Registration No. 333-193018      

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________

Amendment No. 1 to

Form S-1

REGISTRATION STATEMENT UNDER

THE SECURITIES ACT OF 1933

_________________________

Environmental Solutions Worldwide, Inc.

(Exact name of registrant as specified in its charter)

Florida                                                             3714                                                    13-4172059

(State or other jurisdiction of                        (Primary Standard Industrial                         (I.R.S. Employer

incorporation or organization)                     Classification Code Number)                        Identification No.)

200 Montgomeryville, PA 18936

Progress Drive

 (215) 699-0730

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

_________________________

Mark Yung

Executive Chairman

200 Progress Drive

Montgomeryville, PA 18936

 (215) 699-0730

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

_________________________

Copies To:

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

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

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

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

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

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. (Check one):

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

Subject to completion, dated ______, 2014

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

Environmental Solutions Worldwide, Inc.

Up to $ 4,596,929 Aggregate Principal Amount of 10% Senior Secured Convertible Promissory Notes due 2018

and

Up to 152,899 Shares of Common Stock Issuable Upon Conversion of the Notes or in Payment of Interest on the Notes

Environmental Solutions Worldwide, Inc. (“ESW,” the “Company,” “we” or “us”), is distributing at no charge to the holders of our common stock, par value $0.001 per share, non-transferable subscription rights to purchase up to an aggregate principal amount of $4,596,929 10% Senior Secured Convertible Promissory Notes due 2018 issued by ESW. Each stockholder will receive one subscription right for each share of our common stock owned on [●], 2014, and each subscription right will entitle its holder to purchase $80.53 principal amount of notes. We expect the total purchase price of the notes offered in this rights offering to be approximately $4.6 million, assuming full participation, payable in cash.  The net proceeds of the rights offering will be used by us and/or our subsidiaries for the funding of working capital, planned capital investments and other general corporate purposes.

The notes offered hereby (the “New Notes”) will have substantially the same terms as outstanding notes (the “Existing Notes”) held by certain of our stockholders (the “Existing Lenders”) and shall constitute, together with the Existing Notes, one class of 10% Senior Secured Convertible Promissory Notes due 2018 (collectively, the “Notes”).  At the option of the note holders representing a majority of the then-outstanding principal balance of the Notes, at any time on or prior to the maturity date, all principal and interest amounts then outstanding under all of the Notes shall be exchanged for shares of the Company’s common stock at a price of $80 per share (as adjusted for any stock split, stock dividend or similar adjustment).  The Existing Lenders hold $5,000,000 aggregate principal amount of Existing Notes.  Accordingly, if the Existing Lenders vote together, they will be able to cause a conversion of the Notes to common stock.  

The Notes will mature on March 22, 2018, unless the maturity date is extended by the holders of a majority of outstanding Notes.  Interest will accrue on the Notes at a rate of 10% per annum and be payable semi-annually in arrears in cash; provided that, at the Company’s election, during the term of the Notes, up to two accrued and unpaid semi-annual interest payments can be paid in the form of the Company’s common stock, valued at the lesser of $80, subject to adjustment, or the market value of the Company’s common stock as of the date of such payment (based on the average closing price of the Company’s common stock for the twenty trading days preceding such date).  On September 30, 2013, the first payment of interest was due to the Existing Lenders, and the Company elected to make and made such payment in the form of 8000 shares of common stock on October 1, 2013.  Therefore, a maximum of one additional interest payment on the Notes may be made in common stock.  The Notes will be secured by a lien on and a security interest in all assets, excluding certain collateral subject to pre-existing liens, of the following wholly-owned subsidiaries of the Company, comprising substantially all of the assets of the Company, taken as a whole: Technology Fabricators, Inc., ESW America Inc., ESW Technologies Inc. and ESW CleanTech Inc.

The rights will expire at 5:00 p.m., New York City time, [●], 2014, unless extended as described herein, which date we refer to as the expiration date. We may extend the period for exercising the rights in our sole discretion. You will have no right to rescind your subscriptions after receipt of your payment of the subscription price except as described in this prospectus. Rights that are not exercised prior to the expiration date will expire and have no value. Stockholders who do not participate in this rights offering will continue to own the same number of shares of our common stock and, if any rights are exercised, will own a smaller percentage of the total shares of our common stock issued and outstanding after this rights offering, even if the Notes are never converted into common stock. Our current intention is to terminate the rights offering if our holders do not subscribe for at least $50,000 aggregate principal amount of New Notes.

Our shares of common stock are traded on the OTCQB under the symbol “ESWW”.  The closing price of our shares of common stock on [●], 2014 was $[●] per share.

We are distributing the rights and offering the underlying New Notes and common stock directly to you. We have not employed any brokers, dealers or underwriters in connection with the solicitation or exercise of rights in the rights offering and no commissions, fees or discounts will be paid in connection with the rights offering. Bay City Transfer Agency & Registrar is acting as the subscription agent. While certain of our directors, officers and other employees may solicit responses from you, those directors, officers and other employees will not receive any commissions or compensation for their services other than their normal compensation.

Exercising your subscription rights for the Notes involves risks. See “Risk Factors” beginning on page [●] of this prospectus.

Neither the Securities and Exchange Commission nor any state securities regulators have approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 Our securities are not being offered in any jurisdiction where the offer is not permitted under applicable local laws.

The date of this prospectus is [●], 2014.

________________________________________

- iv -

About This Prospectus

You should rely only on the information contained in this prospectus or any free writing prospectus we may authorize to be delivered to you. We have not authorized anyone to provide you with different or additional information. We are not making an offer of securities in any state or other jurisdiction where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus regardless of its time of delivery, and you should not consider any information in this prospectus to be investment, legal or tax advice. We encourage you to consult your own counsel, accountant and other advisors for legal, tax, business, financial and related advice regarding an investment in our securities.

Unless we otherwise indicate or unless the context requires otherwise, all references in this registration statement to the “Company,” “ESW,” “we,” “us” or “our” refer to Environmental Solutions Worldwide, Inc. and its subsidiaries.

________________________________________

Cautionary Note Regarding Forward-Looking Statements

This prospectus contains certain forward-looking statements regarding, among other things, our anticipated financial and operating results. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly release any modifications or revisions to these forward-looking statements to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, we caution investors that actual financial and operating results may differ materially from those projected in forward-looking statements made by, or on behalf of, us. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements.

The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “will,” “should,” “may,” “plan,” and similar expressions, as they relate to us or our management, are intended to identify forward-looking statements. Such statements reflect our current views with respect to future events and are subject to certain risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected, intended, or planned. We assume no obligations and do not intend to update these forward-looking statements.

Readers are also urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors that affect our business, including without limitation the disclosures made under the caption “Management’s Discussion and Analysis” and under the caption “Risk Factors” included herein.

- iv -

Prospectus Summary

The following summary provides an overview of certain information about us and this offering and may not contain all the information that is important to you. This summary is qualified in its entirety by, and should be read together with, the information contained in other parts of this prospectus. You should read this entire prospectus carefully before making a decision about whether to invest in our securities.

Environmental Solutions Worldwide, Inc.

We are a publicly traded company engaged through our wholly-owned subsidiaries ESW Canada Inc. (“ESW Canada”), ESW America Inc. (“ESW America”), Technology Fabricators Inc. (“TFI”), ESW CleanTech Inc. (“ESWCT”) and ESW Technologies Inc. (“ESWT”), (together the “ESW Group® of Companies”) in the design, development, manufacture and sale of emission technologies and services. We are currently focused on the medium and heavy duty diesel engine market for on-road and off-road vehicles as well as the utility engine, mining, marine, locomotive and military industries. We also offer engine and after treatment emissions verification testing and certification services.

We were incorporated in the State of Florida in 1987. Our principal executive offices are located at 200 Progress Drive, Montgomeryville, PA, 18936. Our telephone number is (215) 699-0730. Our website is www.eswgroup.com. Information contained on our website does not constitute a part of this prospectus.

Our focus is to be a leading player in the environmental emissions market by providing leading-edge catalyst technology as well as best-in-class engine, motorcycle / ATV and vehicle emissions testing services. Our strategy is centered on identifying and deploying resources against our “sweet-spot” products, where we have identified our core competencies and differentiation in the marketplace. Our core geographical focus is North America, and we will opportunistically explore business development opportunities in other markets if accretive to us in the short term. By focusing financial, human and intellectual capital on our core competencies and markets, we are targeting profitable growth in the short term and value creation for its shareholders over the long term.

We have sustained recurring operating and net losses and negative cash flows from operations.  As of September 30, 2013, we had an accumulated deficit of $55,363,600 and had cash and cash equivalents of $2,782,759.  During the nine months ended September 30, 2013 we recorded revenue of $10,242,470 and a net loss of $853,222.  During the year ended December 31, 2012 we recorded revenue of $10,526,323 and a net loss of $1,412,269.  During the three month period ended September 30, 2013, we generated Income from Operations of $952,394.  Our history of losses and negative cash flows from operations, however, as well as the current prevailing economic conditions, create uncertainty in the operating results and, accordingly, there is no assurance that we will be successful in generating sufficient cash flow from operations or achieving profitability in future periods. As a result, the report of our independent registered public accounting firm with respect to our financial statements as of and for the year ended December 31, 2012 includes an explanatory paragraph that states that there is substantial doubt regarding our ability to continue as a going concern, and the notes to our financial statements as of and for the nine months ended September 30, 2013 similarly indicate substantial doubt regarding our ability to continue as a going concern. We may require additional financing to fund our continuing operations and planned capital investments. Our ability to continue as a going concern is dependent on maintaining a profitable level of operations.

On March 22, 2013, we entered into a note subscription agreement and a security agreement and issued senior secured five (5) year convertible promissory notes (collectively the “Existing Loan Agreements”) to Black Family Partners LP, John J. Hannan, Orchard Investments, LLC and Richard Ressler (each individually an “Existing Lender” and collectively the “Existing Lenders”), who are current shareholders and may be deemed affiliates of the Company. Pursuant to the Existing Loan Agreements, the Existing Lenders made loans to the Company in the principal aggregate amount of $5.0 million (the “Existing Loan”), subject to the terms and conditions set forth in the Existing Loan Agreements and represented by senior secured convertible promissory notes (the “Existing Notes”), dated March 22, 2013, April 23, 2013 and June 27, 2013.  The Existing Loan Agreements were approved by directors of the Company unaffiliated with the Existing Lenders. 

Proceeds of the Existing Loan were used by the Company and/or its subsidiaries to fund the purchase of the assets of Cleaire Advanced Emission Controls, LLC (“Cleaire”), and are being used by the Company and/or its subsidiaries for working capital, planned capital investments and other general corporate purposes.

The Existing Notes are secured by a lien on and a security interest in all assets, excluding certain collateral subject to pre-existing liens, of the following wholly-owned subsidiaries of the Company, comprising substantially all of the assets of the Company, taken as a whole: TFI, ESW America, ESWT and ESW Cleantech, Inc.  The Existing Notes bear interest at a rate of 10% per annum compounded quarterly.  Interest is payable semi-annually in arrears in cash and at the Company’s election, during the term of the Existing Notes, up to two accrued and unpaid semi-annual interest payments can be paid in the form of the Company’s common stock, valued at the lesser of $80, subject to adjustment (the “Existing Note Conversion Price”) or the market value of the Company’s common stock as of the date of such payment (based on the average closing price of the Company’s common stock for the twenty trading days preceding such date), with interest payments commencing September 30, 2013. The Company made the first interest payment on the Existing Notes on October 1, 2013, and elected to do so in the form of common stock. At the option of the holders representing a majority of the then-outstanding principal balance of the Existing Notes together with the New Notes (as defined below), all principal, and interest amounts then outstanding under all of the Existing Notes shall be exchanged for shares of the Company’s common stock at the Existing Note Conversion

1

Price.  The Existing Note Conversion Price is subject to anti-dilution adjustment in the event the Company at any time while the Existing Notes are outstanding issues equity securities including common stock or any security convertible or exchangeable for shares of common stock for no consideration or for consideration less than the Existing Note Conversion Price.  The anti-dilution protection excludes shares of common stock issuable upon the exercise of options or other securities granted to directors, officers, bona fide consultants and employees of the Company issued pursuant to a board approved option or incentive plan or stock, warrants or other securities issued to a bank or other financial institution in connection with a financing.

In connection with the Existing Loan, we further agreed to conduct a rights offering to all of our holders of common stock, offering all such holders the right to purchase up to their pro-rata Company ownership amount of 10% senior secured five (5) year convertible promissory notes (the “New Notes”) that will be substantially similar to the Existing Notes, and the New Notes are being offered hereby to comply with this requirement.  The Existing Notes and New Notes will constitute one class of 10% senior secured convertible promissory notes due 2018 (the New Notes and the Existing Notes, together, the “Notes”).  The purpose of this rights offering is to comply with this covenant and provide our stockholders, other than the Existing Lenders and certain affiliates thereof, with the opportunity to hold Notes.  See “The Rights Offering — Background of the Rights Offering — The Existing Loans” beginning on page [●].

The Rights Offering

For additional information concerning the rights offering, see “The Rights Offering,” beginning on page [●].

                                                                                                                                                                                                                       The Notes

                                                                                                                                          For additional information concerning the Notes, see “Description of Notes,” beginning on page [●].

                                                Before investing in our common stock, you should carefully read and consider the information set forth in “Risk Factors” beginning on page [●] of this prospectus and all other information appearing elsewhere in this prospectus.

7

QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING

Q:   What is the rights offering?

A:   The rights offering is a distribution of non-transferable subscription rights for convertible promissory notes and common stock on a pro rata basis to all of our stockholders other than the Existing Lenders and certain affiliates thereof. We are distributing subscription rights for every share of our common stock held on [●], 2014, the record date. If all subscription rights are exercised, we will raise gross proceeds of approximately $4.6 million.

Q:   Why are we engaging in a rights offering, how did we decide on a maximum aggregate gross proceeds of $4,596,929 million, and how will we use the proceeds from the rights offering?

A:   In connection with the Existing Loan, we agreed to conduct a rights offering to our holders of common stock, offering all such holders (other than the Existing Lenders and certain affiliates thereof) the right to purchase up to their pro-rata Company ownership amount of senior secured five (5) year convertible promissory notes that will be substantially similar to the Existing Notes.  The New Notes are being offered hereby to comply with this covenant.  Proceeds of the rights offering will be used by the Company and or its subsidiaries to fund working capital, planned capital investments and other general corporate purposes.

Q:   How was the $80 per share conversion price established?

A:   The conversion price of the New Notes is identical to the conversion price of the Existing Notes.  That conversion price was determined through negotiations between the Company, through directors not affiliated with the Existing Lenders, and the Existing Lenders, and was based in part on the market price of our common stock, as well as a third party appraisal of the value of our common stock.  The conversion price is not necessarily related to the book value of our assets, net worth, past operations, cash flows, losses, financial condition, or any other established criteria for valuing us and may or may not be considered the fair value of our common stock to be offered in the rights offering. You should not assume or expect that, after the rights offering, our common stock will trade at or above the conversion price. We can give no assurance that our common stock will trade at or above the conversion price in any given time period.

Q:   Am I required to subscribe in the rights offering?

A:   No.

Q:   What is the basic subscription right, and what aggregate principal amount of New Notes may I purchase if I exercise my subscription rights?

A:   You will receive one non-transferable subscription right for each share of our common stock that you owned on [●], 2014, the record date. Each subscription right evidences a right to purchase $80.53 principal amount of New Notes. You may exercise any number of your subscription rights. You will not receive any oversubscription rights in this rights offering, i.e., you will not be entitled to subscribe for additional New Notes unclaimed by other holders of rights in this offering.

Q:   Who will receive subscription rights?

A:   Holders of our common stock will receive one non-transferable subscription right for each share of common stock owned as of [●], 2014, the record date.

Q:   What happens if I choose not to exercise my subscription rights?

A:   If you choose not to exercise your subscription rights you will retain your current number of shares of common

8

stock.  As a result, if any rights are exercised, the percentage of the common stock that you own will decrease and your voting rights and other rights will be diluted, even if the Majority Noteholders do not elect to convert the Notes into common stock.

Q:   Can you terminate the rights offering?  Are there conditions to the rights offering?

A:   Yes. We reserve the right to cancel or terminate the rights offering, in whole or in part, in our sole discretion at any time prior to the completion of the rights offering, for any reason or no reason.

Without limiting the generality of the foregoing, this rights offering is subject to the following conditions:

•      our stockholders, collectively, must have subscribed for no less than $50,000 aggregate principal amount of New Notes; and

•      there shall not have been any judgment, order, decree, injunction, statute, law or regulation entered, enacted, amended or held to be applicable to the rights offering that in the sole judgment of our board of directors would or might make the rights offering or its completion, whether in whole or in part, illegal or otherwise restrict or prohibit completion of the rights offering.

We may waive any of these conditions and choose to proceed with this rights offering even if one or more of these conditions is not satisfied. If we cancel or terminate this rights offering, in whole or in part, all affected subscription rights will expire without value and all funds received in connection with the rights offering will be returned, without interest or deduction, to those persons who exercised their subscription rights as soon as practicable.  See “The Rights Offering — Termination Rights; Conditions to the Rights Offering.”

Q:   May I transfer my subscription rights?

A:   No. Should you choose not to exercise your rights, you may not sell, give away or otherwise transfer your rights. However, rights will be transferable to affiliates of the recipient (i.e. entities which control the recipient or are controlled by or under common control with the recipient) and by operation of law, for example, upon the death of the recipient.

Q:   When will the rights offering expire?

A:   The subscription rights will expire and will have no value, if not exercised prior thereto, at 5:00 p.m., New York City time, on [●], 2014, unless we decide to extend the rights offering expiration date until some later time or terminate it earlier. See “The Rights Offering — Expiration of the Rights Offering; Extensions and Amendments.” The subscription agent must actually receive all required documents and payments in cash before the expiration date. There is no maximum duration for the rights offering.

Q:   How do I exercise my subscription rights?

A:   You may exercise your subscription rights by properly completing and executing your rights certificate and delivering it, together in full with the subscription price for the principal amount of New Notes you subscribe for, to the subscription agent on or prior to the expiration date. If you use the mail, we recommend that you use insured, registered mail and return receipt requested. If you cannot deliver your rights certificate to the subscription agent on time, you may follow the guaranteed delivery procedures described under “The Rights Offering — Guaranteed Delivery Procedures” beginning on page [●].

9

Q:   What should I do if I want to participate in the rights offering but my shares are held in the name of my broker, custodian bank or other nominee?

A:   If you hold our common stock through a broker, custodian bank or other nominee, we will ask your broker, custodian bank or other nominee to notify you of the rights offering. If you wish to exercise your rights, you will need to have your broker, custodian bank or other nominee act for you. To indicate your decision, you should complete and return to your broker, custodian bank or other nominee the form entitled “Beneficial Owner Election Form.” You should receive this form from your broker, custodian bank or other nominee with the other rights offering materials. You should contact your broker, custodian bank or other nominee if you believe you are entitled to participate in the rights offering but you have not received this form.

Q:   What should I do if I want to participate in the rights offering, but I am a stockholder with a foreign address or a stockholder with an Army Post Office or Fleet Post Office address?

A:   The subscription agent will not mail rights certificates to you if you are a stockholder whose address is outside the United States or if you have an Army Post Office or a Fleet Post Office address. To exercise your rights, you must notify the subscription agent prior to 11:00 a.m., New York City time, at least three business days prior to the expiration date, and establish to the satisfaction of the subscription agent that you are permitted to exercise your subscription rights under applicable law. If you do not follow these procedures by such time, your rights will expire and will have no value.

Q:   Will I be charged a sales commission or a fee if I exercise my subscription rights?

A:   We will not charge a brokerage commission or a fee to rights holders for exercising their subscription rights. However, if you exercise your subscription rights through a broker, dealer or nominee, you will be responsible for any fees charged by your broker, dealer or nominee.

Q:   Has the board of directors made a recommendation regarding the rights offering?

A:   Neither the Company nor our board of directors is making any recommendation as to whether you should exercise your subscription rights. You are urged to make your decision based on your own assessment of the rights offering, after considering all of the information herein, including the “Risk Factors” section of this prospectus, and your best interests.

Q:   May stockholders in all states participate in the rights offering?

A:   Although we intend to distribute the rights to all stockholders, we reserve the right in some states to require stockholders, if they wish to participate, to state and agree upon exercise of their respective rights that they are acquiring the shares for investment purposes only, and that they have no present intention to resell or transfer any shares acquired. Our securities are not being offered in any jurisdiction where the offer is not permitted under applicable local laws.

Q:   Is the exercise of my subscription rights risky?

A:   The exercise of your subscription rights involves significant risks. Exercising your rights means buying additional shares of our common stock and should be considered as carefully as you would consider any other equity investment. Among other things, you should carefully consider the risks described under the heading “Risk Factors,” beginning on page [●].

10

Q:   How many shares of our common stock would be outstanding after the rights offering and subsequent conversion of the Notes?

A:   The number of shares of our common stock that will be outstanding after the rights offering will depend on the aggregate principal amount of New Notes that are subscribed for in the offering, and whether the Majority Noteholders make the election to exchange the Notes for shares of common stock. If we sell the entire aggregate principal amount of New Notes being offered in the rights offering, and the Majority Noteholders subsequently determine to exchange the Notes for shares of common stock, then we will issue approximately 119,962 shares of common stock.  In that case, assuming no other issuances between the date hereof and such conversion, we would have approximately 248,054 shares of common stock outstanding after the rights offering, including 2,350 shares issuable to our Executive Chairman upon conversion of the Notes pursuant to his director compensation arrangement, but excluding any shares which may be issued in respect of any future interest payment. This would represent an increase of approximately 97% in the number of outstanding shares of common stock. See “The Rights Offering — Shares of Common Stock Outstanding After the Rights Offering Assuming Conversion of the Notes” on page [●].

Q:   What will be the proceeds of the rights offering?

A:   If we sell the entire aggregate principal amount of New Notes being offered, we will receive net proceeds of approximately $4.38 million in cash.  Proceeds of the rights offering will be used by the Company and/or its subsidiaries to fund working capital, planned capital investments and other general corporate purposes.

Q:   After I exercise my rights, can I change my mind and cancel my purchase?

A:   No. Once you exercise and send in your subscription rights certificate and payment, as provided herein, you cannot revoke the exercise of your subscription rights, even if you later learn information about us that you consider to be unfavorable and even if the market price of our common stock falls below the $80 per share conversion price. You should not exercise your subscription rights unless you are certain that you wish to hold Notes that are convertible, at the election of the Majority Noteholders, into shares of our common stock at a price of $80 per share. See “The Rights Offering — No Revocation or Change.”

Q:   What are the material U.S. Federal income tax consequences of exercising my subscription rights?

A:   A holder will not recognize gain or loss for U.S. Federal income tax purposes upon the exercise of subscription rights in the rights offering. For a detailed discussion, see “Material U.S. Federal Income Tax Consequences.” You should consult your tax advisor as to the particular consequences to you of the rights offering.

 Q:  If the rights offering is not completed, for any reason, will my subscription payment be refunded to me?

 A:  Yes. If the rights offering is not completed, for any reason, any amount received from subscribing stockholders will be refunded as soon as practicable, without interest or deduction.

 Q:  If I exercise my subscription rights, when will I receive the New Note I purchased in the rights offering?

 A:  We will deliver the New Notes purchased in the rights offering in certificated form as soon as practicable after the expiration of the rights offering and after all pro rata allocations and adjustments have been completed.

11

 Q:  To whom should I send my forms and payment?

 A:  If your shares are held in the name of a broker, dealer or other nominee, then you should send your subscription documents, rights certificate and payment in cash to that record holder. If you are the record holder, then you should send your subscription documents, rights certificate and payment, as provided herein, by hand delivery, first class mail or courier service to Bay City Transfer Agency & Registrar, the subscription agent. The address for delivery to the subscription agent is as follows:

Bay City Transfer Agency & Registrar

7075 Gratiot Road, Suite One,

Saginaw, MI  48609

Your delivery to a different address or other than by the methods set forth above will not constitute valid delivery.  Your subscription documents should clearly indicate the address to which your New Note should be delivered.

Q:   What if I have other questions?

 A:  If you have other questions about the rights offering, please contact us at Environmental Solutions Worldwide, Inc., 200 Progress Drive, Montgomeryville, Pennsylvania 18936 or by telephone at 215-699-0730

12

RISK FACTORS

Investing in our common stock involves risks. You should carefully consider the risks described below and all of the other information contained in this prospectus before you make a decision to participate in the offering and purchase shares of our common stock. If any of these risks occur, our business, financial condition or results of operations could suffer, and you could lose part or all of your investment.

Risks Related to this Rights Offering and the Notes

You could be committed to buying shares of common stock above the prevailing market price.

Once you exercise your rights, you may not revoke such exercise even if you later learn information that you consider to be unfavorable to the exercise of your rights. Our shares of common stock are traded on the OTCQB under the symbol “ESWW”.  On [●], 2014, the last trading day before the commencement of this offering, the closing sales price of our shares of common stock was $[●] per share. We cannot assure you that the market price of our shares of common stock will not decline prior to any election by the Majority Noteholders to convert the Notes to shares of common stock or that, upon any such conversion of the Notes, a subscribing rights holder will be able to sell shares of common stock purchased in this offering at a price greater than or equal to the conversion price. You should not exercise your subscription rights unless you are certain that you wish to purchase additional shares of our common stock at the conversion price.

The subscription rights are non-transferable and there is no market for the subscription rights.

Other than in very limited circumstances, you may not sell, give away or otherwise transfer your subscription rights. Because the subscription rights are non-transferable, there is no market or other means for you to directly realize any value associated with the subscription rights. You must exercise the subscription rights in order to realize any value.

The conditions to the offering may not be fulfilled, and even if they are fulfilled me we may cancel the offering at any time, for any reason or no reason. If we cancel the offering, neither we nor the subscription agent will have any obligation to you except to return your subscription payments.

We may unilaterally cancel the offering at any time in our sole discretion, for any reason or no reason. We expect to cancel the offering if one of the conditions is not satisfied, including the condition that holders subscribe for no less than $50,000 aggregate principal amount of New Notes.  There can be no assurance that the conditions to the offering will be satisfied.  If we cancel the offering, the subscription rights will be void and will have no value, and neither we nor the subscription agent will have any obligation with respect to the subscription rights except to return, without interest or penalty, any subscription payments actually received.

To exercise your subscription rights, you must act promptly and follow the subscription instructions carefully.

If you desire to purchase New Notes in the offering, you must act promptly to ensure that all required forms and payments are actually received by the subscription agent at or prior to 5:00 p.m., New York City time, on [●], 2014, the current expiration date of the offering. If you fail to complete and sign the required subscription forms, send an incorrect payment amount, or otherwise fail to follow the subscription procedures that apply to your desired transaction, the subscription agent may, depending on the circumstances, reject your subscription or accept it to the extent of the payment received. Neither we nor the subscription agent has any obligation to contact you concerning, or attempt to correct, an incomplete or incorrect subscription form or payment. We have the sole discretion to determine whether a subscription exercise properly follows the subscription procedures. See “The Rights Offering” for additional details regarding exercise of your subscription rights.

13

We may not have the ability to pay principal or interest on the Notes when due.

The Notes mature on March 22, 2018 and bear interest at a rate of 10% per annum. We have incurred losses in each year since our inception. Our net and comprehensive loss for the fiscal year ended December 31, 2012 was $1,412,269 and accumulated deficit as of December 31, 2012 was $54,510,378. As our sales and revenue continue to be unpredictable, and should our current business plan not be effective, ESW expects to experience additional periods with operating losses.  Accordingly, we may not have sufficient funds to pay the principal amount of the notes upon maturity or upon any acceleration thereof. In addition, we may not have sufficient funds to pay interest on the notes. If we fail to pay principal or interest when due, we will be in default under the Notes.

Because our management will have broad discretion over the use of the net proceeds from the rights offering, you may not agree with how we use the proceeds, and we may not invest the proceeds successfully.

While we currently anticipate that we will use the net proceeds of the rights offering to provide additional liquidity for working capital, planned capital investments and other general corporate purposes our management may allocate  the proceeds among these purposes as it determines is appropriate. In addition, market factors may require our management to allocate portions of the proceeds for other purposes. Accordingly, you will be relying on the judgment of our management with regard to the use of the proceeds from the rights offering, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. It is possible that the proceeds will be invested in a way that does not yield a favorable, or any, return for the Company.

The conversion price of the Notes is not an indication of our present or future value.

Our board of directors approved all of the terms and conditions of the rights offering, including the conversion price of the Notes. The conversion price of the New Notes is identical to the conversion price of the Existing Notes.  That conversion price was determined through negotiations between the Company, through directors not affiliated with the Existing Lenders, and the Existing Lenders, and was based in part on the market price of our common stock and a third party appraisal of the value of our common stock.  The conversion price, however, does not necessarily bear any relationship to the book value of our assets or our past or expected future results of operations, cash flows or current financial condition, or any other established criteria for value. You should not consider the conversion price of the Notes as an indication of our present or future value or the present or future value or market price of any of our securities.

If the market price of our common stock is lower than the conversion price of the Notes, the conversion of the Notes may not be practicable or profitable.

The conversion price for the Notes is $80 per share of common stock, subject to future adjustment in certain circumstances. Our common is quoted on the OTCQB under the symbol “ESWW.” On [●], 2014, the last trading day before the commencement of this rights offering, the closing sales price of our common stock on the OTCQB was $[●] per share. The market price of our common stock could vary significantly in response to various factors discussed in this prospectus. The market price of our common stock may decline prior to the exercise of the subscription rights and conversion of the Notes.

If you do not exercise all of your subscription rights in this rights offering, you may suffer dilution of your percentage ownership of our common stock.

To the extent that you do not exercise your subscription rights to subscribe for the Notes, your proportionate ownership in us will be reduced to the extent that other holders of our common stock exercise their subscription rights, and further diluted to the extent the Notes are converted into our common stock. If we sell the entire aggregate principal amount of New Notes being offered in the rights offering, and the Majority Noteholders subsequently determine to exchange the Notes for shares of common stock, then we will issue approximately 119,962 shares of common stock.  In that case, assuming no other issuances between the date hereof and such conversion, we would have approximately 248,054 shares of common stock outstanding after the rights offering, including 2,350 shares issuable to our Executive Chairman upon conversion of the Notes pursuant to his director compensation arrangement, but excluding any shares which may be issued in respect of any future interest payment.

14

This would represent an increase of approximately 97% in the number of outstanding shares of common stock.  Please note that such number of shares may increase due to certain adjustments to the conversion rate that may occur in the future under the terms of the Notes. See “The Rights Offering — Shares of Common Stock Outstanding After the Rights Offering Assuming Conversion of the Notes” on page [●].

There is currently no public market for the Notes, and an active trading market may not develop for the Notes.  The failure of a market to develop for the Notes could adversely affect the liquidity and value of the Notes.

There is no existing market for the Notes, and we do not intend to apply for listing of the Notes on any securities exchange or for quotation of the Notes on any automated dealer quotation system.  A market is unlikely to develop for the Notes, and we cannot assure you as to the liquidity of any market that may develop for the Notes.  If an active, liquid market does not develop for the Notes, the market price and liquidity of the Notes may be adversely affected.  If any of the Notes are traded after their initial issuance, they may trade at a discount from their initial offering price.  The Notes are not, and we do not expect them to be, rated.

Volatility in the market price and trading volume of our common stock could adversely impact the trading price of the Notes.

The stock market in recent years has experienced significant price and volume fluctuations that have often been unrelated to the operating performance of companies. The market price of our common stock could fluctuate significantly for many reasons, including in response to the risks described in this section, elsewhere in this prospectus or the documents we have incorporated by reference or for reasons unrelated to our operations, such as reports by industry analysts, investor perceptions or negative announcements by our customers, competitors or suppliers regarding their own performance, as well as industry conditions and general financial, economic and political instability. A decrease in the market price of our common stock would likely adversely impact the value of the Notes.

Noteholders will not be entitled to any rights with respect to the shares of common stock into which the Notes can be converted, but will be subject to all changes made with respect to our common stock.

Noteholders will not be entitled to any rights with respect to the shares of common stock into which the Notes can be converted (including, without limitation, voting rights and rights to receive any dividends or other distributions on such common stock), but Noteholders will be subject to all changes affecting our common stock. For example, if an amendment is proposed to our restated articles of incorporation or bylaws requiring shareholder approval and the record date for determining the shareholders of record entitled to vote on the amendment occurs prior to the relevant conversion date, such holder will not be entitled to vote the shares of common stock into which their Notes can be converted on the amendment, although such holder will, upon conversion of the Notes into common stock, nevertheless be subject to any changes in the powers, preferences or special rights of our common stock. 

You may have to pay taxes if we adjust or fail to adjust the conversion price of the Notes in certain circumstances, even though you would not receive any cash.

The conversion rate of the New Notes will be adjusted in certain circumstances. Adjustments (or failures to make adjustments) that have the effect of increasing your proportionate interest in our assets or earnings may in some circumstances result in a deemed distribution to you even though you have not received any cash or property as a result of such adjustments. Any deemed distributions will be taxable as a dividend, return of capital, or capital gain in accordance with the taxable treatment of dividends, as described below in “Material U.S. Federal Income Tax Consequences.” Please consult your own tax advisors and see “Material U.S. Federal Income Tax Consequences.”

The conversion price of the Notes may not be adjusted for all dilutive events.

The conversion price of the Notes is subject to adjustment for certain events, including, but not limited to, stock

15

splits, stock dividends and similar adjustments, as described in “Description of Notes—Conversion Price,” as well as issuance by the Company of equity securities, including common stock or any security convertible or exchangeable for shares of common stock, for no consideration or for consideration less than the conversion price in effect immediately prior to such issuance, as described in “Description of Notes— Anti-Dilution Adjustments.” However, the conversion price will not be adjusted for other events, such as a third-party tender or exchange offer,  an issuance of our common stock upon the exercise of options or other securities granted to directors, officers, consultants and employees of the Company, or issuance of common stock, warrants or other securities issued to a bank or other financial institution in connection with a financing, that may adversely affect the trading price of the Notes or our common stock. An event that adversely affects the value of the Notes may occur, and that event may not result in an adjustment to the conversion price.

Conversion of the Notes may dilute the ownership interest of existing shareholders.

The conversion of all of the Notes may dilute the ownership interests of existing holders of our common stock. Any sales in the public market of our common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the anticipated conversion of the Notes into shares of our common stock could depress the price of our common stock.

The value of the Collateral securing the Notes may not be sufficient to satisfy our obligations under the Notes.

No appraisal of the value of the collateral has been made in connection with this offering, and the fair market value of the collateral is subject to fluctuations based on factors that include, among others, general economic conditions and similar factors. The amount to be received upon a sale of the collateral would be dependent on numerous factors, including, but not limited to, the actual fair market value of the collateral at such time, the timing and the manner of the sale and the availability of buyers. By its nature, portions of the collateral may be illiquid and may have no readily ascertainable market value. In the event of a foreclosure, liquidation, bankruptcy or similar proceeding, the collateral may not be sold in a timely or orderly manner and the proceeds from any sale or liquidation of this collateral may not be sufficient to pay our obligations under the Notes.

Consequently, liquidating the collateral securing the Notes may not result in proceeds in an amount sufficient to pay any amounts due under the Notes after also satisfying the obligations to pay any creditors with prior liens. If the proceeds of any sale of collateral are not sufficient to repay all amounts due on the Notes, the Noteholders (to the extent not repaid from the proceeds of the sale of the collateral) would have only an unsecured, unsubordinated claim against our and the subsidiary guarantors’ remaining assets.

Rights of Noteholders in the Collateral may be adversely affected by the failure to perfect security interests in Collateral.

Applicable law requires that a security interest in certain tangible and intangible assets can only be properly perfected and its priority retained through certain actions undertaken by the secured party. The liens in the collateral securing the Notes may not be perfected with respect to the claims of the Notes if the Agent does not take the actions necessary to perfect any of these liens. There can be no assurance that the Agent for the Notes will have taken all actions necessary to create properly perfected security interests, which may result in the loss of the priority of the security interest in favor of the Noteholders to which they would otherwise have been entitled. In addition, applicable law requires that certain property and rights acquired after the grant of a general security interest, such as real property, equipment subject to a certificate of title and certain proceeds, can only be perfected at the time such property and rights are acquired and identified. We have limited obligations to take actions in furtherance of the perfection of the security interest of the Noteholders in specified collateral. There can be no assurance that the Agent will monitor, or that we will inform the Agent of, the future acquisition of property and rights that constitute collateral, and that the necessary action will be taken to properly perfect the security interest in such after-acquired collateral. The Agent does not have obligation to monitor the acquisition of additional property or rights that constitute collateral or the perfection of any security interest. Such failure may result in the loss of the security interest in the collateral or the priority of the security interest in favor of the Notes against third parties.

16

If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the Notes.

Any default under the agreements governing our indebtedness that is not waived by the holders of such indebtedness, and the remedies sought by the holders of such indebtedness could make us unable to pay principal and interest on the Notes and substantially decrease the market value of the Notes. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal and interest on our indebtedness or we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing our indebtedness, we could be in default under the terms of the agreements governing such indebtedness. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in the future need to seek to obtain waivers from the holders of our indebtedness to avoid being in default. If we breach our covenants under our indebtedness and seek a waiver, we may not be able to obtain a waiver from the holders of such indebtedness. If this occurs, we would be in default under our indebtedness, the holders of such indebtedness could exercise their rights as described above, and we could be forced into bankruptcy or liquidation.

The Note Subscription Agreement does not restrict our ability to incur additional debt, repurchase our securities, undergo a change in control or to take other actions that could negatively impact Noteholders.

Neither the Note Subscription Agreement nor the terms of the Notes restrict us from incurring additional debt, including senior debt or secured debt. In addition, the limited covenants contained in the Note Subscription Agreement do not require us to achieve or maintain any minimum financial ratios relating to our financial position or results of operations. Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the Note Subscription Agreement or the terms of the Notes could have the effect of diminishing our ability to repay the Notes at maturity, and require us to dedicate a substantial portion of our cash flow to fund our operations, working capital and capital expenditures.  In addition, neither the Note Subscription Agreement nor the terms of the Notes contain any covenants that restrict our ability to merge or consolidate, or sell, convey, transfer or otherwise dispose of all or substantially all of our assets.  Such a transaction could have an adverse effect on Noteholders.

The Notes can only be converted at the election of the Majority Noteholders, and as a result Noteholders may not be able to convert their Notes when desired.

No amount of principal or interest outstanding under any of the Notes will be converted unless the Majority Noteholders, at their sole option and discretion, elect to convert all principal and interest amounts then outstanding under all of the Notes.  Because the Notes may only be converted at the election of the Majority Noteholders, Noteholders may not be able to convert their Notes when desired, or at all, and thus may be forced to hold their Notes longer than desired.  The Existing Lenders, who may be deemed affiliates of the Company, will constitute the Majority Noteholders even if all New Notes are issued.  Accordingly, if the Existing Lenders vote together, they can cause, or block, a conversion of the Notes into common stock.

The Majority Noteholders may elect not to enforce the rights and remedies of the Noteholders with respect to an Event of Default under the Notes.

Only the Majority Noteholders may enforce the rights and remedies for events of default under the Notes, and the Majority Noteholders may elect to waive such rights and remedies in their sole discretion.  If an event of default occurs and the Majority Noteholders waive or otherwise decline to enforce your rights and remedies under your Note, you will be without recourse with respect to such event of default.  The Majority Noteholders hold a significant amount of our common stock and include affiliates of members of our board and management.  They therefore may have a conflict of interest relative to other holders of Notes when determining whether or not to enforce an event of default against us.

17

The Majority Noteholders can extend the maturity date of the Notes at their sole option and discretion.

The Majority Noteholders may, at their sole option and discretion, extend the maturity date of the Notes. Accordingly, Noteholders have no assurance that their Notes, if not converted, will be repaid on or near the scheduled maturity date. 

You should consider the U.S. federal income tax consequences of purchasing, owning and disposing of the Notes.

A holder will not recognize gain or loss upon the exercise of rights in the rights offering. Upon acquisition of New Notes through the exercise of rights you will generally have a tax basis in the New Notes equal to the subscription price paid for the New Notes increased by the basis, if any, of the rights for the New Notes.  You will generally recognize gain or loss upon the sale, exchange, redemption or other disposition of a New Note equal to the difference between the amount realized upon the sale, exchange, redemption or other disposition and your adjusted tax basis in the New Note.  Purchasers of New Notes should be aware that, while interest will generally be payable semi-annually in arrears in cash, at our election during the remaining term of the New Notes up to one additional accrued and unpaid semi-annual interest payment can be paid in the form of common stock valued at the lesser of the conversion price or the market value of our common stock as of the date of such payment (based on the average closing price of the Company’s common stock for the twenty trading days preceding such date). 

See “Material U.S. Federal Income Tax Consequences” for a discussion of the material U.S. federal income tax consequences of the purchase, ownership, disposition and conversion of the New Notes. You are strongly urged to consult your tax advisor as to the federal, state, local or other tax consequences of acquiring, owning, disposing of and converting the New Notes.

There can be no assurance that the Internal Revenue Service or a court will agree with the characterization of the Notes as debt for U.S. Federal income tax purposes.

As further described in “Material U.S. Federal Income Tax Consequences” we intend to take the position that the New Notes will be treated as debt for U.S. Federal income tax purposes. This position is not binding on the Internal Revenue Service or the courts. If the Internal Revenue Service or a court were to successfully assert that the New Notes should be treated as our equity for U.S. Federal income tax purposes, the accrual of interest on the New Notes would generally be treated as a deemed distribution that would be taxable as a dividend to the extent of our current and accumulated earnings and profits as further described in “Material U.S. Federal Income Tax Consequences.”

We are selling the New Notes in this offering ourselves, will not have the assistance of an underwriter, and have no commitments from any prospective purchasers of the New Notes.

The New Notes are being sold in this offering by our directors and officers, consistent with applicable law.  Our directors and officers have limited or no experience with public offerings of securities. Although they are committed to dedicate the time necessary to bring this offering to a successful conclusion as quickly as possible, they have significant responsibilities in their primary occupations, and consequently have limited time to devote to this offering. Thus, there is no assurance that we will be successful in attracting investors for our New Notes or that the offering will be successful.  

The Notes will not be issued under the protections of the Trust Indenture Act of 1939.

The Notes will not be issued trust indenture qualified under the Trust Indenture Act of 1939, as amended, and we will not appoint an independent trustee in connection with the Notes. A qualified trust indenture is often required for public offerings of debt securities in principal amounts of more than $10 million. A non-qualified trust indenture may also be required in public offerings of debt securities in principal amounts less than $10 million. The term “qualified” relates to mandatory provisions of a trust indenture and the requirements of independence of the indenture trustee in relation to the entity offering the debt securities. The presence of a qualified trust indenture and independent indenture trustee is generally intended to provide for the collective representation of debt investors

18

through the monitoring activities of the indenture trustee as to:

•            The authentication and issuance of debt securities;

•            The monitoring of events of default and the taking of remedial action by the trustee for the collective benefit of the investors;

•            The maintenance of collateral which may secure the debt security obligations; and

•            Other matters relating to the terms of the debt security issuance intended to protect investor initially and on a continuous basis.

Noteholders will not have the protective aspects of a qualified trust indenture and an independent trustee and may be required to act individually on their own behalf if we fail to make a required principal or interest payment on any Note.

Risks Related to Our Company

We have incurred losses in the past and expect to incur losses in the future should our business plan not be effective, and on our December 31, 2012 financial statements our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern.

We have sustained recurring operating and net losses and negative cash flows from operations.  As of September 30, 2013, we had an accumulated deficit of $55,363,600 and had cash and cash equivalents of $2,782,759. During the nine months ended September 30, 2013 we recorded revenue of $10,242,470 and a net loss of $853,222.  During the year ended December 31, 2012 we recorded revenue of 10,526,323 and a net loss of $1,412,269.  During the three month period ended September 30, 2013, we generated Income from Operations of $952,394.  Our history of losses and negative cash flows from operations, however, as well as the current prevailing economic conditions, create uncertainty in the operating results and, accordingly, there is no assurance that we will be successful in generating sufficient cash flow from operations or achieving profitability in future periods. As a result, the report of our independent registered public accounting firm with respect to our financial statements as of and for the year ended December 31, 2012 includes an explanatory paragraph that states that there is substantial doubt regarding our ability to continue as a going concern, and the notes to our financial statements as of and for the nine months ended September 30, 2013 similarly indicate substantial doubt regarding our ability to continue as a going concern. We may require additional financing to fund continuing operations and planned capital investments, and there can be no assurance that additional financing will be available to us on acceptable terms, or at all. Our ability to continue as a going concern is dependent on maintaining a profitable level of operations, and there can be no assurance that we will do so. Our sales and revenue continue to be unpredictable, and should our current business plan not be effective, we expect to experience additional periods with operating losses.  If we are unable to continue as a going concern, investors will likely lose all of their investment in our company. 

If cash flows from operations are not sufficient and if we are unable to obtain additional funding, then we may have to significantly curtail the scope of our operations and alter our business model.

Our sales are unpredictable; the market that we operate in is highly competitive and is dependent on federal and state-level public budgets for funding of retrofit programs. In the event that profitable operations are not achieved, our present financial resources and track record for raising capital should allow us to continue operations in the short term. If additional financing is required and not available when required, or is not available on acceptable terms, we may be unable to continue operations at current levels or satisfy the requirements necessary to fulfill our order book. We continue to implement corrective actions to minimize operating losses. We would consider strategic opportunities, including investments in the Company, acquisitions, or other acceptable transactions, to sustain operations. There can be no assurances that additional capital will be available to us on acceptable terms, or at all.

Risks related to the market for our common stock.

The price of our shares may be adversely affected by the public sale of a significant number of the shares eligible for future sale.

Sales of a large amount of our common stock in the public market could materially adversely affect the market price of our common stock. Such sales may also inhibit our ability to obtain future equity or equity-related financing on acceptable terms. The issuance of additional shares could have a significant adverse effect on the trading price of our common stock.

19

The price of our common stock has been highly volatile.

Our common stock traded as low as $20 per share and as high as $80 per share (as adjusted for the reverse split of our common stock consummated on May 24, 2013) during the nine months ended September 30, 2013.  Some of the factors leading to the volatility in the price of our common stock include:

•              price and volume fluctuation in the stock market at large and market conditions which are not necessarily related to our operating performance;

•              limited trading volumes;

•              fluctuation in our operating results;

•              concerns about our ability to finance continuing operations;

•              financing arrangements which may require the issuance of a significant number of shares in relation to the number shares of our common stock currently outstanding;

•              announcements of agreements, technological innovations, certification / verifications or new products which we or are competitors make;

•              costs and availability of precious metals used in the production of our products; and

•              fluctuations in market demand and supply of our products.

Our common stock is currently traded on the OTC markets - OTCQB tier and an investor’s ability to trade our common stock may be limited by trading volume.

The trading volume in our common stock has been relatively limited. Our common stock may not generate a consistently active trading market on the OTC Markets. The average daily trading volume of our common stock for the nine months ended September 30, 2013 was approximately 5 shares (as adjusted for the reverse split of our common stock consummated on May 24, 2013). We have a limited trading history and there can be no assurances that there will be increased liquidity in our stock.

Our stock was previously quoted on the Frankfurt Stock Exchange (FWB), under the symbol (EOW). Effective December 15, 2012, Deutsche Börse AG, the operator of the Frankfurt Stock Exchange, decided to close the First Quotation Board, in its then current form. On December 14, 2012, with the closure of the First Quotation Board, the Company’s common stock listing was removed from the Frankfurt Stock Exchange.

The company may issue more shares in connection with a financing, merger or acquisition, which would result in substantial dilution.

Our Certificate of Incorporation authorizes the issuance of a maximum of 250,000,000 shares of common stock. Any further financing, merger or acquisition effected by us may result in the issuance of additional securities without stockholder approval and may result in substantial dilution in the percentage of our common stock held by our then existing stockholders. Moreover, the common stock issued in any such financing, merger or acquisition transaction may be valued on an arbitrary or non-arm’s-length basis by our management, resulting in an additional reduction in the percentage of common stock held by our then existing stockholders. Our board of directors has the power to issue any or all of such authorized but unissued shares without stockholder approval. To the extent that additional shares of common stock are issued in connection with a financing, business combination or otherwise, dilution to the interests of our stockholders will occur and the rights of the holders of common stock might be materially adversely affected.

Several of our shareholders own a significant amount of our outstanding shares and collectively may be able to decide certain corporate action.

A group of our shareholders collectively own 87,217 shares, which is equivalent to 69.4% of the outstanding shares of the Company as of January 27, 2014, on an undiluted basis.  This group includes the Majority Noteholders as well as affiliates thereof, and these shareholders may be deemed to be affiliates of the Company.  As such, all or some of these shareholders may be able to control aspects of our business operations including the election of board members, the acquisition or disposition of assets, the Company’s business plans / strategy and the future issuance of

20

shares. For additional information about beneficial ownership please refer to “Security Ownership of Certain Beneficial Owners, Management and Related Stockholder Matters.”

We do not expect to pay dividends on common stock and investors will only be able to receive cash in respect of their shares of common stock upon the sale of their shares.

We have never paid any cash dividends on our common stock, and we have no intention in the foreseeable future to pay any cash dividends on our common stock. Therefore, an investor in our common stock will obtain an economic benefit from the common stock only after an increase in its trading price and only by selling the common stock.

Risks related to our business

Our results may fluctuate due to certain regulatory, marketing and competitive factors over which we have little or no control.

The factors listed below some of which we cannot control may cause the Company’s revenues and result of operations to fluctuate significantly:

•              Actions taken by regulatory bodies relating to the verification and certification of our products.

•              Changes in federal and state level retrofit compliance mandates.

•              Availability of federal and state level funding to support retrofit sales.

•              The extent to which our products obtain market acceptance.

•              The timing and size of customer purchases.

•              Customer and distributors’ concerns about the stability of our business which could cause them to seek alternatives to our products.

We are currently dependent on a few major customers / distributors for a significant portion of our revenues.

We recorded sales from 55 customers in fiscal year 2012 as compared to 44 in fiscal year 2011. Three of our customers accounted for 27.8%, 15.8% and 7.7% respectively of the Company’s revenue in the fiscal year 2012. Three of our customers accounted for 41.2%, 15.7% and 10.6% respectively of the Company’s revenue for the fiscal year 2011. We will continue to establish long-term relationships with new customers and foster opportunities with existing distributors. The loss of, or major reduction in business from, one or more of the major distributors could have a material adverse effect on our liquidity, financial position, or results of operations.

We do not have a long history of selling and marketing our products.

At the current time, we have limited marketing capabilities as compared to many of our competitors. We do not have a large sales, promotion and marketing budget. We are constrained by working capital and our ability to generate the necessary cash flow from business operations to re-invest in our marketing programs. As a result of our limited marketing capabilities, we are forced to rely upon customer / distributor referrals, trade publications and a small sales force. Our competitors have direct advertising and sales promotion programs for their products as well as sales and marketing personnel that may have a competitive advantage over us in contacting prospective customers / distributors. Our position in the industry is considered small in comparison to that of our competitors. We continues to develop and explore new marketing methods and techniques such as trade show representation and sales programs directed toward customers / distributors. Our ability to compete at the present time is limited. Our success depends upon the ability to market our products, penetrate and expand markets and form alliances with third party distributors.

There can be no assurances that:

•              our selling efforts will be effective;

•              we will obtain an expanded degree of market acceptance; or

21

•              we will be able to successfully form additional relationships with distributors to market our products.

We depend upon the marketability of our core products.

Catalytic converters are our primary products. We may have to cease operations if our primary products fail to achieve market acceptance and/or generate significant revenues and/or experience product performance related issues. Additionally, the marketability of our products is dependent upon obtaining and maintaining verification and certifications as well as the effectiveness of the product in relation to various environmental regulations as well as competitor’s products in the various jurisdictions we market and sell our products.

We may not be able to obtain direct or indirect regulatory certification or verification approvals with respect to certain products.

The industry that we operate in is regulated. In the United States of America these regulations are enforced by U.S. Environmental Protection Agency (“EPA”) and California Air Resources Board (“CARB”). We plan to further develop and market catalytic converter products and support technologies that meet new regulations enforced by these agencies. If we are unable to demonstrate the feasibility of these products or obtain in a timely manner the verification and or certifications for our products from such regulatory agencies as the EPA or CARB, we may have to abandon the products or alter our business plan. Such modifications to our business plan will have an adverse effect on revenue and our ability to achieve profitability. The regulatory approval process with EPA and CARB is complex and requires lengthy and expensive durability testing which must precede final certification/verification of products. We do not control the timeliness of the certification/verification process; however, we have taken steps to ensure the efficacy of our contribution to the certification/verification process.  Our consolidated condensed balance sheet as of September 30, 2013 reflects a one-time warranty charge of $504,900 associated with certain verification procedures relating to the ThermaCat.  The actual amount of loss associated with such verification procedures, however, could be materially different. 

We face constant changes in governmental standards by which our products are evaluated.

We believe that due to the constant focus on the environment and clean air standards throughout the world, we will be required in the future to adhere to new and more stringent regulations. Governmental agencies constantly seek to improve standards required for verification and or certification of products intended to promote clean air. In the event our products fail to meet these ever changing standards, some or all of our products may become obsolete or de-listed from government verification, having a direct negative effect on the Company’s ability to generate revenue and become profitable.

We face intense competition and rapid technological advances from competitors.

Competition among companies that provide solutions for pollutant emissions from diesel engines is intense. Several companies market products that compete directly with our products. Other companies offer products that potential customers may consider to be acceptable alternatives to our products and services. We face direct competition from companies with far greater financial, technological, manufacturing and personnel resources. We also face direct competition with companies who purchase their substrates from others, and do further processing with their own formulas and fabrication for direct sale to the market place. Newly developed products could be more effective and cost efficient than our current products or those we may develop in the future. Many of our current and potential future competitors have substantially more engineering, sales and marketing capabilities, substantially greater financial, technological and personnel resources, and broader product lines than we do. We also face indirect competition in the form of alternative fuel consumption vehicles such as those using methanol, hydrogen, ethanol and electricity.

We claim certain proprietary rights in connection with the design and manufacture of our products.

The protections provided by patents are important to our business, although we believe that no individual right is material to our business at the present time. There can be no assurance that these patents or existing or future trade

22

secret protections that we seek will survive legal challenge, or provide meaningful levels of protection. Additionally, there can be no assurances when these patents or pending patents may be assigned to us directly. We do not presently have any worldwide patent protection or any immediate plans to file for protection in any foreign countries other than Canada. There can be no assurances that any patents we may have or have applied for or any agreements we have in place or will enter into will protect our technology and or prevent competitors from employing the use of our design and production information.

Attraction and retention of key personnel.

Our success depends in significant part, on the continued services of key technical, sales and senior management personnel. The loss of our executive officers or other key employees could have materially adverse effects on our business, results of operations and financial condition. Our success depends upon our continued ability to attract and attain highly qualified technical, sales and managerial personnel. There can be no assurances that we can attract, assimilate or retain other highly qualified technical, sales and managerial personnel in the future. At the present time certain key employees of the company and or subsidiaries do not have employment contracts and may be viewed as employees at will.

We are dependent upon key suppliers for certain materials which are one of the necessary components of our products.

The production process of our products includes certain raw materials including:

•              stainless steel;

•              particulate filters;

•              precious metals; and

•              electronic components.

An extended interruption of the supply of precious metals and components necessary for the production of our products could have an adverse effect on us. Further, a substantial price increase of the raw materials that are components of our products could also have an adverse effect on our business. We currently rely on third party vendors to provide certain components of our products. We currently do not have any fixed commitments from suppliers to provide supplies.

We do not have a significant level of product recall insurance due to our high cost.

Our catalytic converter products are subject to extended warranty programs that could generate substantive product liability and warranty claims against the Company. Our on-road catalyst systems which have been verified as a Level III technology are typically required to meet CARB limited warranty standard of 5 years or 100,000 miles or 2 years unlimited miles depending on engine application. Our off-road catalyst systems which have been verified as a Level III technology are typically required to meet CARB limited warranty standard of up to 5 years or 4,200 hours. Any failure of our products may result in a recall or a claim against us. Due to the high cost of product recall insurance, we do not maintain significant amounts of insurance to protect against claims associated with use of our products. Any claim against us, whether or not successful, may result in expenditure of substantial funds and litigation, may require management’s time and use of our resources and may have a materially adverse impact on our overall ability to continue operations.

Our success partially depends on joint ventures and/or relationships entered into or sought by us for development and sale of our products.

Our success partially depends on the relationships that it develops with various suppliers, OEM’s, dealers, and distributors for the further development and deployment of our technology in the field. We do not manage these entities nor is it assured that we will be able to create relationships with these entities. The absence of such relationships could adversely impact our business plans.

23

Use of Proceeds

Assuming the rights offering is fully-subscribed, the net proceeds available to us from the rights offering, after deducting estimated offering expenses of $215,814 payable by us, will be approximately $4,381,115.  Proceeds of the rights offering will be used by us and/or our subsidiaries to fund working capital, planned capital investments and other general corporate purposes.

Determination of Offering Price

The conversion price of the New Notes is identical to the conversion price of the Existing Notes.  That conversion price was determined through negotiations between the Company, through directors not affiliated with the Existing Lenders, and the Existing Lenders, and was based in part on the market price of our common stock and a third party appraisal of the value of our common stock.  The conversion price for this rights offering was proposed to, reviewed and approved by the disinterested members of our board of directors. The conversion price is not necessarily related to the book value of our assets, net worth, past operations, cash flows, losses, financial condition, or any other established criteria for valuing us and may or may not be considered the fair value of our common stock to be offered in the rights offering. You should not assume or expect that, after the rights offering, our shares of common stock will trade at or above the conversion price. We can give no assurance that our common stock will trade at or above the conversion price in any given time period.

Dilution

If the Notes are converted and you thereby invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the conversion price and the pro forma net tangible book value per share. Our historical net tangible book value as of September 30, 2013 was $9,929,784, or $87.51 per share. Historical net tangible book value per share is determined by dividing our net tangible book value by the actual number of outstanding shares of common stock. Our historical net tangible book value per share as of September 30, 2013 is determined using 113,464 shares outstanding as of September 30, 2013, which excludes 413 shares issuable upon the exercise of stock options outstanding as of September 30, 2013, 175 shares issuable upon the vesting of restricted stock grants as of September 30, 2013 and 62,500 shares issuable upon the conversion of the Existing Notes outstanding as of September 30, 2013.

Dilution in historical net tangible book value per share represents the difference between the amount per share paid by the purchaser of shares of common stock in this rights offering and the pro forma net tangible book value per share of common stock immediately after the closing of this offering.

After giving effect to the assumed issuance of 119,962 shares of common stock pursuant the conversion of the Notes, 8,000 shares of common stock in respect of the first interest payment on the Existing Notes on October 1, 2013, and 2,350 shares issuable to our Executive Chairman upon such assumed conversion of the Notes pursuant to his director compensation arrangement, and after deducting estimated offering expenses payable by us of $215,814, our pro forma net tangible book value as of September 30, 2013 would have been approximately $14,310,899, or $58.71 per share of common stock. This amount represents an immediate decrease of $28.81 per share to our shareholders on shares of common stock owned prior to this rights offering and an immediate dilution of $21.29 per share from the conversion price of $80 per share on shares of common stock purchased in this rights offering. Our pro forma net tangible book value per share as of September 30, 2013 is determined using 243,776 shares outstanding as of September 30, 2013, which assumes the issuance of 119,962 shares of our common stock pursuant the conversion of the Notes, 8,000 shares of common stock issued on October 1, 2013 in respect of the first interest payment on the Existing Notes which was due on September 30, 2013, and 2,350 shares issued to our Executive Chairman upon the assumed conversion of the Notes pursuant to his director compensation arrangement, and excludes 413 shares issuable upon the exercise of stock options and 175 shares of restricted stock outstanding as of September 30, 2013.

24

Capitalization

The following table sets forth our historical and pro forma cash and cash equivalents and capitalization as of September 30, 2013. The pro forma information gives effect to an assumed $4,596,929 million in gross proceeds raised from this rights offering.

For purposes of this table, we have assumed that the rights offering is fully subscribed, resulting in $4,596,929 million in gross proceeds, all Notes have been converted and 2,350 shares have been issued to our Executive Chairman upon such conversion of the Notes pursuant to his director compensation arrangement, and that the Company made the first interest payment on the Existing Notes on October 1, 2013, and elected to do so in the form of common stock. However, it is not possible to predict the aggregate principal amount of New Notes that will be subscribed for in this rights offering, and therefore, the amount of gross proceeds that will actually be raised.

This table should be read in conjunction with our consolidated financial statements and the notes thereto included in this prospectus.

25

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

Shares of our common stock are quoted on the OTCQB under the symbol “ESWW”.

On [●], 2014, the last reported closing sale price of our common stock was $[●] per share. The following table sets forth, for the quarters indicated, the range of high and low closing sale prices for our common stock as reported on the OTCQB (as adjusted for the reverse split of our common stock consummated on May 24, 2013).

We have not declared or issued any dividends in the past, and we intend to retain future earnings, if any, for general business purposes and to repay debt.

As of January 27, 2014 there were approximately 140 stockholders of record of our common stock. We estimate there are approximately 835 additional stockholders with stock held in street name. On January 27, 2014, there were 125,742 shares of our common stock outstanding.

26

The Rights Offering

Background of the Rights Offering

The Existing Loans

On March 22, 2013, we entered into the Existing Loan Agreements with the Existing Lenders, who are current shareholders and may be deemed affiliates of the Company. Pursuant to the Existing Loan Agreements, the Existing Lenders made the Existing Loan to the Company in the principal aggregate amount of $5.0 million, subject to the terms and conditions set forth in the Existing Loan Agreements and represented by the Existing Notes, dated March 22, 2013, April 23, 2013 and June 27, 2013.  The Existing Loan Agreements were approved by directors of the Company unaffiliated with the Existing Lenders. 

Proceeds of the Existing Loan were used by the Company and/or its subsidiaries to fund the purchase of the Cleaire assets, and are being used by the Company and/or its subsidiaries for working capital, planned capital investments and other general corporate purposes.

The Existing Notes are secured by a lien on and a security interest in all assets, excluding certain collateral subject to pre-existing liens, of the following wholly-owned subsidiaries of the Company, comprising substantially all of the assets of the Company, taken as a whole: TFI, ESW America, ESWT and ESW Cleantech, Inc.  The

Existing Notes bear interest at a rate of 10% per annum compounded quarterly.  Interest is payable semi-annually in arrears in cash and at the Company’s election, during the term of the Existing Notes, up to two accrued and unpaid semi-annual interest payments can be paid in the form of the Company’s common stock, valued at the lesser of the Existing Note Conversion Price or the market value of the Company’s common stock as of the date of such payment (based on the average closing price of the Company’s common stock for the twenty trading days preceding such date).  The Company made the first interest payment on the Existing Notes on October 1, 2013, and elected to do so in the form of common stock. At the option of the Majority Noteholders, all principal, and interest amounts then outstanding under all of the Existing Notes shall be exchanged for shares of the Company’s common stock at the Existing Note Conversion Price.  The Existing Note Conversion Price is subject to anti-dilution adjustment in the event the Company at any time while the Existing Notes are outstanding issues equity securities including common

stock or any security convertible or exchangeable for shares of common stock for no consideration or for consideration less than the Existing Note Conversion Price.  The anti-dilution protection excludes shares of common stock issuable upon the exercise of options or other securities granted to directors, officers, bona fide consultants and employees of the Company issued pursuant to a board approved option or incentive plan or stock, warrants or other securities issued to a bank or other financial institution in connection with a financing.

In connection with the Existing Loan, we further agreed to conduct a rights offering to all of our holders of common stock, offering all such holders the right to purchase up to their pro-rata Company ownership amount of New Notes that will be substantially similar to the Existing Notes, and the New Notes are being offered hereby to comply with this requirement.  The Existing Notes and New Notes will constitute one class of 10% senior secured convertible promissory notes due 2018.  The purpose of this rights offering is to comply with this covenant and provide our stockholders, other than the Existing Lenders and certain affiliates thereof, with the opportunity to hold Notes.   

Subscription Rights

We will distribute to each holder of our common stock who is a record holder of our common stock on the record date, which is [●], 2014, at no charge, one non-transferable subscription right for each share of common stock owned as of the record date. As of the record date, an aggregate of [●] shares of our common stock were outstanding.

The subscription rights will be evidenced by non-transferable subscription rights certificates. Each subscription right will entitle the rights holder to purchase $80.53 principal amount of New Notes, upon timely delivery of the required documents and payment of the subscription price. Any excess payment will be returned to you promptly without interest or deduction. If rights holders wish to exercise their subscription rights, they must do so prior to 5:00 p.m., New York City time, on [●], 2014, the expiration date for the rights offering, subject to extension. After

27

the expiration date, the subscription rights will expire and will have no value. See below under “— Expiration of the Rights Offering and Extensions, Amendments and Termination.” You are not required to exercise any or all of your subscription rights.  Please note that you will not receive any oversubscription rights in this rights offering – in other words, you will not be entitled to subscribe for additional New Notes unclaimed by other holders of rights in this offering.

Expiration of the Rights Offering; Extensions and Amendments

You may exercise your subscription rights at any time prior to 5:00 p.m., New York City time, on [●], 2014, the expiration date for the rights offering. If you do not exercise your subscription rights before the expiration date of the rights offering, your subscription rights will expire and will have no value. We will not be required to issue any New Notes to you if the subscription agent receives your rights certificate or payment, after the expiration date, regardless of when you sent the rights certificate and payment, unless you send the documents in compliance with the guaranteed delivery procedures described below.

We may, in our sole discretion, extend the time for exercising the subscription rights. We may extend the expiration date at any time after the record date. If the commencement of the rights offering is delayed for a period of time, the expiration date of the rights offering may be similarly extended. We will extend the duration of the rights offering as required by applicable law, and may choose to extend the duration of the rights offering for any reason. We may extend the expiration date of the rights offering by giving oral or written notice to the subscription

agent on or before the scheduled expiration date. If we elect to extend the expiration date of the rights offering, we will publicly announce such extension no later than 9:00 a.m., New York City time, on the next business day after the most recently announced expiration date. We also reserve the right, in our sole discretion, to amend or modify the terms of the rights offering.

Termination Rights; Conditions to the Rights Offering

We reserve the right to cancel or terminate the rights offering, in whole or in part, in our sole discretion at any time prior to the completion of the rights offering, for any reason or no reason.

Without limiting the generality of the foregoing, this rights offering is subject to the following conditions:

·        our stockholders, collectively, must have subscribed for no less than $50,000 aggregate principal amount of New Notes; and

·        there shall not have been any judgment, order, decree, injunction, statute, law or regulation entered, enacted, amended or held to be applicable to the rights offering that in the sole judgment of our board of directors would or might make the rights offering or its completion, whether in whole or in part, illegal or otherwise restrict or prohibit completion of the rights offering.

We may waive any of these conditions and choose to proceed with this rights offering even if one or more of these conditions is not satisfied.

If we cancel or terminate this rights offering, in whole or in part, all affected subscription rights will expire without value and all funds received in connection with the rights offering will be returned, without interest or deduction, to those persons who exercised their subscription rights as soon as practicable. 

Method of Exercising Subscription Rights

 The exercise of subscription rights is irrevocable and may not be cancelled or modified.  Your subscription rights will not be considered exercised unless the subscription agent receives from you, your broker, custodian or nominee, as the case may be, all of the required documents properly completed and executed and your full subscription price payment in cash prior to 5:00 p.m., New York City time, on [●], 2014, the expiration date of the rights offering.  Rights holders may exercise their rights as follows:

28

Subscription by Registered Holders

Rights holders who are registered holders of our common stock may exercise their subscription privilege by properly completing and executing the rights certificate together with any required signature guarantees and forwarding it, together with payment in full, of the subscription price for the principal amount of New Notes for which they subscribe, to the subscription agent at the address set forth under the subsection entitled “—Delivery of Subscription Materials and Payment,” on or prior to the expiration date.

Subscription by Beneficial Owners

Rights holders who are beneficial owners of shares of our common stock and whose shares are registered in the name of a broker, custodian bank or other nominee and rights holders who hold common stock certificates and would prefer to have an institution conduct the transaction relating to the rights on their behalf, should instruct their broker, custodian bank or other nominee or institution to exercise their rights and deliver all documents and payment on their behalf, prior to the expiration date. A rights holder’s subscription rights will not be considered exercised unless the subscription agent receives from such rights holder, its broker, custodian, nominee or institution, as the case may be, all of the required documents and such holder’s full subscription price payment.

Method of Payment

Payments must be made in full in:

·        U.S. currency by:

-       check or bank draft drawn on a U.S. bank, or postal telegraphic or express, payable to “Bay City Transfer Agency & Registrar, as Subscription Agent”;

-       U.S. Postal money order payable to “Bay City Transfer Agency & Registrar, as Subscription Agent”;

-       wire transfer of immediately available funds directly to the account maintained by Bay City Transfer Agency & Registrar, as Subscription Agent, for purposes of accepting subscriptions in this Rights Offering at [●], ABA #[●], Account #[●] FBO ESW Subscription, with reference to the rights holder’s name; or

Rights certificates received after 5:00 p.m., New York City time, on [●], 2014, the expiration date of the rights offering, will not be honored, and we will return your payment to you in the form received as soon as practicable, without interest or deduction.

The subscription agent will be deemed to receive payment upon:

·        clearance of any uncertified check deposited by the subject agent;

·        receipt by the subscription agent of any certified bank check draft drawn upon a U.S. bank; or

·        receipt by the subscription agent of any U.S. Postal money order.

You should read the instruction letter accompanying the rights certificate carefully and strictly follow it. DO NOT SEND RIGHTS CERTIFICATES OR PAYMENTS TO US. Except as described below under “— Guaranteed Delivery Procedures,” we will not consider your subscription received until the subscription agent has received delivery of a properly completed and duly executed rights certificate and payment of the full subscription amount. The risk of delivery of all documents and payments is on you or your nominee, not us or the subscription agent.

The method of delivery of rights certificates and payment of the subscription amount to the subscription agent will be at the risk of the holders of rights, but, if sent by mail, we recommend that you send those certificates and payments by overnight courier or by registered mail, properly insured, with return receipt requested, and that a

29   

sufficient number of days be allowed to ensure delivery to the subscription agent and clearance of payment before the expiration of the subscription period.

Unless a rights certificate provides that the New Notes are to be delivered to the record holder of such rights or such certificate is submitted for the account of a bank or a broker, signatures on such rights certificate must be guaranteed by an “Eligible Guarantor Institution,” as such term is defined in Rule 17Ad-15 of the Exchange Act, subject to any standards and procedures adopted by the subscription agent. See “— Medallion Guarantee May be Required.”

Medallion Guarantee May Be Required

Your signature on each subscription rights certificate must be guaranteed by an eligible institution, such as a member firm of a registered national securities exchange or a member of the Financial Industry Regulatory Authority, Inc., or a commercial bank or trust company having an office or correspondent in the United States, subject to standards and procedures adopted by the subscription agent, unless:

·        your subscription rights certificate provides that New Notes are to be delivered to you as record holder of those subscription rights; or

·        you are an eligible institution.

Subscription Agent

The subscription agent for this rights offering is Bay City Transfer Agency & Registrar. We will pay all fees and expenses of the subscription agent related to the rights offering and have also agreed to indemnify the subscription agent from certain liabilities that it may incur in connection with the rights offering.

Delivery of Subscription Materials and Payment

You should deliver your subscription rights certificate and payment of the subscription price in cash or, if applicable, notice of guaranteed delivery, to the subscription agent at the following address:

Bay City Transfer Agency & Registrar

300 Center Avenue, Suite 202B

Bay City, MI 48708

Phone: (989) 891-9720

Your delivery to an address or by any method other than as set forth above will not constitute valid delivery and we may not honor the exercise of your subscription rights.

You should direct any questions or requests for assistance concerning the method of subscribing for the shares of common stock or for additional copies of this prospectus to us at Environmental Solutions Worldwide, Inc., 200 Progress Drive, Montgomeryville, Pennsylvania 18936 or by telephone at 215-699-0730.

Guaranteed Delivery Procedures

The subscription agent will grant you three business days after the expiration date to deliver the rights certificate if you follow the following instructions for providing the subscription agent notice of guaranteed delivery. On or prior to the expiration date, the subscription agent must receive payment in full, as provided herein, for the entire principal amount of New Notes subscribed for through the exercise of the subscription privilege, together with a properly completed and duly executed notice of guaranteed delivery substantially in the form accompanying this prospectus either by mail or overnight carrier, that specifies the name of the holder of the rights and the principal amount of New Notes subscribed for. If applicable, it must state separately the principal amount of New Notes subscribed for through the exercise of the subscription privilege and a member firm of a registered national securities exchange, a member of the Financial Industry Regulatory Authority, Inc., or a commercial bank or trust company having an office or correspondent in the United States must guarantee that the properly completed and

30

executed rights certificate for the entire principal amount of New Notes subscribed for will be delivered to the subscription agent within three business days after the expiration date. The subscription agent will then conditionally accept the exercise of the rights and will withhold the New Notes until it receives the properly completed and duly executed rights certificate within that time period.

Notices of guaranteed delivery and payments should be mailed or delivered to the appropriate addresses set forth under “— Delivery of Subscription Materials and Payment.”

Calculation of Subscription Rights Exercised

If you do not indicate the number of subscription rights being exercised, or do not forward full payment, as provided herein, of the total subscription price payment for the number of subscription rights that you indicate are being exercised, then you will be deemed to have exercised your subscription right with respect to the maximum number of subscription rights that may be exercised with the aggregate subscription price payment, as provided herein, that you delivered to the subscription agent. If we do not apply your full subscription price payment to your purchase of New Notes, we or the subscription agent will return in cash (unless the holder paid for the rights through indebtedness owed by us) the excess amount to you by mail, without interest or deduction, as soon as practicable after the expiration date of the rights offering.

Escrow Arrangements

The subscription agent will hold funds received in payment of the subscription price in a segregated account until the rights offering is completed or withdrawn and terminated.

Notice to Beneficial Holders

If you are a broker, a trustee or a depositary for securities who holds shares of our common stock for the account of others as of the record date, you should notify the respective beneficial owners of such shares of the rights offering as soon as possible to find out their intentions with respect to exercising their subscription rights. You should obtain instructions from the beneficial owners with respect to their subscription rights, as set forth in the instructions we have provided to you for your distribution to beneficial owners. If a beneficial owner so instructs, you should complete the appropriate subscription rights certificates and submit them to the subscription agent with the proper payment.  If you did not receive this form, you should contact the subscription agent to request a copy. 

Beneficial Owners

If you are a beneficial owner of shares of our common stock or will receive subscription rights through a broker, custodian bank or other nominee, we will ask your broker, custodian bank or other nominee to notify you of the rights offering. If you wish to exercise your subscription rights, you will need to have your broker, custodian bank or other nominee act for you. If you hold certificates of our common stock directly and would prefer to have your broker, custodian bank or other nominee act for you, you should contact your nominee and request it to effect the transactions for you. To indicate your decision with respect to your subscription rights, you should complete and return to your broker, custodian bank or other nominee the form entitled “Beneficial Owners Election Form”. You should receive the “Beneficial Owners Election Form” from your broker, custodian bank or other nominee with the other rights offering materials. If you wish to obtain a separate subscription rights certificate, you should contact the nominee as soon as possible and request that a separate subscription rights certificate be issued to you. You should contact your broker, custodian bank or other nominee if you do not receive this form but you believe you are entitled to participate in the rights offering. We are not responsible if you do not receive this form from your broker, custodian bank or nominee or if you receive it without sufficient time to respond.

Determinations Regarding the Exercise of Your Subscription Rights

We will decide all questions concerning the timeliness, validity, form and eligibility of the exercise of your subscription rights and any such determinations by us will be final and binding. We, in our sole discretion, may waive, in any particular instance, any defect or irregularity, or permit, in any particular instance, a defect or

31

irregularity to be corrected within such time as we may determine. We will not be required to make uniform determinations in all cases. We may reject the exercise of any of your subscription rights because of any defect or irregularity. We will not accept any exercise of subscription rights until all irregularities have been waived by us or cured by you within such time as we decide, in our sole discretion. Our interpretations of the terms and conditions of the rights offering will be final and binding.

Neither we, nor the subscription agent, will be under any duty to notify you of any defect or irregularity in connection with your submission of subscription rights certificates and we will not be liable for failure to notify you of any defect or irregularity. We reserve the right to reject your exercise of subscription rights if your exercise is not in accordance with the terms of the rights offering or in proper form. We will also not accept the exercise of your subscription rights if our issuance of New Notes to you could be deemed unlawful under applicable law.

No Revocation or Change

Once you submit the form of rights certificate to exercise any subscription rights, you may not revoke or change your exercise or request a refund of monies paid. All exercises of rights are irrevocable, even if you subsequently learn information about us that you consider to be unfavorable. You should not exercise your rights unless you are certain that you wish to purchase New Notes at the terms set forth herein and in the rights certificate.

Non-Transferability of the Rights

The subscription rights granted to you are non-transferable and, therefore, may not be assigned, gifted, purchased, sold or otherwise transferred to anyone else. Notwithstanding the foregoing, you may transfer your rights to any affiliate of yours (i.e. entities which you control or are controlled by you or under common control with you) and your rights also may be transferred by operation of law; for example, a transfer of rights to the estate of the recipient upon the death of the recipient would be permitted. If the rights are transferred as permitted, evidence satisfactory to us that the transfer was proper must be received by us prior to the expiration date.

Rights of Subscribers

You will have no rights as a Noteholder unless and until your New Note is delivered to you, and you will have no rights as a stockholder with respect to the shares of common stock into which the New Notes you subscribe for in the rights offering are convertible unless and until the Majority Noteholders elect to convert all of the Notes will into common stock, and certificates representing shares of common stock are subsequently issued to you. You will have no right to revoke your subscriptions after you deliver your completed rights certificate, payment as provided herein, and any other required documents to the subscription agent.

Foreign Stockholders and Stockholders with Army Post Office or Fleet Post Office Addresses

The subscription agent will not mail rights certificates to you if you are a stockholder whose address is outside the United States or if you have an Army Post Office or a Fleet Post Office address. Instead, we will have the subscription agent hold the subscription rights certificates for your account. To exercise your rights, you must notify the subscription agent prior to 11:00 a.m., New York City time, at least three business days prior to the expiration date, and establish to the satisfaction of the subscription agent that it is permitted to exercise your subscription rights under applicable law. If you do not follow these procedures by such time, your rights will expire and will have no value.

No Board Recommendation

An investment in our Notes and common stock must be made according to your evaluation of your own best interests and after considering all of the information herein, including the “Risk Factors” section of this prospectus. Neither we nor our board of directors are making any recommendation regarding whether you should exercise your subscription rights.

32

Shares of Common Stock Outstanding After the Rights Offering, Assuming Conversion of the Notes

Based on 125,742 shares of our common stock currently outstanding, and the potential that we may issue as many as 119,962 shares pursuant to conversion of the Notes, 248,054 shares of our common stock may be issued and outstanding following the rights offering and assuming conversion of the Notes, including 2,350 shares issuable to our Executive Chairman upon conversion of the Notes pursuant to his director compensation arrangement, but excluding any shares which may be issued in respect of any future interest payment.  This would represent an increase in the number of outstanding shares of our common stock of approximately 97%.

Assuming full subscription in this rights offering, the following tables illustrate the potential dilutive effect and impact on stockholders’ equity of the rights offering:       

Fees and Expenses

Neither we nor the subscription agent will charge a brokerage commission or a fee to subscription rights holders for exercising their rights. However, if you exercise your subscription rights through a broker, dealer or nominee, you will be responsible for any fees charged by your broker, dealer or nominee.

Questions About Exercising Subscription Rights

If you have any questions or require assistance regarding the method of exercising your subscription rights or requests for additional copies of this document or any document mentioned herein, you should contact the subscription agent at the address and telephone number set forth above under “— Delivery of Subscription Materials and Payment.”

Other Matters

We are not making the rights offering in any state or other jurisdiction in which it is unlawful to do so, nor are we distributing or accepting any offers to purchase any principal amount of New Notes from subscription rights holders who are residents of those states or of other jurisdictions or who are otherwise prohibited by federal or state laws or regulations to accept or exercise the subscription rights. We may delay the commencement of the rights offering in those states or other jurisdictions, or change the terms of the rights offering, in whole or in part, in order to comply with the securities law or other legal requirements of those states or other jurisdictions. Subject to state securities laws and regulations, we also have the discretion to delay allocation and distribution of any principal amount of New Notes you may elect to purchase by exercise of your subscription rights in order to comply with state securities laws. We may decline to make modifications to the terms of the rights offering requested by those states or other jurisdictions, in which case, if you are a resident in one of those states or jurisdictions or if you are otherwise prohibited by federal or state laws or regulations from accepting or exercising the subscription rights you will not be eligible to participate in the rights offering.

33

Description of Notes

        The following is a summary of the material terms and provisions of the Notes, the Note Subscription Agreement and the Security Agreement (collectively, the “Transaction Documents”). The following summary does not purport to be a complete description of the Notes or such agreements and is subject to the detailed provisions of, and qualified in its entirety by reference to, Notes, the Note Subscription Agreement and the Security Agreement. Copies of such documents have been filed as exhibits to the registration statement of which this prospectus forms a part. Copies may also be obtained from us upon request.

General

The New Notes will be our senior secured obligations that will rank equal to the Existing Notes.  The New Notes will be senior to our other indebtedness, except with respect to certain assets of ESW America that secure the MELF Facility.  The New Notes and the Existing Notes will together constitute one class of notes. 

The New Notes will mature on March 22, 2018, provided that the Majority Noteholders may, at their sole option and discretion, extend the Maturity Date.  The Existing Lenders, who may be deemed affiliates of the Company, collectively hold $5,000,000 aggregate principal amount of Existing Notes.  Accordingly, if all New Notes are issued, the Existing Lenders will hold a majority of outstanding principal amount of Notes and, if they vote together, will be able to extend the Maturity Date.

Certain terms with respect to the Notes are set forth in the Note Subscription Agreement.  The Note Subscription Agreement provides that holders of New Notes shall be third party beneficiaries of the Note Subscription Agreement.

We will issue the New Notes in registered form, without coupons.

Interest              

The Notes shall bear interest at a rate of 10% per annum, computed on the basis of a 360-day year and actual days elapsed.  Interest shall accrue commencing on the date of issuance of the Notes, and shall be compounded quarterly.

Interest Payment Dates 

Interest will be payable semi-annually in arrears in cash; provided that, at the Company’s election, during the term of the Notes up to two accrued and unpaid semi-annual interest payments can be paid in the form of common stock valued at the lesser of $80, subject to adjustment or the market value of the Company’s common stock as of the date of such payment (based on the average closing price of the Company’s common stock for the twenty trading days preceding such date).  Effective September 30, 2013, the first payment of interest was due to the Existing Lenders, and the Company elected to make and made such payment in the form of common stock on October 1, 2013.   Therefore, a maximum of one additional interest payment on the Notes may be made in common stock.  Interest payments on the New Notes will commence on March 30, 2014.  All accrued and unpaid interest shall bear interest at a rate of 10% per annum until the date of payment. 

No Prepayment

The Company shall not prepay any amount of principal or accrued interest outstanding under this Note prior to the Maturity Date without the prior written consent of the Majority Noteholders.

Paying Agent and Registrar; Exchange and Transfer of the Notes

We have initially designated the office of Bay City Transfer Agency & Registrar Inc., 7075 Gratiot Road, Suite One, Saginaw, MI  48609, as a place where Notes may be presented for payment or for registration of transfer. As registrar, Bay City Transfer will maintain a register reflecting ownership of the Notes outstanding from time to time

34

and will make payments on and facilitate transfer of Notes on our behalf. We may, however, change the paying agent or registrar without prior notice to the Noteholders, and we may act as paying agent or registrar. Interest and principal on certificated Notes will be payable either by check mailed to each holder or by wire transfer in immediately available funds to that holder’s account within the United States.

Noteholders may present the Notes for transfer or exchange at the office of the registrar. The registrar may require a holder, among other things, to furnish appropriate endorsements and transfer documents. No service charge will be imposed by us or the registrar for any registration of transfer or exchange of Notes, but we may require a holder to pay a sum sufficient to cover any transfer tax or other similar governmental charge required by law.

The registered holder of a Note will be treated as the owner of the Note for all purposes.

Security                             

Pursuant to a Security Agreement by and among the Agent and certain wholly-owned subsidiaries of the Company (TFI, ESW America, ESWT and ESWCT), the Notes will be secured by a lien on and a first priority security interest in all assets, excluding certain collateral subject to pre-existing liens, of such subsidiaries, comprising substantially all of the assets of the Company, taken as a whole.

Agent

Orchard Capital Corp. has been appointed to serve as the Agent in connection with the Notes, to take any action on behalf of Noteholders in connection with the Transaction Documents, including, without limitation, the registration of any collateral in the name of the Agent or its nominees prior to or during the continuance of an event of default under the Notes, the application of any cash collateral received by the Agent to the payment of the obligations under the Notes, the exercise of any remedies given to the Agent pursuant to the Transaction Documents and the exercise of any authority pursuant to the appointment of the Agent as an attorney-in-fact pursuant to the Security Agreement that the Agent deems necessary or proper for the administration of the collateral pursuant to the Security Agreement.

The Agent and its officers, employees, attorneys and agents, shall not have any liability for the holding or delivery of documents or the taking of any other action in accordance with the terms and provisions of the Note Subscription Agreement, for any mistake or error in judgment, for compliance with any applicable law or any attachment, order or other directive of any court or other authority (irrespective of any conflicting term or provision of the Note Subscription Agreement), or for any act or omission of any other person engaged by the Agent in connection with the Transaction Documents, unless occasioned by the exculpated person’s gross negligence or willful misconduct.

Indemnification of Note Holders

The Company shall indemnify holders of Notes and all of their affiliates, shareholders, trustees, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing persons’ agents or other representatives (each, a “Purchaser Indemnitee”) for damages arising out of (a) any misrepresentation or breach of any representation or warranty made by the Company in the Transaction Documents, (b) any breach of any covenant, agreement or obligation of the Company contained in the Transaction Documents, or (c) any cause of action, suit or claim brought or made against such Purchaser Indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Company) and arising out of or resulting from (i) other than those arising from or resulting from a misrepresentation or breach of any representation or warranty made by such Purchaser Indemnitee contained in the Transaction Documents to which it is a party, the execution, delivery, performance or enforcement of the Transaction Documents, (ii) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Notes, or (iii) the status of the holders of Notes as investors in the Company.

35

Conversion Rights                           

At the sole option and discretion of the Majority Noteholders, at any time on or prior to the Maturity Date, all principal and interest amounts then outstanding under all of the Notes shall be exchanged for shares of the Company’s common stock at a price of $80 per share (as adjusted for any stock split, stock dividend or similar adjustment), subject to anti-dilution adjustment as described in “Description of Notes - Anti-Dilution Adjustments” below.  Conversion of less than all principal and interest amounts then outstanding under all of the Notes shall not be permitted.  The Existing Lenders, who may be deemed affiliates of the Company, collectively hold $5,000,000 aggregate principal amount of Existing Notes.  Accordingly, if all New Notes are issued, the Existing Lenders will hold a majority of outstanding principal amount of Notes and, if they vote together, will be able to cause a conversion of the Notes into common stock. 

No Fractional Shares

We will not issue fractional shares upon conversion of the Notes, but rather will round the aggregate number of shares of common stock you are entitled to receive upon conversion of the Notes to the nearest whole number.

Company Obligations Upon Conversion Notice                    

The Company has agreed that upon receipt by the Company of notice by the Majority Noteholders that the Notes Conversion is being implemented, the Company shall take all measures requested by the purchasers of the Notes to make available or authorize sufficient shares of common stock including, but not limited to, (i) calling a special meeting of the Company’s board of directors and/or holders of all classes of capital stock to authorize an amendment to the Company’s articles of incorporation authorizing the applicable shares of common stock issuable upon the Conversion of the Notes, (ii) filing such amendment with the Department of State of the state of Florida and (iii) taking any other action necessary to consummate the transactions contemplated hereby to permit the conversion of the Notes to occur as promptly as practicable.

Anti-Dilution Adjustments                           

The conversion price is subject to anti-dilution adjustment in the event the Company, at any time while the Notes are outstanding, issues equity securities, including common stock or any security convertible or exchangeable for shares of common stock, for no consideration or for consideration less than the conversion price in effect immediately prior to such issuance.  Upon any such issuance, the conversion price in effect immediately prior to such issuance shall be lowered to an amount equal to the lowest amount of per share consideration that was received for (or would be paid for, in the case of convertible securities) the equity securities issued in such issuance. 

The anti-dilution protection excludes shares of common stock issuable upon the exercise of options or other securities granted to directors, officers, bona fide consultants and employees of the Company issued pursuant to a board-approved option or incentive plan or stock, warrants or other securities issued to a bank or other financial institution in connection with a financing.

Restriction on Redemption and Dividends             

Until all of the Notes issued in the rights offering have been paid in full, exchanged or otherwise satisfied in accordance with their terms, the Company shall not, directly or indirectly, (A) repurchase, redeem, or declare or pay any cash dividend or distribution on, the common stock or (B) distribute any material property or assets of any kind to holders of the Company’s common stock in respect of the common stock.

No Restrictions on Additional Indebtedness                        

The Notes do not limit the amount of additional indebtedness, including secured indebtedness, which we can create, incur, assume or guarantee, nor do the Notes limit the amount of indebtedness or other liabilities that our subsidiaries can create, incur, assume or guarantee.

36

Merger or Consolidation

The Company shall not assign the Note Subscription Agreement or any rights or obligations thereunder, including by merger or consolidation, without the prior written consent of the Majority Noteholders.

Use of Proceeds

The Company and its subsidiaries have agreed to use all of the net proceeds from the sale of Notes for the funding of working capital, planned capital investments and other general corporate purposes.

Events of Default                             

The following are events of default under the Notes:

·        The Company shall default in the payment of principal or interest on these Notes; or

·        Any of the representations or warranties made by the Company in the Note Subscription Agreement  or in any certificate or financial or other written statements heretofore or hereafter furnished by or on behalf of the Company or any of its subsidiaries in connection with the execution and delivery of this Note shall be false or misleading in any material respect at the time made; or

·        The Company shall fail to perform or observe, in any material respect, any other covenant, term, provision, condition, agreement or obligation of the Company under the Notes or the Note Subscription Agreement and such failure shall continue uncured for a period of fifteen (15) business days after notice from Holder of such failure; or

·        The Company or any of its subsidiaries shall (1) admit in writing its inability to pay its debts generally as they mature; (2) make an assignment for the benefit of creditors or commence proceedings for its dissolution; or (3) apply for or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part of its property or business; or

·        A trustee, liquidator or receiver shall be appointed for the Company, any of its subsidiaries or for a substantial part of their respective property or business without their consent and shall not be discharged within forty five (45) business days after such appointment; or

·        Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Company or any of its subsidiaries and shall not be dismissed within forty five (45) business days thereafter; or

·        Bankruptcy, reorganization, insolvency or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Company or any of its subsidiaries and, if instituted against the Company or any of its subsidiaries shall not be dismissed within forty five (45) business days after such instruction or if the Company or any of its subsidiaries shall by any action or answer approve of, consent to, or acquiesce in any such proceedings or admit the material allegations of, or default in answering a petition filed in any proceeding; or

·        Cessation by the Company or any of its subsidiaries of doing business in the ordinary course; or

·        A material adverse change to the Company’s or any of its subsidiaries business condition (financial or otherwise), earnings, properties, prospects or results of operations of the Company or any of its subsidiaries taken as a whole.

37

Remedies upon Default                   

Upon an event of default, unless waived at the option of the Majority Noteholders and in the Majority Noteholders’ sole discretion, the principal (and any accrued interest) amount of the Notes shall become immediately due and payable.

Notices of Certain Actions

In case at any time the Company shall propose to:

·        pay any dividend or make any distribution on shares of common stock in shares of common stock or equivalents thereto or make any other distribution; or

·        issue any rights, warrants or common stock to any holders of common stock entitling them to purchase any additional shares of common stock or any other rights, debentures, warrants or other common stock; or

·        effect any reclassification or change of outstanding shares of common stock, or any consolidation, merger, sale (or similar transaction), lease or conveyance of property (not in the Company’s ordinary course of business); or

·        effect any liquidation, dissolution or winding-up of the Company;

then, the Company shall give written notice thereof, by certified mail, postage prepaid, or by facsimile, electronic mail (or similar electronic transmission) to each Holder at such Holder’s address as it shall appear in the Notes Register, mailed at least fifteen (15) days prior to (i) the date as of which the holders of record of shares of securities to be entitled to receive any such dividend, distribution, rights, debentures, warrants or other securities are to be determined or (ii) the date on which any such reclassification, change of outstanding shares of common stock, consolidation, merger, sale, lease, conveyance of property, liquidation, dissolution or winding-up is expected to become effective, and the date as of which it is expected that holders of record of shares of common stock shall be entitled to exchange their shares for securities or other property, if any, deliverable upon such reclassification, change of outstanding shares, consolidation, merger, sale, lease, conveyance of property, liquidation, dissolution or winding-up. 

Amendment

The Majority Noteholders may instruct the Agent to waive, amend, supplement or modify any term, condition or other provision in the Notes or the Note Documents in accordance with the terms of the Notes or Transaction Documents so long as such waiver, amendment, supplement or modification is made with respect to all of the Notes and with the same force and effect with respect to each of the Purchasers.

Listing and Trading; No Prior Market                  

There is no existing market for the Notes, and we do not intend to apply for listing of the Notes on any securities exchange or for quotation of the Notes on any automated dealer quotation system.  A market is unlikely to develop for the Notes, and we cannot assure you as to the liquidity of any market that may develop for the Notes.  If an active, liquid market does not develop for the Notes, the market price and liquidity of the Notes may be adversely affected.  If any of the Notes are traded after their initial issuance, they may trade at a discount from their initial offering price.  The Notes are not, and we do not expect them to be, rated.

No Indenture or Trustee; Trust Indenture Act     

The Notes will not be issued pursuant to a trust indenture qualified under the Trust Indenture Act of 1939, as amended, and we will not appoint an independent trustee in connection with the Notes.  Noteholders will not have the protective aspects of a qualified trust indenture and an independent trustee and may be required to act

38

individually on their own behalf if we fail to make a required principal or interest payment on any Note.

Governing Law               

The Notes will be governed by and construed in accordance with New York law.

Description of Common Stock

We have 250,000,000 shares of common stock $0.001 par value authorized. Each holder of common stock is entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. The holders of common stock are not entitled to cumulative voting rights with respect to the election of directors, and, as a consequence, minority stockholders will not be able to elect directors on the basis of their votes alone. Holders of common stock are entitled to receive ratably such dividends as may be declared by our board of directors out of funds legally available therefore.

In the event of a liquidation, dissolution or winding up of the company, holders of our common stock would be entitled to share ratably in all assets remaining after payment of liabilities and the satisfaction of any liquidation preference of any then outstanding series of preferred stock. Holders of common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and nonassessable.

As of the record date, there were [●] shares of common stock outstanding held of record by approximately 140 stockholders.

PLAN OF DISTRIBUTION

On or about [●], 2014, we will distribute the rights, rights certificates and copies of this prospectus to individuals who owned shares of common stock on the record date. We have not employed any brokers, dealers or underwriters in connection with the solicitation or exercise of rights in the rights offering and no commissions, fees or discounts will be paid in connection with the rights offering. While certain of our directors, officers and other employees may solicit responses from you, those directors, officers and other employees will not receive any commissions or compensation for their services other than their normal compensation. If you wish to exercise your subscription rights and purchase Notes, you should complete the subscription rights certificate and return it with payment as provided herein for the Notes, to the subscription agent, Bay City Transfer Agency & Registrar, at the following address:

Bay City Transfer Agency & Registrar

7075 Gratiot Road, Suite One,

Saginaw, MI  48609

Phone: (989) 891-9720

We have not entered into any agreements regarding stabilization activities with respect to our securities.

If you have any questions, you should contact us at Environmental Solutions Worldwide, Inc., 200 Progress Drive, Montgomeryville, Pennsylvania 18936 or by telephone at (215) 699-0730. We have agreed to pay the subscription agent a fee plus certain expenses, which we estimate will total approximately $50,000. We estimate that our total expenses in connection with the rights offering will be approximately $215,814.

Other than as described herein, we do not know of any existing agreements between any stockholder, broker, dealer, underwriter or agent relating to the sale or distribution of the shares of common stock.

39

BUSINESS

General

We are a publicly traded company engaged, through our wholly-owned subsidiaries, in the design, development, manufacture and sale of emission technologies and services. We are currently focused on the medium and heavy duty diesel engine market for on-road and off-road vehicles as well as the utility engine, mining, marine, locomotive and military industries. We also offer engine and after treatment emissions verification testing and certification services.

We were incorporated in the State of Florida in 1987. Our principal executive offices are located at 200 Progress Drive, Montgomeryville, PA, 18936. Our telephone number is (215) 699-0730. Our website is www.eswgroup.com. Information contained on our website does not constitute a part of this prospectus.

We operate through five wholly-owned subsidiaries:

We are a developer of diesel emissions technology solutions, advancing emissions reduction technology by commercializing leading edge proprietary catalytic emission conversion, control and support products and technologies. Our key technologies and products are detailed below and are suited to the stringent global emissions regulations being implemented. Among the key CARB verified and EPA certified products we manufacture and commercialize are the LongMile-S™, Horizon™, Vista™ Phoenix™, Longview™, ThermaCat, ThermaCat-e and XtrmCat diesel emissions control technologies. We also manufacture an export off-road product named HCD, as well as military technologies including the StlthCat and Scat-IR-Shield exhaust shielding technology employed on U.S. Marine Light Armored Vehicles.

Our focus is to be a leading player in the environmental emissions market by providing leading-edge catalyst technology for the medium and heavy duty diesel engine market for on-road and off-road vehicles as well as the utility engine, mining, marine, locomotive and military industries.  We also provide best-in-class engine, motorcycle / ATV and vehicle emissions testing services for the heavy duty diesel and natural gas, motorcycle, All Terrain Utility Vehicle and Utility Task Vehicle original equipment manufacturers. Our strategy is centered on identifying and deploying resources against our “sweet-spot” products, where we have identified our core competencies and differentiation in the marketplace. Our core geographical focus is North America, and we will opportunistically explore business development opportunities in other markets if accretive to the Company in the short term. By focusing financial, human and intellectual capital on our core competencies and markets, we are targeting profitable growth in the short term and value creation for our shareholders over the long term.

40

Industry Trends

Emissions regulations for mobile diesel engines in the major markets of North America, Europe and Asia have continued to tighten and are now 40% to 90% lower than previous regulations. Regulations in effect in the United States of America, Europe and in Asia are expected to reduce the emissions level for new mobile diesel engines from 85% to 99% of the levels mandated in the mid-1980s. While much of the regulatory pressure and resulting action from engine manufacturers has focused on reducing emissions from new engines, there is increasing focus and concern over pollution from existing diesel engines, many of which have 20- to 30-year life cycles. The EPA has estimated that in the U.S. alone there are approximately 11 million diesel powered vehicles that are in use today and are highly polluting.

In the U.S., the EPA, CARB and MSHA continue to place great emphasis on compliance with emission reduction standards. The identification of diesel particulate matter (“PM”) as a toxic air contaminant in 1998 led CARB to adopt the Risk Reduction Plan to Reduce Particulate Matter Emissions from Diesel-fueled Engines and Vehicles (Plan) in September 2000. As a first mover in the United States, CARB adopted in 2010 the California Statewide Truck and Bus Rule that requires 1996 through 2006 diesel trucks in Class 7 (gross vehicle weight of 26,001-33,000 pounds) and Class 8 (gross vehicle weight greater than 33,000 pounds) that operate in California retrofit or replace engines in order to reduce diesel emissions.

CARB estimated at the time approximately 420,000 privately owned trucks and buses registered in California as well as those transiting California roadways from other states and countries that would be eligible for retrofits and/or engine replacements. In CARB’s latest market analysis estimates approximately 40,000 trucks as candidates for retrofits under the Truck and Bus Rule.

In September 2013, CARB announced it had received authorization from EPA to enforce the In-Use Off-Road Diesel Vehicle Regulation, originally approved in May 2008, targeted at off-road heavy-duty diesel vehicles used in construction, mining, and industrial operations.  Enforcement for large fleets (> 5,000 total horsepower) for the Off-Road Regulation will commence on July 1, 2014.

In parallel, the EPA has brought forward a number of very successful innovative programs all designed to reduce emissions from diesel fleets across the United States. In conjunction with state and local governments, public interest groups and industry partners, the EPA has established a goal of reducing emissions from the estimated 11 million diesel engines in the existing fleets by 2014. The EPA offers numerous programs in order to provide technical and financial assistance to stakeholders interested in reducing their fleets’ emissions effectively and efficiently.

As one of the most successful EPA sponsored clean air programs, the Diesel Emissions Reduction Program ( “DERA”) was created under the Energy Policy Act of 2005. This gave the EPA new grant and loan authority for promoting diesel emission reductions and authorized appropriations to the EPA of up to $200 million per year for fiscal years 2007 through 2011. In January 2011, the U.S. government successfully reauthorized the DERA for five more years. In January 2010, legislation was passed reauthorizing DERA grants to eligible entities for projects that reduce emissions from existing diesel engines. The bill, passed by the Senate on authorizes up to $100 million annually for fiscal years 2012 through 2016 and allows for new types of funding mechanisms. Approximately $30 million was appropriated by Congress for fiscal 2012 to replace, retrofit or repower older diesel-powered engines like those used in construction equipment, commercial trucks and buses, marine engines and other applications. According to the “Second Report to Congress: Highlights of the Diesel Emissions Reduction Program” issued on April 2013, from 2008 to 2010 the EPA awarded nearly $470 million to more than 350 grantees in 50 states and the District of Columbia to retrofit, replace, or repower more than 50,000 vehicles and equipment in a variety of industries.   The EPA and CARB programs are accelerating the activities toward creation of active markets for diesel emissions reduction technologies and products in the U.S. In addition, non-attainment regions across the United States, such as New York and New Jersey, are voluntarily adopting CARB’s strict emissions standards to reduce fine particulate matter from diesel engines.  Federal and/or state level funding for emissions control systems are generally limited to products and technologies that have already been verified by CARB or EPA. We have a market leading number of CARB Level III + product verifications that allow us to sell into those markets, as well as the

41

privately funded retrofit programs.  As such, we expect continued demand for our diesel emissions reduction technologies, driven in the coming years by non-attainment regions adopting stricter emissions rules primarily in the on-road and off-road markets.

Business Strategy

We continue to focus on optimizing our operations around our “sweet spots” and capturing a greater market share in the catalytic converter retrofit and emissions testing markets whilst ensuring steps towards profitable growth. The key factors that are in our favor are: (a) continued regulatory push for emissions reductions in the United States, (b) funding available from public agencies, (c) market-leading Level III Diesel Emission Control technologies and an established distribution network in North America, and (d) CARB and EPA certification and verification capable emissions and durability testing services.

We believe that we can improve and achieve profitability and grow our business by continuing to pursue the following strategy:

Principal Products and Their Markets

The ThermaCat line of Active Diesel Particulate Filters is an advanced Level III+ technology that provides the flexibility and pre-retrofit usability that makes the ThermaCat a seamless retrofit device for our end-users. Other retrofit technologies either limit the vehicles’ use or required driver interaction and limit the vehicles’ availability during regular or multi-shift operations. These solutions increase costs in manpower and vehicle management that add to the retrofit devices initial purchase price. The ThermaCat is designed to address these issues with the introduction of an exothermic-based (flameless) technology that utilizes the vehicle’s existing fuel supply to supplement and raise the exhaust heat so that the Diesel Particulate Filter can regenerate and continue normal operations. The system operates in the background, transparent to the vehicle operator and does not impact the vehicle’s normal operations. We took comprehensive steps to ensure the safe operation of the ThermaCat that included meeting Federal Motor Vehicle Safety Standards No. 301 for fuel system integrity for School Buses. Our ThermaCat Active Level III+ catalyst system has obtained CARB verification for a variety of on- and off-road engine applications including exhaust gas recirculation (“EGR”) engines.

The LongMile®-S  is a CARB verified Level 3+ passive diesel particulate filter specifically designed to provide cost-effective diesel particulate (PM) reduction for in-use diesel engines operating in on-road vehicles. The LongMile-S is managed by our proprietary MLC® which monitors system parameters. The product has all stainless steel construction, and a robust silicon carbide diesel particulate filter. This advanced, mature silicon carbide diesel particulate filter provides lower exhaust backpressure than a traditional wall-flow filter.

The Horizon®  is a CARB verified Level 3+ active diesel particulate filter specifically designed to provide cost-effective PM reductions for in-use diesel engines operating in on-road vehicles and duty cycles including cold exhaust and older engines. This active regeneration system uses clean electricity, through an integrated heating element, to “cook off” the captured diesel particulate, much like a self-cleaning oven, while the vehicle is parked overnight. The Horizon is managed by our proprietary MLC® which monitors system parameters and controls the regeneration process.

42

The Vista®  is a robust diesel particulate (PM) reduction system designed for a very broad range of on-road diesel engines and applications vehicles. The system is CARB verified Level 3+ active diesel particulate filter with diesel burner regeneration. This active regeneration systems uses diesel fuel, combined with an integrated diesel burner element, to “cook-off” the captured diesel particulate when the vehicle in not operating. The Vista is managed by our  proprietary MLC® which monitors system parameters and controls the automatic regeneration process.

The LongView®  is a CARB verified Level 3+ passive diesel particulate filter specifically designed to provide cost-effective PM and Nitrogen oxide (“NOx”) reductions for in-use diesel engines operating in on-road applications. Configured in a modular, user-friendly design, Longview integrates a NOx reduction catalyst and a catalyzed wall-flow silicon carbide diesel particulate filter. This provides simultaneous reduction of NOx, PM, hydrocarbons (HC) and carbon monoxide (CO) from one system. The Longview is managed by our proprietary MLC® which monitors system parameters and controls NOx reductant injection.

The Phoenix® is specifically designed to provide PM reduction for in-use diesel engines in challenging off-road applications and duty cycles including cold exhaust and older engines. The system is CARB verified Level 3+ active diesel particulate filter with diesel burner regeneration. This active regeneration systems uses diesel fuel, combined with an integrated diesel burner element, to “cook-off” the captured diesel particulate when the vehicle in not operating. The Phoenix is managed by our proprietary MLC® which monitors system parameters and controls the automatic regeneration process.

The XtrmCat  is an innovative proprietary diesel oxidation catalyst designed for Electro Motive Diesel (EMD) turbocharged and roots blown engine systems. The durability and flexible characteristics enable the XtrmCat to perform within the extreme operating conditions of locomotive and marine two stroke diesel engine applications. The XtrmCat for marine applications has been certified with the U.S. EPA. XtrmCat provides reductions of PM, hydro carbons (“HC”), and carbon monoxide (“CO”), which may allow EMD engines to be rebuilt to the stringent EPA standards.

The StlthCat  incorporates the Company’s proprietary catalyzed wire mesh substrate integrated into an advanced sound abatement system. The units were specifically engineered to decrease the overall tactical signature of military vehicles and equipment by reducing black smoke (soot) and eye and throat-irritating noxious emissions, temperature and sound associated with the diesel engines in such vehicles. The StlthCat is currently employed on U.S. Military vehicles.

ESW America operates our Emissions and Durability Testing Facility. ESW America performs engine emissions verification test protocols according to established EPA, CARB and MSHA standards, while providing vehicle and engine manufacturers with a wide range engine and chassis dynamometer-based durability testing. ESW America has capabilities for providing testing protocols with a broad range of fuels, including diesel, gasoline, and alternative fuels. ESW America Engine Dynamometer-based Durability Testing protocols can also help develop custom accelerated aging test schedules for emissions control technologies, or support customer-designed tests for component stress. A full range of services is offered including emissions testing, compilation and submission of applications, final issuance of the certifications, production line, and audit testing. ESW America offers customers complete testing and validation services that includes complete project management and verification management.

Our objective is the development and commercialization of technologies to reduce the overall emissions from diesel applications. Central to the emissions reduction market is the certification, verification and registration process established by regulatory bodies in the United States. The industry is substantially driven by higher emissions reductions targets set by Federal and state-level regulations, which led us to focus on the development of our emissions control technologies. We achieved the ThermaCat Level III Active Diesel Particulate Filter development through verifications from CARB with product development and testing conducted at our Air Testing Services division.

Our target markets include the following areas regulated in North America by EPA, CARB, and other state and local standards:

43

1. On-road vehicle sector generally comprised of on-road trucks and school buses employed with private and municipal fleets.

2. Off-road engine / vehicle sector defined as construction equipment, tractors, power generators, irrigation pumps, stationary power and others.

3. Marine sector comprising of solutions for workboat applications such as tows, ferries, dredges, tugs, and yachts, to generator sets on blue water vessels.

4. Rail sector comprising of solutions for line haul and switching, as well as passenger rail locomotive and head end power systems.

5. Mining industry, including all equipment and vehicles operating in and around a mine.

6. Military sector, including catalyst products and support technologies.

7. Engine and vehicle emissions testing services.

Distribution

We distribute our catalyst technologies through:

1. A comprehensive network of established independent distributors that actively service the emissions and retrofit market;

2. Strategic partnerships that provide a unique competitive advantage into specific markets; and

3. Direct sales leveraging our sales personnel, local trade magazines and trade shows to complement distribution of our products into key markets.

Within the ATS business, we are currently focused on a direct sales program targeting Original Equipment Manufacturers (“OEM”) and other companies demanding engine and vehicle emissions testing services.

Competition

We sell into a competitive market focused on providing retrofit solutions for diesel powered engines, with the number of competitors varying by market segment. We compete primarily on the basis of technology, performance, price, quality, reliability, distribution, customer service, and support. Our competitors include companies that have deeper financial, technological, manufacturing and personnel resources. Other than other Level III+, marine and rail products that are available in the marketplace, we face competition from substitute products that offer lower emissions reduction benefits or technology but are also more competitively priced and are deemed by the ultimate users as acceptable alternatives to our products and services.

Our direct competitors in the North American on-road, off-road, and mining markets include Engine Control Systems, Johnson Matthey, Donaldson, DCL, Hug, and Huss.

Our marine and rail products compete in the engine rebuild sector with low oil consumption kits provided by manufacturers such as EMD and other DOC technology providers such as Miratech.

ESW America faces competition from established emissions and durability testing facilities such as South West Research Institute, Intertek and TRC and smaller facilities such as Olson-Eco Logic and California Environmental Engineering.

We believe we can address the competitive landscape within the catalyst emissions market by providing:

44

ESW America differentiates itself from the competition in the air and durability testing market by continually updating our testing facilities and equipment in response to changing regulatory mandates and vehicle technology. ESW America also provides a broad set of capabilities for advanced research, engineering and testing for various aftermarket products and new technologies. In addition, ESW America is one of a small number of testing facilities located on the east coast of the United States which is capable of running tests for CARB and EPA certification and verification programs. ESW America’s location provides a logistical advantage for clients focused on the east coast of the United States.

Raw Materials

The primary raw materials used to manufacture our catalyst products include, but are not limited, to stainless steel, stainless steel wire, stainless steel tubing, precious metals such as platinum and palladium, particulate filters and other electronic and mechanical components.

Overall, particulate filters and precious metal coated components accounted for the most significant component of our raw materials costs in 2012. We are exposed to fluctuating raw material prices, and are particularly exposed to price fluctuations for certain precious metals such as platinum and palladium. We seek to offset raw material price fluctuations on our result of operations by passing through certain price increases, negotiating volume discounts from raw material suppliers; purchasing high-value inventory components based on committed orders; scrapping and selling steel cut-offs at the highest possible price; and implementing continuous cost reduction programs. We do not currently pursue a financial hedging strategy for any of our raw materials.

Our results of operations could be adversely affected if steel and precious metal prices increase substantially unless we are successful in passing along these price increases to customers or otherwise offset these increases through decreases in material and/or operating costs.

Other raw materials or components purchased by us include electronic components, tools, fasteners, other steel and components for the Level III plus ThermaCat product, as well as a variety of custom alloy materials and chemicals, all of which are available from numerous suppliers. For ESW America Testing Services, key raw materials include fuels, rollers and other consumables.

45

Customers

Our customers consist of established distributors focused on the emissions retrofit space and OEM engine manufacturers for the Air Testing business.  We generated sales from 55 customers in 2012 as compared to 44 customers in fiscal year 2011. Our top three customers accounted for 27.8%, 15.8% and 7.7% of revenues in 2012. In 2011, our top three customers accounted for 41.2%, 15.7% and 10.6% of our revenue.

We will continue to establish long-term relationships with new customers and foster opportunities with existing distributors. The loss of, or major reduction in business from, one or more of these major distributors could have a material adverse effect on our liquidity, financial position, or results of operations

Patent and Trademarks

We develop new technologies or further the development of existing technologies through internal research and development. Where necessary, we will seek access to third-party patents and/or licenses to develop new products and services aimed at the emissions and air testing markets. We have also acquired patents and trademarks with the purchase of Cleaire assets.

Through ESWT and ESWCT, we hold both Canadian and U.S. patents covering catalytic converter and related technology. We will pursue our legal rights to the fullest extent of the law to ensure non-infringement of our established patents. However, there can be no assurance that these patents or existing or future trade secret protections that we pursue, will survive legal challenge, or provide meaningful levels of protection.

Additionally, we possess certain registered and common law trademarks. We consider the goodwill associated with the trademarks to be an important part of developing product identity.

Product Certification

Our customers have acquired, where necessary, engine certifications and catalyst verifications using our products from such authorities as the EPA, CARB, MSHA and ETV Canada for gasoline and diesel products.

In 2009 our ThermaCat Active Level III Plus catalyst system was verified by CARB for a variety of on- and off-road engine applications (PM reduction greater than 85%). The ThermaCat filter system is a combined technology comprised of a chemically coated wire mesh substrate and Diesel Particulate Filter (DPF) combined with an electronically controlled external fuel injection component. The ThermaCat regeneration process is an electronically controlled exothermic reaction and occurs automatically during normal vehicle operation, transparent to the operator. Effective July 2012 our ThermaCat-e Active Level III Plus catalyst system was verified by CARB for a variety of on-road EGR engine applications. Effective December 31, 2012, we have  demonstrated compliance with nitrogen dioxide (N0²) limits using the Nonroad Transient Composite test cycle for the Company’s existing ThermaCat Active Level III Plus Diesel Particulate Filter System targeted at Off-road applications.

We are currently pursuing regulatory verifications of the ThermaCat-e and Skyline™ Level III Plus Diesel Particulate Filter System for off-road engines. We are also pursuing the verification of two other passive off road level III products.

On May 17, 2013, we received notification from California Air Resource Board (“CARB”) that ESWCT has met the requirements under Verification Procedure, Warranty, and In-Use Compliance Requirements for In-Use Strategies to Control Emissions from Diesel Engines, and the verifications of the LongMile-S™ and Horizon™ products have been transferred to ESWCT from Cleaire. On September 10, 2013, CARB notified us that the verifications of the Phoenix™ product has been transferred to ESWCT.

On June 18, 2013, CARB notified us that the verifications of the Vista™ and LongView™ products have been transferred to ESWCT from Cleaire.

46

On September 10, 2013, CARB notified us that the verification of the Phoenix™ product has been transferred to ESWCT from Cleaire.

In August 2011, our XtrmCat Kit was certified for 2 stroke, Category 2, marine engines by the EPA. The issuance of the ‘remanufacturing certificate’ was a significant milestone for the Company as it validates the DOC technology for the marine market sector. The Certifications are applicable to Electro-Motive Diesel (“EMD”) 710 and 645 engines. The XtrmCat can achieve Tier 0 and Tier I compliance as per 40 CFR 1042 when retrofitted to EMD 710 and 645 engines.

Our XtrmCat product designed for locomotive, Tier 0, turbocharged EMD 645 and 710 engines was tested at an EPA recognized facility for certification during March and April 2011 along with the marine product together with a partner company. We are exploring opportunities to obtain certifications for the aforementioned locomotive engines.

Our products are generally sold according to appropriate government application regulations; however, we do not need government approval to sell our products into unregulated markets.

Warranty Matters

We may face an inherent business risk of exposure to product liability and warranty claims in the event that our products fail to perform as expected. We cannot assure that we will not experience any material warranty or product liability losses in the future or that we will not incur significant costs to defend such claims. In addition, if any of the products are or are alleged to be defective, we may be required to participate in a recall involving such products. Each of our customers has its own policy regarding product recalls and other product liability actions relating to our suppliers. CARB verified products require us to provide specific warranties and warranty reporting on products depending upon engine applications. A successful claim brought against us or a requirement to participate in a product recall may have a material adverse effect on our business.

Our Active, Active-Passive and Passive Level III Plus on-road catalyst systems which have been verified as  Level III technologies are typically required to meet CARB limited warranty standards of either (i) 5 years or 100,000 miles or (ii) 2 years and unlimited miles, depending on engine application.

Our Active and Active-Passive Level III Plus off-road catalyst systems which have been verified as Level III technologies are typically required to meet a CARB limited warranty standard of 5 years or 4,200 hours.

With the recent verification of the LongMile-S™, Horizon™, Vista™, Phoenix™ and Lonestar™ products, we have estimated a one-time charge of $1,000,000 related to our assumption of warranties for legacy Cleaire products in the field. We have also estimated a one-time warranty charge of $504,900 associated with certain verification procedures relating to the ThermaCat.  The actual amount of loss associated with such assumption of warranties and/or verification procedures, however, could be materially different.  Both of these warranty charges are based on an estimation of the number of operational units, the average remaining life of such units and the cost of warrantable failures.

To date we have not had any major product warranty recalls.

Manufacturing and Testing Services

ESWCT and TFI house our manufacturing operations.

ESWCT is located at 7706 Trade Street, San Diego, CA, 92121 and serves as a fabrication, substrate and systems manufacturing facility for the LongMile®-S, Horizon®, Vista™ Phoenix™, Longview® and HCD systems. ESWCT also has an engineering and service facility in Richmond, California capable of design and development of diesel emission control systems. The office serves a dual purpose as a service and training facility servicing northern California.

 TFI is co-located at 200 Progress Drive, Montgomeryville, PA, 18936 along with ESW America, an emissions and durability testing laboratory. TFI manufactures the ThermaCat and the StlthCat products. The facility has the

47

capability to design, develop and manufacture complete catalytic converter systems based on specific customer requirements. The 40,200 square foot facility also houses the ESW America emissions testing laboratory capable of performing engine emissions verification test protocols. ESW America incorporates eight dedicated engine and vehicle dynamometer test cells.

ESW America’s capabilities include:

We continuously invest in our manufacturing and testing facilities to ensure best-in-class capabilities to meet the challenges of a dynamic marketplace, as well as to address the need for greater efficiencies, to improve quality systems, and to meet the demands placed by changing regulations.

Research and Development

In the nine months ended September 30, 2013, research and development costs amounted to $455,235 (nine months ended September 30, 2012 – $477,582). In 2012, research and development costs amounted to $759,847 (2011 - $692,977). We aggressively pursue testing as well as research and development for new products to serve potential customers and meet new regulations that are regularly being imposed on the industry. Through proprietary methods for improving our catalyzed substrates, there are prospects for the development of innovative applications outside of our current verified product line. We continue to spend further resources on new research and development projects.

Environmental Matters

We are presently engaged in a business that does not generate significant hazardous waste. Some of our facilities have tanks for storage of diesel fuel and other petroleum products that are subject to laws regulating such storage tanks. Federal, state, and local provisions relating to the protection of the environment have not had, and are not expected to have, a material adverse effect on our liquidity, financial position, and results of operations. However, like all manufacturers, if a release of hazardous substances occurs, we may be held liable for the contamination, and the amount of such liability could be material. While we devote resources to maintaining compliance with these requirements, there can be no assurance that we operate at all times in complete compliance with all such requirements.

Employees

ESW and our subsidiaries presently employ 63 full-time employees. We do not have any collective bargaining agreements and considers our relationship with our employees to be good.

DESCRIPTION OF PROPERTY

We do not own real property. Through our subsidiary, ESW America, we lease our executive offices as well as our production and emissions testing laboratory facility which totals approximately 40,220 square feet. Our Pennsylvania facility is located at 200 Progress Drive, Montgomery Township, Pennsylvania. The lease for this facility expires on February 28, 2018.

48

Through ESWCT we lease an 18,000 square foot manufacturing facility at 7706 Trade Street, San Diego, CA, 92121. The lease for this facility expires on July 31, 2016, with an option exercisable by ESWCT to extend the lease term for two additional 36-month periods.

LEGAL PROCEEDINGS

From time to time, we may be involved in a variety of claims, suits, investigations and proceedings arising from the ordinary course of our business, collections claims, breach of contract claims, labor and employment claims, tax and other matters. Although claims, suits, investigations and proceedings are inherently uncertain and their results cannot be predicted with certainty, we believe that the resolution of current pending matters will not have a material adverse effect on our business, consolidated financial position, results of operations or cash flow. Regardless of the outcome, litigation can have an adverse impact on us because of legal costs, diversion of management resources and other factors.

• We are pursuing a lawsuit in New York for collection of unpaid invoices related to goods delivered to a former distributor.
• We were notified of a revised claim filed in the Ontario, Canada Superior Court of Justice on a dispute with a past vendor of ESW Canada; this claim had previously been deemed settled, due to inaction by the vendor. The revised claim is pending. We cannot predict the outcome of this matter at this time.

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

General Overview

In 2013, we are executing on the following items to succeed in our business strategy:

As part of our growth strategy, we entered into an asset purchase agreement with the acting receiver for Cleaire, a company engaged in the design, development and manufacturing of retrofit emission control systems for diesel engines, on April 1, 2013 (the “Asset Purchase Agreement”).  On April 18, 2013, the Court issued the sale order to consummate the transactions contemplated by the Asset Purchase Agreement for a purchase price of $1.4 million plus a portion of gross profit realized on a certain purchase order.

Upon the completion of the transactions contemplated by the Asset Purchase Agreement and in accordance with FASB ASC 805, Business Combinations, we determined that the above noted Cleaire transaction does not constitute a business combination, and accordingly have accounted for the transaction as an asset acquisition.

49

Effective April 18, 2013 we established a new wholly-owned subsidiary, ESWCT, which houses the assets purchased from Cleaire. ESWCT operates out of San Diego, California.

Effective June 7, 2013, ESWCT entered into a commercial real estate lease with Trepte Industrial Park, Ltd., a California limited partnership. ESWCT leased approximately 18,000 square feet of commercial property located in San Diego, California, for housing ESWCT manufacturing and diesel particulate filter cleaning operations. The Lease has a 37-month lease term (commencing on July 1, 2013), with an option to extend the lease term for two additional 36-month periods. The current base rent under the Lease is $15,300 per month. ESWCT operations in San Diego, California currently produce the LongMile-S™, Horizon™,  Vista™, Phoenix™ and Longview™.

Effective October 1, 2013 ESWCT has leased an engineering and service facility in Richmond, California capable of design and development of diesel emission control systems. The facility serves a dual purpose as a service and training facility servicing northern California.

The cost of developing a complete range of products to meet regulations is substantial. We believe that we possess a competitive advantage in ensuring regulatory compliance by leveraging our testing and research facility in Montgomeryville, Pennsylvania to support our certification and verification efforts. Historically, we have also managed to offset some of these development costs through the application of research grants and tax refunds.

Following a first half of 2013 that was impacted by a slow MHDD retrofit market, as well as by the shutdown of Cleaire’s operations in January 2013, we experienced a strong demand for our products in the third quarter of 2013. The improved sales performance resulted primarily from increased regulatory enforcement by CARB in the second and third quarter of 2013 and the upcoming deadlines for compliance with CARB Truck and Bus Regulations. Our ESW America Air Testing business revenue contributed a total of $492,818 of revenue during the nine month period ended September 30, 2013. Testing revenues were lower compared to the same period of 2012 due to weaker demand in the heavy duty diesel OEM market. The ESW America Testing lab capacity was utilized for internal research and development work for our own products.

During the first half of 2013 we issued the Existing Notes to the Existing Lenders.  Proceeds of the Existing Notes have funded the purchase of the Cleaire assets, and are being used for working capital, planned capital investments and other general corporate purposes.

On January 23, 2013, our board of directors approved a one-for-two thousand reverse split of our common stock. Upon the completion of the reverse stock split, which was effective on May 24, 2013, there was no change to our authorized shares of common stock, which remained 250,000,000 shares, par value $0.001 per share. Issued and outstanding common stock was reduced from 228,213,173 shares to approximately 113,464 shares.

Effective October 4, 2013, we registered 20,000 shares of Common Stock (par value $0.001 per share) under Form S-8 that are issuable under the Environmental Solutions Worldwide, Inc. 2013 Stock Plan.  See “Executive Compensation – 2013 Stock Plan”.

50

Comparison of the Nine Month Period Ended September 30, 2013 to the Nine Month Period Ended September 30, 2012

Results of Operations

Revenues for the nine month period ended September 30, 2013, increased by 33.6 percent, to $10,242,470 from $7,669,063 for the comparable period in 2012. The increase in revenue was due to a strong demand for the ThermaCat as well as for ESWCT’s products. The primary driver for this strong demand was increased regulatory enforcement by CARB in the second and third quarter of 2013 and the upcoming retrofit deadlines for compliance with CARB Truck and Bus Regulations.

Cost of revenue as a percentage of revenues for the nine month period ended September 30, 2013 was 75.5 percent compared to 65.2 percent for the nine month period ended September 30, 2012. Cost of revenue for the period ended September 30, 2013 increased by $2,732,245 or 54.6 percent. The primary reason for the increase in the cost of revenue during the nine month period ended September 30, 2013 was the inclusion of an estimated one-time warranty charge of $1,000,000 related to the assumption of warranties for legacy Cleaire products in the field as well as an additional one-time warranty charge of $504,900 associated with certain verification procedures relating to the ThermaCat (it should be noted, however, that the actual amount of loss associated with such assumption of warranties and/or verification procedures could be materially different). We also recorded a write down on inventory amounting to $195,929 relating to obsolete inventory in ESWCT which was included in the cost of revenue. Consequently, gross margin for the nine month period ended September 30, 2013 was 24.5 percent compared to 34.8 percent for the nine month period ended September 30, 2012.

Marketing, office and general expenses for the nine month period ended September 30, 2013 increased 31.8 percent to $3,359,067 from $2,548,309 for the same period in 2012. The increase is primarily due to: (a) increase in factory expense of $244,364 mainly resulting from set-up expenses for ESWCT, (b) an increase in general administration expenses of $481,597 primarily due to increased business insurance expenses and ESWCT set-up expenses, (c) increase in administration salaries and wages of $248,798 mainly attributed to start of operations for ESWCT, and (d) increase in investor relation costs of $193,036 related to costs in connection with corporate actions including the 2000:1 reverse split. The increases were offset by (a) decrease in customer service, sales and marketing and wages and selling expenses of $216,872 mainly related to a 2012 bad debt provision which was not incurred in 2013, and (b) decrease in facility expenses of $140,165 resulting from rent and cost savings related to the release of the Canadian facility in 2012.

Officers’ compensation and directors’ fees for the nine month period ended September 30, 2013 increased by $132,652, or 28.0 percent, to $605,658 from $473,006 for the nine month period ended September 30, 2012. The increase is mainly related to stock based compensation expense incurred on issuance of shares of restricted common stock to a member of our board of directors.

Research and development (“R&D”) expenses for the nine month period ended September 30, 2013 decreased by $22,347, or 4.7 percent, to $455,235 versus the nine month period ended September 30, 2012. The primary driver of R&D expenses for the nine month period ended September 30, 2013 was our pursuit of the verification expansion of our Level III products and transfer of verifications for new products related to ESWCT. We benefitted during the first nine month period of 2013 from research and development tax credits amounting to $40,946. During the nine month period ended September 30, 2012 there was no grant funding or tax credit to offset R&D cost.

Consulting and professional fees for the nine month period ended September 30, 2013 increased by $223,186, or 125.4 percent, to $401,132 from $177,946 for the nine month period ended September 30, 2012. The increase is mainly due to legal and consulting fees in connection with corporate actions including the setup of the ESWCT subsidiary and acquisition of certain assets from Cleaire.

Depreciation and amortization expense for the nine month period ended September 30, 2013 increased by $25,218, or 16.5 percent to $177,944 from $152,726 for the nine month period ended September 30, 2012.

51

Foreign exchange gain for the nine month period ended September 30, 2013, was $18,030 as compared to a loss of $63,698 for the nine month period ended September 30, 2012. This is a result of the fluctuation in the exchange rate of the Canadian Dollar to the United States Dollar.

Impairment loss for the nine month period ended September 30, 2013 was $0. For the nine month period ended September 30, 2012, we had valued the impairment loss at $29,984 for the balance of the office equipment, furniture and fixtures of ESW Canada Inc. The former landlord of the Canadian property terminated the lease for the facility as of May 1, 2012.

Loss from operations for the nine month period ended September 30, 2013 increased by $1,216,593 to $2,472,987 from $1,256,394 for the nine month period ended September 30, 2012. Our loss from operations for the nine month period ended September 30, 2013 included the following non-cash items: a total warranty provision of $1,573,455, depreciation and amortization expenses of $461,351, loss on write down of inventory of $195,929 and stock based compensation expense of $172,953.  In addition, loss from operations was higher in the nine month period ended September 30, 2013 as compared to September 30, 2012 due to expenses related to the set-up of ESWCT operations in San Diego, California and the one-time warranty provisions described above.

Effective February 3, 2012 our wholly-owned non-operational subsidiary BBL Technologies Inc., (“BBL”) filed for bankruptcy in the Province of Ontario, Canada. Due to the insolvency of BBL, the redeemable Class A special shares were cancelled and we recorded a $453,900 gain on the unaudited consolidated condensed statement of operations and comprehensive (loss) / income.

During the nine month period ended September 30, 2013, we recorded the following costs and gain related to a senior secured convertible loan facility:

•      $200,000             -              Interest on notes payable to related parties

•      $133,563             -              Debt related discount amortization

•      $1,953,328          -              Gain on convertible derivative

No costs related to financing and debt transactions were incurred in the nine month period ended September 30, 2012.

Comparison of Year Ended December 31, 2012 to Year Ended December 31, 2011

Results of Operations

Revenue for the year ended December 31, 2012, decreased by $1,359,342, or 11.4 percent, to $10,526,323 from $11,885,665 for the year ended December 31, 2011. The decrease in revenue for our verified ThermaCat Level III products is related to reduced retrofit funding opportunities, an evolving competitive landscape, and a lack of enforcement of regulations by regulatory agencies, which has impacted the overall retrofit market. The decrease in revenue was partially offset by increases in parts sales, sales of the military product, and by increasing revenues of ESW America’s emission testing operations. Revenue from emission testing as a service to outside customers increased from $581,591 for the year ended 2011 to $747,560 for the year ended 2012.

Cost of revenue as a percentage of revenue for the year ended December 31, 2012 was 65.9 percent compared to 81.7 percent for the year ended December 31, 2011. Cost of revenue for the year ended December 31, 2012 decreased by $2,772,240 or 28.5 percent. The primary reason for the higher gross margin for the year ended December 31, 2012 were the changes that were implemented in our operations since February 2011, such as the streamlining of the Canadian manufacturing operations, our focus on optimizing pricing and our materials costs, and the changing product mix with the growing contribution of ESW America Emissions Testing Services.  In addition, the results for the year ended December 31, 2012 were negatively impacted by a write-down of inventory in the amount of $252,473 compared to a write-down for slow moving inventory in the year ended December 31, 2011 in the amount of $638,048. Of these amounts $252,473 and $223,007 has been setup as a reserve at December 31, 2012 and 2011 respectively.

52

Marketing, office and general expenses for the year ended December 31, 2012, decreased by $574,094, or 14.8 percent, to $3,317,720 from $3,891,814 for the year ended December 31, 2011. The decrease is primarily due to: (a) a decrease in facility expenses of $197,492 resulting from rent and cost savings related to the release of the Canadian facility and application of higher facility overheads to cost of revenue, (b) a decrease in factory expense of $328,205 resulting from cost saving initiatives and higher factory overheads applied to cost of revenue, (c) a decrease in administration salaries and wages of $153,160 resulting from restructuring activities in 2011, and (d) a decrease in customer service, sales and marketing and wages and selling expenses of $201,894 due to lower salaries and wages and travel cost. The decreases were offset by: (a) a provision for uncollectable accounts of $218,952 recorded for two distributors with whom we have had a commercial dispute, and (b) an increase in general administration expenses of $15,882 attributed to hiring expenses for new employees and technology support expenses and (c) an increase in investor relation costs of $71,823 due to legal costs related to corporate actions.

We incurred $0 and $1,385,685 in restructuring charges for the year ended December 31, 2012 and 2011, respectively. The expense incurred during the year ended December 31, 2011 was related to restructuring, severance and other related payments.

R&D expenses for the year ended December 31, 2012 increased by $66,870, or 9.6 percent, to $759,847 from $692,977 for the year ended December 31, 2011. The primary driver of R&D expenses for the fiscal year 2012 was related to our pursuit of the verification expansion of our Level III product. We benefitted during the year ended December 31, 2011 from grant money amounting to $278,712. During the year ended December 31, 2012, there was no grant funding to offset R&D cost.

Officers’ compensation and directors’ fees for the year ended December 31, 2012 increased by $97,723, or 14.0 percent, to $797,863 from $700,140 for the year ended December 31, 2011. The increase is mainly due to changes in our board and executive compensation structure.

Consulting and professional fees for the year ended December 31, 2012 decreased by $67,571, or 20.1 percent, to $268,952 from $336,523 for the year ended December 31, 2011. In the prior year period expenses were higher and related to fees related to a management consultant.

Foreign exchange loss for the year ended December 31, 2012, was $72,517 as compared to a loss of $248,306 for the year ended December 31, 2011. In 2011, due a change in accounting policy, we recognized a translation loss of $186,812, this amount is included in foreign exchange loss in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2011.

Depreciation and amortization expense for the year ended December 31, 2012 decreased by 44.4 percent from $366,266 to $203,811            year-on-year. In the year ended December 31, 2012 the depreciation costs were substantially lower as (a) we applied additional depreciation to cost of revenue, and (b) a portion of the assets have been fully depreciated.

We have recorded an impairment loss of $31,172 for property, plant and equipment of ESW Canada for the year ended December 31, 2012. The former landlord of the Canadian property terminated the lease for the facility as of May 1, 2012, and effective May 22, 2012, ESW Canada and our former landlord entered into an agreement for the full release of any future obligations under the prior lease agreement. For the year ended December 31, 2011, we had valued the impairment loss at $163,668. The impairment was related to the transfer of manufacturing operations to Pennsylvania, USA.

Loss from operations for the year ended December 31, 2012, decreased by $3,746,395 or 66.8 percent, to $1,866,169 from $5,612,564 for the year ended December 31, 2011. Of the $1,866,169 in loss from operations, $1,416,252 was attributed to non-cash losses for the year ended December 31, 2012, including depreciation and amortization of $586,196, allowance for doubtful accounts of $219,814, loss on impairment of property plant and equipment of $31,172, write-down of inventory in the amount of $252,473, stock based compensation of $254,080 and a foreign exchange loss of $72,517. In addition, cash costs of $153,034 related to the rent and other facility costs of the Canadian facility are included in loss from operations for the year ended December 31, 2012. This amount includes the expenses for the full release of the Canadian facility and our lease obligations.

53

Effective February 3, 2012 our wholly-owned non-operational subsidiary BBL filed for bankruptcy in the Province of Ontario, Canada. Due to the insolvency of BBL, the redeemable Class A special shares were cancelled and we recorded a $453,900 gain on the Consolidated Statement of Operations and Comprehensive Loss.

During the year ended December 31, 2011, we incurred the following costs related to various financing and debt transactions:

•      $578,739             -              Change in fair value of exchange feature liability

•      $126,850             -              Interest on notes payable to related party

•      $3,506,074          -              Interest accretion expense

•      $485,101             -              Financing charge on embedded derivative liability

•      ($1,336,445)       -              Gain on convertible derivative

•      $154,205             -              Bank fees related to credit facility covenant waivers

No costs related to financing and debt transactions were incurred in the year ended December 31, 2012.

Liquidity and Capital Resources

We have sustained recurring operating and net losses and negative cash flows from operations.  As of September 30, 2013, we had an accumulated deficit of $55,363,600 and had cash and cash equivalents of $2,782,759.  During the nine months ended September 30, 2013 we recorded revenue of $10,242,470 and a net loss of $853,222.  During the year ended December 31, 2012 we recorded revenue of 10,526,323 and a net loss of $1,412,269.  During the three month period ended September 30, 2013, we generated Income from Operations of $952,394.  Our history of losses and negative cash flows from operations, however, as well as the current prevailing economic conditions, create uncertainty in the operating results and, accordingly, there is no assurance that we will be successful in generating sufficient cash flow from operations or achieving profitability in future periods. As a result, the report of our independent registered public accounting firm with respect to our financial statements as of and for the year ended December 31, 2012 includes an explanatory paragraph that states that there is substantial doubt regarding our ability to continue as a going concern, and the notes to our financial statements as of and for the nine months ended September 30, 2013 similarly indicate substantial doubt regarding our ability to continue as a going concern. We may require additional financing to fund our continuing operations and planned capital investments. Our ability to continue as a going concern is dependent on maintaining a profitable level of operations.

Historically our principal sources of operating capital have been the proceeds from its various financing transactions. During the nine month period ended September 30, 2013, we used $1,688,815 of cash to sustain operating activities compared with $251,086 for the nine month period ended September 30, 2012. As of September 30, 2013 and 2012, we had cash and cash equivalents of $2,782,759 and $559,109, respectively, due to the fact that, during the three month period ended September 30, 2013 ESW generated cash from operations of $556,120 and during the nine month period ended September 30, 2013 we raised cash through the issuance of notes payable to related parties.

During year ended December 31, 2012, we used $665,115 of cash to sustain operating activities compared with $2,643,776 for year ended December 31, 2011. At December 31, 2012 and 2011, we had cash and cash equivalents of $253,998 and $1,103,649, respectively.

Net cash used in operating activities for the nine month period ended September 30, 2013 amounted to $1,688,815. This amount was attributable to the net loss of $853,222, plus non-cash expenses primarily consisting of the change in fair value of conversion option derivative liability, warranty provisions and also consisting of expenses such as depreciation, stock based compensation, discount on promissory notes payable, and others of $783,923, and a decrease in net operating assets and liabilities of $1,619,516 primarily related to the purchase of inventory as part of the Cleaire asset acquisition.

Net cash used in operating activities for the nine month period ended September 30, 2012 amounted to $251,086. This amount was attributable to the net loss of $802,494, plus non-cash expenses such as depreciation, impairment loss, stock based compensation, gain on deconsolidation of BBL and others of $568,459, and an increase in net operating assets and liabilities of $17,051.

54

Net cash used in operating activities for the year ended amounted December 31, 2012 to $665,115. This amount was attributable to the net and comprehensive loss of $1,412,269, plus non-cash expenses such as depreciation, impairment of property, plant and equipment, provision for doubtful accounts and others of $888,973, and an increase in net operating assets and liabilities of $141,819. Net cash used in operating activities for year ended December 31, 2011 amounted to $2,643,776. This amount was attributable to the net loss of $9,127,088, plus non-cash expenses such as depreciation, amortization, interest accretion expense, change in fair value of exchange feature liability and others of $5,066,467, and an increase in net operating assets and liabilities of $1,416,845.

Net cash used in investing activities was $679,407 for the nine month period ended September 30, 2013, as compared to $557,884 used in investing activities for the nine month period ended September 30, 2012.

Net cash used in investing activities was $656,428 for year ended December 31, 2012, as compared to $252,385 used in investing activities for year ended December 31, 2011.

Net cash provided by financing activities totaled $4,896,983 through a loan payable repayment of $51,501 in principal and $5,000,000 proceeds from notes payable to related parties and re-purchase of common stock of $51,516 for the nine month period ended September 30, 2013, as opposed to net cash provided by financing activities of $264,430 for the nine month period ended September 30, 2012. In the prior year period of 2012, $280,787 was provided from proceeds of a loan payable, $15,116 used in loan payable principal repayment and $1,241 was used for repayment under capital lease obligation.

Net cash provided by financing activities totaled $471,892 for year ended December 31, 2012, as compared to $4,000,712 for year ended December 31, 2011. In fiscal year 2012, $500,000 was provided through a loan payable of $26,867 in principal and repayment under capital lease obligation amounting to $1,241. In the prior year 2011, $4,000,000 was provided through the issuance of the notes payable to related parties and $3,857,997 from the issuance of common stock through a rights offering. From the funds raised, $419,410 was paid towards rights offering costs, $3,434,075 was repaid under our CIBC credit facility and $3,800 was repaid under capital lease obligation.

We operate in a capital intensive and highly regulated industry, where a long lead time to bring new products into market is considered normal. We continue to invest in research and development to improve our technologies and bring them to the point where our customers have a high confidence level to purchase our products.

During the nine month period ended September 30, 2013 and 2012, the years ended December 31, 2012 and in 2011, we did not produce sufficient cash from operations to support our expenditures, prior and current financings supported our operations during the period. Our principal use of liquidity relates to our working capital needs and to finance any further capital expenditures or tooling needed for production and/or our testing facilities.

Overall, capital adequacy is monitored on an ongoing basis by our management and reviewed quarterly by our board of directors. Historically we have sustained recurring operating losses; during the three month period ended September 30, 2013 we generated a gain from operations of $952,394. As of September 30, 2013, we had an accumulated deficit of $55,363,600 and cash and cash equivalents of $2,782,759. We may require additional financing either to fund continuing operations or for planned capital investments.

Debt Structure

At September 30, 2013, ESW had $3,601,869 (December 31, 2012 - $473,133) of debt on the unaudited consolidated condensed balance sheet, of this amount $70,492 (December 31, 2012 - $68,926) is repayable in the next 12 months.

On April 25, 2012, our wholly-owned subsidiary ESW America entered into a Machinery and Equipment Loan Fund (“MELF Facility”) with the Commonwealth of Pennsylvania for up to $500,000 for the purchase of equipment and related purchases. Two (2) draw-downs were permitted under the MELF Facility by ESW America. The first draw-down of $280,787 was made under the MELF Facility in connection with equipment purchased by ESW America on April 25, 2012 (the “Closing Date”). ESW America made one (1) additional draw-down of $219,213 on

55

November 13, 2012 per the terms of the MELF Facility so that the aggregate amount borrowed under the MELF Facility amounts to $500,000.

Terms of the MELF Facility include initial interest at three (3%) percent per annum with monthly payments and full repayment of the MELF Facility on or before the first day of the eighty fifth (85) calendar month following the Closing Date. As part of the loan agreement, within three years from the Closing Date ESW America is required to create, or retain, at our current location a certain number of jobs that is specified in the loan application. A breach by ESW America in the creation or maintenance of these jobs shall be considered an event of default under the MELF Facility. In the event ESW America defaults on any payments, the MELF Facility may be accelerated with full payment due along with certain additional modifications including the increase in interest to twelve and one half (12 1/2%) percent. In connection with the MELF Facility, the Company entered into a Guaranty and a Loan and Security Agreement on behalf of ESW America.

On March 22, 2013, we entered into the Existing Loan Agreements with the Existing Lenders, who are current shareholders and may be deemed affiliates of the Company. Pursuant to the Existing Loan Agreements, the Existing Lenders made the Existing Loan to the Company in the principal aggregate amount of $5.0 million, subject to the terms and conditions set forth in the Existing Loan Agreements and represented by the Existing Notes, dated March 22, 2013, April 23, 2013 and June 27, 2013.  The Existing Loan Agreements were approved by directors of the Company unaffiliated with the Existing Lenders. 

Proceeds of the Existing Loan were used by the Company and/or our subsidiaries to fund the purchase of the Cleaire assets, and are being used by the Company and/or our subsidiaries to fund working capital, planned capital investments and other general corporate purposes.

The Existing Notes are secured by a lien on and a security interest in all assets, excluding certain collateral subject to pre-existing liens, of the following wholly-owned subsidiaries of the Company, comprising substantially all of the assets of the Company, taken as a whole: TFI, ESW America, ESWT and ESW Cleantech, Inc.  The Existing Notes bear interest at a rate of 10% per annum compounded quarterly.  Interest is payable semi-annually in arrears in cash and at the Company’s election, during the term of the Existing Notes, up to two accrued and unpaid semi-annual interest payments can be paid in the form of the Company’s common stock, valued at the lesser of the Existing Note Conversion Price or the market value of the Company’s common stock with interest payments commencing September 30, 2013. The Company made the first interest payment on the Existing Notes on October 1, 2013, and elected to do so in the form of common stock. At the option of Majority Noteholders, all principal, and interest amounts then outstanding under all of the Existing Notes shall be exchanged for shares of the Company’s common stock at the Existing Note Conversion Price.  The Existing Note Conversion Price is subject to anti-dilution adjustment in the event the Company at any time while the Existing Notes are outstanding issues equity securities including common stock or any security convertible or exchangeable for shares of common stock for no consideration or for consideration less than the Existing Note Conversion Price.  The anti-dilution protection excludes shares of common stock issuable upon the exercise of options or other securities granted to directors, officers, bona fide consultants and employees of the Company issued pursuant to a board approved option or incentive plan or stock, warrants or other securities issued to a bank or other financial institution in connection with a financing.

In connection with the Existing Loan, we further agreed to conduct a rights offering to all of our holders of common stock, offering all such holders the right to purchase up to their pro-rata Company ownership amount of New Notes that will be substantially similar to the Existing Notes, and the New Notes are being offered hereby to comply with this requirement.  The Existing Notes and New Notes will constitute one class of 10% senior secured convertible promissory notes due 2018.  The purpose of this rights offering is to comply with this covenant and provide our stockholders, other than the Existing Lenders and certain affiliates thereof, with the opportunity to hold Notes.  See “The Rights Offering — Background of the Rights Offering — The Existing Loans” beginning on page [●].

56

Contractual Obligations

Leases

Effective November 24, 2004 ESW America entered into a lease agreement for approximately 40,220 square feet of leasehold space at 200 Progress Drive, Montgomeryville, Pennsylvania. The leasehold space houses our emissions testing facilities and also houses our manufacturing operations. The lease commenced on January 15, 2005. Effective October 16, 2009, ESW America entered into a lease renewal agreement with Nappen & Associates for the leasehold property in Pennsylvania. There were no modifications to the original economic terms of the lease under the lease renewal agreement. Under the terms of the lease renewal, the lease term was extended to February 28, 2013. Effective September 24, 2012, ESW America entered into a second lease amendment agreement with Nappen & Associates for the leasehold property in Pennsylvania, whereby ESW America extended the term of the lease agreement by an additional 5 years. There were no modifications to the original economic terms of the lease. Under the terms of the second lease renewal, the lease will expire on February 28, 2018.

On June 7, 2013 ESWCT entered into a commercial real estate lease with Trepte Industrial Park, Ltd., a California limited partnership, pursuant to which, ESWCT is leasing approximately 18,000 square feet of commercial property located in San Diego, California, to be used primarily for housing ESWCT’s manufacturing and diesel particulate filter cleaning operations. The Lease provides for a 37-month lease term (commencing July 1, 2013), with an option exercisable by ESWCT to extend the lease term for two additional 36-month periods. The current base rent under the Lease is $15,300 per month. Concurrently with the signing of the Lease and pursuant to the terms thereof, ESWCT paid to the Lessor an amount equal to $155,600, which amount reflects the first month’s base rent, the security deposit, the funding required for improvements done by the Lessor at ESWCT’s request, and pre-paid rent. The amount will be credited against monthly base rent payable by ESWCT beginning in January 2014 and each month thereafter, provided that ESWCT shall not have defaulted under the lease.

Effective October 1, 2013 ESWCT entered into a commercial real estate lease with Marina Bay Crossing, LLC, a California Limited Liability Company, ESWCT leased approximately 1,808 square feet of commercial property located in Richmond, California, to be used primarily for housing ESWCT’s engineering and service operations. The facility also serves as a training facility servicing northern California. This lease provides for a 12-month lease term (commencing October 1, 2013), with an option exercisable by ESWCT to extend the lease term for one additional 12-month period. The current rent under the lease is $2,182 per month.

The following is a summary of the minimum annual lease payments for the Pennsylvania and San Diego leases:

Legal Matters

From time to time, we may be involved in a variety of claims, suits, investigations and proceedings arising from the ordinary course of our business, collections claims, breach of contract claims, labor and employment claims, tax and other matters. Although claims, suits, investigations and proceedings are inherently uncertain and their results cannot be predicted with certainty, we believe that the resolution of current pending matters will not have a material adverse effect on our business, consolidated financial position, results of operations or cash flow. Regardless of the outcome, litigation can have an adverse impact on us because of legal costs, diversion of management resources and other factors.  See “Legal Proceedings.” 

57

Recently Issued Accounting Standards and Recently Adopted Accounting Pronouncements

There are no recently adopted accounting pronouncements that impact the Company’s financial statements.

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

Foreign Currency Transactions

The functional currency of the Company and our foreign subsidiaries is the U.S. dollar. All of the Company’s revenue and materials purchased from suppliers are denominated in or linked to the U.S. dollar. Transactions denominated in currencies other than a functional currency are converted to the functional currency on the transaction date, and any resulting assets or liabilities are further translated at each reporting date and at settlement. Gains and losses recognized upon such translations are included within foreign exchange gain (loss) in the unaudited consolidated condensed statements of operations and comprehensive (loss) / income.

Critical Accounting Policies

Our discussion and analysis of the financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with Generally Accepted Accounting Principles, in the United States (“US GAAP”).

A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates generally require management to make assumptions about matters that are highly uncertain at the time of the estimate; and if different estimates or judgments were used, the use of these estimates or judgments would have a material effect on our financial condition or results of operations.

The estimates and judgments we make that affect the reported amount of assets, liabilities, revenues and expenses are based on historical experience and on various other factors, which we believe to be reasonable in the circumstances under which they are made. Actual results may differ from these estimates under different assumptions or conditions. We consider accounting policies related to revenue recognition, the valuation of inventories, elements of an asset acquisition as of the date of acquisition, impairment of and useful lives of property plant and equipment, and the valuation of the stock-based compensation, conversion option derivative liability and warranty provision to be critical accounting policies. Our significant accounting policies are summarized in Note 2 to our consolidated financial statements for the year ended December 31, 2012 and the nine months ended September 30, 2013.

Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure

On May 31, 2013, we received notice that, effective as of June 1, 2013, MSCM LLP (“MSCM”), the Company’s independent registered public accountants, merged with MNP LLP (“MNP”).  Most of the professional staff of MSCM continued with MNP either as employees or partners of MNP and will continue their practice with MNP.

MSCM’s reports on the Company’s financial statements as of and for the fiscal years ended December 31, 2011 and 2012 contained an explanatory paragraph that due to the Company’s experience of negative cash flows from operations and our dependency upon future financing raise substantial doubt about our ability to continue as a going concern.  Other than such explanatory paragraph, the reports of MSCM on the financial statements of the Company for the fiscal years ended December 31, 2011 and 2012 did not contain any other adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.

58