay its subcontractor, Seaboard. Based on the Company’s counsel’s legal opinions regarding the invalidity of Seaboard’s lien, the Company does not expect to incur any substantial liability from this matter.

Lonestar West Enterprises. LLC Lawsuit. On September 18, 2015, Lonestar West Enterprises, LLC filed a lawsuit against STW in the 141st District Court of Tarrant County, Texas, styled Lonestar West Enterprises, LLC v. STW Resources Holding Corp., Cause No. 141-281104-15 (the “Lonestar Lawsuit”). It is believed that Lonestar provided services to STW’s subsidiary, STW Oilfield Services, which ceased operations. Lonestar seeks $26,550 plus attorneys’ fees. STW has filed a general denial and is still investigating the matter.

NOTE 10 – SEGMENT INFORMATION

We have three reportable segments, (1) water reclamation services, (2) oil & gas services, and (3) corporate overhead, as described herein.

Water reclamation services

The Company plans to provide customized water reclamation services. STW’s core expertise is an understanding of water chemistry and its application to the analysis and remediation of complex water reclamation issues. STW provides a complete solution throughout all phases of a water reclamation project including supplies, analysis, design, evaluation, implementation and operations.

Oil and Gas Services

Our subsidiary, STW Pipeline Maintenance & Construction, LLC, offers a wide a range of oilfield, pipeline construction, maintenance and support services. We employ qualified laborers with years of experience in the oil patch, and Supervisor/Sales people with particular oil patch knowledge in the Permian and Delaware Basins of West Texas, Eastern New Mexico, and in the Eagle Ford of South Texas.

Corporate Operations

Corporate operations expenses include senior management salaries and benefits, accounting and finance, legal, business development, and other general corporate operating expenses.

The accounting policies for the segments are the same as those described in the Summary of Significant Accounting Policies (see Note 1). The following is a list of methodologies that we use for segment reporting that differ from our external reporting:
 
Liabilities including accounts payable, notes payable, and other liabilities are managed at the corporate level and not included in segment operations.
Interest expense and change in derivative liabilities are managed at the corporate level and not included in segment operations.

 
 
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Segment Operations

   
Nine months ended September 30, 2015
       
   
Water Reclamation
   
Oil & Gas Services
   
Corporate Operations
   
Consolidated Totals
 
Revenues
 
$
1,330,989
   
$
7,362,448
   
$
--
   
$
8,693,437
 
Costs of revenues
   
1,106,402
     
4,674,310
     
--
     
5,780,712
 
Operating expenses
   
1,296,028
     
1,545,986
     
4,587,271
     
7,429,285
 
Other income (expense)
   
 --
     
--
     
(1,541,197
)
   
(1,541,197
)
Segment income (loss)
 
$
(1,071,441
)
 
$
1,142,152
   
$
(6,128,468
)
 
$
(6,057,757
)

   
Three months ended September 30, 2015
       
   
Water Reclamation
   
Oil & Gas Services
   
Corporate Operations
   
Consolidated Totals
 
Revenues
 
$
1,063,219
   
$
2,844,351
   
$
--
   
$
3,907,570
 
Costs of revenues
   
834,439
     
1,941,288
     
--
     
2,775,727
 
Operating expenses
   
364,303
     
506,339
     
1,921,620
     
2,792,262
 
Other income (expense)
   
 --
     
--
     
(572,665
)
   
(572,665
)
Segment income (loss)
 
$
(135,523
)
 
$
396,724
   
$
(2,494,285
)
 
$
(2,233,084
)

   
Nine months ended September 30, 2014
       
   
Water Reclamation
   
Oil & Gas Services
   
Corporate Operations
   
Consolidated Totals
 
Revenues
  $ 172,897     $ 8,349,489     $ --     $ 8,522,386  
Costs of revenues
   
134,458
     
7,739,379
     
--
     
7,873,837
 
Operating expenses
   
598,208
     
1,603,876
     
6,117,034
     
8,319,118
 
Other income (expense)
   
 --
     
 --
     
(2,631,994
)
   
(2,631,994
)
Segment income (loss)
 
$
(559,769
)
 
$
(993,766
)
 
$
(8,749,028
)
 
$
(10,302,563
)

   
Three months ended September 30, 2014
       
   
Water Reclamation
   
Oil & Gas Services
   
Corporate Operations
   
Consolidated Totals
 
Revenues
 
$
162,846
   
$
3,156,437
   
$
--
   
$
3,319,283
 
Costs of revenues
   
134,458
     
2,631,099
     
--
     
2,765,557
 
Operating expenses
   
378,623
     
597,186
     
2,418,884
     
3,394,693
 
Other income (expense)
   
 --
     
 --
     
(1,326,843
)
   
(1,326,843
)
Segment income (loss)
 
$
(350,235
)
 
$
(71,848
)
 
$
(3,745,727
)
 
$
(4,167,810
)
 
Segment Assets

   
September 30, 2015
       
   
Water Reclamation
   
Oil & Gas Services
   
Corporate Operations
   
Consolidated Totals
 
Current Assets
 
$
1,644,260
   
$
1,548,042
   
$
253,312
   
$
3,445,614
 
Fixed assets
   
478,204
     
416,647
     
54,535
     
949,386
 
Other assets
   
--
     
--
     
--
     
--
 
Segment Assets